10-Q 1 ccoh10-q2018q3.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-
(Mark One)
[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018
 
[  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                          TO                           
 
Commission File Number
001‑32663
 
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter) 
 
Delaware
 
86-0812139
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
20880 Stone Oak Parkway
San Antonio, Texas
 
78258
(Address of principal executive offices)
 
(Zip Code)
 
(210) 832-3700
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [  ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [  ]       Accelerated filer   [X]    Non-accelerated filer [  ]       Smaller reporting company   [  ] Emerging growth company [ ]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Outstanding at November 5, 2018
- - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - -
Class A Common Stock, $.01 par value
50,413,296
Class B Common Stock, $.01 par value
315,000,000




CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
 
INDEX
 
 
 
Page No.
Part I -- Financial Information
 
Item 1.
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II -- Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 





PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
 
(In thousands, except share and per share data)
September 30, 2018
 
December 31,
2017
 
(Unaudited)
 
CURRENT ASSETS
 

 
 

Cash and cash equivalents
$
191,117

 
$
144,119

Accounts receivable, net of allowance of $21,800 in 2018 and $22,487 in 2017
654,038

 
659,463

Prepaid expenses
125,592

 
111,876

Other current assets
32,725

 
58,714

Total Current Assets
1,003,472

 
974,172

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Structures, net
1,038,835

 
1,180,882

Other property, plant and equipment, net
217,155

 
214,147

INTANGIBLE ASSETS AND GOODWILL
 
 
 
Indefinite-lived intangibles
971,163

 
977,152

Other intangibles, net
257,483

 
273,862

Goodwill
708,508

 
714,043

OTHER ASSETS
 
 
 
Due from iHeartCommunications, net of allowance of $855,648 in 2018 and 2017
154,758

 
211,990

Other assets
127,988

 
121,199

Total Assets
$
4,479,362

 
$
4,667,447

CURRENT LIABILITIES
 
 
 
Accounts payable
$
99,304

 
$
87,960

Accrued expenses
533,413

 
509,801

Deferred income
85,732

 
59,178

Current portion of long-term debt
321

 
573

Total Current Liabilities
718,770

 
657,512

Long-term debt
5,274,490

 
5,266,153

Due to iHeartCommunications, post iHeart Chapter 11 Cases
1,495

 

Deferred income taxes
360,429

 
318,107

Other long-term liabilities
264,190

 
283,969

Commitments and Contingent liabilities (Note 5)

 

STOCKHOLDERS’ DEFICIT
 
 
 
Noncontrolling interest
153,235

 
157,040

Preferred stock, par value $.01 per share, 150,000,000 shares authorized, no shares issued and outstanding

 

Class A common stock, par value $.01 per share, authorized 750,000,000 shares, issued 51,516,299 and 49,955,300 shares in 2018 and 2017, respectively
501

 
500

Class B common stock, par value $.01 per share, 600,000,000 shares authorized, 315,000,000 shares issued and outstanding
3,150

 
3,150

Additional paid-in capital
3,084,518

 
3,108,148

Accumulated deficit
(5,026,573
)
 
(4,781,245
)
Accumulated other comprehensive loss
(348,317
)
 
(340,094
)
Cost of shares (1,098,625 in 2018 and 946,415 in 2017) held in treasury
(6,526
)
 
(5,793
)
Total Stockholders’ Deficit
(2,140,012
)
 
(1,858,294
)
Total Liabilities and Stockholders’ Deficit
$
4,479,362

 
$
4,667,447

 

See Notes to Consolidated Financial Statements

1



CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
 
(In thousands, except per share data)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
663,739

 
$
644,430

 
$
1,974,117

 
$
1,860,298

Operating expenses:
 
 
 
 
 
 
 
Direct operating expenses (excludes depreciation and amortization)
361,681

 
357,946

 
1,095,906

 
1,039,175

Selling, general and administrative expenses (excludes depreciation and amortization)
128,797

 
128,539

 
381,494

 
370,597

Corporate expenses (excludes depreciation and amortization)
37,729

 
35,333

 
111,092

 
105,213

Depreciation and amortization
77,405

 
81,096

 
244,232

 
236,880

Impairment charges
7,772

 
1,591

 
7,772

 
1,591

Other operating income (expense), net
825

 
(11,783
)
 
1,700

 
28,657

Operating income
51,180

 
28,142

 
135,321

 
135,499

Interest expense
97,158

 
95,467

 
291,409

 
282,802

Interest income on Due to/from iHeartCommunications, net
363

 
17,087

 
573

 
47,277

Equity in earnings (loss) of nonconsolidated affiliates
202

 
(628
)
 
384

 
(829
)
Other income (expense), net
(6,087
)
 
9,164

 
(22,030
)
 
21,804

Loss before income taxes
(51,500
)
 
(41,702
)
 
(177,161
)
 
(79,051
)
Income tax expense
(6,896
)
 
(16,347
)
 
(57,016
)
 
(12,900
)
Consolidated net loss
(58,396
)
 
(58,049
)
 
(234,177
)
 
(91,951
)
Less amount attributable to noncontrolling interest
6,692

 
6,159

 
9,716

 
10,546

Net loss attributable to the Company
$
(65,088
)
 
$
(64,208
)
 
$
(243,893
)
 
$
(102,497
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(7,089
)
 
12,348

 
(18,927
)
 
42,353

Unrealized holding loss on marketable securities

 
(320
)
 

 
(218
)
Reclassification adjustments
1,425

 
6,207

 
1,425

 
4,563

Other comprehensive income (loss)
(5,664
)
 
18,235

 
(17,502
)
 
46,698

Comprehensive loss
(70,752
)
 
(45,973
)
 
(261,395
)
 
(55,799
)
Less amount attributable to noncontrolling interest
(5,161
)
 
2,548

 
(7,844
)
 
5,734

Comprehensive loss attributable to the Company
$
(65,591
)
 
$
(48,521
)
 
$
(253,551
)
 
$
(61,533
)
Net loss attributable to the Company per common share:
 

 
 

 
 
 
 
Basic
$
(0.18
)
 
$
(0.18
)
 
$
(0.67
)
 
$
(0.28
)
Weighted average common shares outstanding – Basic
361,815

 
361,302

 
361,680

 
361,064

Diluted
$
(0.18
)
 
$
(0.18
)
 
$
(0.67
)
 
$
(0.28
)
Weighted average common shares outstanding – Diluted
361,815

 
361,302

 
361,680

 
361,064

 
 
 
 
 
 
 
 
Dividends declared and paid per share
$

 
$
0.07

 
$
0.08

 
$
0.85

 
See Notes to Consolidated Financial Statements

2



CONSOLIDATED STATEMENTS OF CASH FLOWS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands)
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Consolidated net loss
$
(234,177
)
 
$
(91,951
)
Reconciling items:
 
 
 
Impairment charges
7,772

 
1,591

Depreciation and amortization
244,232

 
236,880

Deferred taxes
40,889

 
(27,315
)
Provision for doubtful accounts
5,108

 
6,328

Amortization of deferred financing charges and note discounts, net
8,000

 
7,996

Share-based compensation
6,757

 
7,153

Gain on disposal of operating and other assets
(2,307
)
 
(30,295
)
Equity in (earnings) loss of nonconsolidated affiliates
(384
)
 
829

Foreign exchange transaction (gain) loss
21,379

 
(22,266
)
Other reconciling items, net
(1,997
)
 
(4,930
)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Increase in accounts receivable
(15,293
)
 
(17,826
)
Increase in prepaid expenses and other current assets
(19,606
)
 
(16,109
)
Increase (decrease) in accrued expenses
11,711

 
(8,810
)
Increase (decrease) in accounts payable
13,627

 
(4,023
)
Increase in accrued interest
10,032

 
6,031

Increase in deferred income
29,122

 
18,718

Changes in other operating assets and liabilities
(4,438
)
 
11,106

Net cash provided by operating activities
$
120,427

 
$
73,107

Cash flows from investing activities:
 

 
 

Purchases of property, plant and equipment
(110,121
)
 
(134,868
)
Proceeds from disposal of assets
6,563

 
71,034

Purchases of other operating assets
(1,828
)
 
(2,984
)
Change in other, net
56

 
(1,058
)
Net cash used for investing activities
$
(105,330
)
 
$
(67,876
)
Cash flows from financing activities:
 

 
 

Payments on credit facilities

 
(909
)
Proceeds from long-term debt

 
156,000

Payments on long-term debt
(482
)
 
