S-11/A 1 d695618ds11a.htm AMENDMENT NO.6 TO FORM S-11 Amendment No.6 to Form S-11
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As filed with the Securities and Exchange Commission on March 17, 2014

Registration No. 333-189643

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 6

TO

FORM S-11

FOR REGISTRATION

UNDER

THE SECURITIES ACT OF 1933

OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

 

 

CBS OUTDOOR AMERICAS INC.

 

(Exact Name of Registrant as Specified in Its Governing Instruments)

405 Lexington Avenue, 17th Floor

New York, NY 10174

(212) 297-6400

 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Lawrence P. Tu

405 Lexington Avenue, 17th Floor

New York, NY 10174

(212) 297-6400

 

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

 

    Matthew D. Bloch
David E. Shapiro   Lawrence P. Tu   Jennifer A. Bensch
Wachtell, Lipton, Rosen & Katz   CBS Corporation   Weil, Gotshal & Manges LLP
51 West 52nd Street   51 West 52nd Street   767 Fifth Avenue
New York, NY 10019   New York, NY 10019   New York, NY 10153
(212) 403-1000 (Telephone)   (212) 975-4321 (Telephone)   (212) 310-8000 (Telephone)

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement of the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    ¨       Accelerated filer    ¨
Non-accelerated filer    x    (Do not check if a smaller reporting company)    Smaller reporting company    ¨

 

 

CALCULATION OF REGISTRATION FEE CHART

 

 

Title of each Class of

Securities to be Registered

 

Amount

to be
Registered (1)

  Proposed
Maximum
Offering Price
Per Share
 

Proposed
Maximum
Aggregate

Offering Price (2)

 

Amount of

Registration Fee (3)

Common Stock, $0.01 par value per share

  23,000,000   $28.00   $644,000,000   $82,948

 

 

(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as amended, solely for the purpose of calculating the registration fee, and includes shares of common stock that the underwriters have an option to purchase.
(2) Calculated pursuant to Rule 457(a) of the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price.
(3) The Registrant previously paid $13,640 of the registration fee in connection with prior filings of this Registration Statement.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS    SUBJECT TO COMPLETION, DATED MARCH 17, 2014

20,000,000 Shares

CBS Outdoor Americas Inc.

Common Stock

This is the initial public offering of CBS Outdoor Americas Inc., currently an indirect wholly owned subsidiary of CBS Corporation (“CBS”). We are offering 20,000,000 shares of our common stock. Prior to this offering, there has been no public market for shares of our common stock. We anticipate that the initial public offering price per share of our common stock will be between $26.00 and $28.00 per share.

CBS has advised us that it currently intends to dispose of all of the shares of our common stock that it indirectly will own upon the completion of this offering following the “lock-up” period described under “Underwriting” (the “Separation”). CBS has advised us that it intends to effect the Separation by means of a tax-free split-off. If CBS does not proceed with the split-off, it could elect to dispose of our common stock in a number of different types of transactions, including open market sales, sales to one or more third parties or pro rata distributions of our shares to CBS’s stockholders or a combination of these transactions. CBS could also elect not to dispose of our common stock. The determination of whether, when and how to proceed with the Separation is entirely within the discretion of CBS. See “The Separation.”

We are, and, until CBS ceases to own at least 80% of our outstanding common stock, we will remain, a member of CBS’s consolidated tax group for U.S. federal income tax purposes and will be taxable as a regular domestic C corporation for U.S. federal income tax purposes. Following the Separation, we intend to elect and qualify to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. We expect the Separation to be consummated in 2014 and to make an election to be taxed as a REIT for our taxable year beginning the day after the Separation and ending December 31, 2014. However, there can be no assurance that the Separation will be consummated within such time frame. To assist us in qualifying and maintaining our status as a REIT, among other purposes, our charter will contain certain restrictions relating to the ownership and transfer of shares of our stock, including a provision restricting stockholders from owning more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock or more than 9.8% in value of the aggregate outstanding shares of all classes and series of our stock without the prior consent of our board of directors. See “Description of Securities—Restrictions on Ownership and Transfer.” CBS has requested a private letter ruling from the Internal Revenue Service (“IRS”) with respect to certain issues relevant to our qualification to be taxed as a REIT.

Our common stock has been approved for listing on the New York Stock Exchange, subject to official notice of issuance, under the symbol “CBSO”.

Investing in our common stock involves risk. See “Risk Factors” beginning on page 20.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

     PER SHARE    TOTAL

Public offering price

   $    $

Underwriting discounts and commissions(1)

   $    $

Proceeds to CBS Outdoor Americas Inc. before expenses

   $    $

 

(1) In addition, we have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting.”

Delivery of the shares of our common stock is expected to be made on or about         . We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase an additional 3,000,000 shares of our common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $27.9 million, and the total net proceeds to us, before expenses, will be $593.1 million, in each case, based on the midpoint of the price range set forth on this page.

 

Goldman, Sachs & Co.

 

BofA Merrill Lynch

  J.P. Morgan   Morgan Stanley
Citigroup   Deutsche Bank Securities   Wells Fargo Securities

 

BNP PARIBAS   Credit Suisse   Mizuho Securities   RBS   SMBC Nikko   UBS Investment Bank
         
BNY Mellon Capital Markets, LLC   TD Securities
Barrington Research   Evercore   Guggenheim Securities   Nomura   RBC Capital Markets
Drexel Hamilton   Lebenthal & Co., LLC   Loop Capital Markets   Ramirez & Co., Inc.   The Williams Capital Group, L.P.

Prospectus dated                             , 2014


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TABLE OF CONTENTS

 

Prospectus Summary

     1   

Risk Factors

     20   

Special Note Regarding Forward-Looking Statements

     42   

Use of Proceeds

     45   

Distribution Policy

     46   

Capitalization

     47   

Dilution

     49   

Selected Combined Consolidated Financial Data

     51   

Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

     53   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     60   

Our Industry

     81   

Regulation

     82   

Business and Properties

     84   

Management

     91   

Executive Compensation

     97   

Certain Relationships and Related-Person Transactions

     121   

Formation Transactions

     123   

The Separation

     125   

Principal Stockholders

     127   

Description of Securities

     129   

Certain Provisions of Maryland Law and of Our Charter and Bylaws

     134   

Shares Eligible for Future Sale

     139   

U.S. Federal Income Tax Considerations

     141   

Policies With Respect to Certain Activities

     162   

Underwriting

     166   

Legal Matters

     173   

Experts

     173   

Where You Can Find More Information

     173   

Index to Combined Consolidated Financial Statements

     F-1   

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. We have not, and the underwriters have not, authorized anyone to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Until                     (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in our initial public offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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BASIS OF PRESENTATION

Except as otherwise indicated or unless the context otherwise requires, all references in this prospectus to (i) “we,” “our,” “us,” “ourselves,” “the Company,” and “our company” refer to CBS Outdoor Americas Inc., a Maryland corporation, and unless the context requires otherwise, its consolidated subsidiaries and (ii) “CBS” refers to CBS Corporation, a Delaware corporation, and, unless the context requires otherwise, its consolidated subsidiaries.

We intend to complete a series of formation transactions prior to the effectiveness of the registration statement of which this prospectus forms a part. See “Formation Transactions.”

Unless otherwise indicated, all references to “dollars” and “$” in this prospectus are to, and amounts are presented in, U.S. Dollars. Unless otherwise indicated, all references in this prospectus to the “25 largest markets” in the United States and “180 markets in the United States, Canada and Latin America” are based on Nielsen Media Research’s Designated Market Area rankings as of January 1, 2014.

Unless otherwise indicated, the information contained in this prospectus is as of the date set forth on the cover of this prospectus, assumes that the underwriters’ option to purchase additional shares is not exercised and assumes that the common stock to be sold in this offering is sold at $27.00 per share, which is the midpoint of the price range set forth on the front cover of this prospectus.

Some of the statements in this prospectus constitute forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”

MARKET AND INDUSTRY DATA

Although we are responsible for all of the disclosures contained in this prospectus, this prospectus contains industry, market and competitive position data and forecasts that are based on industry publications and studies conducted by third parties. The industry publications and third-party studies generally state that the information that they contain has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. The industry forward-looking statements included in this prospectus may be materially different than actual results.

TRADEMARKS AND TRADE NAMES

This prospectus contains references to a number of our trademarks (including service marks) that are registered trademarks or trademarks for which we have pending applications or common-law rights. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective owners.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before making an investment decision to purchase our common stock in this offering. You should read the entire prospectus carefully, including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined consolidated financial statements and the related notes thereto included elsewhere in this prospectus before making an investment decision to purchase our common stock.

Within this prospectus we define operating income before depreciation and amortization (“OIBDA”), net gain (loss) on dispositions and restructuring charges as “Adjusted OIBDA.” For more information on how we calculate Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income, see “—Summary Financial Data.” For a reconciliation of Adjusted OIBDA to operating income for each of our operating segments as well as to our total net income (loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For more information on how we calculate and define funds from operations (“FFO”) and Adjusted FFO and a reconciliation of net income (loss) to FFO and Adjusted FFO, see “Selected Combined Consolidated Financial Data.”

Overview

We are one of the largest lessors of advertising space (“displays”) on out-of-home advertising structures and sites across the United States, Canada and Latin America. Our portfolio primarily consists of billboard displays, which are predominantly located in densely populated major metropolitan areas and along high-traffic expressways and major commuting routes. In addition, we have a number of exclusive multiyear contracts that allow us to operate advertising displays in municipal transit systems where our customers are able to reach millions of commuters on a daily basis. We have displays in all of the 25 largest markets in the United States and over 180 markets in the United States, Canada and Latin America, including in some of the most heavily trafficked locations, such as the Bay Bridge in San Francisco, Sunset Boulevard in Los Angeles and Grand Central Station and Times Square in New York City. We believe that the location of many of our displays is a strategic advantage relative to other forms of advertising. As of December 31, 2013, we had approximately 330,000 displays in the United States and approximately 26,200 displays across Canada and Latin America. The breadth of our portfolio provides our customers with a multitude of options to serve their varied marketing needs—for example, they can reach a large audience through national, brand-building campaigns (which Apple uses to market its iPhone and iPad products) or advertise by way of localized, action-inducing messages (which McDonald’s employs to make drivers aware of its nearby restaurants). For the year ended December 31, 2013, we generated revenues of $1.29 billion, Adjusted OIBDA of $407.3 million and operating income of $238.8 million.

We believe that out-of-home advertising is an attractive form of advertising as our displays are ALWAYS ON™ and cannot be turned off, skipped or fast-forwarded, and that it provides our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising. In addition to leasing displays, we provide other value-added services to our customers, such as pre-campaign category research, creative design support and post-campaign tracking and analytics. We use a real-time mobile operational reporting system that enables proof of performance to customers. Our large portfolio of displays and geographic reach allow us to serve a broad range of customers that includes consumer-focused companies in the entertainment, retail, healthcare, telecom, restaurant, financial services, travel and leisure and automotive industries. During the year ended December 31, 2013, we served approximately 19,700 customers in the United States, including large, national companies such as Anheuser-Busch, Apple, AT&T, Diageo, Disney, McDonald’s, Sony and Verizon, as well as regional and local companies. During the twelve months ended November 30, 2013, 88 of the top 100 advertisers in the United States (as determined by Kantar Media Intelligence) were our customers. As a result of our diverse base of customers, in the United States, no single industry contributed more than 10% of our revenues and no single customer contributed more than 1.7% of our revenues during the year ended December 31, 2013.

As of December 31, 2013, we had 373 digital billboard displays in the United States. The majority of our digital billboard displays have been converted from traditional static billboard displays. Increasing the number of

 

 

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digital billboard displays in our most heavily trafficked locations is an important element of our organic growth strategy. Digital billboard displays have the potential to attract additional business from both new and existing customers. We believe that digital billboard displays are attractive to our customers because they allow for the development of richer and more visually engaging messages and provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns. In addition, digital billboard displays enable us to run multiple advertisements on each display (up to eight per minute). As a result, digital billboard displays generate approximately three to four times more revenue per display on average than traditional static billboard displays, and digital billboard displays generate higher profits and cash flows than traditional static billboard displays. As the costs to convert traditional static billboard displays to digital billboard displays have declined, we have accelerated our conversion efforts, adding approximately 70 digital billboard displays in 2011 and 110 digital billboard displays in each of 2012 and 2013, for a total investment of $73.1 million.

We generally (i) own the physical billboard structures on which we display advertising copy for our customers, (ii) hold the legal permits to display advertising thereon and (iii) lease the underlying sites. These lease agreements have terms varying between one month and multiple years, and usually provide renewal options. We estimate that approximately 75% of our billboard structures in the United States are “legal nonconforming” billboards, meaning they were legally constructed under laws in effect at the time they were built, but could not be constructed under current laws. These structures are often located in areas where it is difficult or not permitted to build additional billboards under current laws, which enhances the value of our portfolio. We have a highly diversified portfolio of advertising sites. As of December 31, 2013, we had approximately 23,100 lease agreements with approximately 18,800 different landlords. A substantial number of these lease agreements allow us to abate rent and/or terminate the lease agreement in certain circumstances, which may include where the structure is obstructed, where there is a change in traffic flow and/or where the advertising value of the sign structure is otherwise impaired, providing us with flexibility in renegotiating the terms of our leases with landlords.

We manage our business through the following two segments:

United States.  As of December 31, 2013, we had approximately 330,000 advertising displays in the United States, including the largest number of advertising displays of any out-of-home advertising company operating in the 25 largest markets in the United States. For the year ended December 31, 2013, our United States segment generated 20% of its revenues in the New York City metropolitan area and 12% in the Los Angeles metropolitan area. For the year ended December 31, 2013, our United States segment generated $1.13 billion of revenues and $406.4 million of Adjusted OIBDA.

International.  Our International segment includes our operations in Canada and Latin America, including Mexico, Argentina, Brazil, Chile and Uruguay. We are one of the largest out-of-home advertising companies in Canada and have significant scale in Mexico and across the other countries in which we operate in Latin America. As of December 31, 2013, we had approximately 26,200 advertising displays in our International segment, including approximately 14,400 in Canada. For the year ended December 31, 2013, our International segment generated $163.9 million of revenues and $29.1 million of Adjusted OIBDA.

History

We trace our roots to companies that helped to pioneer the growth of out-of-home advertising in the United States, such as Outdoor Systems, Inc., 3M National, Gannett Outdoor and TDI Worldwide Inc. In 1996, a predecessor of CBS acquired TDI Worldwide Inc., which specialized in transit advertising. Three years later, a predecessor of CBS acquired Outdoor Systems, Inc., which represented the consolidation of the outdoor advertising assets of large national operators such as 3M National, Gannett Outdoor (and its Canadian assets held in the name Mediacom) and Vendor (a Mexican outdoor advertising company) and many local operators in the United States, Canada and Mexico. In 2008, a subsidiary of CBS expanded our business into South America through the acquisition of International Outdoor Advertising Holdings Co., which operated in Argentina, Brazil, Chile and Uruguay. The company that we are today represents the hard-to-replicate combination of the assets of all of these businesses, as well as other acquisitions and internally developed assets.

 

 

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Business Strengths

Large-Scale Out-of-Home Advertising Platform.  We believe our large-scale portfolio of advertising structures and sites provides a compelling value proposition to our customers because of our national footprint, large market presence and strategically placed assets in high-traffic locations. A number of our displays are located in areas where it is difficult or not permitted to build additional billboards under current laws, which enhances the value of our portfolio. The size of our portfolio provides us with economies of scale that allow us to operate, invest and grow our business in an efficient manner. For example, it allows us to cost-effectively roll out new technologies, such as digital billboard displays, and to efficiently service our customers’ campaigns through enhanced audience delivery, measurement and reporting capabilities.

Out-of-Home Advertising Is an Impactful and Cost-Effective Medium.  Unlike other types of media, such as television, radio and the internet, out-of-home advertising is ALWAYS ON™. It cannot be turned off, skipped or fast-forwarded. We believe that this helps our customers to better reach their target audiences. In addition, using out-of-home advertising can be a cost-effective way for advertisers to reach an audience relative to other forms of media; outdoor advertising has an average cost per thousand impressions or “CPM” of $5.22 (i.e., on average, advertisers pay $5.22 for every thousand views of their advertisements on out-of-home advertising structures and sites), as compared with $14.98 for television and $35.50 for newspapers, according to a 2013 SNL Kagan report on Economics of Outdoor & Out-of-Home Advertising.

Significant Presence in Large Metropolitan Markets.  Our portfolio includes advertising structures and sites in all of the 25 largest markets in the United States, covering 50% of the U.S. population. We believe that our positions in major metropolitan markets, such as New York City, Los Angeles, Chicago, Washington, D.C. and San Francisco, are desirable to customers wishing to reach large audiences. We believe that our strong positions in these markets provide us with an advantage in attracting national advertising campaigns and enable us to take advantage of increased urbanization within the United States. Our large-scale portfolio allows our customers to reach a national audience and also provides the flexibility to tailor campaigns to specific regions or markets. For the year ended December 31, 2013, we generated approximately 40% of our revenues from national advertising campaigns. Many of our advertising displays are located in strategic locations with limited supply, including the Bay Bridge in San Francisco, Sunset Boulevard in Los Angeles and Grand Central Station and Times Square in New York City.

Diverse and Long-Standing Customer Base.  Our revenues are derived from a broad, diverse set of national, regional and local customers across a range of industries. During the year ended December 31, 2013, in the United States we served approximately 19,700 customers and no single customer contributed more than 1.7% of our revenues. Our broad customer base includes companies in the entertainment, retail, healthcare, telecom, restaurant, financial services, travel and leisure and automotive industries. For the year ended December 31, 2013, in the United States, no single industry contributed more than 10% of our revenues. Many of our customers have utilized out-of-home advertising for decades and have been customers of ours for many years.

Strong Profitability and Significant Cash Flow Generation.  Our business has been highly profitable and has generated significant cash flows. In 2013, our Adjusted OIBDA margin was 31.5%. We also benefit from significant operating leverage due to our high proportion of fixed costs, which allows us to generate significant OIBDA and cash flows from incremental revenues. In 2013, we generated cash flows from operating activities of $278.4 million. In addition, most of our capital expenditures are directed towards new revenue-generating projects, such as the conversion of traditional static billboard displays to digital billboard displays.

Experienced Management.  Members of our management team have served as ambassadors for the promotion of out-of-home advertising as a preferred advertising medium, and we believe that they have been instrumental in the development of industry-wide initiatives to improve audience measurement and targeting capabilities. Our management team includes members of the board and committees of the Outdoor Advertising Association of America and other personnel who are closely involved in advocacy for constituents of the out-of-home advertising industry, including advertisers, consumers and communities.

 

 

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Growth Strategy

Continued Conversion to Digital Billboard Displays.  Increasing the number of digital billboard displays in our most heavily trafficked locations is an important element of our organic growth strategy, as digital billboard displays have the potential to attract additional business from both new and existing customers. Digital billboard displays generate approximately three to four times more revenue per display on average than traditional static billboard displays, and digital billboard displays generate higher profits and cash flows than traditional static billboard displays. In addition, digital billboard displays are attractive to our customers because they allow for the development of richer and more visually engaging messages and provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns. As of December 31, 2013, we had 373 digital billboard displays in the United States, representing only approximately 1% of our total billboard displays in the United States. As the costs to convert traditional static billboard displays to digital billboard displays have declined, we have accelerated our conversion efforts, adding approximately 70 digital billboard displays in 2011 and 110 digital billboard displays in each of 2012 and 2013. We intend to spend a significant portion of our capital expenditures in the coming years to continue to increase the number of digital billboard displays in our portfolio.

Increased Use of Social Media and Mobile Technology Engagement.  We believe there is potential for growth in the reach and effectiveness of out-of-home advertising through increased use of social media and mobile technology engagement. In the coming years, we intend to pursue these opportunities, including through possible strategic alliances and partnerships with social media and mobile technology companies.

Consider Selected Acquisition Opportunities.  Our national footprint in the United States and significant presence in Canada and the countries in which we operate in Latin America provide us with an attractive platform on which to add additional advertising structures and sites. Our scale gives us advantages in driving additional revenues and reducing operating costs from acquired billboards. We believe that there is significant opportunity for additional industry consolidation, and we will evaluate opportunities to acquire additional advertising structures and sites on a case-by-case basis.

Encourage Adoption of New Audience Measurement Systems.  We believe that the accelerated adoption of the out-of-home advertising industry’s audience measurement system, the TAB Out-of-Home Ratings, will enhance the value of out-of-home advertising media by providing our customers with improved audience measurement and the ability to target by gender, age, ethnicity and income. We believe that by providing a consistent and reliable audience measurement metric comparable to those used by other media formats, the TAB Out-of-Home Ratings encourages the incorporation of out-of-home advertising media by independent marketing specialists and advertising agencies that increasingly rely on analytical models to design marketing campaigns.

Drive Enhanced Revenue Management.  We focus heavily on inventory management and advertising rate pricing systems to improve revenue yield over time across our portfolio of advertising structures and sites. By carefully managing our pricing on a market-by-market and display-by-display basis, we aim to improve profitability by ensuring pricing discipline. We believe that closely monitoring pricing and improving pricing discipline will provide strong potential revenue enhancement.

 

 

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Our Advertising Structures and Sites

Our advertising structures and sites are geographically diversified across 39 states and seven countries, as well as Puerto Rico. As of December 31, 2013, we had approximately 58,200 billboard displays and 298,000 displays on transit and other structures and sites. The following table sets forth information regarding the geographic diversification of our advertising structures and sites, which are listed in order of contribution to total revenues.

 

    Percentage of Revenues
for the Year Ended
December 31, 2013
        Percentage of Displays as of
December 31, 2013
 
                                         
   

 Location (Metropolitan Area)

  Billboard
Displays
    Transit and
Other
Displays
    Total
Displays
        Billboard
Displays
    Transit and
Other
Displays
    Total
Displays
 
   

 New York, NY

    4%        52%        17%          <1%        57%        47%       
   

 Los Angeles, CA

    10%        13%        11%          7%        14%        13%       
   

 State of New Jersey

    5%        <1%        4%          7%               1%       
   

 Miami, FL

    4%        2%        3%          2%        4%        4%       
   

 Houston, TX

    5%        <1%        3%          2%               <1%       
   

 Detroit, MI

    4%        1%        3%          4%        5%        4%       
   

 Washington, D.C.

    <1%        10%        3%          <1%        7%        6%       
   

 San Francisco, CA

    4%        1%        3%          2%        <1%        1%       
   

 Atlanta, GA

    3%        3%        3%          4%        5%        5%       
   

 Chicago, IL

    3%        <1%        3%          1%               <1%       
   

 Dallas, TX

    3%        1%        3%          1%        <1%        <1%       
   

 Tampa, FL

    3%        <1%        2%          3%               <1%       
   

 Phoenix, AZ

    2%        1%        2%          3%        1%        1%       
   

 Orlando, FL

    2%        <1%        2%          3%               <1%       
   

 St. Louis, MO

    2%        <1%        1%          3%               <1%       
   
 All Other United States  and Puerto Rico     31%        5%        24%          35%        3%        8%       
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
   

Total United States

    86%        91%        87%          77%        96%        93%       
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
   

 Canada

    7%        5%        7%          11%        3%        4%       
   

 Mexico

    4%        1%        3%          8%        <1%        1%       
   

 South America

    3%        3%        3%          4%        1%        2%       
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
   

Total International

    14%        9%        13%          23%        4%        7%       
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
   

 Total

    100%        100%        100%          100%        100%        100%       
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
   

 Total revenues/displays

 ($ in millions)

  $ 925.7      $ 368.3        $1,294.0          58,207        297,981        356,188   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
                 

 

 

                     

 

 

 

 

 

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Our Industry

Advertisers utilize out-of-home media to reach national, regional and local audiences in densely populated major metropolitan areas and along high-traffic expressways and major commuting routes, as well as throughout municipal transit systems. In 2012, out-of-home advertising spending in the United States totaled $7.6 billion, or 4.7% of the $161.2 billion that was spent across all U.S. major media categories, according to a 2013 Zenith Optimedia study on Advertising Expenditure Forecasts. Based on this study, since 1990, out-of-home advertising spending in the United States has increased at a 5.0% compound annual growth rate, has increased as a percentage of total media spending from 1.6% to 4.7% and is projected to continue gaining market share. According to the report, out-of-home advertising spending in the United States is expected to grow at a compound annual growth rate of 4.8% from 2012 through 2015, and growth is expected to be 9.6% over the same time period for Latin America.

Out-of-home advertising is conducted through the following types of advertising structures and sites:

Billboards.  Out-of-home advertising companies generally own billboards, which are located on sites leased through agreements with property owners. Billboard displays can be either static or digital and can come in a variety of forms, including on freestanding billboards and on the exterior and roofs of buildings. Billboards are generally classified by size as bulletins, posters or junior posters:

 

    Bulletins vary in size and are most typically 14 feet high and 48 feet wide. Located along primary commuting routes, including major expressways and main intersections, bulletins garner high monthly rental rates because of their size and impact in highly trafficked areas.

 

    Posters vary in size and are most typically 10 feet 5 inches high and 22 feet 8 inches wide, while junior posters are most typically 5 feet high and 11 feet wide. Located in commercial areas and near point-of-purchase locations, posters and junior posters are highly visible to vehicular traffic and are often placed in local neighborhoods where bulletins are not permitted under zoning laws.

Digital billboard displays represent approximately 1% of the current out-of-home billboard market with 4,900 displays, according to the Outdoor Advertising Association of America. The digital billboard display market is a targeted growth opportunity for many of the out-of-home advertising industry’s major participants. Digital billboard displays eliminate the need to physically change advertisement material thereby resulting in reduced production costs. Digital billboard displays have also been met with high demand from advertisers due to the increased consumer engagement they allow in comparison to traditional out-of-home advertising mediums.

Transit and Other.  Advertising displays are also placed on the interior and exterior of rail and subway cars and buses, as well as on benches, trains, trams, transit shelters, urban panels (i.e., smaller-sized billboards located at transit entrances), street kiosks and transit platforms. Out-of-home advertising companies generally hold multiyear contracts with municipalities and transit operators for the exclusive right to display advertising copy on their properties.

Corporate Information

Our principal executive offices are located at 405 Lexington Avenue, 17th Floor, New York, NY 10174. Our telephone number is (212) 297-6400.

 

 

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Formation Transactions

We intend to complete a series of formation transactions as part of our transition to becoming a public company:

 

    Upon formation as a Maryland corporation, we filed our initial charter in Maryland and adopted our initial bylaws;

 

    In January 2014, CBS completed a series of reorganization transactions resulting in the entities comprising CBS’s Outdoor Americas operating segment being consolidated under us and our issuance of shares to our parent, an indirect wholly owned subsidiary of CBS, upon which we became an indirect wholly owned subsidiary of CBS;

 

    On January 31, 2014, we issued $400 million aggregate principal amount of 5.250% senior notes due 2022 and $400 million aggregate principal amount of 5.625% senior notes due 2024 (collectively, the “Senior Notes”). The Senior Notes were offered within the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act, and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act;

 

    On January 31, 2014, we entered into an $800 million senior secured term loan credit facility due 2021 (the “Term Loan” and, together with the Senior Notes, the “Formation Borrowings”);

 

    In connection with the Formation Borrowings, we incurred $1.6 billion of indebtedness, from which we received net proceeds of approximately $1.57 billion after deducting bank fees, discounts and commissions incurred in connection therewith. Pursuant to the completion of the CBS reorganization transactions, we transferred approximately $1.52 billion to a wholly owned subsidiary of CBS, which is an amount (which we refer to as the “Transferred Borrowing Proceeds”) equal to the net proceeds of the Formation Borrowings less $50 million, which remained with us to use for corporate purposes and ongoing cash needs, as described below. See “Use of Proceeds” and “The Separation”;

 

    We estimate that we will receive net proceeds from this offering of approximately $515.7 million, or approximately $593.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus and after deducting the underwriting discounts and commissions related to this offering. Pursuant to the completion of the CBS reorganization transactions, we will transfer to the same wholly owned subsidiary of CBS an amount (which we refer to as the “Transferred Offering Proceeds”) equal to the net proceeds of this offering less an amount, as determined by CBS, equal to the estimated cash portion of the Purging Distribution(s). We estimate that the Transferred Offering Proceeds will be approximately $415.7 million, or approximately $493.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus. See “Use of Proceeds” and “The Separation”;

 

   

We paid the Transferred Borrowing Proceeds (following the consummation of the Formation Borrowings) and we will pay the Transferred Offering Proceeds (following the consummation of this offering) to such wholly owned subsidiary of CBS (together with shares of CBS Outdoor Americas Inc. common stock) in consideration for the contribution of the entities comprising CBS’s Outdoor Americas operating segment to us pursuant to the CBS reorganization transactions. After making these payments, we expect that we will have retained approximately $150.0 million, which will include the amounts retained by us from the proceeds of the Formation Borrowings and this offering, as described above, which we will use for corporate purposes and ongoing cash needs and which we believe will provide us with sufficient liquidity to pay the cash portion of any Purging Distribution(s) if CBS completes the Separation by means of the split-off and we elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. Following the final payment of the Purging Distribution(s) declared

 

 

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in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described above. See “Use of Proceeds” and “The Separation”;

 

    On January 31, 2014, we entered into a revolving credit facility maturing in 2019 with a commitment of $425 million (the “Revolving Credit Facility” and, together with the Term Loan, the “Senior Credit Facilities”) with third-party financial institutions. The Revolving Credit Facility will be used for corporate purposes, including the issuance of letters of credit, and ongoing cash needs. We do not expect to have any outstanding borrowings under our Revolving Credit Facility upon completion of this offering;

 

    On January 31, 2014, we entered into a Letter of Credit Facility, pursuant to which we may obtain letters of credit from time to time in an aggregate outstanding face amount of up to $80 million;

 

    Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will form one or more subsidiary corporations to serve as taxable REIT subsidiaries (“TRSs”) and will contribute our non-real estate and non-U.S. assets to such subsidiary corporations;

 

    Prior to the consummation of this offering, we will amend and restate our initial charter (as so amended and restated, our “charter”) and amend and restate our initial bylaws (as so amended and restated, our “bylaws”); and

 

    On March 14, 2014, our board of directors declared a 970,000-for-one split of our common stock effected through a dividend to our parent, a wholly owned subsidiary of CBS. As a result of the stock split, the 100 shares of our common stock then outstanding were converted into 97,000,000 shares of our common stock. Also on March 14, 2014, our board of directors declared a contingent dividend to our parent, payable in an aggregate amount of 3,000,000 shares of our common stock less the total number of shares of our common stock actually purchased by the underwriters pursuant to their option to purchase additional shares. These shares of our common stock, if any, are payable to our parent at the end of the 30-day period in which the underwriters may exercise their option. As a result, there will be 120,000,000 shares of our common stock outstanding regardless of whether the underwriters exercise their option to purchase additional shares. All share data of our company presented in this prospectus has been adjusted to reflect this stock split. All share data that is pro forma for this offering assumes that the full amount of the contingent dividend has been paid to our parent.

We refer to the above transactions as our “formation transactions.” As a result of our formation transactions, CBS will receive aggregate consideration of approximately $1.94 billion, which consists of the Transferred Borrowing Proceeds and the Transferred Offering Proceeds, in each case, determined in the manner described above.

 

 

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Our Organizational Structure

The following diagrams provide an overview of our corporate structure before and after the CBS reorganization transactions and this offering.

 

LOGO

 

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Summary Risk Factors

An investment in our common stock involves various risks. You should carefully consider the matters discussed in “Risk Factors” beginning on page 20 of this prospectus before making a decision to invest in our common stock. Some of the risks include the following:

 

    Our business is sensitive to a decline in advertising expenditures, general economic conditions and other external events beyond our control;

 

    We operate in a highly competitive industry;

 

    Government regulations, taxes and fees imposed on outdoor advertising may restrict our outdoor advertising operations;

 

    We have no operating history as an independent public company or a REIT, and our inexperience may impede our ability to successfully manage our business or implement effective internal controls;

 

    We have substantial indebtedness, which could adversely affect our financial condition;

 

    The terms of the credit agreement governing the Senior Credit Facilities and the indenture governing the Senior Notes restrict our current and future operations, particularly our ability to incur additional debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations;

 

    We are controlled by CBS, whose interests in our business may conflict with yours;

 

    A delay in the completion of the Separation or the nonoccurrence of the Separation could result in our remaining a taxable corporation and could significantly reduce the amount of cash available for distribution to our stockholders;

 

    Legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the IRS, could have a negative effect on us;

 

    The ownership limitations that apply to REITs, as prescribed by the Internal Revenue Code of 1986 (the “Code”) and by our charter, may inhibit market activity in the shares of our stock and restrict our business combination opportunities;

 

    If we do not qualify to be taxed as a REIT, or fail to remain qualified to be taxed as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders; and

 

    The market price and trading volume of our common stock may be volatile following this offering.

Our Relationship with CBS

Prior to the completion of this offering, we are an indirect wholly owned subsidiary of CBS. We are offering 20,000,000 shares of our common stock in this offering, and upon the completion of this offering, CBS indirectly will own approximately 83% of our outstanding common stock, or approximately 81% if the underwriters exercise their option to purchase additional shares in full, and we will continue to be controlled by CBS. As a result, CBS will be able to exert significant influence over us and our corporate decisions. See “Risk Factors—Risks Related to Our Affiliation with CBS.”

CBS provides us with certain services such as insurance, support for technology systems, tax, internal audit, and cash management. Effective January 1, 2014, our employees began participating in employee benefit plans maintained by us, although certain of our employees may continue to be entitled to benefits under certain CBS defined benefit pension plans. Prior to the completion of this offering, we will enter into various agreements to govern our relationship with CBS during the period between the completion of this offering and the effective date of the Separation and to complete the Separation of our business from CBS. For a description of these agreements, see “Certain Relationships and Related-Person Transactions.”

 

 

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We are, and, until CBS ceases to own at least 80% of our outstanding common stock, as further described below, we will remain, a member of CBS’s consolidated tax group for U.S. federal income tax purposes.

The Separation

CBS has advised us that it currently intends to dispose of all of the shares of our common stock that it indirectly will own upon the completion of this offering following the “lock-up” period described under “Shares Eligible for Future Sale—Lock-Up Agreements and Other Contractual Restrictions on Resale.” CBS has advised us that it intends to effect the Separation by means of a tax-free split-off, pursuant to which CBS will offer its stockholders the option to exchange their shares of CBS common stock for shares of our common stock in an exchange offer. If the exchange offer is undertaken and consummated and not fully subscribed because less than all shares of our common stock owned by CBS are exchanged, the remaining shares of our common stock owned by CBS may be offered in one or more subsequent exchange offers (together with the initial exchange offer, the “exchange offer(s)”) and/or distributed on a pro rata basis to CBS stockholders whose shares of CBS common stock remain outstanding after consummation of the exchange offer(s) (such distribution, together with the exchange offer(s), the “split-off”). CBS has received a private letter ruling from the IRS and expects to receive certain opinions of counsel to the effect that the split-off, together with certain related transactions, will qualify as a tax-free distribution for U.S. federal income tax purposes under Section 355 of the Code. If CBS does not proceed with the split-off, it could elect to dispose of our common stock in a number of different types of transactions, including open market sales, sales to one or more third parties or pro rata distributions of our shares to CBS’s stockholders or a combination of these transactions. CBS could also elect to not dispose of our common stock. The determination of whether, when and how to proceed with the Separation is entirely within the discretion of CBS.

Except for the “lock-up” period described under “Shares Eligible for Future Sale—Lock-Up Agreements and Other Contractual Restrictions on Resale,” CBS is not subject to any contractual obligation to maintain its share ownership. For more information on the potential effect of CBS’s disposition of our common stock by means of the Separation or otherwise, please read “Risk Factors—Risks Related to Our Affiliation with CBS—Transfers of our common stock by CBS could adversely affect your rights as a stockholder and cause our stock price to decline.”

Following the Separation, we intend to elect and qualify to be taxed as a REIT, as described below in “—Our Tax Status.”

 

 

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This Offering

 

Common stock offered by us    20,000,000 shares
Option to purchase additional shares    3,000,000 shares
Common stock to be outstanding after this
offering
  

 

120,000,000 shares (whether or not the underwriters exercise their option to purchase additional shares)

Use of proceeds   

We estimate that we will receive net proceeds from this offering of approximately $515.7 million, or approximately $593.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus and after deducting the underwriting discounts and commissions related to this offering. Pursuant to the completion of the CBS reorganization transactions, we will transfer to a wholly owned subsidiary of CBS the Transferred Offering Proceeds, which is an amount equal to the net proceeds of this offering less an amount, as determined by CBS, equal to the estimated cash portion of the Purging Distribution(s). We estimate that the Transferred Offering Proceeds will be approximately $415.7 million, or approximately $493.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus.

 

In addition, in connection with the Formation Borrowings, we incurred $1.6 billion of indebtedness, from which we received net proceeds of approximately $1.57 billion after deducting bank fees, discounts and commissions incurred in connection therewith. Pursuant to the completion of the CBS reorganization transactions, we transferred to such wholly owned subsidiary of CBS the Transferred Borrowing Proceeds of approximately $1.52 billion, which is an amount equal to the net proceeds of the Formation Borrowings less $50 million, which remained with us to use for corporate purposes and ongoing cash needs, as described below.

 

We paid the Transferred Borrowing Proceeds (following the consummation of the Formation Borrowings) and we will pay the Transferred Offering Proceeds (following the consummation of this offering) to such wholly owned subsidiary of CBS (together with shares of CBS Outdoor Americas Inc. common stock) in consideration for the contribution of the entities comprising CBS’s Outdoor Americas operating segment to us pursuant to the CBS reorganization transactions. After making these payments, we expect that we will have retained approximately $150.0 million, which will include the amounts retained by us from the proceeds of the

 

 

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   Formation Borrowings and this offering, as described above, which we will use for corporate purposes and ongoing cash needs and which we believe will provide us with sufficient liquidity to pay the cash portion of any Purging Distribution(s) if CBS completes the Separation by means of the split-off and we elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described above. See “Use of Proceeds,” “Formation Transactions” and “The Separation.”
Listing    Our common stock has been approved for listing on the NYSE, subject to official notice of issuance, under the symbol “CBSO”.
Ownership and transfer restrictions    To assist us in complying with the limitations on the concentration of ownership of REIT stock imposed by the Code beginning in our second REIT tax year, among other purposes, our charter will generally prohibit, among other prohibitions, as of the closing of this offering, any stockholder from beneficially or constructively owning more than 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of our common stock, or 9.8% in value of the aggregate outstanding shares of all classes and series of our stock. See “Description of Securities—Restrictions on Ownership and Transfer.”
Risk factors    Investing in our common stock involves a high degree of risk. You should carefully read and consider the information set forth under “Risk Factors” beginning on page 20 and all other information in this prospectus before investing in our common stock.

The number of shares of our common stock to be outstanding after this offering excludes 8,000,000 shares of our common stock reserved for future issuance under the CBS Outdoor Americas Inc. Omnibus Stock Incentive Plan, which we intend to adopt prior to the completion of this offering.

On March 14, 2014, our board of directors declared a 970,000-for-one split of our common stock effected through a dividend to our parent, a wholly owned subsidiary of CBS. As a result of the stock split, the 100 shares of our common stock then outstanding were converted into 97,000,000 shares of our common stock. Also on March 14, 2014, our board of directors declared a contingent dividend to our parent, payable in an aggregate amount of 3,000,000 shares of our common stock less the total number of shares of our common stock actually purchased by the underwriters pursuant to their option to purchase additional shares. These shares of our common stock, if any, are payable to our parent at the end of the 30-day period in which the underwriters may exercise their option. As a result, there will be 120,000,000 shares of our common stock outstanding regardless of whether the underwriters exercise their option to purchase additional shares. All share data of our company presented in this prospectus has been adjusted to reflect this stock split. All share data that is pro forma for this offering assumes that the full amount of the contingent dividend has been paid to our parent.

 

 

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Unless otherwise indicated, the information contained in this prospectus assumes that the underwriters’ option to purchase additional shares is not exercised and assumes that the common stock to be sold in this offering is sold at $27.00 per share, which is the midpoint of the price range set forth on the front cover of this prospectus.

 

 

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Our Tax Status

We are, and, until CBS ceases to own at least 80% of our outstanding common stock, we will remain, a member of CBS’s consolidated tax group for U.S. federal income tax purposes and will be taxable as a regular domestic C corporation for U.S. federal income tax purposes (i.e., we will be subject to taxation at regular corporate rates). Pursuant to the tax matters agreement that we will enter into with CBS, we will be liable to pay CBS in respect of any taxes imposed on or with respect to us while we are a member of the CBS consolidated tax group.

Following the Separation, we intend to elect and qualify to be taxed as a REIT (the “REIT election”), and we, together with one or more of our subsidiaries, will jointly elect to treat such subsidiaries as TRSs (the “TRS election”). We expect the Separation to be consummated in 2014 and to make the REIT election (and the TRS election) for our taxable year beginning the day after the effective date of the Separation and ending December 31, 2014. However, depending on how CBS elects to proceed with the Separation (including the timing and number of exchange offers, if any), we may cease to be a member of the CBS consolidated tax group prior to the effective date of the Separation. In such circumstance, we may make our REIT election (and the TRS election) effective as of the day after we cease to be a member of the CBS consolidated tax group. For more information on the potential effect of any delay in the completion of the Separation or the nonoccurrence of the Separation, please read “Risk Factors—Risks Related to Our Affiliation with CBS—A delay in the completion of the Separation or the nonoccurrence of the Separation could result in our remaining a taxable corporation and could significantly reduce the amount of cash available for distribution to our stockholders.”

Our qualification to be taxed as a REIT will depend upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares. We believe that immediately following this offering we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT. Upon completion of this offering, CBS indirectly will own approximately 83% of our outstanding common stock (or approximately 81% if the underwriters exercise their option to purchase additional shares in full). Our board of directors will grant CBS and certain of its affiliates a waiver of the ownership restrictions contained in our charter, subject to certain initial and ongoing conditions designed to protect our status as a REIT. See “Risk Factors—Risks Related to Our REIT Election and Our Status as a REIT—If we fail to meet the REIT income tests as a result of receiving non-qualifying rental income, we would be required to pay a penalty tax in order to retain our REIT status.” CBS has requested a private letter ruling from the IRS with respect to certain issues relevant to our qualification to be taxed as a REIT.

So long as we qualify to be taxed as a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute to our stockholders. If we fail to qualify to be taxed as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and will be precluded from re-electing to be taxed as a REIT for the subsequent four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income or property, and the income of our TRSs will be subject to taxation at regular corporate rates.

If CBS completes the Separation by means of the split-off, CBS will allocate its earnings and profits between CBS and us in accordance with provisions of the Code. In order to comply with certain REIT qualification requirements, we will, before the end of any REIT taxable year in which we have accumulated earnings and profits attributable to a non-REIT year, declare a dividend to our stockholders to distribute such accumulated earnings and profits, including any earnings and profits allocated to us by CBS in connection with the split-off (any such distribution declared in our first REIT taxable year or with respect to earnings and profits allocated to us by CBS, the “Purging Distribution(s)”). We expect to pay the Purging Distribution(s) in a combination of cash and our stock. Based on the mid-point of the price range set forth on the cover page of this prospectus, we currently estimate that the Purging

 

 

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Distribution(s) will total approximately $500.0 million, of which approximately 20% will be paid in cash and approximately 80% will be paid in shares of our common stock. The actual amount of the Purging Distribution(s) will be calculated as of a future date and could be materially different from our current estimates based on a number of factors, including (1) the relative market capitalizations of our company and CBS, (2) the timing of our REIT election and the split-off (if any), (3) the financial performance of CBS, our company and our respective subsidiaries through the closing of the split-off (if any) and (4) for the share portion of our Purging Distribution(s), the per-share market value of our common stock at the time of distribution. Accordingly, these estimates should not be relied upon as an indicator of what the actual cash portion and stock portion of our Purging Distribution(s) will be. Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described under “Use of Proceeds” and “The Separation” (which could differ from the estimates disclosed herein).

Distribution Policy

For the period commencing with the completion of this offering through the day immediately prior to the effective date of our REIT election, we intend to pay an initial quarterly dividend of $0.37 per share. This dividend amount is based on our historical results of operations and cash flows, and our pro forma results of operations. We believe this financial information provides a reasonable basis to evaluate our ability to pay future dividends. We intend to maintain our initial quarterly dividend amount until the earlier of twelve months following completion of this offering or the effective date of our REIT election, unless actual results of operations, economic conditions or other factors differ materially from our historical operating results or our current assumptions.

From and after the effective date of our REIT election, we intend to pay regular quarterly distributions to holders of our common stock in an amount not less than 100% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains). In addition, we anticipate making one or more Purging Distributions comprised of a combination of cash and stock, a substantial portion of which will be in stock, as described in “—Our Tax Status.”

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code. See “U.S. Federal Income Tax Considerations.”

Distributions that we make will be authorized and determined by our board of directors in its sole discretion out of assets legally available therefor. While we anticipate maintaining relatively stable distribution(s) during each year, the amount, timing and frequency of distributions will be at the sole discretion of the board of directors and distributions will be declared based upon various factors, including but not limited to: the amount and timing of Purging Distribution(s), future taxable income, limitations contained in debt instruments, debt service requirements, operating cash inflows and outflows including capital expenditures and acquisitions, limitations on our ability to use cash generated in the TRSs to fund distributions and applicable law. We may need to increase our borrowings in order to fund our intended distributions. We expect that, at least initially, our distributions may exceed our net income under generally accepted accounting principles in the U.S. (“GAAP”) because of noncash expenses included in net income (loss).

For the period commencing with the completion of this offering through the day immediately prior to the effective date of our REIT election, we anticipate that our dividends will generally be treated as “qualified dividends.” Such dividends paid to U.S. stockholders that are individuals, trusts or estates will generally be taxable at the preferential income tax rates (i.e., the 20% maximum U.S. federal rate) for qualified dividends. In addition, subject to the limitations of the Code, corporate stockholders may be eligible for the dividends received deduction with respect to such dividends. If we qualify and elect to be taxed as a REIT, we anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although we may designate a portion of the distributions as qualified

 

 

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dividend income or capital gain or a portion of the distributions may constitute a return of capital. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. For a more complete discussion of the U.S. federal income tax treatment of distributions to our stockholders, see “U.S. Federal Income Tax Considerations—Taxation of Stockholders—Taxation of Taxable U.S. Stockholders.”

The Company’s debt agreements permit it to make cash distributions in order to maintain its status as a REIT, subject to certain conditions, but notwithstanding any failure to satisfy the conditions in the debt agreements to making distributions generally.

Restrictions on Ownership and Transfer of Our Stock

To assist us in complying with the limitations on the concentration of ownership of REIT stock imposed by the Code beginning in our second REIT year, among other purposes, our charter will provide, as of the closing of this offering, for restrictions on ownership and transfer of shares of our stock, including, in general, prohibitions on any person actually or constructively owning more than 9.8% in value or in number (whichever is more restrictive) of the outstanding shares of our common stock or 9.8% in value of the aggregate outstanding shares of all classes and series of our stock. A person that did not acquire more than 9.8% of our outstanding stock may nonetheless become subject to our charter restrictions in certain circumstances, including if repurchases by us cause such person’s holdings to exceed the limitations described above. Our charter, however, will permit exceptions to these restrictions to be made for specific stockholders, as determined in the sole discretion of our board of directors provided that such exceptions will not jeopardize our tax status as a REIT. Our board of directors will grant CBS and certain of its affiliates exemptions from the ownership limitations applicable to other holders of our outstanding common stock, subject to certain initial and ongoing conditions designed to protect our status as a REIT. A transfer of shares of our stock in violation of the limitations may be void under certain circumstances. See “Description of Securities—Restrictions on Ownership and Transfer.”

Our ownership limitations could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in the best interests of our stockholders. For more information on the potential effect of our ownership limitations, please read “Risk Factors—Risks Related to Our REIT Election and Our Status as a REIT—The ownership limitations that apply to REITs, as prescribed by the Code and by our charter, may inhibit market activity in the shares of our stock and restrict our business combination opportunities.”

 

 

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Summary Financial Data

The following table summarizes our combined consolidated financial data for the periods presented. The summary historical combined consolidated statements of operations and cash flow information for the years ended December 31, 2013, 2012 and 2011 and the summary historical combined consolidated balance sheet information as of December 31, 2013 and 2012 have been derived from our audited historical combined consolidated financial statements, included elsewhere in this prospectus. The summary historical combined consolidated balance sheet information as of December 31, 2011 has been derived from our audited historical combined consolidated financial statements, not included in this prospectus. The summary pro forma condensed combined consolidated statement of operations and balance sheet information as of and for the year ended December 31, 2013 have been derived from our unaudited pro forma condensed combined consolidated financial statements, included elsewhere in this prospectus.

The summary unaudited pro forma condensed combined consolidated statements of operations and balance sheet information set forth below have been adjusted to reflect our formation transactions; the receipt of the net proceeds from the Formation Borrowings after deducting bank fees, discounts and commissions incurred in connection therewith; the sale of the common stock offered hereby; the receipt of the estimated net proceeds from this offering, after deducting the underwriting discounts and commissions; the use of the estimated net proceeds from this offering and the Formation Borrowings as described under “Use of Proceeds”; and incremental costs we will incur as a stand-alone public company. See “Certain Relationships and Related-Person Transactions.” The unaudited pro forma condensed combined consolidated financial information as of and for the year ended December 31, 2013 is presented as if each of these events had occurred as of December 31, 2013 for the purposes of the unaudited pro forma condensed combined consolidated balance sheet information and on January 1, 2013 for the purposes of the unaudited pro forma condensed combined consolidated statements of operations.

No pro forma adjustments have been made with regard to the disposition of the remaining shares of common stock to be held by CBS after the completion of this offering, the intended REIT election after the Separation or the impact of the Purging Distribution(s). See “The Separation.”

Our historical combined consolidated financial statements included in this prospectus have been presented on a “carve-out” basis from CBS’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to CBS’s Outdoor Americas operating segment and include allocations of expenses from CBS. The summary historical combined consolidated and unaudited pro forma condensed combined consolidated financial information set forth below and the financial statements included elsewhere in this prospectus do not necessarily reflect what our results of operations, financial condition or cash flows would have been if we had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of our future performance, financial condition or liquidity.

 

 

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You should read the following information together with “Risk Factors,” “Use of Proceeds,” “Capitalization,” “Selected Combined Consolidated Financial Data,” “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

      Year Ended December 31,  
      Pro Forma      Historical  
      2013     2013     2012     2011  
(in millions, except per share amounts)    (unaudited)                    

Statement of Operations data:

        

 Revenues

   $ 1,294.0      $     1,294.0      $     1,284.6      $     1,277.1   

 Less:

        

Operating, selling, general and administrative expenses

     908.1        886.7        881.9        867.8   

Adjusted OIBDA(a)

     385.9        407.3        402.7        409.3   

Less:

        

Restructuring charges

                   2.5        3.0   

Net (gain) loss on dispositions

     (27.3     (27.3     2.2        2.0   

Depreciation

     104.5        104.5        105.9        109.0   

Amortization

     91.3        91.3        90.9        102.9   

Operating income

   $ 217.4      $ 238.8      $ 201.2      $ 192.4   

Provision for income taxes

   $ (59.1   $ (96.6   $ (89.0   $ (87.8

Net income

   $ 88.0      $ 143.5      $ 113.4      $ 107.1   

Basic net income per common share

   $ 0.73      $ 1.48      $ 1.17      $ 1.10   

Diluted net income per common share

   $ 0.73      $ 1.48      $ 1.17      $ 1.10   

FFO(b)

   $ 233.1      $ 288.6      $ 288.9      $ 296.9   

Adjusted FFO(b)

   $ 201.7      $ 253.1      $ 269.2      $ 316.3   

Balance Sheet data (at period end):

        

Property and equipment, net

   $ 755.4      $ 755.4      $ 807.9      $ 858.2   

Total assets

   $ 3,533.5      $ 3,355.5      $ 3,464.9      $ 3,603.0   

Long-term debt

   $ 1,598.0      $      $      $   

Current liabilities

   $ 212.2      $ 212.2      $ 205.6      $ 196.7   

Total invested equity/stockholders’ equity

   $ 1,334.4      $ 2,754.4      $ 2,843.9      $ 2,990.6   

Cash Flow data:

        

Cash flow provided by operating activities

     $ 278.4      $ 311.3      $ 342.1   

Capital expenditures:

        

Growth:

        

Digital

     $ 25.9      $ 27.7      $ 19.5   

Other

       8.8        9.9        10.8   

Maintenance

             23.5        16.0        15.3   

Total capital expenditures

     $ 58.2      $ 53.6      $ 45.6   

Cash taxes

           $ 112.8      $ 96.5      $ 50.9   

 

(a) Adjusted OIBDA is a non-GAAP financial measure. We define “Adjusted OIBDA” as operating income before depreciation, amortization, net gain (loss) on dispositions and restructuring charges. We use Adjusted OIBDA to evaluate our operating performance. Adjusted OIBDA is among the primary measures we use for planning and forecasting of future periods, and it is an important indicator of our operational strength and business performance because it provides a link between profitability and operating cash flow. We believe Adjusted OIBDA is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by our management, helps improve investors’ understanding of our operating performance and makes it easier for investors to compare our results with other companies that have different financing and capital structures or tax rates.

 

   Since Adjusted OIBDA is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net income or operating income as indicators of operating performance. Adjusted OIBDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, this measure does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. As Adjusted OIBDA excludes certain financial information that is included in operating income, the most directly comparable GAAP financial measure, users of this information should consider the types of events and transactions that are excluded.

 

(b) We believe the presentations of FFO and Adjusted FFO, as supplemental measures, are useful in evaluating our business because they provide analysts and investors with an important perspective on our operating performance and also make it easier to compare our results to those of other REITs. As FFO and Adjusted FFO are not measures calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, net income. Additionally, these measures are not necessarily indicative of funds available for our cash needs. FFO, as we calculate it, although consistent with the definition established by the National Association of Real Estate Investment Trusts, which is known as NAREIT, may not be comparable to similarly titled measures of other REITs given the nature of our operations. See “Selected Combined Consolidated Financial Data” for a definition of, and a reconciliation of net income to, FFO and Adjusted FFO.

 

 

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RISK FACTORS

Investment in our common stock involves risks. In addition to other information contained in this prospectus, you should carefully consider the following factors before acquiring shares of our common stock offered by this prospectus. The occurrence of any of the following risks might cause you to lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Special Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Operations

Our business is sensitive to a decline in advertising expenditures, general economic conditions and other external events beyond our control.

We derive our revenues from providing advertising space to customers on out-of-home advertising structures and sites. Our contracts with our customers generally cover periods ranging from four weeks to one year. A decline in the economic prospects of advertisers, the economy in general or the economy of any individual geographic market or industry, particularly a market or industry in which we conduct substantial business, such as the New York City, Los Angeles and New Jersey metropolitan areas, and the professional services, retail and healthcare/pharmaceuticals industries, could alter current or prospective advertisers’ spending priorities. Disasters, acts of terrorism, political uncertainty, extraordinary weather events, hostilities and power outages could interrupt our ability to display advertising on our advertising structures and sites and lead to a reduction in economic certainty and advertising expenditures. Any reduction in advertising expenditures could harm our business, financial condition or results of operations. In addition, advertising expenditures by companies in certain sectors of the economy represent a significant portion of our revenues. See “Business and Properties—Our Portfolio of Outdoor Advertising Structures and Sites—Investment Diversification.” Any political, economic, social or technological change resulting in a reduction in these sectors’ advertising expenditures could adversely affect our business, financial condition and results of operations.

We operate in a highly competitive industry.

The outdoor advertising industry is fragmented, consisting of several large companies operating on a national basis, such as our company, Clear Channel Outdoor Holdings, Inc., JCDecaux S.A. and Lamar Advertising Company, as well as hundreds of smaller regional and local companies operating a limited number of displays in a single or a few local markets. We compete with these companies for both customers and display locations. If our competitors offer advertising displays at rates below the rates we charge our customers, we could lose potential customers and we could be pressured to reduce our rates below those we currently charge to retain customers, which could have an adverse effect on our business, financial condition and results of operations. A majority of our display locations are leased, and a significant portion of those leases are month-to-month or have a short remaining term. If our competitors offer to lease display locations at rental rates higher than the rental rates we offer, we could lose display locations and we could be pressured to increase our rental rates above those we currently pay to site landlords, which could have an adverse effect on our business, financial condition and results of operations.

We also compete with other media, including broadcast and cable television, radio, print media, the internet and direct mail marketers, within their respective markets. In addition, we compete with a wide variety of out-of-home media, including advertising in shopping centers, airports, movie theaters, supermarkets and taxis. Advertisers compare relative costs of available media, including CPMs, particularly when delivering a message to customers with distinct demographic characteristics. In competing with other media, the outdoor advertising industry relies on its relative cost efficiency and its ability to reach specific markets, geographic areas and/or demographics. If we are unable to compete on these terms, we could lose potential customers and we could be pressured to reduce our rates below those we currently charge to retain customers, which could have an adverse effect on our business, financial condition and results of operations.

Government regulation of outdoor advertising may restrict our outdoor advertising operations.

The outdoor advertising industry is subject to governmental regulation and enforcement at the federal, state and local levels in the United States and to national, regional and local restrictions in foreign countries. These regulations have a significant impact on the outdoor advertising industry and our business. See “Regulation.” Regulations and proceedings have made it increasingly difficult to develop new outdoor advertising structures and sites. If there are

 

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changes in laws and regulations affecting outdoor advertising at any level of government, if there is an increase in the enforcement of regulations or allegations of noncompliance or if we are unable to resolve allegations, our structures and sites could be subject to removal or modification. If we are unable to obtain acceptable arrangements or compensation in circumstances in which our structures and sites are subject to removal or modification, it could have an adverse effect on our business, financial condition and results of operations. In addition, governmental regulation of advertising displays could limit our installation of additional advertising displays, restrict advertising displays to governmentally controlled sites or permit the installation of advertising displays in a manner that benefits our competitors disproportionately, any of which could have an adverse effect on our business, financial condition and results of operations.

Our inability to increase the number of digital advertising displays in our portfolio could have an adverse effect on our business, financial condition and results of operations.

Our ability to increase the number of digital advertising displays in our portfolio is subject to governmental laws and regulations. For example, a recent California court ruled in favor of a competitor who challenged the validity of our digital display permits in the City of Los Angeles and held that such permits should be invalidated. As another example, in January 2013, Scenic America, Inc., a nonprofit membership organization, filed a lawsuit against the U.S. Department of Transportation and the Federal Highway Administration alleging, among other things, that the Federal Highway Administration exceeded its authority when, in 2007, the Federal Highway Administration issued guidance to assist its division offices in evaluating state regulations that authorize the construction and operation of digital billboards. If the Federal Highway Administration guidance is vacated, the Federal Highway Administration could then elect to undertake rulemaking or other new administrative action with respect to digital billboard displays that, if enacted in a way that places additional restrictions on digital billboards, could also have an adverse effect on our business, financial condition and results of operations.

Any new governmental restrictions on digital advertising displays could limit our installation of additional digital advertising displays, restrict digital advertising displays to governmentally controlled sites or permit the installation of digital advertising displays in a manner that benefits our competitors disproportionately, any of which could have an adverse effect on our business, financial condition and results of operations. For example, the Federal Highway Administration recently conducted a study on whether the presence of digital billboard displays along roadways is associated with a reduction of driver safety. We understand that this study is currently under internal review, and we do not currently know the date of its intended public release. If the results of this study include adverse findings, it may result in regulations at the federal, state or local level that impose greater restrictions on digital billboard displays. Furthermore, as technology for converting traditional static billboard displays to digital billboard displays has only recently been developed and introduced into the market on a large scale, and is in the process of being introduced more broadly in our international markets, existing regulations that currently do not apply to digital advertising displays by their terms could be revised to impose specific restrictions on digital advertising displays.

In addition, implementation of digital advertising displays by us or our competitors at a rate that exceeds the ability of the market to derive new revenues from those displays could also have an adverse effect on our business, financial condition and results of operations.

Taxes, fees and registration requirements may reduce our profits or expansion opportunities.

A number of foreign, state and local governments have implemented or initiated taxes (including taxes on revenue from outdoor advertising or for the right to use outdoor advertising assets), fees and registration requirements in an effort to decrease or restrict the number of outdoor advertising structures and sites or raise revenue, or both. For example, a tax was imposed on the outdoor advertising industry in Toronto. These efforts may continue, and, if we are unable to pass on the cost of these items to our customers, the increased imposition of these measures could have an adverse effect on our business, financial condition and results of operations.

The success of our transit advertising business is dependent on our obtaining and renewing key municipal concessions on favorable terms.

Our transit shelter and transit systems businesses require us to obtain and renew contracts with municipalities and other governmental entities. All of these contracts have fixed terms and generally provide for payments to the governmental entity of a revenue share and/or a fixed payment amount. When these contracts expire, we generally

 

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must participate in highly competitive bidding processes in order to obtain a new contract. Our inability to successfully obtain or renew these contracts on favorable economic terms or at all could have an adverse effect on our financial condition and results of operations. In addition, the loss of a key municipal concession in one location could adversely affect our ability to compete in other locations by reducing our scale and ability to offer customers multiregional and national advertising campaigns. These factors could have an adverse effect on our financial condition and results of operations.

Government compensation for the removal of lawful billboards could decrease.

Although state and local government authorities from time to time use the power of eminent domain to remove billboards, U.S. law requires payment of compensation if a state or political subdivision compels the removal of a lawful billboard along a primary or interstate highway that was built with federal financial assistance. Additionally, many states require similar compensation (or relocation) with regard to compelled removals of lawful billboards in other locations. Some local governments have attempted to force removal of billboards after a period of years under a concept called amortization. Under this concept, the governmental body asserts that just compensation has been earned by continued operation of the billboard over a period of time. Thus far, we have generally been able to obtain satisfactory compensation for our billboards purchased or removed as a result of governmental action, although there is no assurance that this will continue to be the case in the future and if it does not continue to be the case, there could be an adverse effect on our business, financial condition and results of operations.

Content-based restrictions on outdoor advertising may further restrict the categories of customers that can advertise using our structures and sites.

Restrictions on outdoor advertising of certain products and services are or may be imposed by federal, state and local laws and regulations. For example, tobacco products have been effectively banned from outdoor advertising in all of the jurisdictions in which we currently do business. In addition, state and local governments in some cases limit outdoor advertising of alcohol, which represented 5% of our United States revenues for the year ended December 31, 2013. Legislation regulating out-of-home advertising due to content-based restrictions could cause a reduction in our revenues from leasing advertising space on outdoor advertising displays that display such advertisements and a simultaneous increase in the available space on the existing inventory of billboards in the outdoor advertising industry, which could have an adverse effect on our business, financial condition and results of operations.

Environmental, health and safety laws and regulations may limit or restrict some of our operations.

As the owner or operator of various real properties and facilities, we must comply with various foreign, federal, state and local environmental, health and safety laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and nonhazardous substances and employee health and safety. Historically, with the exception of safety upgrades, we have not incurred significant expenditures to comply with these laws. However, additional laws that may be passed in the future, or a finding of a violation of or liability under existing laws, could require us to make significant expenditures and otherwise limit or restrict some of our operations, which could have an adverse effect on our business, financial condition and results of operations.

Our operating results are subject to seasonal variations and other factors.

Our business has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences on advertising markets. Typically, our revenues and profits are highest in the fourth quarter, during the holiday shopping season, and lowest in the first quarter, as advertisers cut back on spending following the holiday shopping season. The effects of such seasonality make it difficult to estimate future operating results based on the previous results of any specific quarter, which may make it difficult to plan capital expenditures and expansion, could affect operating results and could have an adverse effect on our business, financial condition and results of operations.

 

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Future acquisitions and other strategic transactions could have a negative effect on our results of operations.

We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. These acquisitions or dispositions could be material. Our acquisition strategy involves numerous risks, including:

 

    our acquisitions may prove unprofitable and fail to generate anticipated cash flows;

 

    to successfully manage our large portfolio of advertising structures and sites, we may need to:

 

  ¡    recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us and we cannot be certain that our recruiting efforts will succeed; and

 

  ¡    expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses, because failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in our ongoing businesses or by distracting our management;

 

    we may enter into markets and geographic areas where we have limited or no experience;

 

    we may encounter difficulties in the integration of operations and systems; and

 

    because we must comply with various requirements under the Code in order to maintain our qualification to be taxed as a REIT, including restrictions on the types of assets we may hold, the sources of our income and accumulation of earnings and profits, our ability to engage in certain acquisitions, such as acquisitions of C corporations, may be limited. See “—Risks Related to Our REIT Election and Our Status as a REIT—Complying with REIT requirements may cause us to liquidate investments or forgo otherwise attractive opportunities.”

Additional acquisitions by us may require antitrust review by U.S. federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions. We can give no assurances that the U.S. Department of Justice, the U.S. Federal Trade Commission or foreign antitrust agencies will not seek to bar us from acquiring additional advertising businesses in any market.

We have no operating history as an independent public company, and our inexperience may impede our ability to successfully manage our business or implement effective internal controls.

While we currently operate as a subsidiary of a public company, we have no operating history as an independent public company. We cannot assure you that our past experience will be sufficient to successfully operate our company as an independent public company. Upon completion of this offering, we will be required to implement substantial control systems and procedures in order to satisfy our periodic and current reporting requirements under applicable Securities and Exchange Commission (“SEC”) regulations and comply with the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and listing standards. As a result, we will incur significant legal, accounting and other expenses that we have not previously incurred, and our management and other personnel will need to devote a substantial amount of time to comply with these rules and regulations. These costs and time commitments could be substantially more than we currently expect. Therefore, our historical combined consolidated and unaudited pro forma condensed combined consolidated financial statements may not be indicative of our future costs and performance as a stand-alone public company. If our finance and accounting personnel are unable for any reason to respond adequately to the increased demands that will result from being an independent public company, the quality and timeliness of our financial reporting may suffer, and we could experience significant deficiencies or material weaknesses in our disclosure controls and procedures or our internal control over financial reporting.

An inability to establish effective disclosure controls and procedures and internal control over financial reporting or remediate existing deficiencies could cause us to fail to meet our reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or result in material weaknesses, material misstatements or omissions in our Exchange Act reports, any of which could cause investors to lose confidence in our company, which could have an adverse effect on our business, financial condition and results of operations.

 

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We are dependent on our management team, and the loss of our senior executive officers or other key employees could have an adverse effect on our business, financial condition and results of operations.

We believe our future success depends on the continued service and skills of our existing management team and other key employees with experience and business relationships within their respective segments. The loss of one or more of these key personnel could have an adverse effect on our business, financial condition and results of operations because of their skills, knowledge of the market, years of industry experience and the difficulty of finding qualified replacement personnel. If any of these personnel were to leave and compete with us, it could have an adverse effect on our business, financial condition and results of operations.

Our board of directors has the power to cause us to issue additional shares of our stock without stockholder approval.

Our charter will authorize us to issue additional authorized but unissued shares of common or preferred stock. In addition, our charter will permit our board of directors to, without stockholder approval, amend our charter to increase or decrease the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors will be able to establish a series of shares of common or preferred stock that could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in the best interests of our stockholders. See “Description of Securities—Power to Increase or Decrease Authorized Shares of Stock, Reclassify Unissued Shares of Stock and Issue Additional Shares of Common and Preferred Stock.”

Certain provisions of Maryland law may limit the ability of a third party to acquire control of us.

Certain provisions of the Maryland General Corporation Law may have the effect of delaying or preventing a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in the best interests of our stockholders, including:

 

    “business combination” provisions that, subject to certain exceptions, prohibit certain business combinations between a Maryland corporation and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of a corporation’s outstanding voting stock or an affiliate or associate of a corporation who, at any time during the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding stock of the corporation) or an affiliate of such an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and

 

    “control share” provisions that provide that, subject to certain exceptions, holders of “control shares” of a Maryland corporation (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise voting power in the election of directors within one of three increasing ranges) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by its stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.

 

    Additionally, we may elect to be subject to Title 3, Subtitle 8 of the Maryland General Corporation Law, which would permit our board of directors, without stockholder approval and regardless of what is provided in our charter or bylaws, to implement certain takeover defenses. See “Certain Provisions of Maryland Law and of Our Charter and Bylaws—Business Combinations,” “—Control Share Acquisitions” and “—Subtitle 8.”

We expect that our board of directors will by resolution exempt from the provisions of the Maryland business combination act all business combinations (i) between CBS or its affiliates and us and (ii) between us and any other person, provided that such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person). In addition, our bylaws will contain a provision opting out

 

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of the Maryland control share acquisition act. Moreover, our charter will provide that, effective at such time as we are able to make a Subtitle 8 election, vacancies on our board may be filled only by the remaining directors and that directors elected by the board to fill vacancies will serve for the remainder of the full term of the class of directors in which the vacancy occurred. Our charter will provide that, subject to the rights, if any, of holders of any class or series of preferred stock to elect or remove one or more directors, at or after the time when CBS and its affiliates together no longer beneficially own a majority or more of shares of our outstanding stock entitled to vote generally in the election of directors (the “trigger date”), our directors may be removed only for cause, as defined in our charter, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors. Prior to the trigger date, subject to the rights, if any, of holders of any class or series of preferred stock to elect or remove one or more directors, our directors may be removed with or without cause by the affirmative vote of at least a majority of the votes entitled to be cast generally in the election of directors. Subject to a consent right of CBS with respect to bylaw provisions regarding stockholder actions by written consent and with respect to CBS’s exemption from our advance notice provisions, our bylaws will provide that our board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws. There can be no assurance that these exemptions or provisions will not be amended or eliminated at any time in the future. See “Certain Provisions of Maryland Law and of Our Charter and Bylaws.”

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

Our charter will contain a provision that eliminates the liability of our directors and officers to the maximum extent permitted by Maryland law. See “Management—Indemnification and Limitation of Directors’ and Officers’ Liability.” In addition, our charter will authorize us, and our bylaws will obligate us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to:

 

    any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; and

 

    any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, trustee or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.

Our charter and bylaws will also permit us to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities described above and to any employee of our company or a predecessor of our company.

The indemnification and payment or reimbursement of expenses provided by the indemnification provisions of our charter and bylaws shall not be deemed exclusive of or limit in any way other rights to which any person seeking indemnification, or payment or reimbursement of expenses may be or may become entitled under any statute, bylaw, resolution, insurance, agreement, vote of stockholders or disinterested directors or otherwise.

In addition, we intend to enter into separate indemnification agreements with each of our directors in the form filed as Exhibit 10.5 to the registration statement of which this prospectus forms a part. Each indemnification agreement will provide, among other things, for indemnification as provided in the agreement and otherwise to the fullest extent permitted by law and our charter and bylaws against judgments, fines, penalties, amounts paid in settlement and reasonable expenses, including attorneys’ fees. The indemnification agreements will provide for the advancement or payment of expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such advancement.

Accordingly, in the event that any of our directors or officers are exculpated from, or indemnified against, liability but whose actions impede our performance, our and our stockholders’ ability to recover damages from that director or officer will be limited.

 

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We may not realize the expected benefits from the Separation of our business from CBS.

By separating from CBS, there is a risk that we may be more susceptible to market fluctuations and other adverse events than we would have otherwise been while we were still a part of CBS. As part of CBS, we have been able to benefit from CBS’s operating diversity, economies of scale and related cost benefits and access to capital for investments, which benefits may no longer be available to us after we separate from CBS.

As an independent public company, we believe that our businesses will benefit from, among other things, sharpened focus on the financial and operational resources of our specific business, allowing our management to design and implement a capital structure, corporate strategies and policies that are based primarily on the business characteristics and strategic opportunities of our businesses. We anticipate this will allow us to respond more effectively to industry dynamics and to allow us to create effective incentives for our management and employees that are more closely tied to our business performance. However, we may not be able to achieve some or all of the expected benefits. Additionally, completion of the Separation will require a significant amount of our management’s time and effort, which may divert attention from operating and growing our business. If we fail to achieve some or all of the benefits in the time we expect, it could have an adverse effect on our business, financial condition and results of operations.

We have substantial indebtedness, which could adversely affect our financial condition.

As of December 31, 2013, on a pro forma basis after giving effect to the Formation Borrowings, we would have had total indebtedness of $1.6 billion (consisting of the $800 million Term Loan and $800 million of Senior Notes), and we would have had unused commitments under the Senior Credit Facilities available to us of $425 million. Additionally, we may, if we obtain commitments from lenders to do so, increase the Senior Credit Facilities by an amount not to exceed the greater of (i) $400 million and (ii) the greatest amount that would not cause, on a pro forma basis after giving effect to any such increases, our net secured leverage ratio to exceed 3.50 to 1.00.

Our level of debt could have important consequences, including:

 

    making it more difficult for us to satisfy our obligations with respect to our debt;

 

    requiring us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, thereby reducing the availability of cash flow to fund acquisitions, working capital, capital expenditures, research and development efforts and other corporate purposes;

 

    increasing our vulnerability to and limiting our flexibility in planning for, or reacting to, changes in the business, the industries in which we operate, the economy and governmental regulations;

 

    restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

    exposing us to the risk of increased interest rates as borrowings under the Senior Credit Facilities are expected to be subject to variable rates of interest;

 

    placing us at a competitive disadvantage compared to our competitors that have less debt; and

 

    limiting our ability to borrow additional funds.

 

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The terms of the credit agreement governing the Senior Credit Facilities and the indenture governing the Senior Notes restrict our current and future operations, particularly our ability to incur additional debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations.

The credit agreement governing the Senior Credit Facilities and the indenture governing the Senior Notes contain a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries and limit the ability to engage in actions that may be in our long-term best interests, including restrictions on our and our subsidiaries’ ability to:

 

    incur additional indebtedness;

 

    pay dividends on, repurchase or make distributions in respect of our capital stock;

 

    make investments or acquisitions;

 

    sell, transfer or otherwise convey certain assets;

 

    change our accounting methods;

 

    create liens;

 

    enter into sale/leaseback transactions;

 

    enter into agreements restricting the ability to pay dividends or make other intercompany transfers;

 

    consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;

 

    enter into transactions with affiliates;

 

    prepay certain kinds of indebtedness;

 

    issue or sell stock of our subsidiaries; and

 

    change the nature of our business.

In addition, the credit agreement governing the Revolving Credit Facility has a financial covenant that requires us to maintain a maximum net secured leverage ratio. Our ability to meet this financial covenant may be affected by events beyond our control.

As a result of all of these restrictions, we may be:

 

    limited in how we conduct our business;

 

    unable to raise additional debt or equity financing to operate during general economic or business downturns; or

 

    unable to compete effectively or to take advantage of new business opportunities.

These restrictions could hinder our ability to grow in accordance with our strategy or inhibit our ability to adhere to our intended distribution policy and, accordingly, may cause us to incur additional U.S. federal income tax liability beyond current expectations.

A breach of the covenants under the indenture governing the Senior Notes or under the credit agreement governing the Senior Credit Facilities could result in an event of default under the applicable agreement. Such a default would allow the lenders under the Senior Credit Facilities and the holders of the Senior Notes to accelerate the

 

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repayment of such debt and may result in the acceleration of the repayment of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing the Senior Credit Facilities would also permit the lenders under the Senior Credit Facilities to terminate all other commitments to extend additional credit under the Senior Credit Facilities.

Furthermore, if we were unable to repay the amounts due and payable under the Senior Credit Facilities, those lenders could proceed against the collateral that secures such indebtedness. In the event our creditors accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

Despite our substantial indebtedness level after the Formation Borrowings, we and our subsidiaries may be able to incur substantially more indebtedness, including secured indebtedness. This could further exacerbate the risks to our financial condition described above.

We and our subsidiaries may incur significant additional indebtedness in the future, including secured indebtedness. Although the indenture governing the Senior Notes and the credit agreement governing the Senior Credit Facilities contain restrictions on the incurrence of additional indebtedness and additional liens, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness, including secured indebtedness, incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our current debt levels, the related risks that we and our subsidiaries now face would increase.

Our variable-rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under the Senior Credit Facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable-rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows will correspondingly decrease. At our level of indebtedness after giving effect to the Formation Borrowings, as of December 31, 2013, each 1/8% change in our interest rates on our variable-rate indebtedness would have resulted in an approximate $1 million change in annual estimated interest expense. In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce future interest rate volatility. However, we may not elect to maintain such interest rate swaps with respect to any of our variable-rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

Hedging transactions could have a negative effect on our results of operations.

We may enter into hedging transactions, including with respect to foreign currency exchange rates and interest rate exposure on one or more of our assets or liabilities. The use of hedging transactions involves certain risks, including: (1) the possibility that the market will move in a manner or direction that would have resulted in a gain for us had a hedging transaction not been utilized, in which case our performance would have been better had we not engaged in the hedging transaction; (2) the risk of an imperfect correlation between the risk sought to be hedged and the hedging transaction used; (3) the potential illiquidity for the hedging instrument used, which may make it difficult for us to close out or unwind a hedging transaction; (4) the possibility that our counterparty fails to honor its obligations; and (5) the possibility that we may have to post collateral to enter into hedging transactions, which we may lose if we are unable to honor our obligations. Following the Separation, we intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes, as a result of which we will have limitations on our income sources, and the hedging strategies available to us will be more limited than those available to companies that are not REITs. See “U.S. Federal Income Tax Considerations.”

We may establish an operating partnership, which could result in conflicts of interests between our stockholders and holders of our operating partnership units and could limit our liquidity or our flexibility.

In the future, if we elect and qualify to be taxed as a REIT for U.S. federal income tax purposes, we may establish an operating partnership. If we establish an operating partnership, persons holding operating partnership units may have the right to vote on certain amendments to the partnership agreement of our operating partnership, as well as on certain other matters. Unitholders holding these voting rights may be able to exercise them in a manner that conflicts

 

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with the interests of our stockholders. Circumstances may arise in the future when the interests of unitholders in our operating partnership conflict with the interests of our stockholders. As the sole member of the general partner of the operating partnership or as the managing member, we would have fiduciary duties to the unitholders of the operating partnership that may conflict with duties that our officers and directors owe to our company.

In addition, if we establish an operating partnership, we may acquire certain assets by issuing units in our operating partnership in exchange for an asset owner contributing the asset to the partnership or a subsidiary. If we enter into such transactions, in order to induce the contributors of such assets to accept units in our operating partnership, rather than cash, in exchange for their assets, it may be necessary for us to provide them additional incentives. For instance, our operating partnership’s limited partnership or limited liability company agreement may provide that any unitholder of our operating partnership may exchange units for cash equal to the value of an equivalent number of shares of our common stock or, at our option, for shares of our common stock on a one-for-one basis. We may also enter into additional contractual arrangements with asset contributors under which we would agree to repurchase a contributor’s units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to repurchase units for cash pursuant to such a provision, it would limit our liquidity and thus our ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders. Moreover, if we were required to repurchase units for cash at a time when we did not have sufficient cash to fund the repurchase, we might be required to sell one or more assets to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a unitholder in our operating partnership did not provide the contributor with a defined return, then upon redemption of the contributor’s units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of assets to defer taxable gain on the contribution of assets to our operating partnership, we might agree not to sell a contributed asset for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares. Such an agreement would prevent us from selling those properties, even if market conditions made such a sale favorable to us.

We could suffer losses due to asset impairment charges for goodwill.

A significant portion of our assets consist of goodwill. We test goodwill for impairment during the fourth quarter of each year and between annual tests if events or circumstances require an interim impairment assessment. A downward revision in the estimated fair value of a reporting unit could result in a noncash impairment charge. Any such impairment charge could have a material adverse effect on our reported net income.

We face diverse risks in our international business, which could adversely affect our business, financial condition and results of operations.

Our International segment contributed 13% to total revenues in 2013, 14% to total revenues in 2012 and 18% to total revenues in 2011. Inherent risks in our international business activities could decrease our International sales and have an adverse effect on our business, financial condition and results of operations. These risks include potentially unfavorable foreign economic conditions, political conditions or national priorities, foreign government regulation, potential expropriation of assets by foreign governments, the failure to bridge cultural differences and limited or prohibited access to our foreign operations and the support they provide. We may also have difficulty repatriating profits or be adversely affected by exchange rate fluctuations in our International business.

If our security measures are breached, we may face liability and public perception of our services could be diminished, which would negatively impact our ability to attract business partners and advertisers.

Although we have implemented physical and electronic security measures to protect against the loss, misuse and alteration of our websites, digital assets and proprietary business information as well as consumer, business partner and advertiser personally identifiable information, no security measures are perfect and impenetrable and we may be unable to anticipate or prevent unauthorized access. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. If an actual or perceived breach of our security occurs, we could lose competitively sensitive business information or suffer disruptions to our business operations. In addition, the public perception of the effectiveness of our security measures or services could be harmed, we could lose consumers, business partners and advertisers, and we could suffer financial exposure in connection with remediation efforts, investigations and legal proceedings and changes in our security and system protection measures.

 

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Risks Related to Our Affiliation with CBS

We are controlled by CBS, whose interests in our business may conflict with ours or yours.

Upon completion of this offering, CBS indirectly will own approximately 83% of the voting power of our outstanding stock, or approximately 81% if the underwriters exercise their option to purchase additional shares in full. Accordingly, until a disposition by CBS of a substantial portion of its shares (e.g., through the Separation), CBS will continue to be able to exert significant influence over our business policies and affairs, including the composition of our board of directors and any action requiring the approval of our stockholders. The concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or not permitted without the support of CBS. It is possible that CBS’s interests may, in some circumstances, conflict with your interests as a stockholder. For additional information about our relationships with CBS, see “Certain Relationships and Related-Person Transactions.”

Various conflicts of interest between CBS and us could arise. Some of our directors may own more stock in CBS than in our company following this offering. Ownership interests of officers and directors of CBS in our common stock, or a person’s service as either an officer or director of both companies, could create or appear to create potential conflicts of interest when those officers and directors are faced with decisions that could have different implications for CBS and us. Potential conflicts of interest could also arise if we enter into any new commercial arrangements with CBS while it remains one of our principal stockholders. Our charter will provide that, except as otherwise agreed to in writing by CBS and us, CBS will have no duty to refrain from engaging in the same or similar business activities or lines of business, doing business with any of our customers or employing or otherwise engaging any of our directors, officers or employees.

Our charter will also provide that in the event that a director or officer of CBS Outdoor Americas Inc. who is also a director or officer of CBS acquires knowledge of a potential corporate opportunity for both CBS Outdoor Americas Inc. and CBS (excluding any corporate opportunity that was presented or became known to such director or officer solely in his or her capacity as a director or officer of CBS Outdoor Americas Inc., as reasonably determined by such director or officer, unless CBS Outdoor Americas Inc. notifies such person that CBS Outdoor Americas Inc. does not intend to pursue such opportunity), such director or officer may present such opportunity to CBS Outdoor Americas Inc. or CBS or both, as such director or officer determines in his or her sole discretion, and that by doing so such person will have satisfied his or her duties to CBS Outdoor Americas Inc. and its stockholders. Our charter will provide that we renounce any interest in any such opportunity presented to CBS. These provisions create the possibility that a corporate opportunity of CBS Outdoor Americas Inc. may be used for the benefit of CBS. However, the corporate opportunity provisions in our charter will cease to apply and will have no further force and effect from and after the date that both (1) CBS ceases to own shares of our common stock representing at least 20% of the total voting power of our common stock and (2) no person who is a director or officer of our company is also a director or officer of CBS.

Prior to the completion of this offering, we will enter into various agreements to govern our relationship with CBS during the period between the completion of this offering and the effective date of the Separation and to complete the Separation of our business from CBS. These agreements will include a master separation agreement, tax matters agreement, transition services agreement, license agreement and registration rights agreement. Some of these agreements will continue in accordance with their terms after the Separation. The terms of our separation from CBS, the related agreements and other transactions with CBS will be determined by CBS and thus may not be representative of what we could achieve on a stand-alone basis or from an unaffiliated third party. For a description of these agreements and the other agreements that we will enter into with CBS, see “Certain Relationships and Related-Person Transactions.”

We will have the right to use the “CBS” mark and logo only for a limited period of time. If we fail to establish in a timely manner a new, independently recognized brand name with a strong reputation, our revenue and profitability could decline.

In connection with this offering, we will enter into a license agreement with a wholly owned subsidiary of CBS, pursuant to which we will have the right to use “CBS” in the corporate names of our company and our subsidiaries for up to 90 days. Pursuant to the license agreement, we will also have the right to use the “CBS” mark and the “CBS” logo on our outdoor advertising billboards for up to 18 months. When our right to use the CBS brand name

 

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and logo expires, we may not be able to maintain or enjoy comparable name recognition or status under our new brand. If we are unable to successfully manage the transition of our business to our new brand, we could be adversely affected. See “Certain Relationships and Related-Person Transactions—Agreements Between CBS and Us Relating to this Offering or the Separation.”

Following this offering, we will be a “controlled company” within the meaning of applicable stock market rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

Upon the completion of this offering, CBS indirectly will own more than 50% of the voting power of all of the then-outstanding shares of our stock entitled to vote generally in the election of directors, and we will be a “controlled company” under applicable stock exchange corporate governance standards. As a controlled company, we intend to rely on exemptions from certain stock exchange corporate governance standards, including the requirements that:

 

    the majority of our board of directors consists of independent directors;

 

    we have a nominating and governance committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    we have a compensation committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

We intend to rely on these exemptions, and, as a result, you will not have the same protections afforded to stockholders of companies that are subject to all of the stock exchange corporate governance requirements.

A delay in the completion of the Separation or the nonoccurrence of the Separation could result in our remaining a taxable corporation and could significantly reduce the amount of cash available for distribution to our stockholders.

Following the Separation, we intend to elect and qualify to be taxed as a REIT, and we, together with one or more of our subsidiaries, will jointly elect to treat such subsidiaries as TRSs. We expect the Separation to be consummated in 2014 and to make the REIT election (and the TRS election) for our taxable year beginning the day after the effective date of the Separation and ending December 31, 2014. However, depending on how CBS elects to proceed with the Separation (including the timing and number of exchange offers, if any), we may cease to be a member of the CBS consolidated tax group prior to the effective date of the Separation. In such circumstance, we may make our REIT election (and the TRS election) effective as of the day after we cease to be a member of the CBS consolidated tax group. However, there can be no assurance that we would be able to satisfy the requirements for taxation as a REIT prior to the consummation of the Separation, particularly with respect to our receipt of rent payable by CBS or its affiliates during such time. Thus, if the consummation of the Separation is delayed beyond the end of the taxable year in which we cease to be a member of the CBS consolidated tax group, we may not make an election to be taxed as a REIT for such taxable year and may remain a taxable C corporation until such taxable year as the Separation is consummated.

The determination of whether, when and how to proceed with the Separation is entirely within the discretion of CBS. There can be no assurance that the Separation will occur and thus there can be no assurance that we will make an election and qualify to be taxed as a REIT. If the Separation does not occur, we may remain a taxable C corporation for an indefinite period of time.

For such time as we are a taxable C corporation, we will be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders will not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of our common stock. Thus, for any period of time during which the Separation is delayed, or if the Separation does not occur, distributions to stockholders could be significantly reduced as compared to the distributions we expect to make to our stockholders if we qualify to be taxed as a REIT.

 

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CBS has no obligation to fund our future capital needs.

CBS has no obligation to fund our business and operations, and does not guarantee or otherwise provide credit support for our indebtedness. We cannot assure our stockholders that adequate sources of funding will be available to us on favorable terms or at all. As a result, we may not be able to fund our future capital needs, which could have an adverse effect on our business, financial condition and results of operations.

The historical and pro forma financial information that we have included in this prospectus may not be representative of the results we would have achieved as a stand-alone public company and may not be a reliable indicator of our future results.

The historical combined consolidated and unaudited pro forma condensed combined consolidated financial statements that we have included in this prospectus have been presented on a “carve-out” basis from CBS’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to CBS’s Outdoor Americas operating segment and include allocations of expenses from CBS. As a result, our historical and pro forma financial statements may not necessarily reflect what our financial condition, results of operations or cash flows would have been had we been an independent, stand-alone entity during the periods presented or those that we will achieve in the future. We were not operated as a separate, stand-alone company for the historical periods presented. Therefore, our combined consolidated historical financial statements that we have included in this prospectus may not necessarily be indicative of what our financial condition, results of operations or cash flows will be in the future. For additional information, see “Selected Combined Consolidated Financial Data,” “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto included elsewhere in this prospectus.

Transfers of our common stock owned by CBS could adversely affect your rights as a stockholder and cause our stock price to decline.

After completion of this offering and the waiver or expiration of the “lock-up” period described under “Shares Eligible for Future Sale—Lock-Up Agreements and Other Contractual Restrictions on Resale,” CBS will be permitted to transfer all or part of the shares of our common stock that it owns, without allowing you to participate or realize a premium for your shares of common stock, or distribute our shares that it owns to its stockholders. Sales or distributions by CBS of such common stock in the public market or to its stockholders could adversely affect prevailing market prices for our common stock. Additionally, a sale of a controlling interest to a third party could adversely affect the market price of our common stock and our business and results of operations. For example, a change in control caused by the sale of our shares by CBS may result in a change of management decisions and business policy. CBS is generally not prohibited from selling a controlling interest in us to a third party. CBS has advised us that it intends to dispose of the shares of our common stock that it owns following this offering. For additional information regarding CBS’s current plans with respect to our common stock that it will own after the completion of this offering, please read “The Separation.”

If CBS engages in the same type of business we conduct, our ability to successfully operate and expand our business may be hampered.

Our charter will provide that, except as otherwise agreed to in writing by us and CBS:

 

    neither CBS Outdoor Americas Inc. nor CBS will have any duty to refrain from engaging, directly or indirectly, in the same or similar activities or lines of business as the other company, doing business with any potential or actual customer or supplier of the other company, or employing or engaging or soliciting for employment any director, officer or employee of the other company; and

 

    no director or officer of CBS Outdoor Americas Inc. or CBS will be liable to the other company or to the stockholders of either for breach of any duty by reason of any such activities of CBS Outdoor Americas Inc. or CBS, as applicable, or for the presentation or direction to CBS Outdoor Americas Inc. or CBS of, or participation in, any such activities, by a director or officer of CBS Outdoor Americas Inc. or CBS, as applicable.

 

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CBS is a mass media company that creates and distributes industry-leading content across a variety of platforms to audiences around the world. Because of CBS’s significant financial resources, CBS could have a significant competitive advantage over us should it decide to engage in businesses that compete with any of the businesses we conduct.

Risks Related to Our REIT Election and Our Status as a REIT

Legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the IRS, could have a negative effect on us.

The rules dealing with U.S. federal income taxation are continually under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury (the “Treasury”). Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury or tax regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT or the U.S. federal income tax consequences to our investors and us of such qualification.

On February 26, 2014, the Chairman of the Ways and Means Committee of the U.S. House of Representatives released draft proposals titled the Tax Reform Act of 2014 that include several provisions that would impact our ability to qualify to be taxed as a REIT. Under the draft proposals, in the case of a tax-free separation of a parent and a subsidiary such as we are proposing to undertake, both the parent and the newly separated subsidiary would be prohibited from qualifying as a REIT for 10 years following such tax-free separation. In addition, the draft proposals would impose immediate corporate level tax on the built-in gain in the assets of every C corporation that elects to be treated as a REIT, effective for elections made after February 26, 2014. The draft proposals would also require that a REIT distribute earnings and profits accumulated prior to its conversion to a REIT in cash, rather than a combination of cash and stock, effective for distributions made after February 26, 2014. Finally, the proposals would, effective December 31, 2016, exclude all tangible property with a depreciable class life of less than 27.5 years (such as our advertising structures and sites) from the definition of “real property” for purposes of the REIT asset and income tests. If any of these proposals or legislation containing similar provisions, with such effective dates, were to become law, it could eliminate our ability to qualify to be taxed as a REIT and we would be subject to U.S. federal income tax on our taxable income at regular corporate rates. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of our common stock.

If we do not qualify to be taxed as a REIT, or fail to remain qualified to be taxed as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.

We intend to operate in a manner that will allow us to qualify to be taxed as a REIT for U.S. federal income tax purposes. We expect that we will receive an opinion of Skadden, Arps, Slate, Meagher & Flom LLP (“REIT Tax Counsel”), with respect to our qualification to be taxed as a REIT in connection with our election to be taxed as a REIT. Investors should be aware, however, that opinions of counsel are not binding on the IRS or any court. The opinion of REIT Tax Counsel represents only the view of REIT Tax Counsel, based on its review and analysis of existing law and on certain representations as to factual matters and covenants made by CBS and us, including representations relating to the values of our assets and the sources of our income. The opinion will be expressed as of the date issued. REIT Tax Counsel will have no obligation to advise CBS, us or the holders of our common stock of any subsequent change in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of REIT Tax Counsel and our qualification to be taxed as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis, the results of which will not be monitored by REIT Tax Counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals.

CBS has requested a private letter ruling from the IRS with respect to certain issues relevant to our qualification to be taxed as a REIT. In general, CBS expects that the ruling will provide, among other things, subject to the terms and conditions contained therein, that our lease revenues from certain advertising structures and sites and

 

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certain services that we, an independent contractor or a TRS may provide, directly or through subsidiaries, to our customers, will enable us to qualify to be taxed as a REIT. Although we may generally rely upon the ruling if it is received, no assurance can be given that the IRS will not challenge our qualification to be taxed as a REIT on the basis of other issues or facts outside the scope of the ruling. If we were to fail to qualify to be taxed as a REIT in any taxable year, we would be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of our common stock. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.

Qualifying to be taxed as a REIT involves highly technical and complex provisions of the Code, and violations of these provisions could jeopardize our REIT qualification.

Qualification to be taxed as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification to be taxed as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the requirements to qualify to be taxed as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence.

The ownership limitations that apply to REITs, as prescribed by the Code and by our charter, may inhibit market activity in the shares of our stock and restrict our business combination opportunities.

In order for us to qualify to be taxed as a REIT, not more than 50% in value of the outstanding shares of our stock may be owned, beneficially or constructively, by five or fewer individuals, as defined in the Code to include certain entities, at any time during the last half of each taxable year after the first year for which we elect to qualify to be taxed as a REIT. Additionally, at least 100 persons must beneficially own our stock during at least 335 days of a taxable year (other than the first taxable year for which we elect to be taxed as a REIT). Subject to certain exceptions, our charter will authorize our board of directors to take such actions as are necessary and desirable to preserve our qualification to be taxed as a REIT. Our charter will also provide that, unless exempted by the board of directors, no person may own more than 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of our common stock or 9.8% in value of the aggregate outstanding shares of all classes and series of our stock, including if repurchases by us cause a person’s holdings to exceed such limitations. See “Description of Securities—Restrictions on Ownership and Transfer” and “U.S. Federal Income Tax Considerations.” Our board of directors will grant CBS and certain of its affiliates exemptions from the ownership limits applicable to other holders of our common stock, subject to certain initial and ongoing conditions designed to protect our status as a REIT. The constructive ownership rules are complex and may cause shares of stock owned directly or constructively by a group of related individuals to be constructively owned by one individual or entity. These ownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our stock or otherwise be in the best interests of our stockholders.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts or estates is currently 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts or estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.

REIT distribution requirements could adversely affect our ability to execute our business plan.

To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding any net capital gains. See “U.S. Federal Income Tax

 

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Considerations.” To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends-paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a nondeductible 4% excise tax if the amount that we actually distribute to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.

From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our common stock.

To fund our growth strategy and refinance our indebtedness, we may depend on external sources of capital, which may not be available to us on commercially reasonable terms or at all.

To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding any net capital gains. See “U.S. Federal Income Tax Considerations.” As a result of these requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, solely from operating cash flows. Consequently, we intend to rely on third-party capital market sources for debt or equity financing to fund our business strategy. In addition, we will likely need third-party capital market sources to refinance our indebtedness at maturity. Continued or increased turbulence in the United States or international financial markets and economies could adversely affect our ability to replace or renew maturing liabilities on a timely basis or access the capital markets to meet liquidity and capital expenditure requirements and may result in adverse effects on our business, financial condition and results of operations. As such, we may not be able to obtain the financing on favorable terms or at all. Our access to third-party sources of capital also depends, in part, on:

 

    the market’s perception of our growth potential;

 

    our then-current levels of indebtedness;

 

    our historical and expected future earnings, cash flows and cash distributions; and

 

    the market price per share of our common stock.

In addition, our ability to access additional capital may be limited by the terms of the indebtedness we incurred pursuant to the formation transactions, which may restrict our incurrence of additional debt. If we cannot obtain capital when needed, we may not be able to acquire or develop properties when strategic opportunities arise or refinance our debt, which could have an adverse effect on our business, financial condition and results of operations.

Even if we remain qualified to be taxed as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income and state or local income, property and transfer taxes. See “U.S. Federal Income Tax Considerations—Taxation of CBS Outdoor Americas Inc.” For example, in order to meet the REIT qualification requirements, we may hold some of our assets or conduct certain of our activities through one or more TRSs or other subsidiary corporations that will be subject to foreign, federal, state and local corporate-level income taxes as regular C corporations. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these taxes would decrease cash available for distribution to our stockholders.

 

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Complying with REIT requirements may cause us to liquidate investments or forgo otherwise attractive opportunities.

To qualify to be taxed as a REIT for U.S. federal income tax purposes, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more TRSs. See “U.S. Federal Income Tax Considerations—Taxation of CBS Outdoor Americas Inc.” If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

In addition to the asset tests set forth above, to qualify to be taxed as a REIT we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying to be taxed as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.

Complying with REIT requirements may depend on our ability to assign certain contracts to a taxable REIT subsidiary.

Our ability to satisfy certain REIT requirements may depend on our assigning to a TRS certain contracts, or portions of certain contracts, with respect to outdoor advertising assets that do not qualify as real property for purposes of the REIT asset tests. Moreover, our satisfaction of the REIT requirements may depend on our properly allocating between us and our TRS the revenue or cost, as applicable, associated with the portion of any such contract assigned to the TRS. There can be no assurance that the IRS will not determine that our assignment was not a true assignment as between us and our TRS or that we did not properly allocate the applicable revenues or costs. Were the IRS successful in such a challenge, it could adversely impact our REIT qualification or our effective tax rate and tax liability.

Our planned use of taxable REIT subsidiaries may cause us to fail to qualify to be taxed as a REIT.

The net income of our TRSs is not required to be distributed to us, and income that is not distributed to us generally will not be subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes the fair market value of our securities in our TRSs and certain other nonqualifying assets to exceed 25% of the fair market value of our assets, we would fail to qualify to be taxed as a REIT.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into primarily to manage risk of currency fluctuations or to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income for purposes of both of the gross income tests. See “U.S. Federal Income Tax Considerations—Taxation of CBS Outdoor Americas Inc.” As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS may be subject to

 

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tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise choose to bear. In addition, losses in our TRS will generally not provide any tax benefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.

We expect to pay the Purging Distribution(s) in common stock and cash and may in the future pay taxable dividends on our common stock in common stock and cash, and the issuance of additional common stock may cause the market price of our common stock to decline.

We expect to pay the Purging Distribution(s) in a combination of cash and our stock, a substantial portion of which will be in stock, as described in “The Separation.” CBS has requested a private letter ruling from the IRS with respect to certain issues relevant to our payment of the Purging Distribution(s) in a combination of cash and stock. In general, CBS expects that, if received, the ruling will provide, subject to the terms and conditions contained therein, that (1) a Purging Distribution will be treated as a dividend that will first reduce our earnings and profits attributable to non-REIT years and (2) the amount of our stock received by any of our stockholders as part of a Purging Distribution will be considered to equal the amount of cash that could have been received instead. Moreover, although we have no current plans to do so, we may in the future distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder.

The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as taxable dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends-paid deduction for U.S. federal income tax purposes. Those rulings may be relied upon only by taxpayers to whom they were issued. In addition, the IRS previously issued a revenue procedure authorizing publicly traded REITs to make elective cash/stock dividends, but that revenue procedure does not apply to our current or future taxable years. Accordingly, it is unclear whether and to what extent we will be able to make taxable dividends payable in-kind.

If we make the Purging Distribution(s) or future dividends payable in cash and shares of our common stock, stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, and may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a taxable stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. Moreover, if our per share FFO decreases as a result of the Purging Distribution(s), it may put downward pressure on the trading price of our common stock.

If we fail to meet the REIT income tests as a result of receiving non-qualifying rental income, we would be required to pay a penalty tax in order to retain our REIT status.

As described above, upon completion of this offering, CBS indirectly will own approximately 83% of our outstanding common stock, or approximately 81% if the underwriters exercise their option to purchase additional shares in full. Our board of directors will grant CBS and certain of its affiliates a waiver of the ownership restrictions contained in our charter, subject to certain initial and ongoing conditions designed to protect our status as a REIT. Notwithstanding the satisfaction of such conditions, certain income we receive could be treated as non-qualifying income for purposes of the REIT requirements. See “U.S. Federal Income Tax Considerations—Taxation of CBS Outdoor Americas Inc.—Income Tests—Rents from Real Property.” Even if we have reasonable cause for a failure to meet the REIT income tests as a result of receiving non-qualifying rental income, we would nonetheless be required to pay a penalty tax in order to retain our REIT status.

Even if we qualify to be taxed as a REIT, we could be subject to tax on any unrealized net built-in gains in the assets held before electing to be treated as a REIT.

Following our REIT election, we will own appreciated assets that were held by a C corporation and were acquired by us in a transaction in which the adjusted tax basis of the assets in our hands is determined by reference to the adjusted tax basis of the assets in the hands of the C corporation. If we dispose of any such appreciated assets in a

 

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taxable transaction during the 10-year period following our acquisition of the assets from the C corporation (i.e., during the 10-year period following our qualification to be taxed as a REIT), we will be subject to tax at the highest corporate tax rates on any gain from such assets to the extent of the excess of the fair market value of the assets on the date that they were acquired by us (i.e., at the time that we became a REIT) over the adjusted tax basis of such assets on such date, which are referred to as built-in gains. We would be subject to this tax liability even if we qualify to be taxed and maintain our status as a REIT. Any recognized built-in gain will retain its character as ordinary income or capital gain and will be taken into account in determining REIT taxable income and our distribution requirement for the year such gain is recognized. Any tax on the recognized built-in gain will reduce REIT taxable income. We may choose not to sell in a taxable transaction appreciated assets that we might otherwise sell during the 10-year period in which the built-in gain tax applies in order to avoid the built-in gain tax. However, there can be no assurances that such a taxable transaction will not occur. If we sell such assets in a taxable transaction, the amount of corporate tax that we will pay will vary depending on the actual amount of net built-in gain or loss present in those assets as of the time we became a REIT. The amount of tax could be significant.

The IRS may deem the gains from sales of our outdoor advertising assets to be subject to a 100% prohibited transaction tax.

From time to time, we may sell outdoor advertising assets. The IRS may deem one or more sales of our outdoor advertising assets to be “prohibited transactions” (generally, sales or other dispositions of property that is held as inventory or primarily for sale to customers in the ordinary course of a trade or business). If the IRS takes the position that we have engaged in a “prohibited transaction,” the gain we recognize from such sale would be subject to a 100% tax. We do not intend to hold outdoor advertising assets as inventory or for sale in the ordinary course of business; however, whether property is held as inventory or “primarily for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances and there is no assurance that our position will not be challenged by the IRS especially if we make frequent sales or sales of outdoor advertising assets in which we have short holding periods.

We have no operating history as a REIT, and our inexperience may impede our ability to successfully manage our business or implement effective internal controls.

We have no operating history as a REIT. We cannot assure you that our past experience will be sufficient to successfully operate our company as a REIT. Upon completion of this offering, we will be required to implement substantial control systems and procedures in order to maintain the possibility of qualifying to be taxed as a REIT. As a result, we will incur significant legal, accounting and other expenses that we have not previously incurred, and our management and other personnel will need to devote a substantial amount of time to comply with these rules and regulations and establish the corporate infrastructure and controls demanded of a REIT. These costs and time commitments could be substantially more than we currently expect. Therefore, our historical combined consolidated and unaudited pro forma condensed combined consolidated financial statements may not be indicative of our future costs and performance as a REIT.

Risks Related to this Offering

There is currently no public market for our common stock. An active trading market for our common stock may not develop following this offering, and you may be unable to sell your stock at a price above the initial public offering price or at all.

Our common stock has been approved for listing on the NYSE, subject to official notice of issuance. We cannot assure you, however, that an active trading market for our common stock will develop after this offering or, if one develops, that it will be sustained. Upon the completion of this offering, CBS indirectly will own approximately 83% of our outstanding common stock, or approximately 81% if the underwriters exercise their option to purchase additional shares in full. As a result, we will maintain a low public float following this offering. In the absence of a public market, you may be unable to liquidate an investment in our common stock. There has not been any public market for our common stock prior to this offering. Consequently, the initial public offering price of shares of our common stock will be determined by negotiations between us and the underwriters. The initial public offering price will not necessarily bear any relationship to our book value, assets or financial condition or any other established criteria of value and may not be indicative of the market price for our common stock after this offering. The price at which shares of our common stock trade after the completion of this offering may be lower than the price at which the underwriters sell them in this offering.

 

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The market price and trading volume of our common stock may be volatile following this offering.

Even if an active trading market develops for our common stock, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines, you may be unable to resell your shares at or above the public offering price or at all. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future.

Some of these factors, many of which are beyond our control, could negatively affect the market price of our common stock or result in fluctuations in the price or trading volume of our common stock include:

 

    actual or anticipated variations in our quarterly results of operations or distributions;

 

    changes in our funds from operations or earnings estimates;

 

    publication of research reports about us or the real estate or advertising industries;

 

    changes in market interest rates that may cause purchasers of our shares to demand a different yield;

 

    changes in market valuations of similar companies;

 

    market reaction to any additional debt we may incur in the future;

 

    additions or departures of key personnel;

 

    actions by institutional stockholders;

 

    speculation in the press or investment community about our company or industry or the economy in general;

 

    the occurrence of any of the other risk factors presented in this prospectus;

 

    legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the IRS, or our business; and

 

    general market and economic conditions.

Our cash available for distribution to stockholders may not be sufficient to make distributions at expected levels, and we may need to borrow in order to make such distributions or may not be able to make such distributions in full.

Distributions that we make will be authorized and determined by our board of directors in its sole discretion out of funds legally available therefor. See “Distribution Policy.” While we anticipate maintaining relatively stable distribution(s) during each year, the amount, timing and frequency of distributions will be at the sole discretion of the board of directors and will be declared based upon various factors, including, but not limited to: the amount and timing of Purging Distribution(s), future taxable income, limitations contained in debt instruments, debt service requirements, operating cash inflows and outflows including capital expenditures and acquisitions, limitations on our ability to use cash generated in the TRSs to fund distributions and applicable law. We may need to increase our borrowings in order to fund our intended distributions.

Future offerings of debt, which would be senior to our common stock upon liquidation, and/or preferred equity securities, which may be senior to our common stock for purposes of distributions or upon liquidation, could adversely affect the market price of our common stock.

In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other

 

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borrowings will receive distributions of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make a distribution to the holders of our common stock. Since our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

If you purchase shares of our common stock in this offering, you will experience immediate and significant dilution in the net tangible book value per share of our common stock.

We expect the initial public offering price of our common stock to be substantially higher than the book value per share of our outstanding common stock immediately after this offering. If you purchase our common stock in this offering, you will incur immediate dilution of approximately $34.70 in the net tangible book value per share of common stock from the price you pay for our common stock in this offering, based on an initial public offering price of $27.00 per share based on the midpoint of the price range set forth on the front cover of this prospectus. See “Dilution” for further discussion of how your ownership interest in us will be immediately diluted.

Increases in market interest rates may cause potential investors to seek higher returns and therefore reduce demand for our common stock and result in a decline in our stock price.

One of the factors that may influence the price of our common stock is the return on our common stock (i.e., the amount of distributions as a percentage of the price of our common stock) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our common stock to expect a return, which we may be unable or choose not to provide. Higher interest rates would likely increase our borrowing costs and potentially decrease the cash available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decline.

The number of shares available for future sale could adversely affect the market price of our common stock.

We cannot predict whether future issuances of shares of our common stock or the availability of shares of our common stock for resale in the open market will decrease the market price per share of our common stock. Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the market price of the shares of our common stock. See “—Risks Related to Our Affiliation with CBS—Transfers of our common stock by CBS could adversely affect your rights as a stockholder and cause our stock price to decline.” In addition, after completion of this offering, we intend to register shares of common stock that we have reserved for issuance under our CBS Outdoor Americas Inc. Omnibus Stock Incentive Plan, which we intend to adopt prior to the completion of this offering, and once registered they can generally be freely sold in the public market after issuance, assuming any applicable restrictions and vesting requirements are satisfied. In addition, except as described herein, we, our directors and executive officers and CBS have agreed with the underwriters not to offer, pledge, sell, contract to sell or otherwise transfer or dispose of any shares of common stock or securities convertible into or exercisable or exchangeable for our common stock for a period of 180 days, after the completion of this offering; however, these lock-up agreements are subject to numerous exceptions and Goldman, Sachs & Co. and Morgan Stanley & Co. LLC, on behalf of the underwriters, may waive these lock-up provisions without notice. If any or all of these holders cause a large number of their shares to be sold in the public market, the sales could reduce the trading price of our common stock and could impede our ability to raise future capital. In addition, the exercise of the underwriters’ option to purchase additional shares or other future issuances of our common stock would be dilutive to existing stockholders. Moreover, CBS has advised us that it currently intends to dispose of all of the shares of our common stock that it indirectly will own upon the completion of this offering following the “lock-up” period described under “Underwriting,” which could adversely affect the market price of the shares of our common stock. See “The Separation.”

Our earnings and cash distributions could affect the market price of shares of our common stock.

Shares of our common stock may trade at prices that are higher or lower than the net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves or other purposes rather

 

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than distributing the cash flows to stockholders, these retained funds, while increasing the value of our underlying assets, may negatively impact the market price of our common stock. Our failure to meet market expectations with regard to future earnings and cash distributions could adversely affect the market price of our common stock.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this prospectus that are forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our unaudited pro forma condensed combined consolidated financial statements and all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “could,” “may,” “will,” “should,” “seeks,” “likely,” “intends,” “plans,” “pro forma,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

 

    Declines in advertising and general economic conditions;

 

    Competition;

 

    Government regulation;

 

    Our inability to increase the number of digital advertising displays in our portfolio;

 

    Taxes, fees and registration requirements;

 

    Our ability to obtain and renew key municipal concessions on favorable terms;

 

    Decreased government compensation for the removal of lawful billboards;

 

    Content-based restrictions on outdoor advertising;

 

    Environmental, health and safety laws and regulations;

 

    Seasonal variations;

 

    Future acquisitions and other strategic transactions;

 

    Our lack of an operating history as an independent public company;

 

    Dependence on our management team and advertising executives;

 

    The ability of our board of directors to cause us to issue additional shares without stockholder approval;

 

    Certain provisions of Maryland law may limit the ability of a third party to acquire control of us;

 

    Our rights and the rights of our stockholders to take action against our directors and officers are limited;

 

    We may not realize the expected benefits from the Separation of our business from CBS;

 

    We have substantial indebtedness, which could adversely affect our financial condition;

 

    The terms of the credit agreement governing the Senior Credit Facilities and the indenture governing the Senior Notes restrict our current and future operations, particularly our ability to incur additional debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations;

 

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    Incurrence of additional debt, including secured debt;

 

    Interest rate risk exposure from our variable-rate indebtedness;

 

    Hedging transactions;

 

    Establishing an operating partnership;

 

    Asset impairment charges for goodwill;

 

    Diverse risks in our international business;

 

    Breach of security measures;

 

    We are controlled by CBS, whose interests may conflict with ours or yours;

 

    We have a limited right to use the CBS brand name and logo;

 

    Fewer stock exchange corporate governance requirements and protections due to our reliance on “controlled company” exemptions;

 

    Delays in the completion of the Separation or the nonoccurrence of the Separation;

 

    Funds for future capital needs;

 

    The financial information included in this prospectus may not be a reliable indicator of our future results;

 

    Different results than if we were a stand-alone public company;

 

    Transfers of our common stock by CBS;

 

    Competition from CBS;

 

    Legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the IRS;

 

    Our failure to qualify, or remain qualified, to be taxed as a REIT;

 

    REIT ownership limits;

 

    Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends;

 

    REIT distribution requirements;

 

    Availability of external sources of capital;

 

    We may face other tax liabilities that reduce our cash flows;

 

    Complying with REIT requirements may cause us to liquidate investments or forgo otherwise attractive opportunities;

 

    Our ability to assign certain contracts to a TRS;

 

    Our planned use of TRSs may cause us to fail to qualify to be taxed as a REIT;

 

    Our ability to hedge effectively;

 

    Paying the Purging Distribution(s) and/or taxable dividends in common stock and cash;

 

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    Failure to meet the REIT income tests as a result of receiving non-qualifying rental income;

 

    Even if we qualify to be taxed as a REIT, and we sell assets, we could be subject to tax on any unrealized net built-in gains in the assets held before electing to be treated as a REIT;

 

    The IRS may deem the gains from sales of our outdoor advertising assets to be subject to a 100% prohibited transaction tax;

 

    Our lack of an operating history as a REIT;

 

    An active trading market for our common stock may not develop;

 

    Volatile market price and trading volumes;

 

    Cash availability;

 

    Future offerings of debt;

 

    Immediate and significant dilution following this offering;

 

    Increases in market interest rates;

 

    The number of shares available for future sale; and

 

    The effect of our earnings and cash distributions on the market price of our common stock.

While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors.”

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $515.7 million, or approximately $593.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus and after deducting the underwriting discounts and commissions related to this offering. Pursuant to the completion of the CBS reorganization transactions, we will transfer to a wholly owned subsidiary of CBS the Transferred Offering Proceeds, which is an amount equal to the net proceeds of this offering less an amount, as determined by CBS, equal to the estimated cash portion of the Purging Distribution(s). We estimate that the Transferred Offering Proceeds will be approximately $415.7 million, or approximately $493.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus.

In addition, in connection with the Formation Borrowings, we incurred $1.6 billion of indebtedness, from which we received net proceeds of approximately $1.57 billion after deducting bank fees, discounts and commissions incurred in connection therewith. Pursuant to the completion of the CBS reorganization transactions, we transferred to such wholly owned subsidiary of CBS the Transferred Borrowing Proceeds of approximately $1.52 billion, which is an amount equal to the net proceeds of the Formation Borrowings less $50 million, which remained with us to use for corporate purposes and ongoing cash needs, as described below.

We paid the Transferred Borrowing Proceeds (following the consummation of the Formation Borrowings) and we will pay the Transferred Offering Proceeds (following the consummation of this offering) to such wholly owned subsidiary of CBS (together with shares of CBS Outdoor Americas Inc. common stock) in consideration for the contribution of the entities comprising CBS’s Outdoor Americas operating segment to us pursuant to the CBS reorganization transactions. After making these payments, we expect that we will have retained approximately $150.0 million, which will include the amounts retained by us from the proceeds of the Formation Borrowings and this offering, as described above, which we will use for corporate purposes and ongoing cash needs and which we believe will provide us with sufficient liquidity to pay the cash portion of any Purging Distribution(s) if CBS completes the Separation by means of the split-off and we elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. Based on the mid-point of the price range set forth on the cover page of this prospectus, we currently estimate that the Purging Distribution(s) will total approximately $500.0 million, of which approximately 20% will be paid in cash and approximately 80% will be paid in shares of our common stock. The actual amount of the Purging Distribution(s) will be calculated as of a future date and could be materially different from our current estimates based on a number of factors, including (1) the relative market capitalizations of our company and CBS, (2) the timing of our REIT election and the split-off (if any), (3) the financial performance of CBS, our company and our respective subsidiaries through the closing of the split-off (if any) and (4) for the share portion of our Purging Distribution(s), the per-share market value of our common stock at the time of distribution. Accordingly, these estimates should not be relied upon as an indicator of what the actual cash portion and stock portion of our Purging Distribution(s) will be. Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described above (which could differ from the estimates disclosed herein). See “Formation Transactions” and “The Separation.”

 

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DISTRIBUTION POLICY

For the period commencing with the completion of this offering through the day immediately prior to the effective date of our REIT election, we intend to pay an initial quarterly dividend of $0.37 per share. This dividend amount is based on our historical results of operations and cash flows, and our pro forma results of operations. We believe this financial information provides a reasonable basis to evaluate our ability to pay future dividends. We intend to maintain our initial quarterly dividend amount until the earlier of twelve months following completion of this offering or the effective date of our REIT election, unless actual results of operations, economic conditions or other factors differ materially from our historical operating results or our current assumptions.

From and after the effective date of our REIT election, we intend to pay regular quarterly distributions to holders of our common stock in an amount not less than 100% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains). In addition, we anticipate making one or more Purging Distributions comprised of a combination of cash and stock, a substantial portion of which will be in stock, as described in “The Separation.”

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code. See “U.S. Federal Income Tax Considerations.”

Distributions that we make will be authorized and determined by our board of directors in its sole discretion out of assets legally available therefor. While we anticipate maintaining relatively stable distribution(s) during each year, the amount, timing and frequency of distributions will be at the sole discretion of the board of directors and distributions will be declared based upon various factors, including but not limited to: the amount and timing of Purging Distribution(s), future taxable income, limitations contained in debt instruments, debt service requirements, operating cash inflows and outflows including capital expenditures and acquisitions, limitations on our ability to use cash generated in the TRSs to fund distributions and applicable law. We may need to increase our borrowings in order to fund our intended distributions. We expect that, at least initially, our distributions may exceed our net income under GAAP because of noncash expenses included in net income (loss).

For the period commencing with the completion of this offering through the day immediately prior to the effective date of our REIT election, we anticipate that our dividends will generally be treated as “qualified dividends.” Such dividends paid to U.S. stockholders that are individuals, trusts or estates will generally be taxable at the preferential income tax rates (i.e., the 20% maximum U.S. federal rate) for qualified dividends. In addition, subject to the limitations of the Code, corporate stockholders may be eligible for the dividends received deduction with respect to such dividends. If we qualify and elect to be taxed as a REIT, we anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although we may designate a portion of the distributions as qualified dividend income or capital gain or a portion of the distributions may constitute a return of capital. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. For a more complete discussion of the U.S. federal income tax treatment of distributions to our stockholders, see “U.S. Federal Income Tax Considerations—Taxation of Stockholders—Taxation of Taxable U.S. Stockholders.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2013:

 

    on a historical basis;

 

    on a pro forma basis for our formation transactions, including the use of proceeds from the Formation Borrowings as described herein in “Use of Proceeds”; and

 

    on a pro forma basis for both (1) our formation transactions and (2) the issuance of 20,000,000 shares of common stock in this offering at an assumed public offering price of $27.00 per share (based on the midpoint of the price range set forth on the cover of this prospectus) after deducting the underwriting discounts and commissions related to this offering and the use of proceeds from the offering as described herein in “Use of Proceeds.”

This table should be read in conjunction with “Formation Transactions,” “Use of Proceeds,” “Selected Combined Consolidated Financial Data,” “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined consolidated financial statements and notes to our financial statements appearing elsewhere in this prospectus.

The pro forma information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial offering price and other terms of this offering determined at pricing.

 

     As of December 31, 2013  
     Historical     Pro Forma for
Formation
Transactions
    Pro Forma for
Formation
Transactions and
Offering
 
     (Unaudited; in millions)  

Cash and cash equivalents(1)(5)

    $ 29.8       $ 79.8       $ 179.8   
  

 

 

 

Debt:

      

$800 million Term Loan(1)(2)

   $      $ 798.0      $ 798.0   

$400 million 5.250% Senior Notes due 2022(1)

            400.0        400.0   

$400 million 5.625% Senior Notes due 2024(1)

            400.0        400.0   

Revolving Credit Facility(4)

                     
  

 

 

 

Total Debt

            1,598.0        1,598.0   
  

 

 

 

Invested Equity/Stockholders’ Equity:

  

Common stock, par value $0.01 per share, 450.0 million shares authorized, and 97.0 million shares issued and outstanding on a pro forma basis for the formation transactions and 120.0 million shares issued and outstanding on a pro forma basis for the formation transactions and offering(5)

            1.0        1.2   

Additional paid-in-capital(3)(5)

            1,308.5        1,408.3   

Invested capital(3)

     2,829.5                 

Accumulated other comprehensive loss

     (75.1     (75.1     (75.1
  

 

 

 

Total Invested Equity/Stockholders’ Equity(1)(5)

     2,754.4        1,234.4        1,334.4   
  

 

 

 

Total Capitalization

    $           2,754.4       $           2,832.4       $           2,932.4   
  

 

 

 

 

(1) On January 31, 2014, we incurred indebtedness of $1.6 billion through the Formation Borrowings, from which we received net proceeds of approximately $1.57 billion after deducting bank fees, discounts and commissions incurred in connection therewith. Pursuant to the completion of the CBS reorganization transactions, we transferred to a wholly owned subsidiary of CBS the Transferred Borrowing Proceeds of approximately $1.52 billion, which is an amount equal to the net proceeds of the Formation Borrowings less $50 million, which remained with us to use for corporate purposes and ongoing cash needs. See “Use of Proceeds.” Total Invested Equity/Stockholders’ Equity on a pro forma basis for our formation transactions reflects the transfer of such proceeds to CBS.

 

(2) The Term Loan is presented net of the original issue discount of $2.0 million.

 

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(3) Invested capital and additional paid-in-capital on a pro forma basis for the formation transactions, reflect the conversion of CBS’s net equity investment in our company into shares of our common stock.

 

(4) On January 31, 2014, we entered into the $425 million Revolving Credit Facility, which matures in 2019. The Revolving Credit Facility will be used for corporate purposes, including the issuance of letters of credit, and ongoing cash needs. We do not expect to have any outstanding borrowings under our Revolving Credit Facility upon completion of this offering.

 

(5) We estimate that we will receive net proceeds from this offering of approximately $515.7 million, or approximately $593.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus and after deducting the underwriting discounts and commissions related to this offering. Pursuant to the completion of the CBS reorganization transactions, we will transfer to a wholly owned subsidiary of CBS the Transferred Offering Proceeds of approximately $415.7 million, or approximately $493.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus. After making this payment, we expect that we will have retained approximately $100.0 million from the proceeds of this offering, which is an amount, as determined by CBS, equal to the estimated cash portion of the Purging Distribution(s). Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described above. See “Use of Proceeds,” “Formation Transactions” and “The Separation.” Additional paid-in-capital on a pro forma basis for the formation transactions and this offering reflects the transfer of the Transferred Offering Proceeds to CBS.

 

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DILUTION

Our net tangible book value represents the amount of our total tangible assets less total liabilities. We calculate the net tangible book value per share by dividing the net tangible book value by the number of outstanding shares of our common stock. At December 31, 2013, the historical net tangible book value of CBS’s Outdoor Americas business was $524.3 million, or approximately $5.41 per pro forma share of our total outstanding common stock, based on shares of our outstanding common stock immediately prior to the completion of this offering. As of December 31, 2013, after giving effect to our formation transactions, our pro forma net tangible book deficit would have been approximately $1.02 billion, or approximately $10.55 per share of our total outstanding common stock, based on shares of our outstanding common stock immediately prior to the completion of this offering. After giving effect to the formation transactions and the sale of shares of common stock offered by us at an assumed initial public offering price of $27.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions, our pro forma as adjusted net tangible book deficit as of December 31, 2013 would have been approximately $923.7 million, or $7.70 per share of our total outstanding common stock. This represents an immediate dilution of $34.70 per share to new investors purchasing shares of our common stock in this offering.

The following table presents the per share dilution.

 

Assumed initial public offering price per share

     $ 27.00   

Pro forma net tangible book value per share as of immediately prior to the formation transactions

     5.41     

Net decrease in net tangible book value per share attributable to the formation transactions

     (15.96  
  

 

 

   

Net tangible book deficit per share as of immediately following the formation transactions

     (10.55  

Net increase in net tangible book value per share attributable to investors purchasing shares in this offering

     2.85     
  

 

 

   

Pro forma as adjusted net tangible book deficit per share after this offering

       (7.70
    

 

 

 

Dilution in pro forma as adjusted net tangible book value per share to investors in this offering

     $ (34.70
    

 

 

 

The foregoing discussion reflects our stock split (see “Formation Transactions”) and does not give effect to shares of common stock that we will issue if the underwriters exercise their option to purchase additional shares of common stock from us. Per share data that is pro forma for this offering assumes that the full amount of the contingent dividend has been paid to our parent.

The following table summarizes, as of December 31, 2013, the differences between the number of shares of our common stock purchased from us, after giving effect to the formation transactions, the total consideration paid, and the average price per share paid by our existing stockholders and by our new investors purchasing shares of common stock in this offering at the assumed initial public offering price of the common stock of $27.00 per share, which is the midpoint of the price range on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percentage     Amount      Percentage    
                  (in millions)               

Existing stockholders

     100,000,000         83   $ 1,309.5         71   $ 13.10   

New investors

     20,000,000         17     540.0         29   $ 27.00   
  

 

 

      

 

 

      

Total

     120,000,000         100   $ 1,849.5         100   $ 15.41   

A $1.00 increase/decrease in the assumed initial public offering price of $27.00 per share would increase/decrease total consideration paid by new investors by $20.0 million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same.

After giving effect to the sale of shares in this offering, if the underwriters’ option to purchase additional shares is exercised in full, CBS would own approximately 81% and our new investors would own approximately 19% of the total number of shares of our common stock outstanding after this offering.

 

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The above table and discussion include shares of our common stock outstanding as of December 31, 2013, after giving effect to our formation transactions and the issuance of shares in this offering, and exclude shares of common stock reserved for future issuance under the CBS Outdoor Americas Inc. Omnibus Stock Incentive Plan, which we intend to adopt prior to the completion of this offering.

The above tables and discussion do not reflect the disposition of the remaining shares of common stock to be held by CBS after completion of this offering, the intended REIT election after the Separation or the impact of the Purging Distribution(s), as these transactions will occur at a future date and are not part of this offering. However, the above tables and discussions reflect the portion of the net proceeds of this offering that will be retained by us, which is determined based on CBS’s current estimation of the cash portion of the Purging Distribution(s). Based on the mid-point of the price range set forth on the cover page of this prospectus, we currently estimate that the Purging Distribution(s) will total approximately $500.0 million, of which approximately 20% will be paid in cash and approximately 80% will be paid in shares of our common stock. The estimated stock portion of the Purging Distribution(s) will require us to issue a common stock dividend of approximately 14.8 million shares, based on the mid-point of the price range set forth on the cover page of this prospectus. The estimated total Purging Distribution(s) will further dilute our December 31, 2013 pro forma net tangible book deficit per share by $0.11. The actual amount of the Purging Distribution(s) will be calculated as of a future date and could be materially different from our current estimates based on a number of factors, including (1) the relative market capitalizations of our company and CBS, (2) the timing of our REIT election and the split-off (if any), (3) the financial performance of CBS, our company and our respective subsidiaries through the closing of the split-off (if any) and (4) for the share portion of our Purging Distribution(s), the per-share market value of our common stock at the time of distribution. Accordingly, these estimates should not be relied upon as an indicator of what the actual cash portion and stock portion of our Purging Distribution(s) will be. Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described under “Use of Proceeds” and “The Separation” (which could differ from the estimates disclosed herein). See “Use of Proceeds” and “The Separation.”

 

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SELECTED COMBINED CONSOLIDATED FINANCIAL DATA

The following table presents our selected combined consolidated financial data for the years presented. The selected historical combined consolidated statements of operations and cash flow information for the years ended December 31, 2013, 2012 and 2011 and the selected historical combined consolidated balance sheet information as of December 31, 2013 and 2012 have been derived from our audited historical combined consolidated financial statements, included elsewhere in this prospectus. The selected historical combined consolidated statements of operations and cash flow information for the year ended December 31, 2010 and the selected historical combined consolidated balance sheet information as of December 31, 2011 have been derived from our audited historical combined consolidated financial statements, not included in this prospectus. The selected historical combined consolidated statements of operations and cash flow information for the year ended December 31, 2009 and the selected historical combined consolidated balance sheet information as of December 31, 2010 and 2009, have been derived from our unaudited combined consolidated financial statements, not included in this prospectus. The unaudited historical combined consolidated financial statements have been prepared on the same basis as our audited historical combined consolidated financial statements and, in the opinion of our management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of this information.

Our historical combined consolidated financial statements included in this prospectus have been presented on a “carve-out” basis from CBS’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to CBS’s Outdoor Americas operating segment and include allocations of expenses from CBS. The selected historical combined consolidated financial information set forth below and the financial statements included elsewhere in this prospectus do not necessarily reflect what our results of operations, financial condition or cash flows would have been if we had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of our future performance, financial condition or liquidity.

You should read the following information together with “Risk Factors,” “Use of Proceeds,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

      Year Ended December 31,  
      2013      2012      2011      2010      2009  
(in millions)                  (unaudited)  

Statement of Operations data:

        

  Revenues

     $ 1,294.0          $ 1,284.6          $ 1,277.1          $ 1,214.1          $ 1,103.5    

  Less:

        

  Operating, selling, general and administrative expenses

     886.7          881.9          867.8          868.4          835.9    

  Adjusted OIBDA

     407.3          402.7          409.3          345.7          267.6    

  Less:

              

  Restructuring charges

     —          2.5          3.0          3.9          1.3    

  Net (gain) loss on dispositions

     (27.3)         2.2          2.0          1.1          2.0    

  Depreciation

     104.5          105.9          109.0          107.6          114.4    

  Amortization

     91.3          90.9          102.9          106.6          104.6    

  Operating income

     $ 238.8          $ 201.2          $ 192.4          $ 126.5          $ 45.3    

  Provision for income taxes

     $ (96.6)         $ (89.0)         $ (87.8)         $ (57.1)         $ (20.8)   

  Net income

     $ 143.5          $ 113.4          $ 107.1          $ 71.3          $ 21.9    

  FFO(a)

     $ 288.6          $ 288.9          $ 296.9          $ 260.9          $ 210.6    

  Adjusted FFO(a)

     $ 253.1          $ 269.2          $ 316.3          $ 284.8          $ 205.3    

Balance Sheet data (at period end):

              

  Property and equipment, net

     $ 755.4          $ 807.9          $ 858.2          $ 928.4          $ 982.5    

  Total assets

     $ 3,355.5          $ 3,464.9          $ 3,603.0          $ 3,751.5          $ 3,826.8    

  Current liabilities

     $ 212.2          $ 205.6          $ 196.7          $ 203.4          $ 188.8    

  Total invested equity

     $ 2,754.4          $ 2,843.9          $ 2,990.6          $ 3,163.3          $ 3,291.7    

Cash Flow data:

              

  Cash flow provided by operating activities

     $ 278.4          $ 311.3          $ 342.1          $ 271.9          $ 247.5    

  Capital expenditures:

        

Growth:

        

  Digital

     $ 25.9          $ 27.7          $ 19.5          $ 11.1          $ 12.4    

  Other

     8.8          9.9          10.8          15.7          12.9    

Maintenance

     23.5          16.0          15.3          20.4          25.3    

  Total capital expenditures

     $ 58.2          $ 53.6          $ 45.6          $ 47.2          $ 50.6    

  Cash taxes

     $ 112.8          $ 96.5          $ 50.9          $ 18.2          $ 14.4    

 

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(a) The following table presents a reconciliation of net income to FFO and Adjusted FFO.(1)

 

      Year Ended December 31,  
      2013     2012     2011     2010     2009  
(in millions)                   

Net income (2)

     $ 143.5        $ 113.4        $ 107.1        $ 71.3        $ 21.9    

Depreciation of billboard advertising structures

     97.5        98.8        101.3        99.2        98.8    

Amortization of real estate-related intangible assets

     43.2        42.5        53.5        57.4        56.8    

Amortization of direct lease acquisition costs

     30.9        31.1        32.1        30.9        30.2    

Net (gain) loss on disposition of billboard advertising structures

     (27.3     2.2        2.0        1.1        2.0    

Adjustment related to equity-based investments

     .8        .9        .9        1.0        .9    

FFO

     288.6        288.9        296.9        260.9        210.6    

Adjustment for deferred income taxes

     (15.5     (6.6     32.8        39.1        10.4    

Cash paid for direct lease acquisition costs

     (31.6     (30.9     (31.8     (29.4     (31.8)   

Maintenance capital expenditures

     (23.5     (16.0     (15.3     (20.4     (25.3)   

Other depreciation

     7.0        7.1        7.7        8.4        15.6    

Other amortization

     17.2        17.3        17.3        18.3        17.6    

Stock-based compensation expense

     7.5        5.7        5.0        4.3        4.8    

Noncash effect of straight-line rent

     1.2        1.2        1.0        .8        1.0    

Accretion expense

     2.2        2.5        2.7        2.8        2.4    

Adjusted FFO

     $ 253.1        $ 269.2        $ 316.3        $ 284.8        $ 205.3    

 

 

(1) We calculate FFO in accordance with the definition established by NAREIT. FFO reflects net income adjusted to exclude gains and losses from the sale of real estate assets, depreciation and amortization of real estate assets and amortization of direct lease acquisition costs, as well as the same adjustments for our equity-based investments, as applicable. We calculate Adjusted FFO as FFO adjusted to include cash paid for direct lease acquisition costs as such costs are generally amortized over a period ranging from four weeks to one year and therefore are incurred on a regular basis. We also adjust FFO to include cash paid for maintenance capital expenditures since these are routine uses of cash that are necessary for our operations. In addition, Adjusted FFO is adjusted to exclude certain noncash items, including non-real estate depreciation and amortization, deferred income taxes, stock-based compensation expense, accretion expense and the noncash effect of straight-line rent. We believe that adjusting for these items provides a better measure of our operating performance.

 

     We believe the presentations of FFO and Adjusted FFO, as supplemental measures, are useful in evaluating our business because they provide analysts and investors with an important perspective on our operating performance and also make it easier to compare our results to those of other REITs. As FFO and Adjusted FFO are not measures calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, net income (loss). Additionally, these measures are not necessarily indicative of funds available for our cash needs. FFO, as we calculate it, although consistent with the NAREIT definition, may not be comparable to similarly titled measures of other REITs given the nature of our operations.

 

(2) Our net income reflects our current tax status as a regular domestic C corporation for U.S. federal income tax purposes. If we qualify and elect to be taxed as a REIT, our tax expense in future periods is expected to be substantially lower than it has been historically. Historically, we incurred tax expense of $96.6 million in 2013, $89.0 million in 2012, $87.8 million in 2011, $57.1 million in 2010 and $20.8 million in 2009 and our assumed cash taxes paid during these periods were $112.8 million in 2013, $96.5 million in 2012, $50.9 million in 2011, $18.2 million in 2010 and $14.4 million in 2009.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Prior to the completion of this offering, we are an indirect wholly owned subsidiary of CBS. We are offering shares of our common stock in this offering, and upon the completion of this offering, CBS indirectly will own approximately 83% of our outstanding common stock, or approximately 81% if the underwriters exercise their option to purchase additional shares in full, and we will continue to be controlled by CBS. CBS has advised us that it currently intends to dispose of all of the shares of our common stock that it indirectly will own upon the completion of this offering following the “lock-up” period described under “Shares Eligible for Future Sale—Lock-Up Agreements and Other Contractual Restrictions on Resale.” CBS has advised us that it intends to effect the Separation by means of a tax-free split-off. If CBS does not proceed with the split-off, it could elect to dispose of our common stock in a number of different types of transactions, including open market sales, sales to one or more third parties or pro rata distributions of our shares to CBS’s stockholders or a combination of these transactions. CBS could also elect to not dispose of our common stock. The determination of whether, when and how to proceed with the Separation is entirely within the discretion of CBS. See “The Separation.”

The following unaudited pro forma condensed combined consolidated statements of operations and balance sheet, as well as the calculations of pro forma funds from operations and adjusted funds from operations, have been adjusted to reflect the incurrence of indebtedness through the Formation Borrowings as described under “Formation Transactions”; the sale of the common stock offered hereby; the receipt and use of the estimated net proceeds from this offering and our Formation Borrowings, as described under “Use of Proceeds”; and incremental costs we will incur to operate as a stand-alone public company. The unaudited pro forma condensed combined consolidated balance sheet at December 31, 2013 is presented as if each of these events had occurred at December 31, 2013. The unaudited pro forma condensed combined consolidated statements of operations for the year ended December 31, 2013 and the calculations of unaudited pro forma funds from operations and adjusted funds from operations for the year ended December 31, 2013 are presented as if each of these events had occurred on January 1, 2013. No pro forma adjustments have been made with regard to the disposition of the remaining shares of common stock to be held by CBS after the completion of this offering, the intended REIT election after the Separation or the impact of the Purging Distribution(s), as these transactions will occur at a future date and are not part of this offering. However, the unaudited pro forma condensed combined consolidated financial statements reflect the portion of the net proceeds of this offering that will be retained by us, which is determined based on CBS’s current estimation of the cash portion of the Purging Distribution(s). See “Use of Proceeds” and “The Separation.”

The unaudited pro forma condensed combined consolidated financial statements are based upon our historical combined consolidated financial statements for each period presented. In the opinion of management, all adjustments and/or disclosures necessary for a fair statement of the pro forma data have been made. These unaudited pro forma condensed combined consolidated financial statements are presented for illustrative purposes only and do not necessarily reflect what our results of operations and financial condition would have been if we had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of our future performance, financial condition or liquidity.

These unaudited pro forma condensed combined consolidated financial statements and the notes thereto should be read together with the following, which are included elsewhere in this prospectus:

 

  (a) Our audited combined consolidated financial statements and the notes thereto as of and for the year ended December 31, 2013.

 

  (b) The section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

AT DECEMBER 31, 2013

(In millions, except per share amounts)

 

      Historical    

Pro Forma

Adjustments

    Pro
Forma
 

Assets

      

Current assets:

      

  Cash and cash equivalents

   $ 29.8      $ 50.0 (1)    $ 179.8      
       100.0 (2)   

  Receivables, net

     178.8               178.8      

  Prepaid expenses and other current assets

     108.6               108.6      

Total current assets

     317.2        150.0        467.2      

Property and equipment, net

     755.4               755.4      

Goodwill

     1,865.7               1,865.7      

Intangible assets

     364.4               364.4      

Other assets

     52.8        28.0 (1)      80.8      

Total assets

   $ 3,355.5      $ 178.0      $ 3,533.5      

Liabilities and Invested Equity

      

Current liabilities:

      

  Accounts payable, accrued expenses and other current liabilities

   $ 212.2      $      $ 212.2      

Total current liabilities

     212.2               212.2      

Long-term debt

            1,598.0 (1)      1,598.0      

Deferred income tax liabilities, net

     288.5               288.5      

Other liabilities

     100.4               100.4      

Invested equity/stockholders’ equity:

      

  Invested capital

     2,829.5        (1,520.0 )(1)      —      
       (1,309.5 )(2)   

 Common stock, par value $0.01 per share, 450.0 shares authorized, and 120.0 shares issued and outstanding on a pro forma basis

            1.2 (2)      1.2      

  Additional paid-in-capital

            1,408.3 (2)      1,408.3      

  Accumulated other comprehensive loss

     (75.1            (75.1)     

Total invested equity/stockholders’ equity

     2,754.4        (1,420.0     1,334.4      

Total liabilities and invested equity/stockholders’ equity

   $ 3,355.5      $ 178.0      $ 3,533.5      

The accompanying notes are an integral part of these

unaudited pro forma condensed combined consolidated financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2013

(In millions, except per share amounts)

 

      Historical    

Pro Forma

Adjustments

    Pro
Forma
 

Revenues

   $ 1,294.0      $      $ 1,294.0      

Operating expenses

     686.9               686.9      

Selling, general and administrative expenses

     199.8        21.4 (5)      221.2      

Net gain on dispositions

     (27.3            (27.3)     

Depreciation

     104.5               104.5      

Amortization

     91.3               91.3      

Operating income

     238.8        (21.4     217.4      

Interest expense

            (71.6 )(3)      (71.6)     

Other expense, net

     (1.2            (1.2)     

Income before income taxes and equity in earnings of investee companies

     237.6        (93.0     144.6      

Provision for income taxes

     (96.6     37.5 (4)      (59.1)     

Equity in earnings of investee companies, net of tax

     2.5               2.5      

Net income

   $ 143.5      $ (55.5   $ 88.0      

Net income per common share:

      

Basic

   $ 1.48      $ (0.75 )(2)    $ 0.73      

Diluted

   $ 1.48      $ (0.75 )(2)    $ 0.73      

Weighted average number of common shares outstanding:

      

Basic

     97.0        23.0 (2)      120.0      

Diluted

     97.0        23.6 (2)      120.6      

The accompanying notes are an integral part of these

unaudited pro forma condensed combined consolidated financial statements.

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollars in millions)

 

1) FORMATION BORROWINGS AND REVOLVING CREDIT FACILITY

On January 31, 2014, we incurred indebtedness of $1.6 billion through the Formation Borrowings (consisting of the $800 million Term Loan and $800 million of Senior Notes), from which we received net proceeds of approximately $1.57 billion after deducting bank fees, discounts and commissions incurred in connection therewith. Pursuant to the completion of the CBS reorganization transactions, we transferred to a wholly owned subsidiary of CBS the Transferred Borrowing Proceeds of approximately $1.52 billion, which is an amount equal to the net proceeds of the Formation Borrowings less $50 million, which remained with us to use for corporate purposes and ongoing cash needs. See “Use of Proceeds.” In addition, on January 31, 2014, we entered into the $425 million Revolving Credit Facility, which expires in 2019. We do not expect to have any outstanding borrowings under our Revolving Credit Facility upon completion of this offering. On January 31, 2014, we also entered into the Letter of Credit Facility, pursuant to which we may obtain letters of credit from time to time in an aggregate outstanding face amount of up to $80 million.

The adjustment to “Other assets” reflects deferred financing costs associated with the Formation Borrowings.

 

2) SHARE ISSUANCE AND USE OF PROCEEDS

On March 14, 2014, as a result of a stock dividend to our parent, a wholly owned subsidiary of CBS, the 100 shares of our common stock then outstanding were converted into 97,000,000 shares of our common stock, par value $0.01 per share. In connection with this offering, we expect to issue approximately 20,000,000 shares of our common stock, or approximately 23,000,000 shares if the underwriters exercise their option to purchase additional shares in full. Also on March 14, 2014 our board of directors declared a contingent dividend to our parent, payable in an aggregate amount of 3,000,000 shares of our common stock less the total number of shares of our common stock actually purchased by the underwriters pursuant to their option to purchase additional shares. These shares of our common stock, if any, are payable to our parent at the end of the 30-day period in which the underwriters may exercise their option. As a result, there will be 120,000,000 shares of our common stock outstanding regardless of whether the underwriters exercise their option to purchase additional shares. Therefore, upon completion of this offering, CBS indirectly will own approximately 83% of our outstanding common stock or approximately 81% if the underwriters exercise their option to purchase additional shares in full. The adjustment to “Invested capital” of $1.31 billion reflects the conversion of CBS’s net equity investment in our company into shares of our common stock.

We estimate that we will receive net proceeds from this offering of approximately $515.7 million, or approximately $593.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus and after deducting the underwriting discounts and commissions related to this offering. Pursuant to the completion of the CBS reorganization transactions, we will transfer to a wholly owned subsidiary of CBS the Transferred Offering Proceeds of approximately $415.7 million, or approximately $493.1 million if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus. After making this payment, we expect that we will have retained approximately $100 million from the net proceeds of this offering, which is an amount, as determined by CBS, equal to the estimated cash portion of the Purging Distribution(s). Based on the mid-point of the price range set forth on the cover page of this prospectus, we currently estimate that the Purging Distribution(s) will total approximately $500.0 million, of which approximately 20% will be paid in cash and approximately 80% will be paid in shares of our common stock. The actual amount of the Purging Distribution(s) will be calculated as of a future date and could be materially different from our current estimates based on a number of factors, including (1) the relative market capitalizations of our company and CBS, (2) the timing of our REIT election and the split-off (if any), (3) the financial performance of CBS, our company and our respective subsidiaries through the closing of the split-off (if any) and (4) for the share portion of our Purging Distribution(s), the per-share market value of our common stock at the time of distribution. Accordingly, these estimates should not be relied upon as an indicator of what the actual cash portion and stock portion of our Purging Distribution(s) will be. Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollars in millions)

 

pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described above. See “Use of Proceeds,” “Formation Transactions” and “The Separation.”

At the time of this offering, approximately 260,000 restricted stock units (“RSUs”) for CBS Class B Common Stock held by our employees will be converted into approximately 635,000 RSUs for shares of our common stock. The fair value of the converted RSUs will equal the fair value of the RSU awards for CBS common stock at the time of conversion. Weighted average diluted shares outstanding, on a pro forma basis, reflects the dilutive effect of the assumed vesting of these RSUs, assuming RSUs for shares of our common stock have been outstanding since January 1, 2013. At the Separation, stock options to purchase CBS Class B common stock held by our employees will be converted into stock options to purchase our common stock. Weighted average diluted shares outstanding on a pro forma basis does not reflect this conversion of stock options.

 

3) INTEREST EXPENSE

The adjustments to interest expense reflect interest expense, including the amortization of deferred financing costs on the Formation Borrowings. The interest expense adjustment for the year ended December 31, 2013 is presented as if the borrowings and related financing costs were incurred on January 1, 2013. The following table presents pro forma interest expense. The pro forma interest expense on the variable-rate Term Loan is calculated using a rate of 3.0%, which reflects our initial interest rate.

 

      Year Ended
December 31, 2013
 

  $800 million Term Loan

   $ 24.0   

  $400 million 5.250% Senior Notes due 2022

     21.0   

  $400 million 5.625% Senior Notes due 2024

     22.5   

  Deferred financing costs

     4.1   

Pro forma adjustment to interest expense

   $ 71.6   

An increase or decrease of 1/8% in our interest rate on the Term Loan will change interest expense by approximately $1.0 million.

 

4) PROVISION FOR INCOME TAX

The pro forma income tax provision of $59.1 million on the unaudited pro forma condensed combined consolidated statement of operations reflects an effective tax rate of 40.9% for the year ended December 31, 2013. Our full year effective tax rate represents federal, state, local and foreign taxes, each calculated separately based on each jurisdiction’s income before income taxes and equity in earnings of investee companies.

The provision for income taxes presented on the unaudited pro forma condensed combined consolidated statements of operations reflects our current tax status as a regular domestic C corporation for U.S. federal income tax purposes. If we qualify and elect to be taxed as a REIT, our income tax provision will be substantially lower than it has been historically. This has not been reflected in the accompanying unaudited pro forma condensed combined consolidated financial statements.

 

5) OTHER

Our historical combined consolidated financial statements have been presented on a “carve-out” basis from CBS’s consolidated financial statements based on the historical results of operations, assets and liabilities attributable to CBS’s Outdoor Americas operating segment. CBS provides us with certain services, such as insurance and support for technology systems, and up until January 1, 2014, CBS provided benefits to our employees, including certain postemployment benefits, medical, dental, life and disability insurance and participation in a 401(k) savings plan.

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollars in millions)

 

Effective January 1, 2014, our employees began participating in employee benefit plans maintained by us, although certain of our employees may continue to be entitled to benefits under certain CBS defined benefit pension plans. Charges for services and benefits provided to us by CBS are reflected in the historical combined consolidated financial statements based on the specific identification of costs, assets and liabilities. Our historical combined consolidated financial statements also include allocations of centralized corporate expenses from CBS for services, such as tax, internal audit, cash management and other services. These expenses were determined based on various allocation methods, including factors such as headcount, time and effort spent on matters relating to our company, and the number of CBS operating entities benefiting from such services. We believe that the assumptions and estimates used to allocate these expenses are reasonable.

As a stand-alone public company, we expect to incur incremental expenses for the services previously provided by CBS as well as for additional public company expenses that did not apply to us historically. We estimate these incremental expenses to be $21.4 million for the year ended December 31, 2013. These incremental costs were determined principally based on various agreements we entered into with CBS prior to completing this offering to cover the services that CBS will be providing to us (see “Certain Relationships and Related-Person Transactions”), as well as employment agreements for new senior executives.

 

6) PRO FORMA FFO AND ADJUSTED FFO

The following table presents FFO and Adjusted FFO on a historical basis and on a pro forma basis to adjust net income to reflect additional costs we will incur as a stand-alone public company (See Note 5), interest expense from the Formation Borrowings (See Note 3), and the related adjustment to the provision for income taxes (See Note 4).

We believe the presentations of FFO and Adjusted FFO, as supplemental measures, are useful in evaluating our business because they provide analysts and investors with an important perspective on our operating performance and also make it easier to compare our results to those of other REITs. As FFO and Adjusted FFO are not measures calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, net income. Additionally, these measures are not necessarily indicative of funds available for our cash needs. FFO, as we calculate it, although consistent with the NAREIT definition, may not be comparable to similarly titled measures of other REITs given the nature of our operations.

 

Year Ended December 31, 2013    Historical    

Pro

Forma
Adjustments

    Pro Forma  

Net income

   $ 143.5      $ (55.5 )(3)(4)(5)    $ 88.0   

Depreciation of billboard advertising structures

     97.5               97.5   

Amortization of real estate-related intangible assets

     43.2               43.2   

Amortization of direct lease acquisition costs

     30.9               30.9   

Net gain on disposition of billboard advertising structures

     (27.3            (27.3

Adjustment related to equity based investments

     .8               .8   

FFO(a)

     288.6        (55.5     233.1   

Adjustment for deferred income taxes

     (15.5            (15.5

Cash paid for direct lease acquisition costs

     (31.6            (31.6

Maintenance capital expenditures

     (23.5            (23.5

Other depreciation

     7.0               7.0   

Other amortization

     17.2               17.2   

Amortization of deferred financing costs

            4.1 (3)      4.1   

Stock-based compensation expense

     7.5               7.5   

Noncash effect of straight-line rent

     1.2               1.2   

Accretion expense

     2.2               2.2   

Adjusted FFO(a)

   $ 253.1      $ (51.4)      $ 201.7   

 

  (a)

We calculate FFO in accordance with the definition established by NAREIT. FFO reflects net income adjusted to exclude gains and losses from the sale of real estate assets, depreciation and amortization of real estate assets and amortization of direct lease acquisition costs, as well

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollars in millions)

 

  as the same adjustments for our equity based investments, as applicable. We calculate Adjusted FFO as FFO adjusted to include cash paid for direct lease acquisition costs as such costs are generally amortized over a period ranging from four weeks to one year and therefore are incurred on a regular basis. We also adjust FFO to include cash paid for maintenance capital expenditures since these are routine uses of cash that are necessary for our operations. In addition, Adjusted FFO is adjusted to exclude certain noncash items, including non-real estate depreciation and amortization, deferred income taxes, stock-based compensation expense, accretion expense and the noncash effect of straight-line rent. We believe that adjusting for these items provides a better measure of our operating performance.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Tabular dollars in millions)

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with “Selected Combined Consolidated Financial Data,” “Business and Properties” and our historical combined consolidated and unaudited pro forma condensed combined consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve numerous risks and uncertainties. The forward-looking statements are subject to a number of important factors, including those factors discussed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” that could cause our actual results to differ materially from the results described herein or implied by such forward-looking statements.

Our historical financial statements included in this prospectus have been presented on a “carve-out” basis from CBS’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to CBS’s Outdoor Americas operating segment and include allocations of expenses from CBS. These allocations reflect significant assumptions, and the financial statements do not fully reflect what our financial position, results of operations or cash flows would have been had we been a stand-alone company during the years presented. As a result, historical financial information is not necessarily indicative of our future results of operations, financial position or cash flows. See “Risk Factors—Risks Related to Our Affiliation with CBS—The historical and pro forma financial information that we have included in this prospectus may not be representative of the results we would have achieved as a stand-alone public company and may not be a reliable indicator of our future results.”

We have set forth below a discussion of our historical operations. The effects of the formation transactions and this offering are reflected in the unaudited pro forma condensed combined consolidated financial statements included elsewhere in this prospectus.

Overview

We are one of the largest lessors of advertising space on out-of-home advertising structures and sites across the United States, Canada and Latin America. Our portfolio primarily consists of billboard displays, which are predominantly located in densely populated major metropolitan areas and along high-traffic expressways and major commuting routes. In addition, we have a number of exclusive multiyear contracts that allow us to operate advertising displays in municipal transit systems where our customers are able to reach millions of commuters on a daily basis. We have displays in all of the 25 largest markets in the United States and over 180 markets in the United States, Canada and Latin America, including in some of the most heavily trafficked locations, such as the Bay Bridge in San Francisco, Sunset Boulevard in Los Angeles and Grand Central Station and Times Square in New York City. We believe that the location of many of our displays is a strategic advantage relative to other forms of advertising. As of December 31, 2013, we had approximately 330,000 displays in the United States and approximately 26,200 displays across Canada and Latin America. The breadth of our portfolio provides our customers with a multitude of options to serve their varied marketing needs—for example, they can reach a large audience through national, brand-building campaigns (which Apple uses to market its iPhone and iPad products) or advertise by way of localized, action-inducing messages (which McDonald’s employs to make drivers aware of its nearby restaurants). For the year ended December 31, 2013, we generated revenues of $1.29 billion, Adjusted OIBDA of $407.3 million, and operating income of $238.8 million.

We believe that out-of-home advertising is an attractive form of advertising as our displays are ALWAYS ON™ and cannot be turned off, skipped or fast-forwarded, and that it provides our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising. In addition to leasing displays, we provide other value-added services to our customers, such as pre-campaign category research, creative design support and post-campaign tracking and analytics. We use a real-time mobile operational reporting system that enables proof of performance to customers. Our large portfolio of displays and geographic reach allow us to serve a broad range of customers that includes consumer-focused companies in the entertainment, retail, healthcare, telecom, restaurant, financial services, travel and leisure and automotive industries. During the year ended December 31, 2013, we served approximately 19,700 customers in the United States, including large, national companies such as Anheuser-Busch,

 

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Apple, AT&T, Diageo, Disney, McDonald’s, Sony and Verizon, as well as regional and local companies. During the twelve months ended November 30, 2013, 88 of the top 100 advertisers in the United States (as determined by Kantar Media Intelligence) were our customers. As a result of our diverse base of customers, in the United States, no single industry contributed more than 10% of our revenues and no single customer contributed more than 1.7% of our revenues during the year ended December 31, 2013.

As of December 31, 2013, we had 373 digital billboard displays in the United States. The majority of our digital billboard displays have been converted from traditional static billboard displays. Increasing the number of digital billboard displays in our most heavily trafficked locations is an important element of our organic growth strategy. Digital billboard displays have the potential to attract additional business from both new and existing customers. We believe that digital billboard displays are attractive to our customers because they allow for the development of richer and more visually engaging messages and provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns. In addition, digital billboard displays enable us to run multiple advertisements on each display (up to eight per minute). As a result, digital billboard displays generate approximately three to four times more revenue per display on average than traditional static billboard displays, and digital billboard displays generate higher profits and cash flows than traditional static billboard displays. As the costs to convert traditional static billboard displays to digital billboard displays have declined, we have accelerated our conversion efforts, adding approximately 70 digital billboard displays in 2011 and 110 digital billboard displays in each of 2012 and 2013, for a total investment of $73.1 million.

We generally (i) own the physical billboard structures on which we display advertising copy for our customers, (ii) hold the legal permits to display advertising thereon and (iii) lease the underlying sites. These lease agreements have terms varying between one month and multiple years, and usually provide renewal options. We estimate that approximately 75% of our billboard structures in the United States are “legal nonconforming” billboards, meaning they were legally constructed under laws in effect at the time they were built, but could not be constructed under current laws. These structures are often located in areas where it is difficult or not permitted to build additional billboards under current laws, which enhances the value of our portfolio. We have a highly diversified portfolio of advertising sites. As of December 31, 2013, we had approximately 23,100 lease agreements with approximately 18,800 different landlords. A substantial number of these lease agreements allow us to abate rent and/or terminate the lease agreement in certain circumstances, which may include where the structure is obstructed, where there is a change in traffic flow and/or where the advertising value of the sign structure is otherwise impaired, providing us with flexibility in renegotiating the terms of our leases with landlords.

We manage our business through the following two segments:

United States.  As of December 31, 2013, we had approximately 330,000 advertising displays in the United States, including the largest number of advertising displays of any out-of-home advertising company operating in the 25 largest markets in the United States. For the year ended December 31, 2013, our United States segment generated 20% of its revenues in the New York City metropolitan area and 12% in the Los Angeles metropolitan area. For the year ended December 31, 2013, our United States segment generated revenues of $1.13 billion and Adjusted OIBDA of $406.4 million.

International.  Our International segment includes our operations in Canada and Latin America, including Mexico, Argentina, Brazil, Chile and Uruguay. We are one of the largest out-of-home advertising companies in Canada and have significant scale in Mexico and across the other countries in which we operate in Latin America. As of December 31, 2013, we had approximately 26,200 advertising displays in our International segment, including approximately 14,400 in Canada. For the year ended December 31, 2013, our International segment generated revenues of $163.9 million and Adjusted OIBDA of $29.1 million.

 

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The following table sets forth our results of operations.

 

      Year Ended December 31,  
      2013         2012         2011     

Revenues:

        

  Billboard

   $     925.7        $     913.6        $ 894.2    

  Transit and other

     368.3          371.0          382.9    

Total revenues

     1,294.0          1,284.6          1,277.1    

Expenses:

        

  Operating

     686.9          700.1          689.4    

  Selling, general and administrative

     199.8          181.8          178.4    

  Restructuring charges

     —          2.5          3.0    

  Net (gain) loss on dispositions

     (27.3)         2.2          2.0    

  Depreciation

     104.5          105.9          109.0    

  Amortization

     91.3          90.9          102.9    

Total expenses

     1,055.2          1,083.4          1,084.7    

Operating income

     238.8          201.2          192.4    

Other income (expense), net

     (1.2)         (1.0)         .8    

Income before income taxes and equity in earnings of investee companies

     237.6          200.2          193.2    

Provision for income taxes

     (96.6)         (89.0)         (87.8)   

Equity in earnings of investee companies, net of tax

     2.5          2.2          1.7    

Net income

   $ 143.5        $ 113.4        $ 107.1    

Revenues.

We derive revenues primarily from providing advertising space to customers on our advertising structures and sites. Our contracts with customers generally cover periods ranging from four weeks to one year. Revenues from billboard displays are recognized as rental income on a straight-line basis over the contract term. Transit and other revenues are recognized as earned, which is typically ratably over the contract period. For space provided to advertisers through the use of an advertising agency whose commission is calculated based on a stated percentage of gross advertising spending, our revenues are reported net of agency commissions.

Expenses.

Operating Expenses.  Our major categories of operating expenses are as follows:

Billboard property lease expenses.  These expenses reflect the cost of leasing the real property on which our billboards are mounted. These lease agreements have terms varying between one month and multiple years, and usually provide renewal options. Rental expenses are comprised of a fixed monthly amount and under certain agreements, also include contingent rent, which varies based on the revenues we generate from the leased site. Property leases are generally paid in advance for periods ranging from one to twelve months. The fixed rent is expensed evenly over the contract term and the contingent rent is expensed as it becomes probable, which is consistent with when the related revenues are recognized.

Transit franchise expenses.  These expenses reflect costs charged by municipalities and transit operators under transit advertising contracts and are generally calculated based on a percentage of the revenues we generate under the contract, with a minimum guarantee. The costs that are determined based on a percentage of revenues are expensed as incurred when the related revenues are recognized, and the minimum guarantee is expensed over the contract term.

Posting, maintenance and other site-related expenses. These expenses primarily reflect costs associated with posting and rotation, materials, repairs and maintenance, utilities and property taxes.

Selling, General and Administrative Expenses. Our selling, general and administrative (“SG&A”) expenses include selling costs, employee compensation and other costs for back office support. During 2014, we expect increased SG&A expenses associated with services previously provided by CBS as well as for additional public company expenses that did not apply to us historically.

 

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Depreciation.  Our depreciation primarily relates to our advertising structures which are depreciated over the shorter of the contract term or useful life. Depreciation also relates to furniture, equipment, buildings and improvements.

Amortization.  Our intangible assets subject to amortization are primarily comprised of acquired permits and leasehold agreements and franchise agreements which grant us the right to operate out-of-home advertising structures in specified locations and the right to provide advertising space on railroad and municipal transit properties. Amortization also includes the amortization of direct lease acquisition costs, which are variable commissions directly associated with billboard revenues. These costs are amortized on a straight-line basis over the related customer lease term, which generally ranges from four weeks to one year.

Analysis of Operations—2013 vs. 2012 and 2012 vs. 2011

Revenues.  For 2013, total revenues increased $9.4 million, or 1%, to $1.29 billion from $1.28 billion in 2012. Our “same-site” revenues, which exclude the impact of new billboards and transit agreements, as well as divested billboards and the nonrenewal of transit agreements, increased 1% compared to the prior year.

Total billboard revenues increased $12.1 million, or 1%, to $925.7 million in 2013 from $913.6 million in 2012, principally driven by an increase in the number of digital billboard displays, which were mainly converted from static displays, to approximately 390 at December 31, 2013 from approximately 280 at December 31, 2012. Revenues generated from billboard displays that were digital at December 31, 2013, were $74.3 million for 2013, an increase of $13.0 million, or 21%, compared to revenues on the same billboard displays (whether static or digital) for the comparable prior-year period. Billboard revenue growth also reflects higher average rates in the United States, partially offset by lower political advertising in Mexico due to the presidential election in 2012, a decline in Canada and the negative impact of foreign exchange rate changes. Billboard occupancy in the United States in 2013 was comparable to 2012.

For 2013, total transit and other revenues decreased $2.7 million, to $368.3 million from $371.0 million in 2012, driven by a decrease of $5.7 million attributable to the nonrenewal of several low-margin and unprofitable transit agreements in Canada, partially offset by growth in the United States attributable to higher average rates.

The following table presents a reconciliation of same-site revenues to total reported revenues. Same-site revenues are adjusted to exclude revenues attributable to any billboards or transit agreements which were not in place for each of the years in their entirety, as a result of acquisitions, new agreements, divestitures, and nonrenewals (“noncomparable revenues”). We believe that adjusting revenues to exclude these items enables users of the financial statements to evaluate our performance on the same basis for both years presented.

 

Year Ended December 31,    2013      2012    

Same-site revenues

   $         1,276.7       $         1,261.5     

Noncomparable revenues

     17.3         23.1     

Total revenues

   $ 1,294.0       $ 1,284.6     

For 2012, total revenues increased $7.5 million, or 1%, to $1.28 billion, compared to the prior year reflecting improvement in the economy, partially offset by the impact of the nonrenewal of certain contracts. Same-site revenues for 2012 increased 3% from 2011.

Total billboard revenues increased $19.4 million, or 2%, to $913.6 million in 2012 from $894.2 million in 2011, principally driven by an increase in the number of digital billboard displays, which were mainly converted from static displays, to approximately 280 at December 31, 2012 from approximately 170 at December 31, 2011. Revenues generated from billboard displays that were digital at December 31, 2012, were $57.4 million for 2012, an increase of $14.6 million, or 34%, compared to revenues on the same billboard displays (whether static or digital) for the comparable prior-year period. Billboard revenue growth also reflects increased occupancy in the United States and higher political advertising in Mexico due to the presidential election in 2012, partially offset by the negative impact of foreign exchange rate changes.

 

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Total transit and other revenues decreased $11.9 million, or 3%, to $371.0 million in 2012 from $382.9 million in 2011, driven by the nonrenewal of several transit contracts with municipalities, mainly with the Toronto Transit Commission, which was partially offset by new transit contracts with the New York Metropolitan Transportation Authority (“MTA”) to operate certain digital transit displays in New York City. In aggregate, the nonrenewal and addition of new transit agreements resulted in a net decrease to transit and other revenues of eight percentage points. Absent these additional and nonrenewed agreements, underlying growth in transit revenues for 2012 mainly reflects increased occupancy.

The following table presents a reconciliation of same-site revenues to total reported revenues. Same-site revenues are adjusted to exclude revenues attributable to any billboards or transit agreements which were not in place for each of the years in their entirety, as a result of acquisitions, new agreements, divestitures, and nonrenewals.

 

Year Ended December 31,    2012      2011  

Same-site revenues

   $ 1,253.6       $ 1,217.0   

Noncomparable revenues

     31.0         60.1   

Total revenues

   $ 1,284.6       $ 1,277.1   

Operating Expenses.  For 2013, operating expenses decreased $13.2 million, or 2%, to $686.9 million from $700.1 million in 2012, and for 2012 increased $10.7 million, or 2%, to $700.1 million from $689.4 million in 2011.

The table below presents our operating expenses by type.

 

Year Ended December 31,   2013     2012    

Increase/(Decrease)

    2013 vs. 2012    

    2011    

Increase/(Decrease)

    2012 vs. 2011    

 

Billboard property lease

  $ 285.4      $ 279.0      $ 6.4         2%       $ 272.2      $ 6.8        2%   

Transit franchise

    197.1        203.8        (6.7)        (3)           208.1        (4.3     (2)     

Posting, maintenance and other site-related

    195.6        207.8        (12.2)        (6)           198.5        9.3        5      

Other

    8.8        9.5        (.7)        (7)           10.6        (1.1     (10)     

    Total operating expenses

  $ 686.9      $ 700.1      $ (13.2)        (2)%      $ 689.4      $ 10.7        2%   

Billboard property lease expenses represented 42%, 40%, and 39% of total operating expenses for 2013, 2012 and 2011, respectively. Billboard property lease expenses increased $6.4 million, or 2%, to $285.4 million in 2013 from $279.0 million in 2012, principally due to higher contractual rent from lease renewals and higher contingent rent expenses associated with increased billboard revenues. Billboard property lease expenses increased $6.8 million, or 2%, to $279.0 million in 2012 from $272.2 million in 2011, principally due to higher contingent rent expenses associated with the increase in billboard revenues. Billboard property lease expenses represented 31% of billboard revenues in each of 2013 and 2012, and represented 30% of billboard revenues in 2011.

Transit franchise expenses represented 29% of total operating expenses in each of 2013 and 2012, and represented 30% of total operating expenses for 2011. Transit franchise expenses decreased $6.7 million, or 3%, to $197.1 million in 2013 from $203.8 million in 2012, principally driven by cost reductions upon the renewal of a transit contract in Los Angeles at more favorable terms and the nonrenewal of several low margin and unprofitable transit agreements, mainly in Canada, partially offset by higher revenue-sharing expenses in the United States associated with the increase in the related transit and other revenues. For 2012, transit franchise expenses decreased $4.3 million, or 2%, to $203.8 million from $208.1 million in 2011, principally driven by the nonrenewal of the contract with the Toronto Transit Commission, partially offset by higher revenue-sharing expenses in the United States associated with the increase in transit and other revenues. Transit franchise expenses represented 60% of transit revenues in 2013 and 61% of transit revenues in each of 2012 and 2011.

Posting, maintenance and other site-related expenses represented 28%, 30%, and 29% of total operating expenses for 2013, 2012 and 2011, respectively. Posting, maintenance and other site-related expenses decreased $12.2 million, or 6%, to $195.6 million in 2013 from $207.8 million in 2012, principally due to a tax imposed on the billboard industry in Toronto, which resulted in a one-time retroactive payment of $7.9 million in 2012 and lower direct costs for

 

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compensation in 2013. For 2012, posting, maintenance and other site-related expenses increased $9.3 million, or 5%, to $207.8 million from $198.5 million in 2011, principally due to the aforementioned Toronto billboard tax which resulted in a $12.4 million expense in 2012. This increase was partially offset by cost decreases associated with foreign exchange rate changes.

Selling, General and Administrative Expenses.  SG&A expenses represented 15% of revenues in 2013 and 14% of revenues in each of 2012 and 2011. SG&A expenses increased $18.0 million, or 10%, to $199.8 million in 2013 from $181.8 million in 2012, primarily reflecting professional fees of $7.3 million associated with matters related to our expected election and qualification to be taxed as a REIT, incremental costs of $5.2 million related to our preparation to operate as a stand-alone public company, and other increases in professional fees. For 2012, SG&A expenses increased $3.4 million, or 2%, to $181.8 million from $178.4 million in 2011, principally reflecting higher employee compensation expenses, including benefits.

Restructuring Charges.  During 2012 and 2011, in efforts to reduce our cost structure, we recorded restructuring charges of $2.5 million and $3.0 million, respectively, primarily in the United States segment. The charges principally reflect severance costs associated with the elimination of positions across various departments. There were no restructuring charges in 2013.

Net (Gain) Loss on Dispositions.  Net gain on dispositions in 2013 was $27.3 million, which included a gain of $9.8 million from the disposition of most of our billboards in Salt Lake City in exchange for billboards in New Jersey and a gain of $17.5 million associated with the disposition of our transit shelter operations in Los Angeles. During 2013, we sold 50% of our transit shelter operations in Los Angeles, and we and the buyer each subsequently contributed our respective 50% interests in these operations to a 50/50 joint venture we own together.

During 2012 and 2011, we recorded a net loss from dispositions of $2.2 million and $2.0 million, respectively.

Depreciation.  For 2013, depreciation decreased $1.4 million, or 1%, to $104.5 million from $105.9 million in 2012. For 2012, depreciation decreased $3.1 million, or 3%, to $105.9 million from $109.0 million in 2011. Both of these decreases were principally driven by lower depreciation associated with disposed billboards.

Amortization.  For 2013, amortization increased $.4 million to $91.3 million from $90.9 million in 2012. For 2012, amortization decreased $12.0 million, or 12%, to $90.9 million from $102.9 million in 2011, principally a result of certain leasehold agreements becoming fully amortized. During 2013, 2012 and 2011, direct lease acquisition costs of $30.8 million, $31.4 million and $32.1 million, respectively, were capitalized and $30.9 million, $31.1 million and $32.1 million, respectively, were amortized.

Other Income (Expense), Net.  For all the years presented “Other income (expense), net” primarily reflects foreign exchange gains and losses.

Provision for Income Taxes.  Our income tax provisions as presented herein are calculated on a separate tax return basis, even though our U.S. operating results are included in the consolidated federal and certain state and local income tax returns of CBS. CBS manages its tax position for the benefit of the entire portfolio of its businesses and, as such, the assumptions, methodologies and calculations made for purposes of determining our tax provision and related tax accounts in the combined consolidated financial statements herein may differ from those made by CBS and, in addition, are not necessarily reflective of the tax strategies that we would have followed as a separate stand-alone company.

The provision for income taxes represents federal, state, local and foreign income taxes on income before taxes and equity in earnings of investee companies. The provision for income taxes was $96.6 million in 2013, $89.0 million in 2012 and $87.8 million in 2011, reflecting an effective income tax rate of 40.7% in 2013, 44.5% in 2012 and 45.4% in 2011. The decrease in the effective tax rate for 2013 was primarily driven by lower state taxes resulting from changes in state tax legislation.

Equity in Earnings of Investee Companies, Net of Tax.  Equity in earnings of investee companies, net of tax of $2.5 million in 2013, $2.2 million for 2012 and $1.7 million for 2011 reflects our share of the operating results of our 50% owned joint ventures, which consists of two out-of-home advertising companies that operate transit shelters in Los Angeles and Vancouver.

 

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Net Income.  We reported net income of $143.5 million in 2013, $113.4 million in 2012 and $107.1 million in 2011. The increases in net income were mainly driven by revenue growth.

Segment Results of Operations—For the Years Ended December 31, 2013, 2012 and 2011

The following tables present our revenues, Adjusted OIBDA, operating income (loss) and depreciation and amortization by segment, for each of the years ended December 31, 2013, 2012 and 2011. We present Adjusted OIBDA as the primary measure of profit and loss for our operating segments in accordance with Financial Accounting Standards Board (“FASB”) guidance for segment reporting. We believe the presentation of Adjusted OIBDA is relevant and useful for users of our financial statements because it allows the users to view segment performance in a manner similar to the primary method used by our management and enhances their ability to understand our operating performance.

 

Year Ended December 31,    2013       2012       2011    

Revenues:

      
  United States    $     1,130.1      $     1,098.6      $ 1,051.5   

  International

     163.9        186.0        225.6   

 Total revenues

   $ 1,294.0      $ 1,284.6      $     1,277.1   
      
Year Ended December 31,    2013       2012       2011    

Adjusted OIBDA:

      

  United States

   $ 406.4      $ 385.4      $ 364.7   

  International

     29.1        30.5        57.2   

  Corporate

     (28.2     (13.2     (12.6

Total Adjusted OIBDA

     407.3        402.7        409.3   

Restructuring charges

            (2.5     (3.0

Net gain (loss) on dispositions

     27.3        (2.2     (2.0

Depreciation

     (104.5     (105.9     (109.0

Amortization

     (91.3     (90.9     (102.9

Operating income

     238.8        201.2        192.4   

Other income (expense), net

     (1.2     (1.0     .8   

Income before income taxes and equity in earnings of investee companies

     237.6        200.2        193.2   

Provision for income taxes

     (96.6     (89.0     (87.8

Equity in earnings of investee companies, net of tax

     2.5        2.2        1.7   

Net income

   $ 143.5      $ 113.4      $ 107.1   

 

Year Ended December 31,    2013       2012       2011     

Operating income (loss):

      

  United States

   $     267.1      $     216.4      $     192.2      

  International

     (.1     (2.0     12.8      

  Corporate

     (28.2     (13.2     (12.6)     

    Total operating income

   $ 238.8      $ 201.2      $ 192.4      

 

Year Ended December 31,    2013        2012        2011     

Depreciation and amortization:

        

  United States

   $     166.8       $     165.6       $     168.2      

  International

     29.0         31.2         43.7      

    Total depreciation and amortization

   $ 195.8       $ 196.8       $ 211.9      

 

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United States.  Our United States segment contributed 87% to total revenues in 2013, 86% to total revenues in 2012 and 82% to total revenues in 2011.

2013 vs. 2012

 

Year Ended December 31,    2013        2012  

Same-site revenues

   $     1,112.8       $     1,083.2   

Noncomparable revenues

     17.3         15.4   

Total revenues

     1,130.1         1,098.6   

Operating and SG&A expenses

     (723.7      (713.2

Adjusted OIBDA

     406.4         385.4   

Restructuring charges

             (1.8

Net gain (loss) on dispositions

     27.5         (1.6

Depreciation and amortization

     (166.8      (165.6

Operating income

   $ 267.1       $ 216.4   

For 2013, total United States revenues increased $31.5 million, or 3%, to $1.13 billion from $1.10 billion in 2012. Revenues from United States billboards increased $25.9 million, or 3%, to $796.6 million in 2013 from $770.7 million in 2012, reflecting growth attributable to the conversion of traditional static billboard displays to digital billboard displays, and an increase in average rates. Total revenue growth was led by increases in our New York City and San Francisco markets, which increased 3% and 10%, respectively. Revenues generated from billboard displays that were digital at December 31, 2013 were $72.7 million in 2013, an increase of $12.3 million, or 20%, compared with revenues on the same billboard displays (whether static or digital) in 2012. At December 31, 2013, there were 373 digital billboard displays in the United States, compared to 277 at December 31, 2012. Transit and other revenues in the United States increased $5.6 million, or 2%, to $333.5 million in 2013 from $327.9 million in 2012, reflecting an increase in average rates.

For 2013, United States operating and SG&A expenses increased $10.5 million, or 1%, to $723.7 million from $713.2 million in 2012. United States billboard property lease costs increased 4%, primarily reflecting higher contingent rent associated with the increase in revenues and higher contractual rent from lease renewals. United States transit franchise expenses decreased 2%, primarily reflecting cost reductions upon the renewal of a transit contract in Los Angeles at more favorable terms, partially offset by higher revenue-sharing expense associated with the increase in transit and other revenues. In the United States, billboard property lease expenses represented 29% and 30% of billboard revenues in 2013 and 2012, respectively, and transit franchise expenses represented 63% of transit revenues in each of 2013 and 2012.

For 2013, United States Adjusted OIBDA increased $21.0 million, or 5%, to $406.4 million from $385.4 million in 2012 and the Adjusted OIBDA margin increased to 36% in 2013 from 35% in 2012. Net gain on dispositions in 2013 was $27.5 million, which included a gain of $9.8 million from the disposition of most of our billboards in Salt Lake City in exchange for billboards in New Jersey and $17.5 million associated with the disposition of our transit shelter operations in Los Angeles. During 2013, we sold 50% of our transit shelter operations in Los Angeles, and we and the buyer each subsequently contributed our respective 50% interests in these operations to a 50/50 joint venture we own together.

2012 vs. 2011

 

Year Ended December 31,    2012       2011  

Same-site revenues

   $     1,075.1      $     1,032.4   

Noncomparable revenues

     23.5        19.1   

Total revenues

     1,098.6        1,051.5   

Operating and SG&A expenses

     (713.2     (686.8

Adjusted OIBDA

     385.4        364.7   

Restructuring charges

     (1.8     (2.2

Net loss on dispositions

     (1.6     (2.1

Depreciation and amortization

     (165.6     (168.2

Operating income

   $ 216.4      $ 192.2   

 

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For 2012, total United States revenues increased $47.1 million, or 4%, to $1.10 billion from $1.05 billion in 2011, primarily reflecting the conversion of additional traditional static billboard displays to digital billboard displays, which generate more revenues than traditional static billboard displays, and improvement in the economy. Total revenue growth was led by increases in our two largest markets, New York City and Los Angeles, which increased 11% and 4%, respectively. Revenues from United States billboards increased $23.9 million, or 3%, to $770.7 million in 2012 from $746.8 million in 2011, reflecting higher pricing and occupancy rates and growth attributable to an increase in the number of digital billboard displays to 277 at December 31, 2012 from 173 at December 31, 2011. Revenues generated from billboard displays that were digital at December 31, 2012 were $57.4 million for 2012, an increase of $14.6 million, or 34%, compared to revenues on the same billboard displays (whether static or digital) for the comparable prior-year period. Transit and other revenues in the United States increased $23.2 million, or 8%, to $327.9 million in 2012 from $304.7 million in 2011, principally driven by new contracts with the New York MTA to operate certain digital displays in New York City and an increase in occupancy.

For 2012, United States operating and SG&A expenses increased $26.4 million, or 4%, to $713.2 million from $686.8 million in 2011. United States billboard property lease costs increased 3%, primarily reflecting higher contingent rent expenses associated with the increase in billboard revenues. United States transit franchise expenses increased 9%, primarily reflecting higher revenue sharing expenses in the United States associated with the increase in the related transit and other revenues. In the United States, billboard property lease expenses represented 30% of billboard revenues and transit franchise expenses represented 63% of transit revenues in each of 2012 and 2011.

For 2012, United States Adjusted OIBDA increased $20.7 million, or 6%, to $385.4 million from $364.7 million in 2011 primarily driven by the aforementioned revenue growth. For the United States, the Adjusted OIBDA margin was 35% in each of 2012 and 2011.

International.  Our international segment contributed 13% to total revenues in 2013, 14% to total revenues in 2012 and 18% to total revenues in 2011.

2013 vs. 2012

 

Year Ended December 31,    2013        2012   

Same-site revenues

   $   163.9         $   178.3    

Noncomparable revenues

     —           7.7    

Total revenues

     163.9           186.0    

Operating and SG&A expenses

          (134.8)              (155.5)   

Adjusted OIBDA

     29.1           30.5    

Restructuring charges

     —           (.7)   

Net loss on dispositions

     (.2)           (.6)   

Depreciation and amortization

     (29.0)           (31.2)   

Operating income (loss)

   $ (.1)         $ (2.0)   

For 2013, total International revenues decreased $22.1 million, or 12%, to $163.9 million from $186.0 million in 2012. In constant dollars, which reflects revenues for the prior-year period translated based on foreign exchange rates during the current year period, total International revenues decreased 10%. Same-site revenues for our International segment decreased 8%, reflecting a decline in Canada associated with the residual impact from the nonrenewal of transit contracts in prior periods and lower political advertising revenues in Mexico due to the presidential election in 2012.

For 2013, International operating and SG&A expenses decreased $20.7 million, or 13%, to $134.8 million from $155.5 million in 2012, primarily driven by lower expenses from the nonrenewal of several low-margin and unprofitable contracts, a tax imposed on the billboard industry in Toronto, which included a one-time retroactive payment of $7.9 million in 2012, and the effect of foreign exchange rates.

For 2013, International Adjusted OIBDA decreased $1.4 million, or 5%, to $29.1 million from $30.5 million in 2012, driven by the decline in same-site revenues partially offset by the aforementioned impact from the tax imposed on the billboard industry in Toronto.

 

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2012 vs. 2011

 

Year Ended December 31,    2012        2011   

Same-site revenues

   $   178.5         $   184.6    

Noncomparable revenues

     7.5           41.0    

Total revenues

     186.0           225.6    

Operating and SG&A expenses

     (155.5)           (168.4)   

Adjusted OIBDA

     30.5           57.2    

Restructuring charges

     (.7)           (.8)   

Net (loss) gain on dispositions

     (.6)           .1    

Depreciation and amortization

     (31.2)           (43.7)   

Operating income (loss)

   $ (2.0)         $ 12.8    

For 2012, total International revenues decreased $39.6 million, or 18%, to $186.0 million from $225.6 million in 2011 principally reflecting the nonrenewal of contracts in Canada, primarily with the Toronto Transit Commission, and the negative impact of foreign exchange rate changes. In constant dollars, total International revenues decreased 15%. Same-site revenues for our International segment decreased 3% reflecting the negative impact of foreign exchange rate changes.

For 2012, International operating and SG&A expenses decreased $12.9 million, or 8%, to $155.5 million from $168.4 million in 2011, principally reflecting cost decreases from the nonrenewal of transit contracts in Canada and the effect of foreign exchange rate changes, partially offset by a tax imposed on the outdoor billboard industry in Toronto which resulted in a $12.4 million payment in 2012, including a one-time retroactive payment of $7.9 million.

For 2012, International Adjusted OIBDA decreased $26.7 million, or 47%, to $30.5 million from $57.2 million in 2011, principally driven by the nonrenewal of transit contracts and the aforementioned tax imposed on the billboard industry in Toronto. International depreciation and amortization decreased $12.5 million to $31.2 million in 2012 from $43.7 million in 2011, principally resulting from certain leasehold agreements becoming fully amortized.

Corporate.  Corporate expenses primarily include expenses associated with employees who provide centralized services, as well as our total stock-based compensation expense. Corporate expenses were $28.2 million for 2013, $13.2 million for 2012 and $12.6 million for 2011. The increase in corporate expenses in 2013 was primarily due to higher professional fees, which included professional fees of $7.3 million associated with matters related to our expected election and qualification to be taxed as a REIT, incremental costs of $5.2 million related to our preparation to operate as a stand-alone public company and higher employee compensation expenses, including benefits. Corporate expenses included stock-based compensation expense of $7.5 million, $5.7 million, and $5.0 million for 2013, 2012 and 2011, respectively.

Quarterly Financial Data

Our revenues and profits experience seasonality due to seasonal advertising patterns and influences on advertising markets. Typically, our revenues and profits are highest in the fourth quarter, during the holiday shopping season, and lowest in the first quarter, as advertisers cut back on spending following the holiday shopping season.

 

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The following tables present our quarterly results, by segment, for the years ended December 31, 2013 and 2012.

 

2013   

First

Quarter

   

Second

Quarter

   

Third

Quarter

   

Fourth

Quarter

    Total Year  

Revenues:

          

  United States

   $     245.2      $     285.9      $     296.5      $     302.5      $     1,130.1   

  International

     34.0        46.8        41.7        41.4        163.9   

Total revenues

   $ 279.2      $ 332.7      $ 338.2      $ 343.9      $ 1,294.0   

Adjusted OIBDA:

          

  United States

   $ 80.1      $ 106.4      $ 113.7      $ 106.2      $ 406.4   

  International

     .6        11.6        7.8        9.1        29.1   

  Corporate

     (6.9     (6.5     (8.0     (6.8     (28.2

Total Adjusted OIBDA

     73.8        111.5        113.5        108.5        407.3   

Net gain (loss) on dispositions

     9.8 (a)      (.1     .1        17.5 (b)      27.3   

Depreciation

     (26.0     (25.9     (26.4     (26.2     (104.5

Amortization

     (22.9     (22.7     (22.6     (23.1     (91.3

Total operating income

   $ 34.7      $ 62.8      $ 64.6      $ 76.7      $ 238.8   

Operating income (loss):

          

  United States

   $ 48.2      $ 65.2      $ 72.0      $ 81.7      $ 267.1   

  International

     (6.6     4.1        .6        1.8        (.1

  Corporate

     (6.9     (6.5     (8.0     (6.8     (28.2

Total operating income

   $ 34.7      $ 62.8      $ 64.6      $ 76.7      $ 238.8   

Net income

   $ 19.9      $ 36.4      $ 37.2      $ 50.0      $ 143.5   

 

(a) During the first quarter of 2013, we exchanged most of our billboards in Salt Lake City for billboards in New Jersey, resulting in a gain of $9.8 million.

 

(b) During the fourth quarter of 2013, we sold 50% of our transit shelter operations in Los Angeles, and we and the buyer each subsequently contributed our respective 50% interests in these operations to a 50/50 joint venture we own together. This transaction resulted in a gain of $17.5 million.

 

2012   

First

Quarter

   

Second

Quarter

   

Third

Quarter

   

Fourth

Quarter

    Total Year  

Revenues:

          

  United States

   $     244.6      $     281.7      $     284.9      $     287.4      $     1,098.6   

  International

     41.3        49.7        46.6        48.4        186.0   

Total revenues

   $ 285.9      $ 331.4      $ 331.5      $ 335.8      $ 1,284.6   

Adjusted OIBDA:

          

  United States

   $ 76.7      $ 101.9      $ 108.1      $ 98.7      $ 385.4   

  International

     5.9        13.3        11.0        .3        30.5   

  Corporate

     (3.0     (3.1     (3.5     (3.6     (13.2

Total Adjusted OIBDA

     79.6        112.1        115.6        95.4        402.7   

Restructuring charges

            (.5     (1.9     (.1     (2.5

Net loss on dispositions

     (.8     (.7     (.3     (.4     (2.2

Depreciation

     (26.5     (26.8     (26.7     (25.9     (105.9

Amortization

     (22.1     (22.8     (23.0     (23.0     (90.9

Total operating income

   $ 30.2      $ 61.3      $ 63.7      $ 46.0      $ 201.2   

Operating income (loss):

          

  United States

   $ 35.1      $ 59.3      $ 64.5      $ 57.5      $ 216.4   

  International

     (1.9     5.1        2.7        (7.9     (2.0

  Corporate

     (3.0     (3.1     (3.5     (3.6     (13.2

Total operating income

   $ 30.2      $ 61.3      $ 63.7      $ 46.0      $ 201.2   

Net income

   $ 18.7      $ 37.2      $ 38.7      $ 18.8      $ 113.4   

 

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Financial Position

December 31, 2013 vs. December 31, 2012.  Current assets increased by $2.2 million, reflecting a $9.6 million higher cash balance, which was partially offset by a decrease in other prepaid expenses of $6.3 million. The allowance for doubtful accounts as a percentage of receivables decreased to 8.1% at December 31, 2013 from 9.9% at December 31, 2012, reflecting the write-off of certain receivables in litigation. Of the total allowance of $15.7 million at December 31, 2013 and $19.3 million at December 31, 2012, $7.5 million and $10.9 million, respectively, was recorded to fully reserve receivables in litigation, which often take many years to resolve. For those receivables not in litigation, the balance of the allowance was 4.2% of such gross receivables at December 31, 2013 and 4.3% at December 31, 2012.

Net property and equipment, which is mainly comprised of advertising structures, decreased by $52.5 million to $755.4 million at December 31, 2013 from $807.9 million at December 31, 2012, primarily reflecting depreciation expense of $104.5 million and foreign currency translation adjustments, partially offset by capital expenditures of $58.2 million and the acquisition of billboards in New Jersey.

Our intangible assets are primarily comprised of acquired permit and leasehold agreements and franchise agreements which grant us the right to operate out-of-home structures in specified locations and the right to provide advertising space on railroad and municipal transit properties. Intangible assets of $364.4 million at December 31, 2013 decreased $55.6 million from $420.0 million at December 31, 2012, primarily reflecting amortization expense, partially offset by the acquisition of billboards in New Jersey.

Current liabilities increased by $6.6 million to $212.2 million at December 31, 2013 from $205.6 million at December 31, 2012, primarily due to an increase in accounts payable and deferred revenues, partially offset by lower accrued compensation reflecting the timing of payments.

Cash Flows

Prior to the Formation Borrowings, we participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash we generated was automatically transferred to CBS and any additional daily cash flow needs were funded by CBS. As such, CBS benefitted from the positive cash flow we generated, and CBS also provided us with sufficient daily liquidity to fund our ongoing cash needs. As a result, we have historically required minimal cash on hand. On January 31, 2014, at the time of the Formation Borrowings, our participation in CBS’s centralized cash management system ceased. See “—Liquidity and Capital Resources.”

Year Ended December 31, 2013 vs. December 31, 2012 and December 31, 2012 vs. December 31, 2011

In 2013, cash and cash equivalents increased by $9.6 million to $29.8 million at December 31, 2013; in 2012, cash and cash equivalents decreased by $17.4 million to $20.2 million at December 31, 2012; and in 2011, cash and cash equivalents increased by $18.6 million to $37.6 million at December 31, 2011. The changes in cash and cash equivalents were as follows:

 

Year Ended December 31,    2013     2012     2011  

Cash provided by operating activities

   $     278.4      $     311.3      $     342.1   

Cash used for investing activities

     (41.0     (53.5     (52.7

Cash used for financing activities

     (227.0     (277.0     (267.3

Effect of exchange rate changes on cash and cash equivalents

     (.8     1.8        (3.5

Net increase (decrease) in cash and cash equivalents

   $ 9.6      $ (17.4   $ 18.6   

Operating Activities.  In 2013, cash provided by operating activities decreased $32.9 million to $278.4 million from $311.3 million in 2012. This decrease was principally driven by lower collections, mainly in international regions resulting from a decrease in revenues and the timing of collections, as well as higher operating cash taxes due to an increase in domestic pre-tax income. In 2012, cash provided by operating activities decreased $30.8 million to $311.3 million from $342.1 million in 2011, as the increase in operating income was more than offset by higher assumed income tax payments.

 

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Historically we have been a part of the consolidated federal and certain state and local income tax returns filed by CBS. Our assumed income tax payments reflected in the Combined Consolidated Statements of Cash Flows have been prepared as if these amounts were calculated on a separate tax return basis, with us as the taxpayer. Assumed cash payments for income taxes of $112.8 million, $96.5 million and $50.9 million in 2013, 2012 and 2011, respectively, include operating cash taxes of $118.6 million, $99.4 million and $53.2 million, respectively, offset by excess tax benefits from stock-based compensation of $5.8 million, $2.9 million and $2.3 million, respectively, which are presented as cash flows from financing activities. For 2013, assumed cash payments for income taxes increased $16.3 million to $112.8 million from $96.5 million in 2012, principally driven by an increase in domestic pre-tax income. For 2012, assumed cash payments for income taxes increased $45.6 million to $96.5 million from $50.9 million in 2011, principally driven by an increase in domestic pre-tax income and a lower tax deduction for capital expenditures due to the expiration of a tax regulation that provided for a 100% upfront deduction for qualified capital expenditures.

Investing Activities.  In 2013, cash used for investing activities of $41.0 million consisted of payments for acquisitions of $11.5 million, mainly for billboards and intangible assets in New Jersey, and capital expenditures of $58.2 million, partially offset by proceeds from dispositions of $28.7 million, mainly from the disposition of billboards in Salt Lake City and the sale of 50% of our transit shelter operations in Los Angeles. In 2012, cash used for investing activities of $53.5 million primarily includes capital expenditures of $53.6 million. In 2011, cash used for investing activities of $52.7 million principally reflected capital expenditures of $45.6 million and acquisitions of $7.9 million, primarily for permit and leasehold agreements.

The following table presents our capital expenditures.

 

Year Ended December 31,    2013       2012       2011   

Growth:

        

  Digital

   $     25.9       $     27.7       $     19.5   

  Other

     8.8         9.9         10.8   

Maintenance

     23.5         16.0         15.3   

  Total capital expenditures

   $ 58.2       $ 53.6       $ 45.6   

For 2013, capital expenditures increased $4.6 million to $58.2 million from $53.6 million in 2012, due primarily to additional expenditures to improve the quality or extend the lives of our United States billboards and other fixed assets. For 2012, capital expenditures increased $8.0 million to $53.6 million from $45.6 million in 2011, principally driven by growth associated with the conversion of additional traditional static billboards to digital billboards.

For 2014, we expect our capital expenditures to be approximately $65 million. The increase over 2013 will primarily be driven by growth in digital billboard displays.

Financing Activities.  Cash used for financing activities of $227.0 million in 2013, $277.0 million in 2012 and $267.3 million in 2011, principally reflected net cash distributions to CBS of $232.6 million, $279.7 million and $269.4 million, respectively.

Capital Structure

Our long-term debt at January 31, 2014 is as follows:

 

   
      At
January 31, 2014
 

Term Loan, due 2021, net of discount

   $ 798.0   

5.250% Senior Notes due 2022

     400.0   

5.625% Senior Notes due 2024

     400.0   

Total long-term debt

   $ 1,598.0   

On January 31, 2014, we entered into the Senior Credit Facilities, which include the $800 million Term Loan due 2021 and the $425 million Revolving Credit Facility, which matures in 2019. On January 31, 2014, we borrowed the full amount of the Term Loan and there were no outstanding borrowings under the Revolving Credit Facility. The Senior Credit Facilities are governed by a credit agreement, dated as of January 31, 2014 (the “Credit Agreement”),

 

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among our wholly owned subsidiaries, CBS Outdoor Americas Capital LLC (“Capital LLC”) and CBS Outdoor Americas Capital Corporation (“Finance Corp.”), as borrowers, us and the other guarantors from time to time party thereto, Citibank, N.A., as administrative agent, and the lenders from time to time party thereto.

All obligations under the Senior Credit Facilities are unconditionally guaranteed by us and our material existing and future direct and indirect wholly owned domestic subsidiaries (except the borrowers under the Senior Credit Facilities), subject to certain exceptions. All obligations under the Senior Credit Facilities, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of the borrowers and the guarantors under the Senior Credit Facilities, including a first-priority pledge in favor of Citibank, N.A., as collateral agent, of all of the capital stock of our subsidiaries directly held by the borrowers and the guarantors under the Senior Credit Facilities (which pledge, in the case of the capital stock of foreign subsidiaries, will be limited to 66% of the voting capital stock and 100% of the non-voting capital stock of each first-tier foreign subsidiary).

The collateral agent is an affiliate of one of the underwriters in this offering. Upon certain events of default, the collateral agent will be entitled to exercise the rights afforded to a secured party under, and subject to the limitations of, applicable law (including applicable bankruptcy or insolvency law), including, but not limited to, receiving dividends or other distributions on, exercising voting and consensual rights and powers with respect to, and/or registering in its own name as pledgee any pledged capital stock.

The Term Loan bears interest at a per annum rate equal to 2.25% plus the greater of the London Interbank Offered Rate (“LIBOR”) or 0.75%. The interest rate on the Term Loan was 3.00% per annum at January 31, 2014. Borrowing rates under the Revolving Credit Facility are based on LIBOR plus a margin based on our consolidated net secured leverage ratio, which is the ratio of (i) our consolidated secured debt (less up to $150 million of unrestricted cash and cash equivalents) to (ii) our consolidated EBITDA (as defined in the Credit Agreement). Interest on the Term Loan and Revolving Credit Facility is payable at the end of each LIBOR period, but in no event less frequently than quarterly. We pay a commitment fee based on the amount of unused commitments under the Revolving Credit Facility.

The Credit Agreement contains certain customary affirmative and negative covenants, representations and warranties and events of default. The occurrence of an event of default under the Credit Agreement could result in the termination of the commitments under the Revolving Credit Facility and the acceleration of all outstanding borrowings under the Senior Credit Facilities and could cause a cross-default that could result in the acceleration of other indebtedness, including the full principal amount of the Senior Notes. The terms of the Revolving Credit Facility require us to maintain a maximum consolidated net secured leverage ratio of 3.50 to 1.00, which will be increased to 4.00 to 1.00 upon the occurrence of the REIT election. As of December 31, 2013, on a pro forma basis after giving effect to the Formation Borrowings, we would have had a consolidated net secured leverage ratio of approximately 1.7 to 1.0.

We are permitted to prepay amounts outstanding under the Senior Credit Facilities at any time. If a prepayment of the Term Loan is made on or prior to July 31, 2014 as a result of certain refinancing or repricing transactions, we will be required to pay a fee equal to 1.00% of the principal amount of the obligations so refinanced or repriced. Subject to certain exceptions (including in certain cases, reinvestment rights), the Term Loan requires us to prepay certain amounts outstanding thereunder with the net cash proceeds of certain asset sales, certain casualty events and certain issuances of debt.

Also on January 31, 2014, Capital LLC and Finance Corp. issued $400 million aggregate principal amount of 5.250% senior notes due 2022 and $400 million aggregate principal amount of 5.625% senior notes due 2024. The Senior Notes were issued pursuant to an indenture dated as of January 31, 2014 among Capital LLC, Finance Corp., the Company and the other guarantors party thereto from time to time and Deutsche Bank Trust Company Americas, as trustee. The indenture governing the Senior Notes contains certain customary affirmative and negative covenants and events of default. The occurrence of an event of default under the indenture governing the Senior Notes could cause a cross-default that could result in the acceleration of other indebtedness, including all outstanding borrowings under the Senior Credit Facilities.

The Senior Notes were offered and sold in the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act, and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of its direct and indirect subsidiaries that guarantees the Senior Credit Facilities. Interest on the Senior Notes is payable on May 15 and November 15 of each year, beginning on May 15, 2014.

 

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We may redeem some or all of the 5.250% senior notes due 2022 and 5.625% senior notes due 2024 at any time, or from time to time, on or after February 15, 2017 and February 15, 2019, respectively, at a premium that will decrease over time, plus accrued and unpaid interest to the date of redemption. Prior to such dates we may redeem some or all of such notes subject to payment of a customary make-whole premium. In addition, prior to February 15, 2017, we may redeem up to 35% of the aggregate principal amount of each series of Senior Notes with the proceeds of certain equity offerings. In connection with the issuance of the Senior Notes, Capital LLC, Finance Corp., the Company and the other guarantors of the Senior Notes entered into a registration rights agreement dated as of January 31, 2014 with the initial purchasers of the Senior Notes (the “Notes Registration Rights Agreement”). Pursuant to the Notes Registration Rights Agreement, we have agreed to use our commercially reasonable best efforts to cause a registration statement to become effective with the SEC relating to an offer to exchange the Senior Notes for registered Senior Notes having substantially identical terms, or in certain cases, to register the Senior Notes for resale. If we are not in timely compliance with our obligations to register or exchange the Senior Notes pursuant to the terms of the Notes Registration Rights Agreement, we will be required to pay additional interest to the holders of the Senior Notes under certain circumstances.

As a result of the Formation Borrowings, described above, we incurred indebtedness of $1.6 billion, from which we received net proceeds of approximately $1.57 billion after deducting bank fees, discounts and commissions incurred in connection therewith. Pursuant to the completion of the CBS reorganization transactions, we transferred the Transferred Borrowing Proceeds of approximately $1.52 billion to a wholly owned subsidiary of CBS, which is an amount equal to the net proceeds of the Formation Borrowings less $50 million, which remained with us to use for corporate purposes and ongoing cash needs. See “Use of Proceeds.”

On January 31, 2014, we also entered into a Letter of Credit Facility, pursuant to which we may obtain letters of credit from time to time in an aggregate outstanding face amount of up to $80 million. After the first year, the Letter of Credit Facility will automatically extend for successive one-year periods unless either we or the issuing bank under it elect not to extend it. The same subsidiaries that guarantee the Senior Credit Facilities guarantee the Letter of Credit Facility, and the Letter of Credit Facility is secured on an equal and ratable basis by liens in the same collateral that secures the Senior Credit Facilities.

Liquidity and Capital Resources

We have generated cash flows from operating activities of $278.4 million in 2013, $311.3 million in 2012 and $342.1 million in 2011. Prior to the Formation Borrowings, we participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash we generated was automatically transferred to CBS and any additional daily cash flow needs were funded by CBS. As such, CBS benefited from the positive cash flow we generated, and CBS also provided us with sufficient daily liquidity to fund our ongoing cash needs. As a result, we have historically required minimal cash on hand. On January 31, 2014, at the time of the Formation Borrowings, our participation in CBS’s centralized cash management system ceased.

We continually project anticipated cash requirements for our operating, investing and financing needs as well as cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include payments for operating leases, franchise rights and capital expenditures. After the completion of our Formation Borrowings, our short-term cash requirements also include payments for interest and after completion of this offering, our short-term cash requirements will also include payments for dividends. We believe that cash remaining on hand after completion of this offering of approximately $179.8 million, on a pro forma basis at December 31, 2013, as well as our operating cash flows and borrowing capacity under the Revolving Credit Facility, will be sufficient to fund our short-term cash needs.

For the period commencing with the completion of this offering through the day immediately prior to the effective date of our REIT election, based on our historical operating results, we intend to pay an initial quarterly dividend of $0.37 per share. This dividend amount is based on our historical results of operations and cash flows, and our pro forma results of operations. We believe this financial information provides a reasonable basis to evaluate our ability to pay future dividends. We intend to maintain our initial quarterly dividend amount until the earlier of twelve months following completion of this offering or the effective date of our REIT election unless actual results of operations, economic conditions or other factors differ materially from our current assumptions. From and after the effective date of our REIT election, we intend to pay regular quarterly distributions to holders of our common stock in an amount not

 

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less than 100% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains). In addition, if CBS completes the Separation by means of the split-off and we elect and qualify to be taxed as a REIT for U.S. federal income tax purposes, we intend to make one or more Purging Distribution(s) comprised of a combination of cash and stock.

We expect to retain approximately $150.0 million from the proceeds of the Formation Borrowings and this offering (see “Use of Proceeds”), which we will use for corporate purposes and ongoing cash needs and which we believe will provide us with sufficient liquidity to pay the cash portion of any Purging Distribution(s) if CBS completes the Separation by means of the split-off and we elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. Based on the mid-point of the price range set forth on the cover page of this prospectus, we currently estimate that the Purging Distribution(s) will total approximately $500.0 million, of which approximately 20% will be paid in cash and approximately 80% will be paid in shares of our common stock. The actual amount of the Purging Distribution(s) will be calculated as of a future date and could be materially different from our current estimates based on a number of factors, including (1) the relative market capitalizations of our company and CBS, (2) the timing of our REIT election and the split-off (if any), (3) the financial performance of CBS, our company and our respective subsidiaries through the closing of the split-off (if any) and (4) for the share portion of our Purging Distribution(s), the per-share market value of our common stock at the time of distribution. Accordingly, these estimates should not be relied upon as an indicator of what the actual cash portion and stock portion of our Purging Distribution(s) will be. Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described under “Use of Proceeds” and “The Separation” (which could differ from the estimates disclosed herein).

In addition to the Purging Distribution(s) described above, our long-term cash needs will include principal payments on outstanding indebtedness and payments for acquisitions. Funding for long-term cash needs will come from our cash on hand after completion of the Formation Borrowings and this offering, operating cash flows, our ability to issue debt and equity securities, and borrowing capacity under the Revolving Credit Facility.

Contractual Obligations

As of December 31, 2013, our significant contractual obligations and payments due by period were as follows:

 

   
     Payments Due by Period  
     Total      2014      2015-2016      2017-2018      2019 and
thereafter
 

Guaranteed minimum franchise payments(a)

   $ 331.3       $ 150.8       $ 119.9       $ 21.9       $ 38.7   

Operating leases(b)

     674.0         89.7         157.2         111.6         315.5   

Total

   $     1,005.3       $     240.5       $     277.1       $     133.5       $     354.2   

 

(a) We have agreements with municipalities and transit operators which entitle us to operate advertising displays within their transit systems, including on the interior and exterior of rail and subway cars and buses, as well as on benches, transit shelters, street kiosks, and transit platforms. Under most of these franchise agreements, the franchisor is entitled to receive the greater of a percentage of the relevant revenues, net of agency fees, or a specified guaranteed minimum annual payment. Franchise rights are generally paid monthly, or in some cases upfront at the beginning of the year.
(b) Consists of noncancellable operating leases with terms in excess of one year for billboard sites, office space and equipment. Total future minimum payments of $674.0 million include $636.0 million for our billboard sites.

The above table excludes $4.0 million of reserves for uncertain tax positions and the related accrued interest and penalties, as we cannot reasonably predict the amount of and timing of cash payments relating to this obligation.

In 2014, we expect to contribute $4.1 million to our pension plans. Contributions to our pension plans were $3.8 million in 2013, $4.1 million in 2012 and $2.9 million in 2011.

In addition, as a result of the Formation Borrowings, we incurred long-term debt of $1.6 billion. The following table presents principal and interest payments related to this debt due by period. Interest on the Term Loan is variable. For illustrative purposes, we are assuming the interest rate on the Term Loan is 3.0% for all the periods which reflects our interest rate at January 31, 2014. An increase or decrease of 1/8% in our interest rate will change the annual interest expense by approximately $1.0 million. Payment terms on the Term Loan may vary. On the table below we assume interest is paid on a monthly basis.

 

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            Payments Due by Period  
      Total      2014      2015-2016      2017-2018      2019 and
thereafter
 

Long-term debt

   $ 1,600.0       $       $       $       $ 1,600.0   

Interest on long-term debt

     562.8         56.4         135.0         135.0         236.4   

Total

   $ 2,162.8       $ 56.4       $ 135.0       $ 135.0       $ 1,836.4   

Off-Balance Sheet Arrangements

We use letters of credit and surety bonds, which are indemnified by CBS, primarily as security against nonperformance in the normal course of business. The outstanding letters of credit and surety bonds approximated $78.3 million at December 31, 2013 and $79.6 million at December 31, 2012, and were not recorded on the Combined Consolidated Balance Sheets. Upon the renewal of our lease and franchise agreements, and upon the entry into new arrangements with respect to our letters of credit and surety bonds, our letters of credit and surety bonds will no longer be indemnified by CBS.

We may address our letter of credit needs under the Revolving Credit Facility, the Letter of Credit Facility or otherwise.

Critical Accounting Policies

The preparation of our financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, we evaluate these estimates, which are based on historical experience and on various assumptions that we believe are 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 revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

We consider the following accounting policies to be the most critical as they are significant to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a summary of our significant accounting policies see pages F-9 – F-12 of the notes to the combined consolidated financial statements.

 

    Goodwill.  We test goodwill for impairment on an annual basis and between annual tests should factors or indicators become apparent that would require an interim test. Goodwill is tested for impairment at the reporting-unit level. Each of our segments consists of two reporting units.

The first step of the goodwill impairment test examines whether the carrying value of a reporting unit exceeds its fair value. We compute the estimated fair value of each reporting unit by adding the present value of the estimated annual cash flows over a discrete projection period to the residual value of the business at the end of the projection period. This technique requires us to use significant estimates and assumptions such as growth rates, operating margins, capital expenditures and discount rates. The estimated growth rates, operating margins and capital expenditures for the projection period are based on our internal forecasts of future performance as well as historical trends. The residual value is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. The discount rates are determined based on the average of the weighted average cost of capital of comparable entities. A downward revision of these assumptions would decrease the fair values of our reporting units. If the fair value of a reporting unit falls below its carrying value, we would then perform the second step of the goodwill impairment test to determine the amount of any noncash impairment charge. Such a charge could have a material effect on the statement of operations and balance sheet.

Based on our most recent impairment test, one reporting unit, with a goodwill balance of $37.4 million at December 31, 2013, had an estimated fair value that exceeded its carrying value by 16%. The fair value of each of the remaining three reporting units exceeded their respective carrying values by 20% or more.

 

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    Long-lived Assets.  We report long-lived assets, including billboard advertising structures, other property, plant and equipment and intangible assets, at historical cost less accumulated depreciation and amortization. We depreciate or amortize these assets over their estimated useful lives, which generally range from five to 40 years. For billboard advertising structures, we estimate the useful lives based on the estimated economic life of the asset. Transit fixed assets are depreciated over the shorter of their estimated useful lives or the related contractual term. Our long-lived identifiable intangible assets primarily consist of acquired permits and leasehold agreements and franchise agreements, which grant us the right to operate out-of-home advertising structures in specified locations and the right to provide advertising displays on railroad and municipal transit properties. Our long-lived identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, which is the respective life of the agreement and in some cases includes an estimation for renewals, which is based on historical experience.

Long-lived assets subject to depreciation and amortization are also reviewed for impairment when events and circumstances indicate that the long-lived asset might be impaired, by comparing the forecasted undiscounted cash flows to be generated by those assets to the carrying values of those assets. The significant assumptions we use to determine the useful lives and fair values of long-lived assets include contractual commitments, regulatory requirements, future expected cash flows and industry growth rates, as well as future salvage values.

 

    Asset Retirement Obligations.  We record an asset retirement obligation for our estimated future legal obligation, upon termination or nonrenewal of a lease, associated with removing structures from the leased property and, when required by the contract, the cost to return the leased property to its original condition. These obligations are recorded at their present value in the period in which the liability is incurred and are capitalized as part of the related assets’ carrying value. Accretion of the liability is recognized in operating expenses and the capitalized cost is depreciated over the expected useful life of the related asset. The obligation is calculated based on the assumption that all of our advertising structures will be removed within the next 50 years. The significant assumptions used in estimating the asset retirement obligation include the cost of removing the asset, the cost of remediating the leased property to its original condition where required and the timing and number of lease renewals, all of which are estimated based on historical experience.

 

    Income Taxes.  Income taxes are accounted for under the asset and liability method of accounting. Deferred income tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the financial statement carrying amounts and their respective tax basis. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized.

Our income taxes as presented herein, including the provision for income taxes, deferred tax assets and liabilities, and income tax payments are calculated on a separate tax return basis, even though our U.S. operating results are included in the consolidated federal, and certain state and local income tax returns of CBS. CBS manages its tax position for the benefit of the entire portfolio of its businesses and, as such, the assumptions, methodologies and calculations made for purposes of determining our tax provision, taxes paid and related tax accounts in the combined consolidated financial statements herein may differ from those made by CBS and, in addition, are not necessarily reflective of the tax strategies that we would have followed as a separate stand-alone company.

We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. When recording the worldwide provision for income taxes during an interim period, an estimated annual effective tax rate is applied to interim operating results. In the event there is a significant or unusual item recognized in the operating results, the tax attributable to that item is separately calculated and recorded in the same interim period.

Legal Matters

On an ongoing basis, we are engaged in lawsuits and governmental proceedings and respond to various investigations, inquiries, notices and claims from national, state and local governmental and other authorities (collectively, “litigation”) as the outdoor advertising industry is subject to governmental regulation. Litigation is inherently uncertain and always difficult to predict. Although it is not possible to predict with certainty the eventual outcome of any litigation, in our opinion, none of our current litigation is expected to have a material adverse effect on our results of operations, financial position or cash flows. See “Regulation.”

 

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Market Risk

We are exposed to market risk related to commodity prices and foreign currency exchange rates.

Commodity Price Risk.  We incur various operating costs that are subject to price risk caused by volatility in underlying commodity values. Commodity price risk is present in electricity costs associated with powering our digital billboard displays and lighting our traditional static billboard displays at night.

We do not currently use derivatives or other financial instruments to mitigate our exposure to commodity price risk. However, we do enter into contracts with commodity providers to limit our exposure to commodity price fluctuations. For the years ended December 31, 2013 and 2012, such contracts accounted for 7.8% and 6.9% of our total utility costs, respectively. As of December 31, 2013, we have active electricity purchase agreements with fixed contract rates for locations throughout Illinois, New York and Texas, which expire in September 2014, August 2014, and July 2018, respectively.

Foreign Exchange Risk.  Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. Dollar) for consolidation purposes. Although certain of our transactions are denominated in the Canadian Dollar, the Mexican Peso and the Brazilian Real, substantially all of our transactions are denominated in the U.S. Dollar, therefore reducing our risk to currency translation exposures.

Accordingly, we do not currently use derivatives or other financial instruments to mitigate foreign currency risk, although we may do so in the future.

Interest Rate Risk.  We are subject to interest rate risk to the extent we have variable-rate debt outstanding including under our Senior Credit Facilities. On January 31, 2014, we entered into an $800 million variable-rate Term Loan due 2021, which has an initial interest rate of 3% per year. An increase or decrease of 1/8% in our interest rate on the Term Loan will change our annualized interest expense by approximately $1.0 million. We do not currently use derivatives or other financial instruments to mitigate interest rate risk, although we may do so in the future.

Credit Risk.  In the opinion of management, credit risk is limited due to the large number of customers and advertising agencies utilized. We perform credit evaluations on our customers and agencies and believe that the allowances for doubtful accounts are adequate. We do not currently use derivatives or other financial instruments to mitigate credit risk.

Related Parties

CBS Corporation.  We are indirectly wholly owned by CBS. CBS provides us with certain services, such as insurance and support for technology systems. Effective January 1, 2014, our employees began participating in employee benefit plans maintained by us, although certain of our employees may continue to be entitled to benefits under certain CBS defined benefit pension plans. Charges for services and benefits provided to us by CBS are reflected in the combined consolidated financial statements based on the specific identification of costs, assets and liabilities. These financial statements also include allocations of centralized corporate expenses from CBS for services, such as tax, internal audit, cash management and other services. These expenses were determined based on various allocation methods, including factors such as headcount, time and effort spent on matters relating to our company, and the number of CBS operating entities benefiting from such services. Charges for these services and benefits have been included in selling, general and administrative expenses in the accompanying Combined Consolidated Statements of Operations and totaled $60.9 million, $47.7 million and $46.2 million for the years ended December 31, 2013, 2012, and 2011, respectively. In 2013, these charges also included professional fees associated with matters related to our election and qualification to be taxed as a REIT and costs related to our preparation to operate as a stand-alone public company. Management believes that the assumptions and estimates used to allocate these expenses are reasonable. However, our expenses as a stand-alone company may be different from those reflected in the Combined Consolidated Statements of Operations.

 

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In addition, prior to the Formation Borrowings, we participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash we generated was automatically transferred to CBS and any additional daily cash flow needs were funded by CBS. As such, CBS benefitted from the positive cash flow we generated, and CBS also provided us with sufficient daily liquidity to fund our ongoing cash needs. As a result, we have historically required minimal cash on hand. On January 31, 2014, at the time of the Formation Borrowings, our participation in CBS’s centralized cash management system ceased.

Prior to the completion of this offering, we will enter into various agreements to govern our relationship with CBS during the period between the completion of this offering and the effective date of the Separation and to complete the Separation of our business from CBS. These agreements will include a master separation agreement, tax matters agreement, transition services agreement, license agreement and registration rights agreement. Some of these agreements will continue in accordance with their terms after the Separation. The terms of our separation from CBS, the related agreements and other transactions with CBS will be determined by CBS and thus may not be representative of what we could achieve on a stand-alone basis or from an unaffiliated third party. For a description of these agreements and the other agreements that we will enter into with CBS, see “Certain Relationships and Related-Person Transactions.”

CBS manages its long-term debt obligations based on the needs of its entire portfolio of businesses. Long-term debt of CBS and related interest expense are not allocated to us as none of CBS’s debt is directly attributable to us. None of our debt is guaranteed by CBS.

Pursuant to the completion of the CBS reorganization transactions, we will transfer to a wholly owned subsidiary of CBS approximately $415.7 million, which is an amount equal to the net proceeds of this offering less an amount, as determined by CBS, equal to the estimated cash portion of the Purging Distribution(s).

In addition, in connection with the Formation Borrowings, we incurred $1.6 billion of indebtedness, from which we received net proceeds of approximately $1.57 billion after deducting bank fees, discounts and commissions incurred in connection therewith. Pursuant to the completion of the CBS reorganization transactions, we transferred to such wholly owned subsidiary of CBS approximately $1.52 billion, which is an amount equal to the net proceeds of the Formation Borrowings less $50 million, which remained with us to use for corporate purposes and ongoing cash needs, as described below.

These payments (together with shares of CBS Outdoor Americas Inc. common stock) are in consideration for the contribution of the entities comprising CBS’s Outdoor Americas operating segment to us pursuant to the CBS reorganization transactions. After making these payments, we expect that we will have retained approximately $150.0 million, which will include the amounts retained by us from the proceeds of the Formation Borrowings and this offering, as described above, which we will use for corporate purposes and ongoing cash needs and which we believe will provide us with sufficient liquidity to pay the cash portion of any Purging Distribution(s) if CBS completes the Separation by means of the split-off and we elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. Based on the mid-point of the price range set forth on the cover page of this prospectus, we currently estimate that the Purging Distribution(s) will total approximately $500.0 million, of which approximately 20% will be paid in cash and approximately 80% will be paid in shares of our common stock. The actual amount of the Purging Distribution(s) will be calculated as of a future date and could be materially different from our current estimates based on a number of factors, including (1) the relative market capitalizations of our company and CBS, (2) the timing of our REIT election and the split-off (if any), (3) the financial performance of CBS, our company and our respective subsidiaries through the closing of the split-off (if any) and (4) for the share portion of our Purging Distribution(s), the per-share market value of our common stock at the time of distribution. Accordingly, these estimates should not be relied upon as an indicator of what the actual cash portion and stock portion of our Purging Distribution(s) will be. Following the final payment of the Purging Distribution(s) declared in our first REIT taxable year, if any, we will pay to CBS, or CBS will pay to us, as applicable, the difference between the actual cash portion of such Purging Distribution(s) and the estimated cash portion of such Purging Distribution(s) that was retained by us as described above. See “Use of Proceeds,” “Formation Transactions” and “The Separation.”

 

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We recognize revenues for advertising spending placed by CBS and its subsidiaries. Our total revenues from these transactions were $14.9 million, $16.6 million and $20.1 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Other Related Parties.  We have a 50% ownership interest in two 50/50 joint ventures which operate transit shelters in Los Angeles and Vancouver. These ventures are accounted for as equity investments. These investments, which are included in “Other assets” on the Combined Consolidated Balance Sheets, totaled $24.1 million at December 31, 2013 and $11.3 million at December 31, 2012. We provide management services to these joint ventures. Management fees earned from these joint ventures were immaterial for all periods presented.

In November 2013, we sold 50% of our transit shelter operations in Los Angeles for $17.5 million. We and the buyer each subsequently contributed our respective 50% interests in these operations to a 50/50 joint venture we own together. In connection with this transaction, we recorded a gain of $17.5 million in 2013.

Viacom Inc. is controlled by National Amusements, Inc., the controlling stockholder of CBS. We recognized revenues for advertising spending placed by various subsidiaries of Viacom Inc. totaling $9.3 million, $9.4 million and $11.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Adoption of New Accounting Standards

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

During 2013, we adopted the FASB guidance that requires disclosure of significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items of net income. (See Note 8 to the combined consolidated financial statements.)

Fair Value Measurements

During 2012, we adopted the FASB amended guidance which clarifies the FASB’s intent about the application of existing fair value measurement requirements and changes in certain principles and requirements for measuring fair value and for disclosing information about fair value measurements. The adoption of this guidance did not have a material effect on our combined consolidated financial statements.

Recent Pronouncements

Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists

In July 2013, the FASB issued guidance on the presentation of the reserve for uncertain tax positions when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance requires the reserve for uncertain tax positions to be presented in the financial statements as a reduction to the deferred tax asset for a tax loss or other tax carryforward that would be applied in the settlement of the uncertain tax position. This guidance, which is effective for interim and annual reporting periods beginning after December 15, 2013, will not have a material effect on our combined consolidated financial statements.

Obligations Resulting from Joint and Several Liability Arrangements

In February 2013, the FASB issued guidance on the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Under this guidance, we are required to measure our obligations under such arrangements as the sum of the amount it agreed to pay in the arrangement among our co-obligors and any additional amount we expect to pay on behalf of our co-obligors. We are also required to disclose the nature and amount of the obligation. This guidance, which is effective for interim and annual reporting periods beginning after December 15, 2013, will not have a material effect on our combined consolidated financial statements.

 

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OUR INDUSTRY

Advertisers utilize out-of-home media to reach national, regional and local audiences in densely populated major metropolitan areas and along high-traffic expressways and major commuting routes, as well as throughout municipal transit systems. In 2012, out-of-home advertising spending in the United States totaled $7.6 billion, or 4.7% of the $161.2 billion that was spent across all U.S. major media categories, according to a 2013 Zenith Optimedia study on Advertising Expenditure Forecasts. Based on this study, since 1990, out-of-home advertising spending in the United States has increased at a 5.0% compound annual growth rate, has increased as a percentage of total media spending from 1.6% to 4.7% and is projected to continue gaining market share. According to the report, out-of-home advertising spending in the United States is expected to grow at a compound annual growth rate of 4.8% from 2012 through 2015, and growth is expected to be 9.6% over the same time period for Latin America.

Out-of-home advertising is conducted through the following types of advertising structures and sites:

Billboards.  Out-of-home advertising companies generally own billboards, which are located on sites leased through agreements with property owners. Billboard displays can be either static or digital and can come in a variety of forms, including on freestanding billboards and on the exterior and roofs of buildings. Billboards are generally classified by size as bulletins, posters or junior posters:

 

    Bulletins vary in size and are most typically 14 feet high and 48 feet wide. Located along primary commuting routes, including major expressways and main intersections, bulletins garner high monthly rental rates because of their size and impact in highly trafficked areas.

 

    Posters vary in size and are most typically 10 feet 5 inches high and 22 feet 8 inches wide, while junior posters are most typically 5 feet high and 11 feet wide. Located in commercial areas and near point-of-purchase locations, posters and junior posters are highly visible to vehicular traffic and are often placed in local neighborhoods where bulletins are not permitted under zoning laws.

Digital billboard displays represent approximately 1% of the current out-of-home billboard market with 4,900 displays, according to the Outdoor Advertising Association of America. The digital billboard display market is a targeted growth opportunity for many of the out-of-home advertising industry’s major participants. Digital billboard displays eliminate the need to physically change advertisement material thereby resulting in reduced production costs. Digital billboard displays have also been met with high demand from advertisers due to the increased consumer engagement they allow in comparison to traditional out-of-home advertising mediums.

Transit and Other.  Advertising displays are also placed on the interior and exterior of rail and subway cars and buses, as well as on benches, trains, trams, transit shelters, urban panels (i.e., smaller-sized billboards located at transit entrances), street kiosks and transit platforms. Out-of-home advertising companies generally hold multiyear contracts with municipalities and transit operators for the exclusive right to display advertising copy on their properties.

 

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REGULATION

The outdoor advertising industry is subject to governmental regulation and enforcement at the federal, state and local levels in the United States and to national, regional and local restrictions in foreign countries. These regulations have a significant impact on the outdoor advertising industry and our business. The descriptions that follow are summaries and should be read in conjunction with the texts of the regulations described herein, which are subject to change. The descriptions do not purport to describe all present and proposed regulations affecting our businesses.

In the United States, the federal Highway Beautification Act of 1965 establishes a framework for the regulation of outdoor advertising on primary and interstate highways built with federal financial assistance. As a condition to federal highway assistance, the Highway Beautification Act of 1965 requires states to restrict billboards on such highways to commercial and industrial areas, and imposes certain size, spacing and other requirements associated with the installation and operation of billboards. The Highway Beautification Act of 1965 requires the development of state standards, promotes the expeditious removal of illegal signs and requires just compensation for takings, on affected roadways.

Municipal and county governments generally also have sign controls as part of their zoning laws and building codes, and many have adopted standards more restrictive than the federal requirements. Some state and local government regulations prohibit construction of new billboards and some allow new construction only to replace existing structures. Other regulations prohibit the relocation or modification of existing billboards, limit the ability to rebuild, replace, repair, maintain and upgrade “legal nonconforming” structures (billboards which conformed with applicable zoning regulations when built but which no longer conform to current zoning regulations), and impose restrictions on the construction, repair, maintenance, lighting, operation, upgrading, height, size, spacing and location of outdoor structures, and the use of new technologies such as digital signs. In addition, from time to time, third parties or local governments commence proceedings in which they assert that we own or operate structures that are not properly permitted or otherwise in strict compliance with applicable law.

Governmental regulation of advertising displays also limits our installation of additional advertising displays, restrict advertising displays to governmentally controlled sites or permit the installation of advertising displays in a manner that benefits our competitors disproportionately, any of which could have an adverse effect on our business, financial condition and results of operations.

Although state and local government authorities from time to time use the power of eminent domain to remove billboards, U.S. law requires payment of compensation if a state or political subdivision compels the removal of a lawful billboard along a primary or interstate highway that was built with federal financial assistance. Additionally, many states require similar compensation (or relocation) with regard to compelled removals of lawful billboards in other locations. Some local governments have attempted to force removal of billboards after a period of years under a concept called amortization. Under this concept, the governmental body asserts that just compensation has been earned by continued operation of the billboard over a period of time. Thus far, we have generally been able to obtain satisfactory compensation for our billboards purchased or removed as a result of governmental action, although there is no assurance that this will continue to be the case in the future.

From time to time, legislation has been introduced in both the United States and foreign jurisdictions attempting to impose taxes on revenue from outdoor advertising or for the right to use outdoor advertising assets. Several jurisdictions have already imposed such taxes based on a percentage of our outdoor advertising revenue in that jurisdiction. In addition, some jurisdictions have taxed our personal property and leasehold interests in outdoor advertising locations using various other valuation methodologies. We expect U.S. and foreign jurisdictions to continue to try to impose such taxes as a way of increasing their revenue. In recent years, outdoor advertising also has become the subject of other targeted taxes and fees. These laws may affect prevailing competitive conditions in our markets in a variety of ways. Such laws may reduce our expansion opportunities or may increase or reduce competitive pressure from other members of the outdoor advertising industry. No assurance can be given that existing or future laws or regulations, and the enforcement thereof, will not materially and adversely affect the outdoor advertising industry. However, we contest laws and regulations that we believe unlawfully restrict our constitutional or other legal rights and may adversely impact the growth of our outdoor advertising business.

 

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A number of foreign, state and local governments have implemented or initiated taxes (including taxes on revenues from outdoor advertising or for the right to use outdoor advertising assets), fees and registration requirements in an effort to decrease or restrict the number of outdoor advertising structures and sites or raise revenues, or both. Restrictions on outdoor advertising of certain products and services are or may be imposed by federal, state and local laws and regulations. For example, tobacco products have been effectively banned from outdoor advertising in all of the jurisdictions in which we currently do business.

As the owner or operator of various real properties and facilities, we must comply with various foreign, federal, state and local environmental, health and safety laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and nonhazardous substances and employee health and safety. Historically, with the exception of safety upgrades, we have not incurred significant expenditures to comply with these laws.

We intend to expand the deployment of digital billboards that display static digital advertising copy from various advertisers that change up to several times per minute. We have encountered some existing regulations in the U.S. and across some international jurisdictions that restrict or prohibit these types of digital displays. However, since digital technology for changing static copy has only recently been developed and introduced into the market on a large scale, and is in the process of being introduced more broadly in our international markets, existing regulations that currently do not apply to digital technology by their terms could be revised to impose greater restrictions. These regulations, or actions by third parties, may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.

 

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BUSINESS AND PROPERTIES

Overview

We are one of the largest lessors of advertising space on out-of-home advertising structures and sites across the United States, Canada and Latin America. Our portfolio primarily consists of billboard displays, which are predominantly located in densely populated major metropolitan areas and along high-traffic expressways and major commuting routes. In addition, we have a number of exclusive multiyear contracts that allow us to operate advertising displays in municipal transit systems where our customers are able to reach millions of commuters on a daily basis. We have displays in all of the 25 largest markets in the United States and over 180 markets in the United States, Canada and Latin America, including in some of the most heavily trafficked locations, such as the Bay Bridge in San Francisco, Sunset Boulevard in Los Angeles and Grand Central Station and Times Square in New York City. We believe that the location of many of our displays is a strategic advantage relative to other forms of advertising. As of December 31, 2013, we had approximately 330,000 displays in the United States and approximately 26,200 displays across Canada and Latin America. The breadth of our portfolio provides our customers with a multitude of options to serve their varied marketing needs—for example, they can reach a large audience through national, brand-building campaigns (which Apple uses to market its iPhone and iPad products) or advertise by way of localized, action-inducing messages (which McDonald’s employs to make drivers aware of its nearby restaurants). For the year ended December 31, 2013, we generated revenues of $1.29 billion, Adjusted OIBDA of $407.3 million, and operating income of $238.8 million.

We believe that out-of-home advertising is an attractive form of advertising as our displays are ALWAYS ON™ and cannot be turned off, skipped or fast-forwarded, and that it provides our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising. In addition to leasing displays, we provide other value-added services to our customers, such as pre-campaign category research, creative design support and post-campaign tracking and analytics. We use a real-time mobile operational reporting system that enables proof of performance to customers. Our large portfolio of displays and geographic reach allow us to serve a broad range of customers that includes consumer-focused companies in the entertainment, retail, healthcare, telecom, restaurant, financial services, travel and leisure and automotive industries. During the year ended December 31, 2013, we served approximately 19,700 customers in the United States, including large, national companies such as Anheuser-Busch, Apple, AT&T, Diageo, Disney, McDonald’s, Sony and Verizon, as well as regional and local companies. During the twelve months ended November 30, 2013, 88 of the top 100 advertisers in the United States (as determined by Kantar Media Intelligence) were our customers. As a result of our diverse base of customers, in the United States, no single industry contributed more than 10% of our revenues and no single customer contributed more than 1.7% of our revenues during the year ended December 31, 2013.

As of December 31, 2013, we had 373 digital billboard displays in the United States. The majority of our digital billboard displays have been converted from traditional static billboard displays. Increasing the number of digital billboard displays in our most heavily trafficked locations is an important element of our organic growth strategy. Digital billboard displays have the potential to attract additional business from both new and existing customers. We believe that digital billboard displays are attractive to our customers because they allow for the development of richer and more visually engaging messages and provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns. In addition, digital billboard displays enable us to run multiple advertisements on each display (up to eight per minute). As a result, digital billboard displays generate approximately three to four times more revenue per display on average than traditional static billboard displays, and digital billboard displays generate higher profits and cash flows than traditional static billboard displays. As the costs to convert traditional static billboard displays to digital billboard displays have declined, we have accelerated our conversion efforts, adding approximately 70 digital billboard displays in 2011, 110 digital billboard displays in each of 2012 and 2013, for a total investment of $73.1 million.

We generally (i) own the physical billboard structures on which we display advertising copy for our customers, (ii) hold the legal permits to display advertising thereon and (iii) lease the underlying sites. These lease agreements have terms varying between one month and multiple years, and usually provide renewal options. We estimate that approximately 75% of our billboard structures in the United States are “legal nonconforming” billboards, meaning they were legally constructed under laws in effect at the time they were built, but could not be constructed under current laws. These structures are often located in areas where it is difficult or not permitted to build additional billboards

 

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under current laws, which enhances the value of our portfolio. We have a highly diversified portfolio of advertising sites. As of December 31, 2013, we had approximately 23,100 lease agreements with approximately 18,800 different landlords. A substantial number of these lease agreements allow us to abate rent and/or terminate the lease agreement in certain circumstances, which may include where the structure is obstructed, where there is a change in traffic flow and/or where the advertising value of the sign structure is otherwise impaired, providing us with flexibility in renegotiating the terms of our leases with landlords.

We manage our business through the following two segments:

United States.  As of December 31, 2013, we had approximately 330,000 advertising displays in the United States, including the largest number of advertising displays of any out-of-home advertising company operating in the 25 largest markets in the United States. For the year ended December 31, 2013, our United States segment generated 20% of its revenues in the New York City metropolitan area and 12% in the Los Angeles metropolitan area. For the year ended December 31, 2013, our United States segment generated revenues of $1.13 billion and Adjusted OIBDA of $406.4 million.

International.  Our International segment includes our operations in Canada and Latin America, including Mexico, Argentina, Brazil, Chile and Uruguay. We are one of the largest out-of-home advertising companies in Canada and Mexico and have significant scale across the other countries in which we operate in Latin America. As of December 31, 2013, we had approximately 26,200 advertising displays in our International segment, including approximately 14,400 in Canada. For the year ended December 31, 2013, our International segment generated revenues of $163.9 million and Adjusted OIBDA of $29.1 million.

History

We trace our roots to companies that helped to pioneer the growth of out-of-home advertising in the United States, such as Outdoor Systems, Inc., 3M National, Gannett Outdoor and TDI Worldwide Inc. In 1996, a predecessor of CBS acquired TDI Worldwide Inc., which specialized in transit advertising. Three years later, a predecessor of CBS acquired Outdoor Systems, Inc., which represented the consolidation of the outdoor advertising assets of large national operators such as 3M National, Gannett Outdoor (and its Canadian assets held in the name Mediacom) and Vendor (a Mexican outdoor advertising company) and many local operators in the United States, Canada and Mexico. In 2008, a subsidiary of CBS expanded our business into South America through the acquisition of International Outdoor Advertising Holdings Co., which operated in Argentina, Brazil, Chile and Uruguay. The company that we are today represents the hard-to-replicate combination of the assets of all of these businesses, as well as other acquisitions and internally developed assets.

Business Strengths

Large-Scale Out-of-Home Advertising Platform.  We believe our large-scale portfolio of advertising structures and sites provides a compelling value proposition to our customers because of our national footprint, large market presence and strategically placed assets in high-traffic locations. A number of our displays are located in areas where it is difficult or not permitted to build additional billboards under current laws, which enhances the value of our portfolio. The size of our portfolio provides us with economies of scale that allow us to operate, invest and grow our business in an efficient manner. For example, it allows us to cost-effectively roll out new technologies, such as digital billboard displays, and to efficiently service our customers’ campaigns through enhanced audience delivery, measurement and reporting capabilities.

Out-of-Home Advertising Is an Impactful and Cost-Effective Medium.  Unlike other types of media, such as television, radio and the internet, out-of-home advertising is ALWAYS ON™. It cannot be turned off, skipped or fast-forwarded. We believe that this helps our customers to better reach their target audiences. In addition, using out-of-home advertising can be a cost-effective way for advertisers to reach an audience relative to other forms of media; outdoor advertising has an average cost per thousand impressions or “CPM” of $5.22 (i.e., on average, advertisers pay $5.22 for every thousand views of their advertisements on out-of-home advertising structures and sites), as compared with $14.98 for television and $35.50 for newspapers, according to a 2013 SNL Kagan report on Economics of Outdoor & Out-of-Home Advertising.

Significant Presence in Large Metropolitan Markets.  Our portfolio includes advertising structures and sites in all of the 25 largest markets in the United States, covering 50% of the U.S. population. We believe that our positions in

 

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major metropolitan markets, such as New York City, Los Angeles, Chicago, Washington, D.C. and San Francisco, are desirable to customers wishing to reach large audiences. We believe that our strong positions in these markets provide us with an advantage in attracting national advertising campaigns and enable us to take advantage of increased urbanization within the United States. Our large-scale portfolio allows our customers to reach a national audience and also provides the flexibility to tailor campaigns to specific regions or markets. For the year ended December 31, 2013, we generated approximately 40% of our revenues from national advertising campaigns. Many of our advertising displays are located in strategic locations with limited supply, including the Bay Bridge in San Francisco, Sunset Boulevard in Los Angeles and Grand Central Station and Times Square in New York City.

Diverse and Long-Standing Customer Base.  Our revenues are derived from a broad, diverse set of national, regional and local customers across a range of industries. During the year ended December 31, 2013, in the United States we served approximately 19,700 customers and no single customer contributed more than 1.7% of our revenues. Our broad customer base includes companies in the entertainment, retail, healthcare, telecom, restaurant, financial services, travel and leisure and automotive industries. For the year ended December 31, 2013, in the United States, no single industry contributed more than 10% of our revenues. Many of our customers have utilized out-of-home advertising for decades and have been customers of ours for many years.

Strong Profitability and Significant Cash Flow Generation.  Our business has been highly profitable and has generated significant cash flows. In 2013, our Adjusted OIBDA margin was 31.5%. We also benefit from significant operating leverage due to our high proportion of fixed costs, which allows us to generate significant OIBDA and cash flows from incremental revenues. In 2013, we generated cash flows from operating activities of $278.4 million. In addition, most of our capital expenditures are directed towards new revenue-generating projects, such as the conversion of traditional static billboard displays to digital billboard displays.

Experienced Management.  Members of our management team have served as ambassadors for the promotion of out-of-home advertising as a preferred advertising medium, and we believe that they have been instrumental in the development of industry-wide initiatives to improve audience measurement and targeting capabilities. Our management team includes members of the board and committees of the Outdoor Advertising Association of America and other personnel who are closely involved in advocacy for constituents of the out-of-home advertising industry, including advertisers, consumers and communities.

Growth Strategy

Continued Conversion to Digital Billboard Displays. Increasing the number of digital billboard displays in our most heavily trafficked locations is an important element of our organic growth strategy, as digital billboard displays have the potential to attract additional business from both new and existing customers. Digital billboard displays generate approximately three to four times more revenue per display on average than traditional static billboard displays, and digital billboard displays generate higher profits and cash flows than traditional static billboard displays. In addition, digital billboard displays are attractive to our customers because they allow for the development of richer and more visually engaging messages and provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns. As of December 31, 2013, we had 373 digital billboard displays in the United States, representing only approximately 1% of our total billboard displays in the United States. As the costs to convert traditional static billboard displays to digital billboard displays have declined, we have accelerated our conversion efforts, adding approximately 70 digital billboard displays in 2011, 110 digital billboard displays in each of 2012 and 2013. We intend to spend a significant portion of our capital expenditures in the coming years to continue to increase the number of digital billboard displays in our portfolio.

Increased Use of Social Media and Mobile Technology Engagement.  We believe there is potential for growth in the reach and effectiveness of out-of-home advertising through increased use of social media and mobile technology engagement. In the coming years, we intend to pursue these opportunities, including through possible strategic alliances and partnerships with social media and mobile technology companies.

Consider Selected Acquisition Opportunities.  Our national footprint in the United States and significant presence in Canada and the countries in which we operate in Latin America provide us with an attractive platform on which to add additional advertising structures and sites. Our scale gives us advantages in driving additional revenues and reducing operating costs from acquired billboards. We believe that there is significant opportunity for additional industry consolidation, and we will evaluate opportunities to acquire additional advertising structures and sites on a case-by-case basis.

 

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Encourage Adoption of New Audience Measurement Systems.  We believe that the accelerated adoption of the out-of-home advertising industry’s audience measurement system, the TAB Out-of-Home Ratings, will enhance the value of out-of-home advertising media by providing our customers with improved audience measurement and the ability to target by gender, age, ethnicity and income. We believe that by providing a consistent and reliable audience measurement metric comparable to those used by other media formats, the TAB Out-of-Home Ratings encourages the incorporation of out-of-home advertising media by independent marketing specialists and advertising agencies that increasingly rely on analytical models to design marketing campaigns.

Drive Enhanced Revenue Management.  We focus heavily on inventory management and advertising rate pricing systems to improve revenue yield over time across our portfolio of advertising structures and sites. By carefully managing our pricing on a market-by-market and display-by-display basis, we aim to improve profitability by ensuring pricing discipline. We believe that closely monitoring pricing and improving pricing discipline will provide strong potential revenue enhancement.

Our Portfolio of Outdoor Advertising Structures and Sites

Investment Diversification

Diversification by Customer

For each of the years ended December 31, 2013 and 2012, no individual customer represented greater than 1.7% of our revenues. Therefore, we do not consider detailed information by individual customer to be meaningful.

Diversification by Industry

The following table sets forth information regarding the diversification of revenues earned in the United States among different industries for the year ended December 31, 2013.

 

  Industry

   Percentage of Total United States
Revenues for the

    Year Ended December  31, 2013    
 

  Retail

       10%   

  Television

         8%   

  Entertainment

         7%   

  Healthcare/Pharmaceuticals

         7%   

  Restaurants/Fast Food

         7%   

  Professional Services

         7%   

  Telephone/Utilities

         6%   

  Automotive

         5%   

  Financial Services

         5%   

  Casinos/Lottery

         5%   

  Beer/Liquor

         5%   

  Education

         4

  Movies

         4%   

  Travel/Leisure

         4%   

  Computers/Internet

         3%   

  Food/Non-Alcoholic Beverages

         3%   

  Real Estate Brokerage

         1%   

  Other(1)

         9%   
  

 

 

 

Total

     100%   
  

 

 

 

 

(1) No single industry in “Other” individually represents more than 2% of total revenues.

 

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Table of Contents

Diversification by Geography

Our advertising structures and sites are geographically diversified across 39 states and seven countries, as well as Puerto Rico. The following table sets forth information regarding the geographic diversification of our advertising structures and sites, which are listed in order of contributions to total revenue.

 

    Percentage of Revenues for
the Year Ended
December 31, 2013
        Number of Displays as of
December 31, 2013
 
                 

Location

(Metropolitan Area)

  Static
  Billboard  
Displays
    Digital
  Billboard  
Displays
    Transit
and
Other
Displays
    Total
Displays
        Static
Billboard

Displays
    Digital
Billboard
Displays
    Transit and
Other
Displays
    Total     Percentage
of Total
Displays
 
   

New York, NY

    3%        9%          52%        17%          164        6        168,435         168,605        47%     
   

Los Angeles, CA

    11%        5%          13%        11%          3,829        6        41,268         45,103        13%     
   

State of New Jersey

    5%        11%          <1%        4%          4,102        19        —         4,121        1%     
   

Miami, FL

    4%        3%          2%        3%          1,038        13        12,801         13,852        4%     
   

Houston, TX

    5%        2%          <1%        3%          1,205        8        —         1,213        <1%     
   

Detroit, MI

    4%        8%          1%        3%          2,353        22        13,483         15,858        4%     
   

Washington, D.C.

    <1%        —          10%        3%          11               19,761         19,772        6%