10-Q 1 ihcomm10-q2017q3.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
 
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________
Commission File Number
001-09645
IHEARTCOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Texas
 
74-1787539
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
20880 Stone Oak Parkway
San Antonio, Texas
 
78258
(Address of principal executive offices)
 
(Zip Code)
(210) 822-2828
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X] No [   ]
 
(Explanatory Note: The registrant is a voluntary filer and is therefore not subject to the filing requirements of the Securities Exchange Act of 1934. However, during the preceding 12 months, and pursuant to the bond indentures of iHeartCommunications, Inc., the registrant has filed all reports that it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 if the registrant was subject to the filing requirements of the Securities Exchange Act of 1934 during such timeframe.)
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [X] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [   ]   Accelerated filer [   ]   Non-accelerated filer [X]  Smaller reporting company [   ] Emerging growth company [ ]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
 
 
 
 
 
Class
 
Outstanding at November 6, 2017
 
 
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
 
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
 
 
Common Stock, $.001 par value
 
500,000,000

 
 
 
 
 
 
 
 
The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form in a reduced disclosure format permitted by General Instruction H(2).



IHEARTCOMMUNICATIONS, INC.
INDEX
 
 
Page No.
Part I – Financial Information
 
Item 1.
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II – Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
286,370

 
$
845,030

Accounts receivable, net of allowance of $40,510 in 2017 and $33,882 in 2016
1,433,019

 
1,364,404

Prepaid expenses
230,209

 
184,586

Assets held for sale

 
55,602

Other current assets
77,876

 
55,065

Total Current Assets
2,027,474

 
2,504,687

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Structures, net
1,152,066

 
1,196,676

Other property, plant and equipment, net
735,997

 
751,486

INTANGIBLE ASSETS AND GOODWILL
 
 
 
Indefinite-lived intangibles - licenses
2,408,184

 
2,413,899

Indefinite-lived intangibles - permits
977,152

 
960,966

Other intangibles, net
596,287

 
740,508

Goodwill
4,083,589

 
4,066,575

OTHER ASSETS
 
 
 
Other assets
276,511

 
227,450

Total Assets
$
12,257,260

 
$
12,862,247

CURRENT LIABILITIES
 

 
 

Accounts payable
$
157,217

 
$
142,600

Accrued expenses
718,458

 
724,793

Accrued interest
149,533

 
264,170

Deferred income
215,410

 
200,103

Current portion of long-term debt
619,003

 
342,908

Total Current Liabilities
1,859,621

 
1,674,574

Long-term debt
19,995,897

 
20,022,080

Deferred income taxes
1,460,882

 
1,457,095

Other long-term liabilities
618,575

 
593,973

Commitments and contingent liabilities (Note 4)


 


STOCKHOLDER’S DEFICIT
 
 
 
Noncontrolling interest
114,133

 
135,778

Common stock, par value $.001 per share, authorized and issued 500,000,000 shares in 2017 and 2016, respectively
500

 
500

Additional paid-in capital
2,069,241

 
2,068,075

Accumulated deficit
(13,544,381
)
 
(12,733,952
)
Accumulated other comprehensive loss
(317,208
)
 
(355,876
)
Total Stockholder's Deficit
(11,677,715
)
 
(10,885,475
)
Total Liabilities and Stockholder's Deficit
$
12,257,260

 
$
12,862,247

See Notes to Consolidated Financial Statements

1



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenue
$
1,537,416

 
$
1,566,582

 
$
4,457,106

 
$
4,542,852

Operating expenses:
 
 
 
 
 
 
 
Direct operating expenses (excludes depreciation and amortization)
621,895

 
591,740

 
1,807,534

 
1,771,590

Selling, general and administrative expenses (excludes depreciation and amortization)
438,654

 
421,700

 
1,336,563

 
1,281,849

Corporate expenses (excludes depreciation and amortization)
77,967

 
86,832

 
233,487

 
252,348

Depreciation and amortization
149,749

 
158,453

 
443,650

 
476,053

Impairment charges
7,631

 
8,000

 
7,631

 
8,000

Other operating income (expense), net
(13,215
)
 
(505
)
 
24,785

 
219,768

Operating income
228,305

 
299,352

 
653,026

 
972,780

Interest expense
470,250

 
459,852

 
1,388,747

 
1,389,793

Loss on investments, net
(2,173
)
 
(13,767
)
 
(2,433
)
 
(13,767
)
Equity in earnings (loss) of nonconsolidated affiliates
(2,238
)
 
1,117

 
(2,240
)
 
(926
)
Gain on extinguishment of debt

 
157,556

 

 
157,556

Other income (expense), net
2,223

 
(7,323
)
 
(11,244
)
 
(47,054
)
Loss before income taxes
(244,133
)
 
(22,917
)
 
(751,638
)
 
(321,204
)
Income tax expense
(2,051
)
 
(5,613
)
 
(50,143
)
 
(42,243
)
Consolidated net loss
(246,184
)
 
(28,530
)
 
(801,781
)
 
(363,447
)
Less amount attributable to noncontrolling interest
1,993

 
6,471

 
8,648

 
38,950

Net loss attributable to the Company
$
(248,177
)
 
$
(35,001
)
 
$
(810,429
)
 
$
(402,397
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
13,010

 
7,356

 
44,665

 
43,797

Unrealized holding loss on marketable securities
(320
)
 
(290
)
 
(218
)
 
(635
)
Reclassification adjustments
6,207

 

 
4,563

 
32,823

Other adjustments to comprehensive income (loss)

 
193

 

 
(3,551
)
Other comprehensive income
18,897

 
7,259

 
49,010

 
72,434

Comprehensive loss
(229,280
)
 
(27,742
)
 
(761,419
)
 
(329,963
)
Less amount attributable to noncontrolling interest
4,289

 
1,235

 
10,342

 
6,365

Comprehensive loss attributable to the Company
$
(233,569
)
 
$
(28,977
)
 
$
(771,761
)
 
$
(336,328
)
See Notes to Consolidated Financial Statements

2



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Consolidated net loss
$
(801,781
)
 
$
(363,447
)
Reconciling items:
 
 
 
Impairment charges
7,631

 
8,000

Depreciation and amortization
443,650

 
476,053

Deferred taxes
12,505

 
(14,097
)
Provision for doubtful accounts
20,936

 
20,042

Amortization of deferred financing charges and note discounts, net
42,682

 
51,806

Share-based compensation
9,020

 
10,350

Gain on disposal of operating and other assets
(30,149
)
 
(227,765
)
Loss on investments
2,433

 
13,767

Equity in loss of nonconsolidated affiliates
2,240

 
926

Gain on extinguishment of debt

 
(157,556
)
Barter and trade income
(32,953
)
 
(22,126
)
Foreign exchange transaction (gain) loss
(21,602
)
 
46,533

Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
(Increase) decrease in accounts receivable
(60,984
)
 
16,909

Increase in prepaid expenses and other current assets
(41,306
)
 
(17,836
)
Decrease in accrued expenses
(37,819
)
 
(60,515
)
Increase (decrease) in accounts payable
9,419

 
(39,660
)
Decrease in accrued interest
(78,087
)
 
(92,947
)
Increase in deferred income
3,847

 
37,550

Changes in other operating assets and liabilities
(8,399
)
 
41,435

Net cash used for operating activities
(558,717
)
 
(272,578
)
Cash flows from investing activities:
 
 
 
Purchases of other investments
(29,498
)
 
(33,911
)
Proceeds from sale of other investments
5,059

 
3,256

Purchases of property, plant and equipment
(184,944
)
 
(201,038
)
Proceeds from disposal of assets
71,320

 
604,044

Purchases of other operating assets
(3,224
)
 
(3,464
)
Change in other, net
(3,693
)
 
(2,575
)
Net cash provided by (used for) investing activities
(144,980
)
 
366,312

Cash flows from financing activities:
 
 
 
Draws on credit facilities
60,000

 

Payments on credit facilities
(25,909
)
 
(1,728
)
Proceeds from long-term debt
156,000

 
800

Payments on long-term debt
(5,385
)
 
(226,640
)
Payments to purchase noncontrolling interests
(953
)
 

Dividends and other payments to noncontrolling interests
(41,083
)
 