(604
)
Net transfers from (to) iHeartCommunications
58,726

 
(165,650
)
Dividends and other payments to noncontrolling interests
(6,144
)
 
(12,027
)
Dividends paid
(30,660
)
 
(282,658
)
Change in other, net
(2,265
)
 
(6,234
)
Net cash provided by (used for) financing activities
$
19,175

 
$
(312,082
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(7,951
)
 
7,037

Net increase (decrease) in cash, cash equivalents and restricted cash
26,321

 
(299,814
)
Cash, cash equivalents and restricted cash at beginning of period
188,310

 
552,691

Cash, cash equivalents and restricted cash at end of period
$
214,631

 
$
252,877

SUPPLEMENTAL DISCLOSURES:
 

 
 

Cash paid for interest
$
272,378

 
$
270,126

Cash paid for income taxes
23,390

 
29,771

 
See Notes to Consolidated Financial Statements

3



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 1 – BASIS OF PRESENTATION
Preparation of Interim Financial Statements
All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” refer to Clear Channel Outdoor Holdings, Inc. and its consolidated subsidiaries.  Our reportable segments are Americas outdoor advertising (“Americas”) and International outdoor advertising (“International”). The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations.  Management believes that the disclosures made are adequate to make the information presented not misleading.  Due to seasonality and other factors, the results for the interim periods may not be indicative of results for the full year.  The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2017 Annual Report on Form 10-K. 
The consolidated financial statements include the accounts of the Company and its subsidiaries and give effect to allocations of expenses from the Company’s indirect parent entity, iHeartCommunications, Inc. (“iHeartCommunications”).  These allocations were made on a specifically identifiable basis or using relative percentages of headcount or other methods management considered to be a reasonable reflection of the utilization of services provided.  Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary.  Investments in companies in which the Company owns 20% to 50% of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method.  All significant intercompany transactions are eliminated in the consolidation process. 
The Company re-evaluated its segment reporting and determined that its Latin American operations should be managed by its International leadership team. As a result, beginning on January 1, 2018, the operations of Latin America are no longer reflected within the Company’s Americas segment and are included in the results of its International segment. Accordingly, the Company has recast the corresponding segment disclosures for prior periods to include Latin America within the International segment.
Certain prior period amounts have been reclassified to conform to the 2018 presentation.
Corrections to Prior Periods
During the three months ended June 30, 2018, the Company identified misstatements associated with VAT obligations in its International segment, which resulted in an understatement of the Company's VAT obligation. Based on an analysis of the quantitative and qualitative factors in accordance with SEC Staff Bulletins ("SAB") 99, Materiality, SAB 108, Considering the Effects of Prior year Misstatements when Quantifying Misstatements in the Current Year Financial Statements and Accounting Standards Codification 250, Accounting Changes and Error Corrections, the Company concluded that these misstatements were immaterial, individually and in the aggregate, to any of the Company's prior quarterly and annual financial statements previously filed in the Company's Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. As a result, amendment of such reports is not required. While the Company concluded that the misstatements were immaterial to each of the prior reporting periods affected, the Company further concluded that correcting the errors cumulatively would materially misstate the Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2018. Accordingly, the Company is correcting the VAT misstatements, as well as other previously identified immaterial errors, by revising the Consolidated Balance Sheet as of December 31, 2017 and 2016 and the Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 and for the three months ended March 31, 2018.


4



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


A summary of the effect of the corrections on the Consolidated Balance Sheet as of December 31, 2017 is as follows:
 
December 31, 2017
(In thousands)
As Reported
 
Correction
 
Revised
Other assets
$
124,534

 
$
(3,335
)
 
$
121,199

Total Assets
4,670,782

 
(3,335
)
 
4,667,447

Other long-term liabilities
270,415

 
13,554

 
283,969

Accumulated deficit
(4,765,514
)
 
(15,731
)
 
(4,781,245
)
Accumulated other comprehensive loss
(338,936
)
 
(1,158
)
 
(340,094
)
Total Stockholders' Deficit
(1,841,405
)
 
(16,889
)
 
(1,858,294
)
Total Liabilities and Stockholders’ Deficit
4,670,782

 
(3,335
)
 
4,667,447

A summary of the effect of the corrections on the Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 is as follows:
 
Three Months Ended September 30, 2017
(In thousands)
As Reported
 
Correction
 
Revised
Revenue
$
645,089

 
$
(659
)
 
$
644,430

Direct operating expenses (excludes depreciation and amortization)
356,100

 
1,846

 
357,946

Selling, general and administrative expenses (excludes depreciation and amortization)
128,397

 
142

 
128,539

Operating income
30,789

 
(2,647
)
 
28,142

Loss before income taxes
(39,055
)
 
(2,647
)
 
(41,702
)
Consolidated net loss
(55,402
)
 
(2,647
)
 
(58,049
)
Less amount attributable to noncontrolling interest
6,237

 
(78
)
 
6,159

Net loss attributable to the Company
(61,639
)
 
(2,569
)
 
(64,208
)
Foreign currency translation adjustments
12,950

 
(602
)
 
12,348

Other comprehensive income
18,837

 
(602
)
 
18,235

Comprehensive loss
(42,802
)
 
(3,171
)
 
(45,973
)
Less amount attributable to noncontrolling interest
2,666

 
(118
)
 
2,548

Comprehensive loss attributable to the Company
(45,468
)
 
(3,053
)
 
(48,521
)
Basic loss per share
(0.17
)
 
(0.01
)
 
(0.18
)
Diluted loss per share
(0.17
)
 
(0.01
)
 
(0.18
)

5



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
Nine Months Ended September 30, 2017
(In thousands)
As Reported
 
Correction
 
Revised
Revenue
$
1,862,134

 
$
(1,836
)
 
$
1,860,298

Direct operating expenses (excludes depreciation and amortization)
1,034,204

 
4,971

 
1,039,175

Selling, general and administrative expenses (excludes depreciation and amortization)
370,069

 
528

 
370,597

Operating income
142,834

 
(7,335
)
 
135,499

Interest expense
282,730

 
72

 
282,802

Loss before income taxes
(71,644
)
 
(7,407
)
 
(79,051
)
Consolidated net loss
(84,544
)
 
(7,407
)
 
(91,951
)
Less amount attributable to noncontrolling interest
10,873

 
(327
)
 
10,546

Net loss attributable to the Company
(95,417
)
 
(7,080
)
 
(102,497
)
Foreign currency translation adjustments
43,947

 
(1,594
)
 
42,353

Other comprehensive income
48,292

 
(1,594
)
 
46,698

Comprehensive loss
(47,125
)
 
(8,674
)
 
(55,799
)
Less amount attributable to noncontrolling interest
5,995

 
(261
)
 
5,734

Comprehensive loss attributable to the Company
(53,120
)
 
(8,413
)
 
(61,533
)
Basic loss per share
(0.26
)
 
(0.02
)
 
(0.28
)
Diluted loss per share
(0.26
)
 
(0.02
)
 
(0.28
)
New Accounting Pronouncements Recently Adopted
Revenue from Contracts with Customers
As of January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers. This standard provides guidance for the recognition, measurement and disclosure of revenue from contracts with customers and supersedes previous revenue recognition guidance under U.S. GAAP. The Company has applied this standard using the full retrospective method and concluded that its adoption did not have a material impact on the Company’s Consolidated Balance Sheets, Consolidated Statements of Comprehensive Loss, or Consolidated Statements of Cash Flows for prior periods. Please refer to Note 2, Revenues, for more information.
As a result of adopting this new accounting standard, the Company has updated its significant accounting policies, as follows:
Accounts Receivable
Accounts receivable are recorded when the Company has an unconditional right to payment, either because it has satisfied a performance obligation prior to receiving payment from the customer or has a non-cancelable contract that has been billed in advance in accordance with the Company’s normal billing terms.
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, it records a specific reserve to reduce the amounts recorded to what it believes will be collected. For all other customers, it recognizes reserves for bad debt based on historical experience of bad debts as a percent of accounts receivable for each business unit, adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions. The Company believes its concentration of credit risk is limited due to the large number and the geographic diversification of its customers.

