IHEARTMEDIA, INC. OVERVIEW
Format of Presentation
Management's discussion and analysis of our financial condition and results of
operations ("MD&A") should be read in conjunction with the consolidated
financial statements and related footnotes contained in Item 8 of this Annual
Report on Form 10-K of iHeartMedia, Inc. (the "Company," "iHeartMedia," "we," or
"us").
Beginning on
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These reporting segments reflect how senior management operates the Company and align with certain leadership and organizational changes implemented in the first quarter of 2021. This structure provides improved visibility into the underlying performance, results, and margin profiles of our distinct businesses and enables senior management to better monitor trends at the operational level and address opportunities or issues as they arise via regular review of segment-level results and forecasts with operational leaders. Additionally, beginning onJanuary 1, 2021 , Segment Adjusted EBITDA became the segment profitability metric reported to the Company's Chief Operating Decision Maker for purposes of making decisions about allocation of resources to, and assessing performance of, each reportable segment. Segment Adjusted EBITDA is calculated as Revenue less operating expenses, excluding Restructuring expenses (as defined below) and share-based compensation expenses. We have transitioned our business from a single platform radio broadcast operator to a company with multiple platforms including digital, podcasting, networks and events, as well as ad technology capabilities. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. We believe the presentation of our results by segment provides additional insight into our broadcast radio business and our fast-growing digital business. We believe that our ability to generate cash flow from operations from our business initiatives and our current cash on hand will provide sufficient resources to fund and operate our business, fund capital expenditures and other obligations and make interest payments on our long-term debt for at least the next twelve months.
Certain prior period amounts have been reclassified to conform to the 2021 presentation.
Description of Our Business
Our strategy centers on delivering entertaining and informative content where our listeners want to find it across our various platforms.
The primary source of revenue for ourMultiplatform Group is from selling local and national advertising time on our radio stations, with contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics. We work closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. OurMultiplatform Group also generates revenue from network syndication, nationally recognized events and other miscellaneous transactions. Management looks at ourMultiplatform Group's operations' overall revenue as well as the revenue from each type of advertising, including local advertising, which is sold predominately in a station's local market, and national advertising, which is sold across multiple markets. Local advertising is sold by each radio station's sales staff while national advertising is sold by our national sales team. We periodically review and refine our selling structures in all regions and markets in an effort to maximize the value of our offering to advertisers and, therefore, our revenue. 32 -------------------------------------------------------------------------------- Management also looks atMultiplatform Group's revenue by region and market size. Typically, larger markets can reach larger audiences with wider demographics than smaller markets. Additionally, management reviews our share of audio advertising revenues in markets where such information is available, as well as our share of target demographics listening in an average quarter hour. This metric gauges how well our formats are attracting and retaining listeners. Management also monitors revenue generated through our programmatic ad-buying platform, Soundpoint, and our data analytics advertising product, SmartAudio, to measure the success of our enhanced marketing optimization tools. We have made significant investments so we can provide the same ad-buying experience that once was only available from digital-only companies and enable our clients to better understand how our assets can successfully reach their target audiences. Management monitors average advertising rates and cost per mille, the cost of every 1,000 advertisement impressions ("CPM"), which are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by an independent ratings service. In addition, our advertising rates are influenced by the time of day the advertisement airs, with morning and evening drive-time hours typically priced the highest. Our price and yield information systems enable our station managers and sales teams to adjust commercial inventory and pricing based on local market demand, as well as to manage and monitor different commercial durations in order to provide more effective advertising for our customers at what we believe are optimal prices given market conditions. Yield is measured by management in a variety of ways, including revenue earned divided by minutes of advertising sold. A portion of ourMultiplatform Group segment's expenses vary in connection with changes in revenue. These variable expenses primarily relate to costs in our programming and sales departments, including profit sharing fees and commissions, and bad debt. Our content costs, including music license fees for music delivered via broadcast, vary with the volume and mix of songs played on our stations.Digital Audio Group Through ourDigital Audio Group , we continue to expand the choices for listeners. We derive revenue in this segment by developing and delivering our content and selling advertising across multiple digital distribution channels, including via our iHeartRadio mobile application, our station websites and other digital platforms that reach national, regional and local audiences. Our strategy has enabled us to extend our leadership in the rapidly growing podcasting sector, and iHeartMedia is the number one podcast publisher in America. Our reach now extends across more than 250 platforms and 2,000 different connected devices, and our digital business is comprised of streaming, subscription, display advertisements, and other content that is disseminated over digital platforms. A portion of ourDigital Audio Group segment's expenses vary in connection with changes in revenue. These variable expenses primarily relate to our content costs including profit sharing fees and third-party content costs, as well as sales commissions and bad debt. Certain of our content costs, including digital music performance royalties, vary with the volume of listening hours on our digital platforms.
Audio & Media Services Group revenue is generated by services provided to broadcast industry participants through ourKatz Media and RCS businesses. As a media representation firm,Katz Media generates revenue via commissions on media sold on behalf of the radio and television stations that it represents, while RCS generates revenue by providing broadcast software and media streaming, along with research services for radio stations, broadcast television stations, cable channels, record labels, ad agencies and Internet stations worldwide.
COVID-19
Our advertising revenue is highly correlated to changes in gross domestic
product ("GDP") as advertising spending has historically trended in line with
GDP. A recession or downturn in the U.S. economy could have a significant impact
on the Company's ability to generate revenue. Beginning in March 2020 and
continuing in the following months, we saw a sharp decline in each of our
Broadcast radio, Networks and Sponsorships revenue streams as a result of the
impact of the coronavirus pandemic ("COVID-19") and the resulting impact on the
U.S. economy. Although revenues significantly increased for the year ended
December 31, 2021 compared to the prior year for the revenue streams of our
Multiplatform Group , revenue from this segment has not fully recovered from the
impact of COVID-19. Our Digital Audio Group revenues, including podcasting, have
continued to grow each quarter year-over-year during the COVID-19 pandemic. Our
Audio & Media Services Group revenues have decreased from the prior year mainly
due to lower political advertising revenue, partially offset by the continued
recovery
33
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from the impact of the COVID-19 pandemic. Refer to Note 1, Summary of Significant Accounting Policies, for more information regarding COVID-19 and its impact on our financial statements.
Cost Savings Initiatives
InJanuary 2020 , we announced key modernization initiatives designed to take advantage of the significant investments we made in new technologies to build an improved operating infrastructure to upgrade products and deliver incremental cost efficiencies. Our investments in modernization delivered approximately$100 million of cost savings in the aggregate. InApril 2020 , we announced approximately$200 million of incremental in-year operating expense savings initiatives in response to the weaker economic environment caused by the COVID-19 pandemic. We replicated the majority of those savings in 2021. Impairment Charges As part of our operating-expense-savings initiatives, we have taken proactive steps to streamline our real estate footprint and reduce related structural lease expenses incurred by the Company. These strategic actions typically result in impairment charges due to the write-down of the affected right-of-use assets and related fixed assets, including leasehold improvements. For the year endedDecember 31, 2021 , we recognized non-cash impairment charges of$57.7 million as a result of these cost-savings initiatives. We perform our annual impairment test on goodwill and indefinite-lived intangible assets, includingFederal Communications Commission ("FCC ") licenses, as ofJuly 1 of each year. No impairment was required as part of the 2021 annual impairment testing. As a result of the COVID-19 pandemic and the economic downturn starting inMarch 2020 , the Company performed interim impairment tests as ofMarch 31, 2020 on its indefinite-livedFCC licenses and goodwill, resulting in non-cash impairment charges of$502.7 million and$1.2 billion on itsFCC licenses and goodwill, respectively. For more information, see Note 4, Property, Plant and Equipment, Intangible Assets andGoodwill , to the consolidated financial statements located in Item 8 of this Annual Report on Form 10-K for a further description of the impairment charges and annual impairment tests. While we believe we made reasonable estimates and utilized reasonable assumptions to calculate the fair values of our long-lived assets, indefinite-livedFCC licenses and reporting units, it is possible a material change could occur to the estimated fair value of these assets. If our actual results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations. In addition, future interest rate increases could result in future impairments.