(93,371
)
Change in other, net
(5,604
)
 
(1,644
)
Net cash provided by (used for) financing activities
137,066

 
(322,583
)
Effect of exchange rate changes on cash
7,971

 
(919
)
Net decrease in cash and cash equivalents
(558,660
)
 
(229,768
)
Cash and cash equivalents at beginning of period
845,030

 
772,678

Cash and cash equivalents at end of period
$
286,370

 
$
542,910

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash paid for interest
$
1,426,438

 
$
1,434,482

Cash paid for taxes
31,668

 
39,288

See Notes to Consolidated Financial Statements

3



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION
Preparation of Interim Financial Statements
All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” refer to iHeartCommunications, Inc. and its consolidated subsidiaries. The Company’s reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”).
The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods may not be indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2016 Annual Report on Form 10-K.
We are a holding company and have no significant assets other than the ownership interests in our subsidiaries. All of our operations and all of our operating assets are held by our subsidiaries. Certain of our outstanding indebtedness is fully and unconditionally guaranteed on a joint and several basis by our parent, iHeartMedia Capital I, LLC ("Capital I"), and certain of our direct and indirect wholly-owned domestic subsidiaries. Not all of our subsidiaries guarantee our obligations under such outstanding indebtedness. For a presentation of the allocation of assets, liabilities, equity, revenues and expenses attributable to the guarantors of our indebtedness in conformity with the SEC's Regulation S-X Rule 3-10(d), please refer to Note 10 to the consolidated financial statements of Capital I as of and for the period ending September 30, 2017.
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% to 50% of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process. Certain prior-period amounts have been reclassified to conform to the 2017 presentation.
The Company is a Texas corporation with all of its common stock being held by Capital I. All of Capital I's interests are held by iHeartMedia Capital II, LLC, a direct, wholly-owned subsidiary of iHeartMedia, Inc. ("Parent"). Parent was formed in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the "Sponsors") for the purpose of acquiring the business of the Company.
Omission of Per Share Information
Net loss per share information is not presented as Capital I owns 100% of the Company's common stock. The Company does not have any publicly traded common stock.
Going Concern Considerations
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures.  The Company adopted this standard for the year ended December 31, 2016. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods.
In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern for 12 months following the date the Company’s financial statements were issued (November 8, 2017). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due before November 8, 2018.

4



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

As of September 30, 2017, the Company had $286.4 million of cash and cash equivalents on its balance sheet, including $222.4 million of cash and cash equivalents held by the Company's subsidiary, Clear Channel Outdoor Holdings, Inc. ("CCOH"). As of September 30, 2017, the Company had $85.0 million of excess availability under our receivables-based credit facility, subject to limitations in our material financing agreements. A substantial amount of the Company's cash requirements are for debt service obligations. Although the Company has generated operating income in excess of $1.0 billion in each of the years ended December 31, 2016 and 2015, the Company incurred net losses and had negative cash flows from operations for each of these years as a result of significant cash interest payments arising from the Company's substantial debt balance. For the nine months ended September 30, 2017, the Company used cash of $558.7 million for operating activities, which included cash paid for interest of $1,426.4 million. The Company's current forecast indicates it will continue to incur net losses and generate negative cash flows from operating activities as a result of the Company's indebtedness and significant related interest expense. At September 30, 2017, the Company had debt maturities totaling $366.9 million, $308.5 million (net of $277.1 million due to certain of our subsidiaries) and $8,368.9 million in 2017, 2018 and 2019, respectively. In October 2017, the Company exchanged $45.0 million principal amount of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of the Company for $45.0 million principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties. After the exchanges, the Company's debt maturities in the next 12 months include, (i) $365.0 million outstanding under our receivables-based credit facility, which matures on December 24, 2017, (ii) $51.5 million of 10% Senior Notes due January 15, 2018, (iii) $175.0 million of 6.875% Senior Notes due June 15, 2018 and (iv) $24.8 million of contractual AHYDO catch-up payments to be made on our 14% Senior Notes due 2021 on the interest payment due on August 1, 2018. The Company's forecast includes approximately $1.8 billion in cash interest payments in the next 12 months, of which $344.6 million is payable in the quarter ended December 31, 2017 and $548.2 million is payable in the first quarter of 2018. In addition, in certain circumstances, a committee of the CCOH board of directors formed for the specific purpose of monitoring the Intercompany Note (the “CCOH Intercompany Note Committee”) has the non-exclusive authority to demand payments under the Intercompany Note, as long as the CCOH board of directors declares a simultaneous dividend equal to the amount so demanded.  As of November 8, 2017, the CCOH Intercompany Note Committee has the right pursuant to the terms of the settlement of the derivative litigation filed by CCOH’s stockholders regarding the Intercompany Note but not the obligation, to make a demand on the Intercompany Note. If the CCOH Intercompany Note Committee exercises this right to demand a full repayment of the Intercompany Note and the CCOH board of directors declares a simultaneous dividend, based on the balance of the Intercompany Note outstanding at September 30, 2017, approximately $110.4 million would be payable to the public stockholders of CCOH. If the Company is unable to refinance the amounts outstanding under the receivables-based credit facility, the 10% Senior Notes due January 15, 2018, and/or the 6.875% Senior Notes due June 15, 2018 and take other steps to create additional liquidity, forecasted cash flows are not sufficient for the Company to meet its obligations, including upcoming interest payments and maturities on the Company's outstanding debt, as they become due in the ordinary course of business for a period of 12 months following November 8, 2017. As discussed below, the Company has plans to reduce its principal and interest obligations and to create additional liquidity.
The Company is in advanced negotiations with potential lenders to refinance the amounts outstanding under the Company's receivables-based credit facility and currently expects to refinance the amounts outstanding under that facility prior to its maturity. In addition, management is taking actions to maximize cash available to meet the Company’s obligations as they become due in the ordinary course of business. In addition, as more fully described in Note 3, the Company launched notes exchange offers and term loan offers in March 2017, which notes exchange offers and term loan offers remain open as of November 8, 2017. The Company has engaged in discussions with many of its lenders and noteholders regarding the terms of the global exchange offers and term loan offers, which have been revised since launch and remain subject to substantial further revision, but no agreement has been reached with respect to those discussions and the discussions remain ongoing. These actions are intended to mitigate those conditions which raise substantial doubt of the Company’s ability to continue as a going concern for a period within 12 months following November 8, 2017.
While the Company continues to work toward completing the notes exchange offers and the term loan offers or other similar transactions, refinancing the amounts outstanding under the receivables-based credit facility and taking other actions to create additional liquidity, there is no assurance that the notes exchange offers and the term loan offers or other similar transactions, will be completed, that the amount outstanding under the receivables-based credit facility will be refinanced or that the Company will be able to create additional liquidity. The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next 12 months will depend on its ability to achieve forecasted results, its ability to conserve cash, its ability to refinance the amounts outstanding under the Company's receivables-based credit facility, its ability to successfully complete the notes exchange offers and the term loan offers or other similar transactions and achieve sufficient cash interest savings therefrom and its ability to complete other liquidity-generating transactions. Based on the uncertainty of achieving these actions and the significance of the forecasted future negative cash flows resulting from the Company's substantial debt balance, including anticipated future cash interest payments (including interest due in the fourth quarter of 2017 and in 2018) and the maturities of

5



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

the $365.0 million in current borrowings under the Company's receivables-based credit facility that matures December 24, 2017, the $51.5 million aggregate principal amount of 10% Senior Notes due January 15, 2018, the $175.0 million aggregate principal amount of 6.875% Senior Notes due June 15, 2018 and the $24.8 million of contractual AHYDO catch-up payments to be made on our 14% Senior Notes due 2021 beginning with the interest payment due on August 1, 2018, management has determined that there is substantial doubt as to the Company’s ability to continue as a going concern for a period of 12 months following November 8, 2017.
New Accounting Pronouncements
During the third quarter of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update provides a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers.  ASU No. 2014-09 provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP.  The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company expects to utilize the full retrospective method. The Company has substantially completed its evaluation of the potential changes from adopting the new standard on its future financial reporting and disclosures, which included reviews of contractual terms for all of the Company’s significant revenue streams and the development of an implementation plan. The Company continues to execute on its implementation plan, including detailed policy drafting and training of segment personnel. Based on its evaluation, the Company does not expect material changes to its 2016 or 2017 consolidated revenues, operating income or balance sheets as a result of the implementation of this standard.
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. Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard which was issued in the third quarter of 2015. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of this new standard on its 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 is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.