6



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Revenue Recognition
The Company recognizes revenue when or as it satisfies a performance obligation by transferring a promised good or service to a customer. The Company generates revenue primarily from the sale of advertising space on printed and digital displays, including billboards, street furniture displays, transit displays and retail displays, which may be sold as individual units or as a network package. Revenue from these contracts, which typically cover periods of a few weeks to one year, is generally recognized ratably over the term of the contract as the advertisement is displayed. The Company also generates revenue from production and creative services, which are distinct from the advertising display services, and related revenue is recognized at the point in time the Company installs the advertising copy at the display site.
The Company recognizes revenue in amounts that reflect the consideration it expects to receive in exchange for transferring goods or services to customers, excluding sales taxes and other similar taxes collected on behalf of governmental authorities (the “transaction price”). When this consideration includes a variable amount, the Company estimates the amount of consideration it expects to receive and only recognizes revenue to the extent that it is probable it will not be reversed in a future reporting period. Because the transfer of promised goods and services to the customer is generally within a year of scheduled payment from the customer, the Company is not typically required to consider the effects of the time value of money when determining the transaction price. Advertising revenue is reported net of agency commissions.
Trade and barter transactions represent the exchange of display space for merchandise, services or other assets in the ordinary course of business. The transaction price for these contracts is measured at the estimated fair value of the non-cash consideration received unless this is not reasonably estimable, in which case the consideration is measured based on the standalone selling price of the display space promised to the customer. Revenue is recognized on trade and barter transactions when the advertisements are displayed, and expenses are recorded ratably over a period that estimates when the merchandise, services or other assets received are utilized. Trade and barter revenues and expenses from continuing operations are included in consolidated revenue and selling, general and administrative expenses, respectively. Trade and barter revenues and expenses from continuing operations were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Consolidated:
 
 
 
 
 
 
 
  Trade and barter revenues
$
3,644

 
$
4,002

 
$
11,416

 
$
13,166

  Trade and barter expenses
2,378

 
2,813

 
8,829

 
8,287

In order to appropriately identify the unit of accounting for revenue recognition, the Company determines which promised goods and services in a contract with a customer are distinct and are therefore separate performance obligations. If a promised good or service does not meet the criteria to be considered distinct, it is combined with other promised goods or services until a distinct bundle of goods or services exists. Certain of the Company’s contracts with customers include options for the customer to acquire additional goods or services for free or at a discount, and management judgment is required to determine whether these options are material rights that are separate performance obligations.
For revenue arrangements that contain multiple distinct goods or services, the Company allocates the transaction price to these performance obligations in proportion to their relative standalone selling prices. The Company has concluded that the contractual prices for the promised goods and services in its standard contracts generally approximate management’s best estimate of standalone selling price as the rates reflect various factors such as the size and characteristics of the target audience, market location and size, and recent market selling prices. However, where the Company provides customers with free or discounted services as part of contract negotiations, management uses judgment to determine how much of the transaction price to allocate to these performance obligations.
The Company receives payments from customers based on billing schedules that are established in its contracts, and deferred income is recorded when payment is received from a customer before the Company has satisfied the performance obligation or a non-cancelable contract has been billed in advance in accordance with the Company’s normal billing terms. Americas contracts are generally billed monthly in advance, and International includes a combination of advance billings and billings upon completion of service.

7



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Contract Costs
Incremental costs of obtaining a contract primarily relate to sales commissions, which are included in selling, general and administrative expenses and are generally commensurate with sales. These costs are generally expensed when incurred because the period of benefit is one year or less.
Restricted Cash
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that restricted cash be presented with cash and cash equivalents in the statement of cash flows. Restricted cash is recorded in Other current assets and in Other assets in the Company's Consolidated Balance Sheets. The Company adopted ASU 2016-18 in the first quarter of 2018 using the retrospective transition method, and accordingly, revised prior period amounts as shown in the Company's Consolidated Statements of Cash Flows.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts reported in the Consolidated Statement of Cash Flows:
(In thousands)
September 30,
2018
 
December 31, 2017
Cash and cash equivalents
$
191,117

 
$
144,119

Restricted cash included in:
 
 
 
  Other current assets
4,231

 
26,096

  Other assets
19,283

 
18,095

Total cash, cash equivalents and restricted cash in the Statement of Cash Flows
$
214,631

 
$
188,310

Stock Compensation
During the second quarter of 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718). This update mandates that entities will apply the modification accounting guidance if the value, vesting conditions or classification of a stock-based award changes. Entities will have to make all of the disclosures about modifications that are required today, in addition to disclosing that compensation expense hasn't changed. Additionally, the new guidance also clarifies that a modification to an award could be significant and therefore require disclosure, even if the modification accounting is not required. The guidance will be applied prospectively to awards modified on or after the adoption date and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted the provisions of ASU 2017-09 on January 1, 2018 and the adoption of ASU 2017-09 did not have an impact on our consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changes to the balance sheets of lessees. The most significant change to the standard includes the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Lessor accounting also is updated to align with certain changes in the lessee model and the new revenue recognition standard which was adopted this year. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The standard is expected to have a material impact on our consolidated balance sheet, but is not expected to materially impact our consolidated statement of comprehensive loss or cash flows. The Company is continuing to evaluate the impact of the provisions of this new standard on its consolidated financial statements.
In July 2018, The FASB issued ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements. The update provides an additional (optional) transition method to adopt the new lease standard, allowing entities to apply the new lease standard at the adoption date. The Company plans to adopt Topic 842 following this optional transition method. The update also provides lessors a practical expedient to allow them to not separate non-lease components from the associated lease component and instead to account for those components as a single component if certain criteria are met. The updated practical expedient for lessors will not have a material effect to the Company’s consolidated financial statements.

8



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


During the first quarter of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This update eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The standard is effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the third quarter of 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This update requires that a customer in a cloud computing arrangement that is a service contract follow the internal use software guidance in Accounting Standards Codification (ASC) 350-402 to determine which implementation costs to capitalize as assets. The standard is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.

NOTE 2 – REVENUES
The Company generates revenue primarily from the sale of advertising space on printed and digital out-of-home advertising displays. Certain of these revenue transactions are considered leases, for accounting purposes, as the agreements convey to customers the right to use the Company’s advertising structures for a stated period of time. In order for a transaction with a customer to qualify as a lease, the arrangement must be dependent on the use of a specified advertising structure, and the customer must have almost exclusive use of that structure during the term of the arrangement. Therefore, arrangements that do not involve the use of an advertising structure, where the Company can substitute the advertising structure that is used to display the customer’s advertisement, or where the advertising structure displays advertisements for multiple customers throughout the day are not leases. The Company accounts for revenue from leases, which are all classified as operating leases, in accordance with the lease accounting guidance (Topic 840). All of the Company’s revenue transactions that do not qualify as a lease are accounted for as revenue from contracts with customers (Topic 606).

9



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Disaggregation of Revenue
The following table shows, by segment, revenue from contracts with customers disaggregated by geographical region, revenue from leases and total revenue for the three and nine months ended September 30, 2018 and 2017:
(In thousands)
Americas(1)
 
International(1)
 
Consolidated
Three Months Ended September 30, 2018
Revenue from contracts with customers:
 
 
 
 
 
  United States
$
116,503

 
$

 
$
116,503

  Other Americas
671

 
11,242

 
11,913

  Europe

 
191,514

 
191,514

  Asia-Pacific and other

 
5,563

 
5,563

     Total
117,174

 
208,319

 
325,493

Revenue from leases
186,247

 
151,999

 
338,246

Revenue, total
$
303,421

 
$
360,318

 
$
663,739

 
 
 
 
 
 
Three Months Ended September 30, 2017
Revenue from contracts with customers:
  United States
$
106,806

 
$

 
$
106,806

  Other Americas
2,488

 
14,224

 
16,712

  Europe

 
181,229

 
181,229

  Asia-Pacific and other
162

 
4,635

 
4,797

     Total
109,456

 
200,088

 
309,544

Revenue from leases
184,351

 
150,535

 
334,886

Revenue, total
$
293,807

 
$
350,623

 
$
644,430

 
 
 
 
 
 
Nine Months Ended September 30, 2018
Revenue from contracts with customers:
 
 
 
 
 
  United States
$
328,138

 
$

 
$
328,138

  Other Americas
1,955

 
36,723

 
38,678

  Europe

 
605,032

 
605,032

  Asia-Pacific and other

 
17,685

 
17,685

     Total
330,093

 
659,440

 
989,533

Revenue from leases
529,097

 
455,487

 
984,584

Revenue, total
$
859,190

 
$
1,114,927

 
$
1,974,117

 
 
 
 
 
 
Nine Months Ended September 30, 2017
Revenue from contracts with customers:
  United States
$
308,988

 
$

 
$
308,988

  Other Americas
10,279

 
37,418

 
47,697

  Europe

 
533,111

 
533,111

  Asia-Pacific and other
568

 
14,853

 
15,421

     Total
319,835

 
585,382

 
905,217

Revenue from leases
534,509

 
420,572

 
955,081

Revenue, total
$
854,344

 
$
1,005,954

 
$
1,860,298

(1) Due to a re-evaluation of the Company’s segment reporting in 2018, its operations in Latin America are included in the International segment results for all periods presented. See Note 1, Basis of Presentation.
All of the Company’s advertising structures are used to generate revenue. Such revenue may be classified as revenue from contracts with customers or revenue from leases depending on the terms of the contract, as previously described.

