EX-99.4 6 ccoh8k2017ex994finstmt.htm EXHIBIT 99.4 Exhibit


PART II
Exhibit 99.4
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm 
To the Stockholders and the Board of Directors of Clear Channel Outdoor Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Clear Channel Outdoor Holdings, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income (loss), changes in stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated May 3, 2018 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP
We have served as the Company's auditor since 2005.
San Antonio, Texas
May 3, 2018, except for Note 1, 2 and 13, as to which the date is December 21, 2018

1



CONSOLIDATED BALANCE SHEETS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(In thousands)
December 31,
 
December 31,
 
2017
 
2016
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
144,119

 
$
531,537

Accounts receivable, net of allowance of $22,487 in 2017 and $22,398 in 2016
659,463

 
593,070

Prepaid expenses
111,876

 
111,569

Assets held for sale

 
55,602

Other current assets
58,714

 
39,199

Total Current Assets
974,172

 
1,330,977

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Structures, net
1,180,882

 
1,196,676

Other property, plant and equipment, net
214,147

 
216,157

INTANGIBLE ASSETS AND GOODWILL
 
 
 
Indefinite-lived intangibles
977,152

 
960,966

Other intangibles, net
273,862

 
299,617

Goodwill
714,043

 
696,263

OTHER ASSETS
 
 
 
Due from iHeartCommunications, net of allowance of $855,648 in 2017 and $0 in 2016
211,990

 
885,701

Other assets
124,534

 
122,013

Total Assets
$
4,670,782

 
$
5,708,370

CURRENT LIABILITIES
 
 
 
Accounts payable
$
87,960

 
$
86,870

Accrued expenses
509,801

 
480,872

Deferred income
59,178

 
67,005

Current portion of long-term debt
573

 
6,971

Total Current Liabilities
657,512

 
641,718

Long-term debt
5,266,153

 
5,110,020

Deferred tax liability
321,442

 
642,013

Other long-term liabilities
283,969

 
261,931

Commitments and contingent liabilities (Note 6)

 

STOCKHOLDERS’ DEFICIT
 
 
 
Noncontrolling interest
157,040

 
144,174

Preferred stock, $.01 par value, 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 49,955,300 and 47,947,123 shares in 2017 and 2016, respectively
500

 
479

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

 
3,150

Additional paid-in capital
3,108,148

 
3,432,121

Accumulated deficit
(4,781,245
)
 
(4,136,897
)
Accumulated other comprehensive loss
(340,094
)
 
(386,233
)
Cost of shares (946,415 in 2017 and 633,851 in 2016) held in treasury
(5,793
)
 
(4,106
)
Total Stockholders’ Deficit
(1,858,294
)
 
(947,312
)
Total Liabilities and Stockholders’ Deficit
$
4,670,782

 
$
5,708,370

See Notes to Consolidated Financial Statements

2



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Years Ended December 31,
 
2017
 
2016
 
2015
Revenue
$
2,588,702

 
$
2,679,822

 
$
2,806,204

Operating expenses:
 
 
 
 
 
Direct operating expenses (excludes depreciation and amortization)
1,409,767

 
1,418,319

 
1,485,835

Selling, general and administrative expenses (excludes depreciation and amortization)
499,213

 
515,421

 
527,821

Corporate expenses (excludes depreciation and amortization)
143,678

 
117,436

 
116,523

Depreciation and amortization
325,991

 
344,124

 
375,962

Impairment charges
4,159

 
7,274

 
21,631

Other operating income (expense), net
26,391

 
354,688

 
(4,824
)
Operating income
232,285

 
631,936

 
273,608

Interest expense, net
379,701

 
375,029

 
355,917

Interest income on Due from iHeartCommunications
68,871

 
50,309

 
61,439

Loss on Due from iHeartCommunications
(855,648
)
 

 

Gain (loss) on investments, net
(1,045
)
 
531

 

Equity in loss of nonconsolidated affiliates
(990
)
 
(1,689
)
 
(289
)
Other income (expense), net
29,800

 
(70,682
)
 
12,387

Income (loss) before income taxes
(906,428
)
 
235,376

 
(8,772
)
Income tax benefit (expense)
280,218

 
(77,499
)
 
(49,943
)
Consolidated net income (loss)
(626,210
)
 
157,877

 
(58,715
)
Less amount attributable to noncontrolling interest
18,138

 
22,807

 
24,629

Net income (loss) attributable to the Company
$
(644,348
)
 
$
135,070

 
$
(83,344
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
Foreign currency translation adjustments
43,341

 
23,357

 
(112,782
)
Unrealized holding gain (loss) on marketable securities
(414
)
 
(576
)
 
553

Other adjustments to comprehensive income (loss)
6,720

 
(11,814
)
 
(10,266
)
Reclassification adjustments
5,441

 
46,730

 
808

Other comprehensive income (loss)
55,088

 
57,697

 
(121,687
)
Comprehensive income (loss)
(589,260
)
 
192,767

 
(205,031
)
Less amount attributable to noncontrolling interest
8,949

 
(8,038
)
 
(10,885
)
Comprehensive income (loss) attributable to the Company
$
(598,209
)
 
$
200,805

 
$
(194,146
)
Net income (loss) attributable to the Company per common share:
 
 
 
 
 
Basic
$
(1.78
)
 
$
0.37

 
$
(0.23
)
Weighted average common shares outstanding – Basic
361,141

 
360,294

 
359,508

Diluted
$
(1.78
)
 
$
0.37

 
$
(0.23
)
Weighted average common shares outstanding – Diluted
361,141

 
361,612

 
359,508

See Notes to Consolidated Financial Statements

3



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT OF
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(In thousands, except share data)
 
 
 
 
 
Controlling Interest
 
 
 
Class A
Common
Shares
Issued
 
Class B Common Shares
Issued
 
Non-controlling
Interest
 
Common
Stock
 
Additional Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive
Loss
 
Treasury Stock
 
Total
Balances at
December 31, 2014
45,231,282

 
315,000,000

 
$
197,294

 
$
3,602

 
$
4,167,491

 
$
(4,188,623
)
 
$
(341,166
)
 
$
(1,192
)
 
$
(162,594
)
Net income (loss)

 

 
24,629

 

 

 
(83,344
)
 

 

 
(58,715
)
Exercise of stock options and other
1,429,832

 

 

 
15

 
3,783

 

 

 
(912
)
 
2,886

Share-based payments

 

 

 

 
8,502

 

 

 

 
8,502

Dividends and other payments to noncontrolling interests

 

 
(30,870
)
 

 

 

 

 

 
(30,870
)
Dividends declared and paid ($0.6026/share)

 

 

 

 
(217,796
)
 

 

 

 
(217,796
)
Other

 

 
1,701

 

 
(64
)
 

 

 

 
1,637

Other comprehensive loss

 

 
(10,885
)
 

 

 

 
(110,802
)
 

 
(121,687
)
Balances at
December 31, 2015
46,661,114

 
315,000,000

 
$
181,869

 
$
3,617

 
$
3,961,916

 
$
(4,271,967
)
 
$
(451,968
)
 
$
(2,104
)
 
$
(578,637
)
Net income

 

 
22,807

 

 

 
135,070

 

 

 
157,877

Exercise of stock options and other
1,286,009

 

 

 
12

 
624

 

 

 
(2,002
)
 
(1,366
)
Share-based payments

 

 

 

 
10,291

 

 

 

 
10,291

Disposal of noncontrolling interest
 
 
 
 
(36,846
)
 
 
 
 
 
 
 
 
 
 
 
(36,846
)
Dividends and other payments to noncontrolling interests

 

 
(16,917
)
 