Combined Results
Our financial results for the period fromJanuary 1, 2019 throughMay 1, 2019 are referred to as the "Predecessor" period. Our financial results for the period fromMay 2, 2019 throughDecember 31, 2019 , the year endedDecember 31, 2020 and the year endedDecember 31, 2021 are referred to as the "Successor" period. Our results of operations as reported in our Consolidated Financial Statements for these periods are prepared in accordance with GAAP. Although GAAP requires that we report on our results for the period fromJanuary 1, 2019 throughMay 1, 2019 and the period fromMay 2, 2019 throughDecember 31, 2019 separately, management views the Company's operating results for the year endedDecember 31, 2019 by combining the results of the applicable Predecessor and Successor periods because such presentation provides the most meaningful comparison to our results in the years endedDecember 31, 2021 and 2020. The Company cannot adequately benchmark the operating results of the period fromMay 2, 2019 throughDecember 31, 2019 against any of the current or prior periods reported in its Consolidated Financial Statements without combining it with the period fromJanuary 1, 2019 throughMay 1, 2019 and does not believe that reviewing the results of this period in isolation would be useful in identifying trends in or reaching conclusions regarding the Company's overall operating performance. Management believes that the key performance metrics such as revenue, operating income and Adjusted EBITDA for the Successor period in fiscal 2019 when combined with the Predecessor period in fiscal 2019 provides more meaningful comparisons to other periods and are useful in identifying current business trends. Accordingly, in addition to presenting our results of operations as reported in our Consolidated Financial Statements in accordance with GAAP, the tables and discussion below also present the combined results for the year endedDecember 31, 2019 . The combined results for the year endedDecember 31, 2019 , which we refer to herein as the results for the "year endedDecember 31, 2019 " represent the sum of the reported amounts for the Predecessor period fromJanuary 1, 2019 throughMay 1, 2019 and the Successor period fromMay 2, 2019 throughDecember 31, 2019 . These combined results are not 34 -------------------------------------------------------------------------------- considered to be prepared in accordance with GAAP and have not been prepared as pro forma results per applicable regulations. The combined operating results do not reflect the actual results we would have achieved absent our emergence from bankruptcy and may not be indicative of future results. Accordingly, the results for the year endedDecember 31, 2019 may not be comparable to the results for the years endedDecember 31, 2021 and 2020, particularly for statement of operations line items significantly impacted by the Reorganization and Separation transactions, the impact of fresh start accounting on depreciation and amortization and the impact of interest expense not being recognized while we were in Chapter 11 bankruptcy protection from the Petition Date ofMarch 14, 2018 toMay 1, 2019 . Executive Summary Although our results for the year ended 2021 continued to be impacted by the effects of the COVID-19 pandemic, our revenues increased significantly, including revenue from our Multiplatform segment, which includes our broadcast radio, networks and sponsorship and events businesses. Digital revenue, including podcasting, continued to grow year-over-year.
The key developments in our business for the year ended
•Consolidated Revenue of$3,558.3 million increased$610.1 million , or 20.7%, during 2021 compared to Consolidated Revenue of$2,948.2 million in 2020. •Revenue and Segment Adjusted EBITDA from ourMultiplatform Group increased$282.2 million and$259.9 million , respectively, compared to 2020. •Revenue and Segment Adjusted EBITDA from ourDigital Audio Group increased$360.1 million and$129.9 million , respectively, compared to 2020. •Revenue and Segment Adjusted EBITDA from ourAudio & Media Services Group decreased$26.8 million and$18.5 million , respectively, compared to 2020. •Operating income of$154.9 million was up$1.9 billion from Operating loss of$1.7 billion in 2020. •Net loss of$158.4 million in 2021 decreased$1.8 billion compared to Net loss of$1.9 billion in 2020. •Adjusted EBITDA(1) of$811.1 million , was up$272.5 million from$538.7 million in 2020. •Cash flows provided by operating activities from continuing operations of$330.6 million increased$114.6 million or 53.1% compared to 2020. •Free cash flow(2) of$147.2 million improved from$130.7 million in 2020. The table below presents a summary of our historical results of operations for the periods presented: (In thousands) Successor Company Year Ended December 31, % 2021 2020 Change Revenue$ 3,558,340 $ 2,948,218 20.7 % Operating income (loss)$ 154,857 $ (1,737,624) NM Net loss$ (158,389) $ (1,915,222) NM Cash provided by operating activities from continuing operations$ 330,573 $ 215,945 53.1 % Adjusted EBITDA(1)$ 811,133 $ 538,673 50.6 % Free cash flow from continuing operations(2)$ 147,201 $ 130,740 12.6 %
(1) For a definition of Adjusted EBITDA, and a reconciliation to Operating income, the most closely comparable GAAP measure, and to Net Income (Loss), please see "Reconciliation of Operating Income to Adjusted EBITDA" and "Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA" in this MD&A.
(2) For a definition of Free cash flow from continuing operations and a
reconciliation to Cash provided by operating activities from continuing
operations, the most closely comparable GAAP measure, please see "Reconciliation
of Cash provided by (used for) operating activities from continuing operations
to Free cash flow from (used for) continuing operations" in this MD&A.
35
--------------------------------------------------------------------------------Results of Operations
The table below presents the comparison of our historical results of operations
for the year ended
Successor Company
(In thousands) Year Ended December 31,
2021 2020
Revenue $ 3,558,340 $ 2,948,218
Operating expenses:
Direct operating expenses (excludes depreciation and
amortization) 1,324,657 1,137,807
Selling, general and administrative expenses (excludes depreciation and amortization)
1,519,355 1,395,010
Depreciation and amortization 469,417 402,929
Impairment charges 57,734 1,738,752
Other operating expense, net 32,320 11,344
Operating income (loss) 154,857 (1,737,624)
Interest expense, net 332,384 343,745
Gain (loss) on investments, net 43,643 (9,346)
Equity in loss of nonconsolidated affiliates (1,138) (379)
Other expense, net (14,976) (7,751)
Loss before income taxes (149,998) (2,098,845)
Income tax benefit (expense) (8,391) 183,623
Net loss (158,389) (1,915,222)
Less amount attributable to noncontrolling interest 810 (523)
Net loss attributable to the Company $
(159,199)
The table below presents the comparison of our revenue streams for the year
ended
Successor Company
(In thousands) Year Ended
December 31, %
2021 2020 Change
Broadcast Radio $ 1,812,252 $ 1,604,880 12.9 %
Networks 503,052 484,950 3.7 %
Sponsorship and Events 160,322 107,654 48.9 %
Other 13,392 9,370 42.9 %
Multiplatform Group 2,489,018 2,206,854 12.8 %
Digital, excluding Podcast 581,918 372,687 56.1 %
Podcast 252,564 101,684 148.4 %
Digital Audio Group 834,482 474,371 75.9 %
Audio & Media Services Group 247,957 274,749 (9.8) %
Eliminations (13,117) (7,756)
Revenue, total $ 3,558,340 $ 2,948,218 20.7 %
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Consolidated results for the year ended
Revenue
Consolidated revenue increased$610.1 million during the year endedDecember 31, 2021 compared to 2020. The increase in Consolidated revenue is attributable to the continuing growth of our operating businesses and the continued recovery from the macroeconomic effects of COVID-19. Multiplatform revenue increased$282.2 million , primarily resulting from stronger demand for broadcast advertising compared to the prior year. Digital Audio revenue increased$360.1 million , driven primarily by continuing increases in demand for digital advertising, including continued growth in podcasting. Audio & Media Services revenue decreased$26.8 million primarily due to decreases in political advertising revenue, partially offset by the continued recovery from the impact of COVID-19. Direct Operating Expenses Direct operating expenses increased$186.9 million during the year endedDecember 31, 2021 compared to 2020. The increase in Direct operating expenses was primarily driven by higher variable expenses resulting from our significant increase in revenue, including profit sharing expenses and third-party digital costs, as well as variable national and local event expenses resulting from the return of live events.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased$124.3 million during the year endedDecember 31, 2021 compared to 2020. The increase in Consolidated SG&A expenses was driven primarily by increased variable employee compensation expenses resulting primarily from higher bonus expense based on financial performance and higher sales commission expenses as a result of higher revenue. In the prior year the Company did not pay bonuses to the vast majority of employees. In addition, increased headcount resulting from investments in our digital businesses contributed to the increase in Consolidated SG&A expenses. These increases were partially offset by lower bad debt expense as well as lower employee compensation and other expenses resulting from our modernization and cost-reduction initiatives.
Depreciation and Amortization
Depreciation and amortization increased$66.5 million during 2021 compared to 2020, primarily as a result of increased capital expenditures, the impact of acquired businesses, and accelerated amortization of certain intangible assets.
Impairment Charges
We perform our annual impairment test on our goodwill andFCC licenses as ofJuly 1 of each year. In addition, we test for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired. As part of our operating expense-savings initiatives, we have taken strategic actions to streamline our real estate footprint and related expenses, resulting in impairment charges due to the write-down of right-of-use assets and related fixed assets, including leasehold improvements. During the year endedDecember 31, 2021 , we recognized non-cash impairment charges of$57.7 million related to certain of our right-of-use assets and leasehold improvements as a result of these cost-savings initiatives. In the year endedDecember 31, 2020 , we recognized non-cash impairment charges to our goodwill andFCC licenses of$1.7 billion as a result of the adverse effects caused by the COVID-19 pandemic on estimated future cash flows in the first quarter of 2020. No impairment charges were recorded in 2021 in connection with our annual impairment testing of goodwill andFCC licenses.
Other Operating Expense, Net
Other operating expense, net of$32.3 million in 2021 related primarily to net losses recognized on asset disposals in connection with our real estate optimization initiatives. Other operating expense, net of$11.3 million in 2020, related primarily to net losses recognized on the disposal of assets. Interest Expense, Net Interest expense, net decreased$11.4 million during 2021 compared to 2020 primarily as a result of the impact of lower LIBOR rates and the$250.0 million voluntary repayment of our term loan facilities and amended incremental term loan facility inJuly 2021 , partially offset by the issuance of incremental term loans in the third quarter of 2020. 37 --------------------------------------------------------------------------------
Gain (Loss) on Investments, net
During the year endedDecember 31, 2021 , we recognized a gain on investments, net of$43.6 million , primarily related to the sale of our investment in theSan Antonio Spurs , partially offset by impairments of certain investments. During the year endedDecember 31, 2020 , we recognized loss on investments, net of$9.3 million , primarily in connection with declines in the values of certain of our investments. Other Expense, Net Other expense, net was$15.0 million for the year endedDecember 31, 2021 , which related primarily to the write-off of unamortized debt issuance costs upon our voluntary partial prepayment of our Term Loan Facilities inJuly 2021 , and finance lease termination payments.
