iHeartMedia, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________

Commission File Number

000-53354

IHEARTMEDIA, INC.

(Exact name of registrant as specified in its charter)



Delaware		26-0241222
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

20880 Stone Oak Parkway San Antonio, Texas		78258
(Address of principal executive offices)		(Zip Code)

(210) 822-2828

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	"IHRT"	The NASDAQ Stock Market LLC



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [ ] Emerging growth company [ ]

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Class	Outstanding at November 4, 2019
	~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~	~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
	Class A Common Stock, $.001 par value	57,581,400
	Class B Common Stock, $.001 par value	6,905,036

IHEARTMEDIA, INC.

INDEX



		Page No.
Part I – Financial Information
Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Comprehensive Income (Loss)	2
	Consolidated Statements of Changes in Stockholders' Equity (Deficit)	4
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	76
Item 4.	Controls and Procedures	76
Part II – Other Information
Item 1.	Legal Proceedings	77
Item 1A.	Risk Factors	77
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	78
Signatures		80

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IHEARTMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



(In thousands, except share and per share data)	Successor Company			Predecessor Company
	September 30, 2019			December 31, 2018
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	277,050		$	224,037
Accounts receivable, net of allowance of $8,088 in 2019 and $26,584 in 2018	843,190			868,861
Prepaid expenses	120,981			99,532
Other current assets	29,942			26,787
Current assets of discontinued operations	—			1,015,800
Total Current Assets	1,271,163			2,235,017
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net	834,013			502,202
INTANGIBLE ASSETS AND GOODWILL
Indefinite-lived intangibles - licenses	2,277,733			2,417,915
Other intangibles, net	2,238,423			200,422
Goodwill	3,325,546			3,412,753
OTHER ASSETS
Operating lease right-of-use assets	886,333			—
Other assets	101,738			149,736
Long-term assets of discontinued operations	—			3,351,470
Total Assets	$	10,934,949		$	12,269,515
CURRENT LIABILITIES
Accounts payable	$	61,353		$	49,435
Current operating lease liabilities	77,729			—
Accrued expenses	213,426			298,383
Accrued interest	91,379			767
Deferred revenue	138,968			123,143
Current portion of long-term debt	53,705			46,105
Current liabilities of discontinued operations	—			729,816
Total Current Liabilities	636,560			1,247,649
Long-term debt	5,755,305			—
Series A Mandatorily Redeemable Preferred Stock, par value $0.001, authorized 60,000 shares, 60,000 shares issued in 2019 and no shares issued in 2018	60,000			—
Noncurrent operating lease liabilities	794,307			—
Deferred income taxes	783,856			—
Other long-term liabilities	58,004			229,679
Liabilities subject to compromise	—			16,480,256
Long-term liabilities of discontinued operations	—			5,872,273
Commitments and contingent liabilities (Note 9)
STOCKHOLDERS’ EQUITY (DEFICIT)
Noncontrolling interest	8,372			30,868
Predecessor Preferred stock, par value $.001 per share, 150,000,000 shares authorized, no shares issued and outstanding	—			—
Predecessor common stock	—			92
Successor Preferred stock, par value $.001 per share, 100,000,000 shares authorized, no shares issued and outstanding	—			—
Successor Class A Common Stock, par value $.001 per share, authorized 1,000,000,000 shares, 57,670,714 shares issued and outstanding in 2019 and no shares issued and outstanding in 2018	58			—
Successor Class B Common Stock, par value $.001 per share, authorized 1,000,000,000 shares, 6,925,976 shares issued and outstanding in 2019 and no shares issued and outstanding in 2018	7			—
Successor Special Warrants, 81,289,306 issued and outstanding in 2019 and none issued and outstanding in 2018	—			—
Additional paid-in capital	2,790,175			2,074,632
Retained earnings (Accumulated deficit)	51,167			(13,345,346		)
Accumulated other comprehensive loss	(827		)	(318,030		)
Cost of shares (125,210 in 2019 and 805,982 in 2018) held in treasury	(2,035		)	(2,558		)
Total Stockholders' Equity (Deficit)	2,846,917			(11,560,342		)
Total Liabilities and Stockholders' Equity (Deficit)	$	10,934,949		$	12,269,515

See Notes to Consolidated Financial Statements

IHEARTMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



(In thousands, except per share data)	Successor Company			Predecessor Company
	Three Months Ended September 30,			Three Months Ended September 30,
	2019			2018
Revenue	$	948,338		$	920,492
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)	290,971			268,606
Selling, general and administrative expenses (excludes depreciation and amortization)	341,353			329,436
Corporate expenses (excludes depreciation and amortization)	70,044			56,699
Depreciation and amortization	95,268			43,295
Impairment charges	—			33,150
Other operating expense, net	(9,880		)	(2,462		)
Operating income	140,822			186,844
Interest expense, net	100,967			2,097
Gain on investments, net	1,735			186
Equity in loss of nonconsolidated affiliates	(1		)	(30		)
Other expense, net	(12,457		)	(281		)
Reorganization items, net	—			(52,475		)
Income from continuing operations before income taxes	29,132			132,147
Income tax expense	(16,758		)	(10,873		)
Income from continuing operations	12,374			121,274
Loss from discontinued operations, net of tax	—			(49,491		)
Net income	12,374			71,783
Less amount attributable to noncontrolling interest	—			1,705
Net income attributable to the Company	$	12,374		$	70,078
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(499		)	(7,509		)
Reclassification adjustments	—			1,425
Other comprehensive loss, net of tax	(499		)	(6,084		)
Comprehensive income	11,875			63,994
Less amount attributable to noncontrolling interest	—			(5,212		)
Comprehensive income attributable to the Company	$	11,875		$	69,206
Net income (loss) attributable to the Company per common share:
Basic net income (loss) per share
From continuing operations	$	0.08		$	1.42
From discontinued operations	—			(0.60		)
Basic net income per share	$	0.08		$	0.82
Weighted average common shares outstanding - Basic	145,720			85,544
Diluted net income (loss) per share
From continuing operations	$	0.08		$	1.42
From discontinued operations	—			(0.60		)
Diluted net income per share	$	0.08		$	0.82
Weighted average common shares outstanding - Diluted	145,840			85,622

See Notes to Consolidated Financial Statements

IHEARTMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)



(In thousands, except per share data)	Successor Company			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,
	2019			2019			2018
Revenue	$	1,583,984		$	1,073,471		$	2,585,028
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)	475,262			359,696			773,424
Selling, general and administrative expenses (excludes depreciation and amortization)	568,493			436,345			1,003,728
Corporate expenses (excludes depreciation and amortization)	104,434			66,020			162,075
Depreciation and amortization	154,651			52,834			175,546
Impairment charges	—			91,382			33,150
Other operating expense, net	(6,634		)	(154		)	(6,912		)
Operating income	274,510			67,040			430,193
Interest expense (income), net	170,678			(499		)	333,843
Gain (loss) on investments, net	1,735			(10,237		)	9,361
Equity in loss of nonconsolidated affiliates	(25		)	(66		)	(93		)
Other income (expense), net	(21,614		)	23			(22,755		)
Reorganization items, net	—			9,461,826			(313,270		)
Income (loss) from continuing operations before income taxes	83,928			9,519,085			(230,407		)
Income tax benefit (expense)	(32,761		)	(39,095		)	9,828
Income (loss) from continuing operations	51,167			9,479,990			(220,579		)
Income (loss) from discontinued operations, net of tax	—			1,685,123			(206,968		)
Net income (loss)	51,167			11,165,113			(427,547		)
Less amount attributable to noncontrolling interest	—			(19,028		)	(10,732		)
Net income (loss) attributable to the Company	$	51,167		$	11,184,141		$	(416,815	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(827		)	(1,175		)	(20,042		)
Reclassification adjustments	—			—			1,425
Other comprehensive loss, net of tax	(827		)	(1,175		)	(18,617		)
Comprehensive income (loss)	50,340			11,182,966			(435,432		)
Less amount attributable to noncontrolling interest	—			2,784			(8,829		)
Comprehensive income (loss) attributable to the Company	$	50,340		$	11,180,182		$	(426,603	)
Net income (loss) attributable to the Company per common share:
Basic net income (loss) per share
From continuing operations	$	0.35		109.92			$	(2.58	)
From discontinued operations	—			19.76			(2.30		)
Basic net income (loss) per share	$	0.35		$	129.68		$	(4.88	)
Weighted average common shares outstanding - Basic	145,543			86,241			85,348
Diluted net income (loss) per share
From continuing operations	$	0.35		109.92			$	(2.58	)
From discontinued operations	—			19.76			(2.30		)
Diluted net income (loss) per share	$	0.35		$	129.68		$	(4.88	)
Weighted average common shares outstanding - Diluted	145,655			86,241			85,348

See Notes to Consolidated Financial Statements

IHEARTMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)



(In thousands, except share data)								Controlling Interest
	Common Shares⁽¹⁾					Non- controlling Interest		Common Stock		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Stock
	Class A Shares	Class B Shares		Special Warrants		Non- controlling Interest		Common Stock		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balances at June 30, 2019 (Successor)	56,873,782	6,947,567		81,453,648		$	8,372	$	64	$	2,773,147		$	38,793	$	(328	)	$	—		$	2,820,048
Net income						—		—		—			12,374		—			—			12,374
Vesting of restricted stock	610,999					—		1		(1		)	—		—			(2,035		)	(2,035		)
Share-based compensation						—		—		17,029			—		—			—			17,029
Conversion of Special Warrants and Class B Shares to Class A Shares	185,933	(21,591	)	(164,342	)	—		—		—			—		—			—			—
Other comprehensive loss						—		—		—			—		(499		)	—			(499		)
Balances at September 30, 2019 (Successor)	57,670,714	6,925,976		81,289,306		$	8,372	$	65	$	2,790,175		$	51,167	$	(827	)	$	(2,035	)	$	2,846,917

(1) The Predecessor Company's Class D Common Stock and Preferred Stock are not presented in the data above as there were no shares issued and outstanding in 2019.

See Notes to Consolidated Financial Statements



(In thousands, except share data)								Controlling Interest
	Common Shares⁽¹⁾				Non- controlling Interest			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock
	Class A Shares		Class B Shares	Class C Shares	Non- controlling Interest			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balances at June 30, 2018 (Predecessor)	32,478,591		555,556	58,967,502	$	17,861		$	92	$	2,073,738	$	(13,630,329	)	$	(321,199	)	$	(2,493	)	$	(11,862,330	)
Net income					1,705			—		—		70,078			—			—			71,783
Forfeitures of restricted stock	(99,084	)			—			—		—		—			—			—			—
Share-based compensation					—			—		456		—			—			—			456
Share-based compensation - discontinued operations					3,132			—		—		—			—			—			3,132
Payments to non-controlling interests					(124		)	—		—		—			—			—			(124		)
Other					(9		)	—		—		—			—			(59		)	(68		)
Other comprehensive loss					(5,212		)	—		—		—			(872		)	—			(6,084		)
Balances at September 30, 2018 (Predecessor)	32,379,507		555,556	58,967,502	$	17,353		$	92	$	2,074,194	$	(13,560,251	)	$	(322,071	)	$	(2,552	)	$	(11,793,235	)

(1) The Predecessor Company's Class D Common Stock and Preferred Stock are not presented in the data above as there were no shares issued and outstanding in 2018.

See Notes to Consolidated Financial Statements

IHEARTMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)



(In thousands, except share data)												Controlling Interest
	Common Shares⁽¹⁾								Non- controlling Interest			Common Stock			Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Treasury Stock
	Class A Shares		Class B Shares		Class C Shares		Special Warrants		Non- controlling Interest			Common Stock			Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balances at December 31, 2018 (Predecessor)	32,292,944		555,556		58,967,502		—		$	30,868		$	92		$	2,074,632		$	(13,345,346	)	$	(318,030	)	$	(2,558	)	$	(11,560,342	)
Net income (loss)									(19,028		)	—			—			11,184,141			—			—			11,165,113
Non-controlling interest - Separation									(13,199		)	—			—			—			—			—			(13,199		)
Accumulated other comprehensive loss - Separation									—			—			—			—			307,813			—			307,813
Adoption of ASC 842, Leases									—			—			—			128,908			—			—			128,908
Issuance of restricted stock									196			—			—			—			—			(4		)	192
Forfeitures of restricted stock	(110,333	)							—			—			—			—			—			—			—
Share-based compensation									—			—			2,028			—			—			—			2,028
Share-based compensation - discontinued operations									2,449			—			—			—			—			—			2,449
Payments to non-controlling interests									(3,684		)	—			—			—			—			—			(3,684		)
Other									—			—			—			—			1			—			1
Other comprehensive income (loss)									2,784			—			—			—			(3,959		)	—			(1,175		)
Cancellation of Predecessor equity	(32,182,611	)	(555,556	)	(58,967,502	)			(386		)	(92		)	(2,076,660		)	2,059,998			14,175			2,562			(403		)
Issuance of Successor common stock and warrants	56,861,941		6,947,567		—		81,453,648		8,943			64			2,770,108			(27,701		)	—			—			2,751,414
Balances at May 1, 2019 (Predecessor)	56,861,941		6,947,567		—		81,453,648		$	8,943		$	64		$	2,770,108		$	—		$	—		$	—		$	2,779,115


Balances at May 2, 2019 (Successor)	56,861,941		6,947,567		—		81,453,648		$	8,943		$	64		$	2,770,108		$	—		$	—		$	—		$	2,779,115
Net income									—			—			—			51,167			—			—			51,167
Vesting of restricted stock	622,840								—			1			(1		)	—			—			(2,035		)	(2,035		)
Share-based compensation									—			—			20,068			—			—			—			20,068
Conversion of Special Warrants and Class B Shares to Class A Shares	185,933		(21,591	)			(164,342	)	—			—			—			—			—			—			—
Other									(571		)	—			—			—			—			—			(571		)
Other comprehensive loss									—			—			—			—			(827		)	—			(827		)
Balances at September 30, 2019 (Successor)	57,670,714		6,925,976		—		81,289,306		$	8,372		$	65		$	2,790,175		$	51,167		$	(827	)	$	(2,035	)	$	2,846,917

(1) The Predecessor Company's Class D Common Stock and Preferred Stock are not presented in the data above as there were no shares issued and outstanding in 2019 or 2018.

See Notes to Consolidated Financial Statements



(In thousands, except share data)								Controlling Interest
	Common Shares⁽¹⁾				Non- controlling Interest			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock
	Class A Shares		Class B Shares	Class C Shares	Non- controlling Interest			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balances at December 31, 2017 (Predecessor)	32,626,168		555,556	58,967,502	$	41,191		$	92	$	2,072,566	$	(13,142,001	)	$	(313,718	)	$	(2,474	)	$	(11,344,344	)
Net loss					(10,732		)	—		—		(416,815		)	—			—			(427,547		)
Issuance of restricted stock	70,000				—			—		—		—			—			—			—
Forfeitures of restricted stock	(316,661	)			—			—		—		—			—			—			—
Share-based compensation					—			—		1,628		—			—			—			1,628
Share-based compensation - discontinued operations					6,757			—		—		—			—			—			6,757
Payments to non-controlling interests					(10,381		)	—		—		—			—			—			(10,381		)
Other					(653		)	—		—		(1,435		)	1,435			(78		)	(731		)
Other comprehensive income					(8,829		)	—		—		—			(9,788		)	—			(18,617		)
Balances at September 30, 2018 (Predecessor)	32,379,507		555,556	58,967,502	$	17,353		$	92	$	2,074,194	$	(13,560,251	)	$	(322,071	)	$	(2,552	)	$	(11,793,235	)

(1) The Predecessor Company's Class D Common Stock and Preferred Stock are not presented in the data above as there were no shares issued and outstanding in 2018 or 2017.

See Notes to Consolidated Financial Statements

IHEARTMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



(In thousands)	Successor Company			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,
	2019			2019			2018
Cash flows from operating activities:
Net income (loss)	$	51,167		$	11,165,113		$	(427,547	)
(Income) loss from discontinued operations	—			(1,685,123		)	206,968
Reconciling items:
Impairment charges	—			91,382			33,150
Depreciation and amortization	154,651			52,834			175,546
Deferred taxes	25,478			115,839			(18,869		)
Provision for doubtful accounts	8,088			3,268			14,803
Amortization of deferred financing charges and note discounts, net	672			512			11,871
Non-cash Reorganization items, net	—			(9,619,236		)	261,057
Share-based compensation	20,151			498			1,628
(Gain) loss on disposal of operating and other assets	4,755			(143		)	2,739
(Gain) loss on investments	(1,735		)	10,237			(9,361		)
Equity in loss of nonconsolidated affiliates	25			66			93
Barter and trade income	(7,478		)	(5,947		)	(6,228		)
Other reconciling items, net	133			(65		)	(768		)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
(Increase) decrease in accounts receivable	(113,848		)	117,263			21,092
Increase in prepaid expenses and other current assets	(22,670		)	(24,044		)	(18,452		)
(Increase) decrease in other long-term assets	2,545			(7,098		)	(8,781		)
Increase (decrease) in accrued expenses	28,266			(123,971		)	(42,598		)
Increase (decrease) in accounts payable	16,474			(32,914		)	21,898
Increase in accrued interest	91,624			256			302,573
Increase (decrease) in deferred income	352			13,377			(12,348		)
Increase (decrease) in other long-term liabilities	4,892			(79,609		)	7,247
Cash provided by (used for) operating activities from continuing operations	263,542			(7,505		)	515,713
Cash provided by (used for) operating activities from discontinued operations	—			(32,681		)	147,636
Net cash provided by (used for) operating activities	263,542			(40,186		)	663,349
Cash flows from investing activities:
Proceeds from sale of other investments	765			—			18,500
Purchases of property, plant and equipment	(46,305		)	(36,197		)	(47,448		)
Proceeds from disposal of assets	5,344			99			682
Change in other, net	(3,619		)	(2,680		)	(1,296		)
Cash used for investing activities from continuing operations	(43,815		)	(38,778		)	(29,562		)
Cash used for investing activities from discontinued operations	—			(222,366		)	(105,330		)
Net cash used for investing activities	(43,815		)	(261,144		)	(134,892		)
Cash flows from financing activities:
Draws on credit facilities	—			—			143,359
Payments on credit facilities	—			—			(258,308		)
Proceeds from long-term debt	750,000			269			—
Payments on long-term debt	(741,000		)	(8,294		)	(364,294		)
Proceeds from Mandatorily Redeemable Preferred Stock	—			60,000			—
Settlement of intercompany related to discontinued operations	—			(159,196		)	—
Dividends and other payments to noncontrolling interests	(571		)	—			(1,078		)
Debt issuance costs	(11,488		)	—			—
Change in other, net	(2,036		)	(5		)	(75		)
Cash used for financing activities from continuing operations	(5,095		)	(107,226		)	(480,396		)
Cash provided by (used for) financing activities from discontinued operations	—			51,669			(12,711		)
Net cash used for financing activities	(5,095		)	(55,557		)	(493,107		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(304		)	562			(8,553		)
Net increase (decrease) in cash, cash equivalents and restricted cash	214,328			(356,325		)	26,797
Cash, cash equivalents and restricted cash at beginning of period	74,009			430,334			311,300
Cash, cash equivalents and restricted cash at end of period	288,337			74,009			338,097
Less cash, cash equivalents and restricted cash of discontinued operations at end of period	—			—			214,631
Cash, cash equivalents and restricted cash of continuing operations at end of period	$	288,337		$	74,009		$	123,466
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	79,263		$	137,042		$	293,689
Cash paid for income taxes	2,755			22,092			27,597
Cash paid for Reorganization items, net	18,268			183,291			52,213

See Notes to Consolidated Financial Statements

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

Preparation of Interim Financial Statements

All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” refer to iHeartMedia, Inc. and its consolidated subsidiaries. The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. As described below, as a result of the application of fresh start accounting and the effects of the implementation of the Company's Plan of Reorganization (as defined below), the consolidated financial statements after the Effective Date (as defined below), are not comparable with the consolidated financial statements on or before that date. Refer to Note 3, Fresh Start Accounting, for additional information. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2018 Annual Report on Form 10-K.

The consolidated financial statements include the accounts of the Company and its subsidiaries. Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary. Investments in companies in which the Company owns 20% to 50% of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process.

Unless otherwise indicated, information in these notes to the consolidated financial statements relates to continuing operations. Certain of the Company's operations have been presented as discontinued. The Company presents businesses that represent components as discontinued operations when the components meet the criteria for held for sale, are sold, or spun-off and their disposal represents a strategic shift that has, or will have, a major effect on its operations and financial results. See Note 4, Discontinued Operations.

As part of the Separation and Reorganization (as defined below), the Company reevaluated its segment reporting, resulting in the presentation of two businesses:


▪	Audio, which provides media and entertainment services via broadcast and digital delivery and also includes the Company’s events and national syndication businesses and


▪	Audio & Media Services, which provides other audio and media services, including the Company’s media representation business, Katz Media Group (“Katz Media”) and the Company's provider of scheduling and broadcast software, Radio Computing Services (“RCS”).

Prior periods have been recast to reflect the Company's current segment presentation. See Note 13, Segment Data.

Certain prior period amounts have been reclassified to conform to the 2019 presentation.

Voluntary Filing under Chapter 11

On March 14, 2018 (the "Petition Date"), the Company, iHeartCommunications, Inc. ("iHeartCommunications") and certain of the Company's direct and indirect domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the "Bankruptcy Court"). Clear Channel Outdoor Holdings, Inc. (“CCOH”) and its direct and indirect subsidiaries did not file voluntary petitions for reorganization under the Bankruptcy Code and were not Debtors in the Chapter 11 Cases. On April 28, 2018, the Company and the other Debtors filed a plan of reorganization (as amended, the “Plan of Reorganization”) and a related disclosure statement with the Bankruptcy Court, which we subsequently amended by filing the second, third, fourth and fifth amended Plan of Reorganization and amended versions of the Disclosure Statement. On January 22, 2019, the Plan of Reorganization was confirmed by the Bankruptcy Court.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

from, and ceased to be controlled by, the Company and its subsidiaries (the “iHeart Group”), and (b) a series of transactions (the “Reorganization”) through which iHeartCommunications’ debt was reduced from approximately $16 billion to approximately $5.8 billion and a global compromise and settlement among holders of claims (“Claimholders”) in connection with the Chapter 11 Cases was effected. The compromise and settlement involved, among others, (i) the restructuring of iHeartCommunications’ indebtedness by (A) replacing its “debtor-in-possession” credit facility with a $450 million senior secured asset-based revolving credit facility (the “ABL Facility”) and (B) issuing to certain Claimholders, on account of their claims, approximately $3.5 billion aggregate principal amount of new senior secured term loans (the “Term Loan Facility”), approximately $1.45 billion aggregate principal amount of new 8.375% Senior Notes due 2027 (the “Senior Unsecured Notes”) and approximately $800 million aggregate principal amount of new 6.375% Senior Secured Notes due 2026 (the “6.375% Senior Secured Notes”), (ii) the Company’s issuance of new Class A common stock, new Class B common stock and special warrants to purchase shares of new Class A common stock and Class B common stock (“Special Warrants”) to Claimholders, subject to ownership restrictions imposed by the Federal Communications Commission (“FCC”), (iii) the settlement of certain intercompany transactions, and (iv) the sale of the preferred stock (the “iHeart Operations Preferred Stock”) of the Company’s wholly-owned subsidiary iHeart Operations, Inc. (“iHeart Operations”) in connection with the Separation.

All of the Company's equity existing as of the Effective Date was canceled on such date pursuant to the Plan of Reorganization.

Upon the Company's emergence from the Chapter 11 Cases, the Company adopted fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after the Effective Date, are not comparable with the consolidated financial statements on or before that date. Refer to Note 3, Fresh Start Accounting, for additional information.

References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of the Company on or before the Effective Date.

