S-1/A 1 d204655ds1a.htm AMENDMENT NO. 2 TO FORM S-1 Amendment No. 2 to Form S-1
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As filed with the Securities and Exchange Commission on November 18, 2016

Registration No. 333-212443

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2

TO

FORM S-1

FOR REGISTRATION

UNDER

THE SECURITIES ACT OF 1933

 

 

CBS RADIO INC.

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

 

Delaware   4832   13-4142467

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

1271 Avenue of the Americas, Fl. 44

New York, NY 10020

(212) 649-9600

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

 

 

Jo Ann Haller

1271 Avenue of the Americas, Fl. 44

New York, NY 10020

(212) 649-9600

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

 

 

Copies to:

 

David E. Shapiro

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, NY 10019

(212) 403-1000 (Telephone)

 

Lawrence P. Tu

CBS Corporation

51 West 52nd Street

New York, NY 10019

(212) 975-4321 (Telephone)

 

Alexander D. Lynch

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 10153

(212) 310-8000 (Telephone)

 

 

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

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

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

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

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

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

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

 

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

 

 

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

 

 

 


Table of Contents

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

 

PRELIMINARY PROSPECTUS      SUBJECT TO COMPLETION, DATED NOVEMBER 18, 2016   

             Shares

CBS Radio Inc.

Common Stock

 

 

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

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

We intend to apply to list our common stock on the New York Stock Exchange (“NYSE”) under the symbol “CBSR.”

 

 

Investing in our common stock involves risk. See “Risk Factors” beginning on page 16.

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

 

     Per
Share
     Total  

Public offering price

   $                $                

Underwriting discounts and commissions

   $         $     

Proceeds to CBS Radio Inc. before expenses

   $         $     

Delivery of the shares of our common stock is expected to be made on or about             . We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase an additional              shares of our common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $            , and the total proceeds to us, before expenses, will be $            .

 

Goldman, Sachs & Co.   BofA Merrill Lynch   Credit Suisse   Wells Fargo Securities

 

Citigroup   Deutsche Bank Securities   Jefferies   J.P. Morgan    RBC Capital Markets

 

Barrington Research    Loop Capital Markets    Macquarie Capital    Needham & Company      Nomura   

 

MUFG    BNP PARIBAS    BNY Mellon Capital Markets, LLC    Mizuho Securities

 

SOCIETE GENERALE      SMBC Nikko   TD Securities

 

Drexel Hamilton    Lebenthal Capital Markets    Ramirez & Co., Inc.    The Williams Capital Group, L.P.

Prospectus dated                     ,         .


Table of Contents

TABLE OF CONTENTS

 

     Page  

Basis of Presentation

     ii   

Market and Industry Data

     ii   

Prospectus Summary

     1   

Risk Factors

     16   

Special Note Regarding Forward-Looking Statements

     36   

Use of Proceeds

     38   

Dividend Policy

     39   

Capitalization

     40   

Dilution

     42   

Selected Consolidated Financial Data

     44   

Unaudited Pro Forma Condensed Consolidated Financial Statements

     47   

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

     54   

Regulation

     80   

Business and Properties

     85   

Management

     96   

Executive Compensation

     103   

Certain Relationships and Related Person Transactions

     115   

Description of Certain Indebtedness

     118   

The Separation

     120   

Principal Stockholders

     121   

Description of Securities

     123   

Certain Provisions of Delaware Law and of Our Charter and Bylaws

     126   

Shares Eligible for Future Sale

     131   

Certain U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders

     133   

Underwriting

     137   

Legal Matters

     143   

Experts

     143   

Where You Can Find More Information

     143   

Index to Consolidated Financial Statements

     F-1   

Part II Information Not Required in Prospectus

     II-1   

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

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

 

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BASIS OF PRESENTATION

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

Unless otherwise indicated, all references to “dollars” and “$” in this prospectus are to, and amounts are presented in, U.S. dollars. Unless otherwise indicated, (i) all references in this prospectus to “markets” and “radio markets” each refer to radio markets in the United States, (ii) all local market radio station ratings data are based on the average of the full year 2015 Nielsen individual market reports and (iii) all national ratings data is based on the Fall 2015 Nielsen National Regional Database (“Nielsen”). Unless otherwise indicated, all references in this prospectus to “our radio stations” refer to the radio stations owned and operated by CBS Radio as of September 30, 2016.