Other expense, net was
Income Tax Expense (Benefit)
The effective tax rate for the year endedDecember 31, 2021 was (5.6)%. The effective tax rate for the year endedDecember 31, 2021 was primarily impacted by the increase in valuation allowance against certain deferred tax assets, related primarily to disallowed interest expense carryforwards, due to uncertainty regarding the Company's ability to utilize those assets in future periods. The effective tax rate for the year endedDecember 31, 2020 was 8.7%. The effective tax rate for the year endedDecember 31, 2020 was primarily impacted by the impairment charges discussed above. In addition, theSuccessor Company recorded deferred tax adjustments to state net operating losses and federal and state disallowed interest carryforwards as a result of the filing of 2019 tax returns and certain legal entity restructuring completed during the period. These deferred tax adjustments were partially offset by valuation allowances adjustments recorded during the year against certain federal and state deferred tax assets such as net operating loss carryforwards and disallowed interest carryforwards due to the uncertainty of the ability to utilize those assets in future periods.
Net Loss Attributable to the Company
Net loss attributable to the Company decreased to$159.2 million during the year endedDecember 31, 2021 compared to Net loss attributable to the Company of$1.9 billion during the year endedDecember 31, 2020 , primarily as a result of the impairment charge recognized during the first quarter of 2020, the increase in revenue from the continuing growth of our operating businesses and the continued growth from the recovery from the macroeconomic effects of the COVID-19 pandemic. Multiplatform Group Results (In thousands) Successor Company Year Ended December 31, % 2021 2020 Change Revenue$ 2,489,018 $ 2,206,854 12.8 % Operating expenses(1) 1,745,680 1,723,449 1.3 % Segment Adjusted EBITDA$ 743,338 $ 483,405 53.8 % Segment Adjusted EBITDA margin 29.9 % 21.9 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from ourMultiplatform Group increased$282.2 million compared to 2020, primarily as a result of the continued recovery from the negative impact of the COVID-19 pandemic on our radio business. The increase in revenue was partially offset by lower political revenue compared to the prior year due to 2020 being a presidential election year. Broadcast revenue increased$207.4 million , or 12.9%, year-over-year, while Networks grew$18.1 million , or 3.7%, year-over-year. Revenue from Sponsorship and Events increased by$52.7 million , or 48.9%, year-over-year, primarily as a result of the return of live events. 38 -------------------------------------------------------------------------------- Operating expenses increased$22.2 million , driven primarily by higher variable employee compensation expense including commission and bonus expense resulting from higher revenues and profitability, as well as higher talent and profit sharing fees, both driven by higher revenue, and higher expenses related to the return of live events. The increase was partially offset by lower bad debt expense as well as lower employee compensation and other expenses resulting from our modernization and cost-reduction initiatives. Digital Audio Group Results (In thousands) Successor Company Year Ended December 31, % 2021 2020 Change Revenue$ 834,482 $ 474,371 75.9 % Operating expenses(1) 573,835 343,598 67.0 % Segment Adjusted EBITDA$ 260,647 $ 130,773 99.3 %
Segment Adjusted EBITDA margin 31.2 % 27.6 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from ourDigital Audio Group increased$360.1 million compared to the prior year, led by Digital, excluding Podcast revenue, which increased by$209.2 million , or 56.1%, year-over-year, and Podcast revenue, which increased by$150.9 million , or 148.4%, year-over-year, both of which were driven by increased content and demand for digital advertising.Digital Audio Group revenues increased as a result of general increased demand for digital advertising, the growing popularity of podcasting, the continued addition of premium content to our industry-leading podcast business and our improving ability to monetize our digital audiences and inventory utilizing our sales force and advertising technology platforms, partially driven by investments in the digital space. Operating expenses increased$230.2 million in connection with ourDigital Audio Group's significant revenue growth, due to the impact of increased variable employee compensation expense, variable content, talent costs, and third-party digital costs due to higher revenue, as well as increased content and production costs primarily resulting from the development of new podcasts. In addition, operating expenses increased due to additional headcount resulting from investments in the digital space.
Audio & Media Services Group Results
(In thousands) Successor Company
Year Ended
December 31, %
2021 2020 Change
Revenue $ 247,957 $ 274,749 (9.8) %
Operating expenses(1) 171,766 180,081 (4.6) %
Segment Adjusted EBITDA $ 76,191 $ 94,668 (19.5) %Segment Adjusted EBITDA margin 30.7 % 34.5 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from our
Operating expenses decreased$8.3 million primarily as a result of lower sales commissions due to lower revenues and lower expenses due to our modernization and cost-reduction initiatives. 39 --------------------------------------------------------------------------------
The comparison of our consolidated results for the year ended
(In thousands) Successor Predecessor
Successor Company Company Company Non-GAAP Combined
Period from
January 1,
Period from May 2, 2019
2019 through through May Year Ended
Year Ended December 31, December 31, 1, December 31,
2020 2019 2019 2019
Revenue $ 2,948,218 $ 2,610,056 $ 1,073,471 $ 3,683,527
Operating expenses:
Direct operating expenses (excludes
depreciation and amortization) 1,137,807 860,313 370,612 1,230,925
Selling, general and administrative expenses
(excludes depreciation and amortization) 1,395,010 1,052,484 491,449 1,543,933
Depreciation and amortization 402,929 249,623 52,834 302,457
Impairment charges 1,738,752 - 91,382 91,382
Other operating expense, net 11,344 8,000 154 8,154
Operating income (loss) (1,737,624) 439,636 67,040 506,676
Interest expense (income), net 343,745 266,773 (499) 266,274
Loss on investments, net (9,346) (20,928) (10,237) (31,165)
Equity in loss of nonconsolidated affiliates (379) (279) (66) (345)
Other income (expense), net (7,751) (18,266) 23 (18,243)
Reorganization items, net - - 9,461,826 9,461,826
Income (loss) from continuing operations
before income taxes (2,098,845) 133,390 9,519,085 9,652,475
Income tax (benefit) expense 183,623 (20,091) (39,095) (59,186)
Income (loss) from continuing operations (1,915,222) 113,299 9,479,990 9,593,289
Income from discontinued operations, net of
tax - - 1,685,123 1,685,123
Net income (loss) (1,915,222) 113,299 11,165,113 11,278,412
Less amount attributable to noncontrolling
interest (523) 751 (19,028) (18,277)
Net income (loss) attributable to the Company $ (1,914,699) $ 112,548 $ 11,184,141 $ 11,296,689
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The table below presents the comparison of our revenue streams for the periods
presented:
Successor Predecessor Non-GAAP
Successor Company Company Company Combined
(In thousands) Period from
January 1,
Period from May 2, 2019
2019 through through May Year Ended
Year Ended December 31, December 31, 1, December 31, %
2020 2019 2019 2019 Change
Broadcast Radio $ 1,604,880 $ 1,575,382 $ 657,864 $ 2,233,246 (28.1) %
Networks 484,950 425,631 189,088 614,719 (21.1) %
Sponsorship and Events 107,654 159,187 50,330 209,517 (48.6) %
Other 9,370 14,211 6,606 20,817 (55.0) %
Multiplatform Group 2,206,854 2,174,411 903,888 3,078,299 (28.3) %
Digital, excluding Podcast 372,687 231,160 91,695 322,855 15.4 %
Podcast 101,684 42,229 11,094 53,323 90.7 %
Digital Audio Group 474,371 273,389 102,789 376,178 26.1 %
Audio & Media Services Group 274,749 167,292 69,362 236,654 16.1 %
Eliminations (7,756) (5,036) (2,568) (7,604)
Revenue, total $ 2,948,218 $ 2,610,056 $ 1,073,471 $ 3,683,527 (20.0) %
Revenue
Consolidated revenue decreased $735.3 million during the year ended December 31,
2020 compared to 2019. The decrease in Consolidated revenue is attributable to
the macroeconomic effects of COVID-19, which began to unfold into a global
pandemic in early March 2020 , resulting in a significant economic downturn due
to the shut-down of businesses and shelter-in-place orders, resulting in
significant revenue declines impacting most of our revenue streams, primarily as
a result of a decrease in broadcast radio advertising spend as a result of the
COVID-19 pandemic. This decrease was partially offset by growth from our digital
revenue streams. Multiplatform Group revenue decreased $871.4 million driven
primarily by a decrease in Broadcast radio revenue as a result of the economic
impacts of the COVID-19 pandemic. Digital Audio Group revenue increased $98.2
million , driven by continued growth in both podcasting and digital, excluding
podcasting revenues each of which continued to experience increased advertiser
demand. Audio and Media Services Group revenue increased $38.1 million primarily
due to an increase in political revenue as a result of 2020 being a presidential
election year, partially offset by the effects of COVID-19 on advertising spend.
Direct Operating Expenses
Consolidated direct operating expenses decreased$93.1 million during the year endedDecember 31, 2020 compared to 2019. The decrease in Consolidated direct operating expenses was driven primarily by lower employee compensation expenses resulting from our modernization initiatives and cost reduction initiatives taken in response to the COVID-19 pandemic. In addition, variable operating expenses, including music license and performance royalty fees, decreased in relation to lower revenue recognized during the year. Variable expenses related to events also decreased as a result of the postponement or cancellation of events in response to the COVID-19 pandemic. The decrease in Direct operating expenses was partially offset by severance payments and other costs specific to our modernization initiatives, as well as higher content costs from higher podcasting and digital subscription revenue.