 

 

 

 

 
(16,917
)
Dividends declared and paid ($1.4937/share)

 

 

 

 
(540,034
)
 

 

 

 
(540,034
)
Other

 

 
1,299

 

 
(676
)
 

 

 

 
623

Other comprehensive income (loss)

 

 
(8,038
)
 

 

 

 
65,735

 

 
57,697

Balances at
December 31, 2016
47,947,123

 
315,000,000

 
$
144,174

 
$
3,629

 
$
3,432,121

 
$
(4,136,897
)
 
$
(386,233
)
 
$
(4,106
)
 
$
(947,312
)
Net income

 

 
18,138

 

 

 
(644,348
)
 

 

 
(626,210
)
Exercise of stock options and other
2,008,177

 

 

 
21

 
198

 

 

 
(1,687
)
 
(1,468
)
Share-based payments

 

 
931

 

 
8,659

 

 

 

 
9,590

Disposal of noncontrolling interest

 

 
(2,439
)
 

 

 

 

 

 
(2,439
)
Dividends and other payments to noncontrolling interests

 

 
(12,010
)
 

 

 

 

 

 
(12,010
)
Dividends declared and paid ($0.9171/share)

 

 

 

 
(332,498
)
 

 

 

 
(332,498
)
Other

 

 
(703
)
 

 
(332
)
 

 

 

 
(1,035
)
Other comprehensive income

 

 
8,949

 

 

 

 
46,139

 

 
55,088

Balances at
December 31, 2017
49,955,300

 
315,000,000

 
$
157,040

 
$
3,650

 
$
3,108,148

 
$
(4,781,245
)
 
$
(340,094
)
 
$
(5,793
)
 
$
(1,858,294
)
See Notes to Consolidated Financial Statements

4



CONSOLIDATED STATEMENTS OF CASH FLOWS OF
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(In thousands)
Years Ended December 31,
 
2017
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
 
Consolidated net income (loss)
$
(626,210
)
 
$
157,877

 
$
(58,715
)
Reconciling items:
 
 
 
 
 
Impairment charges
4,159

 
7,274

 
21,631

Depreciation and amortization
325,991

 
344,124

 
375,962

Deferred taxes
(311,085
)
 
32,025

 
5,902

Provision for doubtful accounts
6,740

 
10,659

 
13,384

Amortization of deferred financing charges and note discounts, net
10,527

 
10,572

 
8,770

Share-based compensation
9,590

 
10,291

 
8,502

Gain on disposal of operating and other assets
(29,347
)
 
(363,485
)
 
(5,468
)
Loss on Due from iHeartCommunications
855,648

 

 

(Gain) loss on investments
1,045

 
(531
)
 

Equity in loss of nonconsolidated affiliates
990

 
1,689

 
289

Foreign exchange transaction (gain) loss
(29,563
)
 
69,599

 
(14,790
)
Other reconciling items, net
(4,710
)
 
(135
)
 
1,350

Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
 
(Increase) decrease in accounts receivable
(39,790
)
 
30,308

 
(57,580
)
(Increase) decrease in prepaid expenses and other current assets
9,608

 
(15,939
)
 
(7,578
)
Increase (decrease) in accrued expenses
(7,316
)
 
25,518

 
3,617

Increase (decrease) in accounts payable
(4,126
)
 
(3,797
)
 
25,690

Increase (decrease) in accrued interest
431

 
194

 
(4,072
)
Increase (decrease) in deferred income
(13,273
)
 
(18,119
)
 
2,549

Changes in other operating assets and liabilities
809

 
10,386

 
(20,758
)
Net cash provided by operating activities
160,118

 
308,510

 
298,685

Cash flows from investing activities:
 
 
 
 
 
Purchases of property, plant and equipment
(224,238
)
 
(229,772
)
 
(218,332
)
Proceeds from disposal of assets
72,049

 
808,194

 
11,264

Purchases of other operating assets
(837
)
 
(2,244
)
 
(23,640
)
Change in other, net
(1,496
)
 
(2,098
)
 
(27,017
)
Net cash provided by (used for) investing activities
(154,522
)
 
574,080

 
(257,725
)
Cash flows from financing activities:
 
 
 
 
 
Payments on credit facilities
(909
)
 
(2,100
)
 
(3,849
)
Proceeds from long-term debt
156,000

 
6,856

 
222,777

Payments on long-term debt
(748
)
 
(2,334
)
 
(56
)
Net transfers from (to) iHeartCommunications
(181,939
)
 
45,099

 
17,007

Dividends and other payments to noncontrolling interests
(12,010
)
 
(16,917
)
 
(30,870
)
Dividends paid
(332,824
)
 
(755,538
)
 

Change in other, net
(7,083
)
 
(1,565
)
 
(5,955
)
Net cash provided by (used for) financing activities
(379,513
)
 
(726,499
)
 
199,054

Effect of exchange rate changes on cash
9,536

 
(5,330
)
 
(13,231
)
Net increase (decrease) in cash and cash equivalents
(364,381
)
 
150,761

 
226,783

Cash, cash equivalents and restricted cash at beginning of period
552,691

 
401,930

 
175,147

Cash, cash equivalents and restricted cash at end of period
$
188,310

 
$
552,691

 
$
401,930

SUPPLEMENTAL DISCLOSURES:
 
 
 
 
 
Cash paid during the year for interest
$
374,309

 
$
368,051

 
$
356,021

Cash paid during the year for income taxes
33,747

 
40,185

 
43,781

See Notes to Consolidated Financial Statements

5



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

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Clear Channel Outdoor Holdings, Inc. (the “Company”) is an outdoor advertising company which owns or operates advertising display faces domestically and internationally.   On November 11, 2005, the Company became a publicly traded company through an initial public offering (“IPO”), in which 10%, or 35.0 million shares, of the Company’s Class A common stock was sold.  Prior to the IPO, the Company was an indirect wholly-owned subsidiary of iHeartCommunications, Inc. (“iHeartCommunications”), a diversified media and entertainment company.  As of December 31, 2017, iHeartCommunications indirectly holds all of the 315.0 million shares of Class B common stock outstanding and 10,726,917 shares of Class A common stock, collectively representing 89.5% of the shares outstanding and approximately 99% of the voting power.   The holders of Class A common stock and Class B common stock have identical rights, except holders of Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to 20 votes per share.   The Class B shares of common stock are convertible, at the option of the holder at any time or upon any transfer, into shares of Class A common stock on a one-for-one basis, subject to certain limited exceptions.
The Company operates in the outdoor advertising industry by selling advertising on billboards, street furniture displays, transit displays and other advertising displays.  The Company has two reportable business segments: Americas and International.  The Americas segment primarily includes operations in the United States and Latin America; the International segment primarily includes operations in Europe and Asia.
During the first quarter of 2018, the Company reevaluated its segment reporting and determined that its Latin America operations should be managed by its International outdoor leadership team. As such, beginning January 1, 2018, our Latin American operations will be included in our International outdoor segment. Accordingly, the Company has recast the corresponding segment disclosures for prior periods to include Latin America within the International segment.
Agreements with iHeartCommunications
There are several agreements which govern the Company’s relationship with iHeartCommunications including the Master Agreement, Corporate Services Agreement, Employee Matters Agreement, Tax Matters Agreement and Trademark and License Agreement.  iHeartCommunications has the right to terminate these agreements in various circumstances.  As of the date of the filing of this report, no notice of termination of any of these agreements has been received from iHeartCommunications.
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"). The Company and its direct and indirect subsidiaries did not file Chapter 11 cases.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes including, but not limited to, legal, tax and insurance accruals. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries.  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 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the Company are accounted for using the equity method of accounting.  All significant intercompany accounts have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the 2018 presentation.