10



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Revenue from Contracts with Customers
The following tables show the changes in the Company’s contract balances from contracts with customers for the three and nine months ended September 30, 2018 and 2017:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Accounts receivable from contracts with customers:
 
 
 
 
 
 
 
  Beginning balance, net of allowance
$
323,286

 
$
316,744

 
$
347,279

 
$
296,778

    Additions (collections), net
(14,448
)
 
(8,767
)
 
(36,875
)
 
12,011

    Bad debt, net of recoveries
(561
)
 
(1,176
)
 
(2,127
)
 
(1,988
)
  Ending balance, net of allowance
308,277

 
306,801

 
308,277

 
306,801

Accounts receivable from leases, net of allowance
345,761

 
326,162

 
345,761

 
326,162

Total accounts receivable, net of allowance
$
654,038

 
$
632,963

 
$
654,038

 
$
632,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Deferred income from contracts with customers:
 
 
 
 
 
 
 
  Beginning balance
$
45,326

 
$
44,744

 
$
28,201

 
$
28,668

    Revenue recognized, included in beginning balance
(33,668
)
 
(32,742
)
 
(24,886
)
 
(26,784
)
    Additions, net of revenue recognized during period
28,163

 
32,237

 
36,506

 
42,355

  Ending balance
39,821

 
44,239

 
39,821

 
44,239

Deferred income from leases
51,192

 
54,157

 
51,192

 
54,157

Total deferred income
91,013

 
98,396

 
91,013

 
98,396

Less: Non-current portion, included in other long-term liabilities
5,281

 
7,640

 
5,281

 
7,640

Total deferred income, current portion
$
85,732

 
$
90,756

 
$
85,732

 
$
90,756

The increase in deferred income from contracts with customers during the nine months ended September 30, 2018 and 2017 was largely due to the issuance of annual invoices for non-cancelable contracts in some of the Company's International entities and the timing of the Company's billing cycle.
The Company’s contracts with customers generally have a term of one year or less; however, as of September 30, 2018, the Company expects to recognize $60.6 million of revenue in future periods for remaining performance obligations from current contracts with customers that have an original expected duration of greater than one year, with substantially all of this amount to be recognized over the next five years. As part of the transition to the new revenue standard, the Company is not required to disclose information about remaining performance obligations for periods prior to the date of initial application.

11



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Revenue from Leases
As of December 31, 2017, the Company’s future minimum rentals under non-cancelable operating leases were as follows:
(In thousands)
2018
$
279,413

2019
34,395

2020
17,155

2021
12,004

2022
8,552

Thereafter
7,197

  Total minimum future rentals
$
358,716


NOTE 3 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets as of September 30, 2018 and December 31, 2017, respectively:
(In thousands)
September 30,
2018
 
December 31,
2017
 
 
Land, buildings and improvements
$
145,108

 
$
145,763

Structures
2,808,059

 
2,864,442

Furniture and other equipment
194,366

 
179,215

Construction in progress
60,853

 
55,753

 
3,208,386

 
3,245,173

Less: accumulated depreciation
1,952,396

 
1,850,144

Property, plant and equipment, net
$
1,255,990

 
$
1,395,029

 
Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist primarily of billboard permits in its Americas segment. Due to significant differences in both business practices and regulations, billboards in the International segment are subject to long-term, finite contracts unlike the Company’s permits in the United States.  Accordingly, there are no indefinite-lived intangible assets in the International segment.

Annual Impairment Test on Indefinite-lived Intangible Assets

The Company performs its annual impairment test on indefinite-lived intangible assets as of July 1 of each year.

The impairment tests for indefinite-lived intangible assets consist of a comparison between the fair value of the indefinite-lived intangible asset at the market level with its carrying amount. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the indefinite-lived asset is its new accounting basis. The fair value of the indefinite-lived asset is determined using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the indefinite-lived assets is calculated at the market level as prescribed by ASC 350-30-35. The Company engaged a third-party valuation firm, to assist it in the development of the assumptions and the Company’s determination of the fair value of its indefinite-lived intangible assets.

12



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



The application of the direct valuation method attempts to isolate the income that is attributable to the indefinite-lived intangible asset alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. The Company forecasts revenue, expenses and cash flows over a ten-year period for each of its markets in its application of the direct valuation method. The Company also calculates a “normalized” residual year which represents the perpetual cash flows of each market. The residual year cash flow was capitalized to arrive at the terminal value of the permits in each market.

Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in value that is directly attributable to the indefinite-lived intangible assets.

The key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average billboard permit within a market.

During the third quarter of 2018, the Company recognized an impairment charge of $7.8 million related to permits in one market in its Americas Segment. The Company concluded no impairment of indefinite-lived intangible assets was required for the nine months ended September 30, 2017.
Other Intangible Assets
Other intangible assets include definite-lived intangible assets and permanent easements.  The Company’s definite-lived intangible assets primarily include transit and street furniture contracts, site leases and other contractual rights, all of which are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows.  Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.  The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets.  These assets are recorded at cost.

The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of September 30, 2018 and December 31, 2017, respectively:

(In thousands)
September 30, 2018
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
Transit, street furniture and other outdoor
   contractual rights
$
533,274

 
$
(440,452
)
 
$
548,918

 
$
(440,284
)
Permanent easements
162,920

 

 
162,920

 

Other
6,076

 
(4,335
)
 
4,626

 
(2,318
)
Total
$
702,270

 
$
(444,787
)
 
$
716,464

 
$
(442,602
)
 
Total amortization expense related to definite-lived intangible assets for the three months ended September 30, 2018 and 2017 was $5.0 million and $7.1 million, respectively. Total amortization expense related to definite-lived intangible assets for the nine months ended September 30, 2018 and 2017 was $15.3 million and $21.2 million, respectively.

As acquisitions and dispositions occur in the future, amortization expense may vary.  The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:


13



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(In thousands)
 
2019
$
15,045

2020
$
12,790

2021
$
12,548

2022
$
10,737

2023
$
6,335

 
Goodwill
Annual Impairment Test to Goodwill
The Company performs its annual impairment test on goodwill as of July 1 of each year.

Each of the Company’s advertising markets are components. The U.S. advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test using the guidance in ASC 350-20-55. The Company also determined that each country within its Americas segment and its International segment constitutes a separate reporting unit.

The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If applicable, the second step, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.

Each of the Company’s reporting units is valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the reporting unit and discounting such cash flows to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors.

The Company concluded no goodwill impairment was required during the three and nine months ended September 30, 2018. The Company recognized goodwill impairment of $1.6 million during the three and nine months ended September 30, 2017 related to one market in the Company's International outdoor segment.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:
(In thousands)
Americas
 
International
 
Consolidated
Balance as of December 31, 2016
$
505,478

 
$
190,785

 
$
696,263

Acquisitions
2,252

 

 
2,252

Impairment

 
(1,591
)
 
(1,591
)
Dispositions

 
(1,817
)
 
(1,817
)
Foreign currency

 
18,847

 
18,847

Assets held for sale
89

 

 
89

Balance as of December 31, 2017
$
507,819

 
$
206,224

 
$
714,043

Foreign currency

 
(5,535
)
 
(5,535
)
Balance as of September 30, 2018
$
507,819

 
$
200,689

 
$
708,508



14



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 4 – LONG-TERM DEBT

Long-term debt outstanding as of September 30, 2018 and December 31, 2017 consisted of the following:

(In thousands)
September 30,
2018
 
December 31,
2017
 
 
Clear Channel Worldwide Holdings Senior Notes:
 
 
 
6.5% Series A Senior Notes Due 2022
$
735,750

 
$
735,750

6.5% Series B Senior Notes Due 2022
1,989,250

 
1,989,250

Clear Channel Worldwide Holdings Senior Subordinated Notes:
 

 
 
7.625% Series A Senior Subordinated Notes Due 2020
275,000

 
275,000

7.625% Series B Senior Subordinated Notes Due 2020
1,925,000

 
1,925,000

Receivables Based Credit Facility Due 2023(1)

 

Clear Channel International B.V. Senior Notes Due 2020
375,000

 
375,000

Other debt
4,034

 
2,393

Original issue discount
(611
)
 
(241
)
Long-term debt fees
(28,612
)
 
(35,426
)
Total debt
$
5,274,811

 
$
5,266,726

Less: current portion
321

 
573

Total long-term debt
$
5,274,490

 
$
5,266,153


(1)
On June 1, 2018 (the “Closing Date”), Clear Channel Outdoor, Inc. (“CCO”), a subsidiary of the Company, refinanced the Company's senior revolving credit facility with an asset based credit facility that provided for revolving credit commitments of up to $75.0 million. On June 29, 2018, CCO entered into an amendment providing for a $50.0 million incremental increase of the facility, bringing the aggregate revolving credit commitments to $125.0 million. The facility has a five-year term, maturing in 2023. As of September 30, 2018, the facility had $86.4 million of letters of credit outstanding and a borrowing base of $113.0 million, resulting in $26.6 million of excess availability.
The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $5.4 billion and $5.3 billion as of September 30, 2018 and December 31, 2017, respectively. Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as Level 1.
Receivables Based Credit Facility Due 2023
On June 1, 2018, CCO, a subsidiary of the Company, entered into a Credit Agreement (the “Credit Agreement”), as parent borrower, with certain of its subsidiaries named therein, as subsidiary borrowers (the “Subsidiary Borrowers”), Deutsche Bank AG New York Branch, as administrative agent (the “Administrative Agent”) and swing line lender, and the other lenders from time to time party thereto. The Credit Agreement governs CCO’s new asset-based revolving credit facility and replaced the Company's prior credit agreement, dated as of August 22, 2013 (the “Prior Credit Agreement”), which was terminated on the Closing Date.
Size and Availability
The Credit Agreement provides for an asset-based revolving credit facility, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (i) the borrowing base, which equals 85.0% of the eligible accounts receivable of CCO and the subsidiary borrowers, subject to customary eligibility criteria minus any reserves, and (ii) the aggregate revolving credit commitments. As of the Closing Date, the aggregate revolving credit commitments were $75.0 million. On June 29, 2018, CCO entered into an amendment providing for a $50.0 million incremental increase of the facility, bringing the aggregate revolving credit commitments to $125.0 million. On the Closing Date, the revolving credit facility was used to replace and terminate the commitments under the Prior Credit Agreement and to replace the letters of credit outstanding under the Prior Credit Agreement.
As of September 30, 2018, the facility had $86.4 million of letters of credit outstanding and a borrowing base of $113.0 million, resulting in $26.6 million of excess availability.

15



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Interest Rate and Fees
Borrowings under the Credit Agreement bear interest at a rate per annum equal to the Applicable Rate plus, at CCO’s option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such date as publicly announced from time to time by the Administrative Agent as its “prime rate” and (c) the Eurocurrency rate that would be calculated as of such day in respect of a proposed Eurocurrency rate loan with a one-month interest period plus 1.00%, or (2) a Eurocurrency rate that is equal to the LIBOR rate as published by Reuters two business days prior to the commencement of the interest period. The Applicable Rate for borrowings under the Credit Agreement is 1.00% with respect to base rate loans and 2.00% with respect to Eurocurrency loans.
In addition to paying interest on outstanding principal under the Credit Agreement, CCO is required to pay a commitment fee of 0.375% per annum to the lenders under the Credit Agreement in respect of the unutilized revolving commitments thereunder. CCO must also pay a letter of credit fee for each issued letter of credit equal to 2.00% per annum times the daily maximum amount then available to be drawn under such letter of credit.
Maturity
Borrowings under the Credit Agreement will mature, and lending commitments thereunder will terminate, on the earlier of (a) June 1, 2023 and (b) 90 days prior to the maturity date of any indebtedness of CCOH or any of its direct or indirect subsidiaries in an aggregate principal amount outstanding in excess of $250,000,000 (other than the 8.75% senior notes due 2020 issued by Clear Channel International, B.V.).
Prepayments
If at any time, the outstanding amount under the revolving credit facility exceeds the lesser of (i) the aggregate amount committed by the revolving credit lenders and (ii) the borrowing base, CCO will be required to prepay first, any protective advances and second, any outstanding revolving loans and swing line loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, as applicable.
Subject to customary exceptions and restrictions, CCO may voluntarily repay outstanding amounts under the Credit Agreement at any time without premium or penalty. Any voluntary prepayments CCO makes will not reduce commitments under the Credit Agreement.
Guarantees and Security
The facility is guaranteed by the Subsidiary Borrowers. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by a perfected security interest in all of CCO’s and the Subsidiary Borrowers’ accounts receivable and related assets and proceeds thereof.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $7.5 million and (b) 10.0% of the lesser of (i) the aggregate commitments at such time and (ii) the borrowing base then in effect at such time (the “Financial Covenant Triggering Event”), CCO will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00 for the most recent period of four consecutive fiscal quarters ended prior to the occurrence of the Financial Covenant Triggering Event, and will be required to continue to comply with this minimum fixed charge coverage ratio until borrowing availability exceeds the greater of (x) $7.5 million and (y) 10.0% of the lesser of (i) the aggregate commitments at such time and (ii) the borrowing base then in effect at such time, at which time the Financial Covenant Triggering Event will no longer be deemed to be occurring.
The Credit Agreement also includes negative covenants that, subject to significant exceptions, limit the Borrowers’ ability and the ability of their restricted subsidiaries to, among other things:
 
incur additional indebtedness;
create liens on assets;
engage in mergers, consolidations, liquidations and dissolutions;
sell assets;

16



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


pay dividends and distributions or repurchase capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates or;
change lines of business.
The Credit Agreement includes certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, material judgments and a change of control. If an event of default occurs, the lenders under the Credit Agreement will be entitled to take various actions, including the acceleration of all amounts due under the Credit Agreement and all actions permitted to be taken by a secured creditor.

Surety Bonds, Letters of Credit and Guarantees
As of September 30, 2018, the Company had $53.4 million, $86.4 million and $41.0 million in surety bonds, letters of credit and bank guarantees outstanding, respectively. A portion of the outstanding bank guarantees were supported by $20.5 million of cash collateral. Additionally, as of September 30, 2018, iHeartCommunications had outstanding commercial standby letters of credit and surety bonds of $1.2 million and $0.1 million, respectively, held on behalf of the Company.  These surety bonds, letters of credit and bank guarantees relate to various operational matters, including insurance, bid and performance bonds, as well as other items.

NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated.  These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies.  It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings.  Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations. 
Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; misappropriation of likeness and right of publicity claims; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
Stockholder Litigation
On May 9, 2016, a stockholder of the Company filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint named as defendants iHeartCommunications, Inc. (“iHeartCommunications”), the Company’s indirect parent company, iHeartMedia, Inc. (“iHeartMedia”), the parent company of iHeartCommunications, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsor Defendants”), iHeartMedia’s private equity sponsors and majority owners, and the members of the Company’s board of directors. The Company also was named as a nominal defendant. The complaint alleged that the Company had been harmed by the intercompany agreements with iHeartCommunications, the Company’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of iHeartMedia, iHeartCommunications and the Sponsor Defendants to the detriment of the Company and its minority stockholders. Specifically, the complaint alleged that the defendants breached their fiduciary duties by causing the Company to: (i) continue to loan cash to iHeartCommunications under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to iHeartMedia and iHeartCommunications; (iii) issue new debt in the CCIBV note offering (the “CCIBV Note Offering”) to provide cash to iHeartMedia and iHeartCommunications through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the “Outdoor Asset Sales”) allegedly to provide cash to iHeartMedia and iHeartCommunications through a dividend. The complaint also alleged that iHeartMedia, iHeartCommunications and the Sponsor Defendants aided and abetted the directors’

