DEFM14A 1 d362266ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

(Amendment No. 5)

 

Filed by the Registrant                                 ☐    Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to §240.14a-12

ENTERCOM COMMUNICATIONS CORP.

(Name of Registrant as Specified in its charter)

(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

Class A common stock, par value $0.01 per share

  (2)  

Aggregate number of securities to which transaction applies:

 

101,497,494 (represents an estimate of the maximum number of shares of Entercom Communications Corp. Class A common stock, par value $0.01 per share, estimated to be issuable upon completion of the transactions contemplated by the Agreement and Plan of Merger by and among CBS Corporation, CBS Radio Inc., Entercom Communications Corp. and Constitution Merger Sub Corp. dated as of February 2, 2017, as described in this proxy statement).

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

$13.50 (calculated pursuant to Rule 457(c) and Rule 457(f) under the Securities Act of 1933 based on the average of the high and low prices of shares of Class A common stock of Entercom Communications Corp. as reported on the New York Stock Exchange on April 10, 2017).

  (4)  

Proposed maximum aggregate value of transaction:

 

$1,369,001,169.00

  (5)  

Total fee paid:

 

$158,667.24

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

$158,667.24

  (2)  

Form, Schedule or Registration Statement No.:

 

Registration Statement on Form S-4 of Entercom Communications Corp. filed on April 12, 2017 (Registration No. 333-217273)

  (3)  

Filing Party:

 

Entercom Communications Corp.

  (4)  

Date Filed:

 

April 12, 2017

 

 

 


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EXPLANATORY NOTE

This proxy statement relates to a special meeting (the “Special Meeting”) of shareholders of Entercom Communications Corp. (“Entercom”), a Pennsylvania corporation, to (i) approve the issuance of shares (the “Share Issuance”) of Entercom Class A common stock, par value $0.01 per share (the “Entercom Class A Common Stock”) in connection with the merger (the “Merger”) of Constitution Merger Sub Corp. (“Merger Sub”), a Delaware corporation and wholly owned subsidiary of Entercom, with and into CBS Radio Inc. (“CBS Radio”), a Delaware corporation and wholly owned subsidiary of CBS Corporation, a Delaware corporation (“CBS”), whereby the separate corporate existence of Merger Sub will cease and CBS Radio will continue as the surviving company and a wholly owned subsidiary of Entercom; (ii) approve an amendment and restatement of Entercom’s Amended and Restated Articles of Incorporation (the “Existing Entercom Articles”), which will provide that (a) the Entercom board of directors will be classified (the “Classified Board Amendment”) in connection with the Merger and (b) to permit the Entercom board of directors to require certain information from shareholders and take certain actions in order to continue to comply with federal communications laws (the “FCC Amendment”); (iii) approve, on a non-binding, advisory basis, certain compensation arrangements for Entercom’s named executive officers in connection with the Merger; (iv) adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Share Issuance or the Classified Board Amendment (the “Adjournment Proposal”); and (v) transact such other business that may properly come before the Special Meeting or any adjournment or postponement thereof.

Prior to the Merger, CBS and its subsidiaries will complete an internal reorganization such that the radio business and operations of CBS will all be held under CBS Radio as a direct wholly owned subsidiary of CBS. Prior to the Merger, CBS will offer (the “exchange offer”) the holders of its Class B common stock, par value $0.001 per share (the “CBS Class B Common Stock”), the option to exchange their shares of CBS Class B Common Stock for shares of CBS Radio common stock, par value $0.01 per share (the “Radio Common Stock”), in an exchange offer (the “split-off”). In the exchange offer, CBS is offering 101,407,494 shares of Radio Common Stock, which are all of the shares of Radio Common Stock it will hold on the date of consummation of the exchange offer. If the exchange offer is undertaken and consummated but the exchange offer is not fully subscribed because less than all shares of Radio Common Stock owned by CBS are exchanged, or if the exchange offer is consummated but not all of the shares of Radio Common Stock owned by CBS are exchanged due to the upper limit being in effect, the remaining shares of Radio Common Stock owned by CBS will be distributed in a spin-off on a pro rata basis to holders of CBS Class B Common Stock and CBS Class A common stock, par value $0.001 per share (the “CBS Class A Common Stock” and, together with the CBS Class B Common Stock, the “CBS Common Stock”), whose shares of CBS Common Stock remain outstanding after consummation of the exchange offer (the “Spin-Off” and, together with the exchange offer, the “Final Distribution”), based on the relative economic interest of each such holder in the number of total outstanding shares of CBS Common Stock, excluding those shares of CBS Class B Common Stock that have been validly tendered and not withdrawn in the exchange offer. In the Merger, shares of Radio Common Stock will be automatically converted into shares of Entercom Class A Common Stock.

Entercom has filed a registration statement on Form S-4 (Reg. No. 333-217273) to register the shares of Entercom Class A Common Stock that will be issued in the Merger. CBS Radio has filed a registration statement on Form S-4 and Form S-1 (Reg. No. 333-217279) to register the shares of Radio Common Stock to be distributed in connection with the split-off and, if necessary, the Spin-Off.


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October 16, 2017

MERGER PROPOSED—YOUR VOTE IS IMPORTANT

You are cordially invited to attend a special meeting of shareholders (the “Special Meeting”) of Entercom Communications Corp. (“Entercom”) at 10:00 a.m., local time, on November 15, 2017, which will be held at Hotel Sofitel Philadelphia, 120 S. 17th Street, Philadelphia, PA 19103. A notice of the Special Meeting and the proxy statement follow.

At the Special Meeting, you will be asked to (i) approve the issuance of shares (the “Share Issuance”) of Entercom Class A common stock, par value $0.01 per share (the “Entercom Class A Common Stock”) in connection with the Merger and (ii) approve an amendment and restatement of Entercom’s Amended and Restated Articles of Incorporation (the “Existing Entercom Articles”), which will (a) provide that the Entercom board of directors will be classified (the “Classified Board Amendment”) in connection with the merger (the “Merger”) of Constitution Merger Sub Corp. (“Merger Sub”), a Delaware corporation and wholly owned subsidiary of Entercom, with and into CBS Radio Inc. (“CBS Radio”), a Delaware corporation and wholly owned subsidiary of CBS Corporation (“CBS”), whereby the separate corporate existence of Merger Sub will cease and CBS Radio will continue as the surviving company and a wholly owned subsidiary of Entercom, and (b) permit the Entercom board of directors to (A) require certain information from shareholders and (B) take certain actions in order to continue to comply with federal communications laws (the “FCC Amendment”).

You will also be asked to approve (i) on a non-binding, advisory basis, certain compensation arrangements for Entercom’s named executive officers in connection with the Merger (the “Executive Compensation Proposal”) and (ii) adjournments or postponements of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Share Issuance or the Classified Board Amendment (the “Adjournment Proposal”).

If either the proposal to approve the Share Issuance or the Classified Board Amendment is not approved, the Merger cannot be completed. The consummation of the Merger is not conditioned upon the approval of the FCC Amendment, the Executive Compensation Proposal or the Adjournment Proposal.

As more fully described in the accompanying proxy statement, prior to the Merger, CBS and its subsidiaries will complete an internal reorganization such that the radio business and operations of CBS will all be held under CBS Radio as a direct wholly owned subsidiary of CBS. Prior to the Merger, CBS will offer (the “exchange offer”) the holders of its Class B common stock, par value $0.001 per share (the “CBS Class B Common Stock”), the option to exchange their shares of CBS Class B Common Stock for shares of CBS Radio common stock, par value $0.01 per share (the “Radio Common Stock”), in an exchange offer (the “split-off”). If the exchange offer is undertaken and consummated but the exchange offer is not fully subscribed because less than all shares of Radio Common Stock owned by CBS are exchanged, or if the exchange offer is consummated but not all of the shares of Radio Common Stock owned by CBS are exchanged due to the upper limit being in effect, the remaining shares of Radio Common Stock owned by CBS will be distributed in a spin-off on a pro rata basis to holders of CBS Class B Common Stock and CBS Class A common stock, par value $0.001 per share (the “CBS Class A Common Stock” and, together with the CBS Class B Common Stock, the “CBS Common Stock”), whose shares of CBS Common Stock remain outstanding after consummation of the exchange offer (the “Spin-Off” and, together with the exchange offer, the “Final Distribution”), based on the relative economic interest of each such holder in the number of total outstanding shares of CBS Common Stock, excluding those shares of CBS Class B Common Stock that have been validly tendered and not withdrawn in the exchange offer. In the Merger, shares of Radio Common Stock will be immediately converted into shares of Entercom Class A Common Stock.

Entercom’s board of directors has unanimously approved the Merger, the Merger Agreement, the Separation Agreement and the Ancillary Agreements (each as defined in the proxy statement), and has determined that the Merger, the Share Issuance, the Classified Board Amendment, the FCC Amendment, the Executive Compensation Proposal and the Adjournment Proposal are advisable and in the best interests of Entercom and its shareholders.


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As a result, Entercom’s board of directors unanimously recommends that Entercom’s shareholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the Classified Board Amendment, “FOR” the FCC Amendment, “FOR” the Executive Compensation Proposal, and “FOR” the Adjournment Proposal.

If you were a shareholder of record of Entercom Class A Common Stock or our Class B common stock, par value $0.01 per share (the “Entercom Class B Common Stock” and, together with the Entercom Class A Common Stock, the “Entercom Common Stock”), at the close of business on October 12, 2017, you may vote at the Special Meeting.

Your vote is important. Please vote by completing, signing and dating the enclosed proxy card for the Special Meeting and mailing the proxy card to us, whether or not you plan to attend the Special Meeting. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote “FOR” each of the proposals presented at the Special Meeting. In addition, you may vote by proxy by calling the toll-free telephone number or by using the Internet as described in the instructions included with the enclosed proxy card. If you do not return your card, vote by telephone or by using the Internet, or if you do not specifically instruct your bank, broker or other nominee how to vote any shares held for you in “street name,” your shares will not be voted at the Special Meeting.

This document is a proxy statement of Entercom for its use in soliciting proxies for the Special Meeting. This document answers questions about the proposed Merger, the related transactions and the Special Meeting, and includes a summary description of the Merger and the related transactions. We urge you to review this entire document carefully. In particular, you should consider the matters discussed under “Risk Factors” beginning on page 27.

We thank you for your consideration and continued support.

Sincerely,

 

LOGO

Andrew P. Sutor, IV

Senior Vice President, General Counsel & Secretary

This document is dated October 16, 2017 and is first being mailed to Entercom shareholders on or about October 16, 2017.


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LOGO

ENTERCOM COMMUNICATIONS CORP.

401 E. City Avenue, Suite 809

Bala Cynwyd, Pennsylvania 19004

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To our Shareholders:

NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders of Entercom will be held at Hotel Sofitel Philadelphia, 120 S. 17th Street, Philadelphia, PA 19103 on November 15, 2017 at 10:00 a.m., local time, for the following purposes:

 

  1. To approve the Share Issuance of Entercom Class A Common Stock in the Merger;

 

  2. To approve the Classified Board Amendment to the Existing Entercom Articles to classify the Entercom board of directors following the Merger;

 

  3. To approve the FCC Amendment to the Existing Entercom Articles to permit the board of directors to (i) require certain information from shareholders and (ii) take certain actions in order to continue to comply with federal communications laws;

 

  4. To approve, on a non-binding, advisory basis, the Executive Compensation Proposal relating to certain compensation arrangements for Entercom’s named executive officers in connection with the Merger;

 

  5. To approve the Adjournment Proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Share Issuance or the Classified Board Amendment; and

 

  6. To transact such other business that may properly come before the Special Meeting or any adjournment or postponement thereof.

Entercom’s board of directors has unanimously approved the Merger, the Merger Agreement, the Separation Agreement and the Ancillary Agreements (each as defined in the proxy statement), and has determined that the Merger, the Share Issuance, the Classified Board Amendment and the FCC Amendment are advisable and in the best interests of Entercom and its shareholders. As a result, Entercom’s board of directors unanimously recommends that shareholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the Classified Board Amendment, “FOR” the FCC Amendment, “FOR” the Executive Compensation Proposal, and “FOR” the Adjournment Proposal.

If you were a shareholder of record of Entercom Class A Common Stock or Entercom Class B Common Stock at the close of business on October 12, 2017, you may vote at the Special Meeting.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE YOUR SHARES BY CALLING THE TOLL-FREE TELEPHONE NUMBER OR BY USING THE INTERNET AS DESCRIBED IN THE INSTRUCTIONS INCLUDED WITH YOUR PROXY CARD AT YOUR EARLIEST CONVENIENCE.

By Order of the Board of Directors,

 

LOGO

Andrew P. Sutor, IV

Secretary

Bala Cynwyd, Pennsylvania

October 16, 2017


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TABLE OF CONTENTS

 

     Page  

References to Additional Information

     1  

Questions and Answers About the Merger and the Special Meeting

     2  

Summary

     13  

Summary Historical and Pro Forma Financial Data

     20  

Risk Factors

     27  

Cautionary Statement on Forward-Looking Statements

     39  

Information About the Special Meeting

     41  

Information on the CBS Offer to Exchange

     45  

Information on Entercom

     46  

Information on CBS Radio

     54  

Management’s Discussion and Analysis of Financial Condition and Results of Operations for CBS Radio

     61  

Selected Historical Financial Data

     91  

Entercom and CBS Radio Unaudited Pro Forma Condensed Combined Financial Statements

     95  

The Transactions

     107  

The Merger Agreement

     159  

The Separation Agreement

     187  

Other Agreements and Other Related Party Transactions

     199  

Description of Entercom Capital Stock

     208  

Ownership of Entercom Common Stock

     212  

Proposal No. 1—The Share Issuance

     214  

Proposal No. 2—The Classified Board Amendment

     215  

Proposal No. 3—The FCC Amendment

     217  

Proposal No. 4—The Executive Compensation Proposal

     219  

Proposal No. 5—The Adjournment Proposal

     222  

Shareholder Proposals For 2018 Annual Meeting

     223  

Where You Can Find More Information; Incorporation by Reference

     224  

Index to Consolidated Financial Statements

     F-1  

Annexes

  

The Merger Agreement

     A  

The Separation Agreement

     B  

Fairness Opinion of Morgan Stanley & Co. LLC

     C-1  

Fairness Opinion of Centerview Partners LLC

     C-2  

Form of Amended and Restated Articles of Incorporation

     D  

 

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REFERENCES TO ADDITIONAL INFORMATION

This document incorporates by reference important business and financial information about Entercom from documents filed with the U.S. Securities and Exchange Commission (“SEC”) that have not been included in or delivered with this document. This information is available at the website that the SEC maintains at www.sec.gov, as well as from other sources. See “Where You Can Find More Information; Incorporation By Reference.” In addition, copies of these materials (when they become available) may be obtained free of charge from Entercom by accessing Entercom’s website at www.entercom.com. The other information provided on or accessible through Entercom’s website is not a part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to such websites provided in this proxy statement.

The information included in this document regarding CBS’s exchange offer is being provided for informational purposes only and does not purport to be complete. For additional information on CBS’s exchange offer and the terms and conditions thereof, shareholders are urged to read CBS Radio’s registration statement on Form S-4 and Form S-1 (Reg. No. 333-217279) registering the shares of Radio Common Stock to be distributed in connection with the split-off and, if necessary, the Spin-Off. In addition, Entercom has filed a registration statement on Form S-4 (Reg. No. 333-217273) to register the shares of Entercom Class A Common Stock that will be issued in the Merger.

All information contained or incorporated by reference in this document with respect to Entercom and Merger Sub, and their respective subsidiaries, has been provided by Entercom. All other information contained or incorporated by reference in this document with respect to CBS, CBS Radio or their respective subsidiaries, and with respect to the terms and conditions of the exchange offer, has been provided by CBS.

This proxy statement is not an offer to sell or exchange and it is not a solicitation of an offer to buy any shares of Entercom Common Stock, CBS Common Stock or Radio Common Stock in any jurisdiction in which the offer, sale or exchange is not permitted.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following are some of the questions that Entercom shareholders may have about the Merger and the Special Meeting, and answers to those questions. These questions and answers, as well as the following summary, are not meant to be a substitute for the information contained in the remainder of this document, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this document. Entercom urges its shareholders to read this document in its entirety prior to making any decision.

Unless the context otherwise requires, references to CBS include its subsidiaries other than CBS Radio, and references to CBS Radio refer to CBS Radio, its subsidiaries and the radio business and operations of CBS, as such business was conducted as of February 2, 2017, that will be separated from CBS, as described in greater detail in the Master Separation Agreement, dated as of February 2, 2017, by and between CBS and CBS Radio (the “Separation Agreement”).

 

Q: Why am I receiving this document?

 

A: Entercom, CBS, CBS Radio and Merger Sub have entered into an Agreement and Plan of Merger, dated as of February 2, 2017 and amended as of July 10, 2017 and September 13, 2017 (as amended, the “Merger Agreement”), pursuant to which CBS Radio will combine with Entercom. Entercom is holding the Special Meeting of its shareholders in order to obtain shareholder approval of (i) the issuance of shares of Entercom Class A Common Stock in the Merger and (ii) the Classified Board Amendment. Entercom cannot complete the Merger unless each of the Share Issuance and the Classified Board Amendment is approved by the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting.

This document includes important information about the Merger and the Special Meeting of the shareholders of Entercom. Entercom shareholders should read this information carefully and in its entirety. A copy of the Merger Agreement is attached as Annex A to this document. The enclosed voting materials allow Entercom shareholders to vote their shares without attending the Special Meeting.

The vote of Entercom shareholders is important and Entercom encourages its shareholders to vote their proxy as soon as possible. Please follow the instructions set forth on the enclosed proxy card (or on the voting instruction form provided by the record holder if your shares are held in the name of a bank, broker or other nominee).

 

Q: What is Entercom proposing?

 

A: Entercom is proposing to combine CBS Radio with Entercom through a series of transactions (the “Transactions”) as contemplated by the Merger Agreement and the Separation Agreement as described in more detail below and elsewhere in this document.

 

Q: What are the key steps of the Transactions?

 

A: Below is a summary of the key steps of the Transactions. A step-by-step description of material events relating to the Transactions is set forth under “The Transactions.”

 

   

CBS, certain of its subsidiaries and CBS Radio will complete the following distributions and stock split (which are together referred to in this document as the “Radio Reorganization”). At the time of the signing of the Merger Agreement on February 2, 2017, CBS Radio had two classes of common stock, the Radio Series 1 Common Stock, par value $0.01 per share (the “Radio Series 1 Common Stock”) and the Radio Series 2 Common Stock, par value $0.01 per share (the “Radio Series 2 Common Stock”

 

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and, together with the Radio Series 1 Common Stock, the “Radio Existing Common Stock”). As of February 2, 2017, CBS directly owned 100% of the equity of Westinghouse CBS Holding Company, Inc., a Delaware corporation (“Westinghouse”), Westinghouse directly owned 100% of the equity of CBS Broadcasting Inc., a New York corporation (“CBS Broadcasting”) and CBS Broadcasting directly owned 100% of the Radio Existing Common Stock. Prior to the consummation of the Final Distribution, CBS Broadcasting will distribute all of the outstanding equity of CBS Radio to Westinghouse, and Westinghouse will then distribute all of the outstanding equity of CBS Radio to CBS. These distributions are referred to in this document as the “Internal Distributions.”

 

    Following completion of the Internal Distributions, CBS and CBS Radio will (a) take all necessary actions to ensure that the Radio Series 1 Common Stock and the Radio Series 2 Common Stock are combined into a single class of common stock, par value $0.01 per share (the “Radio New Common Stock”), (b) authorize the issuance of at least 101,407,494 shares of Radio New Common Stock and (c) effect a stock split of the outstanding shares of Radio New Common Stock, as a result of which, as of immediately prior to the effective time of the Final Distribution, 101,407,494 shares of Radio New Common Stock will be issued and outstanding, all of which will be owned directly by CBS (collectively, (a) through (c), the “Stock Split”).

 

    CBS will offer to holders of CBS Class B Common Stock the right to exchange all or a portion of their shares of CBS Class B Common Stock for shares of Radio Common Stock in the exchange offer. If the exchange offer is consummated but is not fully subscribed (or if the exchange offer is consummated but not all of the shares of Radio Common Stock held by CBS are exchanged due to the upper limit being in effect), CBS will distribute the remaining outstanding shares of Radio Common Stock held by CBS on a pro rata basis in the Spin-Off. Such remaining outstanding shares of Radio Common Stock will be distributed by CBS to holders of CBS Common Stock whose shares remain outstanding after consummation of the exchange offer, based on the relative economic interest of each such holder in the number of total outstanding shares of CBS Common Stock, excluding those shares of CBS Class B Common Stock that have been validly tendered and not withdrawn in the exchange offer. Such Spin-Off, if necessary, will not have a different impact on holders of different classes of CBS Common Stock, as holders of each outstanding share of CBS Class B Common Stock not validly tendered (or validly tendered and validly withdrawn) in the exchange offer and each outstanding share of CBS Class A Common Stock will receive an equal number of shares of Radio Common Stock in any Spin-Off. Any holder of CBS Common Stock who validly tenders (and does not properly withdraw) shares of CBS Class B Common Stock for shares of Radio Common Stock in the exchange offer will waive their rights with respect to such validly tendered shares of CBS Class B Common Stock (but not with respect to any other shares that are not validly tendered or validly tendered and validly withdrawn in the exchange offer) to receive, and forfeit any rights to, shares of Radio Common Stock distributed in the Spin-Off. The Spin-Off will only occur if the exchange offer is consummated but not fully subscribed (or if the exchange offer is consummated but not all of the shares of Radio Common Stock held by CBS are exchanged due to the upper limit being in effect), meaning that not all the outstanding shares of Radio Common Stock held by CBS will be distributed in the exchange offer. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Radio Common Stock not exchanged in the exchange offer and to be distributed on a pro rata basis, and the number of shares of Entercom Class A Common Stock into which the remaining shares of Radio Common Stock will be converted in the Merger will be transferred to holders of CBS Common Stock (after giving effect to the consummation of the Final Distribution) as promptly as practicable thereafter.

 

    Immediately after the Final Distribution, Merger Sub will merge with and into CBS Radio, whereby the separate corporate existence of Merger Sub will cease and CBS Radio will continue as the surviving company and as a wholly owned subsidiary of Entercom. In the Merger, each outstanding share of Radio Common Stock will be automatically converted into the right to receive an equal number of shares of Entercom Class A Common Stock, as described in the section entitled “The Merger Agreement—Merger Consideration.”

 

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    Following the Merger, Entercom will contribute all of the issued and outstanding equity interests of Entercom Radio, LLC to CBS Radio, such that Entercom Radio, LLC will become a wholly owned subsidiary of CBS Radio (the “Contribution”). Entercom Radio, LLC is a subsidiary of Entercom and owns and operates the radio stations of Entercom. Entercom Radio, LLC will then repay or cause to be repaid all outstanding amounts under its credit agreement, dated as of November 1, 2016 (as amended, supplemented or modified prior to the closing of the Merger) (the “Entercom Credit Agreement”), terminate all commitments under the Entercom Credit Agreement and obtain a release of all security interests for the Entercom Credit Agreement. In connection with such Contribution and the Radio Financing, Entercom Radio, LLC will become a guarantor under a credit agreement, dated as of October 17, 2016 among CBS Radio, the guarantors named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent (as amended by Amendment No. 1, dated March 3, 2017, the “Radio Credit Agreement”), and an indenture dated as of October 17, 2016 among CBS Radio, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Radio Notes Indenture”), and will pledge certain of its assets to secure amounts outstanding under the Radio Credit Agreement.

 

    In connection with the entry into the Merger Agreement, CBS Radio entered into a commitment letter (the “Commitment Letter”) with Goldman Sachs Bank USA and Morgan Stanley Senior Funding, Inc. (collectively, the “Initial Commitment Parties”) and a joinder thereto with Credit Suisse AG, Cayman Islands Branch, Bank of America, N.A., Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A. Citibank Global Markets, Inc., Deutsche Bank AG New York Branch, BNP Paribas, Sumitomo Mitsui Banking Corporation, U.S. Bank National Association, The Toronto-Dominion Bank, New York Branch and Societe Generale and the other lenders from time to time party thereto (collectively, together with the Initial Commitment Parties, the “Commitment Parties”), pursuant to which the Commitment Parties committed to provide, subject to customary closing conditions, up to $500 million of senior secured term loans as an additional tranche under the Radio Credit Agreement (the “Radio Financing”), the proceeds of which may be used to refinance certain existing indebtedness of Entercom (as described above), to redeem Entercom’s preferred stock, and to pay fees and expenses in connection with the Transactions. CBS Radio expects to consummate and obtain the Radio Financing substantially simultaneously with the closing of the Merger and the Contribution and to apply the proceeds thereof as described in the preceding sentence in order to, among other things, simplify Entercom’s capital structure.

 

Q: What are the material U.S. federal income tax consequences to Entercom and Entercom’s shareholders resulting from the Final Distribution and the Merger?

 

A: Entercom will not recognize any gain or loss for U.S. federal income tax purposes as a result of the Final Distribution or the Merger. Because holders of Entercom Class A Common Stock, the Class B common stock, par value $0.01 per share, of Entercom (the “Entercom Class B Common Stock”), and the Class C common stock, par value $0.01 per share (the “Entercom Class C Common Stock”), of Entercom (collectively, the “Entercom Common Stock”) will not participate in the Final Distribution or the Merger, holders of Entercom Common Stock will not recognize gain or loss upon either the Final Distribution (including the exchange offer) or the Merger as a result of holding Entercom Common Stock.

 

Q: What will Entercom shareholders receive in the Merger?

 

A: Entercom shareholders will not directly receive any consideration in the Merger. All shares of Entercom Common Stock issued and outstanding immediately before the Merger will remain issued and outstanding after consummation of the Merger. Immediately after the Merger, holders of Entercom Common Stock will continue to own shares in Entercom, which will include CBS Radio.

Following completion of the Transactions, CBS Radio will be a wholly owned subsidiary of Entercom and will continue to hold CBS’s radio business. Immediately after consummation of the Merger, approximately

 

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72% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of CBS Common Stock and approximately 28% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of Entercom Common Stock, in each case on a fully diluted basis in the aggregate.

 

Q: What are the principal adverse consequences of the Transactions to Entercom shareholders?

 

A: Following the consummation of the Transactions, Entercom shareholders will participate in a company that holds CBS Radio, but their percentage interest in this company will be diluted. Immediately after the consummation of the Merger, pre-merger Entercom shareholders are expected to own approximately 28% of Entercom. Entercom also expects to incur significant one-time costs in connection with the Transactions, including financial advisory, professional services and other fees estimated at approximately $35.6 million. The incurrence of these costs may have an adverse impact on Entercom’s liquidity or operating results in the periods in which they are incurred. Finally, Entercom’s management will be required to devote a significant amount of time and attention to the process of integrating the operations of Entercom and CBS Radio. If Entercom management is not able to effectively manage the process, Entercom’s business could suffer and its stock price may decline. See “Risk Factors” for a further discussion of the material risks associated with the Transactions.

 

Q: How will the Transactions impact the future liquidity and capital resources of Entercom?

 

A: Following completion of the Merger, Entercom will not maintain both the Entercom Credit Agreement and the Radio Credit Agreement. In connection with entry into the Merger Agreement, CBS Radio entered into the Commitment Letter with the Commitment Parties, pursuant to which such Commitment Parties committed to provide, subject to customary closing conditions, up to $500 million of senior secured term loans as an additional tranche under the Radio Credit Agreement. CBS Radio expects to consummate and obtain the Radio Financing substantially simultaneously with the closing of the Merger and the Contribution and to apply the proceeds thereof as described below in order to, among other things, simplify Entercom’s capital structure.

Upon or following consummation of the Merger, Entercom will use the proceeds of the Radio Financing to pay fees and expenses in connection with the Transactions, redeem Entercom preferred stock, repay or cause to be repaid all outstanding amounts under the Entercom Credit Agreement, terminate all commitments under the Entercom Credit Agreement and obtain a release of all security interests for the Entercom Credit Agreement. In connection with the Contribution and the Radio Financing, Entercom Radio, LLC will become a guarantor under the Radio Credit Agreement and the Radio Notes Indenture, and will pledge certain of its assets to secure amounts outstanding under the Radio Credit Agreement.

Entercom anticipates that, following the consummation of the Merger, its primary sources of liquidity for working capital and operating activities, including any future acquisitions, will be cash from operations and borrowings under the Radio Credit Agreement. Entercom expects that these sources of liquidity will be sufficient to make required payments of interest on its outstanding debt and to fund working capital and capital expenditure requirements, including costs relating to the Transactions. See “Information on Entercom—Entercom’s Liquidity and Capital Resources After the Consummation of the Transactions” for a further discussion on Entercom’s future liquidity and capital resources.

 

Q: How do the Transactions impact Entercom’s dividend policy?

 

A:

On each of May 25, 2016, August 15, 2016, November 7, 2016, February 8, 2017, May 10, 2017, and July 28, 2017, Entercom’s board of directors declared a cash dividend of $0.075 per share. The dividends were paid on June 15, 2016, September 15, 2016, December 15, 2016, March 15, 2017, June 15, 2017, and September 15, 2017, respectively. Additionally, on July 28, 2017, Entercom announced, as permitted under the Merger Agreement, a special one-time cash dividend of $0.20 per share, which was paid on August 30,

 

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  2017. Pursuant to the Merger Agreement, Entercom has agreed not to declare or pay any dividends or make other distributions in respect of any shares of its capital stock (whether in cash, securities or property), except for the declaration and payment of (a) regular quarterly cash dividends (i) not in excess of $0.125 per share of Entercom Common Stock and (ii) pursuant to the terms of the preferred stock of Entercom, par value $0.01 per share, and (b) cash dividends or distributions paid on or with respect to a class of capital stock all of which shares of capital stock of the applicable corporation are owned directly or indirectly by Entercom. There are certain exceptions to the restrictions on payment of dividends. The special one-time cash dividend of $0.20 per share is an exception under the Merger Agreement to the restrictions on payment of dividends.

 

Q: What will CBS shareholders receive in the Transactions?

 

A: In the exchange offer, CBS will offer to its stockholders the right to exchange all or a portion of their shares of CBS Class B Common Stock for shares of Radio Common Stock. If the exchange offer is consummated but is not fully subscribed, CBS will distribute the remaining outstanding shares of Radio Common Stock held by CBS on a pro rata basis to holders of CBS Common Stock whose shares remain outstanding after consummation of the exchange offer. Any holder of CBS Class B Common Stock who validly tenders (and does not properly withdraw) shares of CBS Class B Common Stock for shares of Radio Common Stock in the exchange offer will waive their rights with respect to such validly tendered shares to receive, and forfeit any rights to, shares of Radio Common Stock distributed on a pro rata basis to holders of CBS Common Stock in the event the exchange offer is not fully subscribed. In the Merger, each share of Radio Common Stock will be converted into the right to receive an equal number of shares of Entercom Class A Common Stock as set forth in the Merger Agreement and as described in the section entitled “The Merger Agreement—Merger Consideration.”

 

Q: Are there any conditions to the consummation of the Transactions?

 

A: Yes. Consummation of the Transactions is subject to a number of conditions, including the consent of the Federal Communications Commission (“FCC”) and the expiration or termination of any applicable waiting period (and any extension of any applicable waiting period) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”).

The consummation of the Radio Reorganization is subject to a number of conditions, including:

 

    the fulfillment or waiver of the conditions set forth to effect the Merger Agreement (except for the condition that the Radio Reorganization has been consummated and the conditions that by their nature are to be satisfied at the closing of the Merger (the “Closing”) – see “The Merger Agreement—Conditions to the Merger”);

 

    the receipt by CBS of an opinion from Wachtell, Lipton, Rosen & Katz, counsel to CBS, that each of the Internal Distributions and the Final Distribution will qualify as a tax-free transaction under Section 355 of the Internal Revenue Code of 1986, as amended (the “Distribution Tax Opinion”) (and, if CBS waives the condition that it receive the Distribution Tax Opinion, then CBS may be required to pay the Tax Opinion Waiver Penalty); and

 

    the receipt of all necessary permits and authorizations under state or federal securities laws.

The consummation of the Final Distribution (including the exchange offer, and, if any, the Spin-Off) is subject to a number of conditions, including:

 

    the consummation of the Radio Reorganization;

 

    the receipt by CBS of the Distribution Tax Opinion (and, if CBS waives the condition that it receive the Distribution Tax Opinion, then CBS may be required to pay the Tax Opinion Waiver Penalty);

 

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    the receipt of all necessary permits and authorizations under state or federal securities laws;

 

    the preparation and delivery to the holders of record of CBS Common Stock of all information required to be provided by law concerning CBS Radio, its business, operations and management, the Final Distribution and other matters; and

 

    the fulfillment or waiver of the conditions set forth to effect the Merger Agreement (except for the condition that the Final Distribution has been consummated and the conditions that by their nature are to be satisfied at the Closing).

The consummation of the Merger is subject to a number of conditions, including:

 

    consummation of the Radio Reorganization and the Final Distribution in accordance with the Separation Agreement and the Distribution Tax Opinion;

 

    the consent of the FCC for the Transactions and the expiration or termination of any applicable waiting period (and any extension of any applicable waiting period) under the HSR Act, each without the imposition of any Burdensome Restriction (as defined below);

 

    effectiveness of the registration statements required for the Transactions;

 

    the obtaining by the parties of all necessary permits and authorizations under state securities or “blue sky” laws, the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”) relating to the issuance and trading of shares of Entercom Class A Common Stock;

 

    the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting, to approve the issuance of the Entercom Class A Common Stock;

 

    the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting, to approve the Classified Board Amendment in order to provide that the Entercom board of directors will be classified after the Merger;

 

    the absence of any law or order prohibiting any of the Transactions; and

 

    other customary conditions.

In addition to these closing conditions, a condition for Entercom to close the Merger is CBS Radio’s receipt of the Radio Financing. The exchange offer is not subject to any condition that a minimum number of shares must be tendered in the exchange offer. This document describes these conditions in more detail under “The Merger Agreement—Conditions to the Merger.”

A “Burdensome Restriction” is defined as the imposition of a requirement that (i) Entercom or any of its subsidiaries, including for the purposes of this analysis CBS Radio and any of its subsidiaries, agree to restrictions or limitations on, or divest any of, their assets, business or properties that in the aggregate contributed more than $40 million in EBITDA in calendar year 2016, or (ii) CBS or any of its subsidiaries, excluding for the purposes of this analysis CBS Radio and any of its subsidiaries, agree to restrictions or limitations on or divest any of their assets, properties or businesses (other than reasonable and customary transitional arrangements to facilitate divestitures that Entercom is required to make).

 

Q: When will the Transactions be completed?

 

A: Entercom, CBS and CBS Radio expect to complete the Transactions in the fourth quarter of 2017. However, it is possible that the Transactions could be completed at a later time or not at all. For a discussion of the conditions to the Transactions, see “The Merger Agreement—Conditions to the Merger.”

 

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Q: Are there risks associated with the Transactions?

 

A: Yes. The material risks associated with the Transactions are discussed in the section entitled “Risk Factors.” Those risks include the risk that sales of Entercom Class A Common Stock may negatively affect that security’s market price, the risk that the historical financial information of CBS Radio may not be a reliable indicator of its future results, the risk that Entercom may be unable to provide the same types and level of digital services and resources to CBS Radio that historically have been provided by CBS, the risk that Entercom’s business may be adversely affected by the Transactions and the risk that the Merger Agreement may be terminated and the exchange offer may not be consummated.

 

Q: Will there be any change to the board of directors or the executive officers of Entercom after the Transactions?

 

A: Yes. In connection with the Merger, Entercom will increase the size of its board of directors by four members. In accordance with the Merger Agreement, as amended by Amendment No. 1 to the Merger Agreement, dated as of July 10, 2017 (which was further amended on September 13, 2017), immediately following the Merger, ten persons will serve on the Entercom board of directors, including all six directors from Entercom’s current board of directors (or their pre-Merger replacements) and four new directors agreed upon by CBS, two of whom are affiliated with CBS:

 

David J. Field    Director; Chairman; President & Chief Executive Officer of Entercom
Joseph M. Field    Director; Chairman Emeritus of Entercom
David J. Berkman    Director
Joel Hollander    Director
Mark R. LaNeve    Director
David Levy    Director
Leslie Moonves    Director; Chairman of the Board, President and Chief Executive Officer of CBS
Joseph R. Ianniello    Director; Chief Operating Officer of CBS
Stefan M. Selig    Director
Sean Creamer    Director

As a result, current members of Entercom’s board of directors, or their pre-Merger replacements, will comprise a majority of the Entercom board of directors immediately following consummation of the Merger. In accordance with the Merger Agreement, Messrs. Moonves and Ianniello are required to execute and deliver an irrevocable letter of resignation from the Entercom board of directors effective upon the earlier of (a) six months after the closing of the Merger and (b) the day prior to the first annual meeting of Entercom following closing of the Merger. Following such resignations, the resulting vacancies on the Entercom board of directors will be addressed in accordance with Entercom’s bylaws (the “Entercom Bylaws”). Entercom does not currently have any plans to fill the vacancies that will be created by the resignations of Messrs. Moonves and Ianniello. If the vacancies remain unfilled, the size of the Entercom board of directors will be reduced from ten members to eight members.

Additionally, Entercom has determined, after reasonable consultation with CBS, that the executive officers of Entercom immediately following the consummation of the Merger will include David J. Field, who will continue as President & Chief Executive Officer, Richard J. Schmaeling, who will continue as Executive Vice President & Chief Financial Officer, Louise C. Kramer, who will continue as Chief Operating Officer, and Andrew P. Sutor, IV, who will continue as Senior Vice President, General Counsel & Secretary.

 

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Q: What shareholder approvals are needed in connection with the Transactions?

 

A: After the execution of the Merger Agreement and the Separation Agreement on February 2, 2017, CBS Broadcasting, which, as of February 2, 2017, was the sole shareholder of CBS Radio, approved the Transactions, including the Merger, the exchange offer and, if necessary, the Spin-Off.

Entercom cannot complete the Merger unless each of the Share Issuance and the Classified Board Amendment is approved by the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting. The Merger is not conditioned upon the approval of the FCC Amendment, the Executive Compensation Proposal or the Adjournment Proposal.

Concurrently with the execution of the Merger Agreement, Entercom and Joseph M. Field, who holds a controlling voting interest in Entercom, entered into a Voting Agreement, dated as of February 2, 2017 (the “Voting Agreement”). Pursuant to the Voting Agreement, Mr. Field committed to vote in favor of the Share Issuance and the Classified Board Amendment, and not to tender into or vote for any alternative proposal for one year after the termination of the Merger Agreement (but only through the termination provisions identified in the Voting Agreement). As a consequence, each of the approvals required for the Merger being sought at the meeting can be approved based solely on the favorable vote of Joseph M. Field. See “Other Agreements and Other Related Party Transactions—Voting Agreement.”

 

Q: What are the proposed amendments to the Existing Entercom Articles on which I am being asked to vote?

 

A: Entercom proposes to amend and restate the Existing Entercom Articles to (i) classify the Entercom board of directors and (ii) permit the board of directors to (a) require certain information from shareholders and (b) take certain actions in order to continue to comply with federal communications laws. With the adoption of these amendments, the Existing Entercom Articles (as amended, the “Amended and Restated Articles”) would:

 

    divide the Entercom board of directors into three classes, with the directors in each class serving staggered three-year terms, but with a right of the Entercom Class A Common Stock to remove and elect new Class A directors at any annual meeting; and

 

    permit the board of directors to require certain information from shareholders, and take certain actions, including the redemption of Entercom stock, in the event the ownership or potential ownership of Entercom stock could trigger a violation of the Communications Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “Communications Laws”) by the FCC, or impose additional regulatory burdens on Entercom thereunder.

If the Merger is not consummated, the Classified Board Amendment will not be adopted into the Existing Entercom Articles. Irrespective of whether the Merger is consummated, if the FCC Amendment is approved, it will be adopted into the Existing Entercom Articles.

 

Q: What shareholder approval is needed in connection with the proposal to adopt the Classified Board Amendment and the FCC Amendment?

 

A: Entercom cannot adopt the Classified Board Amendment and the FCC Amendment and amend and restate the Existing Entercom Articles unless the amendment proposals are approved by the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting.

Approval of the Classified Board Amendment is a condition to the consummation of the Merger and its implementation is conditioned on the consummation of the Merger. Approval of the FCC Amendment is not a condition to the consummation of the Merger and is not conditioned thereupon.

 

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If the Merger is not consummated, the Classified Board Amendment will not be adopted into the Existing Entercom Articles. Irrespective of whether the Merger is consummated, if the FCC Amendment is approved, it will be adopted into the Existing Entercom Articles.

 

Q: What is the Executive Compensation Proposal on which I am being asked to vote in connection with the Merger?

 

A: The Executive Compensation Proposal is a proposal to approve, on an non-binding, advisory basis, the compensation that may become payable to certain named executive officers of Entercom in connection with the Merger. See “Proposal No. 4—The Executive Compensation Proposal.” Approval of the Executive Compensation Proposal is not a condition to the consummation of the Merger.

 

Q: Do CBS shareholders have to vote to approve the Transactions, the Share Issuance, the Classified Board Amendment, the FCC Amendment or the Executive Compensation Proposal?

 

A: No. CBS shareholders do not have to vote to approve the Transactions, the Share Issuance, the Classified Board Amendment, the FCC Amendment or the Executive Compensation Proposal. Approval by Entercom shareholders of the Share Issuance and the Classified Board Amendment are the only proposals that must be approved as conditions to the consummation of the Merger.

 

Q: What if an Entercom shareholder does not vote on the Share Issuance, on the proposal to approve the Classified Board Amendment, the FCC Amendment or on the Executive Compensation Proposal?

 

A: The outcome depends on how the Entercom Common Stock is held and whether any vote is cast or not.

 

    If an Entercom shareholder submits a signed proxy to Entercom but the proxy does not indicate how it should be voted on the proposals, the proxy will be counted as a vote “FOR” the proposals.

 

    If an Entercom shareholder submits a proxy to Entercom and the proxy indicates that the shareholder abstains from voting as to a proposal, under the listing standards of the New York Stock Exchange (the “NYSE”), it will count as a vote “AGAINST” the Share Issuance and the Executive Compensation Proposal. Abstentions will have no effect on the other proposals.

 

    If an Entercom shareholder fails to submit a proxy to Entercom or otherwise vote at the Special Meeting, that shareholder’s shares will not count towards the required quorum of the presence in person or by proxy of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter or proposal to be acted upon at the Special Meeting. In addition, such a failure to submit a proxy to Entercom or otherwise vote at the Special Meeting will have no effect on the outcome of the vote.

 

    If an Entercom shareholder holds shares in “street name” through that shareholder’s bank, broker or other nominee, such shares will be considered to be represented at the Special Meeting and voted only as to those matters marked on the proxy card. Under the listing standards of the NYSE, if an Entercom shareholder fails to instruct its bank, broker or other nominee how to vote that shareholder’s shares on the proposals, the bank, broker or other nominee is prohibited from voting on the proposals with respect to that shareholder’s shares, and those shares will not count towards the required quorum. In addition, if an Entercom shareholder fails to instruct its bank, broker or other nominee how to vote that shareholder’s shares, such failure will have no effect on the outcome of the vote.

 

Q: How does the Entercom board of directors recommend shareholders vote?

 

A: The Entercom board of directors unanimously recommends that the shareholders of Entercom vote “FOR” the Share Issuance, “FOR” the Classified Board Amendment, “FOR” the FCC Amendment, “FOR” the Executive Compensation Proposal, and “FOR” the Adjournment Proposal.

 

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Q: Have any Entercom shareholders already agreed to vote for the Share Issuance or the Classified Board Amendment?

 

A: Yes. Concurrently with the execution of the Merger Agreement, Entercom and Joseph M. Field, who holds a controlling voting interest in Entercom, entered into the Voting Agreement, pursuant to which Mr. Field committed to vote in favor of the Share Issuance and the Classified Board Amendment, and not to tender into or vote for any alternative proposal for one year after the termination of the Merger Agreement (but only through the termination provisions identified in the Voting Agreement). As a consequence, each of the Share Issuance and Classified Board Amendment, which are the approvals required for the consummation of the Merger being sought at the Special Meeting, can be approved based solely on the favorable vote of Joseph M. Field. See “Other Agreements and Other Related Party Transactions—Voting Agreement.”

 

Q: How can Entercom shareholders cast their vote?

 

A: Record Holders.

If you are a shareholder of record of Entercom Class A Common Stock or Entercom Class B Common Stock as of the close of business on October 12, 2017, you may vote your shares:

 

    By Proxy: You may vote your shares via a toll-free telephone number (1-800-PROXIES (1-800-776-9437)) or over the Internet (www.voteproxy.com) as instructed on the enclosed proxy card. If you provide a proxy without indicating how you wish to vote, all of your shares will be voted at the discretion of your proxies on any matter that may be properly brought before the Special Meeting, except to the extent such discretionary voting is not permitted by any applicable rules or regulations.

 

    In Person: You may attend the Special Meeting and vote in person.

You may revoke your proxy before it is voted at the Special Meeting if you: (i) send a written notice of revocation dated after the proxy date to our Corporate Secretary; (ii) send our Corporate Secretary a later dated proxy for the same shares of Entercom Common Stock; or (iii) attend the Special Meeting and vote in person.

The address for our Corporate Secretary is Entercom Communications Corp., 401 E. City Avenue, Suite 809, Bala Cynwyd, Pennsylvania, 19004, Attention: Andrew P. Sutor, IV, Secretary.

Beneficial Holders. If you are not a shareholder of record of our Class A Common Stock and instead hold your shares in “street name” (i.e., in the name of a bank, broker or other holder of record), you will receive instructions from your bank, broker or other holder of record that you must follow in order for your shares to be voted. Certain of these institutions offer telephone and Internet voting.

 

Q: If an Entercom shareholder is not going to attend the Special Meeting, should that shareholder return its proxy card or otherwise vote its shares?

 

A: Yes. Returning the proxy card (or voting instruction card) or voting by calling the toll-free number shown on the proxy card (or voting instruction card) or visiting the website shown on the proxy card (or voting instruction card) ensures that the shares will be represented and voted at the Special Meeting, even if an Entercom shareholder does not attend.

 

Q: What should Entercom shareholders do now?

 

A: After carefully reading and considering the information contained in this document, Entercom shareholders should vote their shares as soon as possible so that their shares will be represented and voted at the Special Meeting. Entercom shareholders should follow the instructions set forth on the enclosed proxy card (or on the voting instruction card provided by the record holder if their shares are held in the name of a bank, broker or other nominee).

 

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Q: Can Entercom shareholders dissent and require appraisal of their shares in connection with the Transactions?

 

A: No. None of Entercom shareholders or stockholders of Merger Sub, CBS or CBS Radio will be entitled to exercise appraisal rights or to demand payment for their shares in connection with the Transactions.

 

Q: Will the instruments that govern the rights of Entercom shareholders with respect to their shares of Entercom common stock after the Transactions be different from those that govern the rights of current Entercom shareholders?

 

A: The rights of Entercom shareholders with respect to their shares of Entercom Common Stock after the consummation of the Transactions will continue to be governed by federal and state laws and Entercom’s governing documents, including:

 

    the corporate law of the Commonwealth of Pennsylvania (“Pennsylvania Law”);

 

    the Amended and Restated Articles; and

 

    the Entercom Bylaws.

If the Share Issuance, Classified Board Amendment and the FCC Amendment are approved by the Entercom shareholders and the Merger is consummated, the Amended and Restated Articles will be the go-forward articles of incorporation of Entercom. If the Merger is not consummated, the Classified Board Amendment will not be adopted into the Existing Entercom Articles. Irrespective of whether the Merger is consummated, if the FCC Amendment is approved, it will be adopted into the Existing Entercom Articles. Please see the sections entitled “Proposal No. 2—the Classified Board Amendment” and “Proposal No. 3— The FCC Amendment” for a further discussion of the changes to the governance of Entercom contemplated by the Amended and Restated Articles.

 

Q: Who can answer my questions?

 

A: If you have any questions about the Transactions or the Special Meeting, need assistance in voting your shares or need additional copies of this document or the enclosed proxy card (or voting instruction card), you should contact our proxy solicitation agent:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Toll-Free: (800) 581-4729

 

Q: Where can I find more information about Entercom, CBS and CBS Radio?

 

A: Entercom, CBS and CBS Radio regularly file information with the SEC. This information is available at the website that the SEC maintains at www.sec.gov, as well as from other sources. See “Where You Can Find More Information; Incorporation By Reference.” In addition, copies of these materials (when they become available) may be obtained free of charge from Entercom by accessing Entercom’s website at www.entercom.com. The information provided on or accessible through Entercom’s website is not a party of this proxy statement and is not incorporated in this proxy statement by this or any other reference to such websites provided in this proxy statement.

Entercom has filed a registration statement on Form S-4 (Reg. No. 333-217273) to register the shares of Entercom Class A Common Stock that will be issued in the Merger. In addition, CBS Radio has filed a registration statement on Form S-4 and Form S-1 (Reg. No. 333-217279) registering the shares of Radio Common Stock to be distributed in connection with the split-off and, if necessary, the Spin-Off.

 

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SUMMARY

The following summary contains certain information described in more detail elsewhere in this document. It does not contain all the details concerning the Transactions, including information that may be important to you. To better understand the Transactions, you should carefully review this entire document and the documents it refers to. See “Where You Can Find More Information; Incorporation by Reference.”

The Companies

CBS Corporation

CBS Corporation

51 W. 52nd Street

New York, New York 10019

Telephone: (212) 975-4321

CBS Corporation was incorporated in Delaware in 1986 and is referred to in this document as CBS. CBS operates businesses which span the media and entertainment industries, including the CBS Television Network, cable networks, content production and distribution, television and radio stations, Internet-based businesses and consumer publishing. CBS’s principal offices are located at 51 W. 52nd Street, New York, New York 10019.

CBS Radio Inc.

CBS Radio Inc.

1271 Avenue of the Americas, Fl. 44

New York, New York 10020

Telephone: (212) 649-9600

CBS Radio Inc., a Delaware corporation referred to in this document as CBS Radio, is an indirect wholly owned subsidiary of CBS. CBS Radio is a large-market focused, multi-platform national media company with a local footprint of 117 radio stations and digital properties in 26 radio markets, including all of the top 10 radio markets and 19 of the top 25 radio markets. CBS Radio’s programming focuses on three areas of content, Sports, News and Music & Entertainment, and the company also distributes content through an integrated suite of digital properties, including market-focused local websites, Radio.com (a streaming service), Eventful (an event discovery platform) and Play.it (a podcast network). In addition, CBS Radio produces live events, including concerts, multi-day musical festivals, speaker series, trade shows and sports-related events.

Prior to February 2, 2017, CBS transferred, or caused its subsidiaries to transfer, substantially all of the assets and liabilities of CBS’s radio business to CBS Radio. CBS will retain all liabilities related to the operations of the business of CBS other than those related to CBS’s radio business, environmental liabilities arising out of or relating to the occurrence or existence of certain actions of CBS Radio prior to the date of the Merger, costs incurred by CBS Radio and certain of its subsidiaries in connection with the Transactions and securities liabilities from CBS equity and debt holders (unless related to Entercom’s SEC filings or statements provided by Entercom).

Entercom Communications Corp.

Entercom Communications Corp.

401 E. City Avenue, Suite 809

Bala Cynwyd, Pennsylvania 19004

Telephone: (610) 660-5610

 



 

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Entercom Communications Corp. is the fourth-largest radio broadcasting company in the United States with a portfolio of radio stations in top markets across the country. Entercom is headquartered in the Philadelphia, Pennsylvania metropolitan area and is and has been a Pennsylvania corporation since its organization in 1968.

Constitution Merger Sub Corp.

Constitution Merger Sub Corp.

c/o Entercom Communications Corp.

401 E. City Avenue, Suite 809

Bala Cynwyd, Pennsylvania 19004

Telephone: (610) 660-5610

Constitution Merger Sub Corp., a Delaware corporation referred to in this document as Merger Sub, is a newly formed, direct wholly owned subsidiary of Entercom that was organized specifically for the purpose of completing the Merger. Merger Sub has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and in connection with the Transactions.

The Transactions

On February 2, 2017, CBS and Entercom, along with CBS Radio and Merger Sub, entered into the Merger Agreement, and CBS and CBS Radio entered into the Separation Agreement, which together provide for the combination of Entercom’s business and CBS’s radio business. Prior to February 2, 2017, CBS transferred, or caused its subsidiaries to transfer, to CBS Radio or one or more of its subsidiaries substantially all of the assets and liabilities of CBS’s radio business.

Prior to the Merger, CBS, certain of its subsidiaries and CBS Radio will complete the Radio Reorganization. In the Internal Distributions, CBS Broadcasting will distribute all of the outstanding equity of CBS Radio to Westinghouse, and Westinghouse will then distribute all of the outstanding equity of CBS Radio to CBS. Following the consummation of the Internal Distributions, CBS Radio will then effect the Stock Split.

Following the consummation of the Radio Reorganization, CBS will consummate an offer to exchange all of the outstanding shares of Radio Common Stock for outstanding shares of CBS Class B Common Stock. CBS anticipates that the final exchange ratio will be set by the exchange offer’s pricing mechanism such that the exchange offer will be fully- or over-subscribed by holders of CBS Class B Common Stock. Subject to the terms and conditions of the Merger Agreement and the Separation Agreement, in the event that holders of CBS Class B Common Stock subscribe for less than all of the outstanding shares of Radio Common Stock held by CBS in the exchange offer (or if the exchange offer is consummated but not all of the shares of Radio Common Stock held by CBS are exchanged due to the upper limit being in effect), CBS will distribute the remaining outstanding shares of Radio Common Stock held by CBS on a pro rata basis to holders of CBS Common Stock whose shares of CBS Common Stock remain outstanding after consummation of the exchange offer in the Spin-Off, which, if necessary, and together with the exchange offer, is referred to in this document as the Final Distribution. The Spin-Off will only occur if the exchange offer is consummated but not fully subscribed (or if the exchange offer is consummated but not all of the shares of Radio Common Stock held by CBS are exchanged due to the upper limit being in effect), meaning that not all the outstanding shares of Radio Common Stock held by CBS will be distributed in the exchange offer.

Immediately after the consummation of the Final Distribution, Merger Sub will merge with and into CBS Radio, with CBS Radio surviving as a wholly owned subsidiary of Entercom. In the Merger, all outstanding shares of Radio Common Stock will be converted into the right to receive an equal number of shares of Entercom Class A Common Stock, as described in the section entitled “The Merger Agreement—Merger Consideration.” Immediately after the Merger:

 

   

approximately 72% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of CBS Class B Common Stock, including CBS employees who held certain CBS

 



 

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stock-based compensation rights that will be converted into the right to receive Entercom Class A Common Stock, on a fully diluted basis in the aggregate, and approximately 28% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of Entercom Common Stock, including Entercom employees who held Entercom stock-based compensation rights, on a fully diluted basis in the aggregate; and

 

    Entercom will contribute all of the issued and outstanding equity interests of Entercom Radio, LLC to CBS Radio, such that Entercom Radio, LLC will become a wholly owned subsidiary of CBS Radio.

Entercom Radio, LLC will then repay or cause to be repaid its debts under the Entercom Credit Agreement.

Entercom will issue 101,407,494 shares of Entercom Class A Common Stock in the Merger. In addition, the parties estimate that approximately 3,179,976 shares will be eligible for issuance in respect of equity awards held by employees of CBS Radio in consideration of the replacement of their restricted stock units and stock options in CBS with those of Entercom. With respect to such equity awards held by employees of CBS Radio, Entercom will convert outstanding options and restricted stock units in respect of CBS Class B Common Stock into options and restricted stock units, respectively, in respect of Entercom Class A Common Stock. For additional information, see “The Merger Agreement—Treatment of Specified CBS Compensatory Equity-Based Awards Held by Current CBS Radio Employees.”

In connection with the entry into the Merger Agreement, CBS Radio entered into the Commitment Letter with the Commitment Parties, pursuant to which the Commitment Parties committed to provide, subject to customary closing conditions, the Radio Financing that consists of up to $500 million of senior secured term loans as an additional tranche under the Radio Credit Agreement, the proceeds of which may be used by Entercom upon or following consummation of the Merger to refinance certain existing indebtedness of Entercom, to redeem Entercom’s preferred stock and to pay fees and expenses in connection with the Transactions. CBS Radio expects to consummate and obtain the Radio Financing substantially simultaneously with the closing of the Merger and the Contribution and to apply the proceeds thereof as described in the preceding sentence in order to, among other things, simplify Entercom’s capital structure.

After the Merger, Entercom will own and operate CBS’s radio business through CBS Radio, which will be Entercom’s wholly owned subsidiary, and will also continue to own and operate its current businesses. Entercom Class A Common Stock issued in the Merger will be listed on the NYSE under the current trading symbol for Entercom Class A Common Stock, “ETM.”

Below is a step-by-step description of the sequence of material events relating to the Transactions.

Step 1 CBS Radio Reorganization

At the time of the signing of the Merger Agreement on February 2, 2017, CBS directly owned 100% of the equity of Westinghouse, Westinghouse directly owned 100% of the equity of CBS Broadcasting and CBS Broadcasting directly owned 100% of the equity of CBS Radio. CBS Broadcasting will distribute all of the outstanding equity of CBS Radio to Westinghouse. Westinghouse will then distribute all of the outstanding equity of CBS Radio to CBS. CBS Radio will then complete the Stock Split by (a) taking all necessary actions to ensure that the Radio Series 1 Common Stock and Radio Series 2 Common Stock are combined into the Radio New Common Stock, (b) authorizing the issuance of at least 101,407,494 shares of Radio Common Stock and (c) effecting a stock split of the outstanding shares of Radio New Common Stock, as a result of which, as of immediately prior to the effective time of the Final Distribution, 101,407,494 shares of Radio New Common Stock will be issued and outstanding, all of which will be owned directly by CBS.

 



 

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Step 2 Final Distribution—Exchange Offer and, if necessary, Spin-Off

CBS will offer to holders of CBS Class B Common Stock the right to exchange all or a portion of their shares of CBS Class B Common Stock for shares of Radio Common Stock in the exchange offer. Participation in the exchange offer is voluntary, and it is expected that CBS, CBS Radio and Entercom will not make any recommendation about whether holders of CBS Common Stock should participate in the exchange offer.

If the exchange offer is consummated but is not fully subscribed (or if the exchange offer is consummated but not all of the shares of Radio Common Stock held by CBS are exchanged due to the upper limit being in effect), CBS will distribute its remaining shares of Radio Common Stock held by CBS in the Spin-Off on a pro rata basis to holders of CBS Common Stock whose shares remain outstanding after consummation of the exchange offer, based on the relative economic interest of each such holder in the number of total outstanding shares of CBS Common Stock, excluding those shares of CBS Class B Common Stock that have been validly tendered and not withdrawn in the exchange offer. Such Spin-Off, if necessary, will not have a different impact on holders of different classes of CBS Common Stock, as holders of each outstanding share of CBS Class B Common Stock not validly tendered (or validly tendered and validly withdrawn) in the exchange offer and each outstanding share of CBS Class A Common Stock will receive an equal number of shares of Radio Common Stock in any Spin-Off distribution. Any holder of CBS Common Stock who validly tenders (and does not properly withdraw) shares of CBS Class B Common Stock for shares of Radio Common Stock in the exchange offer will waive their rights with respect to such validly tendered shares of CBS Class B Common Stock (but not with respect to any other shares that are not validly tendered or validly tendered and validly withdrawn in the exchange offer) to receive, and forfeit any rights to, shares of Radio Common Stock distributed in the Spin-Off. The Spin-Off will only occur if the exchange offer is consummated but not fully subscribed (or if the exchange offer is consummated but not all of the shares of Radio Common Stock held by CBS are exchanged due to the upper limit being in effect), meaning that not all the outstanding shares of Radio Common Stock held by CBS will be distributed in the exchange offer. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Radio Common Stock not exchanged in the exchange offer and to be distributed on a pro rata basis, and the number of shares of Entercom Class A Common Stock into which the remaining shares of Radio Common Stock will be converted in the Merger will be transferred to holders of CBS Common Stock (after giving effect to the consummation of the Final Distribution) as promptly as practicable thereafter.

The exchange agent will hold, for the account of the relevant holders of CBS Common Stock, the global certificate(s) representing all of the outstanding shares of Radio Common Stock, pending the consummation of the Merger. Shares of Radio Common Stock will not be able to be traded during this period.

Step 3 Merger

Immediately after the Final Distribution, Merger Sub will merge with and into CBS Radio, whereby the separate corporate existence of Merger Sub will cease and CBS Radio will continue as the surviving company and as a wholly owned subsidiary of Entercom. In the Merger, all outstanding shares of Radio Common Stock will be converted into the right to receive an equal number of shares of Entercom Class A Common Stock, as described in the section entitled “The Merger Agreement—Merger Consideration.”

Immediately after consummation of the Merger, approximately 72% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of CBS Common Stock, including CBS employees who held certain CBS stock-based compensation rights that will be converted into the right to receive Entercom Class A Common Stock, on a fully diluted basis in the aggregate, and approximately 28% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of Entercom Common Stock, including Entercom employees who held Entercom stock-based compensation rights, on a fully diluted basis in the aggregate, subject to potential adjustment under limited circumstances as described in the section entitled “The Merger Agreement—Merger Consideration.”

 



 

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Step 4 Contribution of Entercom Radio, LLC to CBS Radio

Following the Merger, Entercom will contribute all of the issued and outstanding equity interests of Entercom Radio, LLC to CBS Radio, such that Entercom Radio, LLC will become a wholly owned subsidiary of CBS Radio. Entercom Radio, LLC is a subsidiary of Entercom and owns and operates the radio stations of Entercom. Entercom Radio, LLC will then use proceeds of the Radio Financing, contributed to it by CBS Radio, to repay or cause to be repaid all outstanding amounts under the Entercom Credit Agreement, terminate all commitments under the Entercom Credit Agreement and obtain a release of all security interests for the Entercom Credit Agreement. In connection with such contribution, Entercom Radio, LLC will become a guarantor under the Radio Credit Agreement and the Radio Notes Indenture and will pledge certain of its assets to secure amounts outstanding under the Radio Credit Agreement.

Step 5 Incurrence of Debt

In connection with the entry into the Merger Agreement, CBS Radio entered into the Commitment Letter with the Commitment Parties, pursuant to which the Commitment Parties committed to provide, subject to customary closing conditions, the Radio Financing, which consists of up to $500 million of senior secured term loans as an additional tranche under the Radio Credit Agreement, the proceeds of which may be used by Entercom upon or following consummation of the Merger to refinance certain existing indebtedness of Entercom, to redeem Entercom’s preferred stock and to pay fees and expenses in connection with the Transactions. CBS Radio expects to consummate and obtain the Radio Financing substantially

 



 

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simultaneously with the closing of the Merger and the Contribution and to apply the proceeds thereof as described in the preceding sentence in order to, among other things, simplify Entercom’s capital structure.

 

 

LOGO

After completion of all of the steps described above, CBS Radio will be a wholly owned subsidiary of Entercom and will continue to hold CBS’s radio business. Immediately after consummation of the Merger, approximately 72% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of CBS Common Stock, including CBS employees who held certain CBS stock-based compensation rights that will be converted into the right to receive Entercom Class A Common Stock, on a fully diluted basis in

 



 

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the aggregate, and approximately 28% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of Entercom Common Stock, including Entercom employees who held Entercom stock-based compensation rights, on a fully diluted basis in the aggregate, subject to potential adjustment under limited circumstances as described in the section entitled “The Merger Agreement—Merger Consideration.” In connection with the Transactions, Entercom, Merger Sub, CBS and/or CBS Radio, or their applicable subsidiaries, have entered into or will enter into the Ancillary Agreements (as defined below) relating to, among other things, certain tax matters, the provision of certain transition services and digital services during a transition period following the consummation of the Transactions and licensing of certain intellectual property. See “Other Agreements and Other Related Party Transactions.”

Recent Developments

As a result of the Merger, Entercom will own radio stations in seven markets in excess of the limits set forth in the FCC’s local radio ownership rule. In order to comply with this FCC rule, and/or to obtain clearance for the Merger from the Antitrust Division of the U.S. Department of Justice, Entercom has proposed to divest a total of 19 radio stations in such markets, consisting of eight Entercom stations and 11 CBS Radio stations. In connection with such proposed divestitures, as of October 10, 2017, Entercom has entered into a binding agreement with Educational Media Foundation for the sale of stations in three markets: Los Angeles, San Diego and Wilkes Barre. In addition, Entercom has reached preliminary, nonbinding agreements with other third parties who will either acquire or operate stations in the remaining four markets.

As a result of these collective transactions, Entercom anticipates that it will receive approximately $265 million in gross cash proceeds in addition to 11 stations in three markets. To the extent that any radio stations required to be divested are not divested to third parties as of the closing of the Merger, the stations will be transferred to a divestiture trust, and CBS and Entercom have proposed measures to ensure that these stations will be held separately until they are divested to third parties following the closing of the Merger.

 



 

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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following summary consolidated financial data of CBS Radio and Entercom are being provided to help you in your analysis of the financial aspects of the Transactions. You should read this information in conjunction with the financial information included elsewhere and incorporated by reference into this document. See “Where You Can Find More Information; Incorporation By Reference,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations for CBS Radio,” “Information on CBS Radio,” “Information on Entercom,” and “Selected Historical Financial Data.”

Summary Historical Consolidated Financial Data of CBS Radio

The following table summarizes the historical consolidated financial data of CBS Radio for the periods presented. The summary historical consolidated statements of operations and cash flow information for the six

months ended June 30, 2017 and 2016 and the summary historical consolidated balance sheet information as of

June 30, 2017 have been derived from the unaudited historical consolidated financial statements of CBS Radio included elsewhere in this document. The summary historical consolidated balance sheet information as of December 31, 2016 and 2015 and the summary historical statements of operations and cash flow information for each of the three years in the period ended December 31, 2016 have been derived from the audited consolidated financial statements of CBS Radio included elsewhere in this document. The summary historical consolidated balance sheet information as of December 31, 2014 has been derived from the audited consolidated financial statements of CBS Radio not included in this document. The historical consolidated financial statements of CBS Radio 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 of CBS Radio and include allocations of expenses from CBS. The summary historical consolidated financial information set forth below and the financial statements included elsewhere in this document do not necessarily reflect what CBS Radio’s results of operations, financial condition or cash flows would have been if CBS Radio had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of CBS Radio’s future performance, financial condition or liquidity. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations for CBS Radio” and the financial statements of CBS Radio and the notes thereto included elsewhere in this document.

 

     Six Months Ended
June 30,
     Year Ended December 31,  
     2017      2016      2016 (a)     2015 (b)     2014 (c)  
    

(in millions, except per share amounts)

 

Statement of Operations data:

            

Revenues

   $ 555.6      $ 577.1      $ 1,221.6     $ 1,230.6     $ 1,303.0  

Operating income (loss)

   $ 90.0      $ 137.4      $ (561.0   $ (240.3   $ 299.3  

Net income (loss) from continuing operations

   $ 30.5      $ 82.5      $ (552.4   $ (136.5   $ 176.5  

Basic and diluted net income (loss) from continuing operations per common share (d)

   $ 435,714      $ 1,178,571      $ (7,891,429   $ (1,950,000   $ 2,521,429  

Balance Sheet data (at period end):

            

Total assets

   $ 4,339.7         $ 4,331.2     $ 5,216.5     $ 5,771.6  

Current liabilities

   $ 132.5         $ 159.3     $ 105.9     $ 102.3  

Total debt

   $ 1,366.2         $ 1,345.3     $ —       $ —    

Stockholder’s equity/ invested equity

   $ 1,865.2         $ 1,860.4     $ 3,994.1     $ 4,360.2  

Cash Flow data:

            

Cash flow provided by operating activities from continuing operations

   $ 10.9      $ 99.5      $ 282.5     $ 212.8     $ 276.9  

Non-GAAP financial data:

            

Adjusted OIBDA (e)

   $ 116.6      $ 157.7      $ 338.7     $ 321.8     $ 402.3  

 



 

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(a) For the year ended December 31, 2016, CBS Radio recorded noncash impairment charges of $852.8 million ($723.0 million, net of tax) to reduce the carrying value of goodwill and FCC licenses to their fair value.
(b) For the year ended December 31, 2015, CBS Radio recorded a noncash impairment charge of $482.9 million ($292.5 million, net of tax) to reduce the carrying value of FCC licenses to their fair value.
(c) In 2014, CBS Radio completed a radio station swap with Beasley Broadcast Group, Inc. In connection with the swap, CBS Radio recorded a noncash impairment charge of $48.6 million ($29.3 million, net of tax) to reduce the carrying value of goodwill allocated to the disposed radio stations to its fair value.
(d) Basic and diluted net income (loss) from continuing operations per common share for all periods presented is calculated based on the 70 outstanding shares of CBS Radio common stock. Prior to the consummation of the Transactions, CBS Radio intends to conduct a stock split to increase the aggregate number of outstanding shares of CBS Radio common stock. Subsequent to the stock split, net income (loss) from continuing operations per common share will be restated to reflect the post-split shares for all periods presented.
(e) Adjusted OIBDA is a measure of performance not calculated in accordance with GAAP. CBS Radio defines Adjusted OIBDA as operating income (loss) before depreciation, stock-based compensation expense, restructuring charges and impairment charges. CBS Radio uses Adjusted OIBDA to evaluate its operating performance. Adjusted OIBDA is among the primary measures CBS Radio uses for planning and forecasting of future periods, and it is an important indicator of its operational strength and business performance. CBS Radio believes Adjusted OIBDA is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by CBS Radio’s management, helps improve investors’ understanding of CBS Radio’s operating performance and makes it easier for investors to compare CBS Radio’s results with other companies that have different financing and capital structures or tax rates. In addition, Adjusted OIBDA is among the primary measures used by investors, analysts and peers in CBS Radio’s industry for purposes of valuation and the comparison of CBS Radio’s operating performance to other companies in CBS Radio’s industry and to compare year-over-year results.

 

     Since Adjusted OIBDA is a measure not calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net income (loss) or operating income (loss) as indicators of operating performance. Adjusted OIBDA, as CBS Radio calculates it, may not be comparable to similarly titled measures employed by other companies. Since Adjusted OIBDA excludes certain financial information that is included in net income (loss) from continuing operations, the most directly comparable GAAP financial measure, users of this information should consider the types of events and transactions that are excluded.

The following table presents a reconciliation of net income (loss) from continuing operations to Adjusted OIBDA.

 

     Six Months Ended
June 30,
     Year Ended December 31,  
         2017              2016          2016     2015     2014  
    

(in millions)

 

Net income (loss) from continuing operations

   $ 30.5      $ 82.5      $ (552.4   $ (136.5   $ 176.5  

Exclude:

            

Provision (benefit) for income taxes

     20.4        54.9        (25.4     (103.8     122.8  

Interest expense

     39.1        —          16.8       —         —    

Impairment charges

     —          —          852.8       482.9       48.6  

Restructuring charges

     7.5        —          8.6       36.5       7.0  

Depreciation

     12.5        13.2        26.1       28.5       30.8  

Stock-based compensation (a)

     6.6        7.1        12.2       14.2       16.6  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted OIBDA

   $ 116.6      $ 157.7      $ 338.7     $ 321.8     $ 402.3  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(a) For the year ended December 31, 2015, stock-based compensation of $2.9 million was reflected in restructuring charges.

 



 

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Summary Historical Consolidated Financial Data of Entercom

The following table summarizes the historical consolidated financial data of Entercom for the periods presented. The summary historical consolidated statements of operations and cash flow information for the six months ended June 30, 2017 and 2016 and the summary historical consolidated balance sheet information as of June 30, 2017 have been derived from the unaudited historical consolidated financial statements of Entercom incorporated by reference into this document. The summary historical consolidated balance sheet information as of December 31, 2016 and 2015, and the summary historical consolidated statements of operations and cash flow information for each of the three years in the period ended December 31, 2016 have been derived from Entercom’s audited consolidated financial statements incorporated by reference into this document. The summary historical consolidated balance sheet information as of December 31, 2014 has been derived from the consolidated financial statements of Entercom not included in or incorporated by reference into this document. This information is only a summary and should be read in conjunction with the financial statements of Entercom and the notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in Entercom’s quarterly report on Form 10-Q for the quarter ended June 30, 2017 and Entercom’s annual report on Form 10-K for the year ended December 31, 2016, which are incorporated by reference into this document. See “Where You Can Find More Information; Incorporation By Reference.”

Entercom’s financial results are not comparable from year to year due to acquisitions and dispositions of radio stations, adoption of new accounting standards, and other significant events:

 

    In connection with the preparation of Entercom’s consolidated financial statements, Entercom identified immaterial errors in prior periods relating to the netting of certain digital expenses against certain digital revenues. Since Entercom acts as a principal in certain digital revenue contracts, the expenses should not have been netted against gross revenues. The impact of these errors was not material to any prior period. Consequently, Entercom corrected the errors in the second quarter of 2017 by increasing net revenues and station operating expenses on the consolidated statements of operations. As the two line items are adjusted by offsetting amounts, the corrections had no impact on income before taxes, income taxes (benefit), net income, earnings per share or diluted earnings per share, shareholders’ equity, cash flows from operations, or working capital. The corrections had no impact on the consolidated balance sheets or statements of cash flows. Refer to footnote 1 of Entercom’s Form 10-Q for the quarter ended June 30, 2017 for further details.

 

    In November 2016, Entercom commenced operations under a time brokerage agreement (“TBA”) for several radio stations in Charlotte, North Carolina.

 

    In November 2016, Entercom refinanced its outstanding senior credit facility and retired its Senior Notes outstanding. As a result of the refinancing, Entercom recognized a loss on extinguishment of debt of approximately $10.9 million.

 

    In 2016, Entercom sold an AM station in Denver, Colorado, for $3.8 million and an AM station in Atlanta, Georgia for $.9 million. These two sales generated gains of $.3 million, and $.2 million, respectively.

 

    In 2016, Entercom settled a legal claim with British Petroleum and recovered $2.3 million on a net basis after deducting certain related expenses. This amount was included in other income and expense.

 



 

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    In 2015, Entercom acquired multiple radio stations, net of certain dispositions. Related to these transactions, Entercom incurred: (1) merger and acquisition costs of $4.0 million in 2015 and $1.0 million in 2014; and (2) restructuring charges of $2.8 million in 2015 from the restructuring of operations.

 

    Six Months Ended
June 30,
    Year Ended December 31,  
    2017     2016     2016     2015     2014  
    (in thousands, except per share amounts)  

Operating Data:

         

Net revenues

  $ 223,971     $ 218,580     $ 464,771     $ 414,481     $ 380,376  

Operating income (loss)

  $ 1,363     $ 42,329     $ 98,057     $ 85,582     $ 85,576  

Net income (loss) attributable to Company

  $ (2,917   $ 15,246     $ 38,065     $ 29,184     $ 26,823  

Net income (loss) attributable to common stockholders

  $ (4,017   $ 14,421     $ 36,164     $ 28,432     $ 26,823  

Net income (loss) attributable to common stockholders per share—basic:

  $ (.10   $ .37     $ .94     $ .75     $ .71  

Net income (loss) attributable to common stockholders per share—diluted:

  $ (.10   $ .37     $ .91     $ .73     $ .69  

Weighted average shares—basic

    38,935       38,463       38,500       38,084       37,763  

Weighted average shares—diluted

    38,935       39,274       39,568       39,038       38,664  

Cash Flows Data:

         

Cash flows related to:

         

Operating activities

  $ 14,925     $ 24,598     $ 72,030     $ 64,790     $ 65,296  

Investing activities

  $ (31,328   $ 4,925     $ 495     $ (91,744   $ (7,055

Financing activities

  $ (21,848   $ (27,621   $ (34,851   $ 4,583     $ (38,932

Other Data:

         

Common stock dividends declared and paid

  $ 5,837     $ 2,886     $ 8,666     $ —       $ —    

Cash dividends declared per common share

  $ .15     $ .075     $ .225     $ —       $ —    

Perpetual cumulative convertible preferred stock dividends declared and paid

  $ 1,100     $ 825     $ 1,788     $ 413     $ —    

 

     At June 30,
2017
     At December 31,  
        2016      2015      2014  
     (in thousands)  

Balance Sheet Data:

           

Cash and cash equivalents—including cash of VIE

   $ 8,592      $ 46,843      $ 9,169      $ 31,540  

Total assets

   $ 1,028,956      $ 1,076,233      $ 1,022,108      $ 926,615  

Senior secured debt and other, including current portion

   $ 461,014      $ 480,087      $ 268,750      $ 262,000  

Senior unsecured notes, senior subordinated notes and other

   $ —        $ —        $ 218,269      $ 217,929  

Deferred tax liabilities and other long-term liabilities

   $ 107,626      $ 119,759      $ 109,251      $ 89,904  

Perpetual cumulative convertible preferred stock (mezzanine)

   $ 27,732      $ 27,732      $ 27,619      $ —    

Total stockholders’ equity

   $ 389,150      $ 393,374      $ 361,450      $ 329,021  

 



 

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Summary Unaudited Pro Forma Condensed Combined Financial Information of Entercom and CBS Radio

The following summary unaudited pro forma condensed combined financial information gives effect to the Merger of Merger Sub, a wholly owned acquisition subsidiary of Entercom, with and into CBS Radio, an indirect wholly owned subsidiary of CBS, and the associated refinancing of Entercom’s debt. The summary unaudited pro forma condensed combined statement of operations information is presented as if these transactions occurred on January 1, 2016. The summary unaudited pro forma condensed combined balance sheet information is presented as if these transactions occurred on June 30, 2017. The unaudited pro forma condensed combined financial information is derived from Entercom’s and CBS Radio’s respective historical consolidated financial statements for each period presented. The summary unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily reflect the operating results or financial position that would have occurred if the Merger had been consummated on the dates indicated, nor is it necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. Accordingly, such information should not be relied upon as an indicator of future performance, financial condition or liquidity.

Summary Unaudited Pro Forma Condensed Combined Statement of Operations of Entercom and CBS Radio (in millions, except per share amounts)

 

     Six Months
Ended

June 30, 2017
     Year Ended
December 31,
2016
 

Net revenues

   $ 727.9      $ 1,555.1  

Operating income (loss)

   $ 93.7      $ (507.7

Net income (loss) available to Common shareholders

   $ 38.9      $ (563.3

Net income (loss) available to Common shareholders per share:

     

Basic

   $ .28      $ (4.03

Diluted

   $ .27      $ (4.03

Weighted average number of common shares outstanding:

     

Basic

     140.3        139.9  

Diluted

     142.0        139.9  

Summary Unaudited Pro Forma Condensed Combined Balance Sheet of Entercom and CBS Radio (in millions)

 

     At June 30,
2017
 

Total assets

   $ 4,687.3  

Long-term debt

   $ 1,883.8  

Shareholders’ equity

   $ 1,519.0  

Summary Comparative Historical and Pro Forma Per Share Data

The following tables set forth certain historical and pro forma per share data for Entercom. The Entercom historical data have been derived from and should be read together with Entercom’s unaudited consolidated financial statements and related notes contained in Entercom’s quarterly report on Form 10-Q for the quarter ended June 30, 2017 and Entercom’s audited consolidated financial statements and related notes thereto contained in Entercom’s annual report on Form 10-K for the fiscal year ended December 31, 2016, each of which is incorporated by reference into this document. The Entercom pro forma data have been derived from the

 



 

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unaudited pro forma condensed combined financial statements of Entercom and CBS Radio included elsewhere in this document. See “Where You Can Find More Information; Incorporation By Reference.”

This summary comparative historical and pro forma per share data is being presented for illustrative purposes only. Entercom and CBS Radio may have performed differently had the Transactions occurred prior to the periods or at the date presented. You should not rely on the pro forma per share data presented as being indicative of the results that would have been achieved had CBS Radio been separated from CBS and combined with Entercom during the periods or at the date presented or of the actual future results or financial condition of Entercom or CBS Radio to be achieved following the Transactions.

 

     Six Months
Ended or At
June 30, 2017
    Year Ended
December 31,
2016
 
     (shares in millions)  

Entercom

    

Net income (loss) available to common shareholders per share:

    

Historical:

    

Basic

   $ (.10   $ .94  

Diluted

   $ (.10   $ .91  

Pro forma: (a)

    

Basic

   $ .28     $ (4.03

Diluted

   $ .27     $ (4.03

Weighted average shares:

    

Historical:

    

Basic

     38.9       38.5  

Diluted

     38.9       39.6  

Pro forma:

    

Basic

     140.3       139.9  

Diluted

     142.0       139.9  

Dividends declared per share of common stock

   $ .15     $ .225  

Book value per share of common stock:

    

Historical

   $ 9.54    

Pro forma

   $ 10.68    

 

(a) The pro forma basic and diluted net loss available to common shareholders per share of Entercom for the year ended December 31, 2016 includes impairment losses of $853.0 million ($723.2 million, net of tax), or $5.17 per basic and diluted share.

 

     As of and for the
Six Months Ended
June 30, 2017
 

Equivalent pro forma(a):

  

Net income available to common shareholders per share—Basic

   $ 1.35  

Net income available to common shareholders per share—Diluted

   $ 1.30  

Book value per share of common stock

   $ 51.59  

 

(a) Equivalent pro forma per share data is calculated by multiplying the Entercom pro forma per share amounts by the exchange ratio of 4.8303 shares of Radio Common Stock for each share of CBS Class B Common Stock tendered in the exchange offer, which represents the indicative exchange ratio that would have been in effect following the official close of trading on the NYSE on October 13, 2017, and is calculated as the average price of CBS Class B Common Stock of $56.8275 per share divided by 100% of the average price of Entercom Class A Common Stock of $11.7647 per share, reflecting a discount of 0.0%. Please note that such calculation has been provided for illustrative purposes only, and that Entercom expects that a discount will apply to the average price of Entercom Class A Common Stock when calculating the final exchange ratio. See “Information on the CBS Offer to Exchange.”

 



 

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Historical Common Stock Market Price and Dividend Data

Shares of Entercom Class A Common Stock currently trade on the NYSE under the symbol “ETM.” On February 1, 2017, the last trading day before the announcement of the Transactions, the last sale price of Entercom Class A Common Stock reported by the NYSE was $14.15. On October 13, 2017, the last trading day prior to the date of this document, the last sale price of Entercom Class A Common Stock reported by the NYSE was $11.55.

The following table sets forth the high and low sale prices of Entercom Common Stock according to Bloomberg L.P. on the NYSE for the periods indicated as well as the dividends per share paid by Entercom to holders of Entercom Class A Common Stock for these periods. The quotations are as reported in Entercom’s annual report on Form 10-K for the year ended December 31, 2016, which is incorporated by reference into this document. See “Where You Can Find More Information; Incorporation By Reference.”

 

     Entercom
Per Share
Dividends
    Entercom
Common Stock
 
       High      Low  

Year Ended December 31, 2017

       

First Quarter

   $ .075     $ 16.55      $ 13.55  

Second Quarter

   $ .075     $ 14.38      $ 9.60  

Third Quarter

   $ .275 (1)    $ 11.65      $ 9.45  

Fourth Quarter (through October 13, 2017)

   $ —       $ 12.40      $ 11.40  

Year Ended December 31, 2016

       

First Quarter

   $ —       $ 12.09      $ 8.88  

Second Quarter

   $ .075     $ 13.93      $ 10.39  

Third Quarter

   $ .075     $ 14.94      $ 12.65  

Fourth Quarter

   $ .075     $ 16.45      $ 12.45  

Year Ended December 31, 2015

       

First Quarter

   $ —       $ 13.09      $ 11.16  

Second Quarter

   $ —       $ 13.33      $ 11.00  

Third Quarter

   $ —       $ 11.99      $ 9.62  

Fourth Quarter

   $ —       $ 12.45      $ 9.75  

 

(1) Includes a special one-time cash dividend of $0.20 per share, which was paid on August 30, 2017.

 



 

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RISK FACTORS

You should carefully consider each of the following risks and all of the other information contained and incorporated by reference in this document and the exhibits hereto, including especially the Risk Factors section of Entercom’s Annual Report on Form 10-K and the Risk Factors section of CBS’s Annual Report on Form 10-K relating to CBS Radio. See “Where You Can Find More Information; Incorporation By Reference.” Some of the risks described below relate principally to the business and the industry in which Entercom, including CBS Radio, will operate after the Transactions, while others relate principally to the Transactions and participation in the exchange offer. The remaining risks relate principally to the securities markets generally and ownership of shares of Entercom Class A Common Stock. The risks described below are not the only risks that Entercom currently faces or will face after the consummation of the Transactions or to participating in the exchange offer.

Risks Related to the Transactions

Sales of Entercom Class A Common Stock after the Transactions may negatively affect the market price of Entercom Class A Common Stock.

The shares of Entercom Class A Common Stock to be issued in the Transactions to holders of Radio Common Stock will generally be eligible for immediate resale. The market price of Entercom Class A Common Stock could decline as a result of sales of a large number of shares of Entercom Class A Common Stock in the market after the consummation of the Transactions or even the perception that these sales could occur.

Immediately after consummation of the Merger, approximately 72% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of CBS Common Stock, including CBS employees who held certain CBS stock-based compensation rights that will be converted into the right to receive Entercom Class A Common Stock, on a fully diluted basis in the aggregate, and approximately 28% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of Entercom Common Stock, including Entercom employees who held Entercom stock-based compensation rights, on a fully diluted basis in the aggregate, subject to potential adjustment under limited circumstances as described in the section entitled “The Merger Agreement—Merger Consideration.” Currently, holders of CBS Common Stock may include index funds that have performance tied to the Standard & Poor’s 500 Index or other stock indices, and institutional investors subject to various investing guidelines. Because Entercom may not be included in these indices following the consummation of the Transactions or may not meet the investing guidelines of some of these institutional investors, these index funds and institutional investors may decide to or may be required to sell the Entercom Class A Common Stock that they receive in the Transactions. In addition, the investment fiduciaries of CBS’s defined contribution and defined benefit plans may decide to sell any Entercom Class A Common Stock that the trusts for these plans receive in the Transactions, or may decide not to participate in the exchange offer, in response to their fiduciary obligations under applicable law. These sales, or the possibility that these sales may occur, may also make it more difficult for Entercom to obtain additional capital by selling equity securities in the future at a time and at a price that it deems appropriate.

The historical and pro forma financial information that is included in this document may not be representative of the results CBS Radio would have achieved as a stand-alone public company and may not be a reliable indicator of CBS Radio’s future results.

The historical consolidated financial statements and unaudited pro forma condensed consolidated financial statements that are included in this document 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 of CBS Radio and include allocations of expenses from CBS. As a result, CBS Radio’s historical and pro forma financial statements may not necessarily reflect what its financial condition, results of operations or cash flows would have been had CBS Radio been an independent, stand-alone entity during the periods presented or those that CBS Radio will achieve in the future. Therefore, CBS Radio’s consolidated historical financial statements

 

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that are included in this document may not necessarily be indicative of what CBS Radio’s financial condition, results of operations or cash flows will be in the future.

Entercom may be unable to provide the same types and level of services, digital services and resources to CBS Radio that historically have been provided by CBS, or may be unable to provide them at the same cost.

CBS Radio has been able to receive benefits and services from CBS and has been able to benefit from CBS’s financial strength and extensive business relationships. After the Transactions, CBS Radio will be owned by Entercom and will no longer benefit from CBS’s resources. In connection with the Merger, Entercom will enter into a Transition Services Agreement and a Joint Digital Services Agreement, pursuant to which CBS will agree to provide certain transition services for certain periods following the consummation of the Transactions (not to exceed twenty-four months following the consummation of the Transactions). It cannot be assured that Entercom will be able to adequately replace those resources or replace them at the same cost. If Entercom is not able to replace the resources provided by CBS or is unable to replace them at the same cost or is delayed in replacing the resources provided by CBS, Entercom’s results of operations may be materially adversely impacted.

Entercom’s business, financial condition and results of operations may be adversely affected following the Transactions if Entercom cannot negotiate terms that are as favorable as those CBS and CBS Radio have received when Entercom replaces contracts after the closing of the Transactions.

Prior to consummation of the Transactions, certain functions (such as legal, financial, insurance, employment and other services) for CBS Radio are generally being performed under CBS’s centralized systems. While CBS, under the Transition Services Agreement, will agree to provide Entercom with certain services, there can be no assurance that Entercom will be able to obtain those consents or negotiate terms that are as favorable as those CBS received when and if Entercom replaces these services with its own agreements for similar services. Although Entercom believes that it will be able to obtain any such consents or enter into new agreements for similar services, it is possible that the failure to replace a significant number of these agreements for any of these services could have a material adverse impact on Entercom following the Transactions.

The Merger Agreement may be terminated in accordance with its terms, and the exchange offer and Spin-Off if necessary may therefore not be consummated.

The Merger Agreement contains a number of conditions that must be fulfilled to consummate the Merger, in which case the exchange offer and Spin-Off if necessary will not be consummated. Those conditions include: consummation of the Radio Reorganization and the Final Distribution in accordance with the Separation Agreement and the Distribution Tax Opinion; expiration or termination of any applicable waiting period (and any extension thereof) under the HSR Act; consent of the FCC for the Transactions; effectiveness of this registration statement and the other registration statements required for the Transactions; the obtaining by the parties of all necessary permits and authorizations under state securities or “blue sky” laws, the Securities Act and the Exchange Act relating to the issuance and trading of shares of Entercom Class A Common Stock; approval by Entercom’s shareholders of the issuance of Entercom Class A Common Stock and the other approvals required by Entercom’s shareholders in the Merger Agreement; and the absence of any law or order prohibiting any of the Transactions. These conditions to the closing of the merger may not be fulfilled and, accordingly, the merger may not be consummated. In addition, if the merger is not consummated by January 31, 2018 (subject to extension to May 2, 2018 if the only conditions not satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing of the Merger, which conditions are capable of being satisfied) are conditions relating to required regulatory filings and clearances and the absence of certain legal impediments to the consummation of the Merger) either CBS or Entercom may choose not to proceed with the merger. In addition, CBS or Entercom may elect to terminate the Merger Agreement in certain other circumstances. See “The Merger Agreement—Conditions to the Merger” and “The Merger Agreement—Termination.”

 

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If any of the Internal Distributions or the Final Distribution does not qualify as a transaction that is tax-free for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”) or the Merger does not qualify as a tax-free “reorganization” under Section 368(a) of the Code, including as a result of actions taken in connection with the Internal Distributions, the Final Distribution or the Merger or as a result of subsequent acquisitions of shares of CBS, Entercom or CBS Radio, then CBS and/or holders of CBS Common Stock that received Radio Common Stock in the Final Distribution may be required to pay substantial U.S. federal income taxes, and, in certain circumstances, CBS Radio and Entercom may be required to indemnify CBS for any such tax liability.

The consummation of the Transactions is conditioned on the receipt by CBS of the Distribution Tax Opinion and an opinion from its counsel to the effect that the Merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code (a “Merger Tax Opinion”) and by Entercom of a Merger Tax Opinion and a copy of the Distribution Tax Opinion. CBS may waive the condition that it receive the Distribution Tax Opinion from its counsel, in which case CBS may be required extend the exchange offer and to pay the Tax Opinion Waiver Penalty to Entercom no later than five business days after the closing of the Merger. For a description of the Tax Opinion Waiver Penalty, see “The Separation Agreement—The Final Distribution.”

The opinions of counsel will be based upon and rely on, among other things, current law, certain facts and assumptions, as well as certain representations, statements, and undertakings of CBS, CBS Radio, Entercom, and Merger Sub, including those relating to the past and future conduct of CBS, CBS Radio, Entercom, and Merger Sub. If any of these representations, statements or undertakings are, or become, inaccurate or incomplete, or if CBS, CBS Radio, Entercom, or Merger Sub breaches any of its covenants in the Transaction Agreements, the opinions of counsel may be invalid and the conclusions reached therein could be jeopardized. Notwithstanding the opinions of counsel, the Internal Revenue Service (the “IRS”) could determine that the Final Distribution and/or the Merger should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations, statements or undertakings upon which the opinions of counsel were based are false or have been violated, or if it disagrees with the conclusions in the opinions of counsel. The opinions of counsel are not binding on the IRS and there can be no assurance that the IRS will not assert a contrary position.

If the Final Distribution fails to qualify as a transaction that is tax-free, for U.S. federal income tax purposes, under Section 355 of the Code, in general, CBS would recognize taxable gain as if it had sold the Radio Common Stock in a taxable sale for its fair market value, and holders of CBS Common Stock who receive shares of Radio Common Stock in the Final Distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

Even if the Final Distribution were to otherwise to qualify as a tax-free transaction under Section 355 of the Code, the Final Distribution or either Internal Distribution would be taxable to CBS (but not to CBS stockholders) pursuant to Section 355(e) of the Code if there is a 50% or greater change in ownership of either CBS or CBS Radio (including stock of Entercom after the Merger), directly or indirectly, as part of a plan or series of related transactions that include the Final Distribution or such Internal Distribution, as applicable. For this purpose, any acquisitions of CBS or CBS Radio stock (including stock of Entercom after the Merger) within the period beginning two years before the Final Distribution or such Internal Distribution, as applicable, and ending two years after the Final Distribution or such Internal Distribution, as applicable, are presumed to be part of such a plan, although CBS may be able to rebut that presumption. Further, for purposes of this test, the Merger will be treated as part of such a plan, but the Merger standing alone should not cause the Final Distribution or either Internal Distribution to be taxable to CBS under Section 355(e) of the Code because pre-Merger holders of Radio Common Stock will hold at least 50.25% of the aggregate value of Entercom Common Stock and at least 50.25% of the aggregate voting power of Entercom Common Stock, in each case, immediately following the Merger. However, if the IRS were to determine that other acquisitions of CBS or CBS Radio stock (including stock of Entercom after the Merger), either before or after the Final Distribution or either Internal Distribution, were part of a plan or series of related transactions that included the Final Distribution or such Internal Distribution, as applicable, such determination could result in significant tax to CBS.

 

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Under the Tax Matters Agreement to be entered into by CBS, CBS Radio, and Entercom in connection with the Transactions, CBS Radio (and Entercom, if applicable) will be required to indemnify CBS against all or a portion of any taxes on the Internal Distributions and Final Distribution that arise as a result of certain actions or failures to act by Entercom or CBS Radio, certain events (or series of events) after the Transactions involving the stock or assets of CBS Radio or Entercom, or any breach by Entercom or, after the Transactions, CBS Radio of any representation or covenant made by them in the Tax Matters Agreement (a “disqualifying action”). If CBS were to recognize gain on either Internal Distribution or the Final Distribution for reasons not related to a disqualifying action by CBS Radio or Entercom, CBS would generally not be entitled to be indemnified under the Tax Matters Agreement and the resulting tax to CBS could have a material adverse effect on CBS. In addition, in certain circumstances, under the Tax Matters Agreement, CBS Radio (and Entercom) will be required to indemnify CBS against taxes on the Merger that arise as a result of a disqualifying action by CBS Radio or Entercom. If CBS were to recognize gain on the Merger for reasons not related to a disqualifying action by CBS Radio or Entercom, CBS would generally not be entitled to indemnification by CBS Radio (or Entercom) under the Tax Matters Agreement. If CBS Radio (or Entercom, if applicable) is required to indemnify CBS if the Final Distribution or the Merger is taxable, this indemnification obligation could be substantial and could have a material adverse effect on Entercom, including with respect to its financial condition and results of operations. In addition, even if Entercom and CBS Radio are not responsible for tax liabilities of CBS under the Tax Matters Agreement, CBS Radio nonetheless could be liable under applicable tax law for such liabilities if CBS were to fail to pay such taxes.

CBS Radio and Entercom may be affected by significant restrictions following the Transactions in order to avoid significant tax-related liabilities.

The Tax Matters Agreement generally will prohibit CBS Radio, Entercom and their affiliates from taking certain actions that could cause the Internal Distributions, the Final Distribution and the Merger to fail to qualify as tax-free transactions. In particular, for a two-year period following the date of the Final Distribution (the “Final Distribution Date”), except as described below, neither CBS Radio nor Entercom may:

 

    enter into any transaction or series of transactions (or any agreement, understanding or arrangement) as a result of which one or more persons would acquire (directly or indirectly) stock comprising 50% or more of the vote or value of CBS Radio or Entercom (taking into account the stock of CBS Radio acquired pursuant to the Merger);

 

    redeem or repurchase any stock or stock rights, other than in certain open-market transactions;

 

    amend its certificate of incorporation or take any other action affecting the relative voting rights of its capital stock;

 

    merge or consolidate with any other person (other than pursuant to the Merger or mergers or consolidations that do not result in CBS Radio ceasing to exist as a corporation for U.S. federal income tax purposes);

 

    take any other action that would, when combined with any other direct or indirect changes in ownership of CBS Radio and Entercom capital stock (including pursuant to the Merger), have the effect of causing one or more persons to acquire stock comprising 50% or more of the vote or value of CBS Radio or Entercom, or would reasonably be expected to result in a failure to preserve the tax-free status of the Transactions;

 

    cause CBS Radio to liquidate;

 

    cause CBS Radio to discontinue the active conduct of certain of its businesses; or

 

    sell, transfer or otherwise dispose of assets (including stock of subsidiaries) of certain of CBS Radio’s business beyond certain thresholds (subject to exceptions for, among other things, ordinary course dispositions and repayments or prepayments of CBS Radio debt).

If CBS Radio (or Entercom, if applicable) intends to take any such restricted action, CBS Radio (or Entercom, if applicable) will be required to cooperate with CBS in obtaining an IRS ruling or an unqualified tax

 

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opinion satisfactory to CBS in its reasonable discretion to the effect that such action will not affect the status of any of the Internal Distributions, the Final Distribution or the Merger as tax-free transactions, unless CBS waives such requirement. However, if CBS Radio (or Entercom, if applicable) takes any of the actions above and such actions result in tax-related losses to CBS, then CBS Radio (or Entercom, if applicable) generally will be required to indemnify CBS for such losses, without regard to whether CBS has given CBS Radio and/or Entercom prior consent. See “Other Agreements and Other Related Party Transactions—Tax Matters Agreement.” In the event CBS does not receive a tax opinion from Wachtell, Lipton, Rosen & Katz concluding at a comfort level of “should” or higher that each of the Internal Distributions and the Final Distribution qualifies as a tax-free transaction under Section 355 of the Code or takes or fails to take, or permits any of its affiliates to take or fail to take, any action solely as a result of which (together with other actions or failures to act by CBS and its affiliates) either of the Internal Distributions and/or the Final Distribution would reasonably be expected to fail to qualify as tax-free transactions, then the restrictions set forth above shall not apply.

Due to these restrictions and indemnification obligations under the Tax Matters Agreement, Entercom may be limited in its ability to pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in Entercom’s best interests. Also, Entercom’s potential indemnity obligation to CBS might discourage, delay or prevent a change of control during this two-year period that Entercom shareholders may consider favorable and its ability to pursue strategic transactions, equity or convertible debt financings, or other transactions that may otherwise be in Entercom’s best interests.

The concentration of Entercom’s capital stock ownership with its founders will limit the ability of holders of Entercom Class A Common Stock to influence corporate matters, and the interests of Entercom’s founders may differ from the interests of other stockholders.

As of March 10, 2017, Joseph M. Field, Entercom’s Chairman of the Board, beneficially owned 1,364,165 shares of Entercom Class A Common Stock and 6,148,282 shares of Entercom Class B Common Stock, representing approximately 61.1% of the total voting power of all of outstanding Entercom Common Stock. Collectively, Joseph M. Field, David J. Field, other members of the Field family or entities that they control beneficially own all outstanding shares of Entercom Class B Common Stock. Other members of the Field family and entities that they control also own shares of Entercom Class A Common Stock. Based on their holdings as of March 10, 2017, Joseph M. Field, David J. Field and their affiliates are expected to beneficially own or control 9,282,322 of the outstanding shares of the Entercom Common Stock of the combined company following the completion of the Merger. For additional information on the ownership of Entercom Common Stock and how it will change after the Merger, see the section entitled “Other Agreements and Other Related Party Transactions—Field Family Side Letter Agreement.”

Additionally, the Entercom Articles provide that holders of Entercom Class B Common Stock are entitled to ten votes for each share held of record at such times as the shares are voted by a management shareholder (Joseph M. Field and David J. Field) in his own right in person or by proxy or pursuant to a qualified voting agreement; at all other times the holders of Entercom Class B Common Stock will be entitled to one vote per share. Holders of Entercom Class A Common Stock are entitled to one vote per share. See the section entitled “Description of Entercom Capital Stock.”

Based on their holdings as of March 10, 2017, Joseph M. Field and David J. Field are expected to have a large minority voting interest in the combined entity of approximately 25% following consummation of the Merger, whereas the total voting share of all other holders of Entercom Common Stock will be approximately 75% following consummation of the Merger, with approximately 58% being held by former holders of CBS Common Stock and approximately 17% being held by former holders of Entercom Common Stock other than the Field family. Accordingly, Joseph M. Field, David J. Field and each of their affiliates will have substantial influence over the outcome of corporate actions requiring shareholder approval, and their interests may differ from the interests of other shareholders. See the section entitled “The Transactions—Interests of Entercom’s Directors and Executive Officers in the Transactions.” The concentration of stock ownership will limit the ability

 

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of Entercom Class A Common Stockholders to influence corporate matters. As a result, Entercom may take actions that its shareholders do not view as beneficial or may give investors the perception that conflicts of interest may exist or arise, which may adversely affect the market price of Entercom Class A Common Stock.

The fairness opinions obtained by the Entercom board of directors from Morgan Stanley and Centerview, respectively, will not reflect changes, circumstances, developments or events that may have occurred or may occur after the date of such opinions.

On February 1, 2017, each of Morgan Stanley and Centerview separately rendered to the board of directors of Entercom an oral opinion, each of which was subsequently confirmed by delivery of separate written opinions dated February 2, 2017, that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken in preparing its opinion, the exchange ratio provided for pursuant to the Merger Agreement was fair, from a financial point of view, to Entercom.

The Entercom board has not obtained an updated fairness opinion as of the date of this document from Morgan Stanley or Centerview, and the Entercom board does not expect to receive an updated fairness opinion prior to the completion of the Merger.

The opinions delivered by Morgan Stanley and Centerview were necessarily based on economic, market, financial and other conditions as they existed on, and on the information made available to Morgan Stanley and Centerview, respectively, as of, February 2, 2017. The opinions do not speak as of the time the Merger will be completed or as of any date other than the date of such opinions. Although subsequent developments may affect its opinion, neither Morgan Stanley nor Centerview has any obligation to update, revise or reaffirm its opinion. These developments may include changes to the operations and prospects of CBS Radio or Entercom, regulatory or legal changes, general market and economic conditions and other factors that may be beyond the control of CBS Radio and Entercom, and on which such opinions were based, and that may alter the value of CBS Radio or Entercom or the prices of securities of CBS, Entercom, and CBS Radio at the effective time. The value of the merger consideration has fluctuated since, and could be materially different from its value as of, the date of the opinions delivered by Morgan Stanley and Centerview, and neither Morgan Stanley nor Centerview has expressed any opinion as to the price or range of prices at which any securities of CBS, Entercom, or CBS Radio may trade at any time.

For a more complete description of the opinion that Morgan Stanley delivered to the Entercom board of directors and a summary of the material financial analyses performed by Morgan Stanley and reviewed by the Entercom board of directors in connection with its opinion, please refer to the section entitled “The Transactions—Opinions of Entercom’s Financial Advisors—Opinion of Morgan Stanley & Co. LLC” and to the full text of text of the written opinion included as Annex C-1 to this document. For a more complete description of the opinion that Centerview delivered to the Entercom board of directors and a summary of the material financial analyses performed by Centerview and reviewed by the Entercom board of directors in connection with its opinion, please refer to the section “The Transactions—Opinions of Entercom’s Financial Advisors—Opinion of Centerview Partners LLC” and to the full text of text of the written opinion included as Annex C-2 to this document.

Current Entercom shareholders’ ownership interest in Entercom will be substantially diluted in the Merger.

Following the consummation of the Merger, Entercom’s shareholders will, in the aggregate, own a significantly smaller percentage of Entercom than they will own of Entercom immediately prior to the Merger. Immediately after consummation of the Merger, approximately 72% of the outstanding shares of Entercom Common Stock are expected to be held by pre-Merger holders of CBS Class B Common Stock, including CBS employees who held certain CBS stock-based compensation rights that will be converted into the right to receive

 

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Entercom Class A Common Stock, on a fully diluted basis in the aggregate, and approximately 28% of the outstanding shares of Entercom Common Stock are expected to be held by pre- Merger holders of Entercom Common Stock, including Entercom employees who held Entercom stock-based compensation rights, on a fully diluted basis in the aggregate, subject to potential adjustment under limited circumstances as described in the section entitled “The Merger Agreement—Merger Consideration.” Consequently, Entercom’s shareholders, as a group, will be able to exercise less influence over the management and policies of Entercom following the Merger than they will exercise over the management and policies of Entercom immediately prior to the Merger. In particular, Joseph M. Field and David J. Field, who currently hold a controlling interest in Entercom, are expected to have a minority voting interest in the combined entity of approximately 25%.

Arbitrage trading during the exchange offer could adversely impact the price of Entercom Class A Common Stock.

The shares of Radio Common Stock to be received by holders of CBS Class B Common Stock who validly tender such stock in the exchange offer will be issued at a discount to the per-share value of Entercom Class A Common Stock. During the exchange offer, the existence of this discount could negatively affect the market price of Entercom Class A Common Stock. Prospective buyers of Entercom Class A Common Stock could choose to acquire shares of Entercom Class A Common Stock indirectly by purchasing shares of CBS Class B Common Stock and then tender such shares in the exchange offer. Additionally, certain market participants may use a hedging strategy to manage risk in the context of split-off transactions that involves shorting Entercom Class A Common Stock. Both occurrences, or either individually, could result in a decrease in the price of Entercom Class A Common Stock during the exchange offer.

Risks Related to Entercom and the Combined Company

Entercom and CBS Radio will incur transaction- and merger-related costs in connection with the Transactions.

Entercom and CBS Radio have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Transactions. These costs and expenses include fees paid to financial, legal and accounting advisors, severance and other potential employment-related costs, including payments that may be made to certain Entercom and CBS Radio executives, filing fees, printing expenses and other related charges. Some of these costs are payable by Entercom and CBS Radio regardless of whether the Transactions are completed. There are also processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Transactions and the integration of the two companies’ businesses. While both Entercom and CBS Radio have assumed that a certain level of expenses would be incurred in connection with the Transactions and the other operations contemplated by the Merger Agreement and continue to assess the magnitude of these costs, there are many factors beyond their control that could affect the total amount or the timing of the integration and implementation expenses.

There may also be additional unanticipated costs in connection with the Transactions that Entercom and CBS Radio may not recoup. These costs and expenses could reduce the realization of efficiencies and strategic benefits Entercom and CBS Radio expect to achieve from the Transactions. Although Entercom and CBS Radio expect that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.

Increases in or new royalties, including through legislation, could adversely impact CBS Radio’s and Entercom’s business, financial condition and results of operations following the consummation of the Merger.

CBS Radio and Entercom pay royalties to song composers and publishers through performance rights organizations (“PROs”), currently American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI) and SESAC, Inc. for the performance of music on its radio stations and websites. The

 

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emergence of new PROs, such as Global Music Rights, could increase the royalties that they pay. Although CBS Radio and Entercom pay royalties to record labels and recording artists for distributing music content online, they do not pay royalties to record labels or recording artists for broadcasts of music on our radio stations. From time to time, the U.S. Congress considers legislation that could require that radio broadcasters pay performance royalties to record labels and recording artists. The proposed legislation has been the subject of considerable debate and activity by the radio broadcast industry and other parties that could be affected. Neither CBS Radio nor Entercom can predict whether any proposed legislation will become law. In addition, royalty rates are subject to adjustment and it is possible that CBS Radio’s or Entercom’s royalty rates associated with obtaining rights to use musical compositions and sound recordings in its programming content could increase as a result of private negotiations, regulatory rate-setting processes, or administrative and court decisions. Various independent record companies that claim to own the rights to several hundred sound recordings created prior to February 15, 1972 (the “Pre-1972 Recordings”) have sued several radio broadcasters (including CBS Radio) for allegedly infringing their exclusive right of public performance in certain states. In August 2015, CBS Radio was named as a defendant in two separate putative class action lawsuits in a federal court in each of California and New York for common law copyright infringement as well as related state law claims. In May 2016, the California court dismissed the California case against CBS Radio. In June 2016, the plaintiff record companies appealed this judgment to the U.S. Court of Appeals for the Ninth Circuit. In March 2017, the New York federal court dismissed the New York suit with prejudice. CBS Radio intends to vigorously defend itself in the California case. An adverse decision in the California case could impede CBS Radio’s ability to broadcast or stream the Pre-1972 Recordings and/or increase its royalty payments. New or increased royalty payments could increase CBS Radio’s and Entercom’s expenses, which could adversely impact their businesses, financial conditions and results of operations.

The failure to protect CBS Radio’s intellectual property could adversely impact the business, financial condition and results of operations of Entercom and its subsidiaries, including CBS Radio, following completion of the Merger.

Following the separation of CBS’s radio business from the other businesses of CBS pursuant to the terms of the Separation Agreement (the “Separation)”, CBS Radio will have limited rights to use the trademarks “CBS Radio,” “CBS Sports Radio” and certain other trademarks owned by CBS, subject in each case to the CBS Brands License Agreements. See “Other Agreements and Other Related Party Transactions—CBS Brands License Agreements” for more information on CBS Radio’s rights and obligations under the license agreements. Any substantial failure to protect and enforce CBS Radio’s intellectual property rights during the period between the Separation and the expiration of CBS Radio’s rights to use Trademarks owned by CBS and its subsidiaries could adversely impact Entercom’s business, financial condition and results of operations following the consummation of the Merger. In addition, early termination of the trademark licenses could result in Entercom rebranding such trademarks before it is prepared to do so and could require that Entercom spend significant unanticipated resources.

CBS Radio’s ability to protect and enforce its intellectual property rights is important to the success of CBS Radio’s business. CBS Radio endeavors to protect its intellectual property under trade secret, trademark, copyright and patent law, and through a combination of employee and third-party nondisclosure agreements, other contractual restrictions, and other methods. CBS Radio has registered trademarks in state and federal trademark offices in the United States and enforces its rights through, among other things, filing oppositions with the United States Patent and Trademark Offices. There is a risk that unauthorized digital distribution of CBS Radio content could occur and competitors may adopt names similar to CBS Radio’s or use confusingly similar terms as keywords in internet search engine advertising programs, thereby impeding CBS Radio’s ability to build brand identity and leading to confusion among CBS Radio audience or advertisers. Moreover, maintaining and policing CBS Radio’s intellectual property rights may require CBS Radio to spend significant resources as litigation or proceedings before the United States Patent and Trademark Office, courts or other administrative bodies, is unpredictable, costly and may not always be cost effective. CBS Radio cannot assure you that it will have sufficient resources to adequately protect and enforce its intellectual property. The failure to protect and

 

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enforce CBS Radio’s intellectual property could adversely impact the business, financial condition and results of operations of Entercom and its subsidiaries, including CBS Radio, following consummation of the Merger.

CBS Radio may be subject to claims and litigation from third parties claiming that its operations infringe on their intellectual property. Any intellectual property litigation could be costly and could divert the efforts and attention of CBS Radio’s management and technical personnel, which could have a material adverse effect on CBS Radio’s business, financial condition and results of operations. If any such actions are successful, in addition to any potential liability for damages, CBS Radio could be required to obtain a license in order to continue to operate its business.

CBS Radio could suffer losses due to asset impairment charges for FCC licenses and goodwill, which may adversely impact CBS Radio’s financial results.

As of June 30, 2017, CBS Radio’s FCC licenses and goodwill comprised 89% of the book value of its assets. CBS Radio tests goodwill and FCC licenses for impairment during the fourth quarter of each year and between annual tests if events or circumstances require an interim impairment assessment. FCC licenses are tested for impairment at the geographic market level and goodwill is tested at the reporting unit level, which is one level below CBS Radio’s operating segment. As of December 31, 2016, CBS Radio had three reporting units. During 2016, CBS Radio recognized a pretax noncash impairment charge of $322.7 million to reduce the carrying values of FCC licenses in 23 of its markets to their fair value. Also during 2016, CBS Radio concluded that the estimated fair value of each of its three reporting units was below their respective carrying values, after the above-mentioned FCC licenses impairment charge, and as a result CBS Radio performed the second step of the goodwill impairment test for each reporting unit and recorded a pretax noncash impairment charge of $530.1 million to reduce the carrying value of its goodwill.

After the above-mentioned impairment charges, the fair values of each of CBS Radio’s three reporting units exceeded their respective carrying values by approximately 3%, the fair values of FCC licenses in 23 of its markets were the same as their carrying values, and the fair values of FCC licenses in two markets exceeded their respective carrying values by less than 5%. A downward revision to the estimated fair value of CBS Radio’s reporting units and/or FCC licenses could cause the estimated fair value to fall below their respective carrying values, which could result in a noncash impairment charge.

Entercom’s stock price is one indicator in management’s assessment of the fair value of CBS Radio. A decline in Entercom’s stock price could indicate that the fair value of CBS Radio is lower than its carrying value and could result in an impairment in a future period. Any impairment charge for goodwill and/or FCC licenses could have a material impact on CBS Radio’s financial results.

Following the consummation of the Merger, Entercom and CBS Radio will have substantial indebtedness, which could adversely impact the business, financial condition and results of operations of Entercom and its subsidiaries, including CBS Radio.

Entercom and its subsidiaries, and CBS Radio and its subsidiaries each have a significant amount of indebtedness and, following the consummation of the Transactions, will continue to have significant indebtedness and liabilities. As of June 30, 2017, on a pro forma basis after giving effect to the Transactions, Entercom would have had outstanding long-term debt, including the current portion, of $1,883.8 million, on a consolidated basis. Entercom and its subsidiaries, including, after the consummation of the Transactions, CBS Radio, have and will continue to have the ability to incur a significant amount of additional debt. After the consummation of the Transactions, the indebtedness of Entercom and its subsidiaries, including CBS Radio, could have important consequences, including but not limited to:

 

    making it more difficult for Entercom and its subsidiaries, including CBS Radio, as applicable, to satisfy their obligations with respect to their debt;

 

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    requiring Entercom and its subsidiaries, including CBS Radio, as applicable, to dedicate a substantial portion of their cash flow from operations to payments on indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures and other corporate purposes;

 

    increasing the vulnerability of Entercom and its subsidiaries, including CBS Radio, to and limiting the flexibility in planning for, or reacting to, changes in the business, the industries in which they operate, the economy and government regulations;

 

    restricting Entercom and its subsidiaries, including CBS Radio, from making strategic acquisitions or causing them to make non-strategic divestitures;

 

    placing Entercom and its subsidiaries, including CBS Radio, at a competitive disadvantage compared to their competitors that have less debt;

 

    exposing Entercom and its subsidiaries, including CBS Radio, to the risk of increased interest rates as borrowings under the Radio Credit Agreement are subject to variable rates of interest; and

 

    limiting the ability of Entercom and its subsidiaries, including CBS Radio, to borrow additional funds.

The terms of the Radio Credit Agreement and the Radio Notes Indenture may restrict the current and future operations of CBS Radio and its subsidiaries, particularly the ability to incur additional debt.

The Radio Credit Agreement and the Radio Notes Indenture contain a number of restrictive covenants that impose significant operating and financial restrictions on CBS Radio and its subsidiaries and limit CBS Radio’s ability to engage in actions that may be in its long-term best interests, including restrictions on its and its subsidiaries’ abilities to:

 

    incur additional indebtedness;

 

    pay dividends on, repurchase or make distributions in respect of CBS Radio’s stock;

 

    make investments or acquisitions;

 

    sell, transfer or otherwise convey certain assets;

 

    change its accounting methodology;

 

    incur 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 CBS Radio’s or CBS Radio’s subsidiaries’ assets;

 

    enter into transactions with affiliates;

 

    prepay certain kinds of indebtedness;

 

    issue or sell stock of CBS Radio’s subsidiaries; and

 

    change the nature of CBS Radio’s business.

In addition, the Radio Credit Agreement has a financial covenant that requires CBS Radio to maintain a Maximum Consolidated Net Secured Leverage Ratio (as defined in the Radio Credit Agreement). CBS Radio’s ability to meet this financial covenant may be affected by events beyond Entercom’s or CBS Radio’s control.

As a result of all of these restrictions, after the Merger, Entercom and its subsidiaries, including CBS Radio, may be:

 

    limited in how they conduct their business;

 

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    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 the ability of Entercom and its subsidiaries, including, after the consummation of the Transactions, CBS Radio, to pursue their business strategy or inhibit the ability to adhere to their intended dividend policies.

A breach of the covenants under the Radio Notes Indenture or under the Radio Credit Agreement could result in an event of default under the applicable agreement. Such a default would allow the lenders under the Radio Credit Agreement and/or the holders of CBS Radio’s Senior Notes to accelerate the 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 Radio Credit Agreement would also permit the lenders under the Radio Credit Agreement to terminate all other commitments to extend additional credit under the Radio Credit Agreement.

Furthermore, if CBS Radio were unable to repay the amounts due and payable under the Radio Credit Agreement, those lenders could proceed against the collateral that secures such indebtedness. In the event that CBS Radio’s creditors accelerate the repayment of its borrowings, CBS Radio and its subsidiaries may not have sufficient assets to repay that indebtedness.

Following completion of the Merger, Entercom and its subsidiaries, including CBS Radio, may still be able to incur substantial additional amounts of debt, including secured indebtedness, which could further exacerbate the risks associated with the indebtedness of Entercom and its subsidiaries, including CBS Radio, and adversely impact the business, financial condition and results of operations of Entercom and its subsidiaries, including CBS Radio.

Following completion of the Merger, Entercom and its subsidiaries, including CBS Radio, may incur substantial additional amounts of debt, which could further exacerbate the risks associated with the indebtedness of Entercom and its subsidiaries, including CBS Radio. Although the terms of the agreements governing CBS Radio’s existing indebtedness 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 incurred in compliance with these restrictions could be substantial. Following completion of the Merger, these restrictions also will not prevent Entercom and its subsidiaries, including CBS Radio, from incurring obligations that do not constitute indebtedness. If new debt is added to Entercom’s or CBS Radio’s existing debt levels, the related risks that Entercom and its subsidiaries, including CBS Radio, face following completion of the Merger would intensify, and Entercom and its subsidiaries, including CBS Radio, may not be able to meet all of their respective debt obligations. Following the completion of the Merger, Entercom’s and CBS Radio’s indebtedness may adversely impact the business, financial condition and results of operations of Entercom and its subsidiaries, including CBS Radio.

CBS Radio’s variable-rate indebtedness gives rise to interest rate risk, which could cause CBS Radio’s debt service obligations to increase following completion of the Merger. Any increase in CBS Radio’s debt service obligations could adversely impact the business, financial condition and results of operations of Entercom and its subsidiaries, including CBS Radio, following completion of the Merger.

On October 17, 2016, CBS Radio entered into the Radio Revolving Credit Facility (as defined below) and the Radio Term Loan (as defined below), both pursuant to the Radio Credit Agreement, and borrowed the full amount of the Radio Term Loan. On March 3, 2017, the Radio Credit Agreement was amended to create a tranche of Term B-1 Loans not to exceed $500 million, which are expected to be funded substantially concurrently with the closing date of the Merger, subject to customary closing conditions. CBS Radio’s borrowings under the Radio Term Loan and the Radio Revolving Credit Facility bear interest at floating rates that expose CBS Radio to interest rate risk. If interest rates increase, the debt service obligations following completion of the Merger relating to CBS Radio’s variable-rate indebtedness will increase, even though the

 

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amount borrowed remains the same, and Entercom’s and CBS Radio’s net income and cash flows will correspondingly decrease. In the future, Entercom and CBS Radio 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, Entercom and CBS Radio may not elect to maintain such interest rate swaps with respect to any variable rate indebtedness, and any swaps Entercom or CBS Radio enters into may not fully mitigate their interest rate risk. An increase in CBS Radio’s debt service obligations could adversely impact the business, financial condition and results of operations of Entercom and its subsidiaries, including CBS Radio following completion of the Merger.

To service CBS Radio’s indebtedness and other cash needs following completion of the Merger, Entercom and its subsidiaries, including CBS Radio, will require a significant amount of cash. Entercom and its subsidiaries’ ability to generate cash depends on many factors beyond their control.

Entercom’s ability to satisfy CBS Radio’s debt obligations and to fund any planned capital expenditures, dividends and other cash needs will depend in part upon the future financial and operating performance of Entercom and its subsidiaries, including CBS Radio, and upon its ability to renew or refinance borrowings. Entercom cannot assure you that it and its subsidiaries, including CBS Radio, will generate cash flow from operations, or that CBS Radio will be able to draw under the Radio Revolving Credit Facility or otherwise, in an amount sufficient to fund its liquidity needs, including the payment of principal and interest on its indebtedness. Prevailing economic conditions and financial, business, competitive, legislative, regulatory and other factors, many of which are beyond Entercom’s control, will affect its ability to make these payments.

If Entercom is unable to make payments on or refinance CBS Radio’s debt or obtain new financing under these circumstances following completion of the Merger, Entercom may consider other options, including:

 

    sales of assets;

 

    sales of equity;

 

    reduction or delay of capital expenditures, strategic acquisitions, investments and alliances; or

 

    negotiations with lenders to restructure the applicable debt.

These alternative measures may not be successful and may not enable Entercom to meet CBS Radio’s scheduled debt service obligations. Entercom’s ability to restructure or refinance CBS Radio’s debt will depend on the condition of the capital markets and Entercom’s and CBS Radio’s financial condition at such time. Any refinancing of CBS Radio’s debt could be at higher interest rates and may require Entercom and/or CBS Radio to comply with more onerous covenants, which could further restrict Entercom’s and its subsidiaries’ business operations. In addition, the terms of existing or future debt agreements may restrict Entercom and/or CBS Radio from adopting some of these alternatives. In the absence of sufficient cash flow from operating results and other resources, Entercom could face substantial liquidity problems and could be required to dispose of material assets or operations to meet CBS Radio’s debt service and other obligations. Entercom may not be able to consummate those dispositions for fair market value, or at all. Furthermore, any proceeds that Entercom could realize from any such dispositions may not be adequate to meet CBS Radio’s debt service obligations then due. Entercom’s inability to generate sufficient cash flow to satisfy CBS Radio’s debt obligations, or to refinance such indebtedness on commercially reasonable terms or at all, could adversely impact Entercom’s and its subsidiaries’ business, financial condition or results of operations following completion of the Merger. Any failure of CBS Radio to meet its scheduled debt service obligations could adversely impact Entercom’s business, financial condition and results of operations following completion of the Merger.

Any decline in the ratings of Entercom’s long-term debt could adversely affect its ability to access capital.

Any decline in the ratings of Entercom’s corporate credit or any indications from the rating agencies that their ratings on Entercom’s corporate credit are under surveillance or review with possible negative implications could adversely impact the ability of Entercom and its subsidiaries, including CBS Radio, to access capital which could adversely impact Entercom’s business, financial condition and results of operations.

 

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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This document contains and incorporates by reference certain statements relating to future events and Entercom’s intentions, beliefs, expectations, and predictions for the future. Any such statements other than statements of historical fact are forward-looking statements within the meaning of the Securities Act and the Exchange Act. Words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “expect,” “estimate,” “project,” “may,” “will,” “intend,” “plan,” “believe,” “target,” “forecast,” “would” or “could” (including the negative variations thereof) or similar terminology used in connection with any discussion of future plans, actions or events, including with respect to the Transactions, generally identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding expected benefits of the Transactions, integration plans and expected synergies therefrom, the expected timing of consummation of the Transactions, and Entercom’s anticipated future financial and operating performance and results, including its estimates for growth. These statements are based on the current expectations of management of Entercom. There are a number of risks and uncertainties that could cause each company’s actual results to differ materially from the forward-looking statements included in this document. These risks and uncertainties include risks relating to:

 

    impact of stock sales on the market price of Entercom Class A Common Stock;

 

    reliability of historical and pro forma financial information that is included in this document as representative of the results CBS Radio would have achieved as a stand-alone public company and as an indicator of CBS Radio’s future results;

 

    inability of Entercom to provide the same types and level of services, digital services and resources to CBS Radio that historically have been provided by CBS, or inability to provide them at the same cost;

 

    inability of Entercom to negotiate terms that are as favorable as those CBS and CBS Radio have received when Entercom replaces contracts after the closing of the Transactions;

 

    potential termination of the Merger Agreement in accordance with its terms, and thus failure to consummate the exchange offer and, if necessary, the Spin-Off;

 

    failure of the Internal Distributions or the Final Distribution to qualify as a transaction that is tax-free for U.S. federal income tax purposes under Section 355 of the Code or failure of the Merger to qualify as a tax-free “reorganization” under Section 368(a) of the Code;

 

    subject to the terms and conditions of the Tax Matters Agreement, restrictions on CBS Radio and Entercom following the Transactions in order to avoid significant tax-related liabilities;

 

    possibility of a reduced premium or no premium for tendering holders of CBS Class B Common Stock in the exchange offer;

 

    reliability of the trading prices of Entercom Class A Common Stock as a proxy for the value of Radio Common Stock;

 

    potential delay for the former holders of shares of Radio Common Stock prior to receiving their shares of Entercom Class A Common Stock or their cash in lieu of fractional shares, if any, following the exchange of shares of Entercom Class A Common Stock for shares of Radio Common Stock in the Merger;

 

    differences between the ownership rights for Entercom Class A Common stock and CBS Class B Common Stock;

 

    concentration of the ownership of Entercom capital stock with its founders and their affiliates;

 

    no updates to fairness opinions regarding the exchange ratio pursuant to the Merger Agreement;

 

    incurrence of costs related to the Transactions;

 

    increases in or new royalties to which CBS Radio or Entercom are subject;

 

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    the failure to protect CBS Radio’s intellectual property;

 

    the impact of asset impairment charges for FCC licenses and goodwill;

 

    impact of substantial existing and future indebtedness;

 

    restrictions on CBS Radio’s operations, including its ability to incur additional debt, pursuant to the Radio Credit Agreement and the Radio Notes Indenture;

 

    Entercom’s and its subsidiaries’ ability to incur substantial additional amounts of indebtedness after the Merger;

 

    impact of variable-rate indebtedness;

 

    requirements for a significant amount of cash to service existing indebtedness and other cash needs; and

 

    any decline in Entercom’s long-term debt rating.

In light of these risks, uncertainties, assumptions and other factors, the forward-looking statements discussed in this document may not occur. Other unknown or unpredictable factors could also have a material adverse effect on each of CBS’s, CBS Radio’s and Entercom’s actual future results, performance, or achievements. For a further discussion of these and other risks and uncertainties, see the section of this document entitled “Risk Factors.” As a result of the foregoing, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. None of Entercom, CBS or CBS Radio undertakes, and each expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events, or changes in its respective expectations, except as required by law.

 

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INFORMATION ABOUT THE SPECIAL MEETING

General; Date; Time and Place; Purposes of the Meeting

The Special Meeting of shareholders of Entercom will be held at Hotel Sofitel Philadelphia, 120 S. 17th Street, Philadelphia, PA 19103 on November 15, 2017 at 10:00 a.m., local time, for the following purposes:

 

  1. To approve the Share Issuance of Entercom Class A Common Stock in the Merger;

 

  2. To approve the Classified Board Amendment to the Existing Entercom Articles to classify the Entercom board of directors following the Merger;

 

  3. To approve the FCC Amendment to the Existing Entercom Articles to permit the board of directors to (i) require certain information from shareholders and (ii) take certain actions in order to continue to comply with federal communications laws;

 

  4. To approve, on a non-binding, advisory basis, the Executive Compensation Proposal relating to certain compensation arrangements for Entercom’s named executive officers in connection with the Merger;

 

  5. To approve the Adjournment Proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Share Issuance or the Classified Board Amendment; and

 

  6. To transact such other business that may properly come before the Special Meeting or any adjournment or postponement thereof.

Entercom does not expect a vote to be taken on any other matters at the Special Meeting. If any other matters are properly presented at the Special Meeting for consideration, however, the holders of the proxies, if properly authorized, will have discretion to vote on these matters in accordance with their best judgment.

When this document refers to the “Special Meeting,” it is also referring to any adjourned or postponed session of the Special Meeting, if necessary or appropriate.

Record Date; Quorum; Voting Information; Required Votes

Holders of record of Entercom Common Stock at the close of business on October 12, 2017, the record date for the Special Meeting, are entitled to notice of, and to vote at, the Special Meeting and any adjournments or postponements thereof. At the close of business on the record date, 31,757,256 shares of Entercom Class A Common Stock were outstanding and entitled to vote and 7,197,532 shares of Entercom Class B Common Stock were outstanding and entitled to vote.

The presence in person or by proxy of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter or proposal to be acted upon at the meeting shall constitute a quorum for the purposes of consideration and action on the matter or proposal.

The Existing Entercom Articles provide that each share of Entercom Class A Common Stock is entitled to one vote and that each share of Entercom Class B Common Stock is entitled to ten votes, except: (i) any share of Entercom Class B Common Stock not voted by either Joseph M. Field or David J. Field, in their own right in person or by proxy or pursuant to a Qualified Voting Agreement (as defined in the Existing Entercom Articles), is entitled to one vote; (ii) the holders of Entercom Class A Common Stock, voting as a single class, are entitled to elect two Class A Directors; (iii) each share of Entercom Class B Common Stock is entitled to one vote with respect to certain “Going Private Transactions” (as defined in the Charter); and (iv) as required by law.

Assuming a quorum is present, votes on the proposals will be tallied as follows:

 

    Proposal 1—Approval of the Share Issuance. Approval of the Share Issuance requires the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting.

 

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    Proposal 2—Approval of the Classified Board Amendment. Approval of the Classified Board Amendment requires the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting.

 

    Proposal 3—Approval of the FCC Amendment. Approval of the FCC Amendment requires the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting.

 

    Proposal 4—Executive Compensation Proposal. Approval of the Executive Compensation Proposal, on a non-binding, advisory basis, requires the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting.

 

    Proposal 5—Adjournment Proposal. Approval of the Adjournment Proposal, if necessary or appropriate, requires the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting.

Shares of Entercom Common Stock represented by proxies that are marked “abstain” will be counted as present at the Special Meeting for the purpose of determining a quorum. Abstentions will count as a vote “AGAINST” the Share Issuance and the Executive Compensation Proposal but will have no effect on the other proposals. Broker non-votes will not be counted as present at the Special Meeting for the purpose of determining a quorum and will have no effect on the outcome of the vote. Broker non-votes occur when a nominee holding shares of our common stock for a beneficial owner has not received voting instructions from the beneficial owner and such nominee does not possess, or chooses to not exercise, discretionary authority with respect thereto.

Recommendation of Board of Directors

After careful consideration, the Entercom board of directors resolved that the Merger and the Share Issuance are advisable and in the best interests of Entercom and its shareholders. As a result, Entercom’s board of directors unanimously recommends that shareholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the Classified Board Amendment, “FOR” the FCC Amendment, “FOR” the Executive Compensation Proposal and “FOR” the Adjournment Proposal.

How to Vote

Record Holders.

If you are a shareholder of record of Entercom Class A Common Stock or Entercom Class B Common Stock as of the close of business on October 12, 2017, you may vote your shares:

 

    By Proxy: You may vote your shares via a toll-free telephone number (1-800-PROXIES (1-800-776-9437)) or over the Internet (www.voteproxy.com) as instructed on the enclosed proxy card. If you provide a proxy without indicating how you wish to vote, all of your shares will be voted at the discretion of your proxies on any matter that may be properly brought before the Special Meeting, except to the extent such discretionary voting is not permitted by any applicable rules or regulations.

 

    In Person: You may attend the Special Meeting and vote in person.

Beneficial Holders. If you are not a shareholder of record of our Class A Common Stock and instead hold your shares in “street name” (i.e., in the name of a bank, broker or other holder of record), you will receive instructions from your bank, broker or other holder of record that you must follow in order for your shares to be voted. Certain of these institutions offer telephone and Internet voting.

 

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Solicitation of Proxies

Entercom will bear the entire cost of soliciting proxies from its shareholders. In addition to solicitation of proxies by mail, proxies may be solicited in person, by telephone or other electronic communications, such as emails or postings on Entercom’s website by Entercom’s directors, officers and employees, who will not receive additional compensation for these services. Entercom has retained D.F. King & Co., Inc. as its proxy solicitation agent for a fee of $6,500. Brokerage houses, nominees, custodians and fiduciaries will be requested to forward soliciting material to beneficial owners of Entercom Common Stock held of record by them, and Entercom will reimburse those persons for their reasonable expenses in doing so.

Revocation of Proxies

You may revoke your proxy before it is voted at the Special Meeting if you: (i) send a written notice of revocation dated after the proxy date to our Corporate Secretary; (ii) send our Corporate Secretary a later dated proxy for the same shares of Entercom Common Stock; or (iii) attend the Special Meeting and vote in person.

The address for our Corporate Secretary is Entercom Communications Corp., 401 E. City Avenue, Suite 809, Bala Cynwyd, Pennsylvania, 19004, Attention: Andrew P. Sutor, IV, Secretary.

Adjournments and Postponements

Although it is not currently expected, the Special Meeting may be adjourned or postponed, if necessary, for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Share Issuance. Any adjournment or postponement may be made from time to time by the affirmative vote of a majority of the votes cast by holders of shares of Entercom Common Stock, present in person or by proxy, voting together as a single class at the Special Meeting, without further notice other than by an announcement made at the Special Meeting. Any adjournment or postponement of the Special Meeting for the purpose of soliciting additional proxies will allow Entercom shareholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned or postponed.

The Adjournment Proposal relates only to an adjournment or postponement of the Special Meeting occurring for purposes of soliciting additional proxies for the approval of the Share Issuance. Entercom’s board of directors retains full authority to adjourn or postpone the Special Meeting for any other purpose, including the absence of a quorum, or to postpone the Special Meeting before it is convened, without the consent of any shareholders.

If the Special Meeting cannot be organized because a quorum is not in attendance, the Entercom board of directors intends to adjourn the meeting. If the meeting is adjourned for one or more periods aggregating at least 15 days, those shareholders who attend the adjourned meeting, although less than a quorum, will nevertheless constitute a quorum for the purpose of acting upon each of Proposals No. 1 – No. 4. Notice of the adjourned meeting will not be given except by announcement at the Special Meeting, unless a new record date is fixed for the adjourned meeting.

Attending the Special Meeting

All Entercom shareholders, including shareholders of record and shareholders who hold their shares through banks, brokers or other nominees, are invited to attend the Special Meeting. Shareholders of record can vote in person at the Special Meeting. To attend the Special Meeting, Entercom shareholders need to bring valid picture identification. Entercom shareholders that hold their shares through an account with a bank, broker or other nominee must also bring confirmation of such holder’s beneficial ownership of Entercom Common Stock as of the record date, such as a bank or broker statement. Cell phones must be turned off prior to entering the Special Meeting. Cameras and video, audio or any other electronic recording devices will not be allowed in the meeting room during the Special Meeting, other than for Entercom purposes.

 

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Householding

SEC rules allow delivery of a single document to households at which two or more shareholders reside. Accordingly, shareholders sharing an address who have been previously notified by their bank, broker or other nominee or its intermediary will receive only one copy of this document, unless the shareholder has provided contrary instructions. Individual proxy cards or voting instruction cards (or electronic voting facilities) will, however, continue to be provided for each shareholder account. This procedure, referred to as “householding,” reduces the volume of duplicate information received by shareholders, as well as Entercom’s expenses. Shareholders having multiple accounts may have received householding notifications from their respective banks, brokers or other nominees and, consequently, such shareholders may receive only one document. Shareholders who prefer to receive separate copies of the document, may request to receive separate copies of the document by notifying Entercom’s Corporate Secretary at the following address: Entercom Communications Corp., 401 E. City Avenue, Suite 809, Bala Cynwyd, Pennsylvania, 19004, Attention: Andrew P. Sutor, IV, Secretary (Telephone: (610) 660-5610). Entercom will provide the document promptly upon request. Shareholders currently sharing an address with another shareholder who wish to have only one proxy statement and annual report delivered to the household in the future should also contact Entercom’s Corporate Secretary.

Questions and Additional Information

If Entercom shareholders have more questions about the Transactions or how to submit their proxy, or if they need additional copies of this document or the enclosed proxy card or voting instructions, please contact our proxy solicitation agent:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Toll-Free: (800) 581-4729

The vote of Entercom shareholders is important. Please sign, date, and return the proxy card or submit the proxy and/or voting instructions via the Internet or by telephone promptly.

 

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INFORMATION ON THE CBS OFFER TO EXCHANGE

In the Transactions, CBS is offering to exchange all shares of Radio Common Stock that are owned by CBS for shares of CBS Class B Common Stock. See “The Transactions.” CBS Radio has filed a registration statement on Form S-4 and Form S-1 to register shares of Radio Common Stock to be distributed in connection with the split-off and, if necessary, the Spin-Off. The shares of Radio Common Stock will be automatically converted into shares of Entercom Class A Common Stock in the Merger. Entercom has filed a registration statement on Form S-4 to register the shares of Entercom Class A Common Stock that will be issued in the Merger. The terms and conditions of the exchange offer are described in CBS Radio’s registration statement and Entercom’s registration statement. Entercom and Entercom shareholders are not a party to the exchange offer and are not being asked to separately vote on the exchange offer or to otherwise participate in the exchange offer.

Upon consummation of the exchange offer, CBS will irrevocably deliver to the exchange offer agent a global certificate representing all of the Radio Common Stock being exchanged in the exchange offer, with irrevocable instructions to hold the shares of Radio Common Stock in trust for the holders of shares of CBS Class B Common Stock validly tendered and not properly withdrawn in the exchange offer and, in the case of a pro rata distribution, if any, holders of CBS Common Stock whose shares of CBS Class B Common Stock remain outstanding after the consummation of the exchange offer. Shares of Entercom Class A Common Stock will be delivered immediately following the expiration of the exchange offer, the acceptance of CBS Class B Common Stock for exchange, the determination of the final proration factor, if any, and the effectiveness of the Merger, pursuant to the procedures determined by the exchange offer agent and the transfer agent.

Entercom will issue 101,407,494 shares of Entercom Class A Common Stock in the Merger. In addition, the parties estimate that approximately 3,179,976 shares will be eligible for issuance in respect of equity awards held by employees of CBS Radio in consideration of the replacement of their restricted stock units and stock options in CBS with those of Entercom.

CBS’s exchange offer is subject to various conditions listed in CBS Radio’s registration statement and Entercom’s registration statement.

The information included in this section regarding CBS’s exchange offer is being provided to Entercom’s shareholders for informational purposes only and does not purport to be complete. For additional information on CBS’s exchange offer and the terms and conditions of CBS’s exchange offer, Entercom shareholders are urged to read CBS Radio’s registration statement on Form S-4 and Form S-1, or Entercom’s registration statement on Form S-4, and all other documents CBS Radio will file with the SEC. This document constitutes only a proxy statement for Entercom shareholders relating to, among other things, the approval of the issuance of shares of Entercom common stock in the Merger and is not an offer to sell or an offer to purchase shares of Entercom common stock.

 

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INFORMATION ON ENTERCOM

Overview

Entercom Communications Corp. is the fourth-largest radio broadcasting company in the United States with a portfolio of radio stations in 28 top markets across the country. Entercom reaches and engages more than 40 million people a week through its portfolio of highly rated stations. Entercom is headquartered in the Philadelphia, Pennsylvania metropolitan area and is and has been a Pennsylvania corporation since its organization in 1968.

Strategy

Entercom’s strategy focuses on providing compelling content in the communities it serves to enable Entercom to offer its advertisers an effective marketing platform to reach a large targeted local audience. The principal components of Entercom’s strategy are to: (i) focus on creating effective integrated marketing solutions for its customers that incorporate its audio, digital and experiential assets; (ii) build strongly-branded radio stations with highly compelling content; (iii) develop market leading station clusters; and (iv) recruit, develop, motivate and retain superior employees.

Source of Revenue

The primary source of revenue for Entercom’s radio stations is the sale of advertising time to local, regional and national advertisers and national network advertisers who purchase spot commercials in varying lengths. A growing source of revenue is from station-related digital product suites, which allow for enhanced audience interaction and participation, and integrated digital advertising solutions. A station’s local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. Entercom retains a national representation firm to sell to advertisers outside of Entercom’s local markets.

Entercom’s stations are typically classified by their format, such as news, sports, talk, classic rock, adult contemporary, alternative and country, among others. A station’s format enables it to target specific segments of listeners sharing certain demographics. Advertisers and stations use data published by audience measuring services to estimate how many people within particular geographical markets and demographics listen to specific stations. Entercom’s geographically and demographically diverse portfolio of radio stations allows Entercom to deliver targeted messages to specific audiences for advertisers on a local, regional and national basis.

Competition

The radio broadcasting industry is highly competitive. Entercom’s stations compete for listeners and advertising revenue with other radio stations within their respective markets. In addition, Entercom’s stations compete for audiences and advertising revenues with other media including: digital audio streaming, satellite radio, broadcast television, digital, satellite and cable television, newspapers and magazines, outdoor advertising, direct mail, yellow pages, wireless media alternatives, cellular phones and other forms of audio entertainment and advertisement.

HD Radio

AM and FM radio stations may use the FCC selected In-Band On-Channel (“IBOC”) as the exclusive technology for terrestrial digital operations. IBOC, developed by DTS, Inc. (formerly iBiquity Digital Corporation), is also known as “HD Radio.”

HD Radio technology permits a station to transmit radio programming in digital format. Entercom currently uses HD Radio digital technology on most of its FM stations. The advantages of digital audio broadcasting over traditional analog broadcasting technology include improved sound quality, the availability of additional channels and the ability to offer a greater variety of auxiliary services.

 

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Legal Proceedings

Entercom currently and from time to time is involved in litigation incidental to the conduct of its business. Entercom’s management anticipates that any potential liability of Entercom’s that may arise out of or with respect to these matters will not materially adversely affect its financial position, results of operations or cash flows.

Employees

As of January 31, 2017, Entercom had 1,683 full-time employees and 1,145 part-time employees. With respect to certain Entercom stations in Entercom’s Kansas City and San Francisco markets, Entercom is a party to collective bargaining agreements with the Screen Actors Guild—American Federation of Television and Radio Artists (known as SAG-AFTRA). Approximately 46 employees are represented by these collective bargaining agreements. Entercom believes that its relations with its employees are good.

Entercom’s Business After the Consummation of the Transactions

The combination of CBS Radio with Entercom’s existing business is intended to create a leading local media and entertainment company with strong, complementary assets on a national scale. Entercom expects the Transactions to have the following strategic benefits:

 

    Enhanced platform and geographical presence. As a result of the Transactions, Entercom expects the combined business to have a nationwide footprint of radio stations, including 23 of the top 25 U.S. markets, as well as robust digital capabilities and a growing events platform.

 

    Synergies. The combined company is expected to achieve estimated annual cost synergies of $25 million within 12-18 months after the consummation of the Transactions.

 

    Improved Financial Profile. The consummation of the Transactions is expected to increase Entercom’s revenues and earnings leading to enhanced cash flow generation. Equity market capitalization and liquidity will be enhanced by the issuance of over 100 million new shares of Entercom Class A Common Stock in connection with the Merger.

To enable Entercom to manage an orderly transition in its operation of CBS Radio, CBS and Entercom will enter into the Transition Services Agreement, pursuant to which CBS will provide certain services to Entercom in support of CBS Radio and Entercom will provide certain limited services to CBS for a period not to exceed twenty-four months following the consummation of the Transactions. See “Other Agreements and Other Related Party Transactions—Transition Services Agreement.”

In addition, CBS and Entercom will enter into the Joint Digital Services Agreement, pursuant to which CBS Local Digital Media will continue to operate the digital presences for CBS Radio’s Sports and News Stations and CBS TV Stations. The Joint Digital Services Agreement represents a collaborative arrangement between CBS and Entercom, providing for the sharing of revenues, costs and content, in connection with the operation of the CBS Local Websites, as described in “Other Agreements and Other Related Party Transactions—Joint Digital Services Agreement.”

Entercom will be required to divest 14 FM radio stations in certain markets (some of which may be CBS Radio stations) in order to comply with the FCC’s local radio ownership rule. Such divestitures may be accomplished through cash sales or otherwise, and may materially impact the operating metrics and pro forma financials as presented herein. However, these divestitures will not diminish the number of markets in which Entercom will operate following consummation of the Merger.

 

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Entercom’s Liquidity and Capital Resources After the Consummation of the Transactions

As of June 30, 2017, Entercom had current assets of $107.5 million, total assets of $1,029.0, total current liabilities of $57.1 million and long-term debt, net of current portion of $447.4 million. Following the consummation of the Transactions, Entercom’s total assets and liabilities will increase significantly.

As of June 30, 2017, on a pro forma basis (as described in “Entercom and CBS Radio Unaudited Pro Forma Condensed Combined Financial Statements”), Entercom would have had current assets of $682.4 million, total assets of $4,687.3 million, total current liabilities of $245.0 million and long-term debt, net of current portion, of $1,865.7 million. Entercom expects its cash from operations to increase significantly as a result of the consummation of the Transactions and the integration of the CBS Radio Business.

Entercom believes that, within twelve to eighteen months of the consummation of the Transactions, the combination of the CBS Radio Business with Entercom’s existing business will result in annual cost savings of approximately $25 million, primarily related to the consolidation of corporate overhead costs and cost savings in local markets in which Entercom and CBS Radio overlap. Entercom expects to incur significant, one-time costs in connection with the Transactions, including financial advisory, professional services and other fees estimated at approximately $35.6 million. No assurances of the timing or amount of synergies able to be captured, or the costs necessary to achieve those synergies, can be provided.

In connection with entry into the Merger Agreement, CBS Radio entered into the Commitment Letter with the Commitment Parties, pursuant to which such Commitment Parties committed to provide, subject to customary closing conditions, up to $500 million of senior secured term loans as an additional tranche under the Radio Credit Agreement, the proceeds of which may be used by Entercom upon or following the consummation of the Merger to refinance certain existing indebtedness of Entercom, to redeem Entercom’s preferred stock, and to pay fees and expenses in connection with the Transactions. CBS Radio expects to consummate and obtain the Radio Financing substantially simultaneously with the closing of the Merger and the Contribution and to apply the proceeds thereof as described in the preceding sentence in order to, among other things, simplify Entercom’s capital structure.

Entercom Radio, LLC will use the proceeds of the Radio Financing to repay or cause to be repaid all outstanding amounts under the Entercom Credit Agreement, terminate all commitments under the Entercom Credit Agreement and obtain a release of all security interests for the Entercom Credit Agreement. In connection with the Contribution and the Radio Financing, Entercom Radio, LLC will become a guarantor under the Radio Credit Agreement and the Radio Notes Indenture, and will pledge certain of its assets to secure amounts outstanding under the Radio Credit Agreement.

Entercom anticipates that its primary sources of liquidity for working capital and operating activities, including any future acquisitions, will be cash from operations and borrowings under the Radio Credit Agreement. Entercom expects that, following the consummation of the Merger, these sources of liquidity will be sufficient to make required payments of interest on its outstanding debt and to fund working capital and capital expenditure requirements, including costs relating to the Transactions.

For more information on Entercom’s existing sources of liquidity, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Entercom’s quarterly report on Form 10-Q for the quarter ended June 30, 2017 and Entercom’s annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC and incorporated by reference in this document. See “Where You Can Find More Information; Incorporation by Reference.”

Directors and Officers of Entercom Before and After the Consummation of the Transactions

Board of Directors

The Entercom board of directors currently consists of six directors as follows:

 

    Joseph M. Field, Chairman and Director

 

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    David J. Field, Director, President and Chief Executive Officer of Entercom

 

    David J. Berkman, Director

 

    Joel Hollander, Director

 

    Mark R. LaNeve, Director

 

    David Levy, Director

Listed below is the biographical information for each person who is currently a member of the Entercom Board of Directors.

Joseph M. Field—Chairman & Director. Joseph M. Field (age 85) founded Entercom in 1968 and has served as Chairman of the Entercom Board of Directors since its inception. Mr. Field served as Entercom’s Chief Executive Officer from Entercom’s inception until 2002 and as Entercom’s President from its inception until 1998. Before entering the broadcasting business, he practiced law for 14 years in New York (including service as an Assistant United States Attorney) and Philadelphia. Mr. Field served on the board of directors of the National Association of Broadcasters for the years 1992 through 1996. Mr. Field currently serves on the boards of directors of the Broadcasters’ Foundation, Mediacast, LLC (d/b/a Specticast), the Philadelphia Orchestra Association, The Mary Louise Curtis Bok Foundation, the Settlement Music School, the National Liberty Museum and the Philadelphia Chamber Music Society. In addition, he serves on the Advisory Board of the University of Pennsylvania’s Field Center for Children’s Policy, Practice & Research. Mr. Field has a B.A. from the University of Pennsylvania, an L.L.B. from Yale Law School and a D.M. from the Curtis Institute of Music. Mr. Field is the father of David J. Field.

David J. Field—Director, President and Chief Executive Officer. David J. Field (age 55) has served as Entercom’s Chief Executive Officer since 2002, its President since 1998, and one of its directors since 1995. Mr. Field is Entercom’s Principal Executive Officer. He also served as Entercom’s Chief Operating Officer from 1996 to 2002 and Chief Financial Officer from 1992 to 1998. Mr. Field served as Vice President-Operations and Chief Financial Officer of Entercom from 1992 to 1995 and Senior Vice-President-Operations and Chief Financial Officer from 1995 to 1996. Mr. Field served as Chairman of the Radio Board of the National Association of Broadcasters from 2005 to 2007. Mr. Field also currently serves on the boards of directors of the National Constitution Center and The Wilderness Society. He has a B.A. from Amherst College and an M.B.A. from the Wharton School of the University of Pennsylvania. Mr. Field was named the 2006 Radio Executive of the Year by Radio Ink Magazine and was also recognized as one of the best CEOs in America by Institutional Investor Magazine in 2006, 2007 and 2008. Mr. Field is the son of Joseph M. Field.

David J. Berkman—Director. David J. Berkman (age 55) has served as one of Entercom’s directors since the consummation of its initial public offering in January 1999. Since January 2000, Mr. Berkman has served as the Managing Partner of Associated Partners, LP, a private equity firm primarily engaged in telecommunications infrastructure investments. He also serves on the boards of directors of Actua Corporation (formerly ICG Group, Inc.) and Franklin Square Holdings, LP. Civically, Mr. Berkman serves on the Board of Overseers of the University of Pennsylvania School of Engineering and Science. Mr. Berkman has a B.S. from the Wharton School of the University of Pennsylvania.

Joel Hollander—Director. Joel Hollander (age 61) has served as one of Entercom’s directors since November 2013. Since May 2007, Mr. Hollander has been serving as President and Chief Executive Officer of 264 Echo Place Partners, an investment advisory firm. Mr. Hollander previously served as President and Chief Executive Officer of CBS Radio from 2002 until 2007. Prior to joining CBS Radio, Mr. Hollander was Chairman and Chief Executive Officer of Westwood One, a radio program syndication company. Mr. Hollander also currently serves on the Merrill Lynch Client Advisory Board, as well as on the boards of directors of The C. J. Foundation for SIDS, the Tomorrow’s Children Fund, RiverSpring Health Center and the Hackensack Medical Center. Mr. Hollander has a B.S. in Communication and Media Studies from Indiana State University.

 

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Mark R. LaNeve—Director. Mark R. LaNeve (age 58) has served as one of Entercom’s directors since March 2014. Since January 2015, Mr. LaNeve has been serving as Vice President, U.S. Marketing, Sales and Service of the Ford Motor Company. From August 2012 through January 2014, Mr. LaNeve served as Chief Operating Officer of Global Team Ford, an agency that serves as the marketing and advertising agency for the Ford Motor Company and the Ford and Lincoln brands on a global basis. Global Team Ford is part of the WPP Group, a multinational advertising and public relations company. Mr. LaNeve was previously with Allstate Insurance Corporation where he served as Senior Executive Vice President (January 2011–February 2012) and Chief Marketing Officer (October 2009–February 2012). Prior to joining Allstate, Mr. LaNeve was Vice President of Sales, Service and Marketing at General Motors Corporation (September 2004–January 2009). Mr. LaNeve is involved with various organizations that assist people affected by autism and sits on the boards of Autism Speaks in New York City and Eton Academy for different learners in Birmingham, Michigan. He also serves on the board of Angel’s Place, a non-profit organization that provides people-centered services, including homes and professional support for adults with developmental disabilities. Mr. LaNeve has a B.A. in Marketing from the University of Virginia.

David Levy—Director. David Levy (age 54) has served as one of Entercom’s directors since May 2015. Since 2013, Mr. Levy has served as President of Turner Broadcasting System, Inc. where he oversees all creative and business activity of the Turner signature entertainment networks TBS, TNT, Turner Classic Movies, truTV, Cartoon Network, Boomerang and Adult Swim, and their digital brand extensions, as well as Turner Sports. Additionally, Mr. Levy is responsible for overseeing domestic ad sales and distribution revenue for Turner’s portfolio of networks including TNT, TBS, CNN, HLN, TCM, Cartoon Network, Adult Swim, Boomerang, truTV and CNN Airport Network. Mr. Levy had previously served as President, Sales, Distribution and Sports for Turner since 2003. Mr. Levy also currently serves on the board of Duplication Services Inc., a privately owned company. Mr. Levy has a B.S. from Syracuse University – Martin J. Whitman School of Management.

The Entercom Board of Directors has determined that each of its non-employee directors (all directors other than Joseph M. Field and David J. Field) satisfy the listing standards for independence of the NYSE and Rule 10A-3 under the Exchange Act.

In connection with the Merger, Entercom will increase the size of its board of directors by four members. In accordance with the Merger Agreement, as amended by Amendment No. 1 to the Merger Agreement, dated as of July 10, 2017 (which was further amended on September 13, 2017), immediately following the Merger, ten persons will serve on the Entercom board of directors, including all six directors from Entercom’s current board of directors (or their pre-Merger replacements) and four new directors agreed upon by CBS, two of whom are affiliated with CBS:

 

David J. Field    Director; Chairman; President & Chief Executive Officer of Entercom
Joseph M. Field    Director; Chairman Emeritus of Entercom
David J. Berkman    Director
Joel Hollander    Director
Mark R. LaNeve    Director
David Levy    Director
Leslie Moonves    Director; Chairman of the Board, President and Chief Executive Officer of CBS
Joseph R. Ianniello    Director; Chief Operating Officer of CBS
Stefan M. Selig    Director
Sean Creamer    Director

Listed below is the biographical information for the four new directors agreed upon by CBS.

Sean Creamer—Director. Sean Creamer (age 52) has been Executive Vice President, Chief Financial Officer and a member of the board of directors of Merkle Inc. since April 2016. Formerly, he was Executive Vice President and Chief Financial Officer of The Madison Square Garden Company (“MSG”) from 2014 to 2015. Prior to that, he served as President and Chief Executive Officer of Arbitron Inc. (now known as Nielsen Audio)

 

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from 2012 to 2014, its Executive Vice President and Chief Operating Officer from 2011-2012, and various other financial leadership positions at Arbitron beginning in 2005. During that time CBS Radio conducted business with Arbitron Inc., and continues to do so. During the past five years, Mr. Creamer was also a director of Arbitron.

Joseph R. Ianniello—Director; Chief Operating Officer of CBS. Joseph R. Ianniello (age 49) has served as the Chief Operating Officer of CBS since June 2013, and, prior to that, its Executive Vice President and Chief Financial Officer since August 2009. Previously, Mr. Ianniello served as Deputy Chief Financial Officer of CBS since November 2008, and prior to that, in various executive and finance positions at CBS since 2000. During the past five years, he was also a director of CBS Outdoor Americas Inc. (currently known as Outfront Media Inc.).

Leslie Moonves—Director; Chairman of the Board, President and Chief Executive Officer of CBS. Leslie Moonves (age 67) has served as Chairman of the Board of Directors of CBS since February 3, 2016, and President and Chief Executive Officer and a Director of CBS since January 2006. Previously, Mr. Moonves served as Co-President and Co-Chief Operating Officer of former Viacom Inc. since June 2004. Prior to that, he served as Chairman and Chief Executive Officer of CBS Broadcasting since 2003 and as its President and Chief Executive Officer since 1998. Mr. Moonves joined former CBS Corporation in 1995 as President, CBS Entertainment. Prior to that, Mr. Moonves was President of Warner Bros. Television since July 1993. During the past five years, he was also a director of CBS Outdoor Americas Inc. (currently known as Outfront Media Inc.) and KB Home.

Stefan M. Selig—Director. Stegan M. Selig (age 54) served as Under Secretary of Commerce for International Trade at the U.S. Department of Commerce from June 2014 to June 2016, and during this period headed the International Trade Administration, a global bureau of more than 2,200 trade and investment professionals. During this period, he also served as the Executive Director of the Travel and Tourism Advisory Board, sat on the board of directors of the Overseas Private Investment Corporation, was a Commissioner for the Congressional Executive Commission on China and was the Executive Director of the President’s Advisory Council on Doing Business in Africa. Prior to that, he held various senior level leadership positions at Bank of America Merrill Lynch beginning in 1999, including being the Executive Vice Chairman of Global Corporate & Investment Banking from 2009 to 2014, and prior to that, he was Vice Chairman of Global Investment Banking and Global Head of Mergers & Acquisitions. Prior to joining Bank of America, he held various senior investment banking positions at UBS Securities and Wasserstein Perella & Co., and began his investment banking career at The First Boston Corporation.

As a result, current members of Entercom’s board of directors, or their pre-Merger replacements, will comprise a majority of the Entercom board of directors immediately following consummation of the Merger.

In accordance with the Merger Agreement, Messrs. Moonves and Ianniello have agreed to execute and deliver an irrevocable letter of resignation from the Entercom board of directors effective upon the earlier of (a) six months after the closing of the Merger and (b) the day prior to the first annual meeting of Entercom following closing of the Merger. Following such resignations, the resulting vacancies on the Entercom board of directors will be addressed in accordance with the Entercom Bylaws, as set forth below. Entercom does not currently have any plans to fill the vacancies that will be created by the resignations of Messrs. Moonves and Ianniello. If the vacancies remain unfilled, the size of the Entercom board of directors will be reduced from ten members to eight members.

Holders of Entercom Class A Common Stock are entitled by class vote to elect two directors (with each share of Entercom Class A Common Stock entitling the holder thereof to one vote per share in such election). Holders of Entercom Class A Common Stock and Entercom Class B Common Stock, voting as a single class, have the right to vote on the election of all other directors (with each share of Entercom Class B Common Stock held by Joseph Field or David Field in his own right in person (or by proxy or pursuant to a Qualified Voting Agreement (as defined in the Entercom Articles)) entitling the holder thereof to 10 votes per share in such election and each other share of Entercom Common Stock entitling the holder thereof to one vote per share in

 

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such election). The Entercom Bylaws provide that directors may be removed only for cause and only by the affirmative vote of a majority of the shareholders entitled to vote thereon. Any vacancies on Entercom’s Board can be filled by the affirmative vote of a majority of the remaining directors then in office, even if the remaining directors are less than a quorum, or by a sole remaining director. However, a vacancy in the position of Entercom Class A Director may only be filled by the sole remaining Entercom Class A Director, and if both Entercom Class A Director positions are vacant, then only the holders of the Entercom Class A Common Stock may fill such vacancies. See “Description of Entercom Capital Stock.”

CBS has not been involved in the election of Entercom’s directors prior to the signing of the Merger Agreement, and, other than the minority of the Entercom board of directors that CBS agrees upon prior to the Closing pursuant to the Merger Agreement, CBS will not be involved in the election, nomination or appointment of any Entercom directors after the Merger. It is therefore expected that, subject to the voting rights of Entercom shareholders as set forth in Entercom’s governing documents, Entercom’s pre-Merger directors (or their replacements) and their future nominees will comprise a majority of the Entercom board of directors on an ongoing basis following the consummation of the Transactions.

The Merger Agreement provides that the initial post-Merger directors of CBS Radio (at which time CBS Radio will be a wholly owned subsidiary of Entercom) will consist of David J. Field, Richard J. Schmaeling and Andrew P. Sutor, IV. CBS did not have any formal or informal appointment, consent or approval rights with respect to the post-Merger directors of CBS Radio. CBS’s only input on the post-Merger directors of CBS Radio was suggestive and non-binding input.

Executive Officers

The Merger Agreement provides that Entercom will provide CBS with a “reasonable consultation” right in the determination of the post-Merger executive officers of Entercom. This is solely a right of CBS to discuss the executive officers of Entercom with Entercom. CBS’s involvement in the selection of the post-Merger executive officers of Entercom will be consultative only. While CBS may offer suggestive, non-binding input, CBS will not have any formal or informal appointment, consent or approval rights with respect to the composition of the executive officers of Entercom, pursuant to the Merger Agreement or otherwise. Entercom has determined, after reasonable consultation with CBS, that the executive officers of Entercom immediately following the consummation of the Merger will include David J. Field, who will continue as President & Chief Executive Officer, Richard J. Schmaeling, who will continue as Executive Vice President & Chief Financial Officer, Louise C. Kramer, who will continue as Chief Operating Officer, and Andrew P. Sutor, IV, who will continue as Senior Vice President, General Counsel & Secretary. Listed below is the biographical information for each person who is expected to be an executive officer of Entercom following the consummation of the Merger. The biographical information for David J. Field is included above under the section entitled “—Board of Directors.”

Richard J. Schmaeling—Executive Vice President and Chief Financial Officer. Richard J. Schmaeling (age 52) has served as Executive Vice President and Chief Financial Officer of Entercom since April 2017. Prior to that time, he served as Chief Financial Officer of Travel Leaders Group, LLC, the largest travel agency company in the United States since July 2016. From August 2015 through June 2016, Mr. Schmaeling was Chief Financial Officer of MediaMath, Inc., a private equity controlled advertising technology company. From January 2015 through August 2015, Mr. Schmaeling provided integration consulting to Media General, Inc., a TV and digital media company which acquired LIN Media, LLC, a local TV and digital media provider serving 23 markets and approximately 10% of U.S. households, where Mr. Schmaeling was Chief Financial Officer from 2008 through December 2014. Mr. Schmaeling is a Certified Public Accountant and has a B.S. in Accounting from Rutgers University.

Louise C. Kramer—Chief Operating Officer. Louise C. Kramer (age 61) has served as Entercom’s Chief Operating Officer since May 2015. Ms. Kramer previously served as Entercom’s Station Group President from

 

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April 2013 through May 2015, one of Entercom’s Regional Presidents from December 2007 through April 2013 and a Regional Vice President from January 2000 through December 2007. Prior to joining Entercom in 2000, Ms. Kramer served as General Manager for CBS Radio in Chicago.

Andrew P. Sutor, IV—Senior Vice President, General Counsel & Secretary. Andrew P. Sutor, IV (age 44) currently serves as Entercom’s Senior Vice President and General Counsel (since January 2013) and Secretary (since January 2014). Since July 2014, Mr. Sutor has oversight of Entercom’s Technical Operations Department. Mr. Sutor previously served as Entercom’s Vice President (since September 2010) and Corporate Counsel (since 2007). Prior to joining Entercom in 2002, Mr. Sutor was an associate in the Business Law Department of Saul Ewing, LLP, a regional Mid-Atlantic law firm based in Philadelphia, Pennsylvania. Mr. Sutor has a J.D. from the Villanova University School of Law and a B.A. in both Economics and Political Science from the University of Pennsylvania.

Additionally, the post-Merger officers of CBS Radio will consist of David J. Field as President & Chief Executive Officer, Richard J. Schmaeling as Executive Vice President & Chief Financial Officer, Louise C. Kramer as Chief Operating Officer and Andrew P. Sutor, IV as Senior Vice President, General Counsel & Secretary, each of whom is a current officer of Entercom. CBS did not have any formal or informal appointment, consent or approval rights with respect to the composition of the post-Merger officers of CBS Radio, pursuant to the Merger Agreement or otherwise.

 

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INFORMATION ON CBS RADIO

CBS Radio is a large-market focused, multi-platform national media company with a local footprint of 117 radio stations and digital properties in 26 radio markets, including all of the top 10 radio markets and 19 of the top 25 radio markets. CBS Radio focuses on three areas of content: Sports, News and Music & Entertainment. CBS Radio’s radio portfolio includes many of the leading radio stations in the United States, including the most listened-to Sports (WFAN® in New York), News (1010 WINS® in New York) and Classic Hits (WCBS-FM® in New York) radio stations. CBS Radio owns the #1- or #2-rated local Sports radio station and the #1-rated All-News radio station in each of the markets in which CBS Radio programs these formats. CBS Radio’s radio stations reached an audience of more than 65 million people per week in 2016, making CBS Radio the second largest radio group in the United States as measured both by audience and by revenue. CBS Radio also distributes its content through an integrated suite of digital properties, including market-focused local websites, Radio.com™ (a streaming service), Eventful® (an event discovery platform) and Play.it® (a podcast network), which collectively reached an average of 63.4 million internet and mobile unique users per month in 2016. In addition, CBS Radio produces events across its markets, including concerts, multi-day musical festivals, speaker series, trade shows and sports-related events. CBS Radio produced, co-produced or co-promoted over 600 such events in 2016.

CBS Radio focuses primarily on large metropolitan markets through clusters of radio stations and digital properties. CBS Radio has the #1- or #2-ranked station clusters in approximately 64% of its markets as measured by revenue, as reported by the public accounting firm Miller Kaplan Arase, LLP. As of December 2016, CBS Radio employed approximately 1,000 sales personnel dedicated to local and national radio advertising, digital advertising and events, with a local presence in all of the markets in which CBS Radio operates.

Content and Programming

CBS Radio produces and distributes compelling content for multiple media platforms, including its radio stations and owned web, mobile, streaming and podcast properties, as well as on third party platforms such as Facebook, Twitter, Instagram, TuneIn and YouTube. CBS Radio’s local on-air personalities create original programming that delivers the latest in Sports, News and Music & Entertainment tailored to specific markets and their target audiences:

 

    Sports. CBS Radio is a leading sports radio company in the United States with the two most listened-to sports radio stations in the United States (WFAN AM/FM in New York and WSCR-AM in Chicago). CBS Radio owns the #1-rated local Sports radio station in 13 of the 14 markets in which CBS Radio programs a local Sports format. For the year ended December 31, 2016, CBS Radio broadcast over 3,000 live games for over 30 professional sports franchises, including the New York Yankees, the New England Patriots, the Chicago Cubs and the Detroit Red Wings, and for over 15 collegiate sports programs, including teams from the University of Michigan, the University of Pittsburgh, the University of Connecticut, the University of Maryland and the University of Texas. CBS Radio’s sports radio stations feature popular local personalities, who deliver sports-related news, opinion and debate and facilitate audience interaction on local sports. In addition, CBS Radio owns the CBS Sports Radio Network™, which provides national sports content that is syndicated by a third party to more than 300 affiliated radio stations (including 22 of CBS Radio’s radio stations) across the United States.

 

    News. CBS Radio provides its communities with trusted, live, up-to-the-minute news, traffic and weather information. CBS Radio owns the #1-rated All-News radio station in all of the markets in which CBS Radio programs an all-news format and the #1-rated News-Talk station in six markets where CBS Radio programs the format. CBS Radio also owns seven of the top eight most listened to All-News stations in the United States. CBS Radio’s award-winning All-News radio stations include 1010 WINS in New York, KNX (AM)® in Los Angeles and WBBM (AM)® in Chicago. CBS Radio’s News-Talk stations include KDKA (AM)® in Pittsburgh, KMOX (AM)® in St. Louis and WTIC (AM)® in Hartford.

 

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    Music & Entertainment. CBS Radio provides its audience with unique music and entertainment experiences through personality-driven local programming. CBS Radio’s programming includes a wide variety of music genres, including Rock, Adult Album Alternative, Classic Hits, Adult Contemporary, Top 40, Urban, Spanish and Country, each targeting a distinct demographic group. CBS Radio has the most listened-to station in the United States in numerous formats, including Classic Hits (WCBS-FM in New York), Adult Hits (KCBS-FM® in Los Angeles), Rhythmic AC (94.7 The Wave in Los Angeles) and Adult Album Alternative (WXRT-FM® in Chicago), according to Nielsen. CBS Radio also introduces new and emerging artists to its audiences through its over-the-air and digital platforms and develops exclusive content with artists, including interviews and live performances.

Radio Stations

As of December 31, 2016, CBS Radio owns and operates 117 radio stations in the United States, including stations in all of the top 10 radio markets and 19 of the top 25 radio markets. The following table summarizes CBS Radio’s radio stations, which are grouped by market size as defined by Nielsen.

 

     Format Type  
     Sports      News/
News-Talk
     Music &
Entertainment
     Total  

Top 25 radio markets (1) (2)

     18        16        56        90  

Non-Top 25 radio markets

     4        3        20        27  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     22        19        76        117  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Market rankings based on Nielsen Audio Radio Market Survey, Fall 2016.
(2) Includes two Victor Valley, CA stations operated as part of the Riverside market: KRAK, a Sports station, and KVFG, a Music & Entertainment station.

Digital Properties

CBS Radio operates digital properties on multiple platforms, including websites, mobile apps, and social media, and through third-party distribution partners. CBS Radio streams its over-the-air radio station broadcasts and provides on-demand audio and video content and text, imagery and event information. CBS Radio’s digital properties complement its business and operations and positively impact its operating results.

 

    Music & Entertainment Station Websites. CBS Radio maintains an online presence for each of its Music & Entertainment stations, including KROQ.com in Los Angeles, B96.com in Chicago and V-103.com in Atlanta. CBS Radio distributes content that it broadcasts on its radio stations across its Music & Entertainment station websites, and CBS Radio drives traffic to these websites by using extensive and integrated on-air promotion. CBS Radio’s Music & Entertainment station websites, in turn, promote and drive traffic to CBS Radio’s radio stations.

 

    Market-Focused Local Websites. All of CBS Radio’s local Sports and News/NewsTalk radio stations (the “Sports and News Stations”) have a digital presence on 23 market-focused local websites and mobile applications that CBS Local Digital Media operates for CBS Radio’s Sports and News Stations (“CBS Local Websites”) and for CBS’s owned and operated television stations (“CBS TV Stations”), including CBSNewYork.com, CBSBoston.com and CBSSanFrancisco.com. Each of these market-focused CBS Local Websites provides extensive locally focused news, sports and traffic and weather information utilizing the text, video and audio content produced by CBS Radio’s Sports and News Stations and the CBS TV Stations, where applicable, in that market.

 

    Radio.com. CBS Radio provides streaming services through its Radio.com platform, where users can listen live to stations online, including simulcasts of CBS Radio’s over-the-air radio stations. Radio.com generates approximately 23 million listening hours per month.

 

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    Eventful. CBS Radio’s local event discovery business, Eventful, provides its 26.6 million registered users and over 8.5 million monthly unique visitors with local event information ranging from concerts to movies to restaurants. Eventful’s services can also be accessed through CBS Radio’s music radio station websites and the CBS Local Websites in all of CBS Radio’s markets. Eventful also provides ticketing services to consumers and licenses its events data to third parties.

 

    Play.it. CBS Radio’s podcast network, Play.it, offers a portfolio of over 400 different podcast titles and delivers approximately 24 million streams and downloads per month. Examples include “Engage: The Official Star Trek Podcast™” focused on Star Trek® and “Rap Radar®” focused on hip hop.

Events

CBS Radio creates, promotes and produces a diverse range of live events, ranging from concerts and multi-day music festivals to speaker series and sports-related events. CBS Radio’s events complement its business and operations and positively impact its operating results. In 2016, CBS Radio produced, co-produced or co-promoted over 600 live events. Live events offer unique, out-of-home experiences for CBS Radio’s audiences, as well as sponsorships, exhibit space and consumer engagement opportunities for CBS Radio’s advertisers. CBS Radio’s events in 2016 included:

 

    Tent-pole events with national appeal, such as “We Can Survive™” and “The Night Before™,” that pair marquee experiences with world-class performing artists.

 

    Heritage local live events, such as “B96 Summer Bash™” in Chicago and “Downtown Hoedown®” in Detroit.

 

    Events that showcase key station talent, such as “Wing Bowl®” in Philadelphia and “April Foolishness™” in Los Angeles.

Sources of Revenue

CBS Radio’s revenue is derived from Broadcasting and Digital, Events and Other sources. For the year ended December 31, 2016, CBS Radio generated approximately 79% of its revenue from local advertisers and 21% from national advertisers.

Broadcasting Revenue. CBS Radio generates Broadcasting revenue from the sale of advertising time on its radio stations to a wide range of local and national advertisers in consumer-focused industries, including automotive, entertainment, retail and financial services. Local advertising is generated primarily in a station’s individual market and national advertising is generated across multiple markets. For the year ended December 31, 2016, CBS Radio generated Broadcasting revenue of $982.3 million, representing approximately 80% of its total revenues for this period.

Digital, Events and Other Revenue. CBS Radio generates digital revenue primarily from the sale of display, audio and video advertising across its digital properties, which enables CBS Radio to further monetize the content produced by its radio stations. CBS Radio also generates digital revenue through content and data licensing, local offers, and affiliate commissions. Events revenue is generated primarily from advertising and sponsorships associated with various live events which CBS Radio produces, co-produces and co-promotes. Other revenues are generated primarily from the syndication of CBS Radio’s programming, sponsorships of programming features and naming rights of radio station assets. For the year ended December 31, 2016, CBS Radio generated Digital, Events and Other revenues of $239.3 million, representing approximately 20% of its total revenues for this period.

 

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The Radio Industry

Radio is a proven and effective mass-marketing medium given its broad reach, resilient audience, low price-point and access to audience at key buying times. In particular:

 

  1. Radio has the highest and most stable reach of any media, reaching 93% of all adults aged 18+ across the United States, according to Nielsen.

 

  2. Radio listenership has remained resilient for the past 10 years, growing from 234 million listeners in 2008 to 247 million listeners in 2016, according to Nielsen.

 

  3. Time spent listening to radio has been relatively stable since 2014, based on Nielsen Total Audience Reports for the second quarters of 2014 through 2016.

 

  4. Radio listening predominantly occurs away from home, according to Nielsen, and it remains the primary in-car medium according to “The Infinite Dial 2016,” a report by Edison Research and Triton Digital. The report indicates that 84% of adults 18 years or older who had driven or ridden in their primary vehicle in the previous month reported listening to AM/FM radio, and 54% reported that they listened to AM/FM radio either exclusively or the most in their primary vehicle over other audio sources. According to Jacobs Media’s TechSurvey 12, in a survey of consumers planning to buy a new vehicle in 2016, nearly 9 out of 10 indicated that an AM/FM radio is an important feature and that of those who spend time in a car in an average week, 93% indicated that they listen to AM/FM radio in the car on an average weekday.

 

  5. Radio offers a cost-efficient and creatively simple way for advertisers to reach a broad diverse audience. According to 2016 data from Intermedia Dimensions, based on national coverage, the cost per thousand (“CPM”) for a local spot radio 30-second advertisement during the afternoon drive period is $10.97 versus $24.40 CPM for a 30-second network prime time television spot and $14.62 CPM for a one-third page black and white advertisement in a newspaper.

 

  6. In 2016, radio delivered a high return on investment across major listener categories, with payback per dollar spent as high as $23.21, according to Nielsen.

 

  7. According to SNL Kagan’s report titled “Radio/TV Station Annual Outlook, 2016 Edition,” from 2011 through 2015, the radio industry annually generated between approximately $13.2 billion and $14.2 billion in spot revenue; between approximately $1.5 billion and $2.0 billion in off-air revenue; approximately $1.1 billion in network revenue; and between approximately $709 million and $1.0 billion in digital/internet radio advertising revenue. According to SNL Kagan, the radio industry generated approximately $13.2 billion in spot revenue, compared to approximately $2.0 billion for total off-air revenue, approximately $1.0 billion for network revenue and approximately $1.0 billion for digital/internet radio advertising revenue in 2015. SNL Kagan estimates that spot revenue will account for approximately $13.1 billion to $13.2 billion annually from 2016 through 2018 while off-air revenue will account for approximately $2.2 billion to $2.6 billion annually, network revenue will account for approximately $1.1 billion annually and digital/internet radio revenue will account for approximately $1.1 billion to $1.2 billion annually during the same period.

Business Strengths

Large Market Focus and National Footprint. CBS Radio’s radio stations and digital properties are predominantly concentrated in large metropolitan markets, which account for a significant share of local advertising revenues. According to SNL Kagan’s report titled “Radio/TV Station Annual Outlook, 2016 Edition,” the 25 top radio markets generated approximately $5.77 billion, or approximately 40%, of spot and digital/internet radio advertising revenue, which comprises over 80% of total radio revenue, in the U.S. radio industry for the year ended December 31, 2015. CBS Radio’s radio stations are in all of the top 10 radio markets, and 19 of the top 25 radio markets by revenue. CBS Radio generates approximately 87% of its revenue from these 19 markets. CBS Radio’s share of revenue in the top 25 radio markets was 25.2% in 2016, based on Miller

 

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Kaplan Arase, LLP. In 2016, CBS Radio’s average revenue per station in these top 25 markets was 2.3 times CBS Radio’s average revenue per station in non-top 25 markets. CBS Radio’s portfolio of large market stations and digital properties, such as Radio.com, Eventful.com and Play.it, provides CBS Radio with a national footprint and the ability to create compelling local and national campaigns for its advertisers across its broadcast, digital and live event offerings.

Strong Radio Station Clusters and Local Market Scale. CBS Radio owns three or more radio stations in 24 of its 26 markets. Owning multiple stations and digital properties in a market allows CBS Radio to capture a greater share of audience and advertising dollars. Station clusters allow CBS Radio to gain scale in local markets, which increases its operating efficiency and profitability. CBS Radio carefully constructs its clusters and programs its stations to appeal to distinct demographic groups to maximize their collective in-market reach. For example, in New York, CBS Radio owns seven radio stations operating out of a single facility, including the popular WFAN sports radio simulcast on two frequencies, two All-News stations and three stations with music formats.

Powerful Local Brands. CBS Radio’s radio portfolio includes many of the leading national and local radio stations in the United States, including the most listened-to Sports (WFAN in New York), News (1010 WINS in New York), Classic Hits (WCBS-FM in New York), Adult Album Alternative (WXRT in Chicago) and Adult Hits (KCBS-FM in Los Angeles) radio stations in the United States. CBS Radio also owns the #1- or #2-rated Sports radio stations and the #1-rated All-News radio stations in each of the markets in which CBS Radio programs these formats. Among its powerful local brands are the “World Famous KROQ®” in Los Angeles and the unmistakable “teletype” sound of 1010 WINS in New York, as well as “Traffic and Weather Together®” in the New York market and elsewhere, “All News All The Time®” and “You Give Us 22 Minutes. We’ll Give You the World.®” in New York.

Compelling, Exclusive Content. CBS Radio produces live radio and digital content with up-to-the-minute broadcasts of timely information such as sports, news, traffic and weather that drive listenership, loyalty and engagement from its audience. CBS Radio’s audience turns to CBS Radio for exclusive content, including news, live sports and sports talk. CBS Radio employs more than 900 on-air talent who inform and entertain their listeners and serve their local communities. For the year ended December 31, 2016, CBS Radio broadcasted more than 3,000 live games for over 30 professional sports franchises in the National Football League (“NFL”), Major League Baseball (“MLB”), the National Basketball Association (“NBA”), the National Hockey League (“NHL”) and Major League Soccer (“MLS”) and for over 15 collegiate sports programs.

Extensive Digital Platform. CBS Radio owns and operates digital properties in all 26 of its markets, each of which is integrated with CBS Radio’s in-market over-the-air radio stations, enabling its audience to consume its audio and video content across multiple platforms. CBS Radio’s digital properties expand its in-market reach, increase and broaden its audience and enhance audience engagement. CBS Radio’s extensive local digital properties allow it to better serve its audience and provide its advertisers with increasingly effective, targeted and measurable digital advertising solutions, including as part of integrated campaigns utilizing CBS Radio’s broadcast and live event platforms. Radio.com is CBS Radio’s national web destination and dedicated mobile app providing the streams for all CBS Radio stations, allowing for targeted demographic and geographic streaming audio sales opportunities. Play.it is CBS Radio’s podcast platform for both radio station shows and national talent, and is the sales brand for broad-based sponsorships of on-demand audio.

Attractive Financial Profile. CBS Radio’s business requires low levels of capital expenditures and generates significant operating cash flow. CBS Radio also benefits from its national scale and the local clustering of its radio station and digital assets, which allows CBS Radio to generate significant cash flows from incremental revenues.

Sales-Oriented Organization Led by Experienced Management Team. CBS Radio has a strong sales-oriented culture with extensive local relationships focused on growing revenue across its platform through

 

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innovative marketing campaigns for its diversified base of over 18,000 advertising clients. As of October 3, 2017, CBS Radio employed over 1,000 sales personnel dedicated to local and national advertising, digital advertising and events, with a local presence in all of the markets in which CBS Radio operates. In the year ended December 31, 2016, CBS Radio generated revenue share in excess of its audience share in every one of its 26 markets. CBS Radio is led by an experienced senior management team with strong sales and leadership capabilities and deep knowledge of the radio, digital and local media industries. CBS Radio’s President and Chief Executive Officer, Andre J. Fernandez, previously served as President of a publicly traded, diversified local media company and has a successful track record of delivering results. Further, CBS Radio benefits from highly experienced, sales-focused management teams in each of its local markets.

Operating Strategy

Continue to Develop Compelling Content. CBS Radio develops and invests in compelling local and national content, including exclusive live sports broadcasts and live sports, news, talk, music, and entertainment programming hosted by more than 900 trusted local personalities across CBS Radio’s integrated radio, digital and event offerings. CBS Radio focuses on news and sports content in particular because of the live, up-to-the-minute nature of news and its audience’s passion for local sports, which increases CBS Radio’s audience size and engagement with its radio stations and affiliated digital properties, providing attractive platforms for its advertisers. By continuing to seek, develop and invest in relevant audio, video and digital content, CBS Radio intends to build upon the longstanding and intimate relationship between CBS Radio’s local brands and on-air personalities and their audiences to sustain and increase listenership and provide effective advertising campaigns to CBS Radio’s marketing partners.

Expand Multi-Platform Distribution. CBS Radio distributes its audio and video content across its owned sites and third-party digital and mobile platforms to maximize its reach, serve its audience and enhance its offerings. CBS Radio’s audience expects the flexibility to consume content across multiple platforms wherever, whenever and however they choose and expects the increasingly integrated, intuitive and personalized experiences that CBS Radio’s digital platforms deliver. CBS Radio believes that by increasing the availability and accessibility of its content across multiple platforms, including mobile and social media, CBS Radio will expand its audience, strengthen its local brands and increase its relevance among its audience and its advertisers.

Grow Digital, Events and Other Revenues. CBS Radio is focused on growing its digital and other non-broadcasting based revenues. CBS Radio’s large market footprint of strong radio station clusters and promotional capabilities provides it with a platform to expand its brands and content into digital platforms and develop new, complementary marketing products, including live local events. CBS Radio plans to expand its event offerings. Digital platforms provide CBS Radio opportunities to monetize its audio and video content through syndication, licensing and sponsorship arrangements. CBS Radio plans to launch new local, branded news and sports products while maintaining networked scale and operating efficiencies. These non-broadcast revenue sources enhance CBS Radio’s local brands and provide additional channels for CBS Radio and CBS Radio’s advertisers to engage their audiences via immersive and novel experiences.

Drive Enhanced Revenue Management. CBS Radio focuses on advertising rate discipline to improve revenue yield on its radio and digital properties. CBS Radio has combined certain management functions to reinvigorate market and station management, increased accountability and transparency and rebuilt station marketing strategies by better aligning its programming with consumer and market demand. By carefully managing the amount of advertising inventory sold through third-party networks and selling that inventory at higher local and national spot rates, CBS Radio seeks to improve revenue yield on spot advertising. In addition, CBS Radio collects and uses audience data to inform its programming and enhance the targeting and measurement capabilities of its advertisers’ marketing campaigns. This data allows CBS Radio to demonstrate to its advertisers the effectiveness of their campaigns, and helps CBS Radio to attract and retain new advertisers for radio and digital platforms. CBS Radio uses its national radio and digital footprints to enhance its appeal to national advertisers and grow its national revenues.

 

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Enhance Radio Clusters and Digital Assets via Selective Acquisitions. CBS Radio believes that its existing scale, digital capabilities, strong balance sheet and management experience positions it well to exploit opportunities to enhance and grow its business. CBS Radio will seek acquisition opportunities that optimize the performance of its existing clusters and expand its presence into new markets. CBS Radio will consider complementary acquisitions to enhance consumer experience and engagement with its offerings and improve the effectiveness of advertising on its platforms. CBS Radio will also evaluate digital properties and capabilities that can provide CBS Radio with the opportunity to enhance its local presence as well as broaden its national footprint.

Legal Proceedings

On an ongoing basis, CBS Radio vigorously defends itself in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state and local authorities (collectively, “litigation”). Litigation may be brought against CBS Radio without merit, is inherently uncertain and always difficult to predict. However, based on CBS Radio’s understanding and evaluation of the relevant facts and circumstances, CBS Radio believes that the litigation to which it is a party is not likely to have a material adverse effect on CBS Radio’s results of operations, financial position or cash flows.

Employees

The number of persons employed by CBS Radio during 2016 was approximately 3,800. Certain of CBS Radio’s hourly workers are represented by collective bargaining agreements. These contracts expire at various times over the next several years. Management believes that its relationships with its employees and their representative organizations are good.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR CBS RADIO

(Tabular dollars in millions)

You should read the following discussion and analysis of CBS Radio’s financial condition and results of operations in conjunction with “Selected Historical Consolidated Financial Data of CBS Radio,” “Information on CBS Radio” and the historical consolidated financial statements of CBS Radio and the notes thereto included elsewhere in this document. 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 “Cautionary Statement on Forward-Looking Statements,” that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements.

CBS Radio’s historical financial statements included in this document 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 of CBS Radio and include allocations of corporate expenses from CBS. These allocations reflect significant assumptions, and the financial statements do not fully reflect what CBS Radio’s financial position, results of operations or cash flows would have been had it been a stand-alone company during the periods presented. As a result, historical financial information is not necessarily indicative of CBS Radio’s future results of operations, financial position or cash flows. See “Risk Factors—Risks Related to the Transactions—The historical and pro forma financial information that is included in this document may not be representative of the results CBS Radio would have achieved as a stand-alone public company and may not be a reliable indicator of CBS Radio’s future results.”

Set forth below is a discussion of CBS Radio’s historical operations. The effects of the Transactions are reflected in the unaudited pro forma condensed combined financial statements of Entercom and CBS Radio included elsewhere in this document.

Overview

Business Overview and Strategy

CBS Radio is a large-market focused, multi-platform national media company with a local footprint of 117 radio stations and digital properties in 26 radio markets, including all of the top 10 radio markets and 19 of the top 25 radio markets. CBS Radio focuses on three areas of content: Sports, News and Music & Entertainment. CBS Radio’s radio portfolio includes many of the leading radio stations in the United States, including the most listened-to Sports (WFAN in New York), News (1010 WINS in New York) and Classic Hits (WCBS-FM in New York) radio stations. CBS Radio owns the #1- or #2-rated local Sports radio station and the #1-rated All-News radio station in each of the markets in which it programs these formats. CBS Radio’s radio stations reached an audience of more than 65 million people per week in 2016, making it the second largest radio group in the United States as measured both by audience and by revenue. CBS Radio also distributes its content through an integrated suite of digital properties, including market-focused local websites, Radio.com (a streaming service), Eventful (an event discovery platform) and Play.it (a podcast network), which collectively reached an average of 63.4 million internet and mobile unique users per month in 2016. In addition, CBS Radio produces events across its markets, including concerts, multi-day musical festivals, speaker series, trade shows and sports-related events. CBS Radio produced, co-produced or co-promoted approximately 600 such events in 2016.

CBS Radio focuses primarily on large metropolitan markets through clusters of radio stations and digital properties. CBS Radio has the #1- or #2-ranked station clusters in approximately 64% of its markets as measured by revenue, as reported by Miller Kaplan Arase, LLP. As of December 2016, CBS Radio employed approximately 1,000 sales personnel dedicated to local and national radio advertising, digital advertising and events, with a local presence in all of the markets in which it operates.

 

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Since 2013, CBS Radio has experienced a declining trend in its traditional broadcast spot advertising revenues resulting from industry-wide challenges in local advertising, and a loss in market share primarily from increased competition in the programming formats it offers. The radio broadcasting industry is highly competitive and the radio advertising marketplace has been affected by competition from the proliferation of digital platforms. In an effort to mitigate these negative trends, over the last few years, CBS Radio has initiated several strategic changes to its business to regain market share in its traditional radio broadcast spot advertising business and reduce its cost structure. Such actions included appointing a new President as well as other members of its senior management team; realigning and enhancing its sales structure; combining certain station management functions to better align its programming with consumer and market demand; and initiating measures intended to improve its overall pricing discipline. In addition, on February 2, 2017, an agreement was reached to combine CBS Radio with Entercom in a merger, which will create a well-capitalized company with a strong balance sheet and significant free cash flow generation, and create scale-driven efficiencies and opportunities to compete more effectively with other media. CBS Radio believes that taken together, these actions will enable it to maintain and expand its operating margins and continue to generate significant levels of operating cash flow, therefore enhancing the overall value of its business. During the second quarter of 2017, CBS Radio implemented additional restructuring activities to streamline its operations and further reduce its cost structure.

CBS Radio has also taken additional steps to drive future revenue growth. These steps include implementing a recalibrated sales commission incentive structure, changing the format of certain of its stations in key markets, increasing local demand by hiring additional business development sellers, limiting the amount of CBS Radio’s inventory available to be sold by third-party resellers who have the ability to reduce CBS Radio’s advertising rates, and focusing on improving the terms of its strategic partnerships. In addition, CBS Radio continues to pursue opportunities for revenue growth beyond its broadcast advertising revenues, including from its digital platforms and non-traditional revenue sources such as events, programming sponsorships, and naming rights of radio station assets, including radio station studios and performance spaces. CBS Radio also continues to develop and invest in compelling local and national content, and enhance its existing radio clusters and digital assets. CBS Radio believes this strategy will increase its relevance among its audiences and advertisers, strengthen its local brands and provide it with additional opportunities to monetize its content. See “Information on CBS Radio—Operating Strategy.”

All references to historical financial market performance and market share included herein have been obtained from information published by the public accounting firm Miller Kaplan Arase, LLP.

Revenues

CBS Radio derives its revenues from the following revenue streams:

Broadcasting Revenue. CBS Radio generates broadcasting revenue from the sale of advertising time on its radio stations to a wide range of local and national advertisers in consumer-focused industries, including automotive, entertainment, retail and financial services. Local advertising is generated primarily in a station’s individual market and national advertising is generated across multiple markets. Political advertising reflects advertising spending by political candidates and special interest groups relating to local and national elections. Revenue is recognized in the period during which the advertising spot is broadcast and is reported net of agency commissions, which are calculated based on a stated percentage applied to gross billing revenue. CBS Radio also earns revenues from advertising spots sold across radio networks and from advertising time provided in exchange for goods and services in trade and barter transactions.

Digital, Events and Other Revenue. CBS Radio generates digital revenue primarily from the sale of display, audio and video advertising across its digital properties, which enables it to further monetize the content produced by its radio stations. Events revenue is generated primarily from advertising and sponsorships as well as ticket sales associated with various live events which CBS Radio produces, promotes, co-produces and co-

 

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promotes. Other revenues are generated primarily from the syndication of programming, sponsorships of programming features and naming rights of radio station assets. Digital advertising revenues are recognized in the period during which the advertising is displayed. Other revenues, including events, are recognized when the related service is provided and syndication revenue is recognized when the program is made available.

Expenses

Operating Expenses. CBS Radio’s operating expenses include costs relating to the production and acquisition of its radio programming, including on-air talent, acquired sports programming rights, music license fees and employee compensation costs.

Selling, General and Administrative Expenses. CBS Radio’s selling, general and administrative (“SG&A”) expenses include advertising and promotion costs, commissions, employee compensation, bad debt expense and other costs associated with administrative departments which support its operations.

Non-GAAP Measures

Adjusted OIBDA and Adjusted net income from continuing operations are measures of performance not calculated in accordance with GAAP. “Adjusted OIBDA” is defined as operating income (loss) before depreciation, stock-based compensation expense, restructuring charges and impairment charges and “Adjusted net income from continuing operations” is defined as net income (loss) from continuing operations before restructuring charges and impairment charges. Management uses Adjusted OIBDA and Adjusted net income from continuing operations to evaluate CBS Radio’s operating performance. Adjusted OIBDA and Adjusted net income from continuing operations are relevant and useful for investors because they allow investors to view performance in a manner similar to the method used by CBS Radio’s management, help improve investors’ understanding of CBS Radio’s operating performance and make it easier for investors to compare CBS Radio’s results with other companies that have different financing and capital structures or tax rates. Adjusted OIBDA is among the primary measures used by management for planning and forecasting of future periods, and it is an important indicator of operational strength and business performance. In addition, Adjusted OIBDA is among the primary measures used by investors, analysts and peers in CBS Radio’s industry for purposes of valuation and the comparison of CBS Radio’s operating performance to other companies in CBS Radio’s industry and to compare year-over-year results. As Adjusted OIBDA and Adjusted net income from continuing operations are non-GAAP financial measures, reconciliations of Adjusted OIBDA and Adjusted net income from continuing operations to net income (loss) or net income (loss) from continuing operations, as applicable, the most directly comparable GAAP financial measures, are provided when Adjusted OIBDA and Adjusted net income from continuing operations are presented.

Results of Operations

Six Months Ended June 30, 2017 versus Six Months Ended June 30, 2016

Operational Highlights

 

                 Increase/(Decrease)  
Six Months Ended June 30,    2017     2016           $                  %        

GAAP:

         

Revenues

   $ 555.6     $ 577.1     $ (21.5      (4 )% 

Operating income

   $ 90.0     $ 137.4     $ (47.4      (34 )% 

Operating income margin (a)

     16     24     

Net income

   $ 30.5     $ 82.5     $ (52.0      (63 )% 

Operating cash flow

   $ 10.9     $ 99.5     $ (88.6      (89 )% 

Non-GAAP:

         

Adjusted OIBDA (b)

   $ 116.6     $ 157.7     $ (41.1      (26 )% 

Adjusted OIBDA margin (a)

     21     27     

Adjusted net income (b)

   $ 35.1     $ 82.5     $ (47.4      (57 )% 

 

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(a) Margin is defined as operating income or Adjusted OIBDA divided by revenues.
(b) See “—Reconciliation of Non-GAAP Measures” for reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.

For the six months ended June 30, 2017, the 4% decrease in revenues was primarily driven by declines in local and national broadcasting revenues, primarily as a result of loss in market share and, to a lesser extent, lower demand in the radio marketplace. These declines were partially offset by growth from non-traditional revenue sources such as events, programming sponsorships and naming rights of station assets, as well as revenues from a new traffic network arrangement. Long-term projections of CBS Radio’s results for 2017 through 2021, as presented in “The Transactions – Certain Financial Projections Prepared by Entercom – CBS Radio Projections,” forecasted an increase in CBS Radio’s full year revenue for 2017 compared to 2016, driven by expected growth from digital, events and other revenue, which is consistent with the growth CBS Radio experienced in the first six months of 2017. The projections for 2017, however, did not anticipate the loss in market share or decline in market demand that CBS Radio experienced in the first six months of 2017. CBS Radio has taken additional steps to drive future revenue growth. These steps include implementing a recalibrated sales commission incentive structure, changing the format of certain of its stations in key markets, increasing local demand by hiring additional business development sellers, limiting the amount of CBS Radio’s inventory available to be sold by third-party resellers who have the ability to reduce CBS Radio’s advertising rates, and focusing on improving the terms of its strategic partnerships.

Operating income for the six months ended June 30, 2017 decreased 34% and Adjusted OIBDA decreased 26% as a result of lower broadcasting revenue as well as higher costs, including costs associated with the aforementioned growth initiatives.

CBS Radio generated operating cash flow of $10.9 million for the six months ended June 30, 2017 compared to $99.5 million for the six months ended June 30, 2016. This decrease was primarily driven by lower operating income, interest paid on long-term debt and higher payments for income taxes, reflecting the timing of payments.

Reconciliation of Non-GAAP Measures

The following tables present reconciliations of Adjusted OIBDA and Adjusted net income to net income, the most directly comparable financial measure in accordance with GAAP.

 

            Increase/(Decrease)  
Six Months Ended June 30,        2017              2016                  $                      %      

Net income

   $ 30.5      $ 82.5      $ (52.0      (63 )% 

Exclude:

           

Provision for income taxes

     20.4        54.9        

Interest expense

     39.1        —        

Restructuring charges

     7.5        —        

Depreciation

     12.5        13.2        

Stock-based compensation

     6.6        7.1        
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted OIBDA

   $ 116.6      $ 157.7      $ (41.1      (26 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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            Increase/(Decrease)  
Six Months Ended June 30,        2017              2016                  $                      %      

Net income

   $ 30.5      $ 82.5      $ (52.0      (63 )% 

Exclude:

           

Restructuring charges (net of tax benefit of $2.9 million)

     4.6        —        
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income

   $ 35.1      $ 82.5      $ (47.4      (57 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues

 

Revenues by Type

Six Months Ended June 30,

   2017      % of Total
Revenues
    2016      % of Total
Revenues
    Increase/(Decrease)  
                 $              %      

Broadcasting revenue

   $ 442.0        80   $ 471.3        82   $ (29.3      (6 )% 

Digital, events and other revenue

     113.6        20       105.8        18       7.8        7  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenues

   $ 555.6        100   $ 577.1        100   $ (21.5      (4 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Broadcasting Revenue

 

                   Increase/(Decrease)  
Six Months Ended June 30,    2017      2016              $                      %      

Local

   $ 306.2      $ 329.0      $ (22.8      (7 )% 

National

     90.9        103.3        (12.4      (12

Political

     2.9        5.8        (2.9      (50

Network and other

     42.0        33.2        8.8        27  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total broadcasting revenue

   $ 442.0      $ 471.3      $ (29.3      (6 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Local Advertising

For the six months ended June 30, 2017, the 7% decrease in local advertising revenue reflects decreased spending by advertisers primarily in the automotive, financial services and professional services industries. This decline reflects a loss in market share, primarily from increased competition in the programming formats offered by CBS Radio, as well as lower demand in the radio marketplace. CBS Radio’s revenue decrease on a market basis was primarily driven by the Los Angeles, New York and Chicago markets. To counteract the recent trend of declining local broadcast spot advertising, CBS Radio has taken steps to drive future revenue growth, including implementing a recalibrated sales commission incentive structure, changing the format of certain of its stations in key markets, and increasing local demand by hiring additional business development sellers. In addition, CBS Radio is pursuing opportunities for revenue growth beyond its broadcast advertising revenues, including digital offerings, events, programming sponsorships, and naming rights of station assets, including radio station studios and performance spaces.

National Advertising

For the six months ended June 30, 2017, the 12% decrease in national advertising revenue reflects decreased spending by advertisers primarily in the restaurant, telecommunications, financial services and automotive industries, which was partially offset by increased spending from advertisers in the technology and retail industries. CBS Radio’s revenue decrease on a market basis was primarily driven by the Los Angeles, Chicago, New York and San Francisco markets.

 

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Political Advertising

For the six months ended June 30, 2017, the decrease in political advertising reflects the benefit in the first six months of 2016 from political spending for the 2016 Presidential election primaries.

Network and Other

For the six months ended June 30, 2017, the 27% increase in network and other broadcasting revenue primarily reflects the impact of a new traffic network arrangement which began in the second quarter of 2017.

Digital, Events and Other Revenue

For the six months ended June 30, 2017, the 7% increase in digital, events and other revenue was primarily driven by additional live events, higher sponsorships of programming features and growth from naming rights of station assets, including radio station studios and performance spaces.

Costs and Expenses

 

     2017      % of Total
Revenues
    2016      % of Total
Revenues
    Increase/
(Decrease)
 
Six Months Ended June 30,                  $             %      

Operating

   $ 193.9        35   $ 189.0        33   $ 4.9       3

Selling, general and administrative

     251.7        45     237.5        41       14.2       6

Depreciation

     12.5        2     13.2        2       (.7     (5 )% 

Restructuring charges

     7.5     

 

 

 

n/m

 

 

    —        —         7.5       n/m  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

   $ 465.6     

 

 

 

n/m

 

 

  $ 439.7        76   $ 25.9       6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

n/m—not meaningful

Operating Expenses

For the six months ended June 30, 2017, the 3% increase in operating expenses was mainly driven by higher music license fees and increased costs for sports rights agreements.

Selling, General and Administrative Expenses

For the six months ended June 30, 2017, the 6% increase in SG&A expenses was driven by increased sales promotion costs resulting from additional live events and digital sales of third-party content, as well as higher commissions associated with a sales incentive program initiated in the first quarter of 2017. The increase also reflects higher employee compensation costs, including the addition of positions in preparation for CBS Radio’s previous plans to operate as a stand-alone public company. CBS Radio expects that certain of these additional compensation costs will not continue as a result of its planned merger with Entercom.

Depreciation

For the six months ended June 30, 2017, the 5% decrease in depreciation expense was the result of lower capital expenditure levels in recent years.

Restructuring Charges

During the six months ended June 30, 2017, CBS Radio implemented restructuring activities in an effort to streamline its operations, create efficiencies and reduce its cost structure. As a result, CBS Radio recorded

 

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restructuring charges of $7.5 million, reflecting $5.8 million of severance costs and $1.7 million of costs associated with exiting contractual obligations. The restructuring activities are expected to reduce CBS Radio’s annual cost structure by approximately $15 million.

Interest Expense

Interest expense was $39.1 million for the six months ended June 30, 2017. At June 30, 2017, CBS Radio had long-term debt outstanding of $1.37 billion at a weighted average interest rate of 5.5%. (see “Capital Structure”). CBS Radio had no long-term debt outstanding at June 30, 2016.

Provision for Income Taxes

 

Six Months Ended June 30,    2017     2016     Increase/(Decrease)  
           $              %      

Tax provision

   $ 20.4     $ 54.9     $ (34.5      (63 )% 

Income before income taxes

   $ 50.9     $ 137.4     $ (86.5      (63 )% 

Effective tax rate

     40.1     40.0     

The provision for income taxes represents federal, and state and local taxes on income before income taxes. CBS Radio’s income tax accounts are calculated on a separate tax return basis, even though its 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 CBS Radio’s tax provision, taxes paid and related tax accounts in the consolidated financial statements may differ from those made by CBS and, in addition, are not necessarily reflective of the tax strategies that CBS Radio would have followed as a separate stand-alone company.

Cash Flows

CBS Radio historically participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash CBS Radio 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 CBS Radio generated and CBS also provided CBS Radio with sufficient daily liquidity to fund its ongoing cash needs. As a result, CBS Radio has historically required minimal cash on hand. On October 17, 2016, at the time of CBS Radio’s debt borrowings, CBS Radio’s participation in CBS’s centralized cash management system ceased and as a result, transactions with CBS subsequent to October 17, 2016 are settled in cash. Changes in cash were as follows:

 

Six Months Ended June 30,    2017      2016      Increase /
(Decrease)
 

Net cash flow provided by operating activities

   $ 10.9      $ 99.5      $ (88.6

Net cash flow used for investing activities

     (11.6      (2.0      (9.6

Net cash flow used for financing activities

     (15.0      (94.8      79.8  
  

 

 

    

 

 

    

 

 

 

Net (decrease) increase in cash

   $ (15.7    $ 2.7      $ (18.4
  

 

 

    

 

 

    

 

 

 

Operating Activities. For the six months ended June 30, 2017, the decrease in cash provided by operating activities was primarily driven by lower operating income, interest paid on long-term debt and higher payments for income taxes, reflecting the timing of payments.

Cash paid for income taxes increased $7.3 million to $55.5 million for the six months ended June 30, 2017 from $48.2 million for the six months ended June 30, 2016. This increase reflects the timing of payments, as the fourth quarter of 2016 tax payment was made during the first quarter of 2017.

 

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Investing Activities

 

Six Months Ended June 30,    2017      2016  

Capital expenditures

   $ (11.6    $ (10.0

Proceeds from dispositions (a)

     —        8.0  
  

 

 

    

 

 

 

Net cash flow used for investing activities

   $ (11.6    $ (2.0
  

 

 

    

 

 

 

 

(a) The six months ended June 30, 2016 reflects the sale of KFWB (AM) in Los Angeles.

Financing Activities

 

Six Months Ended June 30,    2017      2016  

Proceeds from debt borrowings

   $ 24.5      $ —  

Repayment of debt borrowings

     (5.3      —  

Other financing activities

     (1.9      —  

Net cash distribution to CBS

     (32.3      (94.8
  

 

 

    

 

 

 

Net cash flow used for financing activities

   $ (15.0    $ (94.8
  

 

 

    

 

 

 

Results of Operations—2016 versus 2015

Operational Highlights 2016 versus 2015

 

                 Increase/(Decrease)  
Year Ended December 31,    2016     2015           $                  %        

Revenues

   $ 1,221.6     $ 1,230.6     $ (9.0      (1 )% 

Operating loss

   $ (561.0   $ (240.3   $ (320.7      n/m  

Net loss from continuing operations

   $ (552.4   $ (136.5   $ (415.9      n/m  

Operating cash flow from continuing operations

   $ 282.5     $ 212.8     $ 69.7        33

Non-GAAP Measures:

         

Adjusted OIBDA (a)

   $ 338.7     $ 321.8     $ 16.9        5

Adjusted OIBDA margin (b)

     28     26     

Adjusted net income from continuing operations (a)

   $ 175.8     $ 178.1     $ (2.3      (1 )% 

 

n/m—not meaningful

 

(a) See “—Reconciliation of Non-GAAP Measures” for reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.
(b) Adjusted OIBDA margin is defined as Adjusted OIBDA divided by revenues.

For the year ended December 31, 2016, the 1% decrease in revenues was primarily driven by a decline in local broadcasting revenue, which was partially offset by higher political advertising sales and growth from non-traditional revenue sources such as events, programming sponsorships, and naming rights of radio station assets.

CBS Radio reported an operating loss of $561.0 million for the year ended December 31, 2016 versus an operating loss of $240.3 million for the year ended December 31, 2015. Included in the operating losses were impairment charges of $852.8 million and $482.9 million for the years ended December 31, 2016 and 2015, respectively, and restructuring charges of $8.6 million and $36.5 million for the years ended December 31, 2016 and 2015, respectively. Adjusted OIBDA, which excludes these impairment and restructuring charges, increased 5%, with the Adjusted OIBDA margin expanding 2 percentage points to 28%, demonstrating improvement in profitability resulting from the strategic changes and restructuring activities implemented during 2015.

 

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CBS Radio converts a significant amount of its revenues and earnings to operating cash flow. CBS Radio generated operating cash flow from continuing operations of $282.5 million for the year ended December 31, 2016 compared to $212.8 million for the year ended December 31, 2015. This increase was primarily due to the higher Adjusted OIBDA, improved collection efforts, the collection of $13.3 million in 2016 relating to a past due receivable account, and the timing of payments.

Reconciliation of Non-GAAP Measures

The following tables present a reconciliation of Adjusted OIBDA and Adjusted net income from continuing operations to net loss from continuing operations, the most directly comparable financial measure in accordance with GAAP.

 

                   Increase/(Decrease)  
Year Ended December 31,    2016      2015            $                  %        

Net loss from continuing operations

   $ (552.4    $ (136.5    $ (415.9      n/m  

Exclude:

           

Benefit for income taxes

     (25.4      (103.8      

Interest expense

     16.8        —          

Impairment charges

     852.8        482.9        

Restructuring charges

     8.6        36.5        

Depreciation

     26.1        28.5        

Stock-based compensation (a)

     12.2        14.2        
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted OIBDA

   $ 338.7      $ 321.8      $ 16.9        5
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

n/m—not meaningful

 

(a) For the year ended December 31, 2015, stock-based compensation of $2.9 million was reflected in restructuring charges.

 

                   Increase/(Decrease)  
Year Ended December 31,    2016      2015            $                  %        

Net loss from continuing operations

   $ (552.4    $ (136.5    $ (415.9      n/m  

Exclude:

           

Impairment charges (net of tax benefit of $129.8 million in 2016 and $190.4 million in 2015)

     723.0        292.5        

Restructuring charges (net of tax benefit of $3.4 million in 2016 and $14.4 million in 2015)

     5.2        22.1        
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income from continuing operations

   $ 175.8      $ 178.1      $ (2.3      (1 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

n/m—not meaningful

Revenues

 

Revenues by Type

Year Ended December 31,

   2016      % of Total
Revenues
    2015      % of Total
Revenues
    Increase/(Decrease)  
                   $                 %        

Broadcasting revenue

   $ 982.3        80   $ 1,001.1        81   $ (18.8     (2 )% 

Digital, events and other revenue

     239.3        20       229.5        19       9.8       4  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

   $ 1,221.6        100   $ 1,230.6        100   $ (9.0     (1 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Broadcasting Revenue

 

                                 Increase/(Decrease)  
Year Ended December 31,                  2016      2015            $                  %        

Local

         $ 670.7      $ 707.4      $ (36.7      (5 )% 

National

           221.0        217.9        3.1        1  

Political

           19.4        4.1        15.3        n/m  

Network and other

           71.2        71.7        (.5      (1
        

 

 

    

 

 

    

 

 

    

 

 

 

Total broadcasting revenue

         $ 982.3      $ 1,001.1      $ (18.8      (2 )% 
        

 

 

    

 

 

    

 

 

    

 

 

 

 

n/m—not meaningful

Local Advertising

For the year ended December 31, 2016, the 5% decrease in local advertising revenue reflects decreased spending by advertisers primarily in the entertainment, financial services and healthcare industries, which was partially offset by increased spending from advertisers in the professional services industry. This decline reflects a loss in market share, primarily from increased competition in the programming formats offered by CBS Radio, as well as lower demand in the radio marketplace. CBS Radio’s revenue decrease on a market basis was primarily driven by the New York and Detroit markets, partially offset by growth in the Dallas market.

National Advertising

For the year ended December 31, 2016, the 1% increase in national advertising revenue reflects increased spending by advertisers primarily in the restaurant, retail and professional services industries, which was partially offset by decreased spending from advertisers in the entertainment and automotive industries. This increase reflects a gain in market share, as CBS Radio outperformed the industry during 2016 in most of the markets where it operates. CBS Radio’s revenue increase on a market basis was primarily driven by the New York, Dallas and San Francisco markets.

Political Advertising

For the year ended December 31, 2016, the increase in political advertising was driven by higher political spending for the 2016 Presidential election as well as U.S. federal and state elections.

Digital, Events and Other Revenue

For the year ended December 31, 2016, the 4% increase in digital, events and other revenue was primarily driven by growth from naming rights of station assets, including radio station studios and performance spaces, sponsorships of programming features and additional live events, partially offset by lower syndication of CBS Radio’s programming.

 

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Costs and Expenses

 

     2016      % of
Revenues
    2015      % of
Revenues
    Increase/(Decrease)  
Year Ended December 31,                    $                 %        

Operating

   $ 397.7        33   $ 421.6        34   $ (23.9     (6 )% 

Selling, general and administrative

     497.4        41     501.4        41     (4.0     (1 )% 

Depreciation

     26.1        2     28.5        2     (2.4     (8 )% 

Restructuring charges

     8.6        n/m       36.5        n/m       (27.9     n/m  

Impairment charges

     852.8        n/m       482.9        n/m       369.9       n/m  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

   $ 1,782.6        n/m     $ 1,470.9        n/m     $ 311.7       21
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

n/m—not meaningful

Operating Expenses

For the year ended December 31, 2016, the 6% decrease in operating expenses was principally driven by lower employee compensation and talent costs resulting from restructuring activities in connection with the strategic changes implemented during 2015. The decrease also reflects lower programming costs and lower music license fees resulting from the decline in revenues.

Selling, General and Administrative Expenses

For the year ended December 31, 2016, the 1% decrease in SG&A expenses was principally driven by lower employee compensation costs resulting from the restructuring activities in connection with the strategic changes implemented during 2015. The decrease also reflects the impact of a favorable contract renegotiation. These decreases were partially offset by higher sales promotion costs mainly as a result of additional live events in 2016.

Depreciation

For the year ended December 31, 2016, the 8% decrease in depreciation expense was the result of lower capital expenditure levels in recent years.

Restructuring Charges

During the year ended December 31, 2016, CBS Radio implemented restructuring activities in an effort to streamline its operations, create efficiencies and reduce its cost structure. As a result, CBS Radio recorded restructuring charges of $8.6 million, reflecting $5.2 million of severance costs and $3.4 million of costs associated with exiting contractual obligations. The restructuring activities are expected to reduce CBS Radio’s annual cost structure by approximately $9 million.

During the year ended December 31, 2015, CBS Radio implemented restructuring activities, which included appointing a new President as well as other members of senior management, realigning the structure of its sales team, and combining certain station management functions. As a result, CBS Radio recorded restructuring charges of $36.5 million in 2015, reflecting $24.7 million of severance costs and $11.8 million of costs associated with exiting contractual obligations.

Impairment Charges

During 2016, CBS Radio recorded pretax noncash impairment charges of $852.8 million to reduce the carrying value of goodwill by $530.1 million and FCC licenses in 23 radio markets by $322.7 million to their fair value (see “Critical Accounting Policies”).

 

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During 2015, CBS Radio recorded a pretax noncash impairment charge of $482.9 million to reduce the carrying value of FCC licenses in 18 radio markets to their fair value.

Benefit for Income Taxes

 

                  Increase/(Decrease)  
Year Ended December 31,    2016      2015           $                  %        

Benefit for income taxes

   $ 25.4      $ 103.8     $ (78.4      n/m  

Loss from continuing operations before income taxes

   $ (577.8    $ (240.3   $ (337.5      n/m  

Effective tax rate

     n/m        43     

 

n/m—not meaningful

The benefit for income taxes represents federal, and state and local taxes on loss from continuing operations before income taxes. CBS Radio’s income tax accounts are calculated on a separate tax return basis, even though its 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 CBS Radio’s tax provision, taxes paid and related tax accounts in the consolidated financial statements may differ from those made by CBS and, in addition, are not necessarily reflective of the tax strategies that CBS Radio would have followed as a separate stand-alone company. The income tax benefit for the year ended December 31, 2016 included a tax benefit of $129.8 million associated with a noncash impairment charge of $852.8 million to reduce the carrying value of goodwill and FCC licenses to their fair value. The income tax benefit for the year ended December 31, 2015 included a tax benefit of $190.4 million associated with a noncash impairment charge of $482.9 million to reduce the carrying value of FCC licenses to their fair value.

Interest Expense

In October 2016, CBS Radio incurred $1.46 billion of indebtedness through a $1.06 billion term loan and the issuance of $400 million of senior secured notes. In addition, during the fourth quarter of 2016, CBS Radio borrowed amounts under its revolving credit facility. These borrowings resulted in interest expense of $16.8 million for the year ended December 31, 2016. The weighted average interest rate on CBS Radio’s long-term debt was 5.3% as of December 31, 2016.

 

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Cash Flows

CBS Radio historically participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash CBS Radio 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 CBS Radio generated and CBS also provided CBS Radio with sufficient daily liquidity to fund its ongoing cash needs. As a result, CBS Radio has historically required minimal cash on hand. On October 17, 2016, at the time of CBS Radio’s debt borrowings, CBS Radio’s participation in CBS’s centralized cash management system ceased and as a result, transactions with CBS subsequent to October 17, 2016 are settled in cash. The changes in cash for the years ended December 31, 2016 and 2015 were as follows:

 

Year Ended December 31,    2016      2015      Increase/
(Decrease)
 

Net cash flow provided by operating activities from:

        

Continuing operations

   $ 282.5      $ 212.8      $ 69.7  

Discontinued operations

     —          7.6        (7.6
  

 

 

    

 

 

    

 

 

 

Net cash flow provided by operating activities

     282.5        220.4        62.1  
  

 

 

    

 

 

    

 

 

 

Net cash flow used for investing activities from:

        

Continuing operations

     (5.2      (21.4      16.2  

Discontinued operations

     —          (.2      .2  
  

 

 

    

 

 

    

 

 

 

Net cash flow used for investing activities

     (5.2      (21.6      16.4  
  

 

 

    

 

 

    

 

 

 

Net cash flow used for financing activities

     (258.8      (199.0      (59.8
  

 

 

    

 

 

    

 

 

 

Net increase (decrease) in cash

   $ 18.5      $ (.2    $ 18.7  
  

 

 

    

 

 

    

 

 

 

Operating Activities. For the year ended December 31, 2016, the increase in cash provided by operating activities from continuing operations was driven primarily by higher Adjusted OIBDA, improved collection efforts, the collection of $13.3 million in 2016 relating to a past due receivable account, and the timing of payments.

Investing Activities

 

Year Ended December 31,    2016      2015  

Capital expenditures

   $ (17.0    $ (21.5

Acquisitions

     —          (2.5

Proceeds from dispositions (a)

     8.0        2.6  

Proceeds from sale of investment (b)

     3.8        —    
  

 

 

    

 

 

 

Net cash flow used for investing activities from continuing operations

     (5.2      (21.4

Net cash flow used for investing activities from discontinued operations

     —          (.2
  

 

 

    

 

 

 

Net cash flow used for investing activities

   $ (5.2    $ (21.6
  

 

 

    

 

 

 

 

(a) The year ended December 31, 2016 reflects the sale of KFWB (AM)® in Los Angeles.
(b) Reflects the sale of CBS Radio’s investment in Spanish Broadcasting System, Inc.

Financing Activities

 

Year Ended December 31,    2016      2015  

Proceeds from debt borrowings

   $ 1,451.9      $ —    

Distribution of net debt proceeds to CBS

     (1,425.9      —    

Repayment of debt borrowings

     (110.0      —    

Net cash distribution to CBS

     (174.8      (199.0
  

 

 

    

 

 

 

Net cash flow used for financing activities

   $ (258.8    $ (199.0
  

 

 

    

 

 

 

 

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In October 2016, CBS Radio incurred indebtedness of $1.46 billion, resulting in net proceeds of approximately $1.432 billion after deducting bank fees, discounts and commissions, and other expenses payable by CBS Radio incurred in connection therewith. CBS Radio distributed to CBS approximately $1.426 billion, which is an amount equal to the net proceeds of the debt borrowings, prior to deducting expenses payable by CBS Radio, less $10 million which remained with CBS Radio to use for general corporate purposes and ongoing cash needs. In December 2016, CBS Radio also borrowed $20 million under the Radio Revolving Credit Facility (as defined below). During the fourth quarter of 2016, CBS Radio prepaid $100 million of the Radio Term Loan (as defined below) and repaid $10 million of the borrowings under the Radio Revolving Credit Facility.

Results of Operations—2015 versus 2014

Operational Highlights 2015 versus 2014

 

                 Increase/(Decrease)  
Year Ended December 31,    2015     2014           $                  %        

Revenues

   $ 1,230.6     $ 1,303.0     $ (72.4      (6 )% 

Operating income (loss)

   $ (240.3   $ 299.3     $ (539.6      n/m  

Operating income margin (a)

     n/m       23     

Net income (loss) from continuing operations

   $ (136.5   $ 176.5     $ (313.0      n/m  

Operating cash flow from continuing operations

   $ 212.8     $ 276.9     $ (64.1      (23 )% 

Non-GAAP Measures:

         

Adjusted OIBDA (b)

   $ 321.8     $ 402.3     $ (80.5      (20 )% 

Adjusted OIBDA margin (a)

     26     31     

Adjusted net income from continuing operations (b)

   $ 178.1     $ 210.0     $ (31.9      (15 )% 

 

n/m-not meaningful

 

(a) Margin is defined as operating income or Adjusted OIBDA divided by revenues.
(b) See “—Reconciliation of Non-GAAP Measures” for reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.

2015 represented a transitional year for CBS Radio. During this period CBS Radio’s sales performance was below the overall radio market. CBS Radio initiated several strategic changes to its business in an effort to streamline operations, create efficiencies, reduce its cost structure, and improve its overall pricing discipline. Such actions included appointing a new President, as well as other members of senior management, realigning the structure of its sales team and combining certain station management functions. These actions were implemented with the ultimate goal of improving long-term profitability and enhancing the overall value of its business. In an effort to regain market share in its traditional radio broadcast advertising business, CBS Radio is focusing on enhancing its sales team and better aligning its programming with consumer and market demand. The 6% decrease in revenues for the year ended December 31, 2015 also reflects lower political advertising, as 2014 benefited from midterm elections, and the impact of owning fewer radio stations in 2015, as a result of a radio station swap in December 2014.

CBS Radio reported an operating loss of $240.3 million for the year ended December 31, 2015 versus operating income of $299.3 million for the year ended December 31, 2014. Included in operating income (loss) were impairment charges of $482.9 million for the year ended December 31, 2015 and $48.6 million for the year ended December 31, 2014 and restructuring charges of $36.5 million for the year ended December 31, 2015 and $7.0 million for the year ended December 31, 2014. Adjusted OIBDA, which excludes these impairment and restructuring charges, declined 20%, primarily as a result of the decline in revenues.

CBS Radio converts a significant amount of its revenues and earnings to operating cash flow. CBS Radio generated operating cash flow from continuing operations of $212.8 million for the year ended December 31,

 

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2015 and $276.9 million for the year ended December 31, 2014. This decrease was primarily due to the decline in revenues.

Reconciliation of Non-GAAP Measures

The following tables present a reconciliation of Adjusted OIBDA and Adjusted net income from continuing operations to net income (loss) from continuing operations, the most directly comparable financial measure in accordance with GAAP.

 

     2015      2014      Increase/(Decrease)  
Year Ended December 31,                $                  %        

Net income (loss) from continuing operations

   $ (136.5    $ 176.5      $ (313.0      n/m  

Exclude:

           

(Benefit) provision for income taxes

     (103.8      122.8        

Impairment charges

     482.9        48.6        

Restructuring charges

     36.5        7.0        

Depreciation

     28.5        30.8        

Stock-based compensation (a)

     14.2        16.6        
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted OIBDA

   $ 321.8      $ 402.3      $ (80.5      (20 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

n/m-not meaningful

 

(a) For the year ended December 31, 2015, stock-based compensation of $2.9 million was reflected in restructuring charges.

 

                   Increase/(Decrease)  
Year Ended December 31,    2015      2014            $                  %        

Net income (loss) from continuing operations

   $ (136.5    $ 176.5      $ (313.0      n/m  

Exclude:

           

Impairment charges (net of tax benefit of $190.4 million in 2015 and $19.3 million in 2014)

     292.5        29.3        

Restructuring charges (net of tax benefit of $14.4 million in 2015 and $2.8 million in 2014)

     22.1        4.2        
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income from continuing operations

   $ 178.1      $ 210.0      $ (31.9      (15 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

n/m-not meaningful

Revenues

 

Revenues by Type

Year Ended December 31,

   2015      % of Total
Revenues
    2014      % of Total
Revenues
   

Increase/(Decrease)

 
             $     %  

Broadcasting revenue

   $ 1,001.1        81   $ 1,077.8        83   $ (76.7     (7 )% 

Digital, events and other revenue

     229.5        19       225.2        17       4.3       2  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

   $ 1,230.6        100   $ 1,303.0        100   $ (72.4     (6 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Broadcasting Revenue

 

                   Increase/(Decrease)  
Year Ended December 31,    2015      2014            $                  %        

Local

   $ 683.5      $ 712.7      $ (29.2      (4 )% 

National

     208.2        224.8        (16.6      (7

Political

     4.1        16.3        (12.2      (75

Network and other

     69.8        74.6        (4.8      (6

Advertising from noncomparable radio stations

     35.5        49.4        (13.9      (28
  

 

 

    

 

 

    

 

 

    

 

 

 

Total broadcasting revenue

   $ 1,001.1      $ 1,077.8      $ (76.7      (7 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Local Advertising

For the year ended December 31, 2015, the 4% decrease in local advertising revenue reflects lower spending from advertisers primarily in the entertainment, automotive and retail industries, while spending increased from the healthcare industry. This decline reflects a loss in market share, primarily from increased competition in the programming formats offered by CBS Radio, as well as lower demand in the radio marketplace. On a market basis, the revenue decrease was primarily driven by the New York, Los Angeles and Chicago markets, partially offset by revenue growth associated with new sports rights agreements for the Baltimore Orioles and Atlanta Falcons as well as improved ratings in the Boston market.

National Advertising

For the year ended December 31, 2015, national advertising revenue declined 7%. In connection with initiatives implemented by its new management, beginning in the second quarter of 2015 CBS Radio stopped entering into those national advertising sales contracts that resulted in significant discounts and which in management’s view did not preserve the long-term value of CBS Radio’s advertising spot pricing. This change resulted in 4 percentage points of the decline in national advertising revenues in 2015. Going forward, these contracts are not expected to have a material impact on CBS Radio’s national advertising revenue comparisons. CBS Radio believes that this and other measures intended to improve overall pricing discipline will benefit its operating margin over the longer term.

Political Advertising

The decline in political advertising revenue was driven by the benefit in 2014 from midterm elections.

Network and Other Advertising

For the year ended December 31, 2015, the 6% decrease in network and other advertising revenue was principally driven by lower sales from the CBS Sports Radio Network and a decrease in noncash barter advertising.

Advertising from Noncomparable Radio Stations

In December 2014, CBS Radio completed a radio station swap with Beasley Broadcast Group, Inc. through which CBS Radio exchanged 13 of its radio stations in Tampa and Charlotte and one radio station in Philadelphia, for two radio stations in Philadelphia and three radio stations in Miami. The swap resulted in lower revenues for the year ended December 31, 2015. Advertising from noncomparable radio stations of $35.5 million and $49.4 million for the years ended December 31, 2015 and 2014, respectively, reflect broadcasting revenues from the stations exchanged in the swap.

Digital, Events and Other Revenue

For the year ended December 31, 2015, the 2% increase in digital, events and other revenue was primarily driven by growth from live events and the syndication of CBS Radio’s sports programming. These increases

 

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were partially offset by the impact from owning fewer radio stations in 2015 as a result of the aforementioned radio station swap.

Costs and Expenses

 

     2015      % of
Revenues
    2014      % of
Revenues
   

Increase/(Decrease)

 
Year Ended December 31,              $     %  

Operating

   $ 421.6        34   $ 408.1        31   $ 13.5       3

Selling, general and administrative

     501.4        41     509.2        39     (7.8     (2 )% 

Depreciation

     28.5        2     30.8        2     (2.3     (7 )% 

Restructuring charges

     36.5        n/m       7.0        n/m       29.5       n/m  

Impairment charges

     482.9        n/m       48.6        n/m       434.3       n/m  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

   $ 1,470.9        n/m     $ 1,003.7        n/m     $ 467.2       47
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

n/m—not meaningful

Operating Expenses

For the year ended December 31, 2015, the 3% increase in operating expenses was principally driven by costs for new sports rights agreements, including the Chicago Cubs, Baltimore Orioles and Atlanta Falcons.

Selling, General and Administrative Expenses

For the year ended December 31, 2015, the 2% decrease in SG&A expenses was principally driven by lower employee compensation costs resulting from restructuring activities in connection with the strategic changes implemented during 2015 as well as the impact of owning fewer radio stations in 2015.

Depreciation

For the year ended December 31, 2015, the 7% decrease in depreciation expense was the result of lower capital expenditure levels.

Restructuring Charges

During the year ended December 31, 2015, CBS Radio implemented restructuring activities in an effort to streamline operations, create efficiencies and reduce its cost structure. Such actions included appointing a new President as well as other members of senior management, realigning the structure of its sales team, and combining certain station management functions. As a result, CBS Radio recorded restructuring charges of $36.5 million, reflecting $24.7 million of severance costs and $11.8 million of costs associated with exiting contractual obligations. These restructuring activities are expected to reduce CBS Radio’s annual cost structure by approximately $50 million.

During the year ended December 31, 2014, CBS Radio recorded restructuring charges of $7.0 million, reflecting $5.9 million of severance costs and $1.1 million of costs associated with exiting contractual obligations.

Impairment Charges

During 2015, CBS Radio recorded a pretax noncash impairment charge of $482.9 million to reduce the carrying value of FCC licenses in 18 radio markets to their fair value.

In December 2014, CBS Radio completed a radio station swap with Beasley Broadcast Group, Inc. through which CBS Radio exchanged 13 of its radio stations in Tampa and Charlotte and one radio station in

 

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Philadelphia, for two radio stations in Philadelphia and three radio stations in Miami. In connection with the radio station swap, CBS Radio recorded a pretax noncash impairment charge of $48.6 million to reduce the carrying value of the allocated goodwill.

Benefit (Provision) for Income Taxes

 

                Increase/(Decrease)  
Year Ended December 31,   2015     2014           $                  %        

Benefit (provision) for income taxes

  $ 103.8     $ (122.8   $ 226.6        n/m  

Income (loss) from continuing operations before income taxes

  $ (240.3   $ 299.3     $ (539.6      n/m  

Effective tax rate

    43     41     

 

n/m—not meaningful

The benefit (provision) for income taxes represents federal, and state and local taxes on income (loss) from continuing operations before income taxes. CBS Radio’s income tax accounts are calculated on a separate tax return basis, even though its 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 CBS Radio’s tax provision, taxes paid and related tax accounts in the consolidated financial statements may differ from those made by CBS and, in addition, are not necessarily reflective of the tax strategies that CBS Radio would have followed as a separate stand-alone company. CBS Radio’s income tax benefit for the year ended December 31, 2015 included a tax benefit of $190.4 million associated with a noncash impairment charge of $482.9 million to reduce the carrying value of FCC licenses to their fair value.

Cash Flows

CBS Radio historically participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash CBS Radio 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 CBS Radio generated and CBS also provided CBS Radio with sufficient daily liquidity to fund its ongoing cash needs. As a result, CBS Radio has historically required minimal cash on hand. On October 17, 2016, at the time of CBS Radio’s debt borrowings, CBS Radio’s participation in CBS’s centralized cash management system ceased and as a result, transactions with CBS subsequent to October 17, 2016 are settled in cash. The changes in cash for 2015 and 2014 were as follows:

 

Year Ended December 31,    2015      2014      Increase/
(Decrease)
 

Net cash flow provided by operating activities from:

        

Continuing operations

   $ 212.8      $ 276.9      $ (64.1

Discontinued operations

     7.6        4.2        3.4  
  

 

 

    

 

 

    

 

 

 

Net cash flow provided by operating activities

     220.4        281.1        (60.7
  

 

 

    

 

 

    

 

 

 

Net cash flow used for investing activities from:

        

Continuing operations

     (21.4      (49.0      27.6  

Discontinued operations

     (.2      (.3      .1  
  

 

 

    

 

 

    

 

 

 

Net cash flow used for investing activities

     (21.6      (49.3      27.7  
  

 

 

    

 

 

    

 

 

 

Net cash flow used for financing activities

     (199.0      (230.0      31.0  
  

 

 

    

 

 

    

 

 

 

Net (decrease) increase in cash

   $ (.2    $ 1.8      $ (2.0
  

 

 

    

 

 

    

 

 

 

Operating Activities. For the year ended December 31, 2015, the decrease in cash provided by operating activities from continuing operations was principally driven by the decrease in revenues and higher payments for

 

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restructuring activities. These decreases were partially offset by lower assumed payments for income taxes, which decreased $35.1 million to $74.0 million for the year ended December 31, 2015 from $109.1 million for the year ended December 31, 2014, as a result of the decline in pre-tax income.

Investing Activities

 

Year Ended December 31,    2015      2014  

Capital expenditures

   $ (21.5    $ (26.7

Acquisitions (a)

     (2.5      (25.4

Proceeds from dispositions

     2.6        3.1  
  

 

 

    

 

 

 

Net cash flow used for investing activities from continuing operations

     (21.4      (49.0

Net cash flow used for investing activities from discontinued operations

     (.2      (.3
  

 

 

    

 

 

 

Net cash flow used for investing activities

   $ (21.6    $ (49.3
  

 

 

    

 

 

 

 

(a) 2014 reflects the acquisition of Eventful, Inc., a leading digital media company in the events discovery, communication and personalization business.

Financing Activities. For the years ended December 31, 2015 and December 31, 2014, cash used for financing activities reflects net cash distributions to CBS.

Capital Structure

The following table sets forth CBS Radio’s long-term debt.

 

     At
June 30, 2017
    At
December 31, 2016
 

Term Loan due October 2023, net of discount

   $ 949.9     $ 954.9  

7.250% Senior Notes due November 2024

     400.0       400.0  

Revolving Credit Facility

     34.5       10.0  

Deferred financing costs

     (18.2     (19.6
  

 

 

   

 

 

 

Total long-term debt, including current portion

   $ 1,366.2     $ 1,345.3  
  

 

 

   

 

 

 

On October 17, 2016, CBS Radio entered into a five-year $250 million senior secured revolving credit facility due October 2021 (the “Radio Revolving Credit Facility”) and a $1.06 billion senior secured term loan credit facility due October 2023 (the “Radio Term Loan”) pursuant to the Radio Credit Agreement. On October 17, 2016, CBS Radio borrowed the full amount of the Radio Term Loan. The Radio Revolving Credit Facility is used for general corporate purposes, including the issuance of letters of credit, and ongoing cash needs. Also on October 17, 2016, CBS Radio issued $400 million aggregate principal amount of 7.250% senior notes due November 2024 (the “Senior Notes”) pursuant to the Radio Notes Indenture. The Senior Notes were offered within the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act, with no registration rights, and outside of the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.

As a result of the borrowings in October 2016 under the Radio Term Loan and the issuance of the Senior Notes described above (collectively, the “CBS Radio Borrowing”), CBS Radio incurred indebtedness of $1.460 billion, resulting in net proceeds of approximately $1.432 billion after deducting bank fees, discounts and commissions, and other expenses payable by CBS Radio incurred in connection therewith. CBS Radio distributed to its parent, an indirect wholly owned subsidiary of CBS, approximately $1.426 billion, which is an

 

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amount equal to the net proceeds of the CBS Radio Borrowing, prior to deducting expenses payable by CBS Radio, less $10 million which remained with CBS Radio to use for general corporate purposes and ongoing cash needs. During the fourth quarter of 2016, CBS Radio prepaid $100 million of the Radio Term Loan. At June 30, 2017, CBS Radio had $954.7 million outstanding on the Term Loan, $34.5 million of outstanding borrowing under the Radio Revolving Credit Facility, and the remaining availability under the Radio Revolving Credit Facility, net of outstanding letters of credit, was approximately $214 million.

The Radio Term Loan requires CBS Radio to make quarterly principal payments at an annual rate of 1% of the initial principal amount of $1.06 billion. Subject to certain exceptions (including in certain cases, reinvestment rights), the Radio Term Loan also requires CBS Radio to prepay certain amounts outstanding thereunder with the net cash proceeds of certain asset sales, certain casualty events and certain issuances of debt. Each fiscal year beginning in 2018 CBS Radio will be required to make a prepayment of the Radio Term Loan equal to 50% of its excess cash flow (as described below), subject to certain step-downs based on its consolidated net secured leverage ratio (which is defined in the Radio Credit Agreement and reflects the ratio of (i) its consolidated secured debt (less up to $150 million of cash and cash equivalents) to (ii) its consolidated EBITDA (as defined in the Radio Credit Agreement)) (the “Consolidated Net Secured Leverage Ratio”). Excess cash flow is defined in the Radio Credit Agreement and reflects net cash flow from operating activities, less payments for capital expenditures, investments (including acquisitions), the reduction of debt, and dividends and other restricted payments (“Excess Cash Flow”). CBS Radio may prepay additional amounts under the Radio Term Loan from time to time. If a prepayment of the Radio Term Loan is made on or prior to October 17, 2017, as a result of certain refinancing or repricing transactions, CBS Radio will be required to pay a fee equal to 1.00% of the principal amount of the obligation so refinanced or repriced.

The Radio Term Loan bears interest at a per annum rate equal to 3.50% plus the greater of the London Interbank Offered Rate (“LIBOR”) and 1.00%. The interest rate on the Radio Term Loan was 4.72% per annum as of June 30, 2017. Borrowing rates under the Radio Revolving Credit Facility are based on LIBOR or a base rate plus a margin based on CBS Radio’s Consolidated Net Secured Leverage Ratio. The interest rate on the $34.5 million borrowing under the Radio Revolving Credit Facility was 5.33% per annum at June 30, 2017. Interest on the Radio Term Loan and Radio Revolving Credit Facility is payable at the end of each interest period, but in no event less frequently than quarterly. A commitment fee will be paid based on the amount of unused commitments under the Radio Revolving Credit Facility. The Radio Credit Agreement contains certain customary affirmative and negative covenants, representations and warranties and events of default (subject in certain cases to customary grace and cure periods). The occurrence of an event of default under the Radio Credit Agreement could result in the termination of the commitments under the Radio Revolving Credit Facility and the acceleration of all outstanding borrowings under the Radio Credit Agreement 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 Radio Revolving Credit Facility require CBS Radio to maintain a maximum Consolidated Net Secured Leverage Ratio of 4.00 to 1.00, with a temporary increase to 4.50 to 1.00 in connection with certain permitted acquisitions. At June 30, 2017, CBS Radio’s Consolidated Net Secured Leverage Ratio was approximately 3.2x.

Interest on the Senior Notes is payable on May 1 and November 1 of each year, beginning on May 1, 2017. CBS Radio may redeem some or all of the Senior Notes at any time, or from time to time, on or after November 1, 2019, at a premium that decreases over time, plus accrued and unpaid interest to the date of redemption. Prior to such dates, CBS Radio may redeem some or all of such notes subject to payment of a customary make-whole premium. In addition, prior to November 1, 2019, CBS Radio may redeem up to 35% of the aggregate principal amount of the Senior Notes with the proceeds of certain equity offerings. In the event of a change of control accompanied by a rating decline (each as defined in the Radio Notes Indenture) with respect to the Senior Notes, the holders of the Senior Notes may require CBS Radio to repurchase all or a portion of their Senior Notes at a purchase price equal to 101% of the principal amount of such notes, plus accrued and unpaid interest, if any, to the applicable repurchase date.

 

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The Radio Notes Indenture contains certain customary affirmative and negative covenants and events of default (subject in certain cases to customary grace and cure periods). The occurrence of an event of default under the Radio Notes Indenture could result in the acceleration of the full principal amount of the Senior Notes and could cause a cross-default that could result in the acceleration of other indebtedness, including all outstanding borrowings under the Radio Credit Agreement.

All obligations under the Radio Credit Agreement are unconditionally guaranteed by CBS Radio’s material existing and future direct and indirect wholly owned domestic subsidiaries, subject to certain exceptions. All obligations under the Radio Credit Agreement, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of CBS Radio’s assets and the assets of the guarantors under the Radio Credit Agreement, including all of the capital stock of the guarantors and certain other subsidiaries under the Radio Credit Agreement. The Senior Notes are unconditionally guaranteed on a senior unsecured basis by each of CBS Radio’s direct and indirect subsidiaries that guarantees the Radio Credit Agreement.

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.

In connection with the entry into the Merger Agreement, CBS Radio entered into the Commitment Letter with the Commitment Parties, pursuant to which the Commitment Parties committed to provide, subject to customary closing conditions, the Radio Financing which consists of up to $500 million of senior secured term loans as an additional tranche of term loans under the Radio Credit Agreement, the proceeds of which may be used by Entercom upon or following consummation of the Merger to refinance certain existing indebtedness of Entercom, to redeem Entercom’s preferred stock and to pay fees and expenses in connection with the Transactions. CBS Radio expects to consummate and obtain the Radio Financing substantially simultaneously with the closing of the Merger and the Contribution and to apply the proceeds thereof as described in the preceding sentence in order to, among other things, simplify Entercom’s capital structure.

In connection with the Radio Financing for the Merger, on March 3, 2017, CBS Radio entered into Amendment No. 1 to the Radio Credit Agreement, pursuant to which CBS Radio, the guarantors party thereto, the lenders and letter of credit (“L/C”) issuers party thereto and JPMorgan Chase Bank, N.A., as administrative agent, amended the Radio Credit Agreement to, among other things, create a tranche of Term B-1 Loans in an aggregate principal amount not to exceed $500 million. The Term B-1 Loans are expected to be funded substantially concurrently with the closing date of the Merger, subject to customary conditions.

The Term B-1 Loans will be governed by the Radio Credit Agreement and will have terms substantially identical to the Radio Term Loan, except as described in this paragraph. The Term B-1 Loans will mature on the date that is seven years after the closing date of the Merger. The Term B-1 Loans will require CBS Radio to make quarterly principal payments at an annual rate of 1% of the initial principal amount of the Term B-1 Loans, beginning with the first full fiscal quarter ending after the closing of the Merger. If a prepayment of the Term B-1 Loans is made on or prior to the date that is six months following the closing date of the Merger as a result of certain refinancing or repricing transactions, CBS Radio will be required to pay a fee equal to 1.00% of the principal amount of the obligation so refinanced or repriced. The Term B-1 Loans are expected to bear interest at a per annum rate equal to 2.75% plus LIBOR. Interest on the Term B-1 Loans will be payable at the end of each interest period, but in no event less frequently than quarterly.

Liquidity and Capital Resources

CBS Radio generated cash flows from operating activities from continuing operations of $282.5 million for the year ended December 31, 2016, $212.8 million for the year ended December 31, 2015, $276.9 million for the

 

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year ended December 31, 2014 and $10.9 million for the six months ended June 30, 2017. Historically, CBS Radio participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash CBS Radio 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 CBS Radio generated, and CBS also provided CBS Radio with sufficient daily liquidity to fund its ongoing cash needs. As a result, CBS Radio has historically required minimal cash on hand. On October 17, 2016 at the time of the CBS Radio Borrowing, CBS Radio’s participation in CBS’s centralized cash management system ceased and as a result, transactions with CBS subsequent to October 17, 2016 are settled in cash.

CBS Radio continually projects anticipated cash requirements for its operating, investing and financing needs and cash flows generated from operating activities available to meet these needs. CBS Radio’s short-term cash requirements primarily include payments for programming and talent commitments, operating leases, interest payments, capital expenditures and principal payments on the Radio Term Loan. CBS Radio believes that its cash on hand, operating cash flows and borrowing capacity under the Radio Revolving Credit Facility are sufficient to fund its short-term cash needs.

CBS Radio’s long-term cash needs primarily include principal payments on outstanding indebtedness. Funding for long-term cash needs will come from CBS Radio’s operating cash flows, its ability to issue debt, and borrowing capacity under the Radio Revolving Credit Facility.

Contractual Obligations

As of December 31, 2016, CBS Radio’s significant contractual obligations and payments due by period were as follows:

 

     Payments Due by Period  
     Total      2017      2018-2019      2020-2021      2022 and
thereafter
 

Programming commitments (a)

   $ 195.2      $ 34.7      $ 69.1      $ 57.7      $ 33.7  

Talent commitments

     52.0        26.7        24.8        .5        —    

Purchase obligations (b)

     5.9        2.4        2.4        1.1        —    

Operating leases (c)

     249.5        29.7        57.0        50.5        112.3  

Long-term debt obligations

     1,370.0        10.6        21.2        31.2        1,307.0  

Interest on long-term debt (d)

     520.1        73.5        143.7        141.7        161.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,392.7      $ 177.6      $ 318.2      $ 282.7      $ 1,614.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Programming commitments primarily reflect sports programming rights.
(b) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders.
(c) Consists of long-term noncancellable operating lease commitments for office space and equipment.
(d) Interest on the Radio Term Loan is variable. For illustrative purposes, an interest rate of 4.50% is assumed for all periods, which reflects the interest rate at December 31, 2016. The principal and interest payments do not reflect estimates for the required Excess Cash Flow prepayment or optional prepayments. Based on the amount outstanding under the Radio Term Loan at December 31, 2016 of $960 million, an increase or decrease of 1/8% in the interest rate will change annual interest expense by approximately $1.2 million.

The above table excludes $3.8 million of reserves for uncertain tax positions and the related accrued interest and penalties, as CBS Radio cannot reasonably predict the amount of and timing of cash payments relating to this obligation.

 

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Guarantees

CBS Radio uses letters of credit and surety bonds primarily as security against nonperformance in the normal course of business. The outstanding letters of credit and surety bonds approximated $6.3 million and $6.2 million at June 30, 2017 and December 31, 2016, respectively, and were not recorded on the Consolidated Balance Sheets.

Critical Accounting Policies

The preparation of CBS Radio’s 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, CBS Radio evaluates its estimates, which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

CBS Radio considers the following accounting policies to be the most critical as they are important to its financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a summary of CBS Radio’s significant accounting policies, see pages F-20 to F-25 of the accompanying notes to the consolidated financial statements.

Impairment of Goodwill and FCC Licenses

CBS Radio tests goodwill and FCC licenses for impairment during the fourth quarter of each year, and on an interim date should factors or indicators become apparent that would require an interim test.

FCC Licenses—FCC licenses are tested for impairment at the geographic market level. CBS Radio considers each geographic market, which is comprised of all of its radio stations within that geographic market, to be a single unit of accounting because the FCC licenses at this level represent their highest and best use. At December 31, 2016, CBS Radio had FCC license book values for radio stations in 25 radio markets.

For the year ended December 31, 2016, CBS Radio performed a quantitative impairment test for all 25 radio markets. This impairment test compares the estimated fair value of the FCC licenses by geographic market with their respective carrying values. The estimated fair value of each FCC license is computed using the Greenfield Discounted Cash Flow Method (“Greenfield Method”), which attempts to isolate the income that is attributable to the license alone. The Greenfield Method is based upon modeling a hypothetical start-up radio station and building it up to a normalized operation that, by design, lacks inherent goodwill and whose other assets have essentially been added as part of the build-up process. The Greenfield Method adds the present value of the estimated annual cash flows of the start-up radio station over a projection period to the residual value at the end of the projection period. The annual cash flows over the projection period include assumptions for overall advertising revenues in the relevant geographic market, the start-up radio station’s operating costs and capital expenditures and a three-year build-up period for the start-up radio station to reach a normalized state of operations, which reflects the point at which it achieves an average market share. The overall market advertising revenue in the subject market is estimated based on recent industry projections. Operating costs and capital expenditures are estimated based on both industry and internal data. The residual value is calculated using a perpetual nominal growth rate of 1.0% for each market for the year ended December 31, 2016. This rate is based on third-party, long-term projections for the radio industry and is lower than the projected long-range inflation rate in the United States of approximately 2%. A decrease of 100 basis points to the perpetual nominal growth rate to zero would decrease the carrying value of FCC licenses by approximately $280 million. The discount rate is determined based on the average of the weighted average cost of capital of comparable entities and for the year ended December 31, 2016, was 8.5% for each market.

 

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CBS Radio concluded that the estimated fair values of the FCC licenses in 23 radio markets were lower than their respective carrying values. Accordingly, CBS Radio recognized a pretax noncash impairment charge of $322.7 million related to FCC licenses in these markets. The remaining two radio markets, which had an aggregate carrying value of FCC licenses of $322.0 million, each had estimated fair values that exceeded their respective carrying values by less than 5%.

The estimated fair values of the FCC licenses are highly dependent on the assumptions of future economic conditions in the individual geographic markets in which CBS Radio owns and operates radio stations. Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, or a decline in the local radio advertising marketplace could result in a downward revision to CBS Radio’s current assumptions and judgments. Various factors may contribute to a future decline in any local radio advertising marketplace, including declines in economic conditions; an other-than-temporary decrease in spending by advertisers in certain industries that have historically represented a significant portion of the local radio advertising revenues; a shift by advertisers to competing advertising platforms; changes in audience behavior; and/or a change in population size. A downward revision to the present value of future cash flows could result in further impairment and a noncash charge would be required. Such a charge could have a material effect on CBS Radio’s statement of operations and balance sheet.

Goodwill—Goodwill is tested for impairment at the reporting unit level. At December 31, 2016, CBS Radio had three reporting units, which are one level below its operating segment. For its 2016 annual impairment test, CBS Radio performed a quantitative goodwill impairment test for each of its three reporting units. The first step of the goodwill impairment test examines whether the carrying value of a reporting unit exceeds its fair value. The estimated fair value of each reporting unit is computed based upon the present value of future cash flows (the “Discounted Cash Flow Method”), which is compared to the traded values of comparable businesses (the “Market Comparable Method”). The Discounted Cash Flow Method and the Market Comparable Method resulted in similar estimated fair values. The Discounted Cash Flow Method adds 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 the use of 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 CBS Radio’s internal forecasts of future performance and 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 rate is determined based on the average of the weighted average cost of capital of comparable entities. For the year ended December 31, 2016, the discount rate and perpetual nominal growth rate used for each reporting unit was 8.75% and 1.5%, respectively.

CBS Radio concluded that the estimated fair value of each of the three reporting units was below their respective carrying values, after the above-mentioned FCC licenses impairment charge, and as a result CBS Radio performed the second step of the goodwill impairment test for each reporting unit. Under step two of the goodwill impairment test, CBS Radio performed a hypothetical purchase price allocation for each reporting unit to determine the implied fair value of goodwill, which was then compared to the carrying amount of goodwill. For 2016, CBS Radio recorded a pretax noncash impairment charge of $530.1 million.

The impairments were the result of an increase in the discount rate caused by a change in the risk profile of CBS Radio, as it is expected to participate in a market transaction imminently. The 2016 discount rate included a higher small company stock premium than the rate used in 2015, reflecting the weighted average cost of capital profile of CBS Radio as a standalone entity, whereas the discount rate for 2015 was based on the weighted average cost of capital profile of CBS. The impairments were also caused by declines in the radio market resulting in lower cash flow projections, as well as management’s expectation of the transaction value of the Merger with Entercom. This estimated transaction value was derived by multiplying the historical trading multiples of Entercom and other similar companies by the total estimated earnings of the combined company. After the impairment charge, the fair values of each of CBS Radio’s three reporting units each exceeded their carrying values by approximately 3%.

 

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During the first quarter of 2017, as a result of softness in the radio marketplace, as well as a decline in the trading price of Entercom Class A Common Stock, CBS Radio performed an interim goodwill impairment test. For purposes of the impairment analysis, the fair value of CBS Radio’s reporting units were computed based upon the Discounted Cash Flow Method. The fair value analysis also incorporated the Market Comparable Method and Entercom’s stock price, which is an indicator of the transaction value of the Merger with Entercom. As a result of this impairment test, CBS Radio concluded that the fair value of each of its reporting units exceeded their respective book values and therefore, no impairment was required.

During the second quarter of 2017, the performance of the radio marketplace was similar to the first quarter of 2017 and CBS Radio improved from the first quarter of 2017. As a result, management concluded that the fair value of CBS Radio continues to exceed its carrying value. Management also considered the decline in the Entercom stock price during the second quarter and determined that, based on the foregoing factors as well as recent volatility in the Entercom stock price, it is not an indicator that the fair value of CBS Radio is below its carrying value.

Additionally, certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a further decline in the advertising market in the markets in which CBS Radio owns and operates radio stations, a decrease in audience acceptance of programming, a shift by advertisers to competing advertising platforms; and/or changes in audience behavior could result in changes to these assumptions and judgments. A downward revision of these assumptions could cause the fair values of the reporting units to fall below their respective carrying values and an additional noncash impairment charge would be required. Such a charge could have a material effect on CBS Radio’s statement of operations and balance sheet.

Income Taxes

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 bases. 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.

CBS Radio’s income taxes as presented herein, including the provision or benefit for income taxes, net deferred tax liabilities and income tax payments, are calculated on a separate tax return basis, even though CBS Radio’s operating results are included in the consolidated federal and certain state and local income tax returns filed by 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 CBS Radio’s tax provision, taxes paid and related tax accounts in the consolidated financial statements herein may differ from those made by CBS and, in addition, are not necessarily reflective of the tax strategies that CBS Radio would have followed as a separate stand-alone company.

Significant judgment is required in determining the provision for income taxes. When recording the provision for income taxes, an estimated effective tax rate for the year is applied to interim operating results. In the event there is a significant or unusual item recognized in the interim operating results, the tax attributable to that item is separately calculated and recorded in the same interim period.

Allowance for Doubtful Accounts

CBS Radio’s allowance for doubtful accounts is estimated based on several factors, including historical bad debt experience, the aging of accounts receivable, industry trends and economic indicators, and recent payment history for specific customers. Judgment is required in assessing these factors and estimating the collectability of accounts receivable. CBS Radio believes its allowance for doubtful accounts is adequate; however, if circumstances change that affect a customer’s ability to make payments, CBS Radio may be required to record an additional allowance.

 

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Legal Matters

On an ongoing basis, CBS Radio vigorously defends itself in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state and local authorities (collectively, “litigation”). Litigation may be brought against CBS Radio without merit, is inherently uncertain and always difficult to predict. However, based on management’s understanding and evaluation of the relevant facts and circumstances, CBS Radio believes that the litigation to which it is a party is not likely to have a material adverse effect on its results of operations, financial position or cash flows.

Market Risk

Interest Rate Risk

CBS Radio is subject to interest rate risk to the extent it has variable-rate debt outstanding, including under the Radio Credit Agreement. At June 30, 2017, CBS Radio had $954.7 million outstanding on the Radio Term Loan due October 2023, at an interest rate of 4.72% per year. An increase or decrease of 1/8% in CBS Radio’s interest rate on the Radio Term Loan will change annualized interest expense by approximately $1.2 million. CBS Radio does not currently use derivatives or other financial instruments to mitigate interest rate risk, although it 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. CBS Radio performs credit evaluations on its customers and agencies and believes that the allowance for doubtful accounts is adequate. CBS Radio does not currently use derivatives or other financial instruments to mitigate credit risk.

Related Parties

CBS Corporation. CBS Radio is indirectly wholly owned by CBS. CBS provides CBS Radio with certain services, such as insurance and support for technology systems, and also provides benefits to CBS Radio’s employees, including life and disability insurance, and certain post-employment benefits. Prior to January 1, 2017, CBS also provided CBS Radio’s employees with medical and dental benefits and participation in a 401(k) savings plan. Charges for these services and benefits are reflected in the consolidated financial statements based on the specific identification of costs, assets and liabilities. The 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 CBS Radio, and the number of CBS operating entities benefiting from such services. Charges for these services and benefits provided by CBS have been included in selling, general and administrative expenses in the Consolidated Statements of Operations and totaled $42.0 million and $43.0 million for the six months ended June 30, 2017 and 2016, respectively, and $82.5 million, $84.1 million and $76.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. Management believes that the assumptions and estimates used to allocate these expenses are reasonable. However, CBS Radio’s expenses as a stand-alone company may be different from those reflected in the Consolidated Statements of Operations.

Effective January 1, 2017, CBS Radio employees began participating in employee plans maintained by CBS Radio, including medical and dental plans and a 401(k) savings plan, although certain employees continue to be entitled to benefits under certain CBS defined benefit pension and post-retirement health plans.

In addition, CBS Radio historically participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash CBS Radio 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 CBS

 

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Radio generated and CBS also provided CBS Radio with sufficient daily liquidity to fund its ongoing cash needs. As a result, CBS Radio has historically required minimal cash on hand. On October 17, 2016, at the time of the CBS Radio Borrowing, CBS Radio’s participation in CBS’s centralized cash management system ceased and as a result, transactions with CBS subsequent to October 17, 2016 are settled in cash. At June 30, 2017 and December 31, 2016, amounts due to CBS were $3.3 million and $12.3 million, respectively. In addition, beginning in the fourth quarter of 2016, CBS Radio reimburses CBS for income tax payments made on CBS Radio’s behalf, resulting in prepaid taxes of $20.0 million as of June 30, 2017 and an income tax payable to CBS of $20.5 million as of December 31, 2016.

On March 31, 2017, CBS Radio paid to CBS a dividend of $30.0 million, representing CBS Radio’s excess cash on hand.

Prior to the consummation of the Transactions, CBS Radio expects to enter into various agreements to govern the relationships between CBS, CBS Radio and Entercom. For a description of these agreements and the other agreements that CBS Radio will enter into with CBS, see “Other Agreements and Other Related Party 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 CBS Radio as none of CBS’s debt is directly attributable to CBS Radio.

In addition, in connection with the CBS Radio Borrowing, CBS Radio incurred $1.460 billion of indebtedness, resulting in net proceeds of approximately $1.432 billion after deducting bank fees, discounts and commissions and other expenses payable by CBS Radio incurred in connection therewith. CBS Radio distributed to its parent, an indirect wholly owned subsidiary of CBS, approximately $1.426 billion, which is an amount equal to the net proceeds of the CBS Radio Borrowing, prior to deducting expenses payable by CBS Radio, less $10 million which remained with CBS Radio to use for general corporate purposes and ongoing cash needs.

CBS Radio also generates revenues from sales to various subsidiaries and joint ventures of CBS. Total revenues from these transactions were $4.0 million and $3.1 million for the six months ended June 30, 2017 and 2016, respectively, and $14.8 million, $8.4 million and $8.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Collaborative Arrangement. CBS Local Digital Media operates the CBS Local Websites, which combine local radio and television content within markets where both CBS Radio and CBS TV Stations operate. In connection with this arrangement, advertisements displayed on these websites are sold by both CBS Radio employees and CBS TV Stations employees. CBS Radio earns revenues for advertising sales generated by its employees, and costs associated with the operation and maintenance of the CBS Local Websites are allocated between CBS Radio and CBS TV Stations in proportion to the respective earned revenue.

Other Related Parties. Viacom Inc. is controlled by National Amusements, the controlling stockholder of CBS. CBS Radio recognized revenues of $1.4 million and $2.3 million for the six months ended June 30, 2017 and 2016, respectively, and $4.3 million, $2.9 million and $2.4 million for the years ended December 31, 2016, 2015 and 2014, respectively, for the sale of advertising spots to subsidiaries of Viacom Inc. CBS Radio is involved in other transactions with related parties that have not been material in any of the periods presented.

Adoption of New Accounting Standards

Improvements to Employee Share-Based Payment Accounting

During the first quarter of 2017, CBS Radio adopted Financial Accounting Standards Board (“FASB”) guidance which simplifies several aspects of the accounting for employee share-based payment transactions.

 

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Under this amended guidance, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement in the period in which the awards vest or are exercised. In the statement of cash flows, excess tax benefits are classified with other income tax cash flows in operating activities. The amended guidance also gives the option to make a policy election to account for forfeitures as they occur. CBS Radio, however, has elected to continue its existing practice of estimating forfeitures.

Simplifying the Accounting for Goodwill Impairment

During the first quarter of 2017, CBS Radio early adopted amended FASB guidance which simplifies the accounting for goodwill impairment. This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge is recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

During 2016, CBS Radio adopted FASB guidance which requires management to evaluate, for each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued. If management identifies conditions or events that raise substantial doubt, disclosures are required in the financial statements, including any plans that will alleviate the substantial doubt about the entity’s ability to continue as a going concern. The adoption of this guidance did not have an effect on CBS Radio’s consolidated financial statements.

Simplifying the Accounting for Measurement Period Adjustments

During 2016, CBS Radio adopted amended FASB guidance that eliminates the requirement to retrospectively account for adjustments to provisional amounts recognized in a business combination when new information is obtained during the measurement period about facts and circumstances that existed as of the acquisition date. Under the amended guidance, the acquiror is required to recognize such adjustments in the reporting period in which the adjustment amounts are identified. Such adjustments also include the effect on earnings from any changes in depreciation, amortization, or other income effects resulting from the change to provisional amounts, as if the change occurred at the acquisition date. The amendment also requires disclosure or separate presentation on the face of the income statement of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The adoption of this guidance did not have an effect on CBS Radio’s consolidated financial statements.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

During 2016, CBS Radio adopted amended FASB guidance which eliminates the concept of extraordinary items. This guidance removes the requirement to assess whether an event or transaction is both unusual in nature and infrequent in occurrence and to separately present any such items on the statement of operations after income from continuing operations. Rather, such items are required to be presented as a separate component of income from continuing operations or disclosed in the notes to the financial statements. The adoption of this guidance did not have an effect on CBS Radio’s consolidated financial statements.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period

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service period. Under this guidance, such performance target should not be reflected in estimating the grant-date fair value of the award. CBS Radio should begin recognizing compensation cost in the period in which it becomes probable that the performance target will be achieved, for the cumulative amount of compensation cost attributable to the period(s) for which the requisite service has already been rendered. The adoption of this guidance did not have an effect on CBS Radio’s consolidated financial statements.

Recent Pronouncements

Stock Compensation: Scope of Modification Accounting

In May 2017, the FASB issued amended guidance on the accounting for stock-based compensation which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award as equity or liability changes as a result of the change in the terms or conditions of a share-based payment award. This guidance, which is effective for interim and annual periods beginning after December 15, 2017, is not expected to have a material impact on CBS Radio’s consolidated financial statements.

Clarifying the Definition of a Business

In January 2017, the FASB issued amended guidance on the accounting for business combinations which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted.

Intra-Entity Transfers of Assets Other than Inventory

In October 2016, the FASB issued amended guidance on the accounting for income taxes, which eliminates the exception in existing guidance which defers the recognition of the tax effects of intra-entity asset transfers other than inventory until the transferred asset is sold to a third party. Rather, the amended guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance, which is effective for interim and annual periods beginning after December 15, 2017, is not expected to have a material adverse effect on CBS Radio’s consolidated financial statements.

Statement of Cash Flows: Classification of Cash Receipts and Cash Payments

In August 2016, the FASB issued amended guidance which clarifies how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The new guidance is intended to reduce the existing diversity in practice in how certain transactions are classified in the statement of cash flows. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted.

Leases

In February 2016, the FASB issued new guidance on the accounting for leases, which supersedes previous lease guidance. Under this guidance, for all leases with terms in excess of one year, including operating leases, CBS Radio will be required to recognize on its balance sheet a lease liability and a right-of-use asset representing CBS Radio’s right to use the underlying asset for the lease term. The new guidance retains a distinction between finance

 

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leases and operating leases and the classification criteria is substantially similar to previous guidance. Additionally, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed. CBS Radio is currently evaluating the impact of this guidance, which is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted.

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance on the recognition of revenues which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance. The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers. CBS Radio anticipates that it will apply the modified retrospective method of adoption. CBS Radio has identified the predominant changes to its accounting policies and is in the process of quantifying the impact on its consolidated financial statements. This guidance is effective for CBS Radio in the first quarter of 2018.

 

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SELECTED HISTORICAL FINANCIAL DATA

Selected Historical Consolidated Financial Data of CBS Radio

The following table presents the selected historical consolidated financial data of CBS Radio. The selected historical consolidated statements of operations and cash flow information for the six months ended June 30, 2017 and 2016 and the selected historical consolidated balance sheet information as of June 30, 2017 have been derived from the unaudited historical consolidated financial statements of CBS Radio included elsewhere in this document. The selected historical consolidated balance sheet information as of December 31, 2016 and 2015, and the selected historical consolidated statements of operations and cash flow information for each of the three years in the period ended December 31, 2016 have been derived from the audited historical consolidated financial statements included elsewhere in this document. The selected historical consolidated balance sheet information as of December 31, 2014 and 2013 and the selected historical consolidated statements of operations and cash flow information for the year ended December 31, 2013 have been derived from audited historical consolidated financial statements not included in or incorporated by reference into this document. The selected historical consolidated balance sheet information as of December 31, 2012 and the selected historical consolidated statements of operations and cash flow information for the year ended December 31, 2012 have been derived from unaudited consolidated financial information not included in or incorporated by reference into this document. The historical consolidated financial statements of CBS Radio for each of the years presented 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 of CBS Radio and include allocations of expenses from CBS. The selected historical consolidated financial information set forth below and the financial statements included elsewhere in this document do not necessarily reflect what CBS Radio’s results of operations, financial condition or cash flows would have been if CBS Radio had operated as a stand-alone company during all periods presented, and, accordingly, such information should not be relied upon as an indicator of CBS Radio’s future performance, financial condition or liquidity. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations for CBS Radio” and the financial statements of CBS Radio and the notes thereto included elsewhere in this document.

 

    Six Months Ended
June 30,
    Year Ended December 31,  
    2017     2016     2016 (a)     2015 (b)     2014 (c)     2013     2012 (d)  
   

(in millions, except per share amounts)

 

Statement of Operations data:

             

Revenues

  $ 555.6     $ 577.1     $ 1,221.6     $ 1,230.6     $ 1,303.0     $ 1,306.4     $ 1,313.4  

Operating income (loss)

  $ 90.0     $ 137.4     $ (561.0   $ (240.3   $ 299.3     $ 360.2     $ 362.2  

Net income (loss) from continuing operations

  $ 30.5     $ 82.5     $ (552.4   $ (136.5   $ 176.5     $ 214.1     $ 207.4  

Basic and diluted net income (loss) from continuing operations per common share (e)

    $435,714     $ 1,178,571     $ (7,891,429   $ (1,950,000   $ 2,521,429     $ 3,058,571     $ 2,962,857  

Balance Sheet data (at period end):

             

Total assets

  $ 4,339.7       $ 4,331.2     $ 5,216.5     $ 5,771.6     $ 5,790.2     $ 5,769.1  

Current liabilities

  $ 132.5       $ 159.3     $ 105.9     $ 102.3     $ 112.4     $ 127.0  

Total debt

  $ 1,366.2       $ 1,345.3     $ —       $ —       $ —       $ —    

Stockholder’s equity/ invested equity

  $ 1,865.2       $ 1,860.4     $ 3,994.1     $ 4,360.2     $ 4,392.0     $ 4,401.7  

Cash Flow data:

             

Cash flow provided by operating activities from continuing operations

  $ 10.9     $ 99.5     $ 282.5     $ 212.8     $ 276.9     $ 264.3     $ 308.9  

Non-GAAP financial data:

             

Adjusted OIBDA (f)

  $ 116.6     $ 157.7     $ 338.7     $ 321.8     $ 402.3     $ 413.1     $ 425.5  

 

(a) For the year ended December 31, 2016, CBS Radio recorded noncash impairment charges of $852.8 million ($723.0 million, net of tax) to reduce the carrying value of goodwill and FCC licenses to their fair value.

 

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(b) For the year ended December 31, 2015, CBS Radio recorded a noncash impairment charge of $482.9 million ($292.5 million, net of tax) to reduce the carrying value of FCC licenses to their fair value.
(c) In 2014, CBS Radio completed a radio station swap with Beasley Broadcast Group, Inc. In connection with the swap, CBS Radio recorded a noncash impairment charge of $48.6 million ($29.3 million, net of tax) to reduce the carrying value of goodwill allocated to the disposed radio stations to its fair value.
(d) In 2012, in connection with the sale of five radio stations in West Palm Beach, CBS Radio recorded a noncash impairment charge of $11.4 million ($6.8 million, net of tax) to reduce the carrying value of the goodwill allocated to the disposed radio stations to its fair value.
(e) Basic and diluted net income (loss) from continuing operations per common share for all periods presented is calculated based on the 70 outstanding shares of CBS Radio common stock. Prior to the consummation of the Transactions, CBS Radio intends to conduct a stock split to increase the aggregate number of outstanding shares of CBS Radio common stock. Subsequent to the stock split, net income (loss) from continuing operations per common share will be restated to reflect the post-split shares for all periods presented.
(f) The following table presents a reconciliation of net income (loss) from continuing operations to Adjusted OIBDA.

 

     Six Months
Ended
June 30,
     Year Ended December 31,  
     2017      2016      2016     2015     2014      2013      2012  
     (in millions)  

Net income (loss) from continuing operations

   $ 30.5      $ 82.5      $ (552.4   $ (136.5   $ 176.5      $ 214.1      $ 207.4  

Exclude:

                  

Provision (benefit) for income taxes

     20.4        54.9        (25.4     (103.8     122.8        146.1        154.8  

Interest expense

     39.1        —          16.8       —         —          —          —    

Impairment charges

     —          —          852.8       482.9       48.6        —          11.4  

Restructuring charges

     7.5        —          8.6       36.5       7.0        5.1        4.7  

Depreciation

     12.5        13.2        26.1       28.5       30.8        31.3        32.1  

Stock-based compensation (a)

     6.6        7.1        12.2       14.2       16.6        16.5        15.1  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Adjusted OIBDA

   $ 116.6      $ 157.7      $ 338.7     $ 321.8     $ 402.3      $ 413.1      $ 425.5  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(a) For the year ended December 31, 2015, stock-based compensation of $2.9 million was reflected in restructuring charges.

Selected Historical Consolidated Financial Data of Entercom

The following table presents the selected historical consolidated financial data of Entercom. The selected historical consolidated balance sheet information as of June 30, 2017 and the selected historical consolidated statements of operations and cash flow information for the six months ended June 30, 2017 and 2016 have been derived from unaudited consolidated financial statements of Entercom incorporated by reference into this document. The selected historical consolidated balance sheet information as of December 31, 2016 and 2015, and the selected historical consolidated statements of operations and cash flow information for each of the three years in the period ended December 31, 2016 have been derived from audited consolidated financial statements of Entercom incorporated by reference into this document. The selected historical balance sheet information as of December 31, 2014, 2013 and 2012 and the selected historical consolidated statements of operations and cash flow information for the years ended December 31, 2013 and 2012 have been derived from the consolidated financial statements of Entercom not included in or incorporated by reference into this document. This information is only a summary and should be read in conjunction with the financial statements of Entercom and the notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in Entercom’s quarterly report on Form 10-Q for the quarter ended June 30, 2017 and Entercom’s annual report on Form 10-K for the year ended December 31, 2016, which are incorporated by reference into this document. See “Where You Can Find More Information; Incorporation By Reference.”

 

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Entercom’s financial results are not comparable from year to year due to acquisitions and dispositions of radio stations, impairments of broadcasting licenses and goodwill, adoption of new accounting standards, and other significant events:

 

    In connection with the preparation of Entercom’s consolidated financial statements, Entercom identified immaterial errors in prior periods relating to the netting of certain digital expenses against certain digital revenues. Since Entercom acts as a principal in certain digital revenue contracts, the expenses should not have been netted against gross revenues. The impact of these errors was not material to any prior period. Consequently, Entercom corrected the errors in the second quarter of 2017 by increasing net revenues and station operating expenses on the consolidated statements of operations. As the two line items are adjusted by offsetting amounts, the corrections had no impact on income before taxes, income taxes (benefit), net income, earnings per share or diluted earnings per share, shareholders’ equity, cash flows from operations, or working capital. The corrections had no impact on the consolidated balance sheets or statements of cash flows. Refer to footnote 1 of Entercom’s Form 10-Q for the quarter ended June 30, 2017 for further details.

 

    In November 2016, Entercom commenced operations under a time brokerage agreement (“TBA”) for several radio stations in Charlotte, North Carolina.

 

    In November 2016, Entercom refinanced its outstanding senior credit facility and retired its Senior Notes outstanding. As a result of the refinancing, Entercom recognized a loss on extinguishment of debt of approximately $10.9 million.

 

    In 2016, Entercom sold an AM station in Denver, Colorado, for $3.8 million and an AM station in Atlanta, Georgia for $.9 million. These two sales generated gains of $.3 million, and $.2 million, respectively.

 

    In 2016, Entercom settled a legal claim with British Petroleum and recovered $2.3 million on a net basis after deducting certain related expenses. This amount was included in other income and expense.

 

    In 2015, Entercom acquired multiple radio stations, net of certain dispositions. Related to these transactions, Entercom incurred: (1) merger and acquisition costs of $4.0 million in 2015 and $1.0 million in 2014; and (2) restructuring charges of $2.8 million in 2015 from the restructuring of operations.

 

    In 2012, Entercom acquired one radio station.

 

    In 2012, Entercom incurred an impairment loss of $22.3 million in connection with its review of goodwill and broadcasting licenses.

 

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    In the fourth quarters of 2012 and 2013, Entercom modified its debt which decreased its borrowing rate. In addition, Entercom incurred new deferred financing fees as part of the modifications that were higher than the previous deferred financing fees.

 

    Six Months Ended
June 30,
    Years Ended December 31,  
    2017     2016     2016     2015     2014     2013     2012  
    (in thousands, except per share amounts)  

Operating Data:

             

Net revenues

  $ 223,971     $ 218,580     $ 464,771     $ 414,481     $ 380,376     $ 377,618     $ 388,924  

Operating income (loss)

  $ 1,363     $ 42,329     $ 98,057     $ 85,582     $ 85,576     $ 92,567     $ 76,594  

Net income (loss) attributable to Company

  $ (2,917   $ 15,246     $ 38,065     $ 29,184     $ 26,823     $ 26,024     $ 11,268  

Net income (loss) attributable to common shareholders

  $ (4,017   $ 14,421     $ 36,164     $ 28,432     $ 26,823     $ 26,024     $ 11,268  

Net income (loss) attributable to common shareholders per share—basic:

  $ (.10   $ .37     $ .94     $ .75     $ .71     $ .70     $ .31  

Net income (loss) attributable to common shareholders per share—diluted:

  $ (.10   $ .37     $ .91     $ .73     $ .69     $ .68     $ .30  

Weighted average shares—basic

    38,935       38,463       38,500       38,084       37,763       37,418       36,906  

Weighted average shares—diluted

    38,935       39,274       39,568       39,038       38,664       38,301       37,810  

Cash Flows Data:

             

Cash flows related to:

             

Operating activities

  $ 14,925     $ 24,598     $ 72,030     $ 64,790     $ 65,296     $ 63,349     $ 69,702  

Investing activities

  $ (31,328   $ 4,925     $ 495     $ (91,744   $ (7,055   $ (4,583   $ (29,359

Financing activities

  $ (21,848   $ (27,621   $ (34,851   $ 4,583     $ (38,932   $ (55,458   $ (35,045

Other Data:

             

Common stock dividends declared and paid

  $ 5,837     $ 2,886     $ 8,666     $ —       $ —       $ —       $ —    

Cash dividends declared per common share

  $ .15     $ .075     $ .225     $ —       $ —       $ —       $ —    

Perpetual cumulative convertible preferred stock dividends declared and paid

  $ 1,100     $ 825     $ 1,788     $ 413     $ —       $ —       $ —    

 

     At June 30,      At December 31,  
     2017      2016      2015      2014      2013      2012  
            (in thousands)  

Balance Sheet Data:

                 

Cash and cash equivalents—including cash of VIE

   $ 8,592      $ 46,843      $ 9,169      $ 31,540      $ 12,231      $ 8,923  

Total assets

   $ 1,028,956      $ 1,076,233      $ 1,022,108      $ 926,615      $ 912,688      $ 920,358  

Senior secured debt and other, including current portion

   $ 461,014      $ 480,087      $ 268,750      $ 262,000      $ 299,500      $ 352,592  

Senior unsecured notes, senior subordinated notes and other

   $ —        $ —        $ 218,269      $ 217,929      $ 217,624      $ 229,959  

Deferred tax liabilities and other long-term liabilities

   $ 107,626      $ 119,759      $ 109,251      $ 89,904      $ 70,519      $ 41,455  

Perpetual cumulative convertible preferred stock (mezzanine)

   $ 27,732      $ 27,732      $ 27,619      $ —        $ —        $ —    

Total shareholders’ equity

   $ 389,150      $ 393,374      $ 361,450      $ 329,021      $ 298,393      $ 269,494  

 

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ENTERCOM AND CBS RADIO

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements and notes thereto give effect to the Merger of Merger Sub, a wholly owned acquisition subsidiary of Entercom, with and into CBS Radio, an indirect wholly owned subsidiary of CBS. In the Merger, each outstanding share of Radio Common Stock will be converted into the right to receive one share of Entercom Class A Common Stock. The transaction is being accounted for as a business combination with Entercom as the acquiror. See “The Transactions—Accounting Treatment and Considerations.” The purchase price will be allocated to the assets acquired and liabilities assumed of CBS Radio based upon their estimated fair values at the date of consummation of the Merger.

The following unaudited pro forma condensed combined financial statements give effect to the completion of the Merger, the associated refinancing of Entercom’s debt, and the planned divestitures of certain radio stations in order to comply with the FCC’s local radio ownership rule, and/or to obtain clearance for the Merger from the Antitrust Division of the Department of Justice. The unaudited pro forma condensed combined statements of operations are presented as if these transactions occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet is presented as if these transactions occurred on June 30, 2017. The pro forma condensed combined financial statements do not give effect to operating efficiencies and cost savings that may be achieved with respect to the combined entity. The unaudited pro forma condensed combined financial statements are derived from Entercom’s and CBS Radio’s respective historical consolidated financial statements for each period presented. CBS Radio’s historical consolidated financial statements have been prepared on a “carve-out” basis from CBS’s consolidated financial statements using the historical results of operations, assets and liabilities of CBS Radio and include allocations of expenses from CBS. As a result, CBS Radio’s historical financial statements may not necessarily reflect what its financial condition and results of operations would have been had CBS Radio been an independent, stand-alone entity during the periods presented.

These unaudited pro forma condensed combined financial statements, including the preliminary purchase price allocation, are presented for illustrative purposes only and do not necessarily reflect the operating results or financial position that would have occurred if the Merger had been consummated on the dates indicated, nor is it necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. Accordingly, such information should not be relied upon as an indicator of future performance, financial condition or liquidity. The preliminary purchase price is based on the Entercom closing share price on September 28, 2017. The actual purchase price will be based on the Entercom closing share price on the closing date of the Merger, which could differ from the current estimate.

These unaudited pro forma condensed combined financial statements and the notes thereto should be read together with the following:

 

  (a) Entercom’s unaudited consolidated financial statements and the notes thereto contained in Entercom’s quarterly report on Form 10-Q for the quarter ended June 30, 2017 and the audited consolidated financial statements and the notes thereto contained in Entercom’s annual report on Form 10-K for the year ended December 31, 2016, which are each incorporated by reference into this document, and

 

  (b) CBS Radio’s unaudited consolidated financial statements and the notes thereto as of and for the six months ended June 30, 2017 and the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2016 included elsewhere in this document.

 

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ENTERCOM AND CBS RADIO

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2017

(in millions)

 

     Historical     Pro Forma  
     Entercom     CBS
Radio
    Purchase
Price
Allocation
    Net
Divestitures
(Note 5)
    Other
Adjustments
    Combined  

Assets: