iHeartMedia, Inc. 10-Q

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 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, through our Audio and Media Services segment, 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"). 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 our business initiatives and our current cash on hand will provide sufficient resources to fund and operate our business, fund capital expenditures and other obligations and make interest payments on our long-term debt for at least the next 12 months. 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, digital and live mobile, as well as events. Our primary source of revenue is derived from selling local and national advertising time on our radio stations, with contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics. We work closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. We continue to expand the choices for listeners and we deliver our content and sell advertising across multiple distribution channels, including digitally via our iHeartRadio mobile application and other digital platforms which reach national, regional and local audiences. We also generate revenue from network syndication, our nationally recognized live events, our station websites and other miscellaneous transactions. Our advertising revenue is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP. A recession or downturn in the U.S. economy may have a significant impact on the Company’s ability to generate revenue. In light of the novel coronavirus pandemic (“COVID-19”) and the resulting recession impacting the U.S. economy, our revenue for the six months ended June 30, 2020 has declined significantly compared to the comparable period in 2019 and we expect our full year 2020 revenue to decline compared to 2019, largely as a result of a decline in consumer and business spending and the related impact to the demand for advertising and pricing pressure resulting from greater competition for available advertising dollars. Beginning in March 2020 and continuing in the three months ended June 30, 2020, we saw a sharp decline in each of our Broadcast radio, Networks, and Sponsorships revenue streams. We also saw a sharp decline in revenues from our Audio and Media Services, particularly in Katz Media, as a result of lower advertising spending. This decrease was partially offset by a $1.7 million increase in political revenue. When the business environment recovers, we expect that the traditional promotional use of radio to be a strong benefit to us. As businesses reopen both nationally and locally, we believe that we are advantaged by our unparalleled reach and the live and local trusted voices that advertisers need to get their messages out quickly. In the first quarter of 2020, we announced our modernization initiatives, which will take advantage of the significant investments we have made in new technologies to build an operating infrastructure that provides better quality and newer products and delivers new cost efficiencies. We anticipate to incur approximately $50 million of restructuring costs related to achieving our cost savings in 2020. Our investments in modernization are expected to deliver annualized run-rate cost savings of approximately $100 million by mid-year 2021, and we expect to achieve approximately 50% of our anticipated run-rate savings in 2020. In addition, in response to the COVID-19 pandemic, we have taken significant steps to significantly reduce our capital and operating expenditures for the remainder of 2020. These initiatives are expected to generate approximately $200 million in operating cost savings in 2020. For more information, please see the Liquidity and Capital Resources - Anticipated Cash Requirements section below. On March 26, 2020, we announced the withdrawal of our previously issued financial guidance for the fiscal year ending December 31, 2020 due to heightened uncertainty related to COVID-19. As a precautionary measure to preserve financial flexibility in light of this uncertainty, we borrowed $350.0 million principal amount under our senior secured asset- 33 based revolving credit facility (the “ABL Facility”). During the three months ended June 30, 2020, we repaid $115.0 million principal amount drawn under our ABL Facility, resulting in a balance outstanding of $235.0 million as of June 30, 2020. In July 2020, iHeartCommunications issued $450.0 million of incremental term loans pursuant to an amendment (the “Amendment No. 2”) to the credit agreement (as amended, the “Credit Agreement”) with Capital I, as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, and Bank of America, N.A., as administrative agent, governing the Company’s $2.5 billion aggregate principal amount of senior secured term loans (the “Term Loan Facility”), resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds was used to repay the remaining balance outstanding on our ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. For more information please refer to the “ Liquidity and Capital Resources section” in this MD&A. Impairment Charges As a result of uncertainty related to COVID-19 and its negative impact on our business and the public trading values of our debt and equity, we were required to perform interim impairment tests on our long-lived assets, intangible assets and indefinite-lived intangible assets as of March 31, 2020. The interim impairment tests resulted in a non-cash impairment of our Federal Communication Commission (“FCC”) licenses of $502.7 million and a non-cash impairment charge of $1.2 billion to reduce goodwill during the three months ended March 31, 2020. Based on management’s forecasted future cash flows and assessment of market values of our debt and equity securities, market interest rates affecting our weighted average cost of capital (WACC) and other economic factors, additional interim impairment testing of our intangible assets and indefinite-lived intangible was not required as of June 30, 2020. For more information, see Note 5, Property, Plant and Equipment, Intangible Assets and Goodwill 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. While we believe we have made reasonable estimates and utilized reasonable assumptions to calculate the fair values of our long-lived assets, indefinite-lived FCC licenses and reporting units, it is possible a material change could occur to the estimated fair value of these assets as a result of the uncertainty regarding the magnitude of the economic downturn caused by the COVID-19 pandemic, as well as the timing of any recovery. If our actual results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations. 