17



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


breaches of their fiduciary duties. The complaint further alleged that iHeartMedia, iHeartCommunications and the Sponsor Defendants were unjustly enriched as a result of these transactions and that these transactions constituted a waste of corporate assets for which the defendants are liable to the Company. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to the Company and that iHeartMedia, iHeartCommunications and the Sponsor Defendants aided and abetted the board of directors’ breaches of fiduciary duty, rescission of payments to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring iHeartMedia, iHeartCommunications and the Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.
On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants’ motion to dismiss all claims brought by the plaintiff.  On December 19, 2016, the plaintiff filed a notice of appeal of the ruling. The oral hearing on the appeal was held on October 11, 2017. On October 12, 2017, the Supreme Court of Delaware affirmed the lower court's ruling, dismissing the case.
On December 29, 2017, another stockholder of the Company filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned Norfolk County Retirement System, v. iHeartMedia, Inc., et al., C.A. No. 2017-0930-JRS. The complaint names as defendants iHeartMedia, iHeartCommunications, the Sponsor Defendants, and the members of the Company's board of directors.  The Company is named as a nominal defendant. The complaint alleges that the Company has been harmed by the Company Board’s November 2017 decision to extend the maturity date of the intercompany revolving note (the “Third Amendment”) at what the complaint describes as far-below-market interest rates.  Specifically, the complaint alleges that (i) iHeartMedia and Sponsor defendants breached their fiduciary duties by exploiting their position of control to require the Company to enter the Third Amendment on terms unfair to the Company; (ii) the Company Board breached their duty of loyalty by approving the Third Amendment and elevating the interests of iHeartMedia, iHeartCommunications and the Sponsor Defendants over the interests of the Company and its minority unaffiliated stockholders; and (iii) the terms of the Third Amendment could not have been agreed to in good faith and represent a waste of corporate assets by the Company Board.  The complaint further alleges that iHeartMedia, iHeartCommunications and the Sponsor defendants were unjustly enriched as a result of the unfairly favorable terms of the Third Amendment.  The plaintiff is seeking, among other things, a ruling that the defendants breached their fiduciary duties to the Company, a modification of the Third Amendment to bear a commercially reasonable rate of interest, and an order requiring disgorgement of all profits, benefits and other compensation obtained by defendants as a result of the alleged breaches of fiduciary duties.
On March 7, 2018, the defendants filed a motion to dismiss plaintiff's verified derivative complaint for failure to state a claim upon which relief can be granted. On March 16, 2018, iHeartMedia filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings. On May 4, 2018, plaintiff filed its response to the motion to dismiss. On June 26, 2018, the defendants filed a reply brief in further support of their motion to dismiss. Oral argument on the motion to dismiss was held on September 20, 2018. We are awaiting a ruling by the Court.
On August 27, 2018, the same stockholder of the Company that had filed a derivative lawsuit against iHeartMedia and others in 2016 (GAMCO Asset Management Inc.) filed a putative class action lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS. The complaint names as defendants the Sponsor Defendants and the members of the Company’s board of directors. The complaint alleges that minority shareholders in the Company during the period November 8, 2017 to March 14, 2018 were harmed by decisions of the Company's Board and the intercompany note committee of the Board relating to the Intercompany Note. Specifically, the complaint alleges that (i) the members of the intercompany note committee breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to iHeartMedia’s liquidity had been reached; (ii) the Company's Board breached their fiduciary duties by approving the Third Amendment rather than allowing the Intercompany Note to expire; (iii) the Company's Board breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to iHeartMedia’s liquidity had been reached; (iv) the Sponsor Defendants breached their fiduciary duties by not directing the Company's Board to permit the Intercompany Note to expire and to declare a dividend. The complaint further alleges that the Sponsor Defendants aided and abetted the Board’s alleged breach of fiduciary duties. The plaintiff seeks, among other things, a ruling that the Company's Board, the intercompany note committee, and the Sponsor Defendants breached their fiduciary duties and that the Sponsor Defendants aided and abetted the Board’s breach of fiduciary duty; and an award of damages, together with pre- and post-judgment interests, to the putative class of minority shareholders.

18



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


China Investigation
Several employees of Clear Media Limited, an indirect, non-wholly-owned subsidiary of the Company whose ordinary shares are listed, but are currently suspended from trading on, the Hong Kong Stock Exchange, are subject to a police investigation in China for misappropriation of funds. The police investigation is ongoing, and the Company is not aware of any litigation, claim or assessment pending against the Company. Based on information known to date, the Company believes any contingent liabilities arising from potential misconduct that has been or may be identified by the investigations are not material to the Company's consolidated financial statements.
The Company advised both the United States Securities and Exchange Commission and the United States Department of Justice of the investigation at Clear Media Limited and is cooperating to provide information in response to inquiries from the agencies. The Clear Media Limited investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, which statute and regulations provide for potential monetary penalties as well as criminal and civil sanctions. It is possible that monetary penalties and other sanctions could be assessed on the Company in connection with this matter. The nature and amount of any monetary penalty or other sanctions cannot reasonably be estimated at this time.
Italy Investigation
As described in Note 1 to these consolidated financial statements, during the three months ended June 30, 2018, the Company identified misstatements associated with VAT obligations related to its subsidiary in Italy.  Upon identification of these misstatements, the Company undertook certain procedures, including a forensic investigation, which is ongoing.  In addition, the Company voluntarily disclosed the matter and preliminary findings to the Italian tax authorities in order to commence a discussion on the appropriate calculation of the VAT position.  The current expectation is that the Company may have to repay to the Italian tax authority a substantial portion of the VAT previously applied as a credit, amounting to approximately $17 million, including estimated possible penalties and interest.  The discussion with the tax authorities is at an early stage and therefore the ultimate amount that will be paid to the tax authorities in Italy is unknown. The ultimate amount to be paid may differ from the Company’s estimates, and such differences may be material.

NOTE 6 — RELATED PARTY TRANSACTIONS
Due from iHeartCommunications
The Company records net amounts due from iHeartCommunications arising prior to the iHeart Chapter 11 Cases, described below, as “Due from iHeartCommunications” on the consolidated balance sheets.  The amounts represent the revolving promissory note issued by the Company to iHeartCommunications and the revolving promissory note issued by iHeartCommunications to the Company in the face amount of $1.0 billion, or if more or less than such amount, the aggregate unpaid principal amount of all advances.  The revolving promissory notes were generally payable on demand and were scheduled to mature on May 15, 2019.
 
Included in the amounts are the net activities resulting from day-to-day cash management services provided by iHeartCommunications.  As a part of these services, the Company maintains collection bank accounts swept daily into accounts of iHeartCommunications (after satisfying the funding requirements of the Trustee Accounts under the CCWH Senior Notes and the CCWH Subordinated Notes and the Company’s controlled disbursement accounts as checks or electronic payments are presented for payment).  The Company’s claim in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the “Due from iHeartCommunications” account.
As of September 30, 2018 and December 31, 2017, the asset recorded in “Due from iHeartCommunications” on the consolidated balance sheet was $154.8 million and $212.0 million, respectively.  On March 14, 2018, iHeartMedia, iHeartCommunications and certain of iHeartMedia's direct and indirect domestic subsidiaries, not including the Company or any of its subsidiaries (collectively, the "Debtors"), filed voluntary petitions for relief (the "iHeart Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the "Bankruptcy Court"). As an unsecured creditor of iHeartCommunications, the Company does not expect that the Company will be able to recover all of the amounts owed under the Due from iHeartCommunications Note upon the implementation of any plan of reorganization that is ultimately accepted by the requisite creditors and approved by the Bankruptcy Court. As a result, the Company recognized a loss of $855.6 million on the Due from iHeartCommunications Note during the fourth quarter of 2017 to reflect the estimated recoverable amount of the note as of December 31, 2017, based on management's best estimate of the cash settlement amount. In addition,

19



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


upon the filing of the iHeart Chapter 11 Cases on March 14, 2018, the Company ceased recording interest income on the pre-petition balance due from iHeartCommunications as the collectability of the interest was not considered probable. As a result of the $855.6 million allowance on the Due from iHeartCommunications Note recognized during the fourth quarter of 2017 and the $21.3 million reserve recognized in relation to interest incurred during the pre-petition period in the three months ended March 31, 2018, the outstanding principal amount of $1,031.7 million was reduced to $154.8 million as of September 30, 2018. The final settlement amount of the Due from iHeartCommunications Note is expected to be negotiated as part of iHeartCommunications' bankruptcy proceedings. The final settlement amount may differ from the estimated recoverable amount of $154.8 million.
The terms of the Due from iHeartCommunications Note provide that any balance over $1.0 billion accrues at an interest rate equal to the average yield of the nearest dated reference security, capped at 20%. As of September 30, 2018, the balance outstanding on the "Due from iHeartCommunications" exceeded $1.0 billion and therefore the interest rate applied to $1.0 billion of the balance outstanding was 9.3%.  The interest rate applied to the remaining balance was 20.0%. As noted above, no interest income was recorded on the pre-petition Due from iHeartCommunications Note during the three and nine months ended September 30, 2018. The Company recognized interest income of $17.1 million and $47.3 million in the three and nine months ended September 30, 2017, respectively.
Pursuant to a final order entered by the Bankruptcy Court, as of March 14, 2018, the actual pre-bankruptcy balance of the Due from iHeartCommunications Note is frozen, and following March 14, 2018, intercompany allocations that would have been reflected in adjustments to the balance of the Due from iHeartCommunications Note are instead reflected in a new intercompany balance that accrues interest at a rate equal to the interest under the Due from iHeartCommunications Note. The $1.5 million owed by the Company to iHeartCommunications as of September 30, 2018 is reflected as "Due to iHeartCommunications, post iHeart Chapter 11 Cases" on the Company's Consolidated Balance Sheet.