6



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 2 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Dispositions
In January 2017, Americas outdoor sold its Indianapolis, Indiana market to Fairway Media Group, LLC 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 outdoor 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 September 30, 2017 and December 31, 2016, respectively:
(In thousands)
September 30,
2017
 
December 31,
2016
Land, buildings and improvements
$
578,054

 
$
570,566

Structures
2,807,023

 
2,684,673

Towers, transmitters and studio equipment
356,222

 
350,760

Furniture and other equipment
689,227

 
622,848

Construction in progress
93,850

 
91,655

 
4,524,376

 
4,320,502

Less: accumulated depreciation
2,636,313

 
2,372,340

Property, plant and equipment, net
$
1,888,063

 
$
1,948,162

Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of Federal Communications Commission (“FCC”) broadcast licenses in its iHM segment and billboard permits in its Americas outdoor advertising segment. Due to significant differences in both business practices and regulations, billboards in the International outdoor segment are subject to long-term, finite contracts unlike the Company’s permits in the United States and Canada.  Accordingly, there are no indefinite-lived intangible assets in the International outdoor segment.
Annual Impairment Test on Indefinite-lived Intangible Assets
The Company performs its annual impairment test on indefinite-lived intangible assets as of July 1 of each year.
The impairment tests for indefinite-lived intangible assets consist of a comparison between the fair value of the indefinite-lived intangible asset at the market level with its carrying amount. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the indefinite-lived asset is its new accounting basis. The fair value of the indefinite-lived asset is determined using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the indefinite-lived assets is calculated at the market level as prescribed by ASC 350-30-35. The Company engaged a third-party valuation firm, to assist it in the development of the assumptions and the Company’s determination of the fair value of its indefinite-lived intangible assets.
The application of the direct valuation method attempts to isolate the income that is attributable to the indefinite-lived intangible asset alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. The Company forecasts revenue, expenses, and cash flows over a ten-year period for each of its markets in its application of the direct valuation method. The Company also calculates a

7



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

“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 licenses 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 FCC license or billboard permit within a market.
The Company recognized impairment charges related to its indefinite-lived intangible assets within one iHM radio market of $6.0 million during the three and nine months ended September 30, 2017. The Company recognized impairment charges related to its indefinite-lived intangible assets of $0.7 million during the three and nine months ended September 30, 2016.
Other Intangible Assets
Other intangible assets include definite-lived intangible assets and permanent easements.  The Company’s definite-lived intangible assets primarily include transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and site-leases and other contractual rights, all of which are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.  The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets.  These assets are recorded at cost.
The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of September 30, 2017 and December 31, 2016, respectively:
(In thousands)
September 30, 2017
 
December 31, 2016
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
Transit, street furniture and other outdoor
contractual rights
$
587,099

 
$
(469,982
)
 
$
563,863

 
$
(426,752
)
Customer / advertiser relationships
1,222,518

 
(1,103,001
)
 
1,222,519

 
(1,012,380
)
Talent contracts
319,384

 
(292,932
)
 
319,384

 
(281,060
)
Representation contracts
253,350

 
(236,157
)
 
253,511

 
(229,413
)
Permanent easements
162,920

 

 
159,782

 

Other
390,302

 
(237,214
)
 
390,171

 
(219,117
)
Total
$
2,935,573

 
$
(2,339,286
)
 
$
2,909,230

 
$
(2,168,722
)
Total amortization expense related to definite-lived intangible assets for the three months ended September 30, 2017 and 2016 was $49.5 million and $55.6 million, respectively. Total amortization expense related to definite-lived intangible assets for the nine months ended September 30, 2017 and 2016 was $148.2 million and $167.7 million, respectively.

8



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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
$
127,795

2019
44,958

2020
38,326

2021
34,815

2022
30,007

Goodwill
Annual Impairment Test to Goodwill
The Company performs its annual impairment test on goodwill as of July 1 of each year.
Each of the U.S. radio markets and outdoor advertising markets are components of the Company. The U.S. radio markets are aggregated into a single reporting unit and the U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test using the guidance in ASC 350-20-55. The Company also determined that each country within its Americas outdoor segment and International outdoor segment constitutes a separate reporting unit.
The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If applicable, the second step, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
Each of the Company’s reporting units is valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the reporting unit and discounting such cash flows to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors.
The Company recognized goodwill impairment of $1.6 million during the three and nine months ended September 30, 2017 related to one market in the Company's International outdoor segment. The Company recognized goodwill impairment of $7.3 million during the three and nine months ended September 30, 2016 related to one market in the Company's International outdoor segment.

9



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:
(In thousands)
iHM
 
Americas Outdoor Advertising
 
International Outdoor Advertising
 
Other
 
Consolidated
Balance as of December 31, 2015
$
3,288,481

 
$
534,683

 
$
223,892

 
$
81,831

 
$
4,128,887

Impairment

 

 
(7,274
)
 

 
(7,274
)
Dispositions

 
(6,934
)
 
(30,718
)
 

 
(37,652
)
Foreign currency

 
(1,998
)
 
(5,051
)
 

 
(7,049
)
Assets held for sale

 
(10,337
)
 

 

 
(10,337
)
Balance as of December 31, 2016
$
3,288,481

 
$
515,414

 
$
180,849

 
$
81,831

 
$
4,066,575

Impairment

 

 
(1,591
)
 

 
(1,591
)
Acquisitions

 
2,252

 

 

 
2,252

Dispositions

 

 
(1,817
)
 

 
(1,817
)
Foreign currency

 
654

 
17,427

 

 
18,081

Assets held for sale

 
89

 

 

 
89

Balance as of September 30, 2017
$
3,288,481

 
$
518,409

 
$
194,868

 
$
81,831

 
$
4,083,589

NOTE 3 – LONG-TERM DEBT
Long-term debt outstanding as of September 30, 2017 and December 31, 2016 consisted of the following:
(In thousands)
September 30,
2017
 
December 31,
2016
Senior Secured Credit Facilities(1)
$
6,300,000

 
$
6,300,000

Receivables Based Credit Facility Due 2017(2)
365,000

 
330,000

9.0% Priority Guarantee Notes Due 2019
1,999,815

 
1,999,815

9.0% Priority Guarantee Notes Due 2021
1,750,000

 
1,750,000

11.25% Priority Guarantee Notes Due 2021
825,546

 
575,000

9.0% Priority Guarantee Notes Due 2022
1,000,000

 
1,000,000

10.625% Priority Guarantee Notes Due 2023
950,000

 
950,000

Subsidiary Revolving Credit Facility Due 2018(3)

 

Other secured subsidiary debt(4)
8,681

 
20,987

Total consolidated secured debt
13,199,042

 
12,925,802

 
 
 
 
14.0% Senior Notes Due 2021(5)
1,763,925

 
1,729,168

Legacy Notes(6)
475,000

 
475,000

10.0% Senior Notes Due 2018
96,482

 
347,028

Subsidiary Senior Notes due 2022
2,725,000

 
2,725,000

Subsidiary Senior Subordinated Notes due 2020
2,200,000

 
2,200,000

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

 
225,000

Other subsidiary debt
25,588

 
27,954

Purchase accounting adjustments and original issue discount
(142,796
)
 
(166,961
)
Long-term debt fees
(102,341
)
 
(123,003
)
Total debt
20,614,900

 
20,364,988

Less: current portion
619,003

 
342,908

Total long-term debt
$
19,995,897

 
$
20,022,080


10



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1)
Term Loan D and Term Loan E mature in 2019.
(2)
The Receivables Based Credit Facility, which matures December 24, 2017, provides for borrowings up to the lesser of $535.0 million (the revolving credit commitment) or the borrowing base, subject to certain limitations contained in the Company's material financing agreements.
(3)
The Subsidiary Revolving Credit Facility provides for borrowings up to $75.0 million (the revolving credit commitment).
(4)
Other secured subsidiary debt matures at various dates from 2017 through 2045.
(5)
The 14.0% Senior Notes due 2021 are subject to required payments at various dates from 2018 through 2021. 2.0% per annum of the interest is paid through the issuance of payment-in-kind notes in the first and third quarters.
(6)
The Company's Legacy Notes, all of which were issued prior to the acquisition of the Company by Parent in 2008, consist of Senior Notes maturing at various dates in 2018 and 2027, as well as $57.1 million of Senior Notes due 2016 held by a subsidiary of the Company that remain outstanding but are eliminated for purposes of consolidation of the Company’s financial statements.