6



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

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 year ended December 31, 2017. 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.
A summary of the effect of the corrections on the Consolidated Balance Sheet as of December 31, 2017 and 2016 is as follows:
 
December 31, 2017
(In thousands)
As Reported
 
Correction
 
Revised
Deferred tax liability
318,107

 
3,335

 
321,442

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
)
 
December 31, 2016
(In thousands)
As Reported
 
Correction
 
Revised
Cash and cash equivalents
$
541,995

 
$
(10,458
)
 
$
531,537

Current assets
1,341,435

 
(10,458
)
 
1,330,977

Total Assets
5,718,828

 
(10,458
)
 
5,708,370

Deferred tax liability
638,705

 
3,308

 
642,013

Other long-term liabilities
259,311

 
2,620

 
261,931

Noncontrolling interest
149,886

 
(5,712
)
 
144,174

Accumulated deficit
(4,125,798
)
 
(11,099
)
 
(4,136,897
)
Accumulated other comprehensive loss
(386,658
)
 
425

 
(386,233
)
Total Stockholders' Deficit
(930,926
)
 
(16,386
)
 
(947,312
)
Total Liabilities and Stockholders’ Deficit
5,718,828

 
(10,458
)
 
5,708,370



7



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

A summary of the effect of the corrections on the Consolidated Statements of Comprehensive Loss for the years ended December 31, 2017, 2016 and 2015 is as follows:
 
Year Ended December 31, 2017
(In thousands)
As Reported
 
Correction
 
Revised
Revenue
$
2,591,265

 
$
(2,563
)
 
$
2,588,702

Direct operating expenses (excludes depreciation and amortization)
1,402,765

 
7,002

 
1,409,767

Selling, general and administrative expenses (excludes depreciation and amortization)
508,637

 
(9,424
)
 
499,213

Operating income
232,426

 
(141
)
 
232,285

Interest expense
381,149

 
(1,448
)
 
379,701

Loss before income taxes
(907,735
)
 
1,307

 
(906,428
)
Consolidated net loss
(627,517
)
 
1,307

 
(626,210
)
Less amount attributable to noncontrolling interest
12,199

 
5,939

 
18,138

Net loss attributable to the Company
(639,716
)
 
(4,632
)
 
(644,348
)
Foreign currency translation adjustments
45,151

 
(1,810
)
 
43,341

Other comprehensive income
56,898

 
(1,810
)
 
55,088

Comprehensive loss
(582,818
)
 
(6,442
)
 
(589,260
)
Less amount attributable to noncontrolling interest
9,176

 
(227
)
 
8,949

Comprehensive loss attributable to the Company
(591,994
)
 
(6,215
)
 
(598,209
)
Basic loss per share
(1.77
)
 
(0.01
)
 
(1.78
)
Diluted loss per share
(1.77
)
 
(0.01
)
 
(1.78
)
 
Year Ended December 31, 2016
(In thousands)
As Reported
 
Correction
 
Revised
Revenue
$
2,688,884

 
$
(9,062
)
 
$
2,679,822

Direct operating expenses (excludes depreciation and amortization)
1,422,058

 
(3,739
)
 
1,418,319

Selling, general and administrative expenses (excludes depreciation and amortization)
515,202

 
219

 
515,421

Operating income
637,478

 
(5,542
)
 
631,936

Interest expense
374,892

 
137

 
375,029

Income before income taxes
241,055

 
(5,679
)
 
235,376

Consolidated net income
164,399

 
(6,522
)
 
157,877

Less amount attributable to noncontrolling interest
23,002

 
(195
)
 
22,807

Net income attributable to the Company
141,397

 
(6,327
)
 
135,070

Foreign currency translation adjustments
22,408

 
949

 
23,357

Other comprehensive income
56,748

 
949

 
57,697

Comprehensive income
198,145

 
(5,378
)
 
192,767

Less amount attributable to noncontrolling interest
(8,427
)
 
389

 
(8,038
)
Comprehensive income attributable to the Company
206,572

 
(5,767
)
 
200,805

Basic income per share
0.39

 
(0.02
)
 
0.37

Diluted income per share
0.39

 
(0.02
)
 
0.37


8



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

 
Year Ended December 31, 2015
(In thousands)
As Reported
 
Correction
 
Revised
Direct operating expenses (excludes depreciation and amortization)
$
1,494,902

 
$
(9,067
)
 
$
1,485,835

Selling, general and administrative expenses (excludes depreciation and amortization)
531,504

 
(3,683
)
 
527,821

Operating income
260,858

 
12,750

 
273,608

Interest expense
355,669

 
248

 
355,917

Loss before income taxes
(21,274
)
 
12,502

 
(8,772
)
Consolidated net loss
(71,217
)
 
12,502

 
(58,715
)
Less amount attributable to noncontrolling interest
24,764

 
(135
)
 
24,629

Net loss attributable to the Company
(95,981
)
 
12,637

 
(83,344
)
Foreign currency translation adjustments
(112,729
)
 
(53
)
 
(112,782
)
Other comprehensive loss
(121,634
)
 
(53
)
 
(121,687
)
Comprehensive loss
(217,615
)
 
12,584

 
(205,031
)
Less amount attributable to noncontrolling interest
(11,154
)
 
269

 
(10,885
)
Comprehensive loss attributable to the Company
(206,461
)
 
12,315

 
(194,146
)
Basic loss per share
(0.27
)
 
0.04

 
(0.23
)
Diluted loss per share
(0.27
)
 
0.04

 
(0.23
)

Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
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.
Business Combinations
The Company accounts for its business combinations under the acquisition method of accounting. The total cost of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.  Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.  Various acquisition agreements may include contingent purchase consideration based on performance requirements of the investee.  The Company accounts for these payments in conformity with the provisions of ASC 805-20-30, which establish the requirements related to recognition of certain assets and liabilities arising from contingencies.

9



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

Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method at rates that, in the opinion of management, are adequate to allocate the cost of such assets over their estimated useful lives, which are as follows:
Buildings and improvements — 10 to 39 years
Structures — 3 to 20 years
Furniture and other equipment — 2 to 20 years
Leasehold improvements — shorter of economic life or lease term assuming renewal periods, if appropriate
For assets associated with a lease or contract, the assets are depreciated at the shorter of the economic life or the lease or contract term, assuming renewal periods, if appropriate.   Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized.
The Company tests for possible impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.  When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value. 
Assets and businesses are classified as held for sale if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. The asset or business must be available for immediate sale and the sale must be highly probable within one year.
Land Leases and Other Structure Leases
Most of the Company’s advertising structures are located on leased land. Americas land leases are typically paid in advance for periods ranging from one to 12 months. International land leases are paid both in advance and in arrears, for periods ranging up to 12 months. Most international street furniture display faces are operated through contracts with municipalities for up to 15 years. The leased land and street furniture contracts often include a percent of revenue to be paid along with a base rent payment. Prepaid land leases are recorded as an asset and expensed ratably over the related rental term and rent payments in arrears are recorded as an accrued liability.
Intangible Assets
The Company’s indefinite-lived intangible assets include billboard permits in its Americas segment. The Company’s indefinite-lived intangible assets are not subject to amortization, but are tested for impairment at least annually. The Company tests for possible impairment of indefinite-lived intangible assets whenever events or changes in circumstances, such as a significant reduction in operating cash flow or a dramatic change in the manner for which the asset is intended to be used indicate that the carrying amount of the asset may not be recoverable.
The Company performs its annual impairment test for its permits using a direct valuation technique as prescribed in ASC 805-20-S99. The Company engages a third party valuation firm, to assist the Company in the development of these assumptions and the Company’s determination of the fair value of its permits.
Other intangible assets include definite-lived intangible assets and permanent easements. The Company’s definite-lived intangible assets include primarily 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. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at cost. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.
The Company tests for possible impairment of other intangible assets whenever events and circumstances indicate that they might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.