If the Company does not realize the expected recovery under the Due from iHeartCommunications Note, or does not otherwise obtain sufficient supplemental liquidity as contemplated by the Disclosure Statement filed by the Debtors in the iHeart Chapter 11 Cases, the Company could experience a liquidity shortfall. In addition, any repayments that the Company received on the Due from iHeartCommunications Note during the one-year preference period prior to the filing of the iHeart Chapter 11 Cases may potentially be avoidable as a preference and subject to recovery by the iHeartCommunications bankruptcy estate, which could further exacerbate any liquidity shortfall.
Other Related Party Transactions
The Company provides advertising space on its billboards for iHeartMedia, Inc. and for radio stations owned by iHeartMedia, Inc. For the three months ended September 30, 2018 and 2017, the Company recorded $1.4 million and $1.7 million, respectively, and $5.8 million and $5.4 million for the nine months ended September 30, 2018 and 2017, respectively, in revenue for these advertisements. Some of these agreements are leasing transactions as they convey to iHeartMedia, Inc. the right to use the Company's advertising structures for a stated period of time.
Under the Corporate Services Agreement between iHeartCommunications and the Company, iHeartCommunications provides management services to the Company, which include, among other things: (i) treasury, payroll and other financial related services; (ii) certain executive officer services; (iii) human resources and employee benefits services; (iv) legal and related services; (v) information systems, network and related services; (vi) investment services; (vii) procurement and sourcing support services; (viii) licensing of intellectual property, copyrights, trademarks and other intangible assets and (ix) other general corporate services.  These services are charged to the Company based on actual direct costs incurred or allocated by iHeartCommunications based on headcount, revenue or other factors on a pro rata basis. For the three months ended September 30, 2018 and 2017, the Company recorded $16.0 million and $16.7 million, respectively, and $50.1 million and $50.3 million for the nine months ended September 30, 2018 and 2017, respectively, as a component of corporate expenses for these services. The iHeart Chapter 11 Cases could materially impact iHeartCommunications' ability to provide these services to us, which could cause significant uncertainties for us and disrupt our operations and/or adversely affect our rights under the Corporate Services Agreement and the other intercompany agreements.
Pursuant to the Tax Matters Agreement between iHeartCommunications and the Company, the operations of the Company are included in a consolidated federal income tax return filed by iHeartCommunications.  The Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries.  Tax payments are made to iHeartCommunications on the basis of the Company’s separate taxable income.  Tax benefits recognized on the Company’s employee stock option exercises are retained by the Company.
 

20



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The Company computes its deferred income tax provision using the liability method in accordance with the provisions of ASC 740-10, as if the Company was a separate taxpayer.  Deferred tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.  Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not some portion or all of the asset will not be realized.
 
Pursuant to the Employee Matters Agreement, the Company’s employees participate in iHeartCommunications’ employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan.  For the three months ended September 30, 2018 and 2017, the Company recorded $2.3 million and $2.3 million, respectively, and $6.9 million and $7.1 million for the nine months ended September 30, 2018 and 2017, respectively, as a component of selling, general and administrative expenses for these services.

NOTE 7 – INCOME TAXES

Income Tax Benefit (Expense)

The Company’s income tax benefit (expense) for the three and nine months ended September 30, 2018 and 2017 consisted of the following components:
(In thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Current tax expense
$
(12,508
)
 
$
(20,921
)
 
$
(16,127
)
 
$
(40,215
)
Deferred tax benefit (expense)
5,612

 
4,574

 
(40,889
)
 
27,315

Income tax expense
$
(6,896
)
 
$
(16,347
)
 
$
(57,016
)
 
$
(12,900
)
 
The effective tax rates for the three and nine months ended September 30, 2018 were (13.4)% and (32.2)%. The effective rate was primarily impacted by the valuation allowance recorded against deferred tax assets resulting from current year net operating losses in U.S. federal, state and certain foreign jurisdictions due to uncertainty regarding the Company's ability to realize those assets in future periods.

The effective tax rates for the three and nine months ended September 30, 2017 were (39.2)% and (16.3)%. The effective rates were primarily impacted by the mix of earnings within the various jurisdictions in which the Company operates and the benefits and charges from tax amounts associated with its foreign earnings that are taxed at rates different from the federal statutory rate.

On December 22, 2017, the U.S. government enacted comprehensive income tax legislation, referred to as The Tax Cuts and Jobs Act (the Tax Act) which reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. During the three months ended September 30, 2018, adjustments to the provisional income tax benefit recorded in December 2017 from the enactment of the Tax Act were not material.  At September 30, 2018, we have not yet completed our accounting for the income tax effects of the Tax Act, but have made reasonable estimates of those effects on our existing deferred income tax balances.  The final financial statement impact of the Tax Act may differ from our previously recorded estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, and changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates to estimates the company has utilized to calculate the provisional impacts. The Securities and Exchange Commission (SEC) has issued rules that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related income tax impacts.


21



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT)
 
The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Company’s equity. The following table shows the changes in stockholders’ equity (deficit) attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total, ownership interest:

(In thousands)
The Company
 
Noncontrolling
Interests
 
Consolidated
Balances as of January 1, 2018
$
(2,015,334
)
 
$
157,040

 
$
(1,858,294
)
Net income (loss)
(243,893
)
 
9,716

 
(234,177
)
Dividends paid
(29,995
)
 

 
(29,995
)
Payments to noncontrolling interests

 
(6,148
)
 
(6,148
)
Share-based compensation
6,286

 
471

 
6,757

Foreign currency translation adjustments
(11,083
)
 
(7,844
)
 
(18,927
)
Reclassification adjustments
1,425

 

 
1,425

Other, net
(653
)
 

 
(653
)
Balances as of September 30, 2018
$
(2,293,247
)
 
$
153,235

 
$
(2,140,012
)
 
 
 
 
 
 
Balances as of January 1, 2017
$
(1,091,486
)
 
$
144,174

 
$
(947,312
)
Net income (loss)
(102,497
)
 
10,546

 
(91,951
)
Dividends declared
(307,492
)
 

 
(307,492
)
Payments to noncontrolling interests

 
(12,027
)
 
(12,027
)
Share-based compensation
6,529

 
624

 
7,153

Disposal of noncontrolling interest

 
(2,438
)
 
(2,438
)
Foreign currency translation adjustments
36,619

 
5,734

 
42,353

Unrealized holding loss on marketable securities
(218
)
 

 
(218
)
Reclassification adjustments
4,563

 

 
4,563

Other, net
(1,613
)
 
(575
)
 
(2,188
)
Balances as of September 30, 2017
$
(1,455,595
)
 
$
146,038

 
$
(1,309,557
)

The Company has granted restricted stock, restricted stock units and options to purchase shares of its Class A common stock to certain key individuals.
On February 23, 2017, the Company paid a special cash dividend to our stockholders of $282.5 million, using proceeds from the sales of certain non-strategic U.S. markets and of our business in Australia. iHeartCommunications received 89.9%, or approximately $254.0 million, with the remaining 10.1%, or approximately $28.5 million, paid to our public stockholders. The payment of these special dividends reduces the amount of cash available to us for future working capital, capital expenditure, debt service and other funding requirements.
On September 14, 2017, the board of directors of the Company declared a special cash dividend paid on October 5, 2017 to Class A and Class B stockholders of record at the closing of business on October 2, 2017, in an aggregate amount equal to $25.0 million.
On January 5, 2018, the board of directors of the Company declared a special cash dividend paid on January 24, 2018 to Class A and Class B stockholders of record at the closing of business on January 19, 2018, in an aggregate amount equal to $30.0 million. iHeartCommunications received approximately 89.5%, or approximately $26.8 million, of the proceeds of the dividend through its wholly-owned subsidiaries. The remaining approximately 10.5% of the proceeds of the dividend, or approximately $3.2 million, was paid to the Company's public stockholders.