Unless otherwise indicated, the information contained in this prospectus is as of the date set forth on the cover of this prospectus, assumes that the underwriters’ option to purchase additional shares is not exercised and assumes that the common stock to be sold in this offering is sold at $         per share, which is the midpoint of the price range set forth on the front cover of this prospectus. Information related to our initial business and with respect to uses of proceeds is estimated as of the anticipated completion of this offering and the pre-offering financing (as defined below).

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

MARKET AND INDUSTRY DATA

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

 

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PROSPECTUS SUMMARY

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

For more information on how we calculate and define Adjusted OIBDA and a reconciliation of Adjusted OIBDA to net income (loss) from continuing operations, see “—Summary Consolidated Financial Data.”

Overview

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. We focus on three areas of content: Sports, News and Music & Entertainment. Our 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 Alternative Rock (KROQ® in Los Angeles) radio stations. We own the #1- or #2-rated local Sports radio station and the #1-rated All-News radio station in each of the markets in which we program these formats. Our radio stations reached an audience of more than 65 million people per week in 2015, making us the second largest radio group in the United States as measured both by audience and by revenue. We also distribute our content through an integrated suite of digital properties, including market-focused local websites, Radio.comTM (a streaming service), Eventful® (an event discovery platform) and Play.it® (a podcast network), which collectively reached an average of 63.1 million internet and mobile unique users per month in 2015. In addition, we produce events across our markets, including concerts, multi-day musical festivals, speaker series, trade shows and sports-related events. We produced, co-produced or co-promoted approximately 500 such events in 2015.

We focus primarily on large metropolitan markets through clusters of radio stations and digital properties. We have the #1- or #2-ranked station clusters in approximately 75% of our markets as measured by revenue, as reported by the public accounting firm Miller Kaplan Arase, LLP. As of October 2016, we employed over 900 sales personnel dedicated to local and national radio advertising, digital advertising and events, with a local presence in all of the markets in which we operate.

Upon completion of both this offering and the Separation, we believe we will be a very well-capitalized company and well-positioned to take advantage of our strong assets, scale and competitive strengths to grow our business.

Content and Programming

We produce and distribute compelling content for multiple media platforms, including our radio stations and owned web, mobile, streaming and podcast properties, as well as on third party platforms such as Facebook, Twitter, Instagram, Tune-In and YouTube. Our 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. We are 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 WBZ-FM in Boston). We own the #1-rated local Sports radio station in 13 of the 14 markets in which we program a local Sports format. For the year ended December 31, 2015, we broadcast over 3,000 live games for over 30

 



 

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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. Our sports radio stations feature popular local personalities, who deliver sports-related news, opinion and debate and facilitate audience interaction on local sports. In addition, we own 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 our radio stations) across the United States.

 

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

 

    Music & Entertainment. We provide our audience with unique music and entertainment experiences through personality-driven local programming. Our 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. We have 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), Alternative Rock (KROQ-FM in Los Angeles), Rhythmic AC (94.7 The Wave in Los Angeles) and Adult Album Alternative (WXRT-FM® in Chicago), according to Nielsen. We also introduce new and emerging artists to our audiences through our over-the-air and digital platforms and develop exclusive content with artists, including interviews and live performances.

Radio Stations

As of September 30, 2016, we own and operate 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 our 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

We operate digital properties on multiple platforms, including websites, mobile apps, and social media, and through third-party distribution partners. We stream our over-the-air radio station broadcasts and internet-only stations and provide on-demand audio and video content and text, imagery and event information. Our digital properties complement our business and operations and positively impact our operating results.

 

   

Music & Entertainment Station Websites. We maintain an online presence for each of our Music & Entertainment stations, including KROQ.com in Los Angeles, B96.com in Chicago and V-103.com in

 



 

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Atlanta. We distribute content that we broadcast on our radio stations across our Music & Entertainment station websites, and we drive traffic to these websites by using extensive and integrated on-air promotion. Our Music & Entertainment station websites, in turn, promote and drive traffic to our radio stations.