10



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

Goodwill
The Company performs its annual impairment test on July 1 of each year. The Company uses a discounted cash flow model to determine if the carrying value of the reporting unit, including goodwill, is less than the fair value of the reporting unit. The Company identified its reporting units in accordance with ASC 350-20-55. The Company’s U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test.  The Company also determined that within its Americas segment and its International outdoor segment each country constitutes a separate reporting unit.  The Company had impairment of goodwill of $1.6 million and $7.3 million for 2017 and 2016, respectively. The Company had no impairment of goodwill for 2015.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20 percent to 50 percent of the common stock or otherwise exercises significant influence over the investee are accounted for under the equity method.   The Company does not recognize gains or losses upon the issuance of securities by any of its equity method investees.   The Company reviews the value of equity method investments and records impairment charges in the statement of operations as a component of “Equity in loss of nonconsolidated affiliates” for any decline in value that is determined to be other-than-temporary.
Other Investments
Other investments are composed primarily of equity securities.  Securities for which fair value is determinable are classified as available-for-sale or trading and are carried at fair value based on quoted market prices.  Securities are carried at historical cost when quoted market prices are unavailable.  The net unrealized gains or losses on the available-for-sale securities, net of tax, are reported in accumulated other comprehensive loss as a component of stockholders’ deficit.
The Company periodically assesses the value of available-for-sale and non-marketable securities and records impairment charges in the statement of comprehensive income (loss) for any decline in value that is determined to be other-than-temporary.  The average cost method is used to compute the realized gains and losses on sales of equity securities. Based on these assessments, the Company recognized an impairment of $1.0 million during the year ended December 31, 2017, which was recorded in “Other income (expense), net,” and no impairments during the years ended December 31, 2016 and 2015.
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts payable, accrued liabilities and short-term borrowings approximated their fair values at December 31, 2017 and 2016.
Asset Retirement Obligation
ASC 410-20 requires the Company to estimate its obligation upon the termination or non-renewal of a lease to dismantle and remove its advertising structures from the leased land and to reclaim the site to its original condition. The Company’s asset retirement obligation is reported in “Other long-term liabilities.” The Company records the present value of obligations associated with the retirement of its advertising structures in the period in which the obligation is incurred. When the liability is recorded, the cost is capitalized as part of the related advertising structures carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases 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 that some portion or the entire asset will not be realized. The Company has not provided U.S. federal income taxes for temporary differences with respect to investments in foreign subsidiaries, which at December 31, 2017, currently result in tax basis amounts greater than the financial reporting basis. It is not apparent that these unrecognized deferred tax assets will reverse in the foreseeable future. If any excess cash held by our foreign subsidiaries were needed to fund operations in the U.S., we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes as a result of significant deficits, as calculated for tax law purposes, in our foreign earnings and profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital. Additionally, as a result of U.S. tax reform, future dividend distributions from our international subsidiaries are exempt

11



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

from U.S. federal income tax beginning January 1, 2018. We regularly review our tax liabilities on amounts that may be distributed in future periods and provide for foreign withholding and other current and deferred taxes on any such amounts.
The operations of the Company are included in a consolidated U.S. federal income tax return filed by iHeartMedia. However, for financial reporting purposes, the Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated U.S. federal income tax returns with its subsidiaries.
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:
(In millions)
Years Ended December 31,
 
2017
 
2016
 
2015
Trade and barter revenues
$
17.4

 
$
12.5

 
$
15.2

Trade and barter expenses
11.3

 
11.9

 
8.7

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

12



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

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.
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.
Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses were $15.5 million, $19.3 million and $21.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Share-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award. For awards that vest based on service conditions, this cost is recognized as expense on a straight-line basis over the vesting period. For awards that will vest based on market or performance conditions, this cost will be recognized when it becomes probable that the performance conditions will be satisfied. Determining the fair value of share-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors.
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those subsidiaries and investees are translated into U.S. dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders’ equity (deficit), “Accumulated other comprehensive loss”. Foreign currency transaction gains and losses are included in operations.
New Accounting Pronouncements Recently Adopted
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 Income (Loss), Consolidated Statements of Changes in Stockholders’ Deficit, or Consolidated Statements of Cash Flows for prior periods. As a result of adopting this new accounting standard, the Company has updated its significant accounting policies on accounts receivable, revenue recognition, and contract costs, as described herein. Please refer to Note 2, Revenues, for more information.
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)
December 31, 2017
 
December 31, 2016
Cash and cash equivalents
$
144,119

 
$
531,537

Restricted cash included in:
 
 
 
  Other current assets
26,096

 
680

  Other assets
18,095

 
20,474

Total cash, cash equivalents and restricted cash in the Statement of Cash Flows
$
188,310

 
$
552,691


13



CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO 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.
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 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 does not expect that the adoption of this guidance will have material effect on the Company's carve-out 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).

14



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

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 years ended December 31, 2017, 2016 and 2015:
(In thousands)
Americas(1)
 
International(1)
 
Consolidated
Year Ended December 31, 2017
Revenue from contracts with customers:
 
 
 
 
 
  United States
$
429,475

 
$

 
$
429,475

  Other Americas
10,927

 
57,738

 
68,665

  Europe

 
771,893

 
771,893

  Asia-Pacific and other
578

 
9,966

 
10,544

     Total
440,980

 
839,597

 
1,280,577

Revenue from leases
720,079

 
588,046

 
1,308,125

Revenue, total
$
1,161,059

 
$
1,427,643

 
$
2,588,702

 
 
 
 
 
 
Year Ended December 31, 2016
Revenue from contracts with customers:
  United States
$
418,378

 
$

 
$
418,378

  Other Americas
19,191

 
47,313

 
66,504

  Europe

 
714,477

 
714,477

  Asia-Pacific and other
842

 
117,251

 
118,093

     Total
438,411

 
879,041

 
1,317,452

Revenue from leases
748,769

 
613,601

 
1,362,370

Revenue, total
$
1,187,180

 
$
1,492,642

 
$
2,679,822

 
 
 
 
 
 
Year Ended December 31, 2015
Revenue from contracts with customers:
 
 
 
 
 
  United States
$
444,371

 
$

 
$
444,371

  Other Americas
22,647

 
43,903

 
66,550

  Europe

 
717,156

 
717,156

  Asia-Pacific and other
994

 
128,870

 
129,864

     Total
468,012

 
889,929

 
1,357,941

Revenue from leases
797,255

 
651,008

 
1,448,263

Revenue, total
$
1,265,267

 
$
1,540,937

 
$
2,806,204

(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, Summary of Significant Accounting Policies.
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.

