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 MARCH 31, 2019
 
 
[   ]
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
000-53354
IHEARTMEDIA, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
26-0241222
(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 [   ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes [X] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [   ]   Accelerated filer [   ]   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 by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
 
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 April 22, 2019
 
 
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
 
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
 
 
Class A Common Stock, $.001 par value
 
31,434,876

(1)  
 
 
Class B Common Stock, $.001 par value
 
555,556

 
 
 
Class C Common Stock, $.001 par value
 
58,967,502

 
 
 
Class D Common Stock, $.001 par value
 

 
 
 
 
 
 
 
 
 
(1)    Outstanding Class A common stock includes 111,291 shares owned by a subsidiary



IHEARTMEDIA, 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
IHEARTMEDIA, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31,
2019
 
December 31,
2018
 
(Unaudited)
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
448,130

 
$
406,493

Accounts receivable, net of allowance of $49,619 in 2019 and $50,808 in 2018
1,387,122

 
1,575,170

Prepaid expenses
179,823

 
195,266

Other current assets
74,977

 
58,088

Total Current Assets
2,090,052

 
2,235,017

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Structures, net
1,014,688

 
1,053,016

Other property, plant and equipment, net
726,550

 
738,124

INTANGIBLE ASSETS AND GOODWILL
 
 
 
Indefinite-lived intangibles - licenses
2,326,533

 
2,417,915

Indefinite-lived intangibles - permits
971,163

 
971,163

Other intangibles, net
439,864

 
453,284

Goodwill
4,118,312

 
4,118,756

OTHER ASSETS
 
 
 
Operating lease right-of-use assets
2,359,275

 

Other assets
239,533

 
282,240

Total Assets
$
14,285,970

 
$
12,269,515

CURRENT LIABILITIES
 

 
 

Accounts payable
$
146,853

 
$
163,149

Current operating lease liabilities
366,902

 

Accrued expenses
632,078

 
826,865

Accrued interest
12,323

 
3,108

Deferred income
234,672

 
208,195

Current portion of long-term debt
46,744

 
46,332

Total Current Liabilities
1,439,572

 
1,247,649

Long-term debt
5,293,405

 
5,277,108

Noncurrent operating lease liabilities
1,669,447

 

Deferred income taxes
323,434

 
335,015

Other long-term liabilities
296,896

 
489,829

Liabilities subject to compromise
16,829,329

 
16,480,256

Commitments and contingent liabilities (Note 6)


 


STOCKHOLDERS’ DEFICIT
 
 
 
Noncontrolling interest
11,437

 
30,868

Preferred stock, par value $.001 per share, 150,000,000 shares authorized, no shares issued and outstanding

 

Class A Common Stock, par value $.001 per share, authorized 400,000,000 shares, issued 32,247,361 and 32,292,944 shares in 2019 and 2018, respectively
32

 
32

Class B Common Stock, par value $.001 per share, authorized 150,000,000 shares, issued 555,556 shares in 2019 and 2018
1

 
1

Class C Common Stock, par value $.001 per share, authorized 100,000,000 shares, issued 58,967,502 shares in 2019 and 2018
59

 
59

Class D Common Stock, par value $.001 per share, authorized 200,000,000 shares, no shares issued in 2019 and 2018

 

Additional paid-in capital
2,075,025

 
2,074,632

Accumulated deficit
(13,330,821
)
 
(13,345,346
)
Accumulated other comprehensive loss
(319,284
)
 
(318,030
)
Cost of shares (812,485 in 2019 and 805,982 in 2018) held in treasury
(2,562
)
 
(2,558
)
Total Stockholders' Deficit
(11,566,113
)
 
(11,560,342
)
Total Liabilities and Stockholders' Deficit
$
14,285,970

 
$
12,269,515

See Notes to Consolidated Financial Statements

1



IHEARTMEDIA, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands, except share and per share data)
Three Months Ended March 31,
 
2019
 
2018
Revenue
$
1,381,899

 
$
1,369,648

Operating expenses:
 
 
 
Direct operating expenses (excludes depreciation and amortization)
614,919

 
602,355

Selling, general and administrative expenses (excludes depreciation and amortization)
455,723

 
472,987

Corporate expenses (excludes depreciation and amortization)
74,700

 
78,734

Depreciation and amortization
113,366

 
151,434

Impairment charges
91,382

 

Other operating expense, net
(3,549
)
 
(3,286
)
Operating income
28,260

 
60,852

Interest expense (excludes contractual interest of $397,500 and $66,324 for the three months ended March 31, 2019 and 2018, respectively)
114,764

 
418,397

Loss on investments, net
(9,961
)
 
(90
)
Equity in earnings (loss) of nonconsolidated affiliates
(214
)
 
157

Gain (loss) on extinguishment of debt
(5,474
)
 
100

Other expense, net
(761
)
 
(973
)
Reorganization items, net
36,118

 
192,055

Loss before income taxes
(139,032
)
 
(550,406
)
Income tax benefit
3,431

 
117,366

Consolidated net loss
(135,601
)
 
(433,040
)
Less amount attributable to noncontrolling interest
(21,218
)
 
(16,046
)
Net loss attributable to the Company
$
(114,383
)
 
$
(416,994
)
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
2,318

 
6,561

Other comprehensive income
2,318

 
6,561

Comprehensive loss
(112,065
)
 
(410,433
)
Less amount attributable to noncontrolling interest
3,572

 
5,446

Comprehensive loss attributable to the Company
$
(115,637
)
 
$
(415,879
)
Net loss attributable to the Company per common share:
 
 
 
Basic
$
(1.34
)
 
$
(4.89
)
Weighted average common shares outstanding - Basic
85,649

 
85,215

Diluted
$
(1.34
)
 
$
(4.89
)
Weighted average common shares outstanding - Diluted
85,649

 
85,215

See Notes to Consolidated Financial Statements

2



IHEARTMEDIA, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(UNAUDITED)
(In thousands, except share data)
 
 
 
Controlling Interest
 
 
 
Common Shares (1)
 
Non-
controlling
Interest
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
 
 
Class C
Shares
 
Class B
Shares
 
Class A
Shares
 
 
 
 
 
 
 
Total
Balances at
December 31, 2018
58,967,502

 
555,556

 
32,292,944

 
$
30,868

 
$
92

 
$
2,074,632

 
$
(13,345,346
)
 
$
(318,030
)
 
$
(2,558
)
 
$
(11,560,342
)
Consolidated net loss
 
 
 
 
 
 
(21,218
)
 

 

 
(114,383
)
 

 

 
(135,601
)
Adoption of ASC 842, Leases
 
 
 
 
 
 

 

 

 
128,908

 

 

 
128,908

Issuance of restricted stock
 
 
 
 


 
64

 

 

 

 

 
(4
)
 
60

Forfeitures of restricted stock
 
 
 
 
(45,583
)
 

 

 

 

 

 

 

Amortization of share-based compensation
 
 
 
 
 
 
1,835

 

 
392

 

 

 

 
2,227

Dividend declared and paid to noncontrolling interests
 
 
 
 
 
 
(3,684
)
 

 

 

 

 

 
(3,684
)
Other
 
 
 
 
 
 

 

 
1

 

 

 

 
1

Other comprehensive income (loss)
 
 
 
 
 
 
3,572

 

 

 

 
(1,254
)
 

 
2,318

Balances at
March 31, 2019
58,967,502

 
555,556

 
32,247,361

 
$
11,437

 
$
92

 
$
2,075,025

 
$
(13,330,821
)
 
$
(319,284
)
 
$
(2,562
)
 
$
(11,566,113
)
(In thousands, except share data)
 
 
 
Controlling Interest
 
 
 
Common Shares (1)
 
Non-
controlling
Interest
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
 
 
Class C
Shares
 
Class B
Shares
 
Class A
Shares
 
 
 
 
 
 
 
Total
Balances at
December 31, 2017
58,967,502

 
555,556

 
32,626,168

 
$
41,191

 
$
92

 
$
2,072,566

 
$
(13,142,001
)
 
$
(313,718
)
 
$
(2,474
)
 
$
(11,344,344
)
Consolidated net loss
 
 
 
 
 
 
(16,046
)
 

 

 
(416,994
)
 

 

 
(433,040
)
Issuance of restricted stock
 
 
 
 
70,000

 
5

 

 

 

 

 

 
5

Forfeitures of restricted stock
 
 
 
 
(143,882
)
 

 

 

 

 

 

 

Amortization of share-based compensation
 
 
 
 
 
 
2,105

 

 
579

 

 

 

 
2,684

Dividend declared and paid to noncontrolling interests
 
 
 
 
 
 
(3,251
)
 

 

 

 

 

 
(3,251
)
Other
 
 
 
 
 
 
(21
)
 

 
(1
)
 
(1,435
)
 
1,435

 
(3
)
 
(25
)
Other comprehensive income
 
 
 
 
 
 
5,446

 

 

 

 
1,115

 

 
6,561

Balances at
March 31, 2018
58,967,502

 
555,556

 
32,552,286

 
$
29,429

 
$
92

 
$
2,073,144

 
$
(13,560,430
)
 
$
(311,168
)
 
$
(2,477
)
 
$
(11,771,410
)
(1) The Company's Class D Common Stock and Preferred Stock are not presented in the data above as there were no shares issued and outstanding in 2019 or 2018 .