SG&A Expenses
Consolidated SG&A expenses decreased$148.9 million during the year endedDecember 31, 2020 compared to 2019. The decrease in Consolidated SG&A expenses was driven primarily by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic, along with lower sales commissions, which were impacted by the decrease in revenue. Travel and entertainment expenses also decreased primarily as a result of operating expense saving initiatives put into place in response to the COVID-19 pandemic, as well as trade and barter expenses primarily driven by lower Local trade expenses, which declined in line with lower trade revenue. The decrease in SG&A expenses was partially offset by costs incurred in relation to our modernization initiatives announced in the first quarter of 2020 and higher bad debt expense. 41 --------------------------------------------------------------------------------
Depreciation and Amortization
Depreciation and amortization increased$100.5 million during 2020 compared to 2019, primarily as a result of the application of fresh start accounting, which resulted in significantly higher values of our tangible and intangible long-lived assets.
Impairment Charges
We perform our annual impairment test on our goodwill andFCC licenses as ofJuly 1 of each year. In addition, we test for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired. As discussed above, as a result of the assumed potential adverse effects caused by the COVID-19 pandemic on estimated future cash flows, we performed an interim impairment test as ofMarch 31, 2020 and we recognized non-cash impairment charges to our indefinite-lived intangible assets and goodwill of$1.7 billion in the first quarter of 2020. No impairment charges were recorded in the remainder of 2020 in connection with our annual impairment test which was performed in the third quarter of 2020. We recognized non-cash impairment charges of$91.4 million in the first quarter of 2019 on our indefinite-livedFCC licenses as a result of an increase in our weighted average cost of capital. See Note 4, Property, Plant and Equipment, Intangible Assets andGoodwill , to the consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Expense, Net
Other operating expense, net of
Interest Expense, Net
Interest expense, net increased$77.5 million during 2020 compared to 2019 as a result of the interest recognized on the new debt issued in connection with our emergence from the Chapter 11 Cases. During the period fromMarch 14, 2018 toMay 1, 2019 , while the Company was a debtor-in-possession, no interest expense was recognized on pre-petition debt. The increase was partially offset by a decrease in interest expense driven by the impact of lower LIBOR rates, as well as the impact of the amendment to the Term Loan Facility in the first quarter of 2020, resulting in a 1.00% reduction in the Term Loan Facility interest rate. In the Predecessor period, we ceased to accrue interest expense on long-term debt, which was reclassified as Liabilities subject to compromise as of the Petition Date, resulting in$533.4 million in contractual interest not being accrued on pre-petition indebtedness for the period fromJanuary 1, 2019 toMay 1, 2019 . Loss on Investments, net
During the years ended
Other Expense, Net
Other expense, net was
Other expense, net was$18.2 million for the year endedDecember 31, 2019 , which related primarily to professional fees incurred in connection with the Chapter 11 Cases in the Successor period. Such expenses were included within Reorganization items, net in the Predecessor period while the Company was a debtor-in-possession.
Reorganization Items, Net
During 2019, we recognized Reorganization items, net of$9,461.8 million related to our emergence from the Chapter 11 Cases, which consisted primarily of the net gain from the consummation of the Plan of Reorganization and the related settlement of liabilities. In addition, Reorganization items, net included professional fees recognized between theMarch 14, 2018 Petition Date and theMay 1, 2019 Effective Date in connection with the Chapter 11 Cases. See Note 15, Fresh Start Accounting, to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K. 42 --------------------------------------------------------------------------------
Income Tax Benefit (Expense)
The effective tax rate for the year endedDecember 31, 2020 was 8.7%. The effective tax rate for the year endedDecember 31, 2020 was primarily impacted by the impairment charges discussed above. In addition, we recorded deferred tax adjustments to state net operating losses and federal and state disallowed interest carryforwards as a result of the filing of 2019 tax returns and certain legal entity restructuring completed during the period. These deferred tax adjustments were partially offset by valuation allowances adjustments recorded during the year against certain federal and state deferred tax assets such as net operating loss carryforwards and disallowed interest carryforwards due to the uncertainty of the ability to utilize those assets in future periods.The Successor Company's effective tax rate for the period fromMay 2, 2019 throughDecember 31, 2019 was 15.1%. The effective tax rate for the Successor period was primarily impacted by deferred tax benefits recorded for changes in estimates related to the carryforward tax attributes that are expected to survive the emergence from bankruptcy and deferred tax adjustments associated with the filing of the Company's 2018 tax returns during the fourth quarter of 2019. The primary change to the 2018 tax return filings, when compared to the provision estimates, was the Company's decision to elect out of the first-year bonus depreciation rules for the 2018 year for all qualified capital expenditures. This resulted in less tax depreciation deductions for tax purposes for the 2018 year and higher adjusted tax basis for our fixed assets as of the Effective Date.The Predecessor Company's effective tax rate for the period fromJanuary 1, 2019 throughMay 1, 2019 was 0.4%. The income tax expense for the period fromJanuary 1, 2019 throughMay 1, 2019 (Predecessor) primarily consisted of the income tax impacts from reorganization and fresh start adjustments, including adjustments to our valuation allowance. The Company recorded income tax benefits of$102.9 million for reorganization adjustments in the Predecessor period, primarily consisting of: (1) tax expense for the reduction in federal and state net operating loss ("NOL") carryforwards from the cancellation of debt income ("CODI") realized upon emergence; (2) tax benefit for the reduction in deferred tax liabilities attributed primarily to long-term debt that was discharged upon emergence; (3) tax benefit for the effective settlement of liabilities for unrecognized tax benefits that were discharged upon emergence; and (4) tax benefit for the reduction in valuation allowance resulting from the adjustments described above. The Company recorded income tax expense of$185.4 million for fresh start adjustments in the Predecessor period, consisting of$529.1 million tax expense for the increase in deferred tax liabilities resulting from fresh start accounting adjustments, which was partially offset by$343.7 million tax benefit for the reduction in the valuation allowance on our deferred tax assets.
Net Income (Loss) Attributable to the Company
Net income (loss) attributable to the Company decreased$13.2 billion to a Net loss of$1.9 billion during the year endedDecember 31, 2020 compared to net income of$11.3 billion during the year endedDecember 31, 2019 . The Net loss attributable to the Company for the year endedDecember 31, 2020 primarily related to the$1.7 billion non-cash impairment charges to our indefinite-lived intangible assets and goodwill recognized in the first quarter of 2020. In 2019, the Net income attributable to the Company primarily related to the recognition of net gain from the consummation of the Plan of Reorganization and the related settlement of liabilities. 43
--------------------------------------------------------------------------------
Multiplatform Group Results
Predecessor Non-GAAP
(In thousands) Successor Company Successor Company Company Combined
Period from May 2, Period from
Year Ended 2019 through January 1, 2019 Year Ended
December 31, December 31, through May 1, December 31, %
2020 2019 2019 2019 Change
Revenue $ 2,206,854 $ 2,174,411 $ 903,888 $ 3,078,299 (28.3) %
Operating expenses(1) 1,723,449 1,381,073 635,205 2,016,278 (14.5) %
Segment Adjusted EBITDA $ 483,405
$ 268,683 $ 1,062,021 (54.5) % Segment Adjusted EBITDA margin 21.9 % 36.5 % 29.7 % 34.5 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from ourMultiplatform Group decreased$871.4 million compared to the comparative period in the prior year, primarily as a result of the negative impact of the COVID-19 pandemic on our radio business. Broadcast revenue decreased$628.4 million , or 28.1%, year-over-year. The decrease in Broadcast radio revenue was partially offset by a$70.5 million increase in political revenue as a result of 2020 being a presidential election year. Revenue from our Networks businesses, including both Premiere and Total Traffic & Weather, was also impacted by the downturn, resulting in a decrease of$129.8 million , or 21.1%. Revenue from Sponsorship and Events decreased by$101.9 million , or 48.6%, primarily as a result of the cancellations of events in response to the COVID-19 pandemic. Operating expenses decreased$292.8 million , driven primarily by lower employee compensation expenses resulting from our modernization initiatives and cost reduction initiatives taken in response to the COVID-19 pandemic. In addition, variable operating expenses, including sales commissions, trade and barter expenses and music license fees, decreased in relation to lower revenue recognized during the year. Variable expenses related to events also decreased as a result of the postponement or cancellation of events in response to the COVID-19 pandemic. These decreases were partially offset by higher bad debt expense. Digital Audio Group Results Predecessor Non-GAAP (In thousands) Successor Company Successor Company Company Combined Period from May 2, Period from Year Ended 2019 through January 1, 2019 Year Ended December 31, December 31, through May 1, December 31, % 2020 2019 2019 2019 Change Revenue$ 474,371 $ 273,389 $ 102,789 $ 376,178 26.1 % Operating expenses(1) 343,598 194,366 88,621 282,987 21.4 % Segment Adjusted EBITDA$ 130,773 $ 79,023 $ 14,168 $ 93,191 40.3 % Segment Adjusted EBITDA margin 27.6 % 28.9 % 13.8 % 24.8 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from ourDigital Audio Group increased$98.2 million compared to the prior year driven by Podcast revenue, which increased by$48.4 million , or 90.7%, year-over-year, driven by continued growth in podcasting, including for both new and existing podcasts, and Digital, excluding Podcast revenue, which increased by$49.8 million , or 15.4%, year-over-year, driven by increased demand for digital advertising.Digital Audio Group revenues increased as a result of general increased demand for digital advertising, the growing popularity of podcasting, the continued addition of premium content to our industry-leading podcast business and our improving ability to monetize our digital audiences and inventory utilizing our sales force and advertising technology platforms, partially driven by investments in the digital space. 44 -------------------------------------------------------------------------------- Operating expenses increased$60.6 million in connection with ourDigital Audio Group's revenue growth, including the impact of variable content and talent costs and third-party digital costs due to higher revenue as well as increased content and production costs primarily resulting from the development of new and existing podcasts.
Audio & Media Services Group Results
Non-GAAP
(In thousands) Successor Company Successor Company Predecessor Company Combined
Period from May 2, Period from January
Year Ended 2019 through 1, 2019 through May Year Ended
December 31, December 31, 1, December 31, %
2020 2019 2019 2019 Change
Revenue $ 274,749 167,292 69,362 $ 236,654 16.1 %
Operating expenses(1) 180,081 120,685 55,278 175,963 2.3 %
Segment Adjusted EBITDA $ 94,668 $ 46,607 $ 14,084 $ 60,691 56.0 %
Segment Adjusted EBITDA
margin 34.5 % 27.9 % 20.3 % 25.6 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from ourAudio & Media Services Group increased$38.1 million compared to the comparative period in the prior year primarily due to a$61.8 million increase in political revenue as a result of 2020 being a presidential election year, partially offset by the effects of COVID-19 on advertising spend.
Operating expenses increased
45
--------------------------------------------------------------------------------Non-GAAP Financial Measures
Reconciliations of Operating Income (Loss) to Adjusted EBITDA
(In thousands) Successor Company
Year Ended December 31,
2021 2020
Operating income (loss) $ 154,857 $ (1,737,624)
Depreciation and amortization(1) 469,417 402,929
Impairment charges 57,734 1,738,752
Other operating expense, net 32,320 11,344
Share-based compensation expense 23,543 22,862
Restructuring and reorganization expenses 73,262 100,410
Adjusted EBITDA(2) $ 811,133 $ 538,673
(In thousands) Non-GAAP
Successor Company Successor Company Predecessor Company Combined2
Period from May Period from January
Year Ended 2, 2019 through 1, 2019 through May Year Ended
December 31, December 31, 1, December 31,
2020 2019 2019 2019
Operating income (loss) $ (1,737,624) $ 439,636 $ 67,040 $ 506,676
Depreciation and amortization(1) 402,929 249,623 52,834 302,457
Impairment charges 1,738,752 - 91,382 91,382
Other operating expense, net 11,344 8,000 154 8,154
Share-based compensation expense 22,862 26,411 498 26,909
Restructuring and reorganization
expenses 100,410 51,879 13,241 65,120
Adjusted EBITDA(2) $ 538,673 $ 775,549 $ 225,149 $ 1,000,698
46
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Reconciliations of Net Income (Loss) to EBITDA and Adjusted EBITDA
(In thousands) Successor Company
Year Ended December
31,
2021 2020
Net loss $ (158,389) $ (1,915,222)
Income tax (benefit) expense 8,391 (183,623)
Interest expense, net 332,384 343,745
Depreciation and amortization 469,417 402,929
EBITDA $ 651,803 $ (1,352,171)
(Gain) loss on investments, net (43,643) 9,346
Other expense, net 14,976 7,751
Equity in loss of nonconsolidated affiliates 1,138 379
Impairment charges 57,734 1,738,752
Other operating expense, net 32,320 11,344
Share-based compensation expense 23,543 22,862
Restructuring expenses 73,262 100,410
Adjusted EBITDA(2) $ 811,133 $ 538,673
(In thousands) Successor Predecessor
Successor Company Company Company Non-GAAP Combined
Period from
January 1,
Period from May 2, 2019
2019 through through May Year Ended
Year Ended December 31, December 31, 1, December 31,
2020 2019 2019 2019
Net income (loss) (1,915,222) 113,299 11,165,113 11,278,412
Income from discontinued
operations, net of tax - - (1,685,123) (1,685,123)
Income tax (benefit) expense (183,623) 20,091 39,095 59,186
Interest expense (income), net(3) 343,745 266,773 (499) 266,274
Depreciation and amortization(1) 402,929 249,623 52,834 302,457
EBITDA $ (1,352,171) $ 649,786 $ 9,571,420 $ 10,221,206
Reorganization items, net - - (9,461,826) (9,461,826)
Loss on investments, net 9,346 20,928 10,237 31,165
Other (income) expense, net 7,751 18,266 (23) 18,243
Equity in loss of nonconsolidated
affiliates 379 279 66 345
Impairment charges 1,738,752 - 91,382 91,382
Other operating expense, net 11,344 8,000 154 8,154
Share-based compensation expense 22,862 26,411 498 26,909
Restructuring and reorganization
expenses 100,410 51,879 13,241 65,120
Adjusted EBITDA(2) $ 538,673 $ 775,549 $ 225,149 $ 1,000,698
(1)Increase in Depreciation and amortization for the year ended December 31,
2020 and the period from May 2, 2019 through December 31, 2019 is driven by the
application of fresh start accounting, resulting in significantly higher values
of our tangible and intangible assets.
(2)We define Adjusted EBITDA as consolidated Operating income (loss) adjusted to
exclude restructuring and reorganization expenses included within Direct
operating expenses and SG&A expenses, and share-based compensation expenses
included within SG&A expenses, as well as the following line items presented in
our Statements of Operations: Depreciation and amortization, Impairment charges
and Other operating expense, net. Alternatively, Adjusted EBITDA is calculated
as Net income (loss), adjusted to exclude
47
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Income tax (benefit) expense, Interest expense, net, Depreciation and
amortization, Loss (gain) on investments, net, Other expense, net, Equity in
loss of nonconsolidated affiliates, net, Impairment charges, Other operating
expense, net, Share-based compensation expense, and restructuring and
reorganization expenses. Restructuring expenses primarily include expenses
incurred in connection with cost-saving initiatives, as well as certain
expenses, which, in the view of management, are outside the ordinary course of
business or otherwise not representative of the Company's operations during a
normal business cycle. Reorganization expenses primarily include the
amortization of retention bonus amounts paid or payable to certain members of
management directly as a result of the Reorganization. We use Adjusted EBITDA,
among other measures, to evaluate the Company's operating performance. This
measure is among the primary measures used by management for the planning and
forecasting of future periods, as well as for measuring performance for
compensation of executives and other members of management. We believe this
measure is an important indicator of our operational strength and performance of
our business because it provides a link between operational performance and
operating income. It is also a primary measure used by management in evaluating
companies as potential acquisition targets. We believe the presentation of this
measure is relevant and useful for investors because it allows investors to view
performance in a manner similar to the method used by management. We believe it
helps improve investors' ability to understand our operating performance and
makes it easier to compare our results with other companies that have different
capital structures or tax rates. In addition, we believe this measure is also
among the primary measures used externally by our investors, analysts and peers
in our industry for purposes of valuation and comparing our operating
performance to other companies in our industry. Since Adjusted EBITDA is not a
measure calculated in accordance with GAAP, it should not be considered in
isolation of, or as a substitute for, operating income or net income (loss) as
an indicator of operating performance and may not be comparable to similarly
titled measures employed by other companies. Adjusted EBITDA is not necessarily
a measure of our ability to fund our cash needs. Because it excludes certain
financial information compared with operating income and compared with
consolidated net income (loss), the most directly comparable GAAP financial
measures, users of this financial information should consider the types of
events and transactions which are excluded.
(3)Increase in Interest expense (income), net is driven by the interest
recognized on the new debt issued in connection with our emergence from the
Chapter 11 Cases. During the period from March 14, 2018 to May 1, 2019 , while
the Company was in debtor-in-possession, no interest expense was recognized on
pre-petition debt.
Reconciliations of Cash provided by (used for) operating activities from
continuing operations to Free cash flow from (used for) continuing operations
(In thousands) Successor Company
Year Ended December
31,
2021 2020
Cash provided by operating activities from continuing operations
(183,372) (85,205)
Free cash flow from continuing operations(1) $ 147,201 $ 130,740
(In thousands) Successor Successor Predecessor Non-GAAP
Company Company Company Combined
Period from
January 1,
Period from May 2019
2, 2019 through through May Year Ended
Year Ended December 31, December 31, 1, December 31,
2020 2019 2019 2019
Cash provided by (used for) operating
activities from continuing
operations(2) $ 215,945 $ 468,905 $ (7,505) $ 461,400
Less: Purchases of property, plant
and equipment by continuing
operations (85,205) (75,993) (36,197) (112,190)
Free cash flow from (used for) continuing operations(2)$ 130,740 $ 392,912 $ (43,702)
(1)We define Free cash flow from (used for) continuing operations ("Free Cash
Flow") as Cash provided by operating activities less capital expenditures, which
is disclosed as Purchases of property, plant and equipment in the Company's
Consolidated Statements of Cash Flows. We use Free Cash Flow, among other
measures, to evaluate the Company's liquidity and its ability to generate cash
flow. We believe that Free Cash Flow is meaningful to investors because we
review cash flows generated from operations after taking into consideration
capital expenditures due to the fact that these expenditures are considered to
be a necessary component of ongoing operations. In addition, we believe that
Free Cash Flow helps improve investors' ability to compare our liquidity with
other companies. Since Free Cash Flow is not a measure calculated in accordance
with GAAP, it should not be considered in isolation of, or as a substitute for,
Cash provided by operating activities and may not be comparable to similarly
titled measures employed by other companies. Free Cash Flow is not necessarily a
measure of our ability to fund our cash needs.
48
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(2)Cash provided by operating activities from continuing operations for the year
ended December 31, 2019 was impacted primarily by an increase of $165.1 million
in cash paid for interest. Our debt issued upon emergence was outstanding from
the period of May 2, 2019 to December 31, 2019 , resulting in cash interest
payments of $183.8 million . Cash provided by operating activities was also
impacted by a $97.9 million increase in cash payments for Reorganization items,
which consisted primarily of bankruptcy-related professional fees, as well as
payments for settlement of pre-petition liabilities upon our emergence from
bankruptcy.
Share-Based Compensation Expense
Historically, we had granted restricted shares of the Company's Class A common
stock to certain key individuals. In connection with the effectiveness of our
Plan of Reorganization, all unvested restricted shares were canceled.
Pursuant to our 2019 Incentive Equity Plan ("2019 Plan") we adopted in
connection with the effectiveness of our Plan of Reorganization as well as our
2021 Long-Term Incentive Award Plan ("2021 Plan"), we have granted restricted
stock units and options to purchase shares of the Company's Class A common stock
to our employees and directors. The 2021 Plan was approved in April 2021 . In
connection with its approval, our 2019 Plan was terminated and we are not able
to grant future awards under the 2019 Plan. The terms and conditions of the 2019
Plan continue to govern any outstanding awards under this plan.
Share-based compensation expenses are recorded in corporate expenses and were
$23.5 million , $22.9 million and $26.9 million for the years ended December 31,
2021 , 2020 and 2019, respectively.
In August 2020 , we issued performance-based restricted stock units ("Performance
RSUs") to certain key employees. Such Performance RSUs vest upon the achievement
of critical operational (cost savings) improvements and specific environmental,
social and governance initiatives, which are being measured over an
approximately 18-month period from the date of issuance. In the year ended
December 31, 2021 , we recognized $1.6 million in relation to these
performance-based RSUs. In the year ended December 31, 2020 , we recognized
$3.4 million in relation to these performance-based RSUs.
As of
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following discussion highlights cash flow activities during the periods
presented:
Successor Successor Predecessor Non-GAAP
(In thousands) Company Company Successor Company Company Combined
Period from May Period from
Year Ended Year Ended 2, 2019 through January 1, 2019 Year Ended
December 31, December 31, December 31, through May 1, December 31,
2021 2020 2019 2019 2019
Cash provided by (used
for):
Operating activities $ 330,573 $ 215,945 $ 468,905 $ (40,186) $ 428,719
Investing activities $ (346,790) $ (147,813) $ (73,278) $ (261,144) $ (334,422)
Financing activities $ (352,124) $ 241,180 $ (58,033) $ (55,557) $ (113,590)
Free Cash Flow(1) $ 147,201 $ 130,740 $ 392,912 $ (43,702) $ 349,210
(1) For a definition of Free cash flow from continuing operations and a
reconciliation to Cash provided by operating activities from continuing
operations, the most closely comparable GAAP measure, please see "Reconciliation
of Cash provided by (used for) operating activities from continuing operations
to Free cash flow from (used for) continuing operations" in this MD&A.
49
--------------------------------------------------------------------------------Operating Activities
2021
Cash provided by operating activities was
Cash provided by operating activities increased from$215.9 million in 2020 to$330.6 million in 2021 primarily as a result of an increase in cash flows generated from higher revenues and operating profitability as the Company's businesses continue to recover from the impact of the COVID-19 pandemic. The increase in cash provided by operating activities was partially offset by changes in working capital balances, particularly accounts receivable, which was impacted by the timing of collections.
2020
Cash provided by operating activities was
Cash provided by operating activities from continuing operations decreased from$461.4 million in 2019 to$215.9 million in 2020 primarily as a result of a decrease in Revenue driven by the decline in advertising spend resulting from the economic slow-down caused by the COVID-19 pandemic. In addition, cash interest payments made by continuing operations increased$169.6 million in 2020 compared to 2019 as a result of interest payments on our debt issued upon our emergence. The Company ceased paying interest on long-term debt after theMarch 14, 2018 petition date until the Company emerged from bankruptcy onMay 1, 2019 . The decrease was partially offset by changes in working capital balances, particularly accounts receivable, which was impacted by improved collections, and accrued expenses, which was impacted by the timing of payments. In addition, payments made in relation to Reorganization items, net were$201.2 million lower in the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 .
2019
Cash provided by operating activities was$428.7 million in 2019 compared to$966.7 million of cash provided by operating activities in 2018. The primary driver for the change in cash provided by operating activities was a$258.1 million decrease in operating cash flows provided by discontinued operations, which decreased from a cash inflow of$225.5 million in the year endedDecember 31, 2018 to a cash outflow of$32.7 million in the year endedDecember 31, 2019 . Cash provided by operating activities from continuing operations decreased from$741.2 million in 2018 to$461.4 million in 2019 primarily as a result of cash interest payments made by continuing operations, which increased$165.1 million as a result of interest payments on our debt issued upon our emergence compared to pre-petition interest payments made in the prior year. The Company ceased paying interest on long-term debt classified as Liabilities subject to compromise after theMarch 14, 2018 petition date. In addition, cash decreased as a result of cash payments for Reorganization items, including payments for prepetition liabilities and for bankruptcy-related professional fees, upon our emergence from bankruptcy onMay 1, 2019 . Such payments for Reorganization items were$97.9 million higher in the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 . Investing Activities 2021 Cash used for investing activities of$346.8 million in 2021 primarily reflects the net cash payment made to acquire Triton Digital for$228.5 million . In addition,$183.4 million in cash was used for capital expenditures, reflecting a$98.2 million increase in capital expenditures compared to the prior year. The increase in capital expenditures relates primarily to incremental spend in 2021 for infrastructure and IT in connection with our real estate optimization and modernization initiatives compared to 2020 which experienced lower capital expenditures as a result of cash flow preservation actions taken in response to the economic impacts of the COVID-19 pandemic. Cash used for investing activities was partially offset by cash provided by investing activities primarily related to proceeds of$50.8 million received mostly from the sale of our investment in theSan Antonio Spurs .
2020
Cash used for investing activities of
50
--------------------------------------------------------------------------------
to the prior year as a result of actions taken in response to the COVID-19
pandemic. In addition, we used
2019
Cash used for investing activities of
Financing Activities
2021
Cash used for financing activities of$352.1 million in 2021 primarily resulted from the$250.0 million voluntary repayment of our term loan credit facilities in connection with the repricing transaction, and required quarterly principal payments made on our Term Loan Facility and repayment of a subsidiary note payable. As a result of our voluntary prepayment, our Term Loan Facility no longer requires quarterly principal payments.
2020
Cash provided by financing activities of$241.2 million in 2020 primarily resulted from the net proceeds of$425.8 million from the issuance of incremental term loan commitments, offset by the$150.0 million prepayment on our Term Loan Facility in the first quarter 2020, along with required quarterly principal payments made on our term loan credit facilities.
2019
Cash used for financing activities of$113.6 million in 2019 primarily resulted from the net payment byiHeartCommunications to CCOH as CCOH's recovery of its claims under the Due from iHeartCommunications Note and settlement of the post-petition intercompany note balance, partially offset by$60.0 million in proceeds received from the issuance of the iHeart Operations Preferred Stock.
Sources of Liquidity and Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, which consisted of cash and cash equivalents of$352.1 million as ofDecember 31, 2021 , cash flow from operations and borrowing capacity under our$450.0 million ABL Facility. As ofDecember 31, 2021 ,iHeartCommunications had no amounts outstanding under the ABL Facility, a facility size of$450.0 million and$26.9 million in outstanding letters of credit, resulting in$423.1 million of borrowing base availability. Together with our cash balance of$352.1 million as ofDecember 31, 2021 and our borrowing capacity under the ABL Facility, our total available liquidity1 was approximately$775 million . OnJuly 16, 2021 , we amended the Term Loan credit facilities and voluntarily prepaid$250.0 million of borrowings outstanding under these facilities using cash on hand. OnOctober 27, 2021 , iHeart Operations repurchased all of the iHeart Operations Preferred Stock with cash on hand for an aggregate price of$64.4 million ("Redemption Price"), including accrued dividends, upon obtaining consent from the third party investor. The Redemption Price included a negotiated make-whole premium as the redemption occurred prior to the optional redemption date set forth in the Certificate of Designation governing the iHeart Operations Preferred Stock. Subsequent to the transaction, the preferred shares were retired and cancelled and are no longer outstanding. We continue to evaluate the ongoing impact of COVID-19 on our business. The challenges that COVID-19 has created for advertisers and consumers have had an adverse impact on our revenue for the twelve months endedDecember 31, 2021 and have created a business outlook that is less clear in the near term. Although our results continued to be impacted by the effects of the COVID-19 pandemic, our revenue for the year endedDecember 31, 2021 increased significantly compared to the year endedDecember 31, 2020 . We believe that we have sufficient liquidity to continue to fund our operations for at least the next twelve months. We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as ofDecember 31, 2021 , while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, commitments under non-cancelable operating lease agreements, and employment and talent contracts. In addition to our contractual obligations, we expect that our 1 Total available liquidity defined as cash and cash equivalents plus available borrowings under the ABL Facility. We use total available liquidity to evaluate our capacity to access cash to meet obligations and fund operations. 51 --------------------------------------------------------------------------------
primary anticipated uses of liquidity in 2022 will be to fund our working capital, make interest and tax payments, fund capital expenditures, pursue certain strategic opportunities and maintain operations.