During the Predecessor period, the Company applied Accounting Standards Codification (“ASC”) 852 - Reorganizations (“ASC 852”) in preparing the consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain charges incurred during 2018 and 2019 related to the Chapter 11 Cases, including the write-off of unamortized long-term debt fees and discounts associated with debt classified as liabilities subject to compromise, and professional fees incurred directly as a result of the Chapter 11 Cases are recorded as Reorganization items, net in the Predecessor period.

ASC 852 requires certain additional reporting for financial statements prepared between the bankruptcy filing date and the date of emergence from bankruptcy, including:


•	Reclassification of Debtor pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the liabilities are fully secured, to a separate line item in the Consolidated Balance Sheet called, "Liabilities subject to compromise" and


•	Segregation of Reorganization items, net as a separate line in the Consolidated Statement of Comprehensive Loss, included within income from continuing operations.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. During the Chapter 11 Cases, the Company’s ability to continue as a going concern was contingent upon the Company’s ability to successfully implement the Company’s Plan of Reorganization, among other factors. As a result of the effectiveness and implementation of the Plan of Reorganization, there is no longer substantial doubt about the Company's ability to continue as a going concern.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts reported in the Consolidated Statements of Cash Flows:



(In thousands)	Successor Company		Predecessor Company
	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	277,050	$	224,037
Restricted cash included in:
Other current assets	11,287		3,428
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows⁽¹⁾	$	288,337	$	227,465

⁽¹⁾The Predecessor Company's Total cash, cash equivalents and restricted cash as of December 31, 2018 in the table above exclude $202.8 million classified as current and long-term assets of discontinued operations.

New Accounting Pronouncements Recently Adopted

Leases

The Company adopted ASU No. 2016-02, which created ASC 842, Leases, and all subsequent ASUs relating to this Topic, as of January 1, 2019 (collectively, "ASC 842"). This new lease accounting standard, which supersedes previous lease accounting guidance under U.S. GAAP, results in significant changes to the balance sheets of lessees, most significantly by requiring the recognition of a right-of-use ("ROU") asset and lease liability by lessees for those leases classified as operating leases. Lessor accounting is also updated to align with certain changes in the lessee model and the revenue recognition standard ("ASC Topic 606"), which was adopted in 2018.

The Company applied the transition provisions of this standard at January 1, 2019 following the optional transition method provided by ASU No. 2018-11; consequently, the consolidated financial statements and notes to the consolidated financial statements for periods before the date of adoption continue to be presented in accordance with ASC Topic 840. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to not reassess whether expired or existing contracts are or contain leases and to carry forward the historical lease classification for those leases that commenced prior to the date of adoption.

Upon adoption of ASC 842, prepaid and deferred rent balances, which were historically presented separately, were combined and presented net within the ROU asset. Additionally, deferred gains related to previous transactions that were historically accounted for as sale and operating leasebacks in accordance with ASC Topic 840 were eliminated and recognized as a cumulative-effect adjustment to equity, resulting in an increase to equity, net of tax, of $128.9 million. Under ASC Topic 840, such gains were recognized ratably over the lease term as a credit to operating lease expense, and operating lease expense for the three and nine months ended September 30, 2018 included credits of $1.3 million and $3.9 million, respectively, for the amortization of these gains, which were not recognized in any period after January 1, 2019.

Adoption of the new standard had a material impact on our consolidated balance sheets, but it did not have a material impact on our other consolidated financial statements. Additionally, the standard requires disclosures to meet the objective of enabling users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Refer to Note 5, Revenue, and Note 6, Leases, for more information.

Intangible Assets and Goodwill

During the first quarter of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This update eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Entities are required to record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The standard is effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019. The Company early adopted the proposed guidance under ASU 2017-04 beginning on January 1, 2019 on a prospective basis. The implementation of ASU 2017-04 did not have a material impact on our consolidated financial statements and related disclosures.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During the third quarter of 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This update requires that a customer in a cloud computing arrangement that is a service contract follow the internal use software guidance in Accounting Standards Codification (ASC) 350-402 to determine which implementation costs to capitalize as assets. The standard is effective for fiscal years beginning after December 15, 2019. The Company early adopted the proposed guidance under ASU 2018-15 beginning on January 1, 2019 on a prospective basis. The implementation of ASU 2018-15 did not have a material impact on our consolidated financial statements and related disclosures.

NOTE 2 - EMERGENCE FROM VOLUNTARY REORGANIZATION UNDER CHAPTER 11 PROCEEDINGS

Plan of Reorganization

As described in Note 1, on March 14, 2018, the Company and the other Debtors filed the Chapter 11 Cases and on April 28, 2018, the Company and the other Debtors filed a plan of reorganization, which was subsequently amended as the Plan of Reorganization and was confirmed on January 22, 2019. The Debtors then emerged from bankruptcy upon effectiveness of the Plan of Reorganization on the Effective Date. Capitalized terms not defined in this note are defined in the Plan of Reorganization.

On or following the Effective Date and pursuant to the Plan of Reorganization, the following occurred:


▪	CCOH was separated from and ceased to be controlled by iHeartCommunications and its subsidiaries.


▪	The existing indebtedness of iHeartCommunications of approximately $16 billion was discharged, the Company entered into the Term Loan Facility ($3,500 million) and issued the 6.375% Senior Secured Notes ($800 million) and the Senior Unsecured Notes ($1,450 million), collectively the “Successor Emergence Debt.”


▪	The Company adopted an amended and restated certificate of incorporation and bylaws.

▪

Shares of the Predecessor Company’s issued and outstanding common stock immediately prior to the Effective Date were canceled, and on the Effective Date, reorganized iHeartMedia issued an aggregate of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and special warrants to purchase 81,453,648 shares of Class A common stock or Class B common stock to holders of claims pursuant to the Plan of Reorganization.


▪	The following classes of claims received the Successor Emergence Debt and 99.1% of the new equity, as defined in the Plan of Reorganization:


▪	Secured Term Loan / 2019 PGN Claims (Class 4)


▪	Secured Non-9.0% PGN Due 2019 Claims Other Than Exchange 11.25% PGN Claims (Class 5A)


▪	Secured Exchange 11.25% PGN Claims (Class 5B)


▪	iHC 2021 / Legacy Notes Claims (Class 6)


▪	Guarantor Funded Debt against other Guarantor Debtors Other than CCH and TTWN (Class 7)


▪	The holders of the Guarantor Funded Debt Unsecured Claims Against CCH (Class 7F) received their Pro Rata share of 100 percent of the CCOH Interests held by the Debtors and CC Finco, LLC and Broader Media, LLC. Refer to the discussion below regarding the Separation Transaction.


▪	Settled the following classes of claims in cash:


▪	General Unsecured Claims Against Non-Obligor Debtors (Class 7A); paid in full


▪	General Unsecured Claims Against TTWN Debtors (Class 7B); paid in full


▪	iHC Unsecured Claims (Class 7D); paid 14.44% of allowed claim


▪	Guarantor General Unsecured Claims (Class 7G); paid minimum of 45% and maximum of 55% of allowed claim

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


▪	The CCOH Due From Claims (Class 8) represent the negotiated claim between iHeartMedia and CCOH, which was settled in cash on the date of emergence at 14.44%.


▪	The Predecessor Company’s common stockholders (Class 9) received their pro rata share of 1% of the new common stock; provided that 0.1% of the new common stock that otherwise would have been distributed to the Company's former sponsors was instead distributed to holders of Legacy Notes Claims.


▪	The Company entered into a new $450.0 million ABL Facility, which was undrawn at emergence.


▪	The Company funded the Guarantor General Unsecured Recovery Cash Pool for $17.5 million in order to settle the Class 7G General Unsecured Claims.


▪	The Company funded the Professional Fee Escrow Account.

▪

On the Effective Date, the iHeartMedia, Inc. 2019 Equity Incentive Plan (the “Post-Emergence Equity Plan”) became effective. The Post-Emergence Equity Plan allows the Company to grant stock options and restricted stock units representing up to 12,770,387 shares of Class A common stock for key members of management and service providers and up to 1,596,298 for non-employee members of the board of directors. The amounts of Class A common stock reserved under the Post-Emergence Equity Plan were equal to 8% and 1%, respectively, of the Company’s fully-diluted and distributed shares of Class A common stock as of the Effective Date.

In addition, as part of the Separation, iHeartCommunications and CCOH consummated the following transactions:


▪	the cash sweep agreement under the then-existing corporate services agreement and any agreements or licenses requiring royalty payments to iHeartMedia by CCOH for trademarks or other intellectual property (“Trademark License Fees”) were terminated;

▪

iHeartCommunications, iHeartMedia, iHeartMedia Management Services, Inc. (“iHM Management Services”) and CCOH entered into a transition services agreement (the “Transition Services Agreement”) pursuant to which, the Company or its subsidiaries will provide administrative services historically provided to CCOH by iHeartCommunications for a period of one year after the Effective Date, which may be extended under certain circumstances;


▪	the Trademark License Fees charged to CCOH during the post-petition period were waived by iHeartMedia;


▪	iHeartMedia contributed the rights, title and interest in and to all tradenames, trademarks, service marks, common law marks and other rights related to the Clear Channel tradename (the “CC Intellectual Property”) to CCOH;

▪

iHeartMedia paid $115.8 million to CCOH, which consisted of the $149.0 million payment by iHeartCommunications to CCOH as CCOH’s recovery of its claims under the Due from iHeartCommunications Note, partially offset by the $33.2 million net amount payable to iHeartCommunications under the post-petition intercompany balance between iHeartCommunications and CCOH after adjusting for the post-petition Trademark License Fees which were waived as part of the settlement agreement;

▪

iHeartCommunications entered into a revolving loan agreement with Clear Channel Outdoor, LLC (“CCOL”) and Clear Channel International, Ltd., wholly-owned subsidiaries of CCOH, to provide a line of credit in an aggregate amount not to exceed $200 million at the prime rate of interest, which was terminated by the borrowers on July 30, 2019 in connection with the closing of an underwritten public offering of common stock by CCOH; and


▪	iHeart Operations, Inc. issued $60.0 million in preferred stock to a third party for cash (see Note 8, Long-term Debt).

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 - FRESH START ACCOUNTING

Fresh Start

In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company qualified for and adopted fresh start accounting on the Effective Date. The Company was required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of the Company's assets immediately prior to confirmation of the Plan of Reorganization was less than the post-petition liabilities and allowed claims.

In accordance with ASC 852, with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, "Business Combinations." The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after May 1, 2019 are not comparable with the consolidated financial statements as of or prior to that date.

Reorganization Value

As set forth in the Plan of Reorganization and the Disclosure Statement, the enterprise value of the Successor Company was estimated to be between $8.0 billion and $9.5 billion. Based on the estimates and assumptions discussed below, the Company estimated the enterprise value to be $8.75 billion, which is the mid-point of the range of enterprise value.

Management and its valuation advisors estimated the enterprise value of the Successor Company, which was approved by the Bankruptcy Court. The selected publicly traded companies analysis approach, the discounted cash flow analysis (“DCF”) approach and the selected transactions analysis approach were all utilized in estimating the enterprise value. The use of each approach provides corroboration for the other approaches. To estimate enterprise value utilizing the selected publicly traded companies analysis method, valuation multiples derived from the operating data of publicly-traded benchmark companies to the same operating data of the Company were applied. The selected publicly traded companies analysis identified a group of comparable companies giving consideration to lines of business and markets served, size and geography. The valuation multiples were derived based on historical and projected financial measures of revenue and earnings before interest, taxes, depreciation and amortization and applied to projected operating data of the Company.

To estimate enterprise value utilizing the discounted cash flow method, an estimate of future cash flows for the period 2019 to 2022 with a terminal value was determined and discounted the estimated future cash flows to present value. The expected cash flows for the period 2019 to 2022 with a terminal value were based upon certain financial projections and assumptions provided to the Bankruptcy Court. The expected cash flows for the period 2019 to 2022 were derived from earnings forecasts and assumptions regarding growth and margin projections, as applicable. A terminal value was included, calculated using the terminal multiple method, which estimates a range of values at which the Successor Company will be valued at the end of the Projection Period based on applying a terminal multiple to final year OIBDAN, which is defined as consolidated operating income adjusted to exclude non-cash compensation expenses included within corporate expenses, as well as Depreciation and amortization, Impairment charges and Other operating income (expense), net.

To estimate enterprise value utilizing the selected transactions analysis, valuation multiples were derived from an analysis of consideration paid and net debt assumed from publicly disclosed merger or acquisition transactions, and such multiples were applied to the broadcast cash flows of the Successor Company. The selected transactions analysis identified companies and assets involved in publicly disclosed merger and acquisition transactions for which the targets had operating and financial characteristics comparable in certain respects to the Successor Company.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table reconciles the enterprise value per the Plan of Reorganization to the implied value (for fresh start accounting purposes) of the Successor Company's common stock as of the Effective Date:



(In thousands, except per share data)
Enterprise Value	$	8,750,000
Plus:
Cash and cash equivalents	63,142
Less:
Debt issued upon emergence	(5,748,178		)
Finance leases and short-term notes	(61,939		)
Mandatorily Redeemable Preferred Stock	(60,000		)
Changes in deferred tax liabilities⁽¹⁾	(163,910		)
Noncontrolling interest	(8,943		)
Implied value of Successor Company common stock	$	2,770,172

Shares issued upon emergence⁽²⁾	145,263
Per share value	$	19.07

⁽¹⁾Difference in the assumed effect of deferred taxes in the calculation of enterprise value versus the actual effect of deferred taxes as of May 1.

⁽²⁾Includes the Class A Common Stock, Class B Common Stock and Special Warrants issued at emergence.

The reconciliation of the Company’s enterprise value to reorganization value as of the Effective Date is as follows:



(In thousands)
Enterprise Value	$	8,750,000
Plus:
Cash and cash equivalents	63,142
Current liabilities (excluding Current portion of long-term debt)	426,944
Deferred tax liability	596,850
Other long-term liabilities	54,393
Noncurrent operating lease obligations	818,879
Reorganization value	$	10,710,208

Consolidated Balance Sheet

The adjustments set forth in the following consolidated balance sheet as of May 1, 2019 reflect the effect of the Separation (reflected in the column "Separation of CCOH Adjustments"), the consummation of the transactions contemplated by the Plan of Reorganization that are incremental to the Separation (reflected in the column "Reorganization Adjustments") and the fair value adjustments as a result of applying fresh start accounting (reflected in the column "Fresh Start Adjustments"). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities, as well as significant assumptions or inputs.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



(In thousands)				Separation of CCOH Adjustments				Reorganization Adjustments				Fresh Start Adjustments
	Predecessor			(A)				(B)				(C)				Successor
CURRENT ASSETS
Cash and cash equivalents	$	175,811		$	—			$	(112,669	)	(1)	$	—			$	63,142
Accounts receivable, net	748,326			—				—				(10,810		)	(1)	737,516
Prepaid expenses	127,098			—				—				(24,642		)	(2)	102,456
Other current assets	22,708			—				8,125			(2)	(1,668		)	(3)	29,165
Current assets of discontinued operations	1,000,753			(1,000,753		)	(1)	—				—				—
Total Current Assets	2,074,696			(1,000,753		)		(104,544		)		(37,120		)		932,279
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net	499,001			—				—				333,991			(4)	832,992
INTANGIBLE ASSETS AND GOODWILL
Indefinite-lived intangibles - licenses	2,326,626			—				—				(44,906		)	(5)	2,281,720
Other intangibles, net	104,516			—				—				2,240,890			(5)	2,345,406
Goodwill	3,415,492			—				—				(92,127		)	(5)	3,323,365
OTHER ASSETS
Operating lease right-of-use assets	355,826			—				—				554,278			(6)	910,104
Other assets	139,409			—				(384		)	(3)	(54,683		)	(2)	84,342
Long-term assets of discontinued operations	5,351,513			(5,351,513		)	(1)	—				—				—
Total Assets	$	14,267,079		$	(6,352,266	)		$	(104,928	)		$	2,900,323			$	10,710,208
CURRENT LIABILITIES
Accounts payable	$	41,847		$	—			$	3,061		(4)	$	—			$	44,908
Current operating lease liabilities	470			—				31,845			(7)	39,092			(6)	71,407
Accrued expenses	208,885			—				(32,250		)	(5)	2,328			(9)	178,963
Accrued interest	462			—				(462		)	(6)	—				—
Deferred revenue	128,452			—				—				3,214			(7)	131,666
Current portion of long-term debt	46,618			—				6,529			(7)	40			(6)	53,187
Current liabilities of discontinued operations	999,778			(999,778		)	(1)	—				—				—
Total Current Liabilities	1,426,512			(999,778		)		8,723				44,674				480,131
Long-term debt	—			—				5,758,516			(8)	(1,586		)	(8)	5,756,930
Series A Mandatorily Redeemable Preferred Stock	—			—				60,000			(9)	—				60,000
Noncurrent operating lease liabilities	828			—				398,154			(7)	419,897			(6)	818,879
Deferred income taxes	—			—				575,341			(10)	185,419			(10)	760,760
Other long-term liabilities	121,081			—				(64,524		)	(11)	(2,164		)	(7)	54,393
Liabilities subject to compromise	16,770,266			—				(16,770,266		)	(7)	—				—
Long-term liabilities of discontinued operations	7,472,633			(7,472,633		)	(1)	—				—				—
Commitments and contingent liabilities (Note 9)
STOCKHOLDERS’ EQUITY (DEFICIT)
Noncontrolling interest	13,584			(13,199		)	(1)	—				8,558			(11)	8,943
Predecessor common stock	92			—				(92		)	(12)	—				—
Successor Class A Common Stock	—			—				57			(13)	—				57
Successor Class B Common Stock	—			—				7			(13)	—				7
Predecessor additional paid-in capital	2,075,130			—				(2,075,130		)	(12)	—				—
Successor additional paid-in capital	—							2,770,108			(13)	—				2,770,108
Accumulated deficit	(13,288,497		)	1,825,531			(1)	9,231,616			(14)	2,231,350			(12)	—
Accumulated other comprehensive loss	(321,988		)	307,813			(1)	—				14,175			(12)	—
Cost of share held in treasury	(2,562		)	—				2,562			(12)	—				—
Total Stockholders' Equity (Deficit)	(11,524,241		)	2,120,145				9,929,128				2,254,083				2,779,115
Total Liabilities and Stockholders' Equity (Deficit)	$	14,267,079		$	(6,352,266	)		$	(104,928	)		$	2,900,323			$	10,710,208

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A. Separation of CCOH Adjustments

(1) On May 1, 2019, as part of the Separation, the outstanding shares of both classes of CCOH common stock were consolidated such that CCH held all of the outstanding CCOH Class A common stock that was held by subsidiaries of iHeartCommunications, through a series of share distributions by other subsidiaries that held CCOH common stock and a conversion of CCOH Class B common stock that CCH held to CCOH Class A common stock. Prior to the Separation, iHeartCommunications owned approximately 89.1% of the economic rights and approximately 99% of the voting rights of CCOH. To complete the Separation, CCOH merged with and into CCH, with CCH surviving the merger and changing its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”), and pre-merger shares of CCOH Class A common stock (other than shares of CCOH Class A common stock held by CCH or any direct or indirect wholly-owned subsidiary of CCH) were converted into an equal number of shares of post-merger common stock of New CCOH. iHeartCommunications transferred the post-merger common stock of New CCOH it held to Claimholders pursuant to the Plan of Reorganization but retained 31,269,762 shares. Such retained shares were distributed to two affiliated Claimholders on July 18, 2019. Upon completion of the merger and Separation, New CCOH became an independent public company. Upon distribution of the shares held by iHeartCommunications, the Company does not hold any ownership interest in CCOH.

The assets and liabilities of CCOH have been classified as discontinued operations. The discontinued operations reflect the assets and liabilities of CCOH, which are presented as discontinued operations as of the Effective Date. CCOH’s assets and liabilities are adjusted to: (1) eliminate the balance on the Due from iHeartCommunications Note and the balance on the intercompany payable due to iHeartCommunications from CCOH’s consolidated balance sheet, which are intercompany amounts that were eliminated in consolidation; (2) eliminate CCOH’s Noncontrolling interest and treasury shares; and (3) eliminate other intercompany balances.

B. Reorganization Adjustments

In accordance with the Plan of Reorganization, the following adjustments were made:


(1)	The table below reflects the sources and uses of cash on the Effective Date from implementation of the Plan:



(In thousands)
Cash at May 1, 2019 (excluding discontinued operations)	$	175,811
Sources:
Proceeds from issuance of Mandatorily Redeemable Preferred Stock	$	60,000
Release of restricted cash from other assets into cash	3,428
Total sources of cash	$	63,428
Uses:
Payment of Mandatorily Redeemable Preferred Stock issuance costs	$	(1,513	)
Payment of New Term Loan Facility to settle certain creditor claims	(1,822		)
Payments for Emergence debt issuance costs	(7,213		)
Funding of the Guarantor General Unsecured Recovery Cash Pool	(17,500		)
Payments for fully secured claims and general unsecured claims	(1,990		)
Payment of contract cure amounts	(15,763		)
Payment of consenting stakeholder fees	(4,000		)
Payment of professional fees	(85,091		)	(a)
Funding of Professional Fees Escrow Account	(41,205		)	(a)
Total uses of cash	$	(176,097	)
Net uses of cash	$	(112,669	)
Cash upon emergence	$	63,142

(a) Approximately $30.5 million of professional fees paid at emergence were accrued as of May 1, 2019. These payments also reflect both the payment of success fees for $86.1 million and other professionals paid directly at emergence.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(2)

Pursuant to the terms of the Plan of Reorganization, on the Effective Date, the Company funded the Guarantor General Unsecured Recovery Cash Pool account in the amount of $17.5 million, which was reclassified as restricted cash within Other current assets. The Company made payments of $6.0 million through the Cash Pool at the time of emergence. Additionally, $3.4 million of restricted cash previously held to pay critical utility vendors was reclassified to cash.


(3)	Reflects the write-off of prepaid expenses related to the $2.3 million of prepaid premium for Predecessor Company's director and officer insurance policy, offset by the accrual of future reimbursements of $1.9 million for negotiated discounts related to the professional fee escrow account.

(4) Reflects the reinstatement of $3.1 million of accounts payable included within Liabilities subject to compromise to be satisfied in the ordinary course of business.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(5)	Reflects the reduction of accrued expenses related to the $21.2 million of professional fees paid directly, $9.3 million of professional fees paid through the Professional Fee Escrow Account and other accrued expense items. Additionally, the Company reinstated accrued expenses included within Liabilities subject to compromise to be satisfied in the ordinary course of business.



(In thousands)
Reinstatement of accrued expenses	$	551
Payment of professional fees	(21,177		)
Payment of professional fees through the escrow account	(9,260		)
Impact on other accrued expenses	(2,364		)
Net impact on Accrued expenses	$	(32,250	)


(6)	Reflects the write-off of the DIP facility accrued interest associated with the DIP facility fees paid at emergence.


(7)	As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in the Company's Consolidated balance sheet at their respective allowed claim amounts.

The table below indicates the disposition of Liabilities subject to compromise:



(In thousands)
Liabilities subject to compromise pre-emergence	$	16,770,266
To be reinstated on the Effective Date:
Deferred taxes	$	(596,850	)
Accrued expenses	(551		)
Accounts payable	(3,061		)
Finance leases and other debt	(16,867		)	(a)
Current operating lease liabilities	(31,845		)
Noncurrent operating lease liabilities	(398,154		)
Other long-term liabilities	(14,518		)	(b)
Total liabilities reinstated	$	(1,061,846	)
Less amounts settled per the Plan of Reorganization
Issuance of new debt	$	(5,750,000	)
Payments to cure contracts	(15,763		)
Payments for settlement of general unsecured claims from escrow account	(5,822		)
Payments for fully secured and other claim classes at emergence	(1,990		)
Equity issued at emergence to creditors in settlement of Liabilities subject to Compromise	(2,742,471		)
Total amounts settled	(8,516,046		)
Gain on settlement of Liabilities Subject to Compromise	$	7,192,374

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(a) Includes finance lease liabilities and other debt of $6.6 million and $10.3 million classified as current and long-term debt, respectively.