3



IHEARTMEDIA, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Consolidated net loss
$
(135,601
)
 
$
(433,040
)
Reconciling items:
 
 
 
Impairment charges
91,382

 

Depreciation and amortization
113,366

 
151,434

Deferred taxes
(5,357
)
 
(122,038
)
Provision for doubtful accounts
5,674

 
8,515

Amortization of deferred financing charges and note discounts, net
3,042

 
13,671

Non-cash Reorganization items, net
2,173

 
191,903

Share-based compensation
2,227

 
2,684

Loss on disposal of operating and other assets
3,556

 
1,678

Loss on investments
9,961

 
90

Equity in (earnings) loss of nonconsolidated affiliates
214

 
(157
)
(Gain) loss on extinguishment of debt
5,474

 
(100
)
Barter and trade income
(6,448
)
 
(1,417
)
Other reconciling items, net
(563
)
 
(19,783
)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Decrease in accounts receivable
183,696

 
157,856

Increase in prepaid expenses and other current assets
(50,365
)
 
(54,527
)
Decrease in accrued expenses
(164,042
)
 
(114,377
)
Increase (decrease) in accounts payable
(16,032
)
 
35,051

Increase in accrued interest
9,768

 
310,235

Increase in deferred income
34,910

 
53,091

Changes in other operating assets and liabilities
1,952

 
(5,293
)
Net cash provided by operating activities
88,987

 
175,476

Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(51,126
)
 
(38,703
)
Proceeds from disposal of assets
722

 
2,310

Change in other, net
(2,007
)
 
(803
)
Net cash used for investing activities
(52,411
)
 
(37,196
)
Cash flows from financing activities:
 
 
 
Draws on credit facilities

 
25,333

Payments on credit facilities

 
(59,000
)
Proceeds from long-term debt
2,235,228

 

Payments on long-term debt
(2,206,466
)
 
(55,597
)
Dividends and other payments to noncontrolling interests
(73
)
 
(3,166
)
Debt issuance costs
(26,752
)
 

Change in other, net
59

 
(15
)
Net cash provided by (used for) financing activities
1,996

 
(92,445
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
682

 
3,366

Net increase in cash, cash equivalents and restricted cash
39,254

 
49,201

Cash, cash equivalents and restricted cash at beginning of period
430,334

 
311,300

Cash, cash equivalents and restricted cash at end of period
$
469,588

 
$
360,501

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash paid for interest
$
103,897

 
$
94,533

Cash paid for income taxes
16,410

 
9,974

Cash paid for Reorganization items, net
33,945

 
152

See Notes to Consolidated Financial Statements

4



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
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 iHeartMedia, 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 2018  Annual Report on Form 10-K.
Th e 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 2019 presentation.
Voluntary Filing under Chapter 11
On March 14, 2018 (the "Petition Date"), the Company, iHeartCommunications, Inc. ("iHeartCommunications") and certain of the Company's direct and indirect domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the "Bankruptcy Court"). Clear Channel Outdoor Holdings, Inc. (“CCOH”) and its direct and indirect subsidiaries did not file voluntary petitions for reorganization under the Bankruptcy Code and are not Debtors in the Chapter 11 Cases.
The Chapter 11 Cases are being administered under the caption In re: iHeartMedia, Inc., Case No. 18-31274 (MI) . The Debtors are operating their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
On March 16, 2018, the Debtors entered into a Restructuring Support Agreement (the “RSA”) with certain creditors and equity holders (the “Consenting Stakeholders”). The RSA contemplates the restructuring and recapitalization of the Debtors (the “Restructuring Transactions”) through a plan of reorganization in the Chapter 11 Cases, which plan was confirmed in January 2019. Pursuant to the RSA, the Consenting Stakeholders have agreed to, among other things, support the Restructuring Transactions and vote in favor of a plan of reorganization to effect the Restructuring Transactions.
The RSA provides certain milestones for the Restructuring Transactions. Failure of the Debtors to satisfy these milestones without a waiver or consensual amendment would provide the Consenting Stakeholders a termination right under the RSA. These milestones include (i) the filing of a plan of reorganization and disclosure statement, in form and substance reasonably acceptable to the Debtors and the Consenting Stakeholders, which were filed with the Bankruptcy Court on April 28, 2018, (ii) the filing of a motion for approval of the disclosure statement by May 31, 2018, which deadline was subsequently extended to June 22, 2018, and which motion was filed with the Bankruptcy Court on that date, (iii) the entry of an order approving the disclosure statement by July 27, 2018 (subject to one additional 20-day extension on the terms set forth on the RSA), which order was ultimately entered on September 20, 2018, (iv) the entry of an order confirming the plan of reorganization within 75 days of the entry of an order approving the disclosure statement, which order was ultimately entered on January 22, 2019 and (v) the effective date of the plan of reorganization (the "Effective Date") occurring by March 14, 2019, which has not yet occurred but is currently expected to occur on or about May 1, 2019. The Debtors satisfied the first and second milestones, but did not satisfy the subsequent milestones and as a result, certain of the Consenting Stakeholders presently have the right to terminate the RSA, but as of the date hereof, the RSA has not been terminated.

5



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

iHeartCommunications, which is a Debtor in the Chapter 11 Cases, provides the day-to-day cash management services for CCOH’s cash activities and balances in the U.S. pursuant to the Corporate Services Agreement between iHeartCommunications and CCOH, and is continuing to do so during the Chapter 11 Cases pursuant to a cash management order approved by the Bankruptcy Court.
iHeartCommunications' filing of the Chapter 11 Cases constituted an event of default that accelerated its obligations under its debt agreements. Due to the Chapter 11 Cases, however, the creditors’ ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018, the date of the Chapter 11 petition filing, and continue to be stayed.
The Company has applied Accounting Standards Codification (“ASC”) 852 - Reorganizations in preparing the consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain charges incurred during 2019 related to the bankruptcy proceedings, including unamortized long-term debt fees and discounts associated with debt classified as liabilities subject to compromise, are recorded as Reorganization items, net. In addition, pre-petition Debtor obligations that may be impacted by the Chapter 11 Cases have been classified on the Consolidated Balance Sheet at March 31, 2019 as Liabilities subject to compromise. These liabilities are reported at the amounts the Company anticipates will be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. See below for more information regarding Reorganization items.
ASC 852 requires certain additional reporting for financial statements prepared between the bankruptcy filing date and the date of emergence from bankruptcy, including:
Reclassification of Debtor pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the liabilities are fully secured, to a separate line item in the Consolidated Balance Sheet called, "Liabilities subject to compromise"; and
Segregation of Reorganization items, net as a separate line in the Consolidated Statement of Comprehensive Loss, outside of income from continuing operations.
Debtor-In-Possession 
In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to first day and second day motions filed with the Bankruptcy Court, the Bankruptcy Court authorized the Debtors to conduct their business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing the Debtors to: (i) pay employees’ wages and related obligations; (ii) continue to operate their cash management system in a form substantially similar to prepetition practice; (iii) use cash collateral on an interim basis; (iv) continue to honor certain obligations related to on-air talent, station affiliates and royalty obligations; (v) continue to maintain certain customer programs; (vi) pay taxes in the ordinary course; (vii) continue their surety bond program; and (viii) maintain their insurance program in the ordinary course.
Automatic Stay 
Subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 Cases automatically stayed most judicial or administrative actions against the Debtors and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code. See Note 14, Condensed Combined Debtor-In-Possession Financial Information .
Executory Contracts
Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, amend or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this document, including where applicable a

6



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

quantification of the Company’s obligations under any such executory contract or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code.
Potential Claims
The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was on June 29, 2018 (the “Bar Date”).
The Debtors' have received approximately 4,300   proofs of claim as of April 22, 2019 for an amount of approximately  $808.4 billion . Such amount includes duplicate claims across multiple Debtor legal entities. These claims will be reconciled to amounts recorded in the Company's accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Bankruptcy Court does not allow for claims that have been acknowledged as duplicates. Approximately 2,000 claims totaling approximately $7.0 billion have been disallowed, modified or withdrawn and the Debtors have filed additional claim objections with the Bankruptcy Court for approximately 50 claims totaling approximately $0.6 million in additional reductions and modifications. The Company may ask the Bankruptcy Court to disallow claims that the Company believes have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise. In light of the substantial number of claims filed, and expected to be filed, the claims resolution process may take considerable time to complete and will continue after the Debtors emerge from bankruptcy.
Reorganization Items, Net  
The Debtors have incurred and will continue to incur significant costs associated with the reorganization, including the write-off of original issue discount and deferred long-term debt fees on debt subject to compromise, costs of debtor-in-possession refinancing, legal and professional fees. The amount of these charges, which since the Petition Date are being expensed as incurred, are expected to significantly affect the Company’s results of operations. In accordance with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as Reorganization items, net within the Company's accompanying Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018 . See Note 13, Reorganization Items, Net .
Financial Statement Classification of Liabilities Subject to Compromise
The accompanying Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 include amounts classified as Liabilities subject to compromise, which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases. These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases, and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material. See Note 12, Liabilities Subject to Compromise .
Plan of Reorganization
On April 28, 2018, the Debtors filed a plan of reorganization (as amended, the “Plan of Reorganization”) and a related disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court. Thereafter, the Debtors filed a second, third and fourth amended Plan of Reorganization and amended versions of the Disclosure Statement. On September 20, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement and related solicitation and notice procedures for voting on the Plan of Reorganization. On October 10, 2018, the Debtors filed a fifth amended Plan of Reorganization and the Disclosure Statement Supplement. On October 18, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement Supplement and the continued solicitation of holders of general unsecured claims for voting on the Plan of Reorganization. The deadline for holders of claims and interests to vote on the Plan of Reorganization was November 16, 2018. More than 90% of the votes cast by holders of claims and interests entitled to vote thereon accepted the Plan of Reorganization.
On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into the CCOH Separation Settlement (as defined below) resolving all claims, objections, and other causes of action that have

7



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. In connection with the CCOH Separation Settlement, on December 17, 2018, the Debtors filed a modified fifth amended Plan of Reorganization. On January 10, 2019, hearings commenced to consider confirmation of the Plan of Reorganization. On January 17, 2019, the Debtors came to agreement on the terms of the Legacy Plan Settlement (as defined below) with Wilmington Savings Fund Society, FSB (“WSFS”), solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027 (together with the 5.50% Senior Notes due 2016, the “Legacy Notes”), and not in its individual capacity, and certain consenting Legacy Noteholders of all issues related to confirmation of our plan of reorganization, and on January 21, 2019 and January 22, 2019, the Debtors filed further modified versions of the fifth amended Plan of Reorganization. On January 22, 2019, the Bankruptcy Court entered an order confirming the Plan of Reorganization.
The Plan of Reorganization contemplates a restructuring of the Debtors that will reduce iHeartCommunications’ debt from approximately $16 billion to approximately $5.8 billion , and will result in the separation of CCOH from the Company, creating two independent companies.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. As noted above, Liabilities subject to compromise will be resolved in connection with the Chapter 11 Cases. The Company’s ability to continue as a going concern is contingent upon the Company’s ability to successfully implement the Company’s Plan of Reorganization, among other factors. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in the accompanying consolidated financial statements. Further, the Plan of Reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases. As a result of our financial condition, the defaults under our debt agreements, and the risks and uncertainties surrounding the Chapter 11 Cases, substantial doubt exists that we will be able to continue as a going concern.
Restricted Cash 
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts reported in the Consolidated Statements of Cash Flows:
(In thousands)
March 31,
2019
 
December 31,
2018
Cash and cash equivalents
$
448,130

 
$
406,493

Restricted cash included in:
 
 
 
  Other current assets
7,493

 
7,649

  Other assets
13,965

 
16,192

Total cash, cash equivalents and restricted cash in the Statement of Cash Flows
$
469,588

 
$
430,334

New Accounting Pronouncements Recently Adopted
Leases
The Company adopted ASU No. 2016-02, which created ASC 842, Leases , and all subsequent ASUs relating to this Topic, as of January 1, 2019 (collectively, "ASC 842"). This new lease accounting standard, which supersedes previous lease accounting guidance under U.S. GAAP, results in significant changes to the balance sheets of lessees, most significantly by requiring the recognition of a right-of-use ("ROU") asset and lease liability by lessees for those leases classified as operating leases. Lessor

8



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

accounting is also updated to align with certain changes in the lessee model and the revenue recognition standard ("ASC Topic 606"), which was adopted in 2018.
The Company applied the transition provisions of this standard at January 1, 2019 following the optional transition method provided by ASU No. 2018-11; consequently, the consolidated financial statements and notes to the consolidated financial statements for periods before the date of adoption continue to be presented in accordance with ASC Topic 840. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to not reassess whether expired or existing contracts are or contain leases and to carry forward the historical lease classification for those leases that commenced prior to the date of adoption.
Upon adoption of ASC 842, prepaid and deferred rent balances, which were historically presented separately, were combined and presented net within the ROU asset. Additionally, deferred gains related to previous transactions that were historically accounted for as sale and operating leasebacks in accordance with ASC Topic 840 were recognized as a cumulative-effect adjustment to equity, resulting in an increase to equity, net of tax, of $128.9 million . Under ASC Topic 840, such gains were recognized ratably over the lease term as a credit to operating lease expense, and operating lease expense for the three months ended March 31, 2018 included a credit of $1.5 million for the amortization of these gains, which was not recognized in the three months ended March 31, 2019 .
Adoption of the new standard had a material impact on our consolidated balance sheets, but it did not have a material impact on our other consolidated financial statements. Additionally, the standard requires disclosures to meet the objective of enabling users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Refer to Note 2, Revenue , and Note 3, Leases , for more information.
Intangible Assets and Goodwill
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 early adopted the proposed guidance under ASU 2017-04 beginning on January 1, 2019 on a prospective basis. The implementation of ASU 2017-04 did not have a material impact on our consolidated financial statements and related disclosures.
During the third quarter of 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract . This update requires that a customer in a cloud computing arrangement that is a service contract follow the internal use software guidance in Accounting Standards Codification (ASC) 350-402 to determine which implementation costs to capitalize as assets. The standard is effective for fiscal years beginning after December 15, 2019. The Company early adopted the proposed guidance under ASU 2017-04 beginning on January 1, 2019 on a prospective basis. The implementation of ASU 2017-04 did not have a material impact on our consolidated financial statements and related disclosures.
NOTE 2 – REVENUE
The Company generates revenue from several sources:
The primary source of revenue in the iHM segment is the sale of local and national advertising on the Company’s broadcast radio stations, its iHeartRadio digital platforms, station websites, sponsorships and live events. This segment also generates revenues from traffic and weather data, syndicated content, and other miscellaneous transactions.
The Americas outdoor and International outdoor segments generate revenue primarily from the sale of advertising space on printed and digital out-of-home advertising displays.
The Company also generates revenue through contractual commissions realized from the sale of national spot and online advertising on behalf of clients of its full-service media representation business, Katz Media, which is reported in the Company’s Other segment.

9



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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. The transaction price for these contracts is measured at the estimated fair value of the non-cash consideration received unless this is not reasonably estimable, in which case the consideration is measured based on the standalone selling price of the advertising spots or display space promised to the customer. Trade and barter revenues and expenses from continuing operations, which are included in consolidated revenue and selling, general and administrative expenses, respectively, were as follows:
 
Three Months Ended March 31,
(In thousands)
2019
 
2018
Consolidated:
 
 
 
  Trade and barter revenues
$
59,382

 
$
57,392

  Trade and barter expenses
51,928

 
68,277

 
 
 
 
iHM Segment:
 
 
 
  Trade and barter revenues
$
55,585

 
$
53,946

  Trade and barter expenses
49,856

 
64,532

Lease Revenue Considerations in Outdoor Segments
Certain of the revenue transactions in the Americas outdoor and International outdoor segments are considered leases, for accounting purposes, as the contracts convey to customers the right to control the use of the Company’s advertising displays for a period of time. These contracts, which typically cover periods of a few weeks to one year (although there are some with longer terms), are generally cancelable after a specified notice period in the Americas outdoor segment, while contracts in the International outdoor segment are generally non-cancelable or require the customer to pay a fee to terminate the contract. To qualify as a lease, fulfillment of the contract must be dependent upon the use of a specified advertising structure, the customer must have almost exclusive use of the advertising display throughout the contract term, and, upon adoption of the new leases standard (ASC 842) on January 1, 2019, the customer must also have the right to change the advertisement that is displayed throughout the contract term.
The Company has elected a practical expedient to not separate non-lease components from associated lease components if certain criteria are met. As such, each right to control the use of an advertising display that meets the lease criteria is combined with the related installation and maintenance services provided under the contract into a single lease component. Production services, which do not meet the criteria to be combined, and each advertising display that does not meet the lease criteria (along with any related installation and maintenance services) are non-lease components. Consideration in outdoor advertising contracts is allocated between lease and non-lease components in proportion to their relative standalone selling prices, which are generally approximated by the contractual prices for each promised service. The Company accounts for revenue from leases, which are all classified as operating leases, in accordance with the lease accounting guidance (ASC Topic 840 or ASC Topic 842, depending on the advertising campaign start date), while the Company’s remaining revenue transactions are accounted for as revenue from contracts with customers (ASC Topic 606).
In accordance with the transition approach that the Company elected to adopt ASC Topic 842, as described in Note 1, revenue contracts with campaign start dates prior to January 1, 2019 were not reassessed to determine whether they qualify as a lease under the requirements of the new leasing standard. Instead, they continue to be accounted for as revenue from contracts with customers or revenue from leases based on the requirements of the previous standard (ASC Topic 840), and the new requirements have been applied to revenue contracts with campaign start dates on or after January 1, 2019. Because the definition of a lease is more restrictive under the new standard, fewer of our new outdoor advertising contracts meet the definition of a lease for accounting purposes, resulting in an increase in the percentage of revenue that is categorized as revenue from contracts with customers as compared to the prior year.

10



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Disaggregation of Revenue
The following table shows, by segment, revenue from contracts with customers disaggregated by geographical region, revenue from leases and total revenue for the three months ended March 31, 2019 and 2018 :
(In thousands)
iHM
 
Americas Outdoor (1)
 
International Outdoor (1)
 
Other
 
Eliminations
 
Consolidated
Three Months Ended March 31, 2019
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
 
 
  United States
$
759,400

 
$
131,431

 
$

 
$
30,190

 
$
(269
)
 
$
920,752

  Other Americas
1,027

 
896

 
13,645

 

 

 
15,568

  Europe
2,351

 

 
201,205

 

 

 
203,556

  Asia-Pacific and other
2,622

 

 
53,231

 

 

 
55,853

     Total
765,400

 
132,327

 
268,081

 
30,190

 
(269
)
 
1,195,729

Revenue from leases
410

 
140,395

 
46,313

 

 
(948
)
 
186,170

Revenue, total
$
765,810

 
$
272,722

 
$
314,394

 
$
30,190

 
$
(1,217
)
 
$
1,381,899

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
Revenue from contracts with customers:
  United States
$
736,940

 
$
96,147

 
$

 
$
28,218

 
$
(313
)
 
$
860,992

  Other Americas
1,180

 
650

 
12,123

 

 

 
13,953

  Europe
2,601

 

 
187,216

 

 

 
189,817

  Asia-Pacific and other
2,957

 

 
3,012

 

 

 
5,969

     Total
743,678

 
96,797

 
202,351

 
28,218

 
(313
)
 
1,070,731

Revenue from leases
890

 
159,050

 
140,200

 

 
(1,223
)
 
298,917

Revenue, total
$
744,568

 
$
255,847

 
$
342,551

 
$
28,218

 
$
(1,536
)
 
$
1,369,648

(1)  
All of the Company’s outdoor advertising structures, which may be owned or leased, are used to generate revenue. Such revenue may be classified as revenue from contracts with customers or revenue from leases depending on the terms of the contract, as previously described.
Revenue from Contracts with Customers
The following tables show the Company’s beginning and ending accounts receivable and deferred revenue balances from contracts with customers:
 
Three Months Ended March 31,
(In thousands)
2019
 
2018
Accounts receivable, net of allowance, from contracts with customers:
 
 
 
  Beginning balance
$
1,236,779

 
$
1,195,145

  Ending balance
$
1,169,518

 
$
1,035,939

 
 
 
 
Deferred revenue from contracts with customers:
 
 
 
  Beginning balance
$
188,604

 
$
184,000

  Ending balance
$
212,286

 
$
211,582

During the three months ended March 31, 2019 and 2018 , respectively, the Company recognized $97.3 million and $83.3 million of revenue that was included in the deferred revenue from contracts with customers balance at the beginning of the period.
The Company’s contracts with customers generally have terms of one year or less; however, as of March 31, 2019 , the Company expects to recognize $316.7 million of revenue in future periods for remaining performance obligations from current contracts

11



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

with customers that have an original expected duration greater than one year, with substantially all of this amount to be recognized over the next five years . Commissions related to the Company’s media representation business have been excluded from this amount as they are contingent upon future sales.
Revenue from Leases
As of March 31, 2019 , the future lease payments to be received by the Company are as follows:
(In thousands)
2019
$
397,444

2020
48,769

2021
19,832

2022
10,505

2023
3,138

Thereafter
15,432

  Total
$
495,120

Note that the future lease payments disclosed are limited to the non-cancelable period of the lease and, for contracts that require the customer to pay a significant fee to terminate the contract such that the customer is considered reasonably certain not to exercise this option, periods beyond the termination option. Payments scheduled for periods beyond a termination option are not included for contracts that allow cancellation by the customer without a significant fee.
NOTE 3 – LEASES
The Company enters into operating lease contracts for land, buildings, structures and other equipment. Arrangements are evaluated at inception to determine whether such arrangements contain a lease. Operating leases include land lease contracts, radio towers and contracts for the use of space on floors, walls and exterior locations on buildings. Arrangements in which wall space is used are considered to be lease contracts if all other required elements of a lease contract are present. The Company assessed certain international transit contracts under ASC 842, which historically were determined to be leases, and concluded that the arrangements did not meet the definition of leases under the new leasing standard. In accordance with the transition guidance of ASC 842, such arrangements are included in the Company’s balance sheet as of January 1, 2019. The majority of the Company's transit contracts do not meet the definition of a lease due to substantive substitution rights within those contracts. Arrangements to lease building space consist primarily of the rental of office space, but may also include leases of other equipment, including automobiles and copiers. Operating leases are reflected on the Company's balance sheet within Operating lease right-of-use assets and the related short-term and long-term liabilities are included within Current and Noncurrent operating lease liabilities, respectively. As of March 31, 2019 , a portion of the Company's operating lease liabilities relate to lease contracts entered into prior to the Petition Date. As such, these liabilities are included within Liabilities subject to compromise. See Note 12 - Liabilities Subject to Compromise for more information.
The Company's finance leases are included within Property, plant and equipment with the related liabilities included within Long-term debt or within Liabilities subject to compromise.
ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term.
Certain of the Company's operating lease agreements include rental payments based on a percentage of revenue and others include rental payments adjusted periodically for inflationary changes. Percentage rent contracts, in which lease expense is calculated as a percentage of advertising revenue, and payments due to changes in inflationary adjustments are included within variable rent expense, which is accounted for separately from periodic straight-line lease expense. Amounts related to insurance and property taxes in lease arrangements when billed on a pass-through basis are allocated to the lease and non-lease components of the lease based on their relative standalone selling prices. Internationally, the Company is commonly assessed VAT on its contracts, which is treated as a nonlease component.

12



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Many operating lease contracts expire; however, the Company may continue to operate the leased assets after the rights and obligations of the lease agreements have expired. Such contracts, once expired, are not considered to be leases and future expected payments are not included in operating lease liabilities or ROU assets. Many of the Company's leases entered into in connection with advertising structures provide options to extend the terms of the agreements. Generally, renewal periods are excluded from minimum lease payments when calculating the lease liabilities as, for most leases, the Company does not consider exercise of such options to be reasonably certain. As a result, unless a renewal option is considered reasonably assured, the optional terms and related payments are not included within the lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The implicit rate within the Company's lease agreements is generally not determinable. As such, the Company uses the incremental borrowing rate ("IBR") to determine the present value of lease payments at the commencement of the lease. The IBR, as defined in ASC 842, is "the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment."

13



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table provides the components of lease expense included within the Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2019 :
(In thousands)
Three Months Ended
March 31, 2019
Operating lease expense
$
168,461

Variable lease expense
31,891

The following table provides the weighted average remaining lease term and the weighted average discount rate for the Company's leases as of March 31, 2019 . The weighted average discount rate is affected by the operating leases entered into by the iHM entities, which are Debtors in the Chapter 11 Cases.
 
March 31,
2019
Operating lease weighted average remaining lease term (in years)
10.0

Operating lease weighted average discount rate
12.44
%
As of March 31, 2019 , the Company’s future maturities of operating lease liabilities were as follows:
(In thousands)
2019
$
471,907

2020
550,241

2021
474,264

2022
387,920

2023
321,722

Thereafter
2,153,963

  Total lease payments
$
4,360,017

Less: Effect of discounting
1,894,444

  Total operating lease liability
$
2,465,573

The following table provides supplemental cash flow information related to leases:
(In thousands)
Three Months Ended
March 31, 2019
 
 
Cash paid for amounts included in measurement of operating lease liabilities
$
189,472

Lease liabilities arising from obtaining right-of-use assets 1
$
2,565,084

1 L ease liabilities from obtaining right-of-use assets include transition liabilities upon adoption of ASC 842, as well as new leases entered into during the three months ended March 31, 2019 .


14



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of March 31, 2019 and December 31, 2018 , respectively:
(In thousands)
March 31,
2019
 
December 31,
2018
Land, buildings and improvements
$
572,362

 
$
572,904

Structures
2,833,051

 
2,835,411

Towers, transmitters and studio equipment
366,500

 
365,991

Furniture and other equipment
818,278

 
793,756

Construction in progress
112,442

 
116,839

 
4,702,633

 
4,684,901

Less: accumulated depreciation
2,961,395

 
2,893,761

Property, plant and equipment, net
$
1,741,238

 
$
1,791,140

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.  Accordingly, there are no indefinite-lived intangible assets in the International outdoor segment.
The Company performs its annual impairment test on goodwill and indefinite-lived intangible assets, including Federal Communication Commission ("FCC") licenses, as of July 1 of each year. In addition, the Company tests for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired.  During the three months ended March 31, 2019 , the Company recognized non-cash impairment charges of $91.4 million in relation to indefinite-lived FCC licenses as a result of an increase in the Company's weighted average cost of capital.
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 amortized cost.

15



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of March 31, 2019 and December 31, 2018 , respectively:
(In thousands)
March 31, 2019
 
December 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
Transit, street furniture and other outdoor
contractual rights
$
528,232

 
$
(443,963
)
 
$
528,185

 
$
(440,228
)
Customer / advertiser relationships
1,237,115

 
(1,210,498
)
 
1,249,128

 
(1,208,056
)
Talent contracts
164,932

 
(150,289
)
 
164,933

 
(148,578
)
Representation contracts
77,508

 
(72,419
)
 
77,508

 
(70,829
)
Permanent easements
163,341

 

 
163,317

 

Other
394,923

 
(249,018
)
 
382,897

 
(244,993
)
Total
$
2,566,051

 
$
(2,126,187
)
 
$
2,565,968

 
$
(2,112,684
)
Total amortization expense related to definite-lived intangible assets for the three months ended March 31, 2019 and 2018 was $13.9 million and $47.0 million , respectively.
As acquisitions and dispositions occur in the future, amortization expense may vary.  The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:
(In thousands)
 
2020
$
43,788

2021
38,457

2022
32,707

2023
24,849

2024
20,983

Goodwill
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
 
International Outdoor
 
Other
 
Consolidated
Balance as of December 31, 2017
$
3,255,208

 
$
507,819

 
$
206,224

 
$
81,831

 
$
4,051,082

Acquisitions
77,320

 

 

 

 
77,320

Dispositions
(1,606
)
 

 

 

 
(1,606
)
Foreign currency

 

 
(8,040
)
 

 
(8,040
)
Balance as of December 31, 2018
$
3,330,922

 
$
507,819

 
$
198,184

 
$
81,831

 
$
4,118,756

Acquisitions
2,767

 

 

 

 
2,767

Foreign currency
(27
)
 

 
(3,184
)
 

 
(3,211
)
Balance as of March 31, 2019
$
3,333,662

 
$
507,819

 
$
195,000

 
$
81,831

 
$
4,118,312


16



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 5 – LONG-TERM DEBT
Long-term debt outstanding as of March 31, 2019 and December 31, 2018 consisted of the following:
(In thousands)
March 31,
2019
 
December 31,
2018
Senior Secured Credit Facilities
$

 
$

Debtors-in-Possession Facility (1)

 

9.0% Priority Guarantee Notes Due 2019

 

9.0% Priority Guarantee Notes Due 2021

 

11.25% Priority Guarantee Notes Due 2021

 

9.0% Priority Guarantee Notes Due 2022

 

10.625% Priority Guarantee Notes Due 2023

 

CCO Receivables Based Credit Facility Due 2023 (2)

 

Other secured subsidiary debt (3)
3,828

 
3,882

Total consolidated secured debt
3,828

 
3,882

 
 
 
 
14.0% Senior Notes Due 2021

 

Legacy Notes (4)

 

CCWH Senior Notes due 2022
2,725,000

 
2,725,000

CCWH Subordinated Notes due 2020 (5)

 
2,200,000

CCWH Subordinated Notes due 2024 (5)
2,235,000

 

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

 
375,000

Other subsidiary debt
46,510

 
46,105

Purchase accounting adjustments and original issue discount
(867
)
 
(739
)
Long-term debt fees
(44,322
)
 
(25,808
)
Long-term debt, net subject to compromise (6)
15,143,713

 
15,149,477

Total debt, prior to reclassification to Liabilities subject to compromise
20,483,862

 
20,472,917

Less: Current portion
46,744

 
46,332

Less: Amounts reclassified to Liabilities subject to compromise
15,143,713

 
15,149,477

Total long-term debt
$
5,293,405

 
$
5,277,108

(1)
The Debtors-in-Possession Facility (the "DIP Facility"), which matures on the earlier of the emergence date from the Chapter 11 Cases or June 14, 2019, provides for borrowings of up to $450.0 million . The DIP Facility also includes a feature to convert into an exit facility at emergence, upon meeting certain conditions. As of March 31, 2019 , the Company had a borrowing base of $426.8 million under iHeartCommunications' DIP Facility, had no outstanding borrowings, had $59.0 million of outstanding letters of credit and had an availability block requirement of $37.5 million , resulting in $330.3 million of excess availability.
(2)
The receivables based credit facility provides for revolving credit commitments of up to $125.0 million . As of March 31, 2019 , the facility had $85.5 million of letters of credit outstanding and a borrowing base of $116.2 million , resulting in $30.7 million of excess availability. Certain additional restrictions, including a springing financial covenant, take effect at decreased levels of excess availability.
(3)
Other secured subsidiary debt matures at various dates from 2019 through 2045.
(4)
iHeartCommunications' Legacy Notes, all of which were issued prior to the acquisition of iHeartCommunications by the Company in 2008, consist of $175.0 million of Senior Notes that matured on June 15, 2018, $300.0 million of Senior Notes that mature in 2027 and $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.
(5)
On February 4, 2019, Clear Channel Worldwide Holdings, Inc., a subsidiary of CCOH (“CCWH”), delivered a conditional notice of redemption calling all of its outstanding $275.0 million aggregate principal amount of 7.625% Series A Senior Subordinated Notes due 2020 (the “Series A CCWH Subordinated Notes”) and $1,925.0 million aggregate principal amount of 7.625% Series B Senior Subordinated Notes due 2020 (the “Series B CCWH Subordinated Notes” and together with the Series A CCWH Subordinated Notes, the “CCWH Subordinated Notes”) for redemption on March 6, 2019. The redemption was conditioned on the closing of the offering of $2,235.0 million of newly-issued 9.25% Senior Subordinated Notes due 2024 (the "New CCWH Subordinated Notes"). At the closing of such offering on February 12, 2019, CCWH deposited with the trustee for the CCWH Subordinated Notes a portion of the proceeds from the new notes in an amount sufficient to pay and discharge the principal amount outstanding, plus accrued and unpaid interest on

17



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

the CCWH Subordinated Notes to, but not including, the redemption date. CCWH irrevocably instructed the trustee to apply such funds to the full payment of the CCWH Subordinated Notes on the redemption date. Concurrently therewith, CCWH elected to satisfy and discharge the indentures governing the CCWH Subordinated Notes in accordance with their terms and the trustee acknowledged such satisfaction and discharge. As a result of the satisfaction and discharge of the indentures, CCWH and the guarantors of the CCWH Subordinated Notes were released from their remaining obligations under the indentures and the CCWH Subordinated Notes.
(6)
In connection with the Company's Chapter 11 Cases, the $6,300.0 million outstanding under the Senior Secured Credit Facilities, the $1,999.8 million outstanding under the 9.0% Priority Guarantee Notes due 2019, the $1,750.0 million outstanding under the 9.0% Priority Guarantee Notes due 2021, the $870.5 million of 11.25% Priority Guarantee Notes due 2021, the $1,000.0 million outstanding under the 9.0% Priority Guarantee Notes due 2022, the $950.0 million outstanding under the 10.625% Priority Guarantee Notes due 2023, $6.0 million outstanding Other Secured Subsidiary debt, the $1,781.6 million outstanding under the 14.0% Senior Notes due 2021, the $475.0 million outstanding under the Legacy Notes and $10.8 million outstanding Other Subsidiary Debt have been reclassified to Liabilities subject to compromise in the Company's Consolidated Balance Sheet as of March 31, 2019 . As of the Petition Date, the Company ceased making principal and interest payments, and ceased accruing interest expense in relation to long-term debt reclassified as Liabilities subject to compromise.
The Company’s weighted average interest rate was 9.4% and 9.2% as of March 31, 2019 and December 31, 2018 , respectively. The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $14.9 billion and $14.0 billion as of March 31, 2019 and December 31, 2018 , 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.
Surety Bonds, Letters of Credit and Guarantees
As of March 31, 2019 , the Company and its subsidiaries had outstanding surety bonds, commercial standby letters of credit and bank guarantees of $74.2 million , $144.5 million and $37.3 million , respectively. A portion of the outstanding bank guarantees were supported by $16.9 million of 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.
NOTE 6 – 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.
Chapter 11 Cases
iHeartCommunications' filing of the Chapter 11 Cases constitutes an event of default that accelerated its obligations under its debt agreements. Due to the Chapter 11 Cases, however, the creditors' ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018, the Petition Date, and continue to be stayed. On March 21, 2018, Wilmington Savings Fund Society, FSB ("WSFS"), solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027, and not in its individual capacity, filed an adversary proceeding against the Company in the Chapter 11 Cases. In the complaint, WSFS alleged, among other things, that the "springing lien" provisions of the priority guarantee notes indentures and the priority guarantee notes security agreements amounted to "hidden encumbrances" on the Company's property, to which the holders of the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027 were entitled to "equal and ratable" treatment. On March 26, 2018, Delaware Trust Co. ("Delaware Trust"), in its capacity as successor indenture trustee to the 14% Senior Notes due 2021, filed a motion to intervene as a plaintiff in the adversary proceeding filed by WSFS. In the complaint, Delaware Trust alleged, among other things, that the indenture governing the 14% Senior Notes due 2021 also has its own "negative pledge" covenant, and, therefore, to the extent the relief sought by WSFS in its adversary proceeding is warranted, the holders of the 14% Senior Notes due 2021 are also entitled to the same "equal and ratable" liens on the same property. On April 6, 2018, the Company filed a motion to dismiss the adversary proceeding and a hearing on such motion was held on May

18



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

7, 2018. We answered the complaint and completed discovery.  The trial was held on October 24, 2018. On January 15, 2019, the Bankruptcy Court entered judgment in the Company's favor denying all relief sought by WSFS and all other parties. Pursuant to a settlement (the “Legacy Plan Settlement”) with WSFS and certain consenting Legacy Noteholders of all issues related to confirmation of the Company's plan of reorganization, upon the Company's confirmed plan of reorganization becoming effective, this adversary proceeding shall be deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.
On October 9, 2018, WSFS, solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027, and not in its individual capacity, filed an adversary proceeding against Clear Channel Holdings, Inc. (“CCH”) and certain shareholders of iHeartMedia. The named shareholder defendants are Bain Capital LP; Thomas H. Lee Partners L.P.; Abrams Capital L.P.; and Highfields Capital Management L.P. In the complaint, WSFS alleged, among other things, that the shareholder defendants engaged in a “pattern of inequitable and bad faith conduct, including the abuse of their insider positions to benefit themselves at the expense of third-party creditors including particularly the Legacy Noteholders.” The complaint asks the court to grant relief in the form of equitable subordination of the shareholder defendants’ term loan, priority guarantee notes and 2021 notes claims to any and all claims of the legacy noteholders. In addition, the complaint seeks to have any votes to accept the Fourth Amended Plan of Reorganization by Abrams and Highfields on account of their 2021 notes claims, and any votes to accept the Fourth Amended Plan of Reorganization by defendant CCH on account of its junior notes claims, to be designated and disqualified. The Court held a pre-trial conference and oral argument on October 18, 2018. Pursuant to the Legacy Plan Settlement, upon the Company's confirmed Plan of Reorganization becoming effective, this adversary proceeding shall be deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.
Stockholder Litigation
On May 9, 2016, a stockholder of 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 named as defendants the Company, iHeartCommunications, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P., the Company's private equity sponsors and majority owners (together, the "Sponsor Defendants"), and the members of CCOH's board of directors. CCOH also was named as a nominal defendant. The complaint alleged that CCOH had been harmed by the intercompany agreements with iHeartCommunications , CCOH’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of the Company, iHeartCommunications and the Sponsor Defendants to the detriment of CCOH and its minority stockholders. Specifically, the complaint alleged that the defendants breached their fiduciary duties by causing CCOH to: (i) continue to loan cash to iHeartCommunications under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to the Company and iHeartCommunications ; (iii) issue new debt in the CCIBV note offering (the "CCIBV Note Offering") to provide cash to the Company and iHeartCommunications through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the "Outdoor Asset Sales") allegedly to provide cash to the Company and iHeartCommunications through a dividend. The complaint also alleged that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the directors' breaches of their fiduciary duties. The complaint further alleged that the Company, iHeartCommunications and the Sponsor Defendants were unjustly enriched as a result of these transactions and that these transactions constituted a waste of corporate assets for which the defendants are liable to CCOH. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to CCOH and that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the CCOH board of directors' breaches of fiduciary duty, rescission of payments made by CCOH to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring the Company, iHeartCommunications and the Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.
On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants' motion to dismiss all claims brought by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appeal of the ruling. The oral hearing on the appeal was held on October 11, 2017. On October 12, 2017, the Supreme Court of Delaware affirmed the lower court's ruling, dismissing the case.
On December 29, 2017, another stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned Norfolk County Retirement System, v. iHeartMedia, Inc., et al., C.A. No. 2017-0930-JRS. The complaint names as defendants the Company, iHeartCommunications, the Sponsor Defendants, and the members of CCOH's board of directors.  CCOH is named as a nominal defendant. The complaint alleges that CCOH has been harmed by the CCOH Board’s November 2017 decision to extend the maturity date of the intercompany revolving note (the “Third Amendment”) at what the complaint describes

19



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

as far-below-market interest rates.  Specifically, the complaint alleges that (i) the Company and Sponsor defendants breached their fiduciary duties by exploiting their position of control to require CCOH to enter the Third Amendment on terms unfair to CCOH; (ii) the CCOH Board breached their duty of loyalty by approving the Third Amendment and elevating the interests of the Company, iHeartCommunications and the Sponsor Defendants over the interests of CCOH and its minority unaffiliated stockholders; and (iii) the terms of the Third Amendment could not have been agreed to in good faith and represent a waste of corporate assets by the CCOH Board.  The complaint further alleges that the Company, iHeartCommunications and the Sponsor defendants were unjustly enriched as a result of the unfairly favorable terms of the Third Amendment.  The plaintiff is seeking, among other things, a ruling that the defendants breached their fiduciary duties to CCOH, a modification of the Third Amendment to bear a commercially reasonable rate of interest, and an order requiring disgorgement of all profits, benefits and other compensation obtained by defendants as a result of the alleged breaches of fiduciary duties.
On March 7, 2018, the defendants filed a motion to dismiss plaintiff's verified derivative complaint for failure to state a claim upon which relief can be granted. On March 16, 2018, the Company filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings. On May 4, 2018, plaintiff filed its response to the motion to dismiss. On June 26, 2018, the defendants filed a reply brief in further support of their motion to dismiss. Oral argument on the motion to dismiss was held on September 20, 2018.
On August 27, 2018, the same stockholder of CCOH that had filed a derivative lawsuit against the Company and others in 2016 (GAMCO Asset Management Inc.) filed a putative class action lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS. The complaint names as defendants the Sponsor Defendants and the members of CCOH’s board of directors. The complaint alleges that minority shareholders in CCOH during the period November 8, 2017 to March 14, 2018 were harmed by decisions of the CCOH Board and the intercompany note committee of the Board relating to the Intercompany Note. Specifically, the complaint alleges that (i) the members of the intercompany note committee breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to the Company’s liquidity had been reached; (ii) the CCOH Board breached their fiduciary duties by approving the Third Amendment rather than allowing the Intercompany Note to expire; (iii) the CCOH Board breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to the Company’s liquidity had been reached; (iv) the Sponsor Defendants breached their fiduciary duties by not directing the CCOH Board to permit the Intercompany Note to expire and to declare a dividend. The complaint further alleges that the Sponsor Defendants aided and abetted the Board’s alleged breach of fiduciary duties. The plaintiff seeks, among other things, a ruling that the CCOH Board, the intercompany note committee, and the Sponsor Defendants breached their fiduciary duties and that the Sponsor Defendants aided and abetted the Board’s breach of fiduciary duty; and an award of damages, together with pre- and post-judgment interests, to the putative class of minority shareholders.
In connection with the cash management arrangements with CCOH, iHeartCommunications maintains an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the "Intercompany Note"), which matures on May 15, 2019.  As of December 31, 2017, the principal amount outstanding under the Intercompany Note was $1,067.6 million .  As a result of the Chapter 11 Cases, CCOH wrote down the balance of the note by $855.6 million during the fourth quarter of 2017 to reflect the estimated recoverable amount of the Intercompany Note as of December 31, 2017, based on CCOH management's best estimate of the cash settlement amount.  As of the Petition Date, the principal amount outstanding under the Intercompany Note was $1,031.7 million .  As of March 31, 2019, the asset recorded in respect of the Intercompany Note on CCOH's balance sheet was $154.8 million .  Pursuant to an order entered by the Bankruptcy Court, as of March 14, 2018, the balance of the Intercompany Note is frozen, and following March 14, 2018, intercompany allocations that would have been reflected in adjustments to the balance of the Intercompany Note are instead reflected in an intercompany balance that accrues interest at a rate equal to the interest under the Intercompany Note.  As of March 31, 2019, the liability recorded in respect of the post-petition intercompany balance on CCOH's balance sheet was $73.7 million
On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into a settlement (the “CCOH Separation Settlement”) of all claims, objections, and other causes of action that have been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. The CCOH Separation Settlement provides for the consensual separation of the Debtors and CCOH, including approximately $149.0 million of recovery to CCOH on account of its claim against iHeartCommunications in the Chapter 11 cases, a $200 million unsecured revolving line of credit from certain of the Debtors to CCOH for a period of up to three years, the transfer of certain of the Debtors’ intellectual property to CCOH, the waiver by the Debtors of the setoff for the value of the transferred intellectual property, mutual

20



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

releases, the termination of the cash sweep under the existing Corporate Services Agreement, the termination of any agreements or licenses requiring royalty payments from CCOH to the Debtors for trademarks or other intellectual property, the waiver of any post-petition amounts owed by CCOH relating to such trademarks or other intellectual property, and the execution of a new transition services agreement and other separation documents. The CCOH Separation Settlement was approved by the Bankruptcy Court and the United States District Court for the Southern District of Texas on January 22, 2019.
The Separation Agreement contemplates that in connection with the Separation (i) the cash sweep arrangement under the Corporate Services Agreement between CCOH and iHeartCommunications will terminate, and (ii) any agreements or licenses requiring royalty payments to the Debtors by CCOH for trademarks or other intellectual property, will terminate effective as of December 31, 2018. The Debtors agreed to (i) the repayment of the post-petition intercompany balance outstanding in favor of the Debtors as of December 31, 2018, which was equal to $21.6 million as of that date and (ii) the waiver of the set-off value of any royalties and IP license fees owed to iHeartCommunications equal to approximately $31.8 million from March 14, 2018 through December 31, 2018, such that the resulting intercompany balance on such date was $10.2 million in favor of CCOH, payable on the Effective Date.  Since January 1, 2019, CCOH has incurred an additional intercompany liability of $52.1 million in favor of iHeartCommunications as of March 31, 2019.  Pursuant to an amendment to the Separation Agreement (the "Separation Agreement Amendment"), CCOH has agreed to offset the $149 million amount owed by iHeartCommunications on the Effective Date by $52.1 million , resulting in a total net payment to CCOH of approximately $107 million on the Effective Date (including the $10.2 million payment discussed above). Pursuant to the Amendment, within 15 business days after the Effective Date, iHeartCommunications and CCOH will pay the other any intercompany liability incurred from April 1, 2019 through the Effective Date.  The Intercompany Note and Due to iHeartCommunications Note are eliminated in consolidation in our consolidated financial statements.  The Bankruptcy Court approved a final order to allow us to continue to provide the day-to-day cash management services for CCOH during the Chapter 11 Cases.  Upon the occurrence of the Separation on the Effective Date, we will cease to provide these services for CCOH.
China Investigation
Several employees of Clear Media Limited, an indirect, non-wholly-owned subsidiary of the Company whose ordinary shares are listed on the Hong Kong Stock Exchange, are subject to an ongoing police investigation in China for misappropriation of funds. The Company is not aware of any litigation, claim or assessment pending against the Company in relation to this investigation. Based on information known to date, the Company believes any contingent liabilities arising from potential misconduct that has been or may be identified by the investigation in China are not material to the Company’s consolidated financial statements. The effect of the misappropriation of funds is reflected in these financial statements in the appropriate periods.
The Company advised both the United States Securities and Exchange Commission and the United States Department of Justice of the investigation at Clear Media Limited and is cooperating to provide information in response to inquiries from the agencies. The Clear Media Limited investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, which statute and regulations provide for potential monetary penalties as well as criminal and civil sanctions. It is possible that monetary penalties and other sanctions could be assessed on the Company in connection with this matter. The nature and amount of any monetary penalty or other sanctions cannot reasonably be estimated at this time and could be qualitatively or quantitatively material to the Company.
Italy Investigation
During the three months ended June 30, 2018, the Company identified misstatements associated with VAT obligations in its business in Italy, which resulted in an understatement of its VAT obligation. These misstatements resulted in an understatement of other long-term liabilities of $16.9 million as of December 31, 2017. The effect of these misstatements is reflected in the historical financial statements in the appropriate periods. Upon identification of these misstatements, the Company undertook certain procedures, including a forensic investigation, which is ongoing. In addition, the Company voluntarily disclosed the matter and preliminary findings to the Italian tax authorities in order to commence a discussion on the appropriate calculation of the VAT position. The current expectation is that the Company may have to repay to the Italian tax authority a substantial portion of the VAT previously applied as a credit in relation to the transactions under investigation, amounting to approximately $17 million , including estimated possible penalties and interest. The Company made a payment of approximately $8.6 million during the fourth quarter of 2018 and expects to pay the remainder during the last half of 2019. The ultimate amount to be paid may differ from the estimates, and such differences may be material.


21



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 7 – INCOME TAXES
Income Tax Expense
The Company’s income tax expense for the three months ended March 31, 2019 and 2018 , respectively, consisted of the following components:
(In thousands)
Three Months Ended March 31,
 
2019
 
2018
Current tax expense
$
(1,926
)
 
$
(4,672
)
Deferred tax benefit
5,357

 
122,038

Income tax benefit
$
3,431

 
$
117,366

The effective tax rate for the three months ended March 31, 2019 and 2018 was 2.5% and 21.3% , respectively. The decrease in the effective tax rate is primarily attributed to the tax effects of the impairment charge recorded in relation to indefinite-lived FCC licenses in the current period, and also attributed to year over year changes in the forecasted mix of earnings and tax rates in the jurisdictions in which the Company operates.
NOTE 8 – SHARE-BASED COMPENSATION AND LOSS PER SHARE
The Company 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.
COMPUTATION OF LOSS PER SHARE
(In thousands, except per share data)
Three Months Ended
March 31,
 
2019
 
2018
NUMERATOR:
 
 
 
Net loss attributable to the Company – common shares
$
(114,383
)
 
$
(416,994
)
 
 
 
 
DENOMINATOR:
 

 
 

Weighted average common shares outstanding - basic
85,649

 
85,215

Weighted average common shares outstanding - diluted (1)
85,649

 
85,215

 
 
 
 
Net loss attributable to the Company per common share:
 

 
 

Basic
$
(1.34
)
 
$
(4.89
)
Diluted
$
(1.34
)
 
$
(4.89
)
(1)  
Outstanding equity awards of 5.9 million and 8.2 million for the three months ended March 31, 2019 and 2018 , respectively, were not included in the computation of diluted earnings per share because to do so would have been antidilutive.
NOTE 9 — OTHER INFORMATION
Other Comprehensive Income (Loss)
There was no change in deferred income tax liabilities resulting from adjustments to comprehensive loss for the three months ended March 31, 2019 and 2018 .
Preferred Equity Commitment
On April 8, 2019, the Company, iHeartCommunications, iHeart Operations, Inc. ("iHeart Operations"), and CCH entered into a Preferred Equity Commitment Letter (the "Commitment Letter") with an investor. Pursuant to the Commitment Letter, the investor

22



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

has agreed to purchase (i) 60,000 shares of Series A Perpetual Preferred Stock, par value $0.001 per share (the "iHeart Operations Preferred Stock"), of iHeart Operations, Inc. having an aggregate initial liquidation preference of $60 million for a cash purchase price of $60 million and (ii) 45,000 shares of Series A Perpetual Preferred Stock, par value $0.01 per share, of CCH having an aggregate initial liquidation preference of $45 million for a cash purchase price of $45 million .
Holders of the iHeart Operations Preferred Stock will be entitled to receive, as and when declared by the board of directors of iHeart Operations, in respect of each share, cumulative dividends accruing daily and payable quarterly at a per annum rate equal to the sum of (1) the greater of (a) LIBOR and (b)  two percent , plus (2) the applicable margin, which is calculated as a function of iHeartMedia’s consolidated total leverage ratio. Dividends will be payable on the liquidation preference. Unless all accrued and unpaid dividends on the iHeart Operations Preferred Stock are paid in full, no dividends or distributions may be paid on any equity interests of iHeartMedia or its subsidiaries other than iHeart Operations, and no such equity interests may be repurchased or redeemed (subject to certain exceptions that are specified in the certificate of designations for the iHeart Operations Preferred Stock). Dividends, if declared, will be payable on March 31, June 30, September 30 and December 31 of each year (or on the next business day if such date is not a business day).
Other than as set forth below, iHeart Operations may not redeem the iHeart Operations Preferred Stock at its option prior to the third anniversary of the issue date of the iHeart Operations Preferred Stock. Upon consummation of certain equity offerings, iHeart Operations may, at its option, redeem all or a part of the iHeart Operations Preferred Stock for the liquidation preference plus a make-whole premium. At any time on or after the third anniversary of the issue date, the iHeart Operations Preferred Stock may be redeemed at the option of iHeart Operations, in whole or in part, for cash at a redemption price equal to the liquidation preference per share.
Upon (i) a liquidation, dissolution or winding up of iHeart Operations, iHeartMedia or iHeartCommunications, together with the subsidiaries of such entity, taken as a whole, (ii) a bankruptcy event, (iii) a change of control, (iv) a sale or transfer of all or substantially all of iHeart Operations’, iHeartMedia’s or iHeartCommunications’ assets and the assets of such entity’s subsidiaries, taken as a whole in a single transaction (other than to iHeartMedia or any of its subsidiaries), or a series of transactions, (v) an acceleration or payment default of indebtedness of iHeart Operations, iHeartMedia or any of its subsidiaries of $100 million or more or (vi) consummation of certain equity offerings of iHeartMedia, iHeart Operations or iHeartCommunications or certain significant subsidiaries, then any holder of shares of iHeart Operations Preferred Stock may require iHeartMedia to purchase such holder’s shares of iHeart Operations Preferred Stock at a purchase price equal to (a) the liquidation preference plus a make-whole premium, if such purchase is consummated prior to the third anniversary of the issue date or (b) the liquidation preference, if the purchase is consummated on or after the third anniversary of the issue date.
The shares of iHeart Operations Preferred Stock include repurchase rights, pursuant to which the holders may require iHeartMedia or iHeartCommunications to purchase the iHeart Operations Preferred Stock after the fifth anniversary of the issue date.
On the tenth anniversary of the issue date, the shares of iHeart Operations Preferred Stock will be subject to mandatory redemption for an amount equal to the liquidation preference.
If a default occurs or dividends payable on the shares of iHeart Operations Preferred Stock have not been paid in cash for twelve consecutive quarters, the holders of the iHeart Operations Preferred Stock will have the right, voting as a class, to elect one director to iHeartMedia’s Board of Directors. Upon any termination of the rights of the holders of shares of the iHeart Operations Preferred Stock as a class to vote for a director as described above, the director so elected to iHeartMedia’s Board of Directors will cease to be qualified as a director and the term of such director’s office shall terminate immediately.


23



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 10 – 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.  The International outdoor advertising segment primarily includes operations in Europe, Asia and Latin America.  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 months ended March 31, 2019 and 2018 :
(In thousands)
iHM
 
Americas Outdoor
 
International Outdoor
 
Other
 
Corporate and other reconciling items
 
Eliminations
 
Consolidated
Three Months Ended March 31, 2019
Revenue
$
765,810

 
$
272,722

 
$
314,394

 
$
30,190

 
$

 
$
(1,217
)
 
$
1,381,899

Direct operating expenses
267,114

 
130,519

 
217,308

 
1

 

 
(23
)
 
614,919

Selling, general and administrative expenses
307,729

 
51,636

 
71,330

 
25,251

 

 
(223
)
 
455,723

Corporate expenses

 

 

 

 
75,671

 
(971
)
 
74,700

Depreciation and amortization
30,417

 
39,496

 
34,581

 
2,945

 
5,927

 

 
113,366

Impairment charges

 

 

 

 
91,382

 

 
91,382

Other operating expense, net

 

 

 

 
(3,549
)
 

 
(3,549
)
Operating income (loss)
$
160,550

 
$
51,071

 
$
(8,825
)
 
$
1,993

 
$
(176,529
)
 
$

 
$
28,260

Intersegment revenues
$
226

 
$
991

 
$

 
$

 
$

 
$

 
$
1,217

Capital expenditures
$
20,690

 
$
11,408

 
$
14,819

 
$
37

 
$
4,172

 
$

 
$
51,126

Share-based compensation expense
$

 
$

 
$

 
$

 
$
2,227

 
$

 
$
2,227

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
Revenue
$
744,568

 
$
255,847

 
$
342,551

 
$
28,218

 
$

 
$
(1,536
)
 
$
1,369,648

Direct operating expenses
241,066

 
124,873

 
236,416

 

 

 

 
602,355

Selling, general and administrative expenses
321,270

 
48,950

 
78,458

 
24,822

 

 
(513
)
 
472,987

Corporate expenses

 

 

 

 
79,757

 
(1,023
)
 
78,734

Depreciation and amortization
58,333

 
44,504

 
38,565

 
3,766

 
6,266

 

 
151,434

Impairment charges

 

 

 

 

 

 

Other operating expense, net

 

 

 

 
(3,286
)
 

 
(3,286
)
Operating income (loss)
$
123,899

 
$
37,520

 
$
(10,888
)
 
$
(370
)
 
$
(89,309
)
 
$

 
$
60,852

Intersegment revenues
$
14

 
$
1,522

 
$

 
$

 
$

 
$

 
$
1,536

Capital expenditures
$
9,077

 
$
12,907

 
$
15,272

 
$
40

 
$
1,407

 
$

 
$
38,703

Share-based compensation expense
$

 
$

 
$

 
$

 
$
2,684

 
$

 
$
2,684



24



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 11 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company 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 provided management and financial advisory services until December 31, 2018. These agreements required 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. In connection with the Reorganization, the Company is not recognizing management fees following the Petition Date. The Company recognized management fees and reimbursable expenses of $3.1 million for the three months ended March 31, 2018 . As of the effective date of the Plan of Reorganization, these management fees will be waived.


25



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 12 – LIABILITIES SUBJECT TO COMPROMISE
As discussed in Note 1, "Basis of Presentation", since the Petition Date, the Company has been operating as debtor in possession under the jurisdiction of the Bankruptcy Court and in accordance with provisions of the Bankruptcy Code. On the accompanying Consolidated Balance Sheets, the caption “Liabilities subject to compromise” reflects the expected allowed amount of the pre-petition claims that are not fully secured and that have at least a possibility of not being repaid at the full claim amount. Liabilities subject to compromise at March 31, 2019 and December 31, 2018 consisted of the following:
(In thousands)
March 31,
2019
 
December 31, 2018
Accounts payable
$
32,232

 
$
32,807

Current operating lease liabilities
32,065

 

Accrued expenses
12,050

 
23,277

Deferred taxes
653,522

 
644,926

Noncurrent operating lease liabilities
397,158

 

Other long-term liabilities
15,916

 
87,096

Accounts payable, accrued and other liabilities
1,142,943

 
788,106

Debt subject to compromise
15,143,713

 
15,149,477

Accrued interest on debt subject to compromise
542,673

 
542,673

Long-term debt and accrued interest
15,686,386

 
15,692,150

Total liabilities subject to compromise
$
16,829,329

 
$
16,480,256

Determination of the value at which liabilities will ultimately be settled cannot be made until the Bankruptcy Court approves the Plan of Reorganization and the Company emerges from bankruptcy. The Company will continue to evaluate the amount and classification of its pre-petition liabilities. Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of liabilities subject to compromise may change.
NOTE 13 – REORGANIZATION ITEMS, NET
Reorganization items incurred as a result of the Chapter 11 Cases are presented separately in the accompanying statements of operations for the three months ended March 31, 2019 and 2018 , respectively, and were as follows:
(In thousands)
Three Months Ended March 31,
 
2019
 
2018
Write-off of deferred long-term debt fees
$

 
$
54,670

Write-off of original issue discount on debt subject to compromise

 
131,100

Loss on Liabilities subject to compromise settlement
5

 

Professional fees and other bankruptcy related costs
36,113

 
6,285

Reorganization items, net
$
36,118

 
$
192,055

Professional fees included in Reorganization items, net represent fees for post-petition expenses related to the Chapter 11 Cases. Write-off of deferred long-term debt fees and write-off of original issue discount are included in Reorganization items, net.
As of March 31, 2019 , $49.7 million of Reorganization items, net were unpaid and accrued in Accounts Payable and Accrued Expenses in the accompanying Consolidated Balance Sheet. As of March 31, 2018 , $6.1 million of professional fees were unpaid and accrued in Accounts Payable and Accrued Expenses in the accompanying Consolidated Balance Sheet.


26



IHEARTMEDIA, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 14 – CONDENSED COMBINED DEBTOR-IN-POSSESSION FINANCIAL INFORMATION
The financial statements below represent the condensed combined financial statements of the Debtors. The results of the Company’s Non-Filing Entities, which are comprised primarily of the Company's Americas outdoor and International outdoor segments, are not included in these condensed combined financial statements.
Intercompany transactions among the Debtors have been eliminated in the financial statements contained herein. Intercompany transactions among the Debtors and the Non-Filing Entities have not been eliminated in the Debtors’ financial statements.
Debtors' Balance Sheet
(In thousands)
March 31,
2019
 
December 31, 2018
 
(Unaudited)
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
233,596

 
$
178,924

Accounts receivable, net of allowance of $24,936 in 2019 and 26,347 in 2018
748,143

 
866,088

Intercompany receivable
48,771

 

Prepaid expenses
120,009

 
98,836

Other current assets
41,452

 
24,576

Total Current Assets
1,191,971

 
1,168,424

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Property, plant and equipment, net
496,067

 
501,677

INTANGIBLE ASSETS AND GOODWILL
 
 
 
Indefinite-lived intangibles - licenses
2,318,029

 
2,409,411

Other intangibles, net
187,197

 
196,741

Goodwill
3,412,753

 
3,412,753

OTHER ASSETS
 
 
 
Operating lease right-of-use assets
353,404