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 “Debtors 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 ABL Facility and (B) issuing to certain Claimholders, on account of their claims, the approximately $3.5 billion aggregate principal amount 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. 34 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. Combined Results Our financial results for the periods from April 1, 2019 through May 1, 2019 and from January 1, 2019 through May 1, 2019 are referred to as those of the “Predecessor” period. Our financial results for the period from May 2, 2019 through June 30, 2019, the three months ended June 30, 2020 and the six months ended June 30, 2020 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 on our results for the period from April 1, 2019 through May 1, 2019, from January 1, 2019 through May 1, 2019 and the period from May 2, 2019 through June 30, 2019 separately, management views the Company’s operating results for the three and six months ended June 30, 2019 by combining the results of the applicable Predecessor and Successor periods because such presentation provides the most meaningful comparison to our results in the three and six months ended June 30, 2020. The Company cannot adequately benchmark the operating results of the period from May 2, 2019 through June 30, 2019 against any of the current periods reported in its Consolidated Financial Statements without combining it with the period from April 1, 2019 through May 1, 2019 and 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 provides more meaningful comparisons to other periods and are useful in identifying current business trends. Accordingly, in addition to presenting our results of operations as reported in our Consolidated Financial Statements in accordance with GAAP, the tables and discussion below also present the combined results for the three and six months ended June 30, 2019. The combined results for the three months ended June 30, 2019, which we refer to herein as the results for the "three months ended June 30, 2019" represent the sum of the reported amounts for the Predecessor period from April 1, 2019 through May 1, 2019 and the Successor period from May 2, 2019 through June 30, 2019. The combined results for the six months ended June 30, 2019, which we refer to herein as the results for the “six months ended June 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 June 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. Executive Summary As 2020 began, we saw strong growth across our revenue streams in January and February, particularly from digital and from political advertising. However, while digital and political revenue continued to grow, the economic downturn as a result of the COVID-19 pandemic had a significant and negative impact on our other revenue streams beginning in March 2020 and continuing through the second quarter of 2020, including broadcast radio which is our largest revenue stream. A significant decline in advertising spend and the postponement or cancellation of certain tent-pole events drove an overall decrease in revenue for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019. The extent of the economic downturn and the timing of recovery, as well as the future impact on our operations, are subject to significant uncertainty. In an effort to further strengthen the Company's financial flexibility and efficiently manage through the COVID-19 pandemic, we implemented measures to cut costs and preserve cash. For additional information on these actions, see the Liquidity and Capital Resources - Anticipated Cash Requirements section below. The key developments that impacted our business during the quarter are summarized below: • Effects of the COVID-19 pandemic significantly adversely impacted revenue for all revenue streams, with the exception of digital and political revenue, which increased during the quarter. • Revenue of $487.6 million decreased 46.6% during the quarter ended June 30, 2020 compared to Revenue of $913.3 million in the same period in 2019. • Operating loss of $159.1 million was down from Operating income of $181.6 million in the prior year’s quarter. • Net loss of $197.3 million decreased from Net income of $11,339.5 million in the prior year's quarter. • Adjusted EBITDA (1) of $(29.3) million, was down from $262.9 million year-over-year. 35 • Cash flows provided by operating activities from continuing operations of $11.4 million increased from Cash flows used for operating activities of $61.0 million in the same period in 2019. • Free cash flow (2) (used for) continuing operations of $(6.5) million decreased from $(91.6) million in the same period in 2019. • Repaid $115.0 million of principal amount drawn under our ABL Facility, resulting in a balance outstanding of $235.0 million as of June 30, 2020. • On July 16, 2020, we issued $450.0 million of incremental Term Loan commitments, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay the remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. The table below presents a summary of our historical results of operations for the periods presented: (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Three Months Ended June 30, Period from May 2, 2019 through June 30, Period from April 1, 2019 through May 1, Three Months Ended June 30, % 2020 2019 2019 2019 Change Revenue $ 487,648 $ 635,646 $ 277,674 $ 913,320 (46.6) % Operating income (loss) $ (159,087) $ 133,688 $ 47,891 $ 181,579 NM Net income (loss) $ (197,317) $ 38,793 $ 11,300,714 $ 11,339,507 NM Cash provided by (used for) operating activities from continuing operations $ 11,369 $ 83,201 $ (144,171) $ (60,970) NM Adjusted EBITDA (1) $ (29,283) $ 194,753 $ 68,097 $ 262,850 NM Free cash flow from (used for) continuing operations (2) $ (6,513) $ 65,766 $ (157,415) $ (91,649) NM (1) For a definition of Adjusted EBITDA and a reconciliation to Operating income (loss), 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. 36 Results of Operations The tables below present the comparison of our historical results of operations for the periods presented: (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Three Months Ended June 30, Period from May 2, 2019 through June 30, Period from April 1, 2019 through May 1, Three Months Ended June 30, 2020 2019 2019 2019 Revenue $ 487,648 $ 635,646 $ 277,674 $ 913,320 Operating expenses: Direct operating expenses (excludes depreciation and amortization) 249,866 198,772 98,310 297,082 Selling, general and administrative expenses (excludes depreciation and amortization) 261,219 220,231 102,296 322,527 Corporate expenses (excludes depreciation and amortization) 26,419 26,818 14,506 41,324 Depreciation and amortization 103,347 59,383 14,544 73,927 Impairment charges 5,378 — — — Other operating income (expense), net (506) 3,246 (127) 3,119 Operating income (loss) (159,087) 133,688 47,891 181,579 Interest expense (income), net 81,963 69,711 (400) 69,311 Gain on investments, net 1,280 — — — Equity in loss of nonconsolidated affiliates (31) (24) (59) (83) Other income (expense), net (1,258) (9,157) 150 (9,007) Reorganization items, net — — 9,497,944 9,497,944 Income (loss) from continuing operations before income taxes (241,059) 54,796 9,546,326 9,601,122 Income tax benefit (expense) 43,742 (16,003) (100,289) (116,292) Income (loss) from continuing operations (197,317) 38,793 9,446,037 9,484,830 Income from discontinued operations, net of tax — — 1,854,677 1,854,677 Net income (loss) (197,317) 38,793 11,300,714 11,339,507 Less amount attributable to noncontrolling interest — — 2,190 2,190 Net income (loss) attributable to the Company $ (197,317) $ 38,793 $ 11,298,524 $ 11,337,317 37 (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Six Months Ended June 30, Period from May 2, 2019 through June 30, Period from January 1, 2019 through May 1, Six Months Ended June 30, 2020 2019 2019 2019 Revenue $ 1,268,282 $ 635,646 $ 1,073,471 $ 1,709,117 Operating expenses: Direct operating expenses (excludes depreciation and amortization) 551,498 198,772 381,184 579,956 Selling, general and administrative expenses (excludes depreciation and amortization) 605,360 220,231 427,230 647,461 Corporate expenses (excludes depreciation and amortization) 66,368 26,818 53,647 80,465 Depreciation and amortization 200,115 59,383 52,834 112,217 Impairment charges 1,733,235 — 91,382 91,382 Other operating income (expense), net (1,572) 3,246 (154) 3,092 Operating income (loss) (1,889,866) 133,688 67,040 200,728 Interest expense (income), net 172,052 69,711 (499) 69,212 Loss on investments, net (8,675) — (10,237) (10,237) Equity in loss of nonconsolidated affiliates (595) (24) (66) (90) Other income (expense), net (9,118) (9,157) 23 (9,134) Reorganization items, net — — 9,461,826 9,461,826 Income (loss) from continuing operations before income taxes (2,080,306) 54,796 9,519,085 9,573,881 Income tax benefit (expense) 194,253 (16,003) (39,095) (55,098) Income (loss) from continuing operations (1,886,053) 38,793 9,479,990 9,518,783 Income from discontinued operations, net of tax — — 1,685,123 1,685,123 Net income (loss) (1,886,053) 38,793 11,165,113 11,203,906 Less amount attributable to noncontrolling interest — — (19,028) (19,028) Net income (loss) attributable to the Company $ (1,886,053) $ 38,793 $ 11,184,141 $ 11,222,934 38 The tables below present the comparison of our revenue streams for the periods presented: (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Three Months Ended June 30, Period from May 2, 2019 through June 30, Period from April 1, 2019 through May 1, Three Months Ended June 30, % 2020 2019 2019 2019 Change Broadcast Radio $ 244,035 $ 390,540 $ 170,632 $ 561,172 (56.5) % Digital 93,227 64,238 26,840 91,078 2.4 % Networks 96,330 105,426 50,889 156,315 (38.4) % Sponsorship and Events 14,809 31,790 10,617 42,407 (65.1) % Audio and Media Services 39,251 40,537 17,970 58,507 (32.9) % Other 1,943 4,236 1,483 5,719 (66.0) % Eliminations (1,947) (1,121) (757) (1,878) Revenue, total $ 487,648 $ 635,646 $ 277,674 $ 913,320 (46.6) % (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Six Months Ended June 30, Period from May 2, 2019 through June 30, Period from January 1, 2019 through May 1, Six Months Ended June 30, % 2020 2019 2019 2019 Change Broadcast Radio $ 705,695 $ 390,540 $ 657,864 $ 1,048,404 (32.7) % Digital 186,003 64,238 102,789 167,027 11.4 % Networks 230,907 105,426 189,088 294,514 (21.6) % Sponsorship and Events 44,157 31,790 50,330 82,120 (46.2) % Audio and Media Services 99,478 40,537 69,362 109,899 (9.5) % Other 5,967 4,236 6,606 10,842 (45.0) % Eliminations (3,925) (1,121) (2,568) (3,689) Revenue, total $ 1,268,282 $ 635,646 $ 1,073,471 $ 1,709,117 (25.8) % Consolidated results for the three months ended June 30, 2020 compared to the combined results for the three months ended June 30, 2019 and consolidated results for the six months ended June 30, 2020 compared to the combined results for the six months ended June 30, 2019 were as follows: Revenue Revenue decreased $425.7 million during the three months ended June 30, 2020 compared to the same period of 2019. The decrease in Revenue is primarily attributable to the effects of COVID-19, which began to unfold into a global pandemic in early March of 2020, resulting in a significant economic downturn due to the shut-down of non-essential businesses and shelter-in-place orders. The impact continued through the second quarter of 2020, resulting in significant revenue declines impacting most of our revenue streams primarily as a result of a decrease in broadcast radio advertising spend. Broadcast revenue decreased $317.1 million, driven by a $188.7 million decrease in Local spot revenue and a $103.7 million decrease in National spot revenue. Revenue from our Network businesses, including both Premiere and Total Traffic & Weather, was also impacted by the downturn, resulting in a decrease of $60.0 million. Revenue from Sponsorship and Events decreased by $27.6 million, primarily as a result of the postponement or cancellations of events in response to the COVID-19 pandemic. Digital revenue increased $2.1 million, driven by continued growth in podcasting. Audio and Media Services revenue decreased $19.3 million primarily due to the effects of COVID-19 on advertising spend. This decrease was partially offset by a $1.7 million increase in political revenue as a result of 2020 being a presidential election year. 39 Revenue decreased $440.8 million during the six months ended June 30, 2020 compared to the same period of 2019. The decrease in Revenue is primarily attributable to the effects of COVID-19, which began to unfold into a global pandemic in early March of 2020, resulting in a significant economic downturn due to the shut-down of non-essential businesses and shelter-in-place orders. Strong Revenue growth in January and February was followed by a sharp decline in revenue in March, which continued through the second quarter of 2020, resulting in significant revenue declines impacting most of our revenue streams, primarily as a result of a decrease in broadcast radio advertising spend. Broadcast revenue decreased $342.7 million, driven by a $214.7 million decrease in Local spot revenue and a $121.9 million decrease in National spot revenue. The decrease in Broadcast revenue was offset by a $15.5 million increase in political revenue as a result of 2020 being a presidential election year. Revenue from our Network businesses, including both Premiere and Total Traffic & Weather, was also impacted by the downturn, resulting in a decrease of $63.6 million. Revenue from Sponsorship and Events decreased by $38.0 million, primarily as a result of the postponement or cancellations of events in response to the COVID-19 pandemic. Digital revenue increased $19.0 million, driven by continued growth in podcasting. Audio and Media Services revenue decreased $10.4 million primarily due to the effects of COVID-19 on advertising spend. This decrease was offset by an $8.9 million increase in political revenue. Direct Operating Expenses Direct operating expenses decreased $47.2 million during the three months ended June 30, 2020 compared to the same period of 2019. The decrease in Direct operating expenses was driven primarily by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic. In addition, variable operating expenses, including music license and performance royalty fees, decreased in relation to lower revenue recognized during the period. Variable expenses related to events also decreased as a result of the postponement or cancellation of events in response to the COVID-19 pandemic. Direct operating expenses decreased $28.5 million during the six months ended June 30, 2020 compared to the same period of 2019. The decrease in Direct operating expenses was driven primarily by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic. In addition, variable operating expenses, including music license and performance royalty fees, decreased in relation to lower revenue recognized during the period. Variable expenses related to events also decreased as a result of the postponement or cancellation of events in response to the COVID-19 pandemic. The decrease in Direct operating expenses was partially offset by severance payments and other costs specific to our modernization initiatives, which were incurred mainly in January and February, as well as higher content costs from higher podcasting and digital subscription revenue. Selling, General and Administrative (“SG&A”) Expenses SG&A expenses decreased $61.3 million during the three months ended June 30, 2020 compared to the same period of 2019. The decrease in SG&A expenses was driven primarily by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic, along with lower sales commissions, which were impacted by the decrease in revenue. Trade and barter expenses also decreased primarily driven by lower Local trade expenses, which declined in line with lower Trade revenue. The decrease in SG&A expenses was partially offset by higher bad debt expense. SG&A expenses decreased $42.1 million during the six months ended June 30, 2020 compared to the same period of 2019. The decrease in SG&A expenses was driven primarily by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic, along with lower sales commissions, which were impacted by the decrease in revenue. Trade and barter expenses also decreased primarily driven by lower Local trade expenses, which declined in line with lower Trade revenue. The decrease in SG&A expenses was partially offset by costs incurred in relation to our modernization initiatives announced in the first quarter of 2020 and higher bad debt expense. Corporate Expenses Corporate expenses decreased $14.9 million during the three months ended June 30, 2020 compared to the same period of 2019, as a result of lower employee compensation, including variable incentive expenses and employee benefits, resulting from cost reduction initiatives taken in response to the COVID-19 pandemic. Corporate expenses decreased $14.1 million during the six months ended June 30, 2020 compared to the same period of 2019, as a result of lower employee compensation, including variable incentive expenses and employee benefits, resulting from cost reduction initiatives taken in response to the COVID-19 pandemic. The decrease in Corporate expenses was partially offset by costs incurred to support our modernization initiatives in January and February, as well as higher share-based compensation expense, which increased $5.3 million as a result of our new post-emergence equity compensation plan. 40 Depreciation and Amortization Depreciation and amortization increased $29.4 million and $87.9 million during the three and six months ended June 30, 2020, compared to the same periods of 2019, 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 and FCC licenses as of July 1 of each year. In addition, we test for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired. As discussed above, as a result of the assumed potential adverse effects caused by the COVID-19 pandemic on estimated future cash flows, we recognized non-cash impairment charges to our indefinite-lived intangible assets and goodwill of $1.7 billion in the six months ended June 30, 2020. We recognized non-cash impairment charges of $91.4 million in the six months ended June 30, 2019 on our indefinite-lived FCC licenses as a result of an increase in our weighted average cost of capital. See Note 5, Property, Plant and Equipment, Intangible Assets and Goodwill, to the consolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description of the impairment charges. Other Operating Income (Expense), Net Other operating expense, net of $0.5 million and Other operating income, net of $3.1 million for the three months ended June 30, 2020 and 2019, respectively, and Other operating expense, net of $1.6 million and Other operating income, net of $3.1 million for the six months ended June 30, 2020 and 2019, respectively, relate to net gains and losses recognized on asset disposals. Interest Expense Interest expense increased $12.7 million and $102.8 million during the three and six months ended June 30, 2020, respectively, compared to the same periods of 2019 as a result of the interest recognized on the new debt issued in connection with our emergence from the Chapter 11 Cases. During the period 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. In the Predecessor periods, we ceased to accrue interest expense on long-term debt, which was reclassified as Liabilities subject to compromise as of March 14, 2018 (the “Petition Date”), resulting in $135.9 million and $533.4 million in contractual interest not being accrued in the three and six months ended June 30, 2019, respectively. Gain (Loss) on Investments, net During the three and six months ended June 30, 2020, we recognized a gain on investments, net of $1.3 million and a loss on investments of $8.7 million, respectively. The gain on investments, net recognized during the quarter primarily related to a gain on one of our marketable equity securities. The loss on investments, net recognized during the six months ended June 30, 2020 was primarily in connection with estimated credit losses and declines in the value of our investments. During the six months ended June 30, 2019, we recognized a loss of $10.2 million, primarily in connection with declines in the value of our investments. We did not recognize any gain or loss on investments during the three months ended June 30, 2019. Other Income (Expense), Net Other expense, net was $1.3 million and $9.1 million for the three and six months ended June 30, 2020, respectively, which related to costs incurred to refinance our Term Loan Facility and 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 $9.0 million and $9.1 million for the three and six months ended June 30, 2019, respectively. Amounts in the six months ended June 30, 2019 related primarily to professional fees incurred directly in connection with the Chapter 11 Cases before the Petition Date. Such expenses were included within Reorganization items, net in the post-petition period while the Company was a debtor-in-possession. 41 Reorganization Items, Net During the three and six months ended June 30, 2019, we recognized Reorganization items, net of $9,497.9 million and $9,461.8 million related to 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 Petition Date and the Effective Date in connection with the Chapter 11 Cases. Income Tax Benefit (Expense) The effective tax rate for the Successor Company for the three and six months ended June 30, 2020 was 18.1% and 9.3%, respectively. The effective tax rate for the six months ended June 30, 2020 was primarily impacted by the impairment charges discussed above. The deferred tax benefit primarily consists of $125.5 million related to the FCC license impairment charges recorded during the period. The effective tax rate for the Successor Company for the Period from May 2, 2019 through June 30, 2019 was 29.2%. The effective tax rate for continuing operations of the Predecessor Company for Period from April 1, 2019 through May 1, 2019 (Predecessor) and the Period from January 1, 2019 through May 1, 2019 (Predecessor) was 1.1% and 0.4%, respectively. The income tax expense for the Period from April 1, 2019 through May 1, 2019 (Predecessor) and 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 carryforwards from the cancellation of debt income 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. 42 Income from Discontinued Operations, Net During the three and six months ended June 30, 2019, we recognized Income from discontinued operations, net of tax of $1,854.7 million and $1,685.1 million, respectively, related to the separation of our domestic and international outdoor advertising businesses, which were previously reported as the Americas outdoor and International outdoor segments prior to the Separation. Net Income (Loss) Attributable to the Company Net loss attributable to the Company decreased $11,534.6 million to $197.3 million during the three months ended June 30, 2020 compared to Net income attributable to the Company of $11,337.3 million during the three months ended June 30, 2019, primarily as a result of the $9.5 billion gain from Reorganization items net related to the Chapter 11 Cases in the 2019 period, the $1.9 billion gain on disposal of our Outdoor business in the 2019 period and due to the other factors discussed above. Net loss attributable to the Company decreased $13,109.0 million to $1,886.1 million during the six months ended June 30, 2020 compared to Net income attributable to the Company of $11,222.9 million during the six months ended June 30, 2019, primarily as a result of the $9.5 billion gain from Reorganization items net related to the Chapter 11 Cases in the 2019 period, the $1.7 billion gain on disposal of our Outdoor business in the 2019 period and due to the other factors discussed above. Reconciliation of Operating Income (Loss) to Adjusted EBITDA (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Three Months Ended June 30, Period from May 2, 2019 through June 30, Period from April 1, 2019 through May 1, Three Months Ended June 30, 2020 2019 2019 2019 Operating income (loss) $ (159,087) $ 133,688 $ 47,891 $ 181,579 Depreciation and amortization (1) 103,347 59,383 14,544 73,927 Impairment charges 5,378 — — — Other operating (income) expense, net 506 (3,246) 127 (3,119) Share-based compensation expense (2) 4,218 3,039 105 3,144 Restructuring and reorganization expenses 16,355 1,889 5,430 7,319 Adjusted EBITDA (3) $ (29,283) $ 194,753 $ 68,097 $ 262,850 (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Six Months Ended June 30, Period from May 2, 2019 through June 30, Period from January 1, 2019 through May 1, Six Months Ended June 30, 2020 2019 2019 2019 Operating income (loss) $ (1,889,866) $ 133,688 $ 67,040 $ 200,728 Depreciation and amortization (1) 200,115 59,383 52,834 112,217 Impairment charges 1,733,235 — 91,382 91,382 Other operating (income) expense, net 1,572 (3,246) 154 (3,092) Share-based compensation expense (2) 8,843 3,039 498 3,537 Restructuring and reorganization expenses 57,157 1,889 13,241 15,130 Adjusted EBITDA (3) $ 111,056 $ 194,753 $ 225,149 $ 419,902 43 Reconciliation of Net (Income) Loss to EBITDA and Adjusted EBITDA (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Three Months Ended June 30, Period from May 2, 2019 through June 30, Period from April 1, 2019 through May 1, Three Months Ended June 30, 2020 2019 2019 2019 Net income (loss) $ (197,317) $ 38,793 $ 11,300,714 $ 11,339,507 Income from discontinued operations, net of tax — — (1,854,677) (1,854,677) Income tax (benefit) expense (43,742) 16,003 100,289 116,292 Interest expense (income), net 81,963 69,711 (400) 69,311 Depreciation and amortization (1) 103,347 59,383 14,544 73,927 EBITDA $ (55,749) $ 183,890 $ 9,560,470 $ 9,744,360 Reorganization items, net — — (9,497,944) (9,497,944) Gain on investments, net (1,280) — — — Other expense (income), net 1,258 9,157 (150) 9,007 Equity in loss of nonconsolidated affiliates 31 24 59 83 Impairment charges 5,378 — — — Other operating (income) expense, net 506 (3,246) 127 (3,119) Share-based compensation expense (2) 4,218 3,039 105 3,144 Restructuring and reorganization expenses 16,355 1,889 5,430 7,319 Adjusted EBITDA (3) $ (29,283) $ 194,753 $ 68,097 $ 262,850 (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Six Months Ended June 30, Period from May 2, 2019 through June 30, Period from January 1, 2019 through May 1, Six Months Ended June 30, 2020 2019 2019 2019 Net income (loss) $ (1,886,053) $ 38,793 $ 11,165,113 $ 11,203,906 Income from discontinued operations, net of tax — — (1,685,123) (1,685,123) Income tax (benefit) expense (194,253) 16,003 39,095 55,098 Interest expense (income), net 172,052 69,711 (499) 69,212 Depreciation and amortization (1) 200,115 59,383 52,834 112,217 EBITDA $ (1,708,139) $ 183,890 $ 9,571,420 $ 9,755,310 Reorganization items, net — — (9,461,826) (9,461,826) Loss on investments, net 8,675 — 10,237 10,237 Other (income) expense, net 9,118 9,157 (23) 9,134 Equity in loss of nonconsolidated affiliates 595 24 66 90 Impairment charges 1,733,235 — 91,382 91,382 Other operating (income) expense, net 1,572 (3,246) 154 (3,092) Share-based compensation expense (2) 8,843 3,039 498 3,537 Restructuring and reorganization expenses 57,157 1,889 13,241 15,130 Adjusted EBITDA (3) $ 111,056 $ 194,753 $ 225,149 $ 419,902 44 (1) Increase in Depreciation and amortization is driven by the application of fresh start accounting, resulting in significantly higher value of our tangible and intangible assets. (2) Increase in Share-based compensation expense is due to our new equity compensation plan entered into in connection with our Plan of Reorganization. (3) We define Adjusted EBITDA as consolidated Operating income (loss) adjusted to exclude restructuring and reorganization expenses included within Direct operating expenses, SG&A expenses, 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 (income), net, Depreciation and amortization, Reorganization items, net, (Gain) Loss on investments, net, Other (income) expense, net, Equity in loss of nonconsolidated affiliates, net, Impairment charges, Other operating (income) expense, net, Share-based compensation expense, 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 Successor Company Predecessor Company Non-GAAP Combined Three Months Ended June 30, Period from May 2, 2019 through June 30, Period from April 1, 2019 through May 1, Three Months Ended June 30, 2020 2019 2019 2019 Cash provided by (used for) operating activities from continuing operations $ 11,369 $ 83,201 $ (144,171) $ (60,970) Purchases of property, plant and equipment by continuing operations (17,882) (17,435) (13,244) (30,679) Free cash flow from (used for) continuing operations (1) $ (6,513) $ 65,766 $ (157,415) $ (91,649) 45 (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Six Months Ended June 30, Period from May 2, 2019 through June 30, Period from January 1, 2019 through May 1, Six Months Ended June 30, 2020 2019 2019 2019 Cash provided by (used for) operating activities from continuing operations $ 102,909 $ 83,201 $ (7,505) $ 75,696 Purchases of property, plant and equipment by continuing operations (39,546) (17,435) (36,197) (53,632) Free cash flow from (used for) continuing operations (1) $ 63,363 $ 65,766 $ (43,702) $ 22,064 (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 $4.2 million and $3.1 million for the three months ended June 30, 2020 and 2019, respectively, and $8.8 million and $3.5 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, there was $48.1 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 years. 46 LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following discussion highlights cash flow activities during the periods presented: (In thousands) Successor Company Successor Company Predecessor Company Non-GAAP Combined Six Months Ended June 30, Period from May 2, 2019 through June 30, Period from January 1, 2019 through May 1, Six Months Ended June 30, 2020 2019 2019 2019 Cash provided by (used for): Operating activities $ 102,909 $ 83,201 $ (40,186) $ 43,015 Investing activities $ (50,681) $ (17,787) $ (261,144) $ (278,931) Financing activities $ 65,512 $ (684) $ (55,557) $ (56,241) Free Cash Flow (1) $ 63,363 $ 65,766 $ (43,702) $ 22,064 (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 six months ended June 30, 2020 was $102.9 million compared to $43.0 million of cash provided by operating activities in the six months ended June 30, 2019. Cash provided by operating activities from continuing operations increased from $75.7 million in the six months ended June 30, 2019 to $102.9 million in the six months ended June 30, 2020 primarily as a result of changes in working capital balances, particularly accounts receivable, as well as accounts payable and accrued expenses, which were affected by the timing of payments. In addition, we paid $196.3 million during the six months ended June 30, 2019 in relation to Reorganization items, net. The increase in cash provided by operating activities was offset by a decrease in Revenue driven by the decline in advertising spend resulting from the economic slow-down impacted by the COVID-19 pandemic. In addition, cash interest payments made by continuing operations increased $181.2 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 $50.7 million during the six months ended June 30, 2020 primarily reflects $39.5 million in cash used for capital expenditures. We spent $32.8 million for capital expenditures in our Audio segment primarily related to IT infrastructure, $1.6 million in our Audio & Media Services segment, primarily related to acquired software and $5.1 million in Corporate primarily related to equipment and software purchases. Cash used for investing activities of $278.9 million during the six months ended June 30, 2019 primarily reflects $222.4 million in cash used for investing activities from discontinued operations. In addition, we used $53.6 million for capital expenditures. We spent $44.7 million for capital expenditures in our Audio segment primarily related to IT infrastructure, $2.1 million in our Audio & Media Services segment, primarily related to acquired software and $6.8 million in Corporate primarily related to equipment and software purchases. 47 Financing Activities Cash provided by financing activities of $65.5 million during the six months ended June 30, 2020 primarily resulted from the $350.0 million draw on our ABL Facility, partially offset by the $150.0 million prepayment on our Term Loan Facility and repayments of $115.0 million of amounts drawn under the ABL Facility. Cash used for financing activities was $56.2 million during the six months ended June 30, 2019 primarily resulted from the payment by iHeartCommunications to CCOH as CCOH's recovery of its claims under the Due from iHeartCommunications Note, partially offset by $60.0 million in proceeds received from the issuance of the iHeart Operations Preferred Stock. Anticipated Cash Requirements Our primary sources of liquidity are cash on hand, which consisted of $517.7 million as of June 30, 2020, cash flow from operations and borrowing capacity under our $450.0 million ABL Facility. On March 13, 2020, iHeartCommunications, Inc. (“iHeartCommunications”), our indirect wholly-owned subsidiary, borrowed $350.0 million principal amount under our $450.0 million ABL Facility as a precautionary measure to preserve iHeartCommunications’ financial flexibility in light of the uncertainty in the global economy resulting from the COVID-19 pandemic. During the three