(b) Reinstatement of Other long-term liabilities were as follows:



(In thousands)
Reinstatement of long-term asset retirement obligations	$	3,527
Reinstatement of non-qualified deferred compensation plan	10,991
Total reinstated Other long-term liabilities	$	14,518


(8)	The exit financing consists of the Term Loan Facility of approximately $3.5 billion and 6.375% Senior Secured Notes totaling $800 million, both maturing seven years from the date of issuance, the Senior Unsecured Notes totaling $1.45 billion, maturing eight years from the date of issuance, and a $450 million ABL Facility with no amount drawn at emergence, which matures on June 14, 2023.

Upon emergence, the Company paid cash of $1.8 million to settle certain creditor claims for which claims were designated to receive term loans pursuant to the Plan of Reorganization.

The remaining $10.3 million is related to the reinstatement of the Long-term portion of finance leases and other debt as described above.



(In thousands)	Term	Interest Rate	Amount
Term Loan Facility	7 years	Libor + 4.00%	$	3,500,000
6.375% Senior Secured Notes	7 years	6.375%	800,000
Senior Unsecured Notes	8 years	8.375%	1,450,000
Asset-based Revolving Credit Facility	4 years	Varies^(a)	—
Total Long-Term Debt - Exit Financing			$	5,750,000
Less:
Payment of Term Loan Facility to settle certain creditor claims			(1,822		)
Net proceeds from exit financing at emergence			$	5,748,178
Long-term portion of finance leases and other debt reinstated			10,338
Net impact on Long-term debt			$	5,758,516

(a)

Borrowings under the ABL Facility bear interest at a rate per annum equal to the applicable rate plus, at iHeartCommunications’ option, either (x) a eurocurrency rate or (y) a base rate. The applicable margin for borrowings under the ABL Facility range from 1.25% to 1.75% for eurocurrency borrowings and from 0.25% to 0.75% for base-rate borrowings, in each case, depending on average excess availability under the ABL Facility based on the most recently ended fiscal quarter.


(9)	Reflects the issuance by iHeart Operations of $60.0 million in aggregate liquidation preference of its Series A Perpetual Preferred Stock, par value $0.001 per share. On May 1, 2029, the shares of the Preferred Stock will be subject to mandatory redemption for $60.0 million in cash, plus any accrued and unpaid dividends, unless waived by the holders of the Preferred Stock.

(10) Reflects the reinstatement of deferred tax liabilities included within Liabilities subject to compromise of $596.9 million, offset by an adjustment to net deferred tax liabilities of $21.5 million. Upon emergence from the Chapter 11 Cases, iHeartMedia’s federal and state net operating loss carryforwards were reduced in accordance with Section 108 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), due to cancellation of debt income, which is excluded from U.S. federal taxable income. The estimated remaining deferred tax assets attributed to federal and state net operating loss carryforwards upon emergence totaled $114.9 million. The adjustments reflect a reduction in deferred tax assets for federal

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

and state net operating loss carryforwards as described above, a reduction in deferred tax liabilities attributed to long-term debt as a result of the restructuring of our indebtedness upon emergence and a reduction in valuation allowance.

(11) Reflects the reinstatement of Other long-term liabilities from Liabilities subject to compromise, offset by the reduction of liabilities for unrecognized tax benefits classified as Other long-term liabilities that were discharged and effectively settled upon emergence.



(In thousands)
Reinstatement of long-term asset retirement obligations	$	3,527
Reinstatement of non-qualified pension plan	10,991
Reduction of liabilities for unrecognized tax benefits	(79,042		)
Net impact to Other long-term liabilities	$	(64,524	)

(12) Pursuant to the terms of the Plan of Reorganization, as of the Effective Date, all Predecessor common stock and stock-based compensation awards were canceled without any distribution. As a result of the cancellation, the Company recognized $1.5 million in compensation expense related to the unrecognized portion of share-based compensation as of the Effective Date.

(13) Reflects the issuance of Successor Company equity, including the issuance of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and special warrants to purchase 81,453,648 shares of Class A common stock or Class B common stock in exchange for claims against or interests in iHeartMedia pursuant to the Plan of Reorganization.



(In thousands)
Equity issued to Class 9 Claimholders (prior equity holders)	$	27,701
Equity issued to creditors in settlement of Liabilities subject to compromise	2,742,471
Total equity issued at emergence	$	2,770,172

(14) The table reflects the cumulative impact of the reorganization adjustments discussed above:



(In thousands)
Gain on settlement of Liabilities subject to compromise	$	7,192,374
Payment of professional fees upon emergence	(11,509		)
Payment of success fees upon emergence	(86,065		)
Cancellation of unvested stock-based compensation awards	(1,530		)
Cancellation of Predecessor prepaid director and officer insurance policy	(2,331		)
Write-off of debt issuance and Mandatorily Redeemable Preferred Stock costs incurred at emergence	(8,726		)
Total Reorganization items, net	$	7,082,213

Income tax benefit	$	102,914
Cancellation of Predecessor Equity	2,074,190			(a)
Issuance of Successor Equity to prior equity holders	(27,701		)
Net Impact on Accumulated deficit	$	9,231,616

(a) This value is reflective of Predecessor common stock, Additional paid in capital and the recognition of $1.5 million in compensation expense related to the unrecognized portion of share-based compensation, less Treasury stock.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

C. Fresh Start Adjustments

We have applied fresh start accounting in accordance with ASC 852. Fresh start accounting requires the revaluation of our assets and liabilities to fair value, including both existing and new intangible assets, such as FCC licenses, developed technology, customer relationships and tradenames. Fresh start accounting also requires the elimination of all predecessor earnings or deficits in Accumulated deficit and Accumulated other comprehensive loss. These adjustments reflect the actual amounts recorded as of the Effective Date.


(1)	Reflects the fair value adjustment as of May 1, 2019 made to accounts receivable to reflect management's best estimate of the expected collectability of accounts receivable balances.

(2)

Reflects the fair value adjustment as of May 1, 2019 to eliminate certain prepaid expenses related to software implementation costs and other upfront payments. The Company historically incurred third-party implementation fees in connection with installing various cloud-based software products, and these amounts were recorded as prepaid expenses and recognized as a component of selling, general and administrative expense over the term of the various contracts. The Company determined that the remaining unamortized costs related to such implementation fees do not provide any rights that result in future economic benefits. In addition, the Company pays signing bonuses to certain of its on-air personalities, and these amounts were recorded as prepaid expenses and recognized as a component of Direct operating expenses over the terms of the various contracts. To the extent these contracts do not contain substantive claw-back provisions, these prepaid amounts do not provide any enforceable rights that result in future economic benefits. Accordingly, the balances related to these contracts as of May 1, 2019 were adjusted to zero.

(3) Reflects the fair value adjustment to eliminate receivables related to tenant allowances per certain lease agreements. These receivables were incorporated into the recalculated lease obligations per ASC 842.

(4)

Reflects the fair value adjustment to recognize the Company’s property, plant and equipment as of May 1, 2019 based on the fair values of such property, plant and equipment. Property was valued using a market approach comparing similar properties to recent market transactions. Equipment and towers were valued primarily using a replacement cost approach. Internally-developed and owned software technology assets were valued primarily using the Royalty Savings Method, similar to the approach used in valuing the Company’s tradenames and trademarks. Estimated royalty rates were determined for each of the software technology assets considering the relative contribution to the Company’s overall profitability as well as available public market information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the software technology assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. For certain of the software technology assets, the Company used the cost approach which utilized historical financial data regarding development costs and expected future profit associated with the assets. The adjustment to the Company’s property, plant and equipment consists of a $182.9 million increase in tangible property and equipment and a $151.0 million increase in software technology assets

(5) Historical goodwill and other intangible assets have been eliminated and the Company has recognized certain intangible assets at estimated current fair values as part of the application of fresh start accounting, with the most material intangible assets being the FCC licenses related to the Company’s 854 radio stations. The Company has also recorded customer-related and marketing-related intangible assets, including the iHeart tradename.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table sets forth estimated fair values of the components of these intangible assets and their estimated useful lives:



(In thousands)	Estimated Fair Value				Estimated Useful Life
FCC licenses	$	2,281,720		(a)	Indefinite
Customer / advertiser relationships	1,643,670			(b)	5 - 15 years
Talent contracts	373,000			(b)	2 - 10 years
Trademarks and tradenames	321,928			(b)	7 - 15 years
Other	6,808			(c)
Total intangible assets upon emergence	4,627,126
Elimination of historical acquired intangible assets	$	(2,431,142	)
Fresh start adjustment to acquired intangible assets	2,195,984

(a) FCC licenses. The fair value of the indefinite-lived FCC licenses was determined primarily using the direct valuation method of the Income Approach and, for smaller markets a combination of the Income approach and the Market Approach. The Company engaged a third-party valuation firm to assist it in the development of the assumptions and the Company’s determination of the fair value of its FCC licenses.

Under the direct valuation method, the fair value of the FCC licenses was calculated at the market level as prescribed by ASC 350. The application of the direct valuation method attempts to isolate the income that is properly attributable to the FCC licenses alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. Under the direct valuation method, it is assumed that rather than acquiring FCC licenses as part of a going concern business, the buyer hypothetically obtains FCC licenses and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in value that is directly attributable to the FCC licenses. In applying the direct valuation method to the Company’s FCC licenses, the licenses are grouped by type (e.g. FM licenses vs. AM licenses) and market size in order to ensure appropriate assumptions are used in valuing the various FCC licenses based on population and demographics that influence the level of revenues generated by each FCC license, using industry projections. The key assumptions used in applying the direct valuation method include market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate (“WACC”) and terminal values. The WACC was calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages based on a market participant capital structure.

For licenses valued using the Market Transaction Method, the Company used publicly available data, which included sales of comparable radio stations and FCC auction data involving radio broadcast licenses to estimate the fair value of FCC licenses. Similar to the application of the Income approach for the FCC licenses, the Company grouped licenses by type and market size for comparison to historical market transactions.

The historical book value of the FCC licenses as of May 1, 2019 was subtracted from the fair value of the FCC licenses to determine the adjustment to decrease the value of Indefinite-lived intangible assets-licenses by $44.9 million.

(b) Other intangible assets. Definite-lived intangible assets include customer/advertiser relationships, talent contracts for on-air personalities, trademarks and tradenames and other intangible assets. The Company engaged a third-party valuation firm to assist in developing the assumptions and determining the fair values of each of these assets.

For purposes of estimating the fair values of customer/advertiser relationships and talent contracts, the Company primarily utilized the Income Approach (specifically, the multi-period excess earnings method, or MPEEM) to

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

estimate fair value based on the present value of the incremental after-tax cash flows attributable only to the subject intangible assets after deducting contributory asset charges. The cash flows attributable to each grouping of customer/advertiser relationships were adjusted for the appropriate contributory asset charges (e.g., FCC licenses, working capital, tradenames, technology, workforce, etc.). The discount rate utilized to present-value the after-tax cash flows was selected based on consideration of the overall business risks and the risks associated with the specific assets being valued. Additionally, for certain advertiser relationships the Company used the Cost Approach using historical financial data regarding the sales, administrative and overhead expenses related to the Company’s selling efforts associated with revenue for both existing and new advertisers. The ratio of expenses for selling efforts to revenue was applied to total revenue from new customers to determine an estimated cost per revenue dollar of revenue generated by new customers. This ratio was applied to total revenue from existing customers to estimate the replacement cost of existing customer/advertiser relationships. The historical book value of customer/advertiser relationships as of May 1, 2019 was subtracted from the fair value of the customer/advertiser relationships determined as described above to determine the adjustment to increase the value of the customer/advertiser relationship intangible assets by $1,604.1 million.

For purposes of estimating the fair value of trademarks and tradenames, the Company primarily used the Royalty Savings Method, a variation of the Income approach. Estimated royalty rates were determined for each of the trademarks and tradenames considering the relative contribution to the Company’s overall profitability as well as available public information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the trademarks and tradenames to determine the amount of royalty payments saved as a result of owning these assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. The historical book values of talent contracts, trademarks and tradenames and other intangible assets as of May 1, 2019 were subtracted from the fair values determined as described above to determine the adjustments as follows:



(In millions)
Customer/advertiser relationships	$	1,604.1	increase in value
Talent contracts	361.6		increase in value
Trademarks and tradenames	274.4		increase in value
Other	0.8		increase in value
Total fair value adjustment	$	2,240.9	increase in value

(c) Included within other intangible assets are permanent easements, which have an indefinite useful life. All other intangible assets are amortized over the respective lives of the agreements, or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows.

The following table sets forth the adjustments to goodwill:



(In thousands)
Reorganization value	$	10,710,208
Less: Fair value of assets (excluding goodwill)	(7,386,843		)
Total goodwill upon emergence	3,323,365
Elimination of historical goodwill	(3,415,492		)
Fresh start adjustment to goodwill	$	(92,127	)

(6)

The operating lease obligation as of May 1, 2019 had been calculated using an incremental borrowing rate applicable to the Company while it was a debtor-in-possession before its emergence from bankruptcy. Upon application of fresh start accounting, the lease obligation was recalculated using the incremental borrowing rate applicable to the Company after emergence from bankruptcy and commensurate to its new capital structure. The incremental borrowing rate used decreased from 12.44% as

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

of March 31, 2019 to 6.54% as of May 1, 2019. As a result of this decrease, the Company's Operating lease liabilities and corresponding Operating lease right-of-use assets increased by $541.2 million to reflect the higher balances resulting from the application of a lower incremental borrowing rate. The Operating lease right-of-use-assets were further adjusted to reflect the resetting of the Company's straight-line lease calculation. In addition, the Company increased the Operating lease right-of-use assets to recognize $13.1 million related to the favorable lease contracts.

(7)

Reflects the fair value adjustment to adjust deferred revenue and other liabilities as of May 1, 2019 to its estimated fair value. The fair value of the deferred revenue was determined using the market approach and the cost approach. The market approach values deferred revenue based on the amount an acquirer would be required to pay a third party to assume the remaining performance obligations. The cost approach values deferred revenue utilizing estimated costs that will be incurred to fulfill the obligation plus a normal profit margin for the level of effort or assumption of risk by the acquirer. Additionally, a deferred gain was recorded at the time of the certain historical sale-leaseback transaction. During the implementation of ASC 842, the operating portion was written off as of January 1, 2019. The financing lease deferred gain remained. As part of fresh start accounting, this balance of $0.9 million was written off.

(8) Reflects the fair value adjustment to adjust Long-term debt as of May 1, 2019. This adjustment is to state the Company's finance leases and other pre-petition debt at estimated fair values.

(9) Reflects the fair value adjustment to adjust Accrued expenses as of May 1, 2019. This adjustment primarily relates to adjusting vacation accruals to estimated fair values.

(10) Reflects a net increase to deferred tax liabilities for fresh start adjustments attributed primarily to property, plant and equipment and intangible assets, the effects of which are partially offset by a decrease in the valuation allowance. The Company believes it is more likely than not that its deferred tax assets remaining after the Reorganization and emergence will be realized based on taxable income from reversing deferred tax liabilities primarily attributable to property, plant and equipment and intangible assets.

(11) Reflects the adjustment as of May 1, 2019 to state the noncontrolling interest balance at estimated fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(12) The table below reflects the cumulative impact of the fresh start adjustments as discussed above:



(In thousands)
Fresh start adjustment to Accounts receivable, net	$	(10,810	)
Fresh start adjustment to Other current assets	(1,668		)
Fresh start adjustment to Prepaid expenses	(24,642		)
Fresh start adjustment to Property, plant and equipment, net	333,991
Fresh start adjustment to Intangible assets	2,195,984
Fresh start adjustment to Goodwill	(92,127		)
Fresh start adjustment to Operating lease right-of-use assets	554,278
Fresh start adjustment to Other assets	(54,683		)
Fresh start adjustment to Accrued expenses	(2,328		)
Fresh start adjustment to Deferred revenue	(3,214		)
Fresh start adjustment to Debt	1,546
Fresh start adjustment to Operating lease obligations	(458,989		)
Fresh start adjustment to Other long-term liabilities	2,164
Fresh start adjustment to Noncontrolling interest	(8,558		)
Total Fresh Start Adjustments impacting Reorganization items, net	$	2,430,944
Reset of Accumulated other comprehensive income	(14,175		)
Income tax expense	(185,419		)
Net impact to Accumulated deficit	$	2,231,350

Reorganization Items, Net

The tables below present the Reorganization items incurred and cash paid for Reorganization items as a result of the Chapter 11 Cases during the periods presented:



(In thousands)	Successor Company		Predecessor Company
	Three Months Ended September 30,		Three Months Ended September 30,
	2019		2018
Professional fees and other bankruptcy related costs	—		(52,475		)
Reorganization items, net	$	—	$	(52,475	)

Cash payments for Reorganization items, net	$	5,219	$	46,338

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



(In thousands)	Successor Company		Predecessor Company
	Period from May 2, 2019 through September 30,		Period from January 1, 2019 through May 1,			Nine Months Ended September 30,
	2019		2019			2018
Write-off of deferred loans costs	$	—	$	—		$	(67,079	)
Write-off of original issue discount	—		—			(131,100		)
Debtor-in-possession refinancing costs	—		—			(10,546		)
Professional fees and other bankruptcy related costs	—		(157,487		)	(104,545		)
Net gain on settlement of Liabilities subject to compromise	—		7,192,374			—
Impact of fresh start adjustments	—		2,430,944			—
Other items, net	—		(4,005		)	—
Reorganization items, net	$	—	$	9,461,826		$	(313,270	)

Cash payments for Reorganization items, net	$	18,268	$	183,291		$	52,213

As of September 30, 2019, $0.5 million of Reorganization items, net were unpaid and accrued in Accounts payable and Accrued expenses in the accompanying Consolidated Balance Sheet. As of September 30, 2018, $56.2 million of professional fees were unpaid and accrued in Accounts payable and Accrued expenses in the accompanying Consolidated Balance Sheet. The Company incurred additional professional fees related to the bankruptcy, post-emergence, of $12.4 million and $21.5 million for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019, respectively, which are included within Other expenses, net in the Company's Consolidated Statements of Comprehensive Income (Loss).

NOTE 4 - DISCONTINUED OPERATIONS

Discontinued operations relate to our domestic and international outdoor advertising businesses and were previously reported as the Americas outdoor and International outdoor segments prior to the Separation. Assets, liabilities, revenue, expenses and cash flows for these businesses are separately reported as assets, liabilities, revenue, expenses and cash flows from discontinued operations in the Company's financial statements for all periods presented.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Financial Information for Discontinued Operations

Income Statement Information

The following shows the revenue, income (loss) from discontinued operations and gain on disposal of the Predecessor Company's discontinued operations for the periods presented:



(In thousands)	Predecessor Company
	Three Months Ended September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,
	2018			2019			2018
Revenue	$	663,739		$	804,566		$	1,974,117

Loss from discontinued operations before income taxes	$	(42,595	)	$	(133,475	)	$	(149,952	)
Income tax expense	(6,896		)	(6,933		)	(57,016		)
Loss from discontinued operations, net of taxes	$	(49,491	)	$	(140,408	)	$	(206,968	)

Gain on disposals before income taxes	$	—		$	1,825,531		$	—
Income tax expense	—			—			—
Gain on disposals, net of taxes	$	—		$	1,825,531		$	—

Income (loss) from discontinued operations, net of taxes	$	(49,491	)	$	1,685,123		$	(206,968	)

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Balance Sheet Information

The following table shows the classes of assets and liabilities classified as discontinued operations for the Predecessor Company as of December 31, 2018:



(In thousands)	Predecessor Company
	December 31, 2018
CURRENT ASSETS
Cash and cash equivalents	$	182,456
Accounts receivable, net of allowance of $24,224	706,309
Prepaid expenses	95,734
Other current assets	31,301
Current assets of discontinued operations	$	1,015,800

LONG-TERM ASSETS
Structures, net	$	1,053,016
Property, plant and equipment, net	235,922
Indefinite-lived intangibles - permits	971,163
Other intangibles, net	252,862
Goodwill	706,003
Other assets	132,504
Long-term assets of discontinued operations	$	3,351,470

CURRENT LIABILITIES
Accounts payable	$	113,714
Accrued expenses	528,482
Accrued interest	2,341
Deferred income	85,052
Current portion of long-term debt	227
Current liabilities of discontinued operations	$	729,816

LONG-TERM LIABILITIES
Long-term debt	$	5,277,108
Deferred income taxes	335,015
Other long-term liabilities	260,150
Long-term liabilities of discontinued operations	$	5,872,273

In connection with the Separation, the Company and its subsidiaries entered into the agreements described below.

Transition Services Agreement

On the Effective Date, the Company, iHM Management Services, iHeartCommunications and CCOH entered into a transition services agreement (the “Transition Services Agreement”), pursuant to which iHM Management Services has agreed to provide, or cause the Company, iHeartCommunications, iHeart Operations or any member of the iHeart Group to provide, CCOH with certain administrative and support services and other assistance which CCOH will utilize in the conduct of its business as such business was conducted prior to the Separation, for one year from the Effective Date (subject to certain rights of CCOH to extend up to one additional year, as described below). The transition services may include, among other things, (a) treasury, payroll and other financial related services, (b) certain executive officer services, (c) human resources and employee benefits, (d) legal and related services, (e) information systems, network and related services, (f) investment services and (g) procurement and sourcing support.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The charges for the transition services are generally consistent with the Corporate Services Agreement, dated as of November 10, 2005, by and between iHM Management Services and CCOH (the “Corporate Services Agreement”), which governed the provision of certain services by the iHeart Group to the Outdoor Group prior to the Separation. The allocation of cost is based on various measures depending on the service provided, which measures include relative revenue, employee headcount, number of users of a service or other factors. CCOH may request an extension of the term for all services or individual services for one-month periods for up to an additional 12 months, and the price for transition services provided during such extended term will be increased for any service other than those identified in the schedules to the Transition Services Agreement as an “IT Service” or any other service the use and enjoyment of which requires the use of another IT Service.

CCOH may terminate the Transition Services Agreement with respect to all or any individual service, in whole or in part, upon 30 days’ prior written notice, provided that any co-dependent services must be terminated concurrently.

New Tax Matters Agreement

On the Effective Date, the Company entered into a new tax matters agreement (the “New Tax Matters Agreement”) by and among the Company, iHeartCommunications, iHeart Operations, CCH, CCOH and CCOL, to allocate the responsibility of the Company and its subsidiaries, on the one hand, and the Outdoor Group, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation.

The New Tax Matters Agreement requires that the Company 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 (i) any taxes other than transfer taxes or indirect gains taxes imposed on the Company or any of its subsidiaries (other than CCOH and its subsidiaries) in connection with the Separation, (ii) any transfer taxes and indirect gains taxes arising in connection with the Separation, and (iii) fifty percent of the amount by which the amount of taxes (other than transfer taxes or indirect gains taxes) imposed on CCOH or any of its subsidiaries in connection with the Separation that are paid to the applicable taxing authority on or before the third anniversary of the separation of CCOH exceeds $5 million, provided that, the obligations of the Company and iHeartCommunications to indemnify CCOH and its subsidiaries with respect taxes (other than transfer taxes or indirect gains taxes) imposed on CCOH or any of its subsidiaries in connection with the Separation will not exceed $15 million. In addition, if the Company or its subsidiaries use certain tax attributes of CCOH and its subsidiaries (including net operating losses, foreign tax credits and other credits) and such use results in a decrease in the tax liability of the Company or its subsidiaries, then the Company is required to reimburse CCOH for the use of such attributes based on the amount of tax benefit realized. The New Tax Matters Agreement provides that any reduction of the tax attributes of CCOH and its subsidiaries as a result of cancellation of indebtedness income realized in connection with the Chapter 11 Cases is not treated as a use of such attributes (and therefore does not require the Company or iHeartCommunications to reimburse CCOH for such reduction).