15



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

Revenue from Contracts with Customers
The following tables show the changes in the Company’s contract balances from contracts with customers for the years ended December 31, 2017, 2016 and 2015 and provide a reconciliation of the ending balances to the Consolidated Balance Sheets:
 
Years Ended December 31,
(In thousands)
2017
 
2016
 
2015
Accounts receivable from contracts with customers:
 
 
 
 
 
  Beginning balance, net of allowance
$
292,863

 
$
354,422

 
$
364,082

    Additions (collections), net, and other
54,307

 
(57,920
)
 
(3,118
)
    Bad debt, net of recoveries
(2,740
)
 
(3,639
)
 
(6,542
)
  Ending balance, net of allowance
344,430

 
292,863

 
354,422

Accounts receivable from leases, net of allowance
315,033

 
300,207

 
343,161

Total accounts receivable, net of allowance
$
659,463

 
$
593,070

 
$
697,583

 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
(In thousands)
2017
 
2016
 
2015
Deferred income from contracts with customers:
 
 
 
 
 
  Beginning balance
$
28,067

 
$
38,096

 
$
37,119

    Revenue recognized, included in beginning balance
(27,094
)
 
(35,933
)
 
(34,480
)
    Additions, net of revenue recognized during period, and other
26,948

 
25,904

 
35,457

  Ending balance
27,921

 
28,067

 
38,096

Deferred income from leases
38,514

 
41,587

 
53,420

Total deferred income
66,435

 
69,654

 
91,516

Less: Non-current portion, included in other long-term liabilities
7,257

 
2,649

 
105

Total deferred income, current portion
$
59,178

 
$
67,005

 
$
91,411

The large decrease in deferred income from contracts with customers during 2016 was primarily driven by fewer advance billings in some of our International operations, as well as the sale of our businesses in Australia and Turkey.
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.
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
$
280,940

2019
34,395

2020
17,155

2021
12,004

2022
8,552

Thereafter
7,197

  Total minimum future rentals
$
360,243


NOTE 3 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Dispositions

16



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

In January 2017, Americas sold its Indianapolis, Indiana market in exchange for certain assets in Atlanta, Georgia with a fair value of $39.4 million, plus $43.1 million in cash, net of closing costs. The assets acquired as part of the transaction consisted of $9.9 million in fixed assets and $29.5 million in intangible assets (including $2.3 million in goodwill). The Company recognized a net gain of $28.9 million related to the sale, which is included within Other operating income (expense), net.
During the third quarter of 2017, Americas sold its ownership interest in a joint venture in Canada. As a result, the Company recognized a net loss on sale of $12.1 million, including a $6.3 million cumulative translation adjustment, which is included within Other operating income (expense), net.
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of December 31, 2017 and 2016, respectively.
(In thousands)
December 31,
 
December 31,
 
2017
 
2016
Land, buildings and improvements
$
145,763

 
$
152,775

Structures
2,864,442

 
2,684,673

Furniture and other equipment
179,215

 
148,516

Construction in progress
55,753

 
58,585

 
3,245,173

 
3,044,549

Less: accumulated depreciation
1,850,144

 
1,631,716

Property, plant and equipment, net
$
1,395,029

 
$
1,412,833

The Company recognized an impairment of $2.6 million during the year ended December 31, 2017 in relation to advertising assets that were no longer usable in one country in the Company's International segment.
Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist primarily of billboard permits.  The Company’s billboard permits are granted for the right to operate an advertising structure at the specified location as long as the structure is in compliance with the laws and regulations of each jurisdiction.  The Company’s permits are located on owned land, leased land or land for which we have acquired permanent easements.  In cases where the Company’s permits are located on leased land, the leases typically have initial terms of between 10 and 20 years and renew indefinitely, with rental payments generally escalating at an inflation-based index.  If the Company loses its lease, the Company will typically obtain permission to relocate the permit or bank it with the municipality for future use. 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 to Billboard Permits
The Company performs its annual impairment test on 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.
The application of the direct valuation method attempts to isolate the income that is properly 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 2017 and 2016, the Company recognized no impairment charges related to billboard permits.
Other Intangible Assets
Other intangible assets include definite-lived intangible assets and permanent easements.  The Company’s definite-lived intangible assets consist primarily of 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 December 31, 2017 and 2016, respectively:
(In thousands)
December 31, 2017
 
December 31, 2016
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
Transit, street furniture and other outdoor
contractual rights
$
548,918

 
$
(440,284
)
 
$
563,863

 
$
(426,752
)
Permanent easements
162,920

 

 
159,782

 

Other
4,626

 
(2,318
)
 
4,536

 
(1,812
)
Total
$
716,464

 
$
(442,602
)
 
$
728,181

 
$
(428,564
)
Total amortization expense related to definite-lived intangible assets for the years ended December 31, 2017, 2016 and 2015 was $27.9 million, $37.8 million, and $49.2 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:
(In thousands)
 
2018
$
21,787

2019
14,165

2020
11,974

2021
11,864

2022
10,325


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


Annual Impairment Test to Goodwill
The Company performs its annual impairment test on 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 within its Americas segment, each country in 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, discounted 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.
Based on declining future cash flows expected, the Company recognized goodwill impairment of $1.6 million for the year ended December 31, 2017 for one country in the International segment and $7.3 million for the year ended December 31, 2016 for one country in the International 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, 2015
$
522,749

 
$
235,826

 
$
758,575

Impairment

 
(7,274
)
 
(7,274
)
Dispositions
(6,934
)
 
(30,718
)
 
(37,652
)
Foreign currency

 
(7,049
)
 
(7,049
)
Assets held for sale
(10,337
)
 

 
(10,337
)
Balance as of December 31, 2016
$
505,478

 
$
190,785

 
$
696,263

Impairment

 
(1,591
)
 
(1,591
)
Acquisitions
2,252

 

 
2,252

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

The balance at December 31, 2015 is net of cumulative impairments of $2.7 billion and $281.1 million in the Company’s Americas and International segments, respectively.
NOTE 4 – ASSET RETIREMENT OBLIGATION
The Company’s asset retirement obligation is reported in “Other long-term liabilities” with the current portion recorded in “Accrued liabilities” and relates to its obligation to dismantle and remove outdoor advertising displays from leased land and to reclaim the site to its original condition upon the termination or non-renewal of a lease or contract.  When the liability is recorded, the cost is capitalized as part of the related long-lived assets’ carrying value.  Due to the high rate of lease renewals over a long period of time, the calculation assumes that all related assets will be removed at some period over the next 55 years.  An estimate of third-party cost information is used with respect to the dismantling of the structures and the reclamation of the site.  The interest rate used to calculate the present value of such costs over the retirement period is based on an estimated risk adjusted credit rate for the same period.

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

The following table presents the activity related to the Company’s asset retirement obligation:
(In thousands)
Years Ended December 31,
 
2017
 
2016
Beginning balance
$
39,451

 
$
45,125

Adjustment due to changes in estimates
2,166

 
(5,431
)
Accretion of liability
3,373

 
4,863

Liabilities settled
(2,712
)
 
(4,104
)
Foreign Currency
2,501

 
(1,002
)
Ending balance
$
44,779

 
$
39,451

NOTE 5 – LONG-TERM DEBT
Long-term debt at December 31, 2017 and 2016 consisted of the following:
(In thousands)
December 31,
 
December 31,
 
2017
 
2016
Clear Channel Worldwide Holdings Notes
$
4,925,000

 
$
4,925,000

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

 
225,000

Senior revolving credit facility due 2018

 

Other debt
2,393

 
14,798

Original issue discount
(241
)
 
(6,738
)
Long-term debt fees
(35,426
)
 
(41,069
)
Total debt
$
5,266,726

 
$
5,116,991

Less: current portion
573

 
6,971

Total long-term debt
$
5,266,153

 
$
5,110,020

(1)
The Senior revolving credit facility provides for borrowings up to $75.0 million (the revolving credit commitment). As of December 31, 2017, we had $71.2 million of letters of credit outstanding, and $3.8 million of availability, under the senior revolving credit facility.
The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $5.3 billion and $5.2 billion at December 31, 2017 and December 31, 2016, 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.