We anticipate that we will have approximately
We believe that our cash balance, our cash flow from operations and availability under our ABL Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations for at least the next twelve months. In addition, none of our long-term debt includes maintenance covenants that could trigger early repayment. We fully appreciate the unprecedented challenges posed by the COVID-19 pandemic, however, we remain confident in our business, our employees and our strategy. Further, we believe our available liquidity will allow us to fund capital expenditures and other obligations and make interest payments on our long-term debt. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms or at all in the future. We frequently evaluate strategic opportunities, and we expect from time to time to pursue acquisitions or dispose of certain businesses, which may or may not be material.
In connection with the Emergence, we entered into the following transactions which may require ongoing capital commitments:
Tax Matters Agreement
In connection with the separation (the "Separation") of Clear Channel Outdoor
Holdings, Inc. ("CCOH") as part of the Company's Plan of Reorganization, we
entered into the Tax Matters Agreement by and among iHeartMedia,
iHeartCommunications , iHeart Operations, Inc. , Clear Channel Holdings, Inc. ,
CCOH and Clear Channel Outdoor, Inc., to allocate the responsibility of
iHeartMedia and its subsidiaries, on the one hand, and CCOH and its
subsidiaries, on the other, for the payment of taxes arising prior and
subsequent to, and in connection with, the Separation.
The Tax Matters Agreement requires that iHeartMedia and iHeartCommunications
indemnify CCOH and its subsidiaries, and their respective directors, officers
and employees, and hold them harmless, on an after-tax basis, from and against
certain tax claims related to the Separation. In addition, the Tax Matters
Agreement requires that CCOH indemnify iHeartMedia for certain income taxes paid
by iHeartMedia on behalf of CCOH and its subsidiaries.
52
--------------------------------------------------------------------------------Sources of Capital
As of
(In thousands)
December 31, 2021 December 31, 2020
Term Loan Facility due 2026(1) $ 1,864,032 $ 2,080,259
Incremental Term Loan Facility due 2026(1) 401,220 447,750
Asset-based Revolving Credit Facility due 2023 - -
6.375% Senior Secured Notes due 2026 800,000 800,000
5.25% Senior Secured Notes due 2027 750,000 750,000
4.75% Senior Secured Notes due 2028 500,000 500,000
Other secured subsidiary debt 5,350 22,753
Total consolidated secured debt $ 4,320,602 8.375% Senior Unsecured Notes due 2027 1,450,000 1,450,000 Other unsecured subsidiary debt 90 6,782 Purchase accounting adjustments and original issue discount (13,454) (18,817) Long-term debt fees (18,370) (21,797) Total Debt 5,738,868 6,016,930 Less: Cash and cash equivalents 352,129 720,662 Net Debt$ 5,386,739 $ 5,296,268 (1) OnJuly 16, 2021 ,iHeartCommunications , Inc. ("iHeartCommunications") entered into an amendment to the credit agreement governing its Term Loan credit facilities. The amendment reduces the interest rate of its Incremental Term Loan Facility due 2026 to a Eurocurrency Rate of LIBOR plus a margin of 3.25% and floor of 0.50% (from LIBOR plus a margin of 4.00% and floor of 0.75%). The Base Rate interest amount was reduced to Base Rate plus a margin of 2.25% and floor of 1.50%. In connection with the amendment,iHeartCommunications voluntarily prepaid$250.0 million of borrowings outstanding under the Term Loan credit facilities with cash on hand, resulting in a reduction of$44.3 million of the existing Incremental Term Loan Facility due 2026 and$205.7 million of the Term Loan Facility due 2026.
For additional information regarding our debt, including the terms of the governing documents, refer to Note 6, Long-Term Debt, to our consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K.
Exchange of Special Warrants
OnJuly 25, 2019 , the Company filed the PDR with theFCC to permit up to 100% of the Company's voting stock to be owned by non-U.S. individuals and entities. OnNovember 5, 2020 , theFCC issued the 2020 Declaratory Ruling granting the relief requested by the PDR, subject to certain conditions set forth therein. OnJanuary 8, 2021 , the Company exchanged a portion of the outstanding Special Warrants into 45,133,811 shares of iHeartMedia Class A common stock, the Company's publicly traded equity, and 22,337,312 Class B common stock in compliance with the Declaratory Ruling, the Communications Act andFCC rules. Following the Exchange, the Company's remaining Special Warrants continue to be exercisable for shares of Class A common stock or Class B common stock. There were 120,270,406 shares of Class A common stock, 21,589,449 shares of Class B common stock and 5,293,069 Special Warrants outstanding onFebruary 18, 2022 . 53 --------------------------------------------------------------------------------
Supplemental Financial Information under Debt Agreements
Pursuant toiHeartCommunications' material debt agreements, Capital I, the parent guarantor and a subsidiary of iHeartMedia, is permitted to satisfy its reporting obligations under such agreements by furnishing iHeartMedia's consolidated financial information and an explanation of the material differences between iHeartMedia's consolidated financial information, on the one hand, and the financial information of Capital I and its consolidated restricted subsidiaries, on the other hand. Because neither iHeartMedia nor iHeartMediaCapital II, LLC , a wholly-owned direct subsidiary of iHeartMedia and the parent of Capital I, have any operations or material assets or liabilities, there are no material differences between iHeartMedia's consolidated financial information for the year endedDecember 31, 2021 , and Capital I's and its consolidated restricted subsidiaries' financial information for the same period. Further, as ofDecember 31, 2021 , we were in compliance with all covenants related to our debt agreements. Uses of Capital Capital Expenditures Capital expenditures for the years endedDecember 31, 2021 , 2020 and 2019 were as follows: Successor Successor Successor Non-GAAP (In thousands) Company Company Company Predecessor Company Combined Period from May 2, 2019 Period from January Year Ended Year Ended through 1, 2019 through May Year Ended December 31, December 31, December 31, 1, December 31, 2021 2020 2019 2019 2019 Multiplatform Group$ 130,894 $ 51,559 $ 48,096 $ 25,270$ 73,366 Digital Audio Group 23,907 16,086 10,505 4,694 15,199 Audio and Media Services Group 14,515 5,105 3,980 1,263 5,243 Corporate 14,056 12,455 13,412 4,970 18,382 Total capital expenditures$ 183,372 $ 85,205 $ 75,993 $ 36,197$ 112,190
Our capital expenditures were not individually significant and primarily relate to studio and broadcast equipment, leasehold improvements, and software.
Dividends
Holders of shares of our Class A common stock are entitled to receive dividends, on a per share basis, when and if declared by our Board out of funds legally available therefor and whenever any dividend is made on the shares of our Class B common stock subject to certain exceptions set forth in our certificate. See Note 9, Stockholders' Equity, to our consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K.
Commitments, Contingencies and Guarantees
We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued our estimate of the probable costs for 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 our assumptions or the effectiveness of our strategies related to these proceedings. Please refer to Item 3. "Legal Proceedings" within Part I of this Annual Report on Form 10-K.
Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies generally over a one to five-year period. The aggregate of these contingent payments, if performance targets are met, would not significantly impact our financial position or results of operations.
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--------------------------------------------------------------------------------We have future cash obligations under various types of contracts. We lease office space, certain broadcast facilities and equipment. Some of our lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index), as well as provisions for our payment of utilities and maintenance.
We have non-cancellable contracts in our radio broadcasting operations related to program rights and music license fees.
In the normal course of business, our broadcasting operations have minimum future payments associated with employee and talent contracts. These contracts typically contain cancellation provisions that allow us to cancel the contract with good cause. SEASONALITY Typically, the Company experiences their lowest financial performance in the first quarter of the calendar year. We expect this trend to continue in the future. Due to this seasonality and certain other factors, the results for the interim periods may not be indicative of results for the full year. In addition, we are impacted by political cycles and generally experience higher revenues in congressional election years, and particularly in presidential election years. This may affect comparability of results between years.
MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including movements in interest rates, foreign currency exchange rates and inflation.
Interest Rate Risk
A significant amount of our long-term debt bears interest at variable rates. Accordingly, our earnings will be affected by changes in interest rates. As ofDecember 31, 2021 , approximately 39% of our aggregate principal amount of long-term debt bore interest at floating rates. Assuming the current level of borrowings and assuming a 50% change in LIBOR, it is estimated that our interest expense for the year endedDecember 31, 2021 would have changed by$1.0 million . In the event of an adverse change in interest rates, management may take actions to mitigate our exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the preceding interest rate sensitivity analysis assumes no such actions. Further, the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment.
Inflation
Inflation is a factor in our business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. We believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. Although we are unable to determine the exact impact of inflation, we believe the impact will continue to be immaterial considering the actions we may take in response to these higher costs that may arise as a result of inflation.
NEW ACCOUNTING PRONOUNCEMENTS
For information regarding new accounting pronouncements, refer to Note 1, Summary of Significant Accounting Policies.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity withU.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and 55
-------------------------------------------------------------------------------- estimates, and such difference could be material. Our significant accounting policies are discussed in the notes to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management's most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. The following narrative describes these critical accounting estimates, the judgments and assumptions and the effect if actual results differ from these assumptions.
Allowance for Doubtful Accounts
We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer's inability to meet its financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be collected. For all other customers, we recognize reserves for bad debt based on historical experience for each business unit, adjusted for changes in the agings and in current economic conditions.
If our agings were to improve or deteriorate resulting in a 10% change in our
allowance, we estimated that our bad debt expense for the year ended
Leases
The most significant estimates used by management in accounting for leases and the impact of these estimates are as follows:
Expected lease term: Our expected lease term includes both contractual lease periods and cancellable option periods where failure to exercise such options would result in an economic penalty. The expected lease term is used in determining whether the lease is accounted for as an operating lease or a finance lease. A lease is considered a finance lease if the lease term exceeds 75% of the leased asset's useful life. The expected lease term is also used in determining the depreciable life of the asset. An increase in the expected lease term will increase the probability that a lease may be considered a finance lease and will generally result in higher interest and depreciation expense for a leased property. Incremental borrowing rate: The incremental borrowing rate is primarily used in determining whether the lease is accounted for as an operating lease or a finance lease. A lease is considered a finance lease if the net present value of the minimum lease payments is greater than 90% of the fair market value of the property. An increase in the incremental borrowing rate decreases the net present value of the minimum lease payments and reduces the probability that a lease will be considered a finance lease. Fair market value of leased asset: The fair market value of leased property is generally estimated based on comparable market data as provided by third-party sources. Fair market value is used in determining whether the lease is accounted for as an operating lease or a finance lease. A lease is considered a finance lease if the net present value of the minimum lease payments equals or exceeds 90% of the fair market value of the leased property. A higher fair market value reduces the likelihood that a lease will be considered a finance lease. Subleases: When the decision is made to abandon a leased property before the expiration of the lease term, we assess whether such property will be subleased. Judgement is required in determining if a leased property can be subleased, estimated sublease payments to be received and the length of time it would take for the sublease to be obtained. These assumptions are generally based on historical experience as well as current and expected market conditions using information provided by third-party sources. The fair value of our leased assets may be impacted if actual results differ from our assumptions.
Long-lived Assets
Long-lived assets, including plant and equipment and definite-lived intangibles,
are reported at historical cost less accumulated depreciation and amortization.
We estimate the useful lives for various types of advertising structures and
other long-lived assets based on our historical experience and our plans
regarding how we intend to use those assets. Our experience indicates that the
estimated useful lives applied to our portfolio of assets have been reasonable,
and we do not expect significant changes to the estimated useful lives of our
long-lived assets in the future. When we determine that structures or other
long-lived assets will be disposed of prior to the end of their useful lives, we
estimate the revised useful lives and depreciate the assets over the revised
period. We also review long-lived assets for impairment when events and
circumstances indicate that depreciable and amortizable long-lived assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. When specific assets
are determined to be unrecoverable, the cost basis of the asset is reduced to
reflect the current fair market value.
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We use various assumptions in determining the remaining useful lives of assets
to be disposed of prior to the end of their useful lives and in determining the
current fair market value of long-lived assets that are determined to be
unrecoverable. Estimated useful lives and fair values are sensitive to factors
including contractual commitments, regulatory requirements, future expected cash
flows, industry growth rates and discount rates, as well as future salvage
values. Our impairment loss calculations require management to apply judgment in
estimating future cash flows, including forecasting useful lives of the assets
and selecting the discount rate that reflects the risk inherent in future cash
flows.
If actual results are not consistent with our assumptions and judgments used in
estimating future cash flows and asset fair values, we may be exposed to future
impairment losses that could be material to our results of operations.
Indefinite-lived Intangible Assets
In connection with our Plan of Reorganization, we applied fresh start accounting as required by ASC 852, Reorganizations, and recorded all of our assets and liabilities at estimated fair values, including ourFCC licenses, which are included within ourMultiplatform Group reporting unit. Indefinite-lived intangible assets, such as ourFCC licenses, are reviewed annually for possible impairment using the direct valuation method as prescribed in ASC 805-20-S99, Business Combinations. Under the direct valuation method, the estimated fair value of the indefinite-lived intangible assets was calculated at the market level as prescribed by ASC 350-30-35, Intangibles-Goodwill and Other. Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flows model, which results in value that is directly attributable to the indefinite-lived intangible assets. Our key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average asset within a market. OnJuly 1, 2021 , we performed our annual impairment test in accordance with ASC 350-30-35, Intangibles-Goodwill and Other, and we concluded no impairment of the indefinite-lived intangible assets was required. In determining the fair value of ourFCC licenses, the following key assumptions were used: •Revenue forecasts published byBIA Financial Network, Inc. ("BIA"), varying by market, and revenue growth projections made by industry analysts were used for the initial four-year period; •2.0% revenue growth was assumed beyond the initial four-year period; •Revenue was grown proportionally over a build-up period, reaching market revenue forecast by year 3; •Operating margins of 8.0% in the first year gradually climb to the industry average margin in year 3 of up to 20.2%, depending on market size; and •Assumed discount rates of 8.0% for the 15 largest markets and 8.5% for all other markets. While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our indefinite-lived intangible assets, it is possible a material change could occur. If future results are not consistent with our assumptions and estimates, we may be exposed to impairment charges in the future. The following table shows the decrease in the fair value of our indefinite-lived intangible assets that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate and profit margin assumptions and a 100 basis point increase in our discount rate assumption: (In thousands) Revenue Profit Discount Description Growth Rate Margin RateFCC licenses$ 405,630 $ 213,548 $ 459,449 The estimated fair value of ourFCC licenses atJuly 1, 2021 was$2.2 billion , while the carrying value was$1.8 billion . Given the difference between the carrying values of ourFCC licenses and their estimated fair values, an increase in discount rates or a decrease in revenue growth rates or profit margins could result in an impairment to ourFCC licenses. 57 --------------------------------------------------------------------------------
Upon application of fresh start accounting in accordance with ASC 852, Reorganizations, in connection with our emergence from bankruptcy, we recorded goodwill of$3.3 billion , which represented the excess of estimated enterprise fair value over the estimated fair value of our assets and liabilities.Goodwill was further allocated to our reporting units based on the relative fair values of our reporting units as ofMay 1, 2019 . As a result of the changes in the Company's management structure and its reportable segments, we performed interim impairment tests on goodwill as ofJanuary 1, 2021 . No impairment charges were recorded in the first quarter of 2021 in connection with the interim impairment test. We test goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired. The fair value of our reporting units is used to apply value to the net assets of each reporting unit. To the extent that the carrying amount of net assets would exceed the fair value, an impairment charge may be required to be recorded. The discounted cash flow approach we use for valuing goodwill involves estimating future cash flows expected to be generated from the related assets, discounted to their present value using a risk-adjusted discount rate. Terminal values are also estimated and discounted to their present value.
On
•Expected cash flows underlying our business plans for the periods 2021 through 2025. Our cash flow assumptions are based on detailed, multi-year forecasts performed by each of our operating reporting units, and reflect the current advertising outlook across our businesses. •Cash flows beyond 2025 are projected to grow at a perpetual growth rate, which we estimated at 2.0% for our Multiplatform and RCS Reporting units, 3.0% for our Digital Audio Reporting unit, and 2.0% for ourKatz Media reporting unit (beyond 2029). •In order to risk adjust the cash flow projections in determining fair value, we utilized discounts rates between 11% and 14% for each of our reporting units.
Based on our annual assessment using the assumptions described above, a hypothetical 5% reduction in the estimated fair value in each of our reporting units would not result in a material impairment condition.
While we believe we have made reasonable estimates and utilized appropriate
assumptions to calculate the estimated fair value of our reporting units, it is
possible a material change could occur. If future results are not consistent
with our assumptions and estimates, we may be exposed to impairment charges in
the future. The following table shows the decline in the fair value of each of
our reporting units that would result from a 100 basis point decline in our
discrete and terminal period revenue growth rate and profit margin assumptions
and a 100 basis point increase in our discount rate assumption:
(In thousands)
Revenue Profit Discount
Description Growth Rate Margin Rate
Multiplatform $ 670,000 $ 240,000 $ 650,000
Digital $ 330,000 $ 100,000 $ 270,000
Katz Media $ 60,000 $ 20,000 $ 50,000
Other $ 30,000 $ 10,000 $ 20,000
An increase in discount rates or a decrease in revenue growth rates or profit
margins could result in impairment charges being required to be recorded for one
or more of our reporting units.
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--------------------------------------------------------------------------------Tax Provisions
Our estimates of income taxes and the significant items giving rise to the deferred tax assets and liabilities are shown in the notes to our consolidated financial statements and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or results from the final review of our tax returns by federal, state or foreign tax authorities. We use our judgment to determine whether it is more likely than not that our deferred tax assets will be realized. Deferred tax assets are reduced by valuation allowances if the Company believes it is more than likely than not that some portion or the entire asset will not be realized. We use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (UTBs) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash.
Litigation Accruals
We are currently involved in certain legal proceedings. Based on current assumptions, we 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. Future results of operations could be materially affected by changes in these assumptions or the effectiveness of our strategies related to these proceedings.
Management's 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.
Insurance Accruals
We currently maintain self-insured retentions for various insurance coverages, including property, casualty, directors and officers, cyber, and media liability. Accruals are recorded based on estimates of actual claims filed, historical payouts, existing insurance coverage and projected future development of costs related to existing claims. Our self-insured liabilities contain uncertainties because management must make assumptions and apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as ofDecember 31, 2021 . If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material. Share-Based Compensation Under the fair value recognition provisions of ASC 718-10, Compensation-Stock Compensation, share-based compensation cost is measured at the grant date based on the fair value of the award. Determining the fair value of share-based awards at the grant date requires assumptions and judgments, such as expected volatility, among other factors. If actual results differ significantly from these estimates, our results of operations could be materially impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Required information is located within Item 7 of Part II of this Annual Report on Form 10-K, under the heading "Market Risk".
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