The New Tax Matters Agreement also requires that (i) CCOH indemnify the Company for any income taxes paid by the Company on behalf of CCOH and its subsidiaries or, with respect to any income tax return for which CCOH or any of its subsidiaries joins with the Company or any of subsidiaries in filing a consolidated, combined or unitary return, the amount of taxes that would have been incurred by CCOH and its subsidiaries if they had filed a separate return, and (ii) except as described in the preceding paragraph, CCOH indemnify the Company and its subsidiaries, and their respective directors, officers and employees, and hold them harmless, on an after-tax basis, from and against any taxes other than transfer taxes or indirect gains taxes imposed on CCOH or any of its subsidiaries in connection with the Separation.

Any tax liability of CCH attributable to any taxable period ending on or before the date of the completion of the Separation, other than any such tax liability resulting from CCH’s being a successor of CCOH in connection with the merger of CCOH with and into CCOH or arising from the operation of the business of CCOH and its subsidiaries after the merger of CCOH with and into CCH, will not be treated as a liability of CCOH and its subsidiaries for purposes of the New Tax Matters Agreement.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 – REVENUE

Disaggregation of Revenue

The following table shows revenue streams for the Successor Company for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019:



Successor Company
(In thousands)	Audio		Audio and Media Services		Eliminations			Consolidated
Three Months Ended September 30, 2019
Revenue from contracts with customers:
Broadcast Radio⁽¹⁾	$	573,048	$	—	$	—		$	573,048
Digital⁽²⁾	96,656		—		—			96,656
Networks⁽³⁾	160,133		—		—			160,133
Sponsorship and Events⁽⁴⁾	55,541		—		—			55,541
Audio and Media Services⁽⁵⁾	—		59,873		(1,731		)	58,142
Other⁽⁶⁾	4,568		—		(168		)	4,400
Total	889,946		59,873		(1,899		)	947,920
Revenue from leases⁽⁷⁾	418		—		—			418
Revenue, total	$	890,364	$	59,873	$	(1,899	)	$	948,338

Period from May 2, 2019 through September 30, 2019
Revenue from contracts with customers:
Broadcast Radio⁽¹⁾	$	963,588	$	—	$	—		$	963,588
Digital⁽²⁾	160,894		—		—			160,894
Networks⁽³⁾	265,559		—		—			265,559
Sponsorship and Events⁽⁴⁾	87,331		—		—			87,331
Audio and Media Services⁽⁵⁾	—		100,410		(2,740		)	97,670
Other⁽⁶⁾	8,525		—		(280		)	8,245
Total	1,485,897		100,410		(3,020		)	1,583,287
Revenue from leases⁽⁷⁾	697		—		—			697
Revenue, total	$	1,486,594	$	100,410	$	(3,020	)	$	1,583,984


⁽¹⁾	Broadcast Radio revenue is generated through the sale of advertising time on the Company’s domestic radio stations.


⁽²⁾	Digital revenue is generated through the sale of streaming and display advertisements on digital platforms, subscriptions to iHeartRadio streaming services, podcasting and the dissemination of other digital content.


⁽³⁾	Networks revenue is generated through the sale of advertising on the Company’s Premiere and Total Traffic & Weather network programs and through the syndication of network programming to other media companies.


⁽⁴⁾	Sponsorship and events revenue is generated through local events and major nationally-recognized tent pole events and include sponsorship and other advertising revenue, ticket sales, and licensing, as well as endorsement and appearance fees generated by on-air talent.

⁽⁵⁾

Audio and media services revenue is generated by services provided to broadcast industry participants through the Company’s Katz 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 and webcast software and technology and services to radio stations, television music channels, cable companies, satellite music networks and Internet stations worldwide.


⁽⁶⁾	Other revenue represents fees earned for miscellaneous services, including on-site promotions, activations, and local marketing agreements.


⁽⁷⁾	Revenue from leases is primarily generated by the lease of towers to other media companies, which are all categorized as operating leases.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table shows revenue streams from continuing operations for the Predecessor Company. The presentation of amounts in the Predecessor periods has been revised to conform to the Successor period presentation.



Predecessor Company
(In thousands)	Audio⁽¹⁾		Audio and Media Services⁽¹⁾		Eliminations			Consolidated
Three Months Ended September 30, 2018
Revenue from contracts with customers:
Broadcast Radio	$	576,460	$	—	$	—		$	576,460
Digital	72,447		—		—			72,447
Networks	146,587		—		—			146,587
Sponsorship and Events	53,191		—		—			53,191
Audio and Media Services	—		69,823		(1,611		)	68,212
Other	2,957		—		—			2,957
Total	851,642		69,823		(1,611		)	919,854
Revenue from leases	638		—		—			638
Revenue, total	$	852,280	$	69,823	$	(1,611	)	$	920,492

Period from January 1, 2019 through May 1, 2019
Revenue from contracts with customers:
Broadcast Radio	$	657,864	$	—	$	—		$	657,864
Digital	102,789		—		—			102,789
Networks	189,088		—		—			189,088
Sponsorship and Events	50,330		—		—			50,330
Audio and Media Services	—		69,362		(2,325		)	67,037
Other	5,910		—		(243		)	5,667
Total	1,005,981		69,362		(2,568		)	1,072,775
Revenue from leases	696		—		—			696
Revenue, total	$	1,006,677	$	69,362	$	(2,568	)	$	1,073,471

Nine Months Ended September 30, 2018
Revenue from contracts with customers:
Broadcast Radio	$	1,635,571	$	—	$	—		$	1,635,571
Digital	200,388		—		—			200,388
Networks	425,619		—		—			425,619
Sponsorship and Events	132,339		—		—			132,339
Audio and Media Services	—		180,582		(4,884		)	175,698
Other	13,253		—		—			13,253
Total	2,407,170		180,582		(4,884		)	2,582,868
Revenue from leases	2,160		—		—			2,160
Revenue, total	$	2,409,330	$	180,582	$	(4,884	)	$	2,585,028


⁽¹⁾	Due to a re-evaluation of the Company’s internal segment reporting upon the effectiveness of the Plan of Reorganization, the Company’s RCS business is included in the Audio & Media Services results for all periods presented. See Note 1 for further information.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Trade and Barter

Trade and barter transactions represent the exchange of advertising spots for merchandise, services or other assets in the ordinary course of business. The transaction price for these contracts is measured at the estimated fair value of the non-cash consideration received unless this is not reasonably estimable, in which case the consideration is measured based on the standalone selling price of the advertising spots promised to the customer. Trade and barter revenues and expenses from continuing operations, which are included in consolidated revenue and selling, general and administrative expenses, respectively, were as follows:



	Successor Company		Predecessor Company
	Three Months Ended September 30,		Three Months Ended September 30,
(In thousands)	2019		2018
Trade and barter revenues	$	59,530	$	51,831
Trade and barter expenses	40,319		40,607



	Successor Company		Predecessor Company
	Period from May 2, 2019 through September 30,		Period from January 1, 2019 through May 1,		Nine Months Ended September 30,
(In thousands)	2019		2019		2018
Trade and barter revenues	$	89,229	$	65,934	$	141,769
Trade and barter expenses	68,342		58,330		136,827

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Deferred Revenue

The following tables show the Company’s deferred revenue balance from contracts with customers, excluding discontinued operations:



	Successor Company			Predecessor Company
	Three Months Ended September 30,			Three Months Ended September 30,
(In thousands)	2019			2018
Deferred revenue from contracts with customers:
Beginning balance⁽¹⁾	$	159,752		$	160,369
Revenue recognized, included in beginning balance	(74,875		)	(73,190		)
Additions, net of revenue recognized during period, and other	75,660			67,973
Ending balance	160,537			$	155,152



	Successor Company			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,
(In thousands)	2019			2019			2018
Deferred revenue from contracts with customers:
Beginning balance⁽¹⁾	$	151,773		$	148,720		$	155,228
Revenue recognized, included in beginning balance	(87,098		)	(76,473		)	(101,456		)
Additions, net of revenue recognized during period, and other	95,862			79,228			101,380
Ending balance	$	160,537		$	151,475		$	155,152

⁽¹⁾

Deferred revenue from contracts with customers, which excludes other sources of deferred revenue that are not related to contracts with customers, is included within deferred revenue and other long-term liabilities on the Consolidated Balance Sheets, depending upon when revenue is expected to be recognized. As described in Note 3, as part of the fresh start accounting adjustments on May 1, 2019, deferred revenue from contracts with customers was adjusted to its estimated fair value.

The Company’s contracts with customers generally have terms of one year or less; however, as of September 30, 2019, the Company expects to recognize $191.0 million of revenue in future periods for remaining performance obligations from current contracts with customers that have an original expected duration greater than one year, with substantially all of this amount to be recognized over the next five years. Commissions related to the Company’s media representation business have been excluded from this amount as they are contingent upon future sales.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Revenue from Leases

As of September 30, 2019, the future lease payments to be received by the Successor Company are as follows:



(In thousands)
2019	$	381
2020	1,317
2021	1,139
2022	833
2023	776
Thereafter	10,693
Total	$	15,139

NOTE 6 – LEASES

The Company enters into operating lease contracts for land, buildings, structures and other equipment. Arrangements are evaluated at inception to determine whether such arrangements contain a lease. Operating leases primarily include land and building lease contracts and leases of radio towers. Arrangements to lease building space consist primarily of the rental of office space, but may also include leases of other equipment, including automobiles and copiers. Operating leases are reflected on the Company's balance sheet within Operating lease right-of-use assets and the related short-term and long-term liabilities are included within Current and Noncurrent operating lease liabilities, respectively.

The Company's finance leases are included within Property, plant and equipment with the related liabilities included within Long-term debt or within Liabilities subject to compromise.

ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term.

Certain of the Company's operating lease agreements include rental payments that are adjusted periodically for inflationary changes. Payments due to changes in inflationary adjustments are included within variable rent expense, which is accounted for separately from periodic straight-line lease expense. Amounts related to insurance and property taxes in lease arrangements when billed on a pass-through basis are allocated to the lease and non-lease components of the lease based on their relative standalone selling prices.

Certain of the Company's leases provide options to extend the terms of the agreements. Generally, renewal periods are excluded from minimum lease payments when calculating the lease liabilities as, for most leases, the Company does not consider exercise of such options to be reasonably certain. As a result, unless a renewal option is considered reasonably assured, the optional terms and related payments are not included within the lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The implicit rate within the Company's lease agreements is generally not determinable. As such, the Company uses the incremental borrowing rate ("IBR") to determine the present value of lease payments at the commencement of the lease. The IBR, as defined in ASC 842, is "the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment." In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh start accounting to its Consolidated Financial Statements on the Effective Date. As a result, the Company adjusted the IBR used to value the Company's ROU assets and operating lease liabilities at the Effective Date (see Note 3, Fresh Start Accounting). In addition, upon adoption of ASC 852 in the first quarter of 2019, the Company did not elect the practical expedient to combine non-lease components with the associated lease components. Upon application of fresh start accounting on the Effective Date, the Company elected to use the practical expedient to not separate non-lease components from the associated lease component for all classes of the Company's assets.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables provide the components of lease expense included within the Consolidated Statement of Comprehensive Income (Loss) for the three months ended September 30, 2019 (Successor), the period from May 2, 2019 through September 30, 2019 (Successor) and the period from January 1, 2019 through May 1, 2019 (Predecessor):



	Successor Company
	Three Months Ended September 30,
(In thousands)	2019
Operating lease expense	$	37,742
Variable lease expense	$	7,197



	Successor Company		Predecessor Company
	Period from May 2, 2019 through September 30,		Period from January 1, 2019 through May 1,
(In thousands)	2019		2019
Operating lease expense	$	63,181	$	44,667
Variable lease expense	$	10,644	$	476

The following table provides the weighted average remaining lease term and the weighted average discount rate for the Company's leases as of September 30, 2019 (Successor):



	September 30, 2019
Operating lease weighted average remaining lease term (in years)	13.9
Operating lease weighted average discount rate	6.54	%

As of September 30, 2019 (Successor), the Company’s future maturities of operating lease liabilities were as follows:



(In thousands)
2019	$	26,765
2020	137,993
2021	127,849
2022	120,856
2023	107,593
Thereafter	849,530
Total lease payments	$	1,370,586
Less: Effect of discounting	498,550
Total operating lease liability	$	872,036

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table provides supplemental cash flow information related to leases for the period from May 2, 2019 through September 30, 2019 (Successor) and the period from January 1, 2019 through May 1, 2019 (Predecessor):



	Successor Company		Predecessor Company
	Period from May 2, 2019 through September 30,		Period from January 1, 2019 through May 1
(In thousands)	2019		2019
Cash paid for amounts included in measurement of operating lease liabilities	$	57,102	$	44,888
Lease liabilities arising from obtaining right-of-use assets⁽¹⁾	$	13,339	$	913,598

⁽¹⁾Lease liabilities from obtaining right-of-use assets include transition liabilities upon adoption of ASC 842, as well as new leases entered into during the period from May 2, 2019 through September 30, 2019 (Successor) and the period from January 1, 2019 through May 1, 2019 (Predecessor). Upon adoption of fresh start accounting upon emergence from the Chapter 11 Cases, the Company increased its operating lease obligation by $459.0 million to reflect its operating lease obligation as estimated fair value (see Note 3, Fresh Start Accounting).

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets as of September 30, 2019 (Successor) and December 31, 2018 (Predecessor), respectively:



(In thousands)	Successor Company		Predecessor Company
	September 30, 2019		December 31, 2018
Land, buildings and improvements	$	379,204	$	427,501
Towers, transmitters and studio equipment	154,426		365,991
Furniture and other equipment	309,201		591,601
Construction in progress	36,243		43,809
	879,074		1,428,902
Less: accumulated depreciation	45,061		926,700
Property, plant and equipment, net	$	834,013	$	502,202

In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh start accounting to its Consolidated Financial Statements on the Effective Date. As a result, the Company adjusted Property, plant and equipment to their respective fair values at the Effective Date (see Note 3, Fresh Start Accounting).

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of FCC broadcast licenses in its Audio segment. In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh start accounting to its Consolidated Financial Statements on the Effective Date. As a result, the Company adjusted its FCC licenses to their respective estimated fair values as of the Effective Date of $2,281.7 million (see Note 3, Fresh Start Accounting).

Annual Impairment Test on Indefinite-lived Intangible Assets

The Company performs its annual impairment test on indefinite-lived intangible assets as of July 1 of each year. The Company also tests indefinite-lived intangible assets at interim dates if events or changes in circumstances indicate that indefinite-lived intangible assets might be impaired.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Generally, the annual impairment test includes a full quantitative assessment, which involves the preparation of a fair value estimate for each of the Company's reporting units based on the most recent projected financial results, market and industry factors, including comparison to peer companies and the application of the Company's current estimated WACC. However, in connection with emergence from bankruptcy, the Company qualified for and adopted fresh start accounting on the Effective Date. As of May 1, 2019, the Company allocated its estimated enterprise fair value to its individual assets and liabilities based on their estimated fair values in conformity with ASC 805, "Business Combinations." As a result of the recent fair value exercise applied in connection with fresh start accounting, the Company opted to use a qualitative assessment for its annual indefinite-lived intangible asset impairment test as of July 1, 2019 in lieu of performing the full quantitative assessment, as permitted by ASC 350, "Intangibles - Goodwill and Other".

The qualitative impairment assessment performed for indefinite-lived intangible assets considered the general macroeconomic environment, industry and market specific conditions, financial performance, including changes in costs and actual versus forecasted results, as well other issues or events specific to the Audio segment.

Based on this assessment and the totality of facts and circumstances, including the business environment in the third quarter of 2019, the Company determined that it was not more likely than not that the fair value of the Company and its reporting units is less than their respective carrying amounts. As such, the Company concluded no indefinite-lived intangible asset impairment was required for the three months ended September 30, 2019. During the period from January 1, 2019 through May 1, 2019, the Predecessor Company recognized non-cash impairment charges of $91.4 million in relation to indefinite-lived FCC licenses as a result of an increase in the WACC used in performing the annual impairment test. The Predecessor Company recognized impairment charges related to its indefinite-lived intangible assets within several iHM radio markets of $33.2 million during the three and nine months ended September 30, 2018.

Other Intangible Assets

Other intangible assets include definite-lived intangible assets and permanent easements. The Company’s definite-lived intangible assets primarily include customer and advertiser relationships, talent and representation contracts, trademarks and tradenames and other contractual rights, all of which are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at amortized cost. In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh start accounting to its Consolidated Financial Statements on the Effective Date. As a result, the Company adjusted Other intangible assets to their respective fair values at the Effective Date (see Note 3, Fresh Start Accounting).

The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of September 30, 2019 (Successor) and December 31, 2018 (Predecessor), respectively:



(In thousands)	Successor Company					Predecessor Company
	September 30, 2019					December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer / advertiser relationships	1,649,770		(74,420		)	1,326,636		(1,278,885		)
Talent and other contracts	375,399		(21,087		)	164,933		(148,578		)
Trademarks and tradenames	321,977		(13,538		)	—		—
Other	762		(440		)	376,978		(240,662		)
Total	$	2,347,908	$	(109,485	)	$	1,868,547	$	(1,668,125	)

Total amortization expense related to definite-lived intangible assets for the Successor Company for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019 was $67.0 million and $109.5 million, respectively. Total amortization expense related to definite-lived intangible assets for the Predecessor Company for the three months ended September 30, 2018, the period from January 1, 2019 through May 1, 2019 and the nine months ended September 30, 2018 was $19.2 million, $12.7 million and $101.1 million, respectively.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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



(In thousands)
2020	$	263,125
2021	262,727
2022	257,502
2023	246,927
2024	246,237

Goodwill

Annual Impairment Test to Goodwill

The Company performs its annual impairment test on goodwill as of July 1 of each year. The Company also tests goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired.

Generally, the Company's annual impairment test includes a full quantitative assessment, which involves the preparation of a fair value estimate for each reporting unit based on the most recent projected financial results, market and industry factors, including comparison to peer companies and the application of the Company's current estimated WACC. However, in connection with emergence from bankruptcy, the Company qualified for and adopted fresh start accounting on the Effective Date. As of May 1, 2019, the Company allocated its estimated enterprise fair value to its individual assets and liabilities based on their estimated fair values in conformity with ASC 805, "Business Combinations."

Upon application of fresh start accounting in accordance with ASC 852 in connection with the emergence from bankruptcy, the Company recorded goodwill of $3.3 billion, which represented the excess of Reorganization Value over the estimated fair value of the Company's assets and liabilities. Goodwill was further allocated to reporting units based on the relative fair values of the Company's reporting units as of May 1, 2019.

As a result of the recent fair value exercise applied in connection with fresh start accounting, the Company opted to use a qualitative assessment for its annual goodwill impairment test as of July 1, 2019 in lieu of performing the full quantitative assessment, as permitted by ASC 350, "Intangibles - Goodwill and Other".

As of July 1, 2019, the qualitative impairment assessment performed for goodwill considered the general macroeconomic environment, industry and market specific conditions for each reporting unit, financial performance, including changes in costs and actual versus forecasted results, as well other issues or events specific to each reporting unit. In addition, the Company evaluated the impact of changes in the Company's stock price and the trading values of its publicly-traded debt from May 1, 2019 to July 1, 2019 to determine whether or not any changes would indicate a potential impairment of goodwill allocated to its reporting units.

Based on this assessment and the totality of facts and circumstances, including the business environment in the third quarter of 2019, the Company determined that it was not more likely than not that the fair value of the Company and its reporting units is less than their respective carrying amounts. As such, the Company concluded no goodwill impairment was required during the three months ended September 30, 2019 (Successor), the three months ended September 30, 2018 (Predecessor), the period from May 2, 2019 through September 30, 2019 (Successor), the period from January 1, 2019 through May 1, 2019 (Predecessor), and the nine months ended September 30, 2018 (Predecessor).

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the changes in the carrying amount of goodwill:



(In thousands)	Audio			Audio & Media Services			Consolidated
Balance as of December 31, 2017 (Predecessor)	$	3,255,208		$	81,831		$	3,337,039
Acquisitions	77,320			—			77,320
Dispositions	(1,606		)	—			(1,606		)
Balance as of December 31, 2018 (Predecessor)	$	3,330,922		$	81,831		$	3,412,753
Acquisitions	—			2,767			2,767
Foreign currency	—			(28		)	(28		)
Balance as of May 1, 2019 (Predecessor)	$	3,330,922		$	84,570		$	3,415,492
Impact of fresh start accounting	(111,712		)	19,585			(92,127		)


Balance as of May 2, 2019 (Successor)	$	3,219,210		$	104,155		$	3,323,365
Acquisitions	4,637			—			4,637
Dispositions	(9,466		)	—			(9,466		)
Foreign currency	—			(77		)	(77		)
Other	7,087			—			7,087
Balance as of September 30, 2019 (Successor)	$	3,221,468		$	104,078		$	3,325,546

NOTE 8 – LONG-TERM DEBT

Long-term debt outstanding as of September 30, 2019 (Successor) and December 31, 2018 (Predecessor) consisted of the following:



(In thousands)	Successor Company			Predecessor Company
	September 30, 2019			December 31, 2018
Term Loan Facility due 2026⁽¹⁾	$	2,757,397		$	—
Debtors-in-Possession Facility⁽²⁾	—			—
Asset-based Revolving Credit Facility due 2023⁽²⁾	—			—
6.375% Senior Secured Notes due 2026	800,000			—
5.25% Senior Secured Notes due 2027⁽¹⁾	750,000			—
Other secured subsidiary debt⁽³⁾	4,373			—
Total consolidated secured debt	4,311,770			—

8.375% Senior Unsecured Notes due 2027	1,450,000			—
Other unsecured subsidiary debt	58,556			46,105
Long-term debt fees	(11,316		)	—
Long-term debt, net subject to compromise⁽⁴⁾	—			15,149,477
Total debt, prior to reclassification to Liabilities subject to compromise	5,809,010			15,195,582
Less: Current portion	53,705			46,105
Less: Amounts reclassified to Liabilities subject to compromise	—			15,149,477
Total long-term debt	$	5,755,305		$	—

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(1)	On August 7, 2019, iHeartCommunications issued $750.0 million of 5.25% Senior Secured Notes due 2027 (the “5.25% Senior Secured Notes”), the proceeds of which were used, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility, plus $0.8 million of accrued and unpaid interest to, but not including, the date of prepayment.

(2)

The Debtors-in-Possession Facility (the "DIP Facility"), which terminated with the emergence from the Chapter 11 Cases, provided for borrowings of up to $450.0 million. On the Effective Date, the DIP Facility was repaid and canceled and the Successor Company entered into the ABL Facility. As of September 30, 2019, the Successor Company had a facility size of $450.0 million under iHeartCommunications' ABL Facility, had no outstanding borrowings and had $49.2 million of outstanding letters of credit, resulting in $400.8 million of excess availability.


(3)	Other secured subsidiary debt consists of finance lease obligations maturing at various dates from 2019 through 2045.