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

Senior Notes
As of December 31, 2017 and 2016, the Company had Senior Notes consisting of:
(In thousands)
Maturity Date
 
Interest Rate
 
Interest Payment Terms
 
12/31/2017
 
12/31/2016
CCWH Senior Notes:
 
 
 
 
 
 
 
 
 
6.5% Series A Senior Notes Due 2022
11/15/2022
 
6.5%
 
Payable to the trustee weekly in arrears and to noteholders on May 15 and November 15 of each year
 
$
735,750

 
$
735,750

6.5% Series B Senior Notes Due 2022
11/15/2022
 
6.5%
 
Payable to the trustee weekly in arrears and to noteholders on May 15 and November 15 of each year
 
1,989,250

 
1,989,250

CCWH Senior Subordinated Notes:
 
 
 
 
 
 
 
 
7.625% Series A Senior Notes Due 2020
3/15/2020
 
7.625%
 
Payable to the trustee weekly in arrears and to noteholders on March 15 and September 15 of each year
 
275,000

 
275,000

7.625% Series B Senior Notes Due 2020
3/15/2020
 
7.625%
 
Payable to the trustee weekly in arrears and to noteholders on March 15 and September 15 of each year
 
1,925,000

 
1,925,000

Total CCWH Notes
 
 
 
 
 
 
$
4,925,000

 
$
4,925,000

Clear Channel International B.V. Senior Notes:
 
 
 
 
 
 
8.75% Senior Notes Due 2020
12/15/2020
 
8.750%
 
Payable semi-annually in arrears on June 15 and December 15 of each year
 
375,000

 
225,000

Total Senior Notes
 
 
 
 
 
 
$
5,300,000

 
$
5,150,000

Guarantees and Security
The CCWH Senior Notes are guaranteed by CCOH, Clear Channel Outdoor, Inc. (“CCOI”) and certain of CCOH’s direct and indirect subsidiaries. The CCWH Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by CCOH, CCOI and certain of CCOH’s other domestic subsidiaries and rank junior to each guarantor’s existing and future senior debt, including the CCWH Senior Notes, equally with each guarantor’s existing and future senior subordinated debt and ahead of each guarantor’s existing and future debt that expressly provides that it is subordinated to the guarantees of the CCWH Senior Subordinated Notes.
The CCWH Senior Notes are senior obligations that rank pari passu in right of payment to all unsubordinated indebtedness of CCWH and the guarantees of the CCWH Senior Notes rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors. The CCWH Senior Subordinated Notes are unsecured senior subordinated obligations that rank junior to all of CCWH’s existing and future senior debt, including the CCWH Senior Notes, equally with any of CCWH’s existing and future senior subordinated debt and ahead of all of CCWH’s existing and future debt that expressly provides that it is subordinated to the CCWH Senior Subordinated Notes.
Redemptions
CCWH may redeem the Senior Notes and Senior Subordinated Notes at its option, in whole or part, at redemption prices set forth in the indentures plus accrued and unpaid interest to the redemption date and plus an applicable premium.
Certain Covenants
The indentures governing the Senior Notes and Senior Subordinated Notes contain covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
make certain investments;
in case of the Senior Notes, create liens on its restricted subsidiaries’ assets to secure such debt;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

create restrictions on the payment of dividends or other amounts to it from its restricted subsidiaries that are not guarantors of the notes;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets;
sell certain assets, including capital stock of its subsidiaries; and
in the case of the Series B CCWH Senior Notes and the Series B CCWH Senior Subordinated Notes, pay dividends, redeem or repurchase capital stock or make other restricted payments.
Clear Channel International B.V. Senior Notes
The CCIBV Senior Notes are guaranteed by certain of the International outdoor business’s existing and future subsidiaries. The Company does not guarantee or otherwise assume any liability for the CCIBV Senior Notes. The notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of Clear Channel International B.V., and the guarantees of the notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors of the notes.
On August 14, 2017, CCIBV issued $150.0 million in aggregate principal amount of 8.75% Senior Notes due 2020 (the “New CCIBV Notes”). The New CCIBV Notes were issued as additional notes under the indenture governing CCIBV’s existing 8.75% Senior Notes due 2020 and were issued at a premium, resulting in $156.0 million in proceeds.  The New CCIBV Notes mature on December 15, 2020 and bear interest at a rate of 8.75% per annum, payable semi-annually in arrears on June 15 and December 15 of each year.
Redemptions
Clear Channel International B.V. may redeem the notes at its option, in whole or part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
Certain Covenants
The indenture governing the CCIBV Senior Notes contains covenants that limit Clear Channel International B.V.’s ability and the ability of its restricted subsidiaries to, among other things:
pay dividends, redeem stock or make other distributions or investments;
incur additional debt or issue certain preferred stock;
transfer or sell assets;
create liens on assets;
engage in certain transactions with affiliates;
create restrictions on dividends or other payments by the restricted subsidiaries; and
merge, consolidate or sell substantially all of Clear Channel International B.V.’s assets.
Senior Revolving Credit Facility Due 2018
During the third quarter of 2013, the Company entered into a five-year senior secured revolving credit facility with an aggregate principal amount of $75.0 million.  The revolving credit facility may be used for working capital needs, to issue letters of credit and for other general corporate purposes.  As of December 31, 2017, there were no amounts outstanding under the revolving credit facility, and $71.2 million of letters of credit under the revolving credit facility which reduce availability under the facility. The revolving credit facility contains a springing covenant that requires us to maintain a secured leverage ratio (as defined in the revolving credit facility) of not more than 1.5:1 that is tested at the end of a quarter if availability under the facility is less than 75% of the aggregate commitments under the facility.  The Company was in compliance with the secured leverage ratio covenant as of December 31, 2017.

Other Debt
Other debt includes various borrowings and capital leases utilized for general operating purposes.  Included in the $2.4 million balance at December 31, 2017 is $0.6 million that matures in less than one year.

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

Future Maturities of Long-term Debt
Future maturities of long-term debt as of December 31, 2017 are as follows:
(in thousands)
 
2018
$
533

2019
168

2020
2,575,143

2021
169

2022
2,725,194

Thereafter
1,186

Total (1)
$
5,302,393

(1)
Excludes original issue discount and long-term debt fees of $0.2 million and $35.5 million, respectively, which are amortized through interest expense over the life of the underlying debt obligations.
Guarantees
As of December 31, 2017, the Company had $95.9 million in letters of credit outstanding, a portion of which were supported by $25.4 million of cash collateral. Additionally, as of December 31, 2017, iHeartCommunications had outstanding commercial standby letters of credit and surety bonds of $1.2 million and $55.4 million, respectively, held on behalf of the Company. These letters of credit and surety bonds relate to various operational matters, including insurance, bid and performance bonds, as well as other items.
In addition, as of December 31, 2017, the Company had outstanding bank guarantees of $37.3 million related to international subsidiaries, a portion of which were supported by $17.6 million of cash collateral.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
The Company accounts for its rentals that include renewal options, annual rent escalation clauses, minimum franchise payments and maintenance related to displays under the guidance in ASC 840.
The Company considers its non-cancelable contracts that enable it to display advertising on buses, bus shelters, trains, etc. to be leases in accordance with the guidance in ASC 840-10. These contracts may contain minimum annual franchise payments which generally escalate each year. The Company accounts for these minimum franchise payments on a straight-line basis. If the rental increases are not scheduled in the lease, such as an increase based on subsequent changes in the index or rate, those rents are considered contingent rentals and are recorded as expense when accruable. Other contracts may contain a variable rent component based on revenue. The Company accounts for these variable components as contingent rentals and records these payments as expense when accruable. No single contract or lease is material to the Company’s operations.
The Company accounts for annual rent escalation clauses included in the lease term on a straight-line basis under the guidance in ASC 840-20-25. The Company considers renewal periods in determining its lease terms if at inception of the lease there is reasonable assurance the lease will be renewed. Expenditures for maintenance are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized.
The Company leases office space, equipment and the majority of the land occupied by its advertising structures under long-term operating leases. The Company accounts for these leases in accordance with the policies described above.
The Company’s contracts with municipal bodies or private companies relating to street furniture, billboards, transit and malls generally require the Company to build bus stops, kiosks and other public amenities or advertising structures during the term of the contract. The Company owns these structures and is generally allowed to advertise on them for the remaining term of the contract. Once the Company has built the structure, the cost is capitalized and expensed over the shorter of the economic life of the asset or the remaining life of the contract.
In addition, the Company has commitments relating to required purchases of property, plant, and equipment under certain street furniture contracts.  Certain of the Company’s contracts contain penalties for not fulfilling its commitments related to its obligations