The Company’s weighted average interest rate was 8.7% and 8.5% as of September 30, 2017 and December 31, 2016, respectively. The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $15.8 billion and $16.7 billion as of September 30, 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 either Level 1 or Level 2.
On January 31, 2017, the Company repaid $25.0 million of the amount borrowed under our receivables-based credit facility. On July 31, 2017, the Company borrowed an additional $60.0 million on our receivables-based credit facility, bringing the total amount outstanding under this facility as of September 30, 2017 to $365.0 million.
On February 7, 2017, the Company completed an exchange offer by issuing $476.4 million in aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 in exchange for $476.4 million of aggregate principal amount outstanding of our 10.0% Senior Notes due 2018. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of the Company that participated in the exchange offer.
On March 15, 2017, the Company commenced exchange offers (the “notes exchange offers”) to exchange certain series of our outstanding debt securities (the “Existing Notes”) for new securities of Parent, the Company and CC Outdoor Holdings, Inc., a wholly-owned subsidiary of Parent, and concurrent consent solicitations with respect to the terms of the Existing Notes. On March 15, 2017, the Company also commenced offers (the “term loan offers”) to amend its outstanding Term Loan D and Term Loan E under its senior secured credit facilities and/or to issue new securities of Parent, CC Outdoor Holdings, Inc., Broader Media, LLC and/or the Company to the lenders depending on the scenario in which the notes exchange offers and the term loan offers close. The terms of the notes exchange offers and the term loan offers have been revised and are subject to substantial further revision, and the offers may never be consummated, on the terms currently proposed or otherwise. Both the notes exchange offers and the term loan offers were open as of November 8, 2017.
On July 10, 2017, a subsidiary of the Company exchanged $15.6 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of the Company for $15.6 million aggregate principal amount of its 10.0% Senior Notes due 2018 that were held by an unaffiliated third party.
On August 14, 2017, Clear Channel International B.V. (“CCIBV”), an indirect subsidiary of the Company, issued $150.0 million in aggregate principal amount of 8.75% Senior Notes due 2020 (the “New Notes”). The New 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 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.

In October 2017, a subsidiary of the Company exchanged $45.0 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of the Company for $45.0 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties.
Surety Bonds, Letters of Credit and Guarantees
As of September 30, 2017, the Company had outstanding surety bonds, commercial standby letters of credit and bank guarantees of $72.1 million, $144.5 million and $36.6 million, respectively. Bank guarantees and letters of credit of $17.3 million and $28.8 million, respectively, were backed by cash collateral. These surety bonds, letters of credit and bank guarantees relate to various operational matters including insurance, bid, concession and performance bonds as well as other items.

11



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 4 – COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.
Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
International Outdoor Investigation
On April 21, 2015, inspections were conducted at the premises of Clear Channel in Denmark and Sweden as part of an investigation by Danish competition authorities.  Additionally, on the same day, Clear Channel UK received a communication from the UK competition authorities, also in connection with the investigation by Danish competition authorities. Clear Channel and its affiliates are cooperating with the national competition authorities.
Stockholder Litigation
On May 9, 2016, a stockholder of Clear Channel Outdoor Holdings, Inc. ("CCOH") 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 the Company, Parent, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the "Sponsor Defendants"), Parent's private equity sponsors and majority owners, and the members of CCOH's board of directors. CCOH also is named as a nominal defendant. The complaint alleges that CCOH has been harmed by the intercompany agreements with the Company, CCOH’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of the Company, Parent and the Sponsor Defendants to the detriment of CCOH and its minority stockholders. Specifically, the complaint alleges that the defendants have breached their fiduciary duties by causing CCOH to: (i) continue to loan cash to us under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to the Company and Parent; (iii) issue new debt in the CCIBV note offering (the "CCIBV Note Offering") to provide cash to the Company and Parent through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the "Outdoor Asset Sales") allegedly to provide cash to the Company and Parent through a dividend. The complaint also alleges that the Company, Parent and the Sponsor Defendants aided and abetted the directors' breaches of their fiduciary duties. The complaint further alleges that the Company, Parent 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 CCOH. The plaintiff is seeking, among other things, a ruling that the defendants breached their fiduciary duties to CCOH and that the Company, Parent and the Sponsor Defendants aided and abetted the CCOH board of directors' breaches of fiduciary duty, rescission of payments made by CCOH to the Company and our affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring the Company, Parent 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.

12



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 5 – INCOME TAXES
Income Tax Expense
The Company’s income tax expense for the three and nine months ended September 30, 2017 and 2016, respectively, consisted of the following components:
(In thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Current tax benefit (expense)
$
7,349

 
$
(9,339
)
 
$
(37,638
)
 
$
(56,340
)
Deferred tax benefit (expense)
(9,400
)
 
3,726

 
(12,505
)
 
14,097

Income tax expense
$
(2,051
)
 
$
(5,613
)
 
$
(50,143
)
 
$
(42,243
)
The effective tax rates for the three months ended September 30, 2017 and 2016 were (0.8)% and (24.5)%, respectively. The effective tax rates for the nine months ended September 30, 2017 and 2016 were (6.7)% and (13.2)%, respectively. The 2017 and 2016 effective tax rates were primarily impacted by the valuation allowance recorded against deferred tax assets resulting from current period net operating losses in U.S. federal, state and certain foreign jurisdictions due to uncertainty regarding the Company's ability to realize those assets in future periods.
NOTE 6 – STOCKHOLDER’S DEFICIT
The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Company’s equity.  The following table shows the changes in stockholder's deficit attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total, ownership interest:
(In thousands)
The Company
 
Noncontrolling
Interests
 
Consolidated
Balance as of January 1, 2017
$
(11,021,253
)
 
$
135,778

 
$
(10,885,475
)
Net income (loss)
(810,429
)
 
8,648

 
(801,781
)
Dividends and other payments to noncontrolling interests

 
(43,540
)
 
(43,540
)
Share-based compensation
1,867

 
7,153

 
9,020

Purchases of additional noncontrolling interest
(378
)
 
(575
)
 
(953
)
Disposal of noncontrolling interest

 
(2,438
)
 
(2,438
)
Foreign currency translation adjustments
34,785

 
9,880

 
44,665

Unrealized holding loss on marketable securities
(195
)
 
(23
)
 
(218
)
Reclassification adjustments
4,078

 
485

 
4,563

Other, net
(323
)
 
(1,235
)
 
(1,558
)
Balances as of September 30, 2017
$
(11,791,848
)
 
$
114,133

 
$
(11,677,715
)

13



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(In thousands)
The Company
 
Noncontrolling
Interests
 
Consolidated
Balance as of January 1, 2016
$
(10,784,841
)
 
$
178,160

 
$
(10,606,681
)
Net income (loss)
(402,397
)
 
38,950

 
(363,447
)
Dividends and other payments to noncontrolling interests

 
(74,542
)
 
(74,542
)
Share-based compensation
2,159

 
8,191

 
10,350

Foreign currency translation adjustments
40,914

 
2,883

 
43,797

Unrealized holding loss on marketable securities
(571
)
 
(64
)
 
(635
)
Reclassification adjustments
28,919

 
3,904

 
32,823

Other adjustments to comprehensive loss
(3,193
)
 
(358
)
 
(3,551
)
Other, net
(1,389
)
 
495

 
(894
)
Balances as of September 30, 2016
$
(11,120,399
)
 