(4)

In connection with the Company's Chapter 11 Cases, the $6,300.0 million outstanding under the Senior Secured Credit Facilities, the $1,999.8 million outstanding under the 9.0% Priority Guarantee Notes due 2019, the $1,750.0 million outstanding under the 9.0% Priority Guarantee Notes due 2021, the $870.5 million of 11.25% Priority Guarantee Notes due 2021, the $1,000.0 million outstanding under the 9.0% Priority Guarantee Notes due 2022, the $950.0 million outstanding under the 10.625% Priority Guarantee Notes due 2023, $6.0 million outstanding Other Secured Subsidiary debt, the $1,781.6 million outstanding under the 14.0% Senior Notes due 2021, the $475.0 million outstanding under the Legacy Notes and $10.8 million outstanding Other Subsidiary Debt were reclassified to Liabilities subject to compromise in the Company's Consolidated Balance Sheet as of the Petition Date. As of the Petition Date, the Company ceased making principal and interest payments, and ceased accruing interest expense in relation to long-term debt reclassified as Liabilities subject to compromise during the Predecessor period.

The Company’s weighted average interest rate was 6.7% and 9.9% as of September 30, 2019 (Successor) and December 31, 2018 (Predecessor), respectively. The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $6.0 billion and $8.7 billion as of September 30, 2019 (Successor) and December 31, 2018 (Predecessor), respectively. Under the fair value hierarchy established by ASC 820-10-35, the market value of the Successor Company’s debt is classified as either Level 1 or Level 2.

Asset-based Revolving Credit Facility due 2023

On the Effective Date, iHeartCommunications, as borrower, entered into a Credit Agreement (the “ABL Credit Agreement”) with iHeartMedia Capital I, LLC, the direct parent of iHeartCommunications (“Capital I”), as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, Citibank, N.A., as administrative and collateral agent, and the lenders party thereto from time to time, governing the ABL Facility. The ABL Facility includes a letter of credit sub-facility and a swingline loan sub-facility.

Size and Availability

The ABL Facility provides for a senior secured asset-based revolving credit facility in the aggregate principal amount of up to $450.0 million, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (A) the borrowing base, which equals the sum of (i) 90.0% of the eligible accounts receivable of iHeartCommunications and the subsidiary guarantors and (ii) 100% of qualified cash, each subject to customary reserves and eligibility criteria, and (B) the aggregate revolving credit commitments. Subject to certain conditions, iHeartCommunications may at any time request one or more increases in the amount of revolving credit commitments, in an amount up to the sum of (x) $150.0 million and (y) the amount by which the borrowing base exceeds the aggregate revolving credit commitments.

Interest Rate and Fees

Borrowings under the ABL Facility bear interest at a rate per annum equal to the applicable margin plus, at iHeartCommunications’ option, either (1) a eurocurrency rate or (2) a base rate. The applicable margin for borrowings under the ABL Facility range from 1.25% to 1.75% for eurocurrency borrowings and from 0.25% to 0.75% for base-rate borrowings, in each case, depending on average excess availability under the ABL Facility based on the most recently ended fiscal quarter.

In addition to paying interest on outstanding principal under the ABL Facility, iHeartCommunications is required to pay a commitment fee to the lenders under the ABL Facility in respect of the unutilized commitments thereunder. The commitment fee rate ranges from 0.25% to 0.375% per annum dependent upon average unused commitments during the prior quarter. iHeartCommunications may also pay customary letter of credit fees.

Maturity

Borrowings under the ABL Facility will mature, and lending commitments thereunder will terminate on June 14, 2023.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Prepayments

If at any time, the sum of the outstanding amounts under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitments under the facility (such lesser amount, the “line cap”), iHeartCommunications is required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess. iHeartCommunications may voluntarily repay outstanding loans under the ABL Facility at any time without premium or penalty, other than customary “breakage” costs with respect to eurocurrency rate loans. Any voluntary prepayments made by iHeartCommunications will not reduce iHeartCommunications’ commitments under the ABL Facility.

Guarantees and Security

The ABL Facility is guaranteed by, subject to certain exceptions, the guarantors of iHeartCommunications’ Term Loan Facility. All obligations under the ABL Facility, and the guarantees of those obligations, are secured by a perfected security interest in the accounts receivable and related assets of iHeartCommunications’ and the guarantors’ accounts receivable, qualified cash and related assets and proceeds thereof that is senior to the security interest of iHeartCommunications’ Term Loan Facility in such accounts receivable, qualified cash and related assets and proceeds thereof, subject to permitted liens and certain exceptions.

Certain Covenants and Events of Default

If borrowing availability is less than the greater of (a) $40.0 million and (b) 10% of the aggregate commitments under the ABL Facility, in each case, for two consecutive business days (a “Trigger Event”), iHeartCommunications will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00, and must continue to comply with this minimum fixed charge coverage ratio for fiscal quarters ending after the occurrence of the Trigger Event until borrowing availability exceeds the greater of (x) $40.0 million and (y) 10% of the aggregate commitments under the ABL Facility, in each case, for 20 consecutive calendar days, at which time the Trigger Event shall no longer be deemed to be occurring.

Term Loan Facility due 2026

On the Effective Date, iHeartCommunications, as borrower, entered into a Credit Agreement (the “Term Loan Credit Agreement”) with Capital I, as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, and Citibank N.A., as administrative and collateral agent, governing the Term Loan Facility. On the Effective Date, iHeartCommunications issued an aggregate of approximately $3.5 billion principal amount of senior secured term loans under the Term Loan Facility to certain Claimholders pursuant to the Plan of Reorganization. As described below, on August 7, 2019, the proceeds from the issuance of $750.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 were used, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility due 2026. The Term Loan Facility matures on May 1, 2026.

Interest Rate and Fees

Term loans under the Term Loan Facility bear interest at a rate per annum equal to the applicable margin plus, at iHeartCommunications’ option, either (1) a base rate or (2) a eurocurrency rate. The applicable margin for such term loans is 3.00% with respect to base rate loans and 4.00% with respect to eurocurrency rate loans.

Collateral and Guarantees

The Term Loan Facility is guaranteed by Capital I and each of iHeartCommunications’ existing and future material wholly-owned restricted subsidiaries, subject to certain exceptions. All obligations under the Term Loan Facility, and the guarantees of those obligations, are secured, subject to permitted liens and other exceptions, by a first priority lien in substantially all of the assets of iHeartCommunications and all of the guarantors’ assets, including a lien on the capital stock of iHeartCommunications and certain of its subsidiaries owned by a guarantor, other than the accounts receivable and related assets of iHeartCommunications and all of the subsidiary guarantors, and by a second priority lien on accounts receivable and related assets securing iHeartCommunications’ ABL Facility.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Prepayments

iHeartCommunications is required to prepay outstanding term loans under the Term Loan Facility, subject to certain exceptions, with:


•	50% (which percentage may be reduced to 25% and to 0% based upon iHeartCommunications’ first lien leverage ratio) of iHeartCommunications’ annual excess cash flow, subject to customary credits, reductions and exclusions;


•	100% (which percentage may be reduced to 50% and 0% based upon iHeartCommunications’ first lien leverage ratio) of the net cash proceeds of sales or other dispositions of the assets of iHeartCommunications or its wholly owned restricted subsidiaries, subject to reinvestment rights and certain other exceptions; and


•	100% of the net cash proceeds of any incurrence of debt, other than debt permitted under the Term Loan Facility.

iHeartCommunications may voluntarily repay outstanding loans under the Term Loan Facility at any time, without prepayment premium or penalty, except in connection with a repricing event within nine months of the Effective Date and subject to customary “breakage” costs with respect to eurocurrency loans.

Certain Covenants and Events of Default

The Term Loan Facility does not include any financial covenants. However, the Term Loan Facility includes negative covenants that, subject to significant exceptions, limit Capital I’s ability and the ability of its restricted subsidiaries (including iHeartCommunications) to, among other things:

• incur additional indebtedness;

• create liens on assets;

• engage in mergers, consolidations, liquidations and dissolutions;

• sell assets;

• pay dividends and distributions or repurchase Capital I’s capital stock;

• make investments, loans, or advances;

• prepay certain junior indebtedness;

• engage in certain transactions with affiliates;

• amend material agreements governing certain junior indebtedness; and

• change lines of business.

The Term Loan Facility includes certain customary representations and warranties, affirmative covenants and events of default, including but not limited to, payment defaults, breach of representations and warranties, covenant defaults, cross defaults to certain indebtedness, certain bankruptcy-related events, certain events under ERISA, material judgments and a change of control. If an event of default occurs, the lenders under the Term Loan Facility are entitled to take various actions, including the acceleration of all amounts due under the Term Loan Facility and all actions permitted to be taken under the loan documents relating thereto or applicable law.

6.375% Senior Secured Notes due 2026

On the Effective Date, iHeartCommunications entered into an indenture (the “Senior Secured Notes Indenture”) with Capital I, as guarantor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee and collateral agent, governing the $800.0 million aggregate principal amount of 6.375% Senior Secured Notes due 2026 that were issued to certain Claimholders pursuant to the Plan of Reorganization. The 6.375% Senior Secured Notes mature on May 1, 2026 and bear interest at a rate of 6.375% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2020.

The 6.375% Senior Secured Notes are guaranteed on a senior secured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility or other credit facilities or capital markets debt securities. The 6.375% Senior Secured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

guarantors’ existing and future indebtedness that is not expressly subordinated to the 6.375% Senior Secured Notes (including the Senior Unsecured Notes), effectively equal with iHeartCommunications’ and the guarantors’ existing and future indebtedness secured by a first priority lien on the collateral securing the 6.375% Senior Secured Notes, effectively subordinated in right of payment to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured by assets that are not part of the collateral securing the 6.375% Senior Secured Notes, to the extent of the value of such assets, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the 6.375% Senior Secured Notes.

The 6.375% Senior Secured Notes and the related guarantees are secured, subject to permitted liens and certain other exceptions, by a first priority lien on the capital stock of iHeartCommunications and substantially all of the assets of iHeartCommunications and the guarantors, other than accounts receivable and related assets, and by a second priority lien on accounts receivable and related assets securing the ABL Facility.

iHeartCommunications may redeem the 6.375% Senior Secured Notes at its option, in whole or in part, at any time prior to May 1, 2022, at a price equal to 100% of the principal amount of the 6.375% Senior Secured Notes being redeemed, plus an applicable premium and plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the 6.375% Senior Secured Notes at its option, in whole or in part, on or after May 1, 2022, at the redemption prices set forth in the 6.375% Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time prior to May 1, 2022, iHeartCommunications may redeem at its option, up to 40% of the aggregate principal amount of the 6.375% Senior Secured Notes at a redemption price equal to 106.375% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the proceeds of one or more equity offerings.

The 6.375% Senior Secured Notes Indenture contains covenants that limit the ability of Capital I and its restricted subsidiaries, including iHeartCommunications, to, among other things:


•	incur or guarantee additional debt or issue certain preferred stock;


•	create liens on certain assets;


•	redeem, purchase or retire subordinated debt;


•	make certain investments;


•	create restrictions on the payment of dividends or other amounts from iHeartCommunications’ restricted subsidiaries;


•	enter into certain transactions with affiliates;


•	merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of iHeartCommunications’ assets;


•	sell certain assets, including capital stock of iHeartCommunications’ subsidiaries;


•	designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and


•	pay dividends, redeem or repurchase capital stock or make other restricted payments.

5.25% Senior Secured Notes due 2027

On August 7, 2019, iHeartCommunications entered into an indenture (the “New Senior Secured Notes Indenture”) with Capital I, as guarantor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee and collateral agent, governing the $750.0 million aggregate principal amount of 5.25% Senior Secured Notes due 2027 that were issued in a private placement to qualified institutional buyers under Rule 144A under the Securities Act, and to persons outside the United States pursuant to Regulation S under the Securities Act. The 5.25% Senior Secured Notes mature on August 15, 2027 and bear interest at a rate of 5.25% per annum. Interest is payable semi-annually on February 15 and August 15 of each year, beginning on February 15, 2020.

The 5.25% Senior Secured Notes are guaranteed on a senior secured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility. The 5.25% Senior Secured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the 5.25% Senior Secured Notes (including the Term Loan Facility, the 6.375% Senior Secured Notes and the Senior Unsecured Notes), effectively equal with iHeartCommunications’ and the guarantors’ existing and future indebtedness secured by a first priority lien on the collateral securing the 5.25% Senior Secured Notes, effectively subordinated to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured by assets that are not part of the collateral securing the 5.25% Senior Secured Notes, to the extent of the value of such collateral, and structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the 5.25% Senior Secured Notes.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The 5.25% Senior Secured Notes and the related guarantees are secured, subject to permitted liens and certain other exceptions, by a first priority lien on the capital stock of iHeartCommunications and substantially all of the assets of iHeartCommunications and the guarantors, other than accounts receivable and related assets, and by a second priority lien on accounts receivable and related assets securing the ABL Facility.

iHeartCommunications may redeem the 5.25% Senior Secured Notes at its option, in whole or part, at any time prior to August 15, 2022, at a price equal to 100% of the principal amount of the 5.25% Senior Secured Notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the 5.25% Senior Secured Notes, in whole or in part, on or after August 15, 2022, at the redemption prices set forth in the 5.25% Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time on or before August 15, 2022, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the 5.25% Senior Secured Notes at a redemption price equal to 105.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.

The 5.25% Senior Secured Notes Indenture contains covenants that limit the ability of iHeartCommunications and its restricted subsidiaries, to, among other things:


•	incur or guarantee additional debt or issue certain preferred stock;


•	create liens on certain assets;


•	redeem, purchase or retire subordinated debt;


•	make certain investments;


•	create restrictions on the payment of dividends or other amounts from iHeartCommunications’ restricted subsidiaries;


•	enter into certain transactions with affiliates;


•	merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of iHeartCommunications’ assets;


•	sell certain assets, including capital stock of iHeartCommunications’ subsidiaries;


•	designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and


•	pay dividends, redeem or repurchase capital stock or make other restricted payments.

8.375% Senior Unsecured Notes due 2027

On the Effective Date, iHeartCommunications entered into an indenture (the “Senior Unsecured Notes Indenture”) with Capital I, as guarantor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee, governing the $1,450.0 million aggregate principal amount of 8.375% Senior Notes due 2027 that were issued to certain Claimholders pursuant to the Plan of Reorganization. The Senior Unsecured Notes mature on May 1, 2027 and bear interest at a rate of 8.375% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2019.

The Senior Unsecured Notes are guaranteed on a senior unsecured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility or other credit facilities or capital markets debt securities. The Senior Unsecured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the Senior Unsecured Notes, effectively subordinated in right of payment to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured (including the 6.375% Senior Secured Notes, the 5.25% Senior Secured Notes and borrowings under the ABL Facility and the Term Loan Facility), to the extent of the value of the collateral securing such indebtedness, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the Senior Unsecured Notes.

iHeartCommunications may redeem the Senior Unsecured Notes at its option, in whole or in part, at any time prior to May 1, 2022, at a price equal to 100% of the principal amount of the Senior Unsecured Notes being redeemed, plus an applicable premium and plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the Senior Unsecured Notes at its option, in whole or in part, on or after May 1, 2022, at the redemption prices set forth in the Senior Unsecured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time prior to May 1, 2022, iHeartCommunications redeem at its option, up to 40% of the aggregate principal amount of the Senior Unsecured Notes at a redemption price equal to 108.375% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the proceeds of one or more equity offerings.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Senior Unsecured Notes Indenture contains covenants that limit the ability of Capital I and its restricted subsidiaries, including iHeartCommunications, to, among other things:


•	incur or guarantee additional debt or issue certain preferred stock;


•	create liens on certain assets;


•	redeem, purchase or retire subordinated debt;


•	make certain investments;


•	create restrictions on the payment of dividends or other amounts from iHeartCommunications’ restricted subsidiaries;


•	enter into certain transactions with affiliates;


•	merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of iHeartCommunications’ assets;


•	sell certain assets, including capital stock of iHeartCommunications’ subsidiaries;


•	designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and


•	pay dividends, redeem or repurchase capital stock or make other restricted payments.

Mandatorily Redeemable Preferred Stock

On the Effective Date, in accordance with the Plan of Reorganization, iHeart Operations issued 60,000 shares of its Series A Perpetual Preferred Stock, par value $0.001 per share (the "iHeart Operations Preferred Stock"), having an aggregate initial liquidation preference of $60.0 million for a cash purchase price of $60.0 million. The iHeart Operations Preferred Stock was purchased by a third party investor. As of September 30, 2019, the liquidation preference of the iHeart Operations Preferred Stock was $60.0 million. As further described below, the iHeart Operations Preferred Stock is mandatorily redeemable for cash at a date certain and therefore is classified as a liability in the Company's balance sheet.

There are no sinking fund provisions applicable to the iHeart Operations Preferred Stock. Shares of the iHeart Operations Preferred Stock, upon issuance, were fully paid and non-assessable. The shares of the iHeart Operations Preferred Stock are not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of iHeart Operations. The holders of shares of the iHeart Operations Preferred Stock have no pre-emptive rights with respect to any shares of our capital stock or any of iHeart Operations’ other securities convertible into or carrying rights or options to purchase any such capital stock.

Holders of the iHeart Operations Preferred Stock are entitled to receive, as declared by the board of directors of iHeart Operations, in respect of each share, cumulative dividends accruing daily and payable quarterly at a per annum rate equal to the sum of (1) the greater of (a) LIBOR and (b) two percent, plus (2) the applicable margin, which is calculated as a function of iHeartMedia’s consolidated total leverage ratio. Dividends are payable on the liquidation preference. Unless all accrued and unpaid dividends on the iHeart Operations Preferred Stock are paid in full, no dividends or distributions may be paid on any equity interests of iHeartMedia or its subsidiaries other than iHeart Operations, and no such equity interests may be repurchased or redeemed (subject to certain exceptions that are specified in the certificate of designation for the iHeart Operations Preferred Stock). Dividends, if declared, will be payable on March 31, June 30, September 30 and December 31 of each year (or on the next business day if such date is not a business day). During the three months ended September 30, 2019 and the period from May 1, 2019 through September 30, 2019 the Company recognized $2.0 million and $3.4 million, respectively, of interest expense related to dividends on mandatorily redeemable preferred stock.

Other than as set forth below, iHeart Operations may not redeem the iHeart Operations Preferred Stock at its option prior to the third anniversary of the issue date of the iHeart Operations Preferred Stock. Upon consummation of certain equity offerings, iHeart Operations may, at its option, redeem all or a part of the iHeart Operations Preferred Stock for the liquidation preference plus a make-whole premium. At any time on or after the third anniversary of the issue date, the iHeart Operations Preferred Stock may be redeemed at the option of iHeart Operations, in whole or in part, for cash at a redemption price equal to the liquidation preference per share.

Upon (i) a liquidation, dissolution or winding up of iHeart Operations, iHeartMedia or iHeartCommunications, together with the subsidiaries of such entity, taken as a whole, (ii) a bankruptcy event, (iii) a change of control, (iv) a sale or transfer of all or substantially all of iHeart Operations’, iHeartMedia’s or iHeartCommunications’ assets and the assets of such entity’s subsidiaries, taken as a whole in a single transaction (other than to iHeartMedia or any of its subsidiaries), or a series of transactions, (v) an acceleration or payment default of indebtedness of iHeart Operations, iHeartMedia or any of its subsidiaries of $100 million or more or (vi) consummation of certain equity offerings of iHeartMedia, iHeart Operations or iHeartCommunications or certain

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

significant subsidiaries, then any holder of shares of iHeart Operations Preferred Stock may require iHeartMedia to purchase such holder’s shares of iHeart Operations Preferred Stock at a purchase price equal to (a) the liquidation preference plus a make-whole premium, if such purchase is consummated prior to the third anniversary of the issue date or (b) the liquidation preference, if the purchase is consummated on or after the third anniversary of the issue date.

The shares of iHeart Operations Preferred Stock include repurchase rights, pursuant to which the holders may require iHeartMedia or iHeartCommunications to purchase the iHeart Operations Preferred Stock after the fifth anniversary of the issue date.

On the tenth anniversary of the issue date, the shares of iHeart Operations Preferred Stock will be subject to mandatory redemption for an amount equal to the liquidation preference.

If a default occurs or dividends payable on the shares of iHeart Operations Preferred Stock have not been paid in cash for twelve consecutive quarters, the holders of the iHeart Operations Preferred Stock will have the right, voting as a class, to elect one director to iHeartMedia’s Board of Directors. Upon any termination of the rights of the holders of shares of the iHeart Operations Preferred Stock as a class to vote for a director as described above, the director so elected to iHeartMedia’s Board of Directors will cease to be qualified as a director and the term of such director’s office shall terminate immediately.

Surety Bonds, Letters of Credit and Guarantees

As of September 30, 2019, the Successor Company and its subsidiaries had outstanding surety bonds and commercial standby letters of credit of $17.6 million and $49.2 million, respectively. Included within the Successor Company's outstanding commercial standby letters of credit were $0.9 million held on behalf of CCOH. These surety bonds and letters of credit relate to various operational matters including insurance, lease and performance bonds as well as other items.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.

Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.

Chapter 11 Cases

iHeartCommunications' filing of the Chapter 11 Cases constituted an event of default that accelerated its obligations under its debt agreements. Due to the Chapter 11 Cases, however, the creditors' ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018, the Petition Date. On March 21, 2018, Wilmington Savings Fund Society, FSB ("WSFS"), solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027, and not in its individual capacity, filed an adversary proceeding against the Company in the Chapter 11 Cases. In the complaint, WSFS alleged, among other things, that the "springing lien" provisions of the priority guarantee notes indentures and the priority guarantee notes security agreements amounted to "hidden encumbrances" on the Company's property, to which the holders of the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027 were entitled to "equal and ratable" treatment. On March 26, 2018, Delaware Trust Co. ("Delaware Trust"), in its capacity as successor indenture trustee to the 14% Senior Notes due 2021, filed a motion to intervene as a plaintiff in the adversary proceeding filed by WSFS. In the complaint, Delaware Trust alleged, among other things, that the indenture governing the 14% Senior Notes due 2021 also had its own "negative pledge" covenant, and, therefore, to the extent the relief sought by WSFS in its adversary proceeding was warranted, the holders of the 14% Senior Notes due 2021 would also be entitled to the same "equal and ratable" liens on the same property. On January 15, 2019, the Bankruptcy Court entered judgment in the Company's favor denying all relief sought by WSFS and all other parties. Pursuant to a settlement (the “Legacy Plan Settlement”) with WSFS and certain consenting Legacy Noteholders of all issues related to confirmation of the Plan of Reorganization, on May 1, 2019 upon the Company's confirmed Plan of Reorganization becoming

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

effective, this adversary proceeding was deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.

On October 9, 2018, WSFS, solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027, and not in its individual capacity, filed an adversary proceeding against Clear Channel Holdings, Inc. (“CCH”) and certain shareholders of iHeartMedia. The named shareholder defendants were Bain Capital LP; Thomas H. Lee Partners L.P.; Abrams Capital L.P.; and Highfields Capital Management L.P. In the complaint, WSFS alleged, among other things, that the shareholder defendants engaged in a “pattern of inequitable and bad faith conduct, including the abuse of their insider positions to benefit themselves at the expense of third-party creditors including particularly the Legacy Noteholders.” The complaint asked the court to grant relief in the form of equitable subordination of the shareholder defendants’ term loan, priority guarantee notes and 2021 notes claims to any and all claims of the legacy noteholders. In addition, the complaint sought to have any votes to accept the Plan of Reorganization by Abrams and Highfields on account of their 2021 notes claims, and any votes to accept the Plan of Reorganization by defendant CCH on account of its junior notes claims, to be designated and disqualified. Pursuant to the Legacy Plan Settlement, on May 1, 2019 upon the Company's confirmed Plan of Reorganization becoming effective, this adversary proceeding was deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.

Stockholder Litigation

On May 9, 2016, a stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia, Inc. et al., C.A. No. 12312-VCS. The complaint named as defendants the Company, iHeartCommunications, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P., the Company's pre-bankruptcy private equity sponsors and pre-bankruptcy majority owners (together, the "Former Sponsor Defendants"), and the members of CCOH's board of directors. CCOH also was named as a nominal defendant. The complaint alleged that CCOH had been harmed by the intercompany agreements with iHeartCommunications, CCOH’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of the Company, iHeartCommunications and the Former Sponsor Defendants to the detriment of CCOH and its minority stockholders. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to CCOH and that the Company, iHeartCommunications and the Former Sponsor Defendants aided and abetted the CCOH board of directors' breaches of fiduciary duty, rescission of payments made by CCOH to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the offering of notes by Clear Channel International BV and certain asset sales by CCOH, and an order requiring the Company, iHeartCommunications and the Former Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.

On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants' motion to dismiss all claims brought by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appeal of the ruling. The oral hearing on the appeal was held on October 11, 2017. On October 12, 2017, the Supreme Court of Delaware affirmed the lower court's ruling, dismissing the case.

On December 29, 2017, another stockholder of CCOH filed a derivative lawsuit (the “Norfolk Lawsuit”) in the Court of Chancery of the State of Delaware, captioned Norfolk County Retirement System, v. iHeartMedia, Inc., et al., C.A. No. 2017-0930-JRS. The complaint named as defendants the Company, iHeartCommunications, the Former Sponsor Defendants, and the members of CCOH's board of directors. CCOH was named as a nominal defendant. The complaint alleged that CCOH had been harmed by the CCOH Board’s November 2017 decision to extend the maturity date of the intercompany revolving note (the “Third Amendment”) at what the complaint described as far-below-market interest rates. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to CCOH, a modification of the Third Amendment to bear a commercially reasonable rate of interest, and an order requiring disgorgement of all profits, benefits and other compensation obtained by defendants as a result of the alleged breaches of fiduciary duties.

On March 7, 2018, the defendants filed a motion to dismiss plaintiff's verified derivative complaint for failure to state a claim upon which relief can be granted. On March 16, 2018, the Company filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings. On May 4, 2018, plaintiff filed its response to the motion to dismiss. On June 26, 2018, the defendants filed a reply brief in further support of their motion to dismiss. Oral argument on the motion to dismiss was held on September 20, 2018.

On August 27, 2018, the same stockholder of CCOH that had filed a derivative lawsuit against the Company and others in 2016 (GAMCO Asset Management Inc.) filed a putative class action lawsuit (the “GAMCO II Lawsuit”) in the Court of Chancery of

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

the State of Delaware, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS. The complaint named as defendants the Former Sponsor Defendants and the members of CCOH’s board of directors. The complaint alleged that minority shareholders in CCOH during the period November 8, 2017 to March 14, 2018 were harmed by decisions of the CCOH Board and the intercompany note committee of the Board relating to the Intercompany Note. The plaintiff sought, among other things, a ruling that the CCOH Board, the intercompany note committee, and the Sponsor Defendants breached their fiduciary duties and that the Sponsor Defendants aided and abetted the Board’s breach of fiduciary duty; and an award of damages, together with pre- and post-judgment interests, to the putative class of minority shareholders.

On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into a settlement (the “CCOH Separation Settlement”) of all claims, objections, and other causes of action that have been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the Former Sponsor Defendants in such actions. The CCOH Separation Settlement provided for the consensual separation of the Debtors and CCOH, including approximately $149.0 million of recovery to CCOH on account of its claim against iHeartCommunications in the Chapter 11 cases, a $200 million unsecured revolving line of credit from certain of the Debtors to CCOH for a period of up to three years, the transfer of certain of the Debtors’ intellectual property to CCOH, the waiver by the Debtors of the setoff for the value of the transferred intellectual property, mutual releases, the termination of the cash sweep under the existing Corporate Services Agreement, the termination of any agreements or licenses requiring royalty payments from CCOH to the Debtors for trademarks or other intellectual property, the waiver of any post-petition amounts owed by CCOH relating to such trademarks or other intellectual property, and the execution of a new transition services agreement and other separation documents. The CCOH Separation Settlement was approved by the Bankruptcy Court and the United States District Court for the Southern District of Texas on January 22, 2019. On May 1, 2019, the Debtors’ Plan of Reorganization went effective, and the Norfolk Lawsuit and GAMCO II Lawsuit were each subsequently dismissed with prejudice.

NOTE 10 – INCOME TAXES

Income Tax Expense

The Company’s income tax expense for the three months ended September 30, 2019 (Successor), the three months ended September 30, 2018 (Predecessor), the period from May 2, 2019 through September 30, 2019 (Successor), the period from January 1, 2019 through May 1, 2019 (Predecessor) and the nine months ended September 30, 2018 (Predecessor), respectively, consisted of the following components:



(In thousands)	Successor Company			Predecessor Company
	Three Months Ended September 30,			Three Months Ended September 30,
	2019			2018
Current tax expense	$	(4,336	)	$	(2,471	)
Deferred tax expense	(12,422		)	(8,402		)
Income tax expense	$	(16,758	)	$	(10,873	)



(In thousands)	Successor Company			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,
	2019			2019			2018
Current tax benefit (expense)	$	(7,283	)	$	76,744		$	(9,041	)
Deferred tax benefit (expense)	(25,478		)	(115,839		)	18,869
Income tax benefit (expense)	$	(32,761	)	$	(39,095	)	$	9,828

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The effective tax rate for the Successor Company for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019 was 57.5% and 39.0%, respectively. The effective tax rates for both periods were primarily impacted by tax expense from non-deductible expenses and the provision for state income taxes.

The effective tax rate for continuing operations of the Predecessor Company for the period from January 1, 2019 through May 1, 2019 (Predecessor) was 0.4%. The income tax expense for the period from January 1, 2019 through May 1, 2019 (Predecessor) primarily consists 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.

The effective tax rate for the three and nine months ended September 30, 2018 (Predecessor) was 8.2% and 4.3%, respectively. The 2018 effective tax rates were primarily impacted by the valuation allowance recorded against deferred tax assets resulting from current period interest expense limitation carryforward in U.S. federal and certain state jurisdictions due to uncertainty regarding our ability to realize those assets in future periods.

As a result of the Plan of Reorganization, the Company expects the majority of its federal NOL carryforwards and certain state NOL carryforwards to be reduced or eliminated as a result of the CODI realized from the bankruptcy emergence. Pursuant to the attribute reduction and ordering rules set forth in the Internal Revenue Code of 1986, as amended (the “Code”), the reduction in the Company’s tax attributes for excludible CODI does not occur until the last day of the Company’s tax year, December 31, 2019. Accordingly, the tax adjustments recorded in the Predecessor period represent our best estimate using all available information at September 30, 2019. Additionally, the Company recognized a capital loss for tax purposes as a result of the series of transactions to effect the Plan of Reorganization. This capital loss may be carried forward to offset capital gains recognized by the Company in the next five years, subject to annual limitations under Section 382 of the Code. The deferred tax asset associated with the capital loss carryforward is offset by a valuation allowance due to significant uncertainty regarding the Company’s ability to utilize the carryforward prior to its expiration. The final tax impacts of the bankruptcy emergence, as well as the Plan of Reorganization’s overall effect on the Company’s tax attributes and tax basis in assets will be refined based on the Company’s final December 31, 2019 financial position as required under the Code. The final tax impacts on the Company's tax attributes could change significantly from the current estimates.

NOTE 11 – STOCKHOLDER'S EQUITY (DEFICIT)

Historically, the Company granted restricted shares of the Company's Class A common stock to certain key individuals. In connection with the effectiveness of the Plan of Reorganization, all unvested restricted shares were canceled.

Pursuant to the Post-Emergence Equity Plan the Company adopted in connection with the effectiveness of our Plan of Reorganization, the Company has granted restricted stock units and options to purchase shares of the Company's Class A common stock to certain key individuals.

This Post-Emergence Equity Plan is designed to provide an incentive to certain key members of management and service providers of the Company or any of its subsidiaries and non-employee members of the Board of Directors and to offer an additional inducement in obtaining the services of such individuals. The Post-Emergence Equity Plan provides for the grant of (a) options and (b) restricted stock units, which, in each case, may be subject to contingencies or restrictions as set forth under the plan and applicable award agreement.

The aggregate number of shares of Class A common stock that may be issued or used for reference purposes with respect to which awards may be granted under the plan shall be equal to the sum of (a) 12,770,387 shares of Class A common stock for awards to key members of management and service providers plus (b) 1,596,298 shares of Class A common stock for awards to non-employee members of the Board. Such shares of common stock may, in the discretion of the Board of Directors, consist either in whole or in part of authorized but unissued shares of common stock or shares of common stock held in the treasury of the Company.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company shall at all times during the term of the plan reserve and keep available such number of shares of common stock as will be sufficient to satisfy the requirements of the plan.

The Company granted 5,542,668 stock options and 3,205,360 restricted stock units on May 30, 2019 in connection with the Company's emergence from bankruptcy (the "Emergence Awards").

Share-based compensation expenses are recorded in corporate expenses and were $17.1 million and $20.2 million for the Successor Company for three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019, respectively. Share-based compensation expenses for the Predecessor Company were $0.5 million, 0.5 million and 1.6 million for three months ended September 30, 2018, the period from January 1, 2019 through May 1, 2019 and the nine months ended September 30, 2018, respectively.

As of September 30, 2019, there was $63.1 million of unrecognized compensation cost related to unvested share-based compensation arrangements with vesting based on service conditions. This cost is expected to be recognized over a weighted average period of approximately 3.6 years.

Stock Options

The term of each option granted pursuant to the plan may not exceed (a) six (6) years from the date of grant thereof in the case of the awards granted upon emergence and (b) ten (10) years from the date of grant thereof in the case of all other options; subject, however, in either case, to earlier termination as hereinafter provided.

Options granted under the plan are exercisable at such time or times and subject to such terms and conditions as shall be determined by the Compensation Committee of the Board (the "Committee") at the time of grant.

The options granted as Emergence Awards vest (or vested, as applicable), subject to a participant’s continued full-time employment or service with the Company through each applicable vesting date, (a) 20% on July 22, 2019, and (b) an additional 20% vesting on each of the next four anniversaries of the grant date.

No option granted under the plan will provide for any dividends or dividend equivalents thereon.

Restricted Stock Units ("RSUs")

RSUs may be issued either alone or in addition to other awards granted under the plan.

The RSUs granted in respect of the Emergence Awards vest or vested (as applicable), subject to a participant’s continued full-time employment or service with the Company through each applicable vesting date, (a) 20% on July 22, 2019, and (b) an additional 20% vesting on each of the next four anniversaries of the grant date.

Each RSU (representing one share of common stock) awarded to a participant will be credited with dividends paid in respect of one share of common stock (“Dividend Equivalents”). Dividend Equivalents will be withheld by the Company for the participant’s account, and interest may be credited on the amount of cash Dividend Equivalents withheld at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a participant’s account and attributable to any particular RSU (and earnings thereon, if applicable) shall be distributed to the participant upon settlement of such RSU and, if such RSU is forfeited, the participant shall have no right to such Dividend Equivalents.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Predecessor Common Stock

The following table presents the balances of the Predecessor Company's Class A, Class B, Class C and Class D Common Stock as of September 30, 2019 (Successor) and December 31, 2018 (Predecessor):



(In thousands, except share and per share data)	Successor Company	Predecessor Company
	September 30, 2019	December 31, 2018
	(Unaudited)
Predecessor Class A Common Stock, par value $.001 per share, authorized 400,000,000 shares, no shares issued in 2019 and 32,292,944 shares issued in 2018	—	32
Predecessor Class B Common Stock, par value $.001 per share, authorized 150,000,000 shares, no shares issued in 2019 and 555,556 shares issued in 2018	—	1
Predecessor Class C Common Stock, par value $.001 per share, authorized 100,000,000 shares, no shares issued in 2019 and 58,967,502 shares issued in 2018	—	59
Predecessor Class D Common Stock, par value $.001 per share, authorized 200,000,000 shares, no shares issued in 2019 and 2018	—	—

Successor Common Stock and Special Warrants

The following table presents the Successor Company's Class A Common Stock, Class B Common Stock and Special Warrants issued and outstanding as of September 30, 2019:



(In thousands, except share and per share data)	September 30, 2019
	(Unaudited)
Successor Class A Common Stock, par value $.001 per share,1,000,000,000 shares authorized	57,670,714
Successor Class B Common Stock, par value $.001 per share, 1,000,000,000 shares authorized	6,925,976
Successor Special Warrants	81,289,306
Total Successor Class A Common Stock, Class B Common Stock and Special Warrants issued and outstanding	145,885,996

Class A Common Stock

Holders of shares of the Successor Company's Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the Successor Company's Class A common stock will have the exclusive right to vote for the election of directors. There will be no cumulative voting rights in the election of directors.

Holders of shares of the Successor Company's Class A common stock are entitled to receive dividends, on a per share basis, when and if declared by the Company's Board out of funds legally available therefor and whenever any dividend is made on the shares of the Successor Company's Class B common stock subject to certain exceptions set forth in our certificate.

The Successor Company may not subdivide or combine (by stock split, reverse stock split, recapitalization, merger, consolidation or any other transaction) its shares of Class A common stock or Class B common stock without subdividing or combining its shares of Class B common stock or Class A common stock, respectively, in a similar manner.

Upon our dissolution or liquidation or the sale of all or substantially all of the Successor Company's assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of the Successor Company's Class A common stock will be entitled to receive pro rata together with holders of the Successor Company's Class B common stock our remaining assets available for distribution.

New Class A common stock certificates issued upon transfer or new issuance of Class A common stock shares will contain a legend stating that such shares of Class A common stock are subject to the provisions of our amended and restated certificate of incorporation, including but not limited to provisions governing compliance with requirements of the Communications Act and regulations thereunder, including, without limitation, those concerning foreign ownership and media ownership.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On July 18, 2019, the Company’s Class A common stock was listed and began trading on the NASDAQ Global Select Market ("Nasdaq") under the ticker symbol “IHRT”.

Class B Common Stock

Holders of shares of the Successor Company's Class B common stock are not entitled to vote for the election of directors or, in general, on any other matter submitted to a vote of the Company’s stockholders, but are entitled to one vote per share on the following matters: (a) any amendment or modification of any specific rights or obligations of the holders of Class B common stock that does not similarly affect the rights or obligations of the holders of Class A common stock, in which case the holders of Class B Common Stock will be entitled to a separate class vote, with each share of Class B common stock having one vote; and (b) to the extent submitted to a vote of our stockholders, (i) the retention or dismissal of outside auditors by the Company, (ii) any dividends or distributions to our stockholders, (ii) any material sale of assets, recapitalization, merger, business combination, consolidation, exchange of stock or other similar reorganization of the Company or any of its subsidiaries, (iv) the adoption of any amendment to our certificate of incorporation, (v) other than in connection with any management equity or similar plan adopted by the Company's Board, any authorization or issuance of equity interests, or any security or instrument convertible into or exchangeable for equity interests, in the Company or any of its subsidiaries, and (vi) the liquidation of the Company, in which case in respect to any such vote concerning the matters described in clause (b), the holders of Class B common stock are entitled to vote with the holders of the Class A common stock, with each share of common stock having one vote and voting together as a single class.

Holders of shares of the Successor Company's Class B common stock are generally entitled to convert shares of Class B common stock into shares of Class A common stock on a one-for-one basis, subject to the Company’s ability to restrict conversion in order to comply with the Communications Act and FCC regulations.

Holders of shares of the Successor Company's Class B common stock are entitled to receive dividends when and if declared by the Company's Board out of funds legally available therefor and whenever any dividend is made on the shares of the Successor Company's Class A common stock subject to certain exceptions set forth in our certificate of incorporation. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of the Successor Company's Class B common stock will be entitled to receive pro rata with holders of the Successor Company's Class A common stock our remaining assets available for distribution.

During the three months ended September 30, 2019, 21,591 shares of the Class B common stock were converted into Class A common stock.

Special Warrants

Each Special Warrant issued under the special warrant agreement entered into in connection with the Reorganization may be exercised by its holder to purchase one share of Successor Class A common stock or Successor Class B common stock at an exercise price of $0.001 per share, unless the Company in its sole discretion believes such exercise would, alone or in combination with any other existing or proposed ownership of common stock, result in, subject to certain exceptions, (a) such exercising holder owning more than 4.99 percent of the Successor Company's outstanding Class A common stock, (b) more than 22.5 percent of the Successor Company's capital stock or voting interests being owned directly or indirectly by foreign individuals or entities, (c) the Company exceeding any foreign ownership threshold set by the FCC pursuant to a declaratory ruling or specific approval requirement or (d) the Company violating any provision of the Communications Act or restrictions on ownership or transfer imposed by the Company's certificate of incorporation or the decisions, rules and policies of the FCC. Any holder exercising Special Warrants must complete and timely deliver to the warrant agent the required exercise forms and certifications required under the special warrant agreement.

To the extent there are any dividends declared or distributions made with respect to the Successor Class A common stock or Successor Class B common stock, those dividends or distributions will also be made to holders of Special Warrants concurrently and on a pro rata basis based on their ownership of common stock underlying their Special Warrants on an as-exercised basis; provided, that no such distribution will be made to holders of Special Warrants if (x) the Communications Act or an FCC rule prohibits such distribution to holders of Special Warrants or (y) our FCC counsel opines that such distribution is reasonably likely to cause (i) the Company to violate the Communications Act or any applicable FCC rule or (ii) any such holder not to be deemed to hold a noncognizable (under FCC rules governing foreign ownership) future equity interest in the Company; provided further, that, if any distribution of common stock or any other securities to a holder of Special Warrants is not permitted pursuant to clauses

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(x) or (y), the Company will cause economically equivalent warrants to be distributed to such holder in lieu thereof, to the extent that such distribution of warrants would not violate the Communications Act or any applicable FCC rules.

The Special Warrants will expire on the earlier of the twentieth anniversary of the issuance date and the occurrence of a change in control of the Company.

During the three months ended September 30, 2019, 164,342 shares of the Special Warrants were converted into Class A common stock.

Computation of Income (Loss) per Share



(In thousands, except per share data)	Successor Company		Predecessor Company
	Three Months Ended September 30,		Three Months Ended September 30,
	2019		2018
NUMERATOR:
Net income attributable to the Company – common shares	$	12,374	$	70,078
Exclude:
Loss from discontinued operations, net of tax	$	—	$	(49,491	)
Noncontrolling interest from discontinued operations, net of tax - common shares	—		(1,705		)
Total loss from discontinued operations, net of tax - common shares	$	—	$	(51,196	)
Income from continuing operations	$	12,374	$	121,274

DENOMINATOR⁽¹⁾:
Weighted average common shares outstanding - basic	145,720		85,544
Stock options and restricted stock⁽²⁾:	120		78
Weighted average common shares outstanding - diluted	145,840		85,622

Net income (loss) attributable to the Company per common share:
From continuing operations - Basic	$	0.08	$	1.42
From discontinued operations - Basic	$	—	$	(0.60	)
From continuing operations - Diluted	$	0.08	$	1.42
From discontinued operations - Diluted	$	—	$	(0.60	)

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



(In thousands, except per share data)	Successor Company		Predecessor Company
	Period from May 2, 2019 through September 30,		Period from January 1, 2019 through May 1,		Nine Months Ended September 30,
	2019		2019		2018
NUMERATOR:
Net income (loss) attributable to the Company – common shares	$	51,167	$	11,184,141	$	(416,815	)
Exclude:
Income (loss) from discontinued operations, net of tax	$	—	$	1,685,123	$	(206,968	)
Noncontrolling interest from discontinued operations, net of tax - common shares	—		19,028		10,732
Total income (loss) from discontinued operations, net of tax - common shares	$	—	$	1,704,151	$	(196,236	)
Income (loss) from continuing operations	$	51,167	$	9,479,990	$	(220,579	)

DENOMINATOR⁽¹⁾:
Weighted average common shares outstanding - basic	145,543		86,241		85,348
Stock options and restricted stock⁽²⁾:	112		—		—
Weighted average common shares outstanding - diluted	145,655		86,241		85,348

Net income (loss) attributable to the Company per common share:
From continuing operations - Basic	$	0.35	$	109.92	$	(2.58	)
From discontinued operations - Basic	$	—	$	19.76	$	(2.30	)
From continuing operations - Diluted	$	0.35	$	109.92	$	(2.58	)
From discontinued operations - Diluted	$	—	$	19.76	$	(2.30	)


⁽¹⁾	All of the outstanding Special Warrants issued at emergence are included in both the basic and diluted weighted average common shares outstanding of the Successor Company for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019.

⁽²⁾

Outstanding equity awards representing 8.1 million and 5.6 million shares of Class A common stock of the Successor Company for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019 were not included in the computation of diluted earnings per share because to do so would have been antidilutive. Outstanding equity awards representing 6.6 million, 5.9 million and 7.6 million shares of Class A common stock of the Predecessor Company for the period for the three months ended September 30, 2018, the period from January 1, 2019 through May 1, 2019 and the nine months ended September 30, 2018 respectively, were not included in the computation of diluted earnings per share because to do so would have been antidilutive.

NOTE 12 — OTHER INFORMATION

Other Comprehensive Income (Loss)

There was no change in deferred income tax liabilities resulting from adjustments to comprehensive loss for the three months ended September 30, 2019 (Successor), the three months ended September 30, 2018 (Predecessor), the period from May 2, 2019 through September 30, 2019 (Successor), the period from January 1, 2019 through May 2 (Predecessor) and the nine months ended September 30, 2018 (Predecessor).

NOTE 13 – SEGMENT DATA

The Company’s primary business is included in its Audio segment. Revenue and expenses earned and charged between Audio, Corporate and the Company's Audio & Media Services businesses are eliminated in consolidation. The Audio segment provides media and entertainment services via broadcast and digital delivery and also includes the Company’s events and national syndication businesses. The Audio & Media Services business provides other audio and media services, including the Company’s media representation business (Katz Media) and its provider of scheduling and broadcast software (RCS). Corporate includes infrastructure and support, including executive, information technology, human resources, legal, finance and administrative functions for the Company’s businesses. Share-based payments are recorded in corporate expense.

In connection with the Separation and the Reorganization, the Company revised its segment reporting, as discussed in Note 1 and all prior periods have been restated to conform with this presentation.

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the Company's segment results for the Successor Company for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019:



Successor Company
(In thousands)	Audio		Audio & Media Services		Corporate and other reconciling items			Eliminations			Consolidated
Three Months Ended September 30, 2019
Revenue	$	890,364	$	59,873	$	—		$	(1,899	)	$	948,338
Direct operating expenses	283,984		7,281		—			(294		)	290,971
Selling, general and administrative expenses	310,337		32,609		—			(1,593		)	341,353
Corporate expenses	—		—		70,056			(12		)	70,044
Depreciation and amortization	87,442		5,971		1,855			—			95,268
Other operating expense, net	—		—		(9,880		)	—			(9,880		)
Operating income (loss)	$	208,601	$	14,012	$	(81,791	)	$	—		$	140,822
Intersegment revenues	$	168	$	1,731	$	—		$	—		$	1,899
Capital expenditures	$	23,705	$	1,994	$	3,171		$	—		$	28,870
Share-based compensation expense	$	—	$	—	$	17,112		$	—		$	17,112

Period from May 2, 2019 through September 30, 2019
Revenue	$	1,486,594	$	100,410	$	—		$	(3,020	)	$	1,583,984
Direct operating expenses	463,455		12,153		—			(346		)	475,262
Selling, general and administrative expenses	516,343		54,804		—			(2,654		)	568,493
Corporate expenses	—		—		104,454			(20		)	104,434
Depreciation and amortization	142,019		9,590		3,042			—			154,651
Other operating expense, net	—		—		(6,634		)	—			(6,634		)
Operating income (loss)	$	364,777	$	23,863	$	(114,130	)	$	—		$	274,510

Intersegment revenues	$	280	$	2,740	$	—		$	—		$	3,020
Capital expenditures	$	37,259	$	2,824	$	6,222		$	—		$	46,305
Share-based compensation expense	$	—	$	—	$	20,151		$	—		$	20,151

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the Company's segment results for the Predecessor Company for the periods indicated. The presentation of prior period amounts has been restated to conform to the presentation of the Successor period.



Predecessor Company
(In thousands)	Audio		Audio and Media Services		Corporate and other reconciling items			Eliminations			Consolidated
Three Months Ended September 30, 2018
Revenue	$	852,280	$	69,823	$	—		$	(1,611	)	$	920,492
Direct operating expenses	261,645		7,052		—			(91		)	268,606
Selling, general and administrative expenses	297,851		33,105		—			(1,520		)	329,436
Corporate expenses	—		—		56,699			—			56,699
Depreciation and amortization	33,754		4,350		5,191			—			43,295
Impairment charges	—		—		33,150			—			33,150
Other operating expense, net	—		—		(2,462		)	—			(2,462		)
Operating income (loss)	$	259,030	$	25,316	$	(97,502	)	$	—		$	186,844
Intersegment revenues	$	—	$	1,611	$	—		$	—		$	1,611
Capital expenditures	$	16,951	$	1,695	$	1,496		$	—		$	20,142
Share-based compensation expense	$	—	$	—	$	456		$	—		$	456

Period from January 1, 2019 through May 1, 2019
Revenue	$	1,006,677	$	69,362	$	—		$	(2,568	)	$	1,073,471
Direct operating expenses	350,501		9,559		—			(364		)	359,696
Selling, general and administrative expenses	396,032		42,497		—			(2,184		)	436,345
Corporate expenses					66,040			(20		)	66,020
Depreciation and amortization	40,982		5,266		6,586			—			52,834
Impairment charges	—		—		91,382			—			91,382
Other operating expense, net	—		—		(154		)	—			(154		)
Operating income (loss)	$	219,162	$	12,040	$	(164,162	)	$	—		$	67,040
Intersegment revenues	$	243	$	2,325	$	—		$	—		$	2,568
Capital expenditures	$	31,177	$	1,263	$	3,757		$	—		$	36,197
Share-based compensation expense	$	—	$	—	$	498		$	—		$	498

Nine Months Ended September 30, 2018
Revenue	$	2,409,330	$	180,582	$	—		$	(4,884	)	$	2,585,028
Direct operating expenses	752,447		21,160		—			(183		)	773,424
Selling, general and administrative expenses	912,412		96,003		—			(4,687		)	1,003,728
Corporate expenses	—		—		162,089			(14		)	162,075
Depreciation and amortization	146,048		13,908		15,590			—			175,546
Impairment charges	—		—		33,150			—			33,150
Other operating expense, net	—		—		(6,912		)	—			(6,912		)
Operating income (loss)	$	598,423	$	49,511	$	(217,741	)	$	—		$	430,193
Intersegment revenues	$	—	$	4,884	$	—		$	—		$	4,884
Capital expenditures	$	40,836	$	2,458	$	4,154		$	—		$	47,448
Share-based compensation expense	$	—	$	—	$	1,628		$	—		$	1,628

IHEARTMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 14 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

iHeartCommunications Line of Credit

On the Effective Date, iHeartCommunications entered into a revolving loan agreement with CCOL and Clear Channel International, Ltd., both subsidiaries of CCOH, governing a revolving credit facility that provided for borrowings of up to $200 million. The iHeartCommunications line of credit was unsecured. On July 30, 2019, in connection with the consummation of an underwritten public offering of common stock of CCOH, the borrowers terminated the iHeartCommunications line of credit. As of the date of termination there were no amounts drawn under the facility.

Transition Services Agreement

On the Effective Date, the Company, iHM Management Services, iHeartCommunications and CCOH entered into the Transition Services Agreement. For information regarding the Transition Services Agreement, refer to Note 4, Discontinued Operations.

New Tax Matters Agreement

On the Effective Date, the Company entered into the New Tax Matters Agreement by and among the Company, iHeartCommunications, iHeart Operations, CCH, CCOH and Clear Channel Outdoor, Inc., to allocate the responsibility of the Company and its subsidiaries, on the one hand, and the Outdoor Group, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation. For information regarding the New Tax Matters Agreement, refer to Note 4, Discontinued Operations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Format of Presentation

Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes contained in Item 1 of this Quarterly Report on Form 10-Q. Our discussion is presented on both a consolidated and segment basis.

Our primary business provides media and entertainment services via broadcast and digital delivery, including our networks businesses, through our Audio segment. We also operate businesses that provide audio and media services, including our full-service media representation business, Katz Media Group (“Katz Media”) and our provider of scheduling and broadcast software and services, Radio Computing Services ("RCS"). Following the Separation, we ceased to operate the outdoor business, which prior to the Separation was presented as our Americas outdoor segment and our International outdoor segment. The historical results of the outdoor business have been reclassified as results from discontinued operations.

On May 1, 2019, we consummated the Separation and Reorganization, resulting in a substantial reduction in our long-term indebtedness and corresponding cash interest expenses, and significantly extending the maturities of our outstanding indebtedness, as more fully described under “Liquidity and Capital Resources” below. Over the past ten years, we have transitioned our Audio business from a single platform radio broadcast operator to a company with multiple platforms including podcasting, networks and live events. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. We believe that our ability to generate free cash flow from these business initiatives coupled with the significant reduction in interest payments due to our reduced level of indebtedness and our continued efforts to refinance our exit indebtedness with indebtedness with lower interest rates and the elimination of the majority of our near-term debt maturities will enable us to generate sufficient cash flows to operate our businesses and de-lever our balance sheet over time.

Description of our Business

Our Audio strategy centers on delivering entertaining and informative content where our listeners want to find us across multiple platforms, including broadcast, mobile and digital, as well as events. Our primary source of revenue is derived from selling broadcast local and national advertising time on our radio stations, with contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics. We are working closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. We continue to expand the choices for listeners and we deliver our content and sell advertising across multiple distribution channels including digitally via our iHeartRadio mobile application, our station websites and other digital platforms which reach national, regional and local audiences. We also generate revenues from our Networks, including Premiere and Total Traffic & Weather, as well as through sponsorships and our nationally recognized live events and other revenue streams. We also generate revenue by providing audio and media services to radio and TV broadcast industry participants through our Katz Media and RCS businesses.

Our advertising revenue is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP. Our broadcast national and local revenue, as well as our Katz Media revenue, are generally impacted by political cycles.

Emergence from Bankruptcy

On March 14, 2018, iHeartMedia, Inc. (the “Company,” "iHeartMedia," "we" or "us"), iHeartCommunications, Inc. (“iHeartCommunications”) and certain of the Company's direct and indirect domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). On April 28, 2018, the Debtors filed a plan of reorganization and a related disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court, which was subsequently amended by filing the second, third, fourth and fifth amended Plan of Reorganization and amended versions of the Disclosure Statement. On January 22, 2019, the Modified Fifth Amended Joint Chapter 11 Plan of Reorganization of iHeartMedia, Inc. and Its Debtor Affiliates (as further modified, the “Plan of Reorganization”) was confirmed by the Bankruptcy Court.

On May 1, 2019 (the “Effective Date”), the conditions to the effectiveness of the Plan of Reorganization were satisfied and the Company emerged from Chapter 11 through (a) a series of transactions (the “Separation”) through which Clear Channel Outdoor Holdings, Inc. (“CCOH”), its parent Clear Channel Holdings, Inc. (“CCH”) and its subsidiaries (collectively with CCOH and CCH, the “Outdoor Group”) were separated from, and ceased to be controlled by, the Company and its subsidiaries (the “iHeart Group”), and (b) a series of transactions (the “Reorganization”) through which iHeartCommunications’ debt was reduced from approximately $16 billion to approximately $5.8 billion and a global compromise and settlement among holders of claims

(“Claimholders”) in connection with the Chapter 11 Cases was effected. The compromise and settlement involved, among others, (i) the restructuring of iHeartCommunications’ indebtedness by (A) replacing its “debtor-in-possession” credit facility with a $450 million senior secured asset-based revolving credit facility (the “ABL Facility”) and (B) issuing to certain Claimholders, on account of their claims, approximately $3.5 billion aggregate principal amount of new senior secured term loans (the “Term Loan Facility”), approximately $1.45 billion aggregate principal amount of new 8.375% Senior Notes due 2027 (the “Senior Unsecured Notes”) and approximately $800 million aggregate principal amount of new 6.375% Senior Secured Notes due 2026 (the “6.375% Senior Secured Notes”), (ii) the Company’s issuance of new Class A common stock, new Class B common stock and special warrants to purchase shares of new Class A common stock and Class B common stock (“Special Warrants”) to Claimholders, subject to ownership restrictions imposed by the Federal Communications’ Commission (“FCC”), (iii) the settlement of certain intercompany transactions, and (iv) the sale of the preferred stock (the “iHeart Operations Preferred Stock”) of the Company’s wholly-owned subsidiary iHeart Operations, Inc. (“iHeart Operations”) in connection with the Separation.

All of the existing equity of the Company was canceled on the Effective Date pursuant to the Plan of Reorganization.

Beginning on the Effective Date, the Company applied fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after May 1, 2019 are not comparable with the consolidated financial statements on or prior to that date. Refer to Note 3, Fresh Start Accounting, to our Consolidated Financial Statements for further details.

Executive Summary

The key developments that impacted our business during the quarter are summarized below:


•	Revenue of $948.3 million increased $27.8 million or 3.0% during quarter ended September 30, 2019 compared to the same period of 2018.


•	Operating income of $140.8 million was down from $186.8 million in the prior year’s quarter.


•	Net income of $12.4 million was down from $71.8 million in the prior year's quarter.


•	Adjusted EBITDA⁽¹⁾ of $274.7 million, was up 0.3% year-over-year.


•	Cash flows provided by operating activities from continuing operations of $180.3 million increased $24.8 million or 16.0%.


•	Free cash flow⁽²⁾ of $151.5 million increased $16.1 million or 11.9%.


•	iHeartCommunications issued $750.0 million of new 5.25% Senior Secured Notes due 2027. Proceeds from the new notes, together with cash on hand, were used to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility.

The table below presents a summary of our historical results of operations for the periods presented:



(In thousands)	Successor Company		Predecessor Company
	Three Months Ended September 30,		Three Months Ended September 30,		%
	2019		2018		Change
Revenue	$	948,338	$	920,492	3.0	%
Operating income	$	140,822	$	186,844	(24.6	)%
Net income	$	12,374	$	71,783	(82.8	)%
Cash provided by operating activities from continuing operations	$	180,341	$	155,528	16.0	%

Adjusted EBITDA⁽¹⁾	$	274,656	$	273,804	0.3	%
Free cash flow from continuing operations⁽²⁾	$	151,471	$	135,386	11.9	%

⁽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 operating activities from continuing operations to Free cash flow from continuing operations” in this MD&A.

Results of Operations

Our financial results for the periods from January 1, 2019 through May 1, 2019 and for the three and nine months ended September 30, 2018 are referred to as those of the “Predecessor” period. Our financial results for the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019 are referred to as those of 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 our results for the period from January 1, 2019 through May 1, 2019 and the period from May 2, 2019 through September 30, 2019 separately, management views the Company’s operating results for the nine months ended September 30, 2019 by combining the results of the applicable Predecessor and Successor periods because such presentation provides the most meaningful comparison of our results to prior periods.

The Company cannot adequately benchmark the operating results of the period from May 2, 2019 through September 30, 2019 against any of the previous periods reported in its Consolidated Financial Statements without combining it with the period from January 1, 2019 through May 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 when combined with the Predecessor, period provide 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 nine months ended September 30, 2019.

The combined results for the nine months ended September 30, 2019, which we refer to herein as the results for the "nine months ended September 30, 2019" represent the sum of the reported amounts for the Predecessor period from January 1, 2019 through May 1, 2019 and the Successor period from May 2, 2019 through September 30, 2019. These combined results are not 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.

The table below presents the comparison of our historical results of operations for the periods presented:



(In thousands)	Successor Company			Predecessor Company
	Three Months Ended September 30,			Three Months Ended September 30,
	2019			2018
Revenue	$	948,338		$	920,492
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)	290,971			268,606
Selling, general and administrative expenses (excludes depreciation and amortization)	341,353			329,436
Corporate expenses (excludes depreciation and amortization)	70,044			56,699
Depreciation and amortization	95,268			43,295
Impairment charges	—			33,150
Other operating expense, net	(9,880		)	(2,462		)
Operating income	140,822			186,844
Interest expense, net	100,967			2,097
Gain on investments, net	1,735			186
Equity in loss of nonconsolidated affiliates	(1		)	(30		)
Other expense, net	(12,457		)	(281		)
Reorganization items, net	—			(52,475		)
Income from continuing operations before income taxes	29,132			132,147
Income tax expense	(16,758		)	(10,873		)
Income from continuing operations	12,374			121,274
Loss from discontinued operations, net of tax	—			(49,491		)
Net income	12,374			71,783
Less amount attributable to noncontrolling interest	—			1,705
Net income attributable to the Company	$	12,374		$	70,078



(In thousands)	Successor Company			Predecessor Company			Non-GAAP Combined			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,			Nine Months Ended September 30,
	2019			2019			2019			2018
Revenue	$	1,583,984		$	1,073,471		$	2,657,455		$	2,585,028
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)	475,262			359,696			834,958			773,424
Selling, general and administrative expenses (excludes depreciation and amortization)	568,493			436,345			1,004,838			1,003,728
Corporate expenses (excludes depreciation and amortization)	104,434			66,020			170,454			162,075
Depreciation and amortization	154,651			52,834			207,485			175,546
Impairment charges	—			91,382			91,382			33,150
Other operating expense, net	(6,634		)	(154		)	(6,788		)	(6,912		)
Operating income	274,510			67,040			341,550			430,193
Interest expense (income), net	170,678			(499		)	170,179			333,843
Gain (loss) on investments, net	1,735			(10,237		)	(8,502		)	9,361
Equity in loss of nonconsolidated affiliates	(25		)	(66		)	(91		)	(93		)
Other income (expense), net	(21,614		)	23			(21,591		)	(22,755		)
Reorganization items, net	—			9,461,826			9,461,826			(313,270		)
Income (loss) from continuing operations before income taxes	83,928			9,519,085			9,603,013			(230,407		)
Income tax benefit (expense)	(32,761		)	(39,095		)	(71,856		)	9,828
Income (loss) from continuing operations	51,167			9,479,990			9,531,157			(220,579		)
Income (loss) from discontinued operations, net of tax	—			1,685,123			1,685,123			(206,968		)
Net income (loss)	51,167			11,165,113			11,216,280			(427,547		)
Less amount attributable to noncontrolling interest	—			(19,028		)	(19,028		)	(10,732		)
Net income (loss) attributable to the Company	$	51,167		$	11,184,141		$	11,235,308		$	(416,815	)

The tables below present the comparison of our revenue streams for the periods presented:



(In thousands)	Successor Company			Predecessor Company
	Three Months Ended September 30,			Three Months Ended September 30,
	2019			2018
Broadcast Radio	$	573,048		$	576,460
Digital	96,656			72,447
Networks	160,133			146,587
Sponsorship and Events	55,541			53,191
Audio and Media Services	59,873			69,823
Other	4,986			3,595
Eliminations	(1,899		)	(1,611		)
Revenue, total	$	948,338		$	920,492



(In thousands)	Successor Company			Predecessor Company			Non-GAAP Combined			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,			Nine Months Ended September 30,
	2019			2019			2019			2018
Broadcast Radio	$	963,588		$	657,864		$	1,621,452		$	1,635,571
Digital	160,894			102,789			263,683			200,388
Networks	265,559			189,088			454,647			425,619
Sponsorship and Events	87,331			50,330			137,661			132,339
Audio and Media Services	100,410			69,362			169,772			180,582
Other	9,222			6,606			15,828			15,413
Eliminations	(3,020		)	(2,568		)	(5,588		)	(4,884		)
Revenue, total	$	1,583,984		$	1,073,471		$	2,657,455		$	2,585,028

Consolidated results for the three months ended September 30, 2019 compared to the consolidated results for the three months ended September 30, 2018 and combined results for the nine months ended September 30, 2019 compared to the consolidated results for the nine months ended September 30, 2018 were as follows:

Revenue

Revenue increased $27.8 million during the three months ended September 30, 2019 compared to the same period of 2018. Revenue increased primarily as a result of higher digital revenue which increased $24.2 million driven by growth in podcasting, primarily as a result of our acquisition of Stuff Media in October 2018, as well as other digital revenue, including on-demand services. Revenue from our Network businesses increased $13.5 million, driven primarily by growth in our Total Traffic & Weather business. Broadcast spot revenue decreased $3.4 million, driven by a $5.8 million decrease in political revenue as a result of 2018 being a mid-term congressional election year, partially offset by increased programmatic buying by our national customers. Audio and Media Services revenue decreased $10.0 million as a result of a $10.0 million decrease in political revenue. Excluding political, revenue increased $43.8 million.

Revenue increased $72.4 million during the nine months ended September 30, 2019 compared to the same period of 2018. The increase in revenue is primarily due to higher digital revenue of $63.3 million driven by growth in podcasting, primarily as a result of our acquisition of Stuff Media in October 2018, as well as other digital revenue, including live radio and other on-demand services and revenue from our Network businesses, which increased $29.0 million. Broadcast spot revenue decreased $14.1 million, due to a $16.7 million decrease in political revenue as a result of 2018 being a mid-term congressional election year. Audio and Media Services revenue decreased $10.8 million, primarily due to a $15.2 million decrease in political revenue. Excluding political, revenue increased $104.5 million.

Direct Operating Expenses

Direct operating expenses increased $22.4 million during the three months ended September 30, 2019 compared to the same period of 2018. Higher direct operating expenses were driven primarily by higher variable expenses, including compensation-related expenses, primarily resulting from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018, digital royalties, content costs and production expenses from higher podcasting and digital subscription revenue. We also incurred a $2.1 million increase in lease expense, primarily as a result of the adoption of the new leasing standard in the first quarter of 2019 and the application of fresh start accounting.

Direct operating expenses increased $61.5 million during the nine months ended September 30, 2019 compared to the same period of 2018. Higher direct operating expenses were driven primarily by higher digital royalties, content costs and compensation-related expenses, primarily resulting from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018, and from higher podcasting and digital subscription revenue, as well as higher net production costs related to our events, including the iHeartRadio Music Awards. We also incurred a $4.4 million increase in lease expense due to the impact of the adoption of the new leasing standard in the first quarter of 2019 and the adoption of fresh start accounting.

Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses increased $11.9 million during the three months ended September 30, 2019 compared to the same period of 2018. Higher fees related to increased digital revenue, along with higher employee costs, primarily resulting from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018, were partially offset by lower commissions as a result of our revenue mix.

SG&A expenses increased $1.1 million during the nine months ended September 30, 2019 compared to the same period of 2018. The increase in our SG&A expenses was due primarily to higher digital fees, driven by the increase in digital revenue, along with higher employee costs, primarily resulting from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018. The increase in SG&A expenses was partially offset by lower trade and barter expenses, primarily resulting from timing, and lower commissions as a result of our revenue mix.

Corporate Expenses

Corporate expenses increased $13.3 million during the three months ended September 30, 2019 compared to the same period of 2018, as a result of higher share-based compensation expense, which increased $16.7 million as a result of our new equity compensation plan entered into in connection with our Plan of Reorganization. This increase was partially offset by lower employee expenses, including variable incentive compensation expenses and lower employee benefit expenses.

Corporate expenses increased $8.4 million during the nine months ended September 30, 2019 compared to the same period of 2018, as a result of higher share-based compensation expense, which increased $19.0 million as a result of our new equity compensation plan entered into in connection with our Plan of Reorganization. This increase was partially offset by lower variable incentive compensation expenses and higher amortization of retention bonuses related to the bankruptcy in the prior period.

Depreciation and Amortization

Depreciation and amortization increased $52.0 million and $31.9 million during the three and nine months ended September 30, 2019, compared to the same periods of 2018, respectively, 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, FCC licenses and other intangible assets as of July 1 of each year. No impairment charges were recorded in the third quarter of 2019 in connection with our annual impairment test. We recognized non-cash impairment charges of $33.2 million in the third quarter of 2018 related to several of our radio markets. In addition, we test for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired. We recognized non-cash impairment charges of $91.4 million in the first quarter of 2019 on our indefinite-lived FCC licenses as a result of an increase in the weighted average cost of capital. See Note 7 to the consolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description of the impairment charges.

Other Operating Expense, Net

Other operating expense, net of $9.9 million and $2.5 million for the three months ended September 30, 2019 and 2018, respectively, and Other operating expense, net of $6.8 million and $6.9 million for the nine months ended September 30, 2019 and 2018, respectively, relate to net gains and losses recognized on asset disposals.

Interest Expense

Interest expense increased $98.9 million during the three months ended September 30, 2019, compared to the same period of 2018 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 from March 14, 2018 to May 1, 2019, while the Company was a debtor-in-possession, no interest expense was recognized on pre-petition debt. Interest expense decreased $163.7 million during the nine months ended September 30, 2019 compared to the same period of 2018 as a result of the interest recognized in the prior period to the Petition Date of March 14, 2018, offset by the interest recognized in the current period in connection with the new debt issued upon emergence.

In the Predecessor periods, 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 from January 1, 2019 to May 1, 2019 and $812.4 million in contractual interest not being accrued in the nine months ended September 30, 2018.

Gain (Loss) on Investments, net

During the three months ended September 30, 2019, we recognized a gain on investments, net of $1.7 million and during the nine months ended September 30, 2019, we recognized a loss of $8.5 million, primarily in connection with other-than-temporary declines in the value of our investments. Gain on investments, net was $9.4 million for the nine months ended September 30, 2018.

Other Expense, Net

Other expense, net was $12.5 million and $21.6 million for the three and nine months ended September 30, 2019, respectively, 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.

Other expense, net was $0.3 million and $22.8 million for the three and nine months ended September 30, 2018, respectively. Amounts in the nine months ended September 30, 2018 related primarily to professional fees incurred directly in connection with the Chapter 11 Cases before the March 14, 2018 Petition Date. Such expenses were included within Reorganization items, net in the post-petition period while the Company was a debtor-in-possession.

Reorganization Items, Net

During the nine months ended September 30, 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 the March 14, 2018 Petition Date and the May 1, 2019 Effective Date in connection with the Chapter 11 Cases. See Note 3 to our Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

During the three and nine months ended September 30, 2018, we recognized Reorganization items, net of $52.5 million and $313.3 million, respectively, related to the Chapter 11 Cases, consisting of the write-off of long-term debt fees and original issue discounts on debt subject to compromise, costs incurred in connection with our DIP facility and professional fees. See Note 3 to our Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

Income Tax Benefit (Expense)

The effective tax rate for continuing operations of the Predecessor Company for period from January 1, 2019 through May 1, 2019 (Predecessor) and nine months ended September 30, 2019 was 0.4% and 0.7%, respectively. The income tax expense for the period from January 1, 2019 through May 1, 2019 (Predecessor) and the nine months ended September 30, 2019 primarily consists 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 related to fresh start adjustments in the Predecessor period, consisting of $529.1 million in tax expense, related to the increase in deferred tax liabilities resulting from fresh start accounting adjustments, offset by $343.7 million in tax benefit for the reduction in the valuation allowance on our deferred tax assets.

The effective tax rate for continuing operations for the three and nine months ended September 30, 2018 was 8.2% and 4.3%, respectively. The 2018 effective tax rates were primarily impacted by the valuation allowance recorded against deferred tax assets resulting from current period interest expense limitation carryforward in U.S. federal and certain state jurisdictions due to uncertainty regarding our ability to realize those assets in future periods.