22



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


COMPUTATION OF LOSS PER SHARE
(In thousands, except per share data)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
NUMERATOR:
 
 
 
 
 
 
 
Net loss attributable to the Company – common shares
$
(65,088
)
 
$
(64,208
)
 
$
(243,893
)
 
$
(102,497
)
 
 
 
 
 
 
 
 
DENOMINATOR:
 

 
 

 
 

 
 

Weighted average common shares outstanding - basic
361,815

 
361,302

 
361,680

 
361,064

Weighted average common shares outstanding - diluted(1)
361,815

 
361,302

 
361,680

 
361,064

 
 
 
 
 
 
 
 
Net loss attributable to the Company per common share:
 

 
 

 
 

 
 

Basic
$
(0.18
)
 
$
(0.18
)
 
$
(0.67
)
 
$
(0.28
)
Diluted
$
(0.18
)
 
$
(0.18
)
 
$
(0.67
)
 
$
(0.28
)

(1) 
Outstanding equity awards of 7.0 million and 8.3 million for the three months ended September 30, 2018 and 2017, respectively, and 7.4 million and 8.3 million for the nine months ended September 30, 2018 and 2017, respectively, were not included in the computation of diluted earnings per share because to do so would have been antidilutive.

NOTE 9 — OTHER INFORMATION
Other Comprehensive Income (Loss)
The total decrease in other comprehensive income (loss) related to the impact of pensions on deferred income tax liabilities was $0.3 million for the three and nine months ended September 30, 2018. There was no change in deferred income tax liabilities resulting from adjustments to comprehensive income (loss) for the three and nine months ended September 30, 2017.

NOTE 10 – SEGMENT DATA
The Company has two reportable segments, which it believes best reflect how the Company is currently managed – Americas and International.  The Americas segment consists of operations primarily in the United States and the International segment primarily includes operations in Europe, Asia and Latin America.  The Americas and International display inventory consists primarily of billboards, street furniture displays and transit displays.  Corporate includes infrastructure and support including information technology, human resources, legal, finance and administrative functions of each of the Company’s reportable segments, as well as overall executive, administrative and support functions.  Share-based payments are recorded in corporate expenses.


23



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The Company re-evaluated its segment reporting and determined that its Latin American operations should be managed by its International leadership team. As a result, beginning on January 1, 2018, the operations of Latin America are no longer reflected within the Company’s Americas segment and are included in the results of its International segment. Accordingly, the Company has recast the corresponding segment disclosures for prior periods to include Latin America within the International segment. The following table presents the Company's reportable segment results for the three and nine months ended September 30, 2018 and 2017:
(In thousands)
Americas
 
International
 
Corporate and other reconciling items
 
Consolidated
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
Revenue
$
303,421

 
$
360,318

 
$

 
$
663,739

Direct operating expenses
131,241

 
230,440

 

 
361,681

Selling, general and administrative expenses
49,247

 
79,550

 

 
128,797

Corporate expenses

 

 
37,729

 
37,729

Depreciation and amortization
39,783

 
36,627

 
995

 
77,405

Impairment charges

 

 
7,772

 
7,772

Other operating income, net

 

 
825

 
825

Operating income (loss)
$
83,150

 
$
13,701

 
$
(45,671
)
 
$
51,180

 
 
 
 
 
 
 
 
Capital expenditures
$
25,826

 
$
21,921

 
$
1,059

 
$
48,806

Share-based compensation expense
$

 
$

 
$
3,132

 
$
3,132

 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
 
 
 
 
 
 
Revenue
$
293,807

 
$
350,623

 
$

 
$
644,430

Direct operating expenses
130,269

 
227,677

 

 
357,946

Selling, general and administrative expenses
49,007

 
79,532

 

 
128,539

Corporate expenses

 

 
35,333

 
35,333

Depreciation and amortization
44,457

 
35,464

 
1,175

 
81,096

Impairment charges

 

 
1,591

 
1,591

Other operating income, net

 

 
(11,783
)
 
(11,783
)
Operating income (loss)
$
70,074

 
$
7,950

 
$
(49,882
)
 
$
28,142

 
 
 
 
 
 
 
 
Capital expenditures
$
4,397

 
$
26,932

 
$
460

 
$
31,789

Share-based compensation expense
$

 
$

 
$
2,894

 
$
2,894




24



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(In thousands)
Americas
 
International
 
Corporate and other reconciling items
 
Consolidated
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
Revenue
$
859,190

 
$
1,114,927

 
$

 
$
1,974,117

Direct operating expenses
386,427

 
709,479

 

 
1,095,906

Selling, general and administrative expenses
146,021

 
235,473

 

 
381,494

Corporate expenses

 

 
111,092

 
111,092

Depreciation and amortization
127,410

 
113,875

 
2,947

 
244,232

Impairment Charges

 

 
7,772

 
7,772

Other operating income, net

 

 
1,700

 
1,700

Operating income (loss)
$
199,332

 
$
56,100

 
$
(120,111
)
 
$
135,321

 
 
 
 
 
 
 
 
Capital expenditures
$
50,214

 
$
57,487

 
$
2,420

 
$
110,121

Share-based compensation expense
$

 
$

 
$
6,757

 
$
6,757

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
Revenue
$
854,344

 
$
1,005,954

 
$

 
$
1,860,298

Direct operating expenses
393,953

 
645,222

 

 
1,039,175

Selling, general and administrative expenses
148,824

 
221,773

 

 
370,597

Corporate expenses

 

 
105,213

 
105,213

Depreciation and amortization
130,127

 
102,711

 
4,042

 
236,880

Impairment charges

 

 
1,591

 
1,591

Other operating income, net

 

 
28,657

 
28,657

Operating income (loss)
$
181,440

 
$
36,248

 
$
(82,189
)
 
$
135,499

 
 
 
 
 
 
 
 
Capital expenditures
$
46,394

 
$
86,206

 
$
2,268

 
$
134,868

Share-based compensation expense
$

 
$

 
$
7,153

 
$
7,153



25



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 11 – GUARANTOR SUBSIDIARIES

The Company and certain of the Company’s direct and indirect wholly-owned domestic subsidiaries (the “Guarantor Subsidiaries”) fully and unconditionally guarantee on a joint and several basis certain of the outstanding indebtedness of Clear Channel Worldwide Holdings, Inc. ("CCWH" or the “Subsidiary Issuer”).  The following consolidating schedules present financial information on a combined basis in conformity with the SEC’s Regulation S-X Rule 3-10(d):
(In thousands)
September 30, 2018
 
Parent
 
Subsidiary
 
Guarantor
 
Non-Guarantor
 
 
 
 
 
Company
 
Issuer
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
Cash and cash equivalents
$
1,600

 
$

 
$
13,979

 
$
175,538

 
$

 
$
191,117

Accounts receivable, net of allowance

 

 
190,526

 
463,512

 

 
654,038

Intercompany receivables

 
766,190

 
2,822,946

 
68,652

 
(3,657,788
)
 

Prepaid expenses
659

 
1,211

 
59,971

 
63,751

 

 
125,592

Other current assets

 

 
1,653

 
31,072

 

 
32,725

Total Current Assets
2,259

 
767,401

 
3,089,075

 
802,525

 
(3,657,788
)
 
1,003,472

Structures, net

 

 
606,604

 
432,231

 

 
1,038,835

Other property, plant and equipment, net

 

 
123,838

 
93,317

 

 
217,155

Indefinite-lived intangibles

 

 
971,163

 

 

 
971,163

Other intangibles, net

 

 
238,247

 
19,236

 

 
257,483

Goodwill

 

 
507,819

 
200,689

 

 
708,508

Due from iHeartCommunications
154,758

 

 

 

 

 
154,758

Intercompany notes receivable
182,026

 
5,116,629

 
4,691

 
16,275

 
(5,319,621
)
 

Other assets
211,707

 
26,194

 
1,269,795

 
74,151

 
(1,453,859
)
 
127,988

Total Assets
$
550,750

 
$
5,910,224

 
$
6,811,232

 
$
1,638,424

 
$
(10,431,268
)
 
$
4,479,362

 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$

 
$
30,342

 
$
68,962

 
$

 
$
99,304

Intercompany payable
2,822,946

 

 
834,842

 

 
(3,657,788
)
 

Accrued expenses
9,677

 
(1,955
)
 
85,325

 
440,366