$
157,619

 
$
(10,962,780
)
The Company does not have any compensation plans under which it grants awards to employees. Parent has granted restricted stock and CCOH has granted restricted stock, restricted stock units and options to purchase shares of CCOH's Class A common stock to certain key individuals.
NOTE 7 — OTHER INFORMATION
Other Comprehensive Income (Loss)
There was no change in deferred income tax liabilities resulting from adjustments to comprehensive loss for the three and nine months ended September 30, 2017. The total increase (decrease) in deferred income tax liabilities of other adjustments to comprehensive loss for the three and nine months ended September 30, 2016 was $0.1 million and $(0.7) million.
Trade and Barter
Trade and barter transactions represent the exchange of advertising spots or display space for merchandise, services or other assets in the ordinary course of business.  These transactions are recorded at the estimated fair market value of the advertising spots or display space or the fair value of the merchandise or services or other assets received, whichever is most readily determinable.  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 for the Company were $49.1 million and $30.2 million for the three months ended September 30, 2017 and 2016, respectively, and $161.7 million and $105.7 million for the nine months ended September 30, 2017 and 2016, respectively. Trade and barter expenses for the Company were $36.6 million and $23.2 million for the three months ended September 30, 2017 and 2016, respectively, and $129.2 million and $81.8 million for the nine months ended September 30, 2017 and 2016, respectively.
Trade and barter revenues for our iHeartMedia segment were $45.9 million and $26.0 million for the three months ended September 30, 2017 and 2016, respectively, and $149.2 million and $98.0 million for the nine months ended September 30, 2017 and 2016, respectively. Trade and barter expenses for our iHeartMedia segment were $32.2 million and $21.0 million for the three months ended September 30, 2017 and 2016, respectively, and $118.7 million and $75.4 million for the nine months ended September 30, 2017 and 2016, respectively.
Investments
During the third quarter of 2017 the Company determined that some of its investments had declined in value. Such decline in value was considered to be other than temporary, and the Company recorded a loss on investments of $1.6 million to state the investments at their estimated fair value. During the third quarter of 2016 the Company recorded a loss on investments of $14.5 million on one of its investments.

14



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 8 – SEGMENT DATA
The Company’s reportable segments, which it believes best reflect how the Company is currently managed, are iHM, Americas outdoor advertising and International outdoor advertising.  Revenue and expenses earned and charged between segments are recorded at estimated fair value and eliminated in consolidation.  The iHM segment provides media and entertainment services via broadcast and digital delivery and also includes the Company’s events and national syndication businesses.  The Americas outdoor advertising segment consists of operations primarily in the United States, Canada and Latin America.  The International outdoor advertising segment primarily includes operations in Europe and Asia.  The Other category includes the Company’s media representation business as well as other general support services and initiatives that are ancillary to the Company’s other businesses.  Corporate includes infrastructure and support, including information technology, human resources, legal, finance and administrative functions for each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments are recorded in corporate expense.
The following table presents the Company's reportable segment results for the three and nine months ended September 30, 2017 and 2016:
(In thousands)
iHM
 
Americas Outdoor
 
International Outdoor
 
Other
 
Corporate and other reconciling items
 
Eliminations
 
Consolidated
Three Months Ended September 30, 2017
Revenue
$
859,531

 
$
316,587

 
$
328,502

 
$
34,452

 
$

 
$
(1,656
)
 
$
1,537,416

Direct operating expenses
265,795

 
141,609

 
214,491

 

 

 

 
621,895

Selling, general and administrative expenses
287,676

 
54,689

 
73,708

 
23,298

 

 
(717
)
 
438,654

Corporate expenses

 

 

 

 
78,906

 
(939
)
 
77,967

Depreciation and amortization
58,089

 
47,035

 
32,886

 
3,893

 
7,846

 

 
149,749

Impairment charges

 

 

 

 
7,631

 

 
7,631

Other operating expense, net

 

 

 

 
(13,215
)
 

 
(13,215
)
Operating income (loss)
$
247,971

 
$
73,254

 
$
7,417

 
$
7,261

 
$
(107,598
)
 
$

 
$
228,305

Intersegment revenues
$

 
$
1,656

 
$

 
$

 
$

 
$

 
$
1,656

Capital expenditures
$
14,009

 
$
5,118

 
$
26,211

 
$
184

 
$
2,802

 
$

 
$
48,324

Share-based compensation expense
$

 
$

 
$

 
$

 
$
3,539

 
$

 
$
3,539

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
Revenue
$
857,099

 
$
322,997

 
$
346,224

 
$
41,414

 
$

 
$
(1,152
)
 
$
1,566,582

Direct operating expenses
229,668

 
142,989

 
219,261

 
(178
)
 

 

 
591,740

Selling, general and administrative expenses
268,612

 
54,500

 
71,664

 
27,466

 

 
(542
)
 
421,700

Corporate expenses

 

 

 

 
87,442

 
(610
)
 
86,832

Depreciation and amortization
60,691

 
47,242

 
37,018

 
4,483

 
9,019

 

 
158,453

Impairment charges

 

 

 

 
8,000

 

 
8,000

Other operating expense, net

 

 

 

 
(505
)
 

 
(505
)
Operating income (loss)
$
298,128

 
$
78,266

 
$
18,281

 
$
9,643

 
$
(104,966
)
 
$

 
$
299,352

Intersegment revenues
$

 
$
1,152

 
$

 
$

 
$

 
$

 
$
1,152

Capital expenditures
$
23,238

 
$
19,114

 
$
30,803

 
$
582

 
$
3,596

 
$

 
$
77,333

Share-based compensation expense
$

 
$

 
$

 
$

 
$
3,484

 
$

 
$
3,484


15



IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(In thousands)
iHM
 
Americas Outdoor
 
International Outdoor
 
Other
 
Corporate and other reconciling items
 
Eliminations
 
Consolidated
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
Revenue
$
2,501,084

 
$
919,967

 
$
942,167

 
$
99,332

 
$

 
$
(5,444
)
 
$
4,457,106

Direct operating expenses
773,327

 
427,181

 
607,023

 
3

 

 

 
1,807,534

Selling, general and administrative expenses
894,669

 
165,538

 
204,531

 
74,519

 

 
(2,694
)
 
1,336,563

Corporate expenses

 

 

 

 
236,237

 
(2,750
)
 
233,487

Depreciation and amortization
174,946

 
137,689

 
95,149

 
11,097

 
24,769

 

 
443,650

Impairment charges

 

 

 

 
7,631

 

 
7,631

Other operating income, net

 

 

 

 
24,785

 

 
24,785

Operating income (loss)
$
658,142

 
$
189,559

 
$
35,464

 
$
13,713

 
$
(243,852
)
 
$

 
$
653,026

Intersegment revenues
$

 
$
5,444

 
$

 
$

 
$

 
$

 
$
5,444

Capital expenditures
$
44,353

 
$
48,749

 
$
83,851

 
$
551

 
$
7,440

 
$

 
$
184,944

Share-based compensation expense
$

 
$

 
$

 
$

 
$
9,020

 
$

 
$
9,020

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
Revenue
$
2,463,899

 
$
931,058

 
$
1,035,263

 
$
114,663

 
$

 
$
(2,031
)
 
$
4,542,852

Direct operating expenses
704,097

 
421,039

 
645,199

 
1,255

 

 

 
1,771,590

Selling, general and administrative expenses
812,344

 
167,660

 
220,872

 
82,394

 

 
(1,421
)
 
1,281,849

Corporate expenses

 

 

 

 
252,958

 
(610
)
 
252,348

Depreciation and amortization
182,506

 
140,883

 
113,075

 
12,809

 
26,780

 

 
476,053

Impairment charges

 

 

 

 
8,000

 

 
8,000

Other operating income, net

 

 

 

 
219,768

 

 
219,768

Operating income (loss)
$
764,952

 
$
201,476

 
$
56,117

 
$
18,205

 
$
(67,970
)
 
$

 
$
972,780

Intersegment revenues
$

 
$
2,031

 
$

 
$

 
$

 
$

 
$
2,031

Capital expenditures
$
46,303

 
$
47,808

 
$
97,487

 
$
1,758

 
$
7,682

 
$

 
$
201,038

Share-based compensation expense
$

 
$

 
$

 
$

 
$
10,350

 
$

 
$
10,350


NOTE 9 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Parent is a party to a management agreement with certain affiliates of Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the "Sponsors") and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018. These agreements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses. For the three and nine months ended September 30, 2017, the Company recognized management fees and reimbursable expenses of $3.8 million and $11.4 million, and $3.9 million and $11.5 million for the three and nine months ended September 30, 2016, respectively.


16



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Format of Presentation
Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes contained in Item 1 of this Quarterly Report on Form 10-Q.  Our discussion is presented on both a consolidated and segment basis. Our reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”). Our iHM segment provides media and entertainment services via live broadcast and digital delivery, and also includes our national syndication business. Our Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Included in the “Other” category is our media representation business, Katz Media Group, which is ancillary to our other businesses.
We manage our operating segments by focusing primarily on their operating income, while Corporate expenses, Other operating income (expense), net, Interest expense, Gain on marketable securities, Equity in earnings (loss) of nonconsolidated affiliates, Loss on extinguishment of debt, Other income, net and Income tax expense are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.
Certain prior period amounts have been reclassified to conform to the 2017 presentation.
Our iHM strategy centers on delivering entertaining and informative content across multiple platforms, including broadcast, mobile and digital, as well as events. Our primary source of revenue is derived from selling local and national advertising time on our radio stations, with contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics. We are working closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. We continue to expand the choices for listeners and we deliver our content and sell advertising across multiple distribution channels including digitally via our iHeartRadio mobile application and other digital platforms which reach national, regional and local audiences. We also generate revenues from network syndication, our nationally recognized live events, our station websites and other miscellaneous transactions.
Management typically monitors our outdoor advertising business by reviewing the average rates, average revenue per display, occupancy and inventory levels of each of our display types by market. Our outdoor advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays.  Part of our long-term strategy for our outdoor advertising businesses is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as additions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets, both domestically and internationally.
Our advertising revenue for all of our segments is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally.  Internationally, our results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditions in the foreign markets in which we have operations.
Executive Summary
The key developments that impacted our business are summarized below:
Consolidated revenue decreased $29.2 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $10.2 million impact from movements in foreign exchange rates, consolidated revenue decreased $39.4 million during the three months ended September 30, 2017 compared to the same period of 2016, primarily due to the sales of certain outdoor businesses, which generated $2.6 million and $41.9 million in revenue in the three months ended September 30, 2017 and 2016, respectively.
On August 14, 2017, CCIBV, our indirect subsidiary, issued at a $6.0 million premium $150.0 million principal amount of 8.75% Senior Notes due 2020.
During the third quarter of 2017, Americas outdoor sold its ownership interest in a joint venture in Canada and recognized a net loss on sale of $12.1 million.
In October 2017, we exchanged $45.0 million of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of ours for $45.0 million of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties.

Revenues and expenses “excluding the impact of foreign exchange movements” in this Management’s Discussion & Analysis of Financial Condition and Results of Operations are presented because management believes that viewing certain

17



financial results without the impact of fluctuations in foreign currency rates facilitates period to period comparisons of business performance and provides useful information to investors.  Revenues and expenses “excluding the impact of foreign exchange movements” are calculated by converting the current period’s revenues and expenses in local currency to U.S. dollars using average foreign exchange rates for the prior period. 
Consolidated Results of Operations
The comparison of our historical results of operations for the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016 is as follows:
(In thousands)
Three Months Ended
September 30,
 
%
Change
 
Nine Months Ended
September 30,
 
%
Change
 
2017
 
2016
 
 
2017
 
2016
 
Revenue
$
1,537,416

 
$
1,566,582

 
(1.9)%
 
$
4,457,106

 
$
4,542,852

 
(1.9)%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Direct operating expenses (excludes depreciation and amortization)
621,895

 
591,740

 
5.1%
 
1,807,534

 
1,771,590

 
2.0%
Selling, general and administrative expenses (excludes depreciation and amortization)
438,654

 
421,700

 
4.0%
 
1,336,563

 
1,281,849

 
4.3%
Corporate expenses (excludes depreciation and amortization)
77,967

 
86,832

 
(10.2)%
 
233,487

 
252,348

 
(7.5)%
Depreciation and amortization
149,749

 
158,453

 
(5.5)%
 
443,650

 
476,053

 
(6.8)%
Impairment charges
7,631

 
8,000

 
(4.6)%
 
7,631

 
8,000

 
(4.6)%
Other operating income (expense), net
(13,215
)
 
(505
)
 
 
 
24,785

 
219,768

 
 
Operating income
228,305

 
299,352

 
(23.7)%
 
653,026

 
972,780

 
(32.9)%
Interest expense
470,250

 
459,852

 
 
 
1,388,747

 
1,389,793

 
 
Loss on investments, net
(2,173
)
 
(13,767
)
 
 
 
(2,433
)
 
(13,767
)
 
 
Equity in earnings (loss) of nonconsolidated affiliates
(2,238
)
 
1,117

 
 
 
(2,240
)
 
(926
)
 
 
Gain on extinguishment of debt

 
157,556

 
 
 

 
157,556

 
 
Other income (expense), net
2,223

 
(7,323
)
 
 
 
(11,244
)
 
(47,054
)
 
 
Loss before income taxes
(244,133
)
 
(22,917
)
 
 
 
(751,638
)
 
(321,204
)
 
 
Income tax expense
(2,051
)
 
(5,613
)
 
 
 
(50,143
)
 
(42,243
)
 
 
Consolidated net loss
(246,184
)
 
(28,530
)
 
 
 
(801,781
)
 
(363,447
)
 
 
Less amount attributable to noncontrolling interest
1,993

 
6,471

 
 
 
8,648

 
38,950

 
 
Net loss attributable to the Company
$
(248,177
)
 
$
(35,001
)
 
 
 
$
(810,429
)
 
$
(402,397
)
 
 
Consolidated Revenue
Consolidated revenue decreased $29.2 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $10.2 million impact from movements in foreign exchange rates, consolidated revenue decreased $39.4 million during the three months ended September 30, 2017 compared to the same period of 2016. Revenue growth from our iHM business was offset by lower revenue generated by our International and Americas outdoor businesses as a result of the sales of our businesses in Canada in 2017 and Australia in 2016, which generated $2.6 million and $41.9 million in revenue in the three months ended September 30, 2017 and 2016, respectively.
Consolidated revenue decreased $85.7 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $18.1 million impact from movements in foreign exchange rates, consolidated revenue decreased $67.6 million during the nine months ended September 30, 2017 compared to the same period of 2016. Revenue growth from our iHM business was offset by lower revenue generated by our International and Americas outdoor businesses as a result of the sales of our businesses in Canada in 2017 and Australia and Turkey in 2016, which generated $13.7 million and $131.2 million in revenue in the nine months ended September 30, 2017 and 2016, respectively.

18



Consolidated Direct Operating Expenses
Consolidated direct operating expenses increased $30.2 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $7.2 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $23.0 million during the three months ended September 30, 2017 compared to the same period of 2016. Higher direct operating expenses in our iHM business, due mostly to a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, was partially offset by lower direct operating expenses in our International and Americas outdoor businesses as a result of the sales of our business in Australia in 2016 and Canada in 2017.
Consolidated direct operating expenses increased $35.9 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $11.3 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $47.2 million during the nine months ended September 30, 2017 compared to the same period of 2016. Higher direct operating expenses in our iHM business, due mostly to a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, were partially offset by the impact of the sale of our businesses in Australia and Turkey in 2016 and Canada in 2017.
Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses increased $17.0 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $2.6 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $14.4 million during the three months ended September 30, 2017 compared to the same period of 2016. Higher SG&A expenses were primarily driven by trade and barter expenses in our iHM business.
Consolidated SG&A expenses increased $54.7 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $3.0 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $57.7 million during the nine months ended September 30, 2017 compared to the same period of 2016. Higher SG&A expenses were primarily driven by trade and barter expenses in our iHM business and were partially offset by a decrease in SG&A expenses resulting primarily from the sales of our businesses in Australia and Turkey in 2016 and Canada in 2017.
Corporate Expenses
Corporate expenses decreased $8.9 million during the three months ended September 30, 2017 compared to the same period of 2016 primarily resulting from lower employee benefits and variable compensation expenses. For the three month period ended September 30, 2017, we incurred professional fees directly related to the notes exchange offers and term loan offers and, accordingly, such fees are reflected in Other Income (Expense), net as further discussed below.
Corporate expenses decreased $18.9 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $1.9 million impact from movements in foreign exchange rates, corporate expenses decreased $17.0 million during the nine months ended September 30, 2017 compared to the same period of 2016. For the nine month period ended September 30, 2016, professional fees incurred in connection with our capital structure were reflected as part of corporate expenses. For the nine month period ended September 30, 2017, we incurred professional fees directly related to the notes exchange offers and term loan offers and, accordingly, such fees are reflected in Other Income (Expense), net as further discussed below. Employee benefit expense was also lower. The reduction in Corporate expenses was partially offset by higher spending on strategic revenue and efficiency initiatives.
Strategic Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses incurred in connection with our strategic revenue and efficiency initiatives. These costs consist primarily of severance related to workforce initiatives, consolidation of locations and positions, contract cancellation costs, consulting expenses, and other costs incurred in connection with improving our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.
Strategic revenue and efficiency costs were $6.0 million during the three months ended September 30, 2017. Of these expenses, $2.4 million was incurred by our iHM segment, $0.5 million was incurred by our Americas outdoor segment, $2.0 million was incurred by our International outdoor segment and $1.1 million was incurred by Corporate. Additionally, $1.8 million of these costs are reported within direct operating expenses, $3.1 million are reported within SG&A and $1.1 million are reported within corporate expenses. 
Strategic revenue and efficiency costs were $6.0 million during the three months ended September 30, 2016. Of these expenses, $2.5 million was incurred by our iHM segment, $0.3 million was incurred by our Americas outdoor segment, $2.1 million was incurred by our International outdoor segment, $0.1 million was incurred by our Other category and $1.0 million was

19



incurred by Corporate. Additionally, $1.9 million of these costs are reported within direct operating expenses, $3.1 million are reported within SG&A and $1.0 million are reported within corporate expenses.
Strategic revenue and efficiency costs were $31.0 million during the nine months ended September 30, 2017. Of these expenses, $14.4 million was incurred by our iHM segment, $1.4 million was incurred by our Americas outdoor segment, $6.0 million was incurred by our International outdoor segment, $4.1 million was incurred by our Other category and $5.1 million was incurred by Corporate. Additionally, $10.6 million of these costs are reported within direct operating expenses, $15.3 million are reported within SG&A and $5.1 million are reported within corporate expenses. 
Strategic revenue and efficiency costs were $19.4 million during the nine months ended September 30, 2016. Of these expenses, $11.7 million was incurred by our iHM segment, $1.9 million was incurred by our Americas outdoor segment, $3.6 million was incurred by our International outdoor segment, $0.5 million was incurred by our Other segment and $1.7 million was incurred by Corporate. Additionally, $7.1 million of these costs are reported within direct operating expenses, $10.6 million are reported within SG&A and $1.7 million are reported within corporate expenses.
Depreciation and Amortization
Depreciation and amortization decreased $8.7 million during the three months ended September 30, 2017, compared to the same period of 2016. The decrease was primarily due to assets becoming fully depreciated or fully amortized and the disposal of assets related to the sale of our Australia business in 2016.
Depreciation and amortization decreased $32.4 million during the nine months ended September 30, 2017, compared to the same period of 2016. The decrease was primarily due to assets becoming fully depreciated or fully amortized and the disposal of assets related to the sale of our outdoor non-strategic U.S. markets and Australia and Turkey businesses in 2016.
Impairment Charges
The Company performs its annual impairment test on July 1 of each year. In addition, we test for impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired. As a result of these impairment tests, we recorded impairment charges of $7.6 million during the three and nine months ended September 30, 2017, related to one of our iHM markets and one of our International outdoor businesses. During the three and nine months ended September 30, 2016, we recognized impairment charges of $8.0 million, related primarily to goodwill in one of our International outdoor businesses. Please see Note 2 to the Consolidated Financial Statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description of the impairment charges.
Other Operating Income (Expense), Net
Other operating expense, net was $13.2 million for the three months ended September 30, 2017, which primarily related to the $12.1 million loss, which includes $6.3 million in cumulative translation adjustments, recognized on the sale of our ownership interest in a joint venture in Canada during the third quarter of 2017. Other operating income, net of $24.8 million for the nine months ended September 30, 2017 primarily related to the sale in the first quarter of 2017 of the Americas outdoor Indianapolis market exchanged for certain assets in Atlanta, Georgia, plus $43.1 million in cash, net of closing costs, resulting in a net gain of $28.9 million and a gain of $6.8 million recognized on the sale of our ownership interest in a joint venture in Belgium in the second quarter of 2017, offset by the loss of $12.1 million recognized on the sale of our ownership interest in a joint venture in Canada.
Other operating expense, net was $0.5 million for the three months ended September 30, 2016, which primarily related to net losses on the sale of operating assets. Other operating income, net was $219.8 million for the nine months ended September 30, 2016, which primarily related to the sale of nine non-strategic outdoor markets in the first quarter of 2016, partially offset by the loss on the sales of our Australia and Turkey businesses.
Interest Expense
Interest expense increased $10.4 million during the three months ended September 30, 2017 compared to the same period of 2016 primarily due to an increase in variable interest rates. Interest expense decreased $1.0 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease is primarily due to settlements of long-term debt in 2016, partially offset by an increase in variable interest rates, primarily as a result from an increase in LIBOR.
Loss on Investments, net
During the three and nine months ended September 30, 2017, we recognized losses of $2.2 million and $2.4 million, respectively, related to our investments. During the three and nine months ended September 30, 2016, we recognized a loss of $13.8 million, related to cost-method investments.

20



Gain (Loss) on Extinguishment of Debt
During the third quarter of 2016, Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, repurchased approximately $383.0 million aggregate principal amount of our 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. In connection with this repurchase, we recognized a gain of $157.6 million.
Other Income (Expense), net
Other income, net was $2.2 million and other expense, net was $11.2 million for the three and nine months ended September 30, 2017, respectively. These amounts relate primarily to net foreign exchange gains of $9.3 million and $21.6 million for the three and nine months ended September 30, 2017, respectively, recognized in connection with intercompany notes denominated in foreign currencies, partially offset by expenses incurred in connection with the notes exchange offers and term loan offers of $7.2 million and $31.4 million for the three and nine months ended September 30, 2017, respectively, as described in "Liquidity and Capital Resources - Notes Exchange Offers and Term Loan Offers".
Other expense, net was $7.3 million and $47.1 million for the three and nine months ended September 30, 2016, respectively, which primarily related to net foreign exchange losses recognized in connection with intercompany notes denominated in foreign currencies.
Income Tax Expense
The effective tax rate for the three and nine months ended September 30, 2017 was (0.8)% and (6.7)%, respectively. The effective tax rate for the three and nine months ended September 30, 2016 was (24.5)% and (13.2)%, respectively. The effective tax rates were primarily impacted by the valuation allowance recorded against deferred tax assets originating in the period from net operating losses in U.S. federal, state and certain foreign jurisdictions. 
iHM Results of Operations
Our iHM operating results were as follows:
(In thousands)
Three Months Ended
September 30,
 
%
Change
 
Nine Months Ended
September 30,
 
%
Change
 
2017
 
2016
 
 
2017
 
2016
 
Revenue
$
859,531

 
$
857,099

 
0.3%
 
$
2,501,084

 
$
2,463,899

 
1.5%
Direct operating expenses
265,795

 
229,668

 
15.7%
 
773,327

 
704,097

 
9.8%
SG&A expenses
287,676

 
268,612

 
7.1%
 
894,669

 
812,344

 
10.1%
Depreciation and amortization
58,089

 
60,691

 
(4.3)%
 
174,946

 
182,506

 
(4.1)%
Operating income
$
247,971

 
$
298,128

 
(16.8)%
 
$
658,142

 
$
764,952

 
(14.0)%
Three Months
iHM revenue increased $2.4 million during the three months ended September 30, 2017 compared to the same period of 2016, with growth in national and digital revenue being partially offset by lower local revenue. National revenue grew due to an increase in national trade and barter, largely related to the iHeartMedia Music Festival, as well as increased national sales initiatives and investments, including our programmatic buying platforms, primarily offset by a decrease in national traffic and weather revenue. Local revenue decreased as a result of lower spot revenue, partially offset by an increase in local trade and barter.
iHM direct operating expenses increased $36.1 million during the three months ended September 30, 2017 compared to the same period of 2016 primarily driven by a $33.8 million prior year benefit resulting from the renegotiation of certain contracts. iHM SG&A expenses increased $19.1 million during the three months ended September 30, 2017 compared to the same period of 2016 primarily due to higher trade and barter expenses and higher variable expenses, including sales activation costs.
Nine Months
iHM revenue increased $37.2 million during the nine months ended September 30, 2017 compared to the same period of 2016, with growth in national revenue and other revenue being partially offset by lower local revenue. National revenue grew due to an increase in national trade and barter, as well as increased sales in response to our national investments, including our programmatic buying platforms, primarily offset by a decrease in national traffic and weather revenue. Other revenue increased partially as a result of higher talent appearance fees. Local revenue decreased primarily as a result of lower spot revenue, partially offset by an increase in local trade and barter.

21



iHM direct operating expenses increased $69.2 million during the nine months ended September 30, 2017 compared to the same period of 2016 primarily driven by a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, as well as higher content and programming costs, including talent fees and music license fees. iHM SG&A expenses increased $82.3 million during the nine months ended September 30, 2017 compared to the same period of 2016 primarily due to higher trade and barter expenses, investments in national and digital sales capabilities and higher variable expenses, including sales activation costs and commissions.
Americas Outdoor Advertising Results of Operations
Our Americas outdoor operating results were as follows:
(In thousands)
Three Months Ended
September 30,
 
%
Change
 
Nine Months Ended
September 30,
 
%
Change
 
2017
 
2016
 
 
2017
 
2016
 
Revenue
$
316,587

 
$
322,997

 
(2.0)%
 
$
919,967

 
$
931,058

 
(1.2)%
Direct operating expenses
141,609

 
142,989

 
(1.0)%
 
427,181

 
421,039

 
1.5%
SG&A expenses
54,689

 
54,500

 
0.3%
 
165,538

 
167,660

 
(1.3)%
Depreciation and amortization
47,035

 
47,242

 
(0.4)%
 
137,689

 
140,883

 
(2.3)%
Operating income
$
73,254

 
$
78,266

 
(6.4)%
 
$
189,559

 
$
201,476

 
(5.9)%
Three Months
Americas outdoor revenue decreased $6.4 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $0.9 million impact from movements in foreign exchange rates, Americas outdoor revenue decreased $7.3 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue is primarily due to a $4.2 million decrease in revenue resulting from the sale of our Canadian outdoor business, higher revenue in the prior year period due to the 2016 Olympics in Brazil and the exchange of outdoor markets in the first quarter of 2017. This was partially offset by increased digital revenue from new and existing airport contracts.
Americas outdoor direct operating expenses decreased $1.4 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $0.5 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses decreased $1.9 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease was driven by a $3.6 million decrease in direct operating expenses resulting from the sale of our Canadian outdoor market and lower variable expenses due to the 2016 Olympics in Brazil, partially offset by higher fixed site lease expenses. Americas outdoor SG&A expenses increased $0.2 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $0.2 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses were flat during the three months ended September 30, 2017 compared to the same period of 2016.
Nine Months
Americas outdoor revenue decreased $11.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $2.7 million impact from movements in foreign exchange rates, Americas outdoor revenue decreased $13.8 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue was primarily due to a decrease in print display revenues, as well as the $10.9 million impact resulting from the sales of non-strategic outdoor markets in the first quarter of 2016 and the sale of our Canadian business in the third quarter of 2017, and the exchange of outdoor markets in the first quarter of 2017. This was partially offset by increased digital revenues from new and existing airport contracts and deployments of new digital billboards.
Americas outdoor direct operating expenses increased $6.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $1.5 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses increased $4.6 million during the nine months ended September 30, 2017 compared to the same period of 2016. The increase in direct operating expenses was driven by higher site lease expenses related to new and existing airport contracts and print displays, and the impact of a $2.9 million early termination lease payment received in 2016, partially offset by lower expense due to the $8.7 million impact resulting from the sales of non-strategic outdoor markets in the first quarter of 2016 and the sale of our Canadian business in the third quarter of 2017, and the exchange of outdoor markets in the first quarter of 2017. Americas outdoor SG&A expenses decreased $2.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $0.9 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses decreased $3.0 million during the nine months ended September 30, 2017 compared to the same period of 2016.

22



The decrease in SG&A expenses was primarily due to lower bad debt expense and the $1.2 million impact resulting from the sales of non-strategic outdoor markets in the first quarter of 2016 and the sale of our Canadian business in the third quarter of 2017, and the exchange of outdoor markets in the first quarter of 2017.
International Outdoor Advertising Results of Operations
Our International outdoor operating results were as follows:
(In thousands)
Three Months Ended
September 30,
 
%
Change
 
Nine Months Ended
September 30,
 
%
Change
 
2017
 
2016
 
 
2017
 
2016
 
Revenue
$
328,502

 
$
346,224

 
(5.1)%
 
$
942,167

 
$
1,035,263

 
(9.0)%
Direct operating expenses
214,491

 
219,261

 
(2.2)%
 
607,023

 
645,199

 
(5.9)%
SG&A expenses
73,708

 
71,664

 
2.9%
 
204,531

 
220,872

 
(7.4)%
Depreciation and amortization
32,886

 
37,018

 
(11.2)%
 
95,149

 
113,075

 
(15.9)%
Operating income
$
7,417

 
$
18,281

 
(59.4)%
 
$
35,464

 
$
56,117

 
(36.8)%
Three Months
International outdoor revenue decreased $17.7 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $9.3 million impact from movements in foreign exchange rates, International outdoor revenue decreased $27.0 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue is due to a $35.2 million decrease in revenue resulting from the sale of our business in Australia in 2016. This was partially offset by growth across other markets including China, Spain, Switzerland and the United Kingdom, primarily from new contracts and digital expansion.
International outdoor direct operating expenses decreased $4.8 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $6.8 million impact from movements in foreign exchange rates, International outdoor direct operating expenses decreased $11.6 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease was driven by a $20.1 million decrease in direct operating expenses resulting from the 2016 sale of our business in Australia, partially offset by higher site lease expense in certain countries experiencing revenue growth. International outdoor SG&A expenses increased $2.0 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $2.4 million impact from movements in foreign exchange rates, International outdoor SG&A expenses decreased $0.4 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease in SG&A expenses was primarily due to a $6.8 million decrease resulting from the sale of our business in Australia, partially offset by increases in bad debt expense primarily related to two specific accounts and employee-related expenses.
Nine Months
International outdoor revenue decreased $93.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $20.8 million impact from movements in foreign exchange rates, International outdoor revenue decreased $72.3 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue is due to a $106.5 million decrease in revenue resulting from the sale of our businesses in Australia and Turkey in 2016. This was partially offset by growth across other markets including Spain, the United Kingdom, Switzerland and China, primarily from new contracts and digital expansion.
International outdoor direct operating expenses decreased $38.2 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $12.8 million impact from movements in foreign exchange rates, International outdoor direct operating expenses decreased $25.4 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease was driven by a $64.5 million decrease in direct operating expenses resulting from the 2016 sales of our businesses in Australia and Turkey, partially offset by higher site lease and production expenses in countries experiencing revenue growth. International outdoor SG&A expenses decreased $16.3 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $3.8 million impact from movements in foreign exchange rates, International outdoor SG&A expenses decreased $12.5 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease in SG&A expenses was primarily due to a $20.6 million decrease resulting from the sale of our businesses in Australia and Turkey, partially offset by higher bad debt expense and higher spending related to growth in certain countries, as well as higher spending on strategic efficiency initiatives.

23



Reconciliation of Segment Operating Income to Consolidated Operating Income
(In thousands)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
iHM
$
247,971

 
$
298,128

 
$
658,142

 
$
764,952

Americas outdoor
73,254

 
78,266

 
189,559