23



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

to build bus stops, kiosks and other public amenities or advertising structures.  Historically, any such penalties have not materially impacted the Company’s financial position or results of operations.
As of December 31, 2017, the Company’s future minimum rental commitments under non-cancelable operating lease agreements with terms in excess of one year, minimum payments under non-cancelable contracts in excess of one year, capital expenditure commitments and employment contracts consist of the following:
(In thousands)
 
 
 
 
Capital
 
Non-Cancelable
 
Non-Cancelable
 
Expenditure
 
Operating Lease
 
Contracts
 
Commitments
2018
$
359,175

 
$
393,980

 
$
38,444

2019
318,213

 
343,578

 
7,928

2020
290,081

 
291,036

 
2,771

2021
253,979

 
255,356

 
4,499

2022
211,110

 
162,062

 
4,591

Thereafter
1,169,871

 
393,599

 
9,877

Total
$
2,602,429

 
$
1,839,611

 
$
68,110

Rent expense charged to operations for the years ended December 31, 2017, 2016 and 2015 was $954.3 million, $947.4 million and $978.6 million, respectively.
In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been somewhat mitigated by Federal and state laws mandating compensation for such loss and constitutional restraints.
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 its 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 names 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 is named as a nominal defendant. The complaint alleges that the Company has 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 alleges that the defendants have 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

24



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

U.S. (the “Outdoor Asset Sales”) allegedly to provide cash to iHeartMedia and iHeartCommunications through a dividend. The complaint also alleges that iHeartMedia, iHeartCommunications and the Sponsor Defendants aided and abetted the directors’ breaches of their fiduciary duties. The complaint further alleges 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 is seeking, 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, iHM filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings.
China Investigation
Several employees of Clear Media Limited, an indirect, non-wholly-owned subsidiary of the Company whose ordinary shares are listed on, but are currently suspended from trading on, the Hong Kong Stock Exchange, are subject to an ongoing police investigation in China for misappropriation of funds. Clear Media Limited has conducted additional procedures and processes, including a special investigation by forensic accountants and an external law firm appointed by Clear Media Limited’s board of directors and approved by the Company’s Audit Committee, into the misappropriation of funds. During the course of the special investigation, it was discovered that three bank accounts were opened in the name of Clear Media Limited entities, which were not authorized, and certain transactions were recorded therein. The opening of the unauthorized bank accounts has also been referred to the police in China for investigation. The misappropriation of funds resulted in discrepancies between actual cash balances and amounts included in the Company's accounting records as of December 31, 2016 and 2015. The effect of the misappropriation of the funds is reflected in these financial statements in the appropriate periods. Such accounting errors are not considered to be material to the current year or prior year 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 the Company intends to cooperate with both agencies in connection with any investigation that may be conducted in this matter.

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

The police investigation is on-going, and the Company is not aware of any litigation, claim or assessment pending against the Company related to the matters described above. 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. In 2017, Clear Media Limited accounted for 9.8% of the Company’s net revenue and 9.9% of its consolidated total assets.
The 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
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 7 — RELATED PARTY TRANSACTIONS
Due from iHeartCommunications
The Company records net amounts due from or to iHeartCommunications as “Due from/to iHeartCommunications” on the consolidated balance sheets, net of allowance for credit losses.  The accounts represent the revolving promissory note issued by CCOH to iHeartCommunications and the revolving promissory note issued by iHeartCommunications to CCOH 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 accounts accrue interest pursuant to the terms of the promissory notes and are generally payable on demand or when they mature on May 15, 2019.
Included in the accounts 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 Company's controlled disbursement accounts and the funding requirements of the Trustee Accounts under the CCWH Senior Notes and the CCWH Subordinated Notes).  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 December 31, 2017 and December 31, 2016, the asset recorded in “Due from iHeartCommunications” on the consolidated balance sheet was $212.0 million and $885.7 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. The loss recognized reduced the amount outstanding of $1,067.6 million to $212.0 million.
If the Company does not recognize the expected recovery under the Due from iHeartCommunications Note, or cannot obtain that amount on a timely basis, 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.

26



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

On November 29, 2017, the “Due from iHeartCommunications” note was amended to extend its maturity from December 15, 2017 to May 15, 2019. The note's interest rate was also amended and increased from 6.5% to 9.3%. Any balance above $1.0 billion continues to accrue interest capped at a rate of 20.0%, while the balance up to $1.0 billion will accrue interest at a rate of 9.3%. The net interest income recognized in the years ended December 31, 2017, 2016 and 2015 was $68.9 million, $50.3 million, and $61.4 million, respectively. 
Other Related Party Transactions
The Company provides advertising space on its billboards for radio stations owned by iHeartCommunications.  For the years ended December 31, 2017, 2016 and 2015, the Company recorded $6.9 million, $3.5 million, and $2.7 million, 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; and (viii) 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 years ended December 31, 2017, 2016 and 2015, the Company recorded $68.7 million, $36.0 million, and $30.1 million, respectively, as a component of corporate expenses for these services.
In February 2017, the Company and its indirect parent company, iHeartMedia, Inc., entered into an agreement related to the potential purchase at fair value of the Clear Channel registered trademarks and domain names. The agreements provide that CCOH will pay a license fee to iHeartMedia, Inc. in 2017 based on revenues of entities using the Clear Channel name, pursuant to the Amended and Restated License Agreement, dated November 10, 2005, by and between iHM Identity, Inc. and Outdoor Management Services, Inc. Included within the management services expense recognized in the year ended December 31, 2017 is an expense related to this license of $36.8 million.
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.
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 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 years ended December 31, 2017, 2016 and 2015, the Company recorded $9.5 million, $9.4 million and $10.7 million, respectively, as a component of selling, general and administrative expenses for these services.