As a result of the Plan of Reorganization, the Company expects the majority of its federal NOL carryforwards and certain state NOL carryforwards to be reduced or eliminated as a result of the CODI realized from the bankruptcy emergence. Pursuant to the attribute reduction and ordering rules set forth in the Internal Revenue Code of 1986, as amended (the “Code”), the reduction in the Company’s tax attributes for excludible CODI does not occur until the last day of the Company’s tax year, December 31, 2019. Accordingly, the tax adjustments recorded in the Predecessor period represent our best estimate using all available information at June 30, 2019. Additionally, the Company recognized a capital loss for tax purposes as a result of the series of transactions to effect the Plan of Reorganization. This capital loss may be carried forward to offset capital gains recognized by the Company in the next five years, subject to annual limitations under Section 382 of the Code. The deferred tax asset associated with the capital loss carryforward is offset by a valuation allowance due to significant uncertainty regarding the Company’s ability to utilize the

carryforward prior to its expiration. The final tax impacts of the bankruptcy emergence, as well as the Plan of Reorganization’s overall effect on the Company’s tax attributes and tax basis in assets will be refined based on the Company’s final December 31, 2019 financial position as required under the Code. The final tax impacts on the Company's tax attributes could change significantly from the current estimates.

Reconciliation of Operating Income to Adjusted EBITDA



(In thousands)	Successor Company		Predecessor Company
	Three Months Ended September 30,		Three Months Ended September 30,		%
	2019		2018		Change
Operating income	$	140,822	$	186,844	(24.6	)%
Depreciation and amortization	95,268		43,295
Impairment charges	—		33,150
Other operating expense, net	9,880		2,462
Share-based compensation expense	17,112		456
Restructuring and reorganization expenses	11,574		7,597
Adjusted EBITDA⁽¹⁾	$	274,656	$	273,804	0.3	%



(In thousands)	Successor Company		Predecessor Company		Non-GAAP Combined²		Predecessor Company
	Period from May 2, 2019 through September 30,		Period from January 1, 2019 through May 1,		Nine Months Ended September 30,		Nine Months Ended September 30,		%
	2019		2019		2019		2018		Change
Operating income	$	274,510	$	67,040	$	341,550	$	430,193	(20.6	)%
Depreciation and amortization	154,651		52,834		207,485		175,546
Impairment charges	—		91,382		91,382		33,150
Other operating expense, net	6,634		154		6,788		6,912
Share-based compensation expense	20,151		498		20,649		1,628
Restructuring and reorganization expenses	13,463		13,241		26,704		21,132
Adjusted EBITDA⁽¹⁾	$	469,409	$	225,149	$	694,558	$	668,561	3.9	%

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA



(In thousands)	Successor Company			Predecessor Company
	Three Months Ended September 30,			Three Months Ended September 30,
	2019			2018
Net income	$	12,374		$	71,783
Loss from discontinued operations, net of tax	—			49,491
Income tax expense	16,758			10,873
Interest expense, net	100,967			2,097
Depreciation and amortization	95,268			43,295
EBITDA	$	225,367		$	177,539
Reorganization items, net	—			52,475
Gain on investments, net	(1,735		)	(186		)
Other expense, net	12,457			281
Equity in loss of nonconsolidated affiliates	1			30
Impairment charges	—			33,150
Other operating expense, net	9,880			2,462
Share-based compensation expense	17,112			456
Restructuring and reorganization expenses	11,574			7,597
Adjusted EBITDA⁽¹⁾	$	274,656		$	273,804



(In thousands)	Successor Company			Predecessor Company			Non-GAAP Combined			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,			Nine Months Ended September 30,
	2019			2019			2019			2018
Net income	$	51,167		$	11,165,113		$	11,216,280		$	(427,547	)
(Income) loss from discontinued operations, net of tax	—			(1,685,123		)	(1,685,123		)	206,968
Income tax (benefit) expense	32,761			39,095			71,856			(9,828		)
Interest expense (income), net	170,678			(499		)	170,179			333,843
Depreciation and amortization	154,651			52,834			207,485			175,546
EBITDA	$	409,257		$	9,571,420		$	9,980,677		$	278,982
Reorganization items, net	—			(9,461,826		)	(9,461,826		)	313,270
(Gain) loss on investments, net	(1,735		)	10,237			8,502			(9,361		)
Other income (expense), net	21,614			(23		)	21,591			22,755
Equity in loss of nonconsolidated affiliates	25			66			91			93
Impairment charges	—			91,382			91,382			33,150
Other operating expense, net	6,634			154			6,788			6,912
Share-based compensation expense	20,151			498			20,649			1,628
Restructuring and reorganization expenses	13,463			13,241			26,704			21,132
Adjusted EBITDA⁽¹⁾	$	469,409		$	225,149		$	694,558		$	668,561

(1)

We define Adjusted EBITDA as consolidated Operating income adjusted to exclude restructuring and reorganization expenses included within Direct operating expenses, Selling, General and Administrative expenses, (“SG&A”) and Corporate expenses and share-based compensation expenses included within Corporate expenses, as well as the following line items presented in our Statements of Operations: Depreciation and amortization, Impairment charges and Other operating income (expense), net. Alternatively, Adjusted EBITDA is calculated as Net income (loss), adjusted to exclude (Income) loss from discontinued operations, net of tax, Income tax (benefit) expense, Interest expense, Depreciation and amortization, Reorganization items, net, Other (income) expense, net, Gain (loss) on investments, net, Impairment charges, Other operating (income) expense, net, Share-based compensation, and restructuring and reorganization expenses. Restructuring expenses primarily include severance 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.

Reconciliation of Cash provided by operating activities from continuing operations to Free cash flow from continuing operations



(In thousands)	Successor Company			Predecessor Company
	Three Months Ended September 30,			Three Months Ended September 30,
	2019			2018
Cash provided by operating activities from continuing operations	$	180,341		$	155,528
Purchases of property, plant and equipment by continuing operations	(28,870		)	(20,142		)
Free cash flow from continuing operations⁽¹⁾	$	151,471		$	135,386



(In thousands)	Successor Company			Predecessor Company			Non-GAAP Combined			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,			Nine Months Ended September 30,
	2019			2019			2019			2018
Cash provided by (used for) operating activities from continuing operations	$	263,542		$	(7,505	)	$	256,037		$	515,713
Purchases of property, plant and equipment by continuing operations	(46,305		)	(36,197		)	(82,502		)	(47,448		)
Free cash flow from (used for) continuing operations⁽¹⁾	$	217,237		$	(43,702	)	$	173,535		$	468,265


(1)	We define Free cash flow from (used for) continuing operations ("Free Cash Flow") as Cash provided by (used for) operating activities from continuing operations less capital expenditures, which is disclosed as Purchases of property, plant and equipment by continuing

operations 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.

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 the new equity incentive plan (the "Post-Emergence Equity Plan") we adopted in connection with the effectiveness of our Plan of Reorganization, we have granted restricted stock units and options to purchase shares of the Company's Class A common stock to certain key individuals.

Share-based compensation expenses are recorded in corporate expenses and were $17.1 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively, and $20.6 million and $1.6 million for the nine months ended September 30, 2019 and 2018, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following discussion highlights cash flow activities during the periods presented:



(In thousands)	Successor Company			Predecessor Company			Non-GAAP Combined			Predecessor Company
	Period from May 2, 2019 through September 30,			Period from January 1, 2019 through May 1,			Nine Months Ended September 30,			Nine Months Ended September 30,
	2019			2019			2019			2018
Cash provided by (used for):
Operating activities	$	263,542		$	(40,186	)	$	223,356		$	663,349
Investing activities	$	(43,815	)	$	(261,144	)	$	(304,959	)	$	(134,892	)
Financing activities	$	(5,095	)	$	(55,557	)	$	(60,652	)	$	(493,107	)
Free Cash Flow⁽¹⁾	$	217,237		$	(43,702	)	$	173,535		$	468,265

⁽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 operating activities from continuing operations to Free cash flow from continuing operations” in this MD&A.

Operating Activities

Cash provided by operating activities for the nine months ended September 30, 2019 was $223.4 million compared to $663.3 million of cash provided by operating activities in the nine months ended September 30, 2018. The primary driver for the change in cash provided by operating activities was a $180.3 million decrease in operating cash flows provided by discontinued operations, which decreased from a cash inflow of $147.6 million in the nine months ended September 30, 2018 to a cash outflow of $32.7 million in the nine months ended September 30, 2019.

Cash provided by operating activities from continuing operations decreased from $515.7 million in the nine months ended September 30, 2018 to $256.0 million in the nine months ended September 30, 2019 primarily as a result of cash payments for Reorganization items, including payments for pre-petition liabilities and for bankruptcy professional fees, upon our emergence from bankruptcy on May 1, 2019. Such payments for Reorganization items were $149.3 million higher in the nine months ended

September 30, 2019 compared to the nine months ended September 30, 2018. In addition, cash interest payments made by continuing operations increased $61.7 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 the March 14, 2018 petition date.

Investing Activities

Cash used for investing activities of $305.0 million during the nine months ended September 30, 2019 primarily reflects $222.4 million in cash used for investing activities from discontinued operations. In addition, we used $82.5 million for capital expenditures. We spent $68.4 million for capital expenditures in our Audio segment primarily related to IT infrastructure, $4.1 million in our Audio & Media Services segment, primarily related to acquired software and $10.0 million in Corporate primarily related to equipment and software purchases.

Cash used for investing activities of $134.9 million during the nine months ended September 30, 2018 primarily reflects $105.3 million in cash used for investing activities from discontinued operations. In addition, we used $47.4 million for capital expenditures. We spent $40.8 million for capital expenditures in our Audio segment primarily related to IT infrastructure, $2.5 million in our Audio & Media Services segment, primarily related to acquired software and $4.1 million in Corporate primarily related to equipment and software purchases.

Financing Activities

Cash used for financing activities of $60.7 million during the nine months ended September 30, 2019 primarily resulted from the net payment by iHeartCommunications 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.

Cash used for financing activities of $493.1 million during the nine months ended September 30, 2018 primarily resulted from payments on long-term debt and on our receivables based credit facility. In connection with the replacement of the iHeartCommunications' receivables based credit facility with a new DIP Facility on June 14, 2018, we repaid the outstanding $306.4 million and $74.3 million balances of the receivables based credit facility's term loan and revolving credit commitments, respectively. An additional $125.0 million principal amount was repaid under the DIP Facility during the three months ended September 30, 2018.

Anticipated Cash Requirements

The Separation and Reorganization resulted in a new capital structure with significantly lower levels of long-term debt and a corresponding decrease in debt service requirements after emergence compared to historical debt levels. As a result of the Separation and Reorganization, our consolidated long-term debt decreased from approximately $16 billion to $5.8 billion. In the Successor period from May 2, 2019 to September 30, 2019, we paid $79.3 million of cash interest.

In connection with the Separation and Reorganization, we paid CCOH $115.8 million in settlement of intercompany payable balances, including settlement of the Due from iHeartCommunications Note and post-petition intercompany balances, $15.8 million to cure contracts, $17.5 million for a general unsecured claims reserve, and $201.6 million for professional fees (of which $126.3 million was paid on the Effective Date).

Our primary sources of liquidity are cash on hand, which consisted of $277.1 million as of September 30, 2019, cash flow from operations and borrowing capacity under our ABL Facility. As of September 30, 2019, we had a facility size of $450.0 million under iHeartCommunications' ABL Facility, had no borrowings outstanding and $49.2 million of outstanding letters of credit, resulting in $400.8 million of excess availability.

We expect that our primary anticipated uses of liquidity will be to fund our working capital, make interest payments and voluntary prepayments of principal on our long-term debt and to fund capital expenditures and other obligations. These other obligations include dividend payments to be due to the investor of preferred stock of iHeart Operations, the terms of which are further described in Note 8 to our financial statements included herein. We anticipate that we will have approximately $105 million of cash interest payments in the fourth quarter of 2019 and approximately $400 million of cash interest payments in 2020. Over the past ten years, we have transitioned our Audio business from a single platform radio broadcast operator to a company with multiple platforms, including podcasting, networks and live events. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. We believe that our ability to generate cash flow from operations from these business initiatives and borrowing capacity under our ABL Facility, taken together, 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 12 months and thereafter for the foreseeable future.

On August 7, 2019, iHeartCommunications completed the sale of $750.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 (the "5.25% Senior Secured Notes") in a private placement. We used the net proceeds from the 5.25% Senior Secured Notes, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under our Term Loan Facility. Our Term Loan Facility called for quarterly principal payments of approximately $8.75 million in addition to interest payments at LIBOR + 4.00%. As a result of our $740.0 million prepayment, no such principal payments are required for the remaining term of the Term Loan Facility - resulting in an approximately $35 million annual reduction in required debt service payments. In addition, annual cash interest payments are expected to be approximately $4 million lower than would have been required before the refinancing transaction.

Sources of Capital

As of September 30, 2019 and December 31, 2018, we had the following debt outstanding, net of cash and cash equivalents:



(In millions)	Successor Company			Predecessor Company
	September 30, 2019			December 31, 2018
Term Loan Facility due 2026⁽¹⁾	$	2,757.4		$	—
Debtors-in-Possession Facility⁽²⁾	—			—
Asset-based Revolving Credit Facility due 2023⁽²⁾	—			—
6.375% Senior Secured Notes due 2026	800.0			—
5.25% Senior Secured Notes due 2027⁽¹⁾	750.0			—
Other Secured Subsidiary Debt	4.4			—
Total Secured Debt	4,311.8			—

8.375% Senior Unsecured Notes due 2027	1,450.0			—
Other Subsidiary Debt	58.5			46.1
Long-term debt fees	(11.3		)	—
Liabilities subject to compromise⁽³⁾	—			15,149.5
Total Debt	5,809.0			15,195.6
Less: Cash and cash equivalents	277.1			224.0
	$	5,531.9		$	14,971.6


(1)	On August 7, 2019, iHeartCommunications issued the 5.25% Senior Secured Notes, the proceeds of which were used, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility, plus approximately $0.8 million of accrued and unpaid interest to, but not including, the date of prepayment.

(2)

The Debtors-in-Possession Facility (the "DIP" Facility), which terminated with our emergence from the Chapter 11 Cases, provided for borrowings of up to $450.0 million. On the Effective Date, the DIP Facility was repaid and canceled and iHeartCommunications entered into the ABL Facility. As of September 30, 2019, we had a facility size of $450.0 million under the ABL Facility, had no outstanding borrowings and had $49.2 million of outstanding letters of credit, resulting in $400.8 million of excess availability.

(3)

In connection with our Chapter 11 Cases, the $6.3 billion outstanding under the Senior Secured Credit Facilities, the $1,999.8 million outstanding under the 9.0% Priority Guarantee Notes due 2019, the $1,750.0 million outstanding under the 9.0% Priority Guarantee Notes due 2021, the $870.5 million of 11.25% Priority Guarantee Notes due 2021, the $1,000.0 million outstanding under the 9.0% Priority Guarantee Notes due 2022, the $950.0 million outstanding under the 10.625% Priority Guarantee Notes due 2023, $6.0 million outstanding Other Secured Subsidiary Debt, the $1,781.6 million outstanding under the 14.0% Senior Notes due 2021, the $475.0 million outstanding under the Legacy Notes and $10.8 million outstanding Other Subsidiary Debt were reclassified to Liabilities subject to compromise in our Consolidated Balance Sheet as of December 31, 2018. As of the Petition Date, we ceased accruing interest expense in relation to long-term debt reclassified as Liabilities subject to compromise.

For additional information regarding our debt, including the terms of the governing documents, refer to Note 8, Long-Term Debt.

Supplemental Financial Information under Debt Agreements and Certificate of Designation Governing the iHeart Operations Preferred Stock

Pursuant to iHeartCommunications' 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 iHeartMedia Capital 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 three and nine months ended September 30, 2019, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same periods.

According to the certificate of designation governing the iHeart Operations Preferred Stock, iHeart Operations is required to provide certain supplemental financial information of iHeart Operations in comparison to the Company and its consolidated subsidiaries. iHeart Operations and its subsidiaries comprised 88.5% of the Company's consolidated assets as of September 30, 2019. For the three months ended September 30, 2019 and the period from May 2, 2019 through September 30, 2019, iHeart Operations and its subsidiaries comprised 84.3% and 84.8% of the Company's consolidated revenues, respectively.

Uses of Capital

Debt Repayments, Maturities and Other

On August 7, 2019, iHeartCommunications completed the sale of $750.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act. iHeartCommunications used the net proceeds from the 5.25% Senior Secured Notes, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility due 2026.

Certain Relationships with Related Parties

Prior to the Effective Date, we were party to a management agreement with certain affiliates of our former sponsors and certain other parties pursuant to which such affiliates of the former sponsors provided management and financial advisory services until December 31, 2018. These arrangements required management fees to be paid to such affiliates of the former sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses. The Company did not recognize management fees following the Petition Date. The Company recognized management fees and reimbursable expenses of $2.9 million for the nine months ended September 30, 2018. As of the Effective Date, these management fees were waived.

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 “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q.

SEASONALITY

Typically, the Audio segment experiences its 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, our Audio segment and our Audio and media representation business are impacted by political cycles and generally experience higher revenues in congressional election years, and particularly in presidential election years. This cyclicality 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 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 of September 30, 2019, approximately 48% 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 period from May 2, 2019 through September 30, 2019 would have changed by $14.5 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 the economies in which we do 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. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations in our Audio operations.

CRITICAL ACCOUNTING ESTIMATES

The preparation of our financial statements in conformity with U.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 estimates, and such difference could be material. Our significant accounting policies are discussed in the notes to our consolidated financial statements included in Note 1 of this Quarterly Report on Form 10-Q. 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.

Fresh Start Accounting

In connection with our emergence from bankruptcy and in accordance with ASC 852, we qualified for and adopted fresh start accounting on the Effective Date. We were required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan of Reorganization was less than the post-petition liabilities and allowed claims.

In accordance with ASC 852, with the application of fresh start accounting, we allocated our reorganization value to our individual assets based on our estimated fair values in conformity with ASC 805, "Business Combinations." The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill.

Reorganization Value

As set forth in the Plan of Reorganization and the Disclosure Statement, the enterprise value of the Successor Company was estimated to be between $8.0 billion and $9.5 billion. Based on the estimates and assumptions discussed below, we estimated the enterprise value to be $8.75 billion, which is the mid-point of the range of enterprise value.

Management and its valuation advisors estimated the enterprise value of the Successor Company, which was approved by the Bankruptcy Court. The selected publicly traded companies analysis approach, the discounted cash flow analysis (“DCF”) approach and the selected transactions analysis approach were all utilized in estimating enterprise value. The use of each approach provides corroboration for the other approaches. To estimate enterprise value utilizing the selected publicly traded companies analysis method, valuation multiples derived from the operating data of publicly-traded benchmark companies to the same operating data of the Company were applied. The selected publicly traded companies analysis identified a group of comparable companies giving consideration to lines of business and markets served, size and geography. The valuation multiples were derived based on

historical and projected financial measures of revenue and earnings before interest, taxes, depreciation and amortization and applied to projected operating data of the Company.

For information regarding fresh start accounting, refer to Note 3, Fresh Start Accounting to our Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

Annual Goodwill and Indefinite-lived Intangible Asset Impairment Test

We perform our annual impairment test on goodwill and indefinite-lived intangible assets as of July 1 of each year. We also test goodwill or indefinite-lived intangible assets at interim dates if events or changes in circumstances indicate that goodwill or indefinite-lived intangible assets might be impaired.

Generally, our annual impairment test includes a full quantitative assessment, which involves the preparation of a fair value estimate for each of our reporting units based on our most recent projected financial results, market and industry factors, including comparison to peer companies and the application of our current estimated weighted average cost of capital ("WACC"). However, in connection with our emergence from bankruptcy, we qualified for and adopted fresh start accounting on the Effective Date. As of May 1, 2019, we allocated our estimated enterprise fair value to our individual assets and liabilities based on their estimated fair values in conformity with ASC 805, "Business Combinations." As a result of the recent fair value exercise applied in connection with fresh start accounting, we opted to use a qualitative assessment for our annual goodwill and indefinite-lived intangible asset impairment test as of July 1, 2019 in lieu of performing the full quantitative assessment, as permitted by ASC 350, "Intangibles - Goodwill and Other".

Indefinite-lived Intangible Assets

In connection with our Plan of Reorganization, we applied fresh start accounting as required by ASC 852 and recorded all of our assets and liabilities at estimated fair values, including our FCC licenses, which are included within our Audio reporting unit. As of July 1, 2019, the qualitative impairment assessment performed for indefinite-lived intangible assets considered the general macroeconomic environment, industry and market specific conditions, financial performance, including changes in costs and actual versus forecasted results, as well other issues or events specific to the Audio reporting unit.

Goodwill

Upon application of fresh start accounting in accordance with ASC 852 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 of May 1, 2019. See Note 3 to the consolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for further information.

and actual versus forecasted results, as well other issues or events specific to each reporting unit. In addition, we evaluated the impact of changes in our stock price and the trading values of our publicly-traded debt from May 1, 2019 to July 1, 2019 to determine whether or not any changes would indicate a potential impairment of goodwill allocated to our reporting units.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. This report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our indebtedness and the availability of capital and the terms thereof. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements. We do not intend, nor do we undertake any duty, to update any forward-looking statements.

A wide range of factors could materially affect future developments and performance, including but not limited to:


•	risks associated with weak or uncertain global economic conditions and their impact on the level of expenditures on advertising;


•	intense competition including increased competition from alternative media platforms and technologies;


•	dependence upon the performance of on-air talent, program hosts and management as well as maintaining or enhancing our master brand;


•	fluctuations in operating costs;


•	technological changes and innovations;


•	shifts in population and other demographics;


•	the impact of future dispositions, acquisitions and other strategic transactions;


•	legislative or regulatory requirements;


•	regulations and consumer concerns regarding privacy and data protection, and breaches of information security measures;


•	risks associated with our emergence from the Chapter 11 Cases;


•	volatility in the trading price of our Class A common stock, which has a limited trading history;


•	substantial market overhang from securities issued in the Reorganization;


•	regulations impacting our business and the ownership of our securities; and


•	certain other factors set forth in our other filings with the SEC.

This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Required information is presented under “Market Risk” within Item 2 of this Part I.

ITEM 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that are filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019 at the reasonable assurance level.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We currently are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our financial condition or results of operations.

Although we are involved in a variety of legal proceedings in the ordinary course of business, a large portion of our litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.

For information regarding legal proceedings, refer to Note 9, Commitments and Contingencies to our Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, as updated and supplemented by the risk factors disclosed under Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth our purchases of shares of our Class A common stock made during the quarter ended September 30, 2019:



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 through July 31	121,651	$	16.25	—	$	—
August 1 through August 31	1,180	16.46		—	—
September 1 through September 30	2,379	16.25		—	—
Total	125,210	$	16.25	—	$	—


(1)	The shares indicated consist of shares of our Class A common stock tendered by employees to us during the three months ended September 30, 2019 to satisfy the employees’ tax withholding obligation in connection with the vesting and release of restricted shares, which are repurchased by us based on their fair market value on the date the relevant transaction occurs.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



Exhibit Number		Description
4.1		Indenture, dated as of August 7, 2019, by and among iHeartCommunications, Inc., the Guarantors party thereto and U.S. Bank National Association as trustee and collateral agent (incorporated by reference to Exhibit 4.1 to iHeartMedia, Inc.'s Current Report on Form 8-K filed on August 8, 2019).
4.2		Form of 5.25% Senior Secured Notes due 2027 (incorporated by reference to Exhibit A to Exhibit 4.1 filed herewith).
10.1*		Employment Agreement, effective September 5, 2019, between iHeartMedia, Inc. and Michael B. McGuinness.
31.1*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		Interactive Data Files.

____________

* Filed herewith.

** Furnished herewith.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	IHEARTMEDIA, INC.

November 7, 2019	/s/ SCOTT D. HAMILTON
	Scott D. Hamilton
	Senior Vice President, Chief Accounting Officer and Assistant Secretary