months ended June 30, 2020, we repaid $115.0 million principal amount drawn under our ABL Facility. As of June 30, 2020, iHeartCommunications had a borrowing base of $289.4 million and utilization of $235.0 million in outstanding borrowings and $41.2 million in outstanding letters of credit, resulting in $13.2 million of availability, such availability being subject to further restrictions contained within the credit agreement governing the ABL Facility. In July 2020, the Company issued $450.0 million of incremental term loans, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay the remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. Following the repayment of all outstanding borrowings under the ABL Facility, due to restrictions contained primarily in our mandatorily redeemable preferred stock agreements, we had the ability to borrow approximately $160 million under the ABL Facility. Our cash balance was $517.7 million as of June 30, 2020. Together with our adjusted cash balance 1 as of June 30, 2020 of approximately $708 million and our borrowing capacity under the ABL Facility, our total available liquidity 2 was approximately $868 million. We will have the option to redeem the preferred stock beginning on May 1, 2022, or at an earlier date under certain circumstances in accordance with the documents governing the preferred stock instrument. We cannot determine the full extent of COVID-19’s impact on our business at this time and we are monitoring this rapidly evolving situation closely. While the challenges that COVID-19 has created for advertisers and consumers have had a significant impact on our revenue for the three and six months ended June 30, 2020 and has created a business outlook that is less clear in the near term, we believe that we have sufficient liquidity to fund our operations for at least the next twelve months. We expect that our primary anticipated uses of liquidity will be to fund our working capital, make interest payments, fund capital expenditures and maintain operations in light of the COVID-19 pandemic and other obligations. These other obligations include dividend payments to be due to the holder of iHeart Operations Preferred Stock, the terms of which are further described in Note 6, Long-term Debt to our financial statements included herein. We anticipate that we will have approximately $84 million of cash interest payments in the third quarter of 2020 and approximately $170 million of cash interest payments in the remainder of 2020. As a result of certain favorable tax provisions in the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, we expect our 2020 cash income tax payments to be insignificant. As a result of the provisions regarding interest deductions and the deferral of certain employment taxes into future periods, cash tax payments in 2020 are expected to be approximately $100 million lower than they would been absent these favorable provisions. 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. Early in the first quarter of 2020, we implemented our modernization initiatives to take advantage of the significant investments we have made in new technologies to build an operating infrastructure that provides better quality and newer products and delivers new cost efficiencies. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. 1 Adjusted for the impact of the amendment entered into in July 2020 to issue $450.0 million of incremental term loan commitments, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay the remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. 2 Total available liquidity defined as cash and cash equivalents plus available borrowings under the ABL Facility. We use total available liquidity to evaluate our capacity to access cash to meet obligations and fund operations. 48 In response to the COVID-19 pandemic, in an effort to further strengthen the Company's financial flexibility and efficiently manage through the period of economic slowdown and uncertainty, the Company is continuing to take the following measures, which are expected to generate approximately $200 million in operating cost savings in 2020: • Substantial reduction in certain operating expenses, such as suspension of new employee hiring, travel and entertainment expenses, 401(k) matching expenses, consulting fees and other discretionary expenses. • Reduction in planned capital expenditures to a level that we believe will still enable the Company to make key investments to continue our strategic initiatives related to Smart Audio and Digital, including podcasting. • Reduction in compensation for senior management and other employees of the Company, including a 100% reduction of the Company's Chief Executive Officer's annual base salary and bonus. • Implementation of a furlough for certain employees that are non-essential at this time. In addition, as a result of the decrease in revenue as a result of the COVID-19 pandemic, certain variable expenses including event production costs and sales commissions, as well as other variable compensation, showed a corresponding decrease. We believe that our cash balance, our cash flow from operations and availability under our ABL Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations. In addition, none of our long-term debt includes maintenance covenants that could trigger early repayment. We fully appreciate the unprecedented challenges posed by the COVID-19 pandemic, however, we remain confident in our business, our employees and our strategy. We believe that our ability to generate cash flow from operations from our business initiatives, our current cash on hand and availability under the ABL Facility 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. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms or at all in the future. On February 3, 2020, iHeartCommunications made a $150.0 million prepayment using cash on hand and entered into an agreement to amend the Term Loan Facility to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Base Rate (as defined in the Credit Agreement plus a margin of 2.00% and to modify certain covenants contained in the Credit Agreement. On July 16, 2020, iHeartCommunications entered into an additional amendment to the Credit Facility (“Amendment No. 2”) to provide for $450.0 million, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay the remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. The incremental term loans issued pursuant to Amendment No. 2 have an interest rate of 4.00% for Eurocurrency Rate Loans and 3.00% for Base Rate Loans (subject to a LIBOR floor of 0.75% and Base Rate floor of 1.75%). Amendment No. 2 also modifies certain other provisions of the Credit Agreement. In connection with the Separation and Reorganization, we entered into the following transactions which may require ongoing capital commitments: Transition Services Agreement Pursuant to the Transition Services Agreement between us, iHeartMedia Management Services, Inc. (“iHM Management Services”), iHeartCommunications and CCOH, for one year from the Effective Date, we have agreed 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. As of June 30, 2020, most of these services have been successfully transitioned to CCOH. The Company continues to provide certain information systems and other limited support services. CCOH has requested extensions of the term for certain individual services, primarily related to information systems, for one-month periods through August 31, 2020 and may request further one-month extensions of such services up to May 1, 2021. 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. For 49 additional information, see Note 2, Discontinued Operations to the consolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description. New Tax Matters Agreement In connection with the Separation, we entered into the New Tax Matters Agreement by and among iHeartMedia, iHeartCommunications, iHeart Operations, Inc., CCH, CCOH and Clear Channel Outdoor, Inc., to allocate the responsibility of iHeartMedia and its subsidiaries, on the one hand, and CCOH and its subsidiaries, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation. The New Tax Matters Agreement requires that iHeartMedia and iHeartCommunications indemnify CCOH and its subsidiaries, and their respective directors, officers and employees, and hold them harmless, on an after-tax basis, from and against certain tax claims related to the Separation. In addition, the New Tax Matters Agreement requires that CCOH indemnify iHeartMedia for certain income taxes paid by iHeartMedia on behalf of CCOH and its subsidiaries. Sources of Capital As of June 30, 2020 and December 31, 2019, we had the following debt outstanding, net of cash and cash equivalents: (In millions) Successor Company June 30, 2020 December 31, 2019 Term Loan Facility due 2026 (1)(3) $ 2,090.8 $ 2,251.3 Asset-based Revolving Credit Facility due 2023 (2)(3) 235.0 — 6.375% Senior Secured Notes due 2026 800.0 800.0 5.25% Senior Secured Notes due 2027 750.0 750.0 4.75% Senior Secured Notes due 2028 500.0 500.0 Other Secured Subsidiary Debt 23.6 21.0 Total Secured Debt 4,399.4 4,322.3 8.375% Senior Unsecured Notes due 2027 1,450.0 1,450.0 Other Subsidiary Debt 6.3 12.5 Long-term debt fees (18.6) (19.4) Total Debt 5,837.1 5,765.4 Less: Cash and cash equivalents 517.7 400.3 $ 5,319.4 $ 5,365.1 (1) On February 3, 2020, iHeartCommunications made a $150.0 million prepayment using cash on hand and entered into an agreement to amend the Term Loan Facility to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Base Rate (as defined in the Credit Agreement) plus a margin of 2.00% and to modify certain covenants contained in the Credit Agreement. (2) On March 13, 2020, iHeartCommunications borrowed $350.0 million under the ABL Facility, the proceeds of which were invested as cash on the Balance Sheet. During the three months ended June 30, 2020, iHeartCommunications voluntarily repaid $115.0 million principal amount drawn under the ABL Facility. As of June 30, 2020, the ABL Facility had a borrowing base of $289.4 million and $235.0 million of outstanding borrowings and $41.2 million of outstanding letters of credit, resulting in $13.2 million of availability. Amounts available under the ABL Facility are calculated using a borrowing base calculated by reference to our outstanding accounts receivable. To the extent decreases in our accounts receivable result in the borrowing base decreasing to an amount below the amount drawn, we may be required to make a partial repayment of amounts outstanding under our ABL Facility. (3) On July 16, 2020, iHeartCommunications issued $450.0 million of incremental term loans under the Amendment No. 2, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay the remaining balance outstanding on the Company's ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. For additional information regarding our debt refer to Note 6, Long-Term Debt. 50 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 six months ended June 30, 2020, 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 86.3% of the Company's consolidated assets as of June 30, 2020. For the three and six months ended June 30, 2020, iHeart Operations and its subsidiaries comprised 83.6% and 85.0% of the Company's consolidated revenue, respectively. 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 June 30, 2020, approximately 41% 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 six months ended June 30, 2020 would have changed by $6.6 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. 51 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. There have been no significant changes to our critical accounting policies and estimates disclosed in “Critical Accounting Estimates” of Item 7, Management’s Discussion and Analysis of our Annual Report on Form 10-K for the year ended December 31, 2019 except as disclosed in Note 1, Basis of Presentation to our consolidated financial statements. 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, the anticipated impacts of the COVID-19 pandemic on our business, financial position and results of operations, our Rights Plan, our expected costs, savings and timing of our modernization initiatives and other capital and operating expense reduction initiatives, our business plans, strategies and initiatives, our expectations about certain markets, our expectations regarding our FCC petition for declaratory ruling and our anticipated financial performance and liquidity. 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 for advertising; • the impact of the COVID-19 pandemic on our business, financial position and results of operations; • 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 our substantial indebtedness; • the impact of future acquisitions, dispositions and other strategic transactions; • legislative or regulatory requirements; • the impact of legislation or ongoing litigation on music licensing and royalties; • regulations and consumer concerns regarding privacy and data protection, and breaches of information security measures; • risks associated with our recent emergence from the Chapter 11 Cases; • risks related to our Class A common stock, including our significant number of outstanding warrants; • regulations impacting our business and the ownership of our securities; and • certain other factors set forth in our other filings with the SEC. 52 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.