27



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

Stock Purchases
On August 9, 2010, iHeartCommunications announced that its board of directors approved a stock purchase program under which iHeartCommunications or its subsidiaries may purchase up to an aggregate of $100 million of the Company’s Class A common stock and/or the Class A common stock of iHeartMedia, Inc. (“iHeartMedia”). The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at iHeartCommunications’ discretion. As of December 31, 2014, an aggregate $34.2 million was available under this program.  In January 2015, CC Finco, LLC (“CC Finco”), an indirect wholly-owned subsidiary of iHeartCommunications, purchased an additional 2,000,000 shares of the Company’s Class A common stock for $20.4 million.  On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of the Company’s Class A common stock for $22.2 million, increasing iHeartCommunications’ collective holdings to represent approximately 90% of the outstanding shares of the Company’s common stock on a fully-diluted basis, assuming the conversion of all of the Company’s Class B common stock into Class A common stock. As a result of this purchase, the stock purchase program concluded. The purchase of shares in excess of the amount available under the stock purchase program was separately approved by the iHeartCommunications’ board of directors.
Dividends
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 October 5, 2017, the Company paid a special cash dividend 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 October 31, 2017, the board of directors of the Company paid a special cash dividend to Class A and Class B stockholders of record at the closing of business on October 26, 2017, in an aggregate amount equal to $25.0 million.
On January 24, 2018, the Company paid a special cash dividend 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.
NOTE 8 — INCOME TAXES
The operations of the Company are included in a consolidated U.S. federal income tax return filed by iHeartMedia.  However, for financial reporting purposes, the Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated U.S. federal income tax returns with its subsidiaries.
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). The Tax Act reduces the U.S. federal corporate tax rate from 35% percent to 21% effective January 1, 2018, percent, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new U.S taxes on certain foreign earnings. To account for the reduction in the U.S. federal corporate income tax rate, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, generally 21%, which resulted in recording of a provisional deferred tax benefit of $228.0 million during 2017. To determine the impact from the one-time transition tax on accumulated foreign earnings, we analyzed our cumulative foreign earnings and profits in accordance with the rules provided in the Tax Act. Based upon our preliminary analysis which is not yet complete, we have not recorded income tax expense in the current period for the one-time transition tax due to the net accumulated deficit in our foreign earnings and profits.
The provisions in the Tax Act are broad and complex. The Company has not yet completed its analysis of the income tax effects of the Tax Act as of December 31, 2017, but has made reasonable estimates of those effects on existing deferred income tax balances and the one-time transition tax. The final financial statement impact of the Tax Act may differ from the above 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.

28



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

Significant components of the provision for income tax benefit (expense) are as follows:
(In thousands)
Years Ended December 31,
 
2017
 
2016
 
2015
Current - federal
$
(87
)
 
$

 
$
(270
)
Current - foreign
(29,403
)
 
(43,743
)
 
(42,725
)
Current - state
(1,377
)
 
(1,731
)
 
(1,046
)
Total current expense
(30,867
)
 
(45,474
)
 
(44,041
)
 
 
 
 
 
 
Deferred - federal
306,078

 
(89,049
)
 
(8,025
)
Deferred - foreign
(2,548
)
 
56,048

 
2,685

Deferred - state
7,555

 
976

 
(562
)
Total deferred benefit (expense)
311,085

 
(32,025
)
 
(5,902
)
Income tax benefit (expense)
$
280,218

 
$
(77,499
)
 
$
(49,943
)
For the year ended December 31, 2017 the Company recorded current tax expense of $30.9 million as compared to $45.5 million for the 2016 year. The current tax expense for 2017 was primarily related to foreign income taxes on operating profits generated in certain jurisdictions during the period.
For the year ended December 31, 2016 the Company recorded current tax expense of $45.5 million as compared to $44.0 million for the 2015 year. The current tax expense for 2016 was primarily related to foreign income taxes on operating profits generated in certain jurisdictions during the period.
Deferred tax benefit of $311.1 million was recorded for 2017 compared with a deferred tax expense of $32.0 million for 2016.  The change in deferred taxes is primarily due to the provisional deferred tax benefit of $228.0 million recorded in 2017 related to the reduction of the U.S. federal corporate tax rate to 21% in connection with the enactment of the Tax Act mentioned above. The change in foreign deferred taxes was the result of foreign deferred tax benefit recorded in 2016 for the release of valuation allowance against certain net operating loss carryforwards in France.
Deferred tax expense of $32.0 million was recorded for 2016 compared with a deferred tax expense of $5.9 million for 2015.  The change in deferred tax expense is primarily due to the utilization of net operating loss carryforwards in the U.S. which offset taxable income from the gains on the sales of nine non-strategic U.S. outdoor markets during the first quarter of 2016 and the sale of the Company's Australia business during the fourth quarter of 2016. The 2016 federal deferred tax expense was partially offset by foreign deferred tax benefit attributable to the release of $43.3 million of valuation allowance against certain net operating losses in France.

29



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

Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2017 and 2016 are as follows:
(In thousands)
December 31,
 
December 31,
 
2017
 
2016
Deferred tax liabilities:
 
 
 
Intangibles and fixed assets
$
507,625

 
$
804,750

Equity in earnings
2,106

 
2,816

Other
14,058

 
16,971

Total deferred tax liabilities
523,789

 
824,537

Deferred tax assets:
 
 
 
Accrued expenses
16,927

 
19,458

Net operating loss carryforwards
229,398

 
257,613

Bad debt reserves
3,656

 
3,364

Due from iHeartCommunications
202,461

 

Other
24,124

 
38,128

Total deferred tax assets
476,566

 
318,563

Less: Valuation allowance
274,219

 
136,039

Net deferred tax assets
202,347

 
182,524

Net deferred tax liabilities
$
321,442

 
$
642,013

The deferred tax liabilities associated with intangibles and fixed assets primarily relates to the difference in book and tax basis of acquired billboard permits and tax deductible goodwill created from the Company’s various stock acquisitions.  In accordance with ASC 350-10, Intangibles—Goodwill and Other, the Company does not amortize its book basis in permits.  As a result, this deferred tax liability will not reverse over time unless the Company recognizes future impairment charges related to its permits and tax deductible goodwill or sells its permits.  As the Company continues to amortize its tax basis in its permits and tax deductible goodwill, the deferred tax liability will increase over time. The Company’s net foreign deferred tax assets for the period ending December 31, 2017 and 2016 were $53.6 million and $46.7 million, respectively.
At December 31, 2017, the Company had recorded deferred tax assets for net operating loss carryforwards (tax effected) for federal and state income tax purposes of $84.5 million, which expire in various amounts through 2037. In addition, the Company recorded a deferred tax asset of $202.5 million related to the impairment loss on the Due from iHeartCommunications Note. The Company expects to realize the benefits of a portion of its deferred tax assets based upon expected future taxable income from deferred tax liabilities that reverse in the relevant federal and state jurisdictions and carryforward periods.  As of December 31, 2017, the Company had recorded a valuation allowance of $149.2 million against a portion of these deferred tax assets which it does not expect to realize. The Company recorded a net decrease of $11.0 million in valuation allowances against its foreign deferred tax assets during the year ended December 31, 2017.  At December 31, 2017, the Company had recorded $144.9 million (tax-effected) of deferred tax assets for foreign net operating losses, which are offset in part by an associated valuation allowance of $94.2 million.  The remaining deferred tax valuation allowance of $30.8 million offsets other foreign deferred tax assets that are not expected to be realized.  Realization of these foreign deferred tax assets is dependent upon the Company’s ability to generate future taxable income in appropriate tax jurisdictions to obtain benefits.  Due to the Company’s evaluation of all available evidence, including significant negative evidence of cumulative losses in these jurisdictions, the Company continues to record valuation allowances on the foreign deferred tax assets that are not expected to be realized.  The Company expects to realize its remaining gross deferred tax assets based upon its assessment of deferred tax liabilities that will reverse in the same carryforward period and jurisdiction and are of the same character as the net operating loss carryforwards and temporary differences that give rise to the deferred tax assets.  Any deferred tax liabilities associated with billboard permits and tax deductible goodwill intangible assets are not relied upon as a source of future taxable income, as these intangible assets have an indefinite life.

30



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

At December 31, 2017 and 2016, net deferred tax assets include a deferred tax asset of $9.6 million and $14.9 million, respectively, relating to stock-based compensation expense under ASC 718-10, Compensation—Stock Compensation.  Full realization of this deferred tax asset requires stock options to be exercised at a price equaling or exceeding the sum of the grant price plus the fair value of the option at the grant date and restricted stock to vest at a price equaling or exceeding the fair market value at