 

    Market-Focused Local Websites. All of our Sports and News radio stations have a digital presence on 23 market-focused local websites that are operated jointly with CBS, including CBSNewYork.com, CBSBoston.com and CBSSanFrancisco.com. Each of these market-focused local websites provides extensive locally focused news, sports and traffic and weather information utilizing the video and audio content produced by our radio stations and CBS’s owned and operated television stations, where applicable, in that market. In connection with this offering, we will enter into a joint digital services agreement with CBS, pursuant to which, for a period of time following this offering, CBS will continue to operate certain aspects of the market-focused local websites covering our markets on behalf of both CBS and CBS Radio, and CBS Radio will continue to sell advertising on these websites. See “Certain Relationships and Related Person Transactions.”

 

    Radio.com. We provide streaming services through our Radio.com platform, where users can listen live to over 250 stations online, including simulcasts of our over-the-air radio stations as well as internet-only radio stations, such as Today’s Big Country and Smooth Jazz. Radio.com generates more than 24.5 million listening hours per month.

 

    Eventful. Our local event discovery business, Eventful, provides its 26 million registered users and over 9 million monthly unique visitors with local event information ranging from concerts to movies to restaurants. Eventful’s services can also be accessed through our music radio station websites and the 23 CBS market-focused local websites in all of our markets. Eventful also provides ticketing services to consumers and licenses its events data to third parties.

 

    Play.it. Our podcast network, Play.it, offers a portfolio of over 300 different podcast titles and delivers approximately 24 million streams and downloads per month. Examples include “Engage: The Official Star Trek PodcastTM” focused on Star Trek® and “Rap Radar®” focused on hip hop.

Events

We create, promote and produce a diverse range of live events, ranging from concerts and multi-day music festivals to speaker series and sports-related events. Our events complement our business and operations and positively impact our operating results. In 2015, we produced, co-produced or co-promoted approximately 500 live events. Live events offer unique, out-of-home experiences for our audiences, as well as sponsorships, exhibit space and consumer engagement opportunities for our advertisers. Our events in 2015 included:

 

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

 

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

 

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

Sources of Revenue

Our revenue is derived from Broadcasting and Digital, Events and Other sources. For the year ended December 31, 2015, we generated approximately 75% of our revenue from local advertisers and 25% from national advertisers.

 



 

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Broadcasting Revenue. We generate Broadcasting revenue from the sale of advertising time on our 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, 2015, we generated Broadcasting revenue of $1.00 billion, representing approximately 81% of our total revenues for this period.

Digital, Events and Other Revenue. We generate digital revenue primarily from the sale of display, audio and video advertising across our digital properties, which enables us to further monetize the content produced by our radio stations. We also generate 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 we produce, co-produce and co-promote. Other revenues are generated primarily from the syndication of our programming, sponsorships of programming features and naming rights of radio station assets. For the year ended December 31, 2015, we generated Digital, Events and Other revenues of $229.5 million, representing approximately 19% of our total revenues for this period.

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 230 million listeners in 2006 to 240 million listeners in 2015, according to Nielsen.

 

  3. Radio listening predominantly occurs away from home, according to Nielsen, and it remains the primary in-car medium according to Edison Research and Triton Digital.

 

  4. 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.

 

  5. In 2014, radio delivered a high return on investment across major listener categories, with payback per dollar spent ranging from $7.33 to $23.21, according to Nielsen.

Business Strengths

Large Market Focus and National Footprint. Our 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 “Broadcast Industry Overview: U.S. TV & Radio Stations, 2016 edition,” the 25 top radio markets generated $6.51 billion in radio advertising revenue for the year ended December 31, 2015. Our radio stations are in all of the top 10 radio markets, and 19 of the top 25 radio markets by revenue. We generate approximately 90% of our revenue from these 19 markets. Our share of revenue in the top 25 radio markets was 25% in 2015, based on Miller Kaplan Arase, LLP. In 2015, our average revenue per station in these top 25 markets was twice that of our average revenue per station in non-top 25 markets. Our portfolio of large market stations and digital properties, such as Radio.com, Eventful.com and Play.it, provides us with a national footprint and the ability to create compelling local and national campaigns for our advertisers across our broadcast, digital and live event offerings.

 



 

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Strong Radio Station Clusters and Local Market Scale. We own three or more radio stations in 24 of our 26 markets. Owning multiple stations and digital properties in a market allows us to capture a greater share of audience and advertising dollars. Station clusters allow us to gain scale in local markets, which increases our operating efficiency and profitability. We carefully construct our clusters and program our stations to appeal to distinct demographic groups to maximize their collective in-market reach. For example, in New York, we own 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. Our 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), Alternative Rock (KROQ in Los Angeles), Adult Album Alternative (WXRT in Chicago) and Adult Hits (KCBS-FM in Los Angeles) radio stations in the United States. We also own the #1- or #2-rated Sports radio stations and the #1-rated All-News radio stations in each of the markets in which we program these formats. Among our 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. We produce 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 our audience. Our audience turns to us for exclusive content, including news, live sports and sports talk. We employ more than 900 on-air talent who inform and entertain their listeners and serve their local communities. For the year ended December 31, 2015, we 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. We own and operate digital properties in all 26 of our markets, each of which is integrated with our in-market over-the-air radio stations, enabling our audience to consume our audio and video content across multiple platforms. Our digital properties expand our in-market reach, increase and broaden our audience and enhance our audience engagement. Our extensive local digital properties allow us to better serve our audience and provide our advertisers with increasingly effective, targeted and measurable digital advertising solutions, including as part of integrated campaigns utilizing our broadcast and live event platforms. Radio.com is our national web destination and dedicated mobile app providing the streams for all CBS Radio over-the-air and internet only stations, allowing for targeted demographic and geographic streaming audio sales opportunities. Play.it is our 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. Our business requires low levels of capital expenditures and generates significant operating cash flow. We also benefit from our national scale and the local clustering of our radio station and digital assets, which allows us to generate significant cash flows from incremental revenues. Upon completion of both this offering and the Separation, we believe we will be a very well-capitalized company and well-positioned to take advantage of our strong assets, scale and competitive strengths to grow our business.

Sales-Oriented Organization Led by Experienced Management Team. We have a strong sales-oriented culture with extensive local relationships focused on growing revenue across our platform through innovative marketing campaigns for our advertising clients. As of October 2016, we employed over 900 sales personnel dedicated to local and national advertising, digital advertising and events, with a local presence in all of the markets in which we operate. In the year ended December 31, 2015, we generated revenue share in excess of our audience share in every one of our 26 markets. CBS Radio is led by an experienced senior management team

 



 

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with strong sales and leadership capabilities and deep knowledge of the radio, digital and local media industries. Our President, 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, we benefit from highly experienced, sales-focused management teams in each of our local markets.

Operating Strategy

Continue to Develop Compelling Content. We develop and invest 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 our integrated radio, digital and event offerings. We focus on news and sports content in particular because of the live, up-to-the-minute nature of news and our audience’s passion for local sports, which increases our audience size and engagement with our radio stations and affiliated digital properties, providing attractive platforms for our advertisers. By continuing to seek, develop and invest in relevant audio, video and digital content, we intend to build upon the longstanding and intimate relationship between our local brands and on-air personalities and their audiences to sustain and increase listenership and provide effective advertising campaigns to our marketing partners.

Expand Multi-Platform Distribution. We distribute our audio and video content across our owned sites and third-party digital and mobile platforms to maximize our reach, serve our audience and enhance our offerings. Our 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 our digital platforms deliver. We believe that by increasing the availability and accessibility of our content across multiple platforms, including mobile and social media, we will expand our audience, strengthen our local brands and increase our relevance among our audience and our advertisers.

Grow Digital, Events and Other Revenues. We are focused on growing our digital and other non-broadcasting based revenues. Our large market footprint of strong radio station clusters and promotional capabilities provide us with a platform to expand our brands and content into digital platforms and develop new, complementary marketing products, including live local events. Digital platforms provide us opportunities to monetize our audio and video content through syndication, licensing and sponsorship arrangements. These non-broadcast revenue sources enhance our local brands and provide additional channels for us and our advertisers to engage audience via immersive and novel experiences.

Drive Enhanced Revenue Management. We focus on advertising rate discipline to improve revenue yield on our radio and digital properties. By carefully managing the amount of advertising inventory sold through third-party networks and selling that inventory at higher local and national spot rates, we seek to improve revenue yield on spot advertising. In addition, we collect and use audience data to inform our programming and enhance the targeting and measurement capabilities of our advertisers’ marketing campaigns. This data allows us to demonstrate to our advertisers the effectiveness of their campaigns, and helps us to attract and retain new advertisers for radio and digital platforms. We use our national radio and digital footprints to enhance our appeal to national advertisers and grow our national revenues.

Enhance Radio Clusters and Digital Assets via Selective Acquisitions. We will seek to optimize our existing radio clusters and expand into new markets. We will also evaluate opportunities to acquire synergistic digital properties and capabilities to enhance our local presence and broaden our national footprint. We believe that our existing scale, digital capabilities, strong balance sheet and management experience position us well to exploit potential consolidation opportunities to grow our business.

 



 

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Summary Risk Factors

An investment in our common stock involves various risks. You should carefully consider the matters discussed in “Risk Factors” beginning on page 16 of this prospectus before making a decision to invest in our common stock. Some of the risks include the following:

 

    The success of our business is dependent on advertising revenues, which are affected by numerous factors, many of which are beyond our control. A decline in advertising revenues could adversely impact our business, financial condition and results of operations;

 

    We operate in a highly competitive industry. We may lose audience or market share to competing media companies offering similar content on the media platforms in which we operate or other media platforms. These competing platforms include broadcast radio, cable and broadcast television networks, satellite radio, the internet, mobile devices and other technologically innovative platforms for content distribution;

 

    Major changes in how professional sports teams distribute and license content could adversely impact our business, financial condition and results of operations;

 

    We may lose key talent to competing radio stations or other types of media competitors;

 

    We will continue to be controlled by CBS following the offering. CBS’s interests in our business may conflict with our interests or the interests of our other stockholders;

 

    After the Separation, we may lose some benefits of our association with CBS, particularly with CBS owned and operated television stations, with which our radio stations share various services;

 

    Our board of directors has the power to take or cause certain actions and our amended and restated certificate of incorporation contains certain governance features that could make a change in control of our Company more difficult, which could adversely impact stockholders; and

 

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

Corporate Information

Our principal executive offices are located at 1271 Avenue of the Americas, Fl. 44, New York, NY 10020. Our telephone number is (212) 649-9600.

Our Relationship with CBS

Currently, and at all times prior to the completion of this offering, CBS indirectly will own 100% of our outstanding common stock. We are offering              shares of our common stock in this offering, and upon the completion of this offering, CBS indirectly will own approximately     % of our outstanding common stock, or approximately     % if the underwriters exercise their option to purchase additional shares in full, and we will continue to be controlled by CBS. As a result, CBS will be able to exert significant influence over us and our corporate decisions. See “Risk Factors—Risks Related to Our Affiliation with and Separation from CBS.”

Prior to the consummation of this offering, on             , our board of directors declared a             -for-one split of our common stock effected through a dividend to our parent, a wholly owned subsidiary of CBS. As a result of the stock split, the              shares of our common stock then outstanding were converted into             shares of our common stock. Also on             , prior to the consummation of this offering, our board of directors declared a contingent dividend to our parent, payable in an aggregate amount of shares of our common stock less the total number of shares of our common stock actually purchased by the underwriters pursuant to their option to purchase additional shares. These shares of our common stock, if any, are payable to our parent at the end of the             -day period in

 



 

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which the underwriters may exercise their option to purchase additional shares. As a result, there will be             shares of our common stock outstanding regardless of whether the underwriters exercise their option to purchase additional shares. After the stock split, all share data of our Company presented in this prospectus will be adjusted to reflect this stock split. All share data that is pro forma for this offering assumes that the full amount of the contingent dividend has been paid to our parent.

Prior to this offering, we will distribute a note to our parent, CBS Broadcasting Inc., an indirect wholly owned subsidiary of CBS, pursuant to which we will owe such subsidiary a principal amount equal to the net proceeds of this offering (the “CBS Note”). The CBS Note will mature on the date that is 91 days after the later of (i) the latest maturity date applicable to any loan or commitment under the Credit Agreement (as defined below) and (ii) November 1, 2024. The CBS Note may be prepaid in whole or in part at the option of CBS Radio without premium or penalty. The CBS Note requires CBS Radio to repay it within five business days of the consummation of this offering. We intend to use the net proceeds from this offering to repay the CBS Note. Accordingly, none of the proceeds from this offering will be available to fund the operation of our business. See “Use of Proceeds.”

CBS provides us with certain services, such as use of certain brands and call signs, insurance, support for technology systems, operation of market-focused local websites for CBS’s owned and operated television stations and our radio stations, and also provides benefits to our employees, including medical, dental, life and disability insurance, participation in a 401(k) savings plan and certain post-employment benefits. CBS also provides us with centralized corporate services, such as tax, internal audit, cash management and other services. Effective January 1, 2017, it is contemplated that our employees will begin participating in employee plans maintained by us, although certain of our employees will continue to be entitled to benefits under certain CBS defined benefit pension and post-retirement health plans. Prior to the completion of this offering, we will enter into various agreements to govern our relationship with CBS during the period between the completion of this offering and the effective date of the Separation, for the period after the effective date of the Separation and to complete the Separation of our business from CBS. For a description of these agreements, see “Certain Relationships and Related Person Transactions.”

Pre-Offering Financing

On October 17, 2016, we entered into a five-year $250 million senior secured revolving credit facility due 2021 (the “Revolving Credit Facility”) and a $1.06 billion senior secured term loan credit facility due 2023 (the “Term Loan”) pursuant to a credit agreement among CBS Radio, the guarantors named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). On October 17, 2016, we borrowed the full amount of the Term Loan. On November 17, 2016, we prepaid $45 million of the Term Loan, leaving $1.015 billion outstanding on the Term Loan. At November 18, 2016, there were no outstanding borrowings under the Revolving Credit Facility. The Revolving Credit Facility will be used for general corporate purposes, including the issuance of letters of credit, and ongoing cash needs.

Also on October 17, 2016, we issued $400 million aggregate principal amount of 7.250% senior notes due 2024 (the “Senior Notes”) pursuant to an indenture dated as of October 17, 2016 among CBS Radio, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). The Senior Notes were offered within the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.

As a result of the borrowings under the Term Loan and the issuance of the Senior Notes described above (collectively, the “Pre-Offering Borrowing”), we incurred indebtedness of $1.460 billion, resulting in net proceeds of approximately $1.432 billion after deducting bank fees, discounts and commissions and other

 



 

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expenses payable by us incurred in connection therewith. We distributed to our parent, a wholly owned subsidiary of CBS, approximately $1.426 billion, which is an amount equal to the net proceeds of the Pre-Offering Borrowing, prior to deducting expenses payable by us, less $10 million which remained with us to use for general corporate purposes and ongoing cash needs.

We refer to the above transactions as the “pre-offering financing.”

 



 

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The Separation

CBS has advised us that it currently intends to dispose of all of the shares of our common stock that it indirectly will own upon the completion of this offering, following the “lock-up period” described under “Underwriting.” CBS has advised us that it intends to effect the Separation by means of a tax-free split-off, pursuant to which CBS will offer its stockholders the option to exchange their shares of CBS common stock for shares of our common stock in an exchange offer. If CBS undertakes and consummates an exchange offer, but the exchange offer is not fully subscribed because less than all of the shares of our common stock owned by CBS are exchanged, the remaining shares of our common stock owned by CBS may be offered in one or more subsequent exchange offers (together with the initial exchange offer, the “exchange offer(s)”) and/or distributed on a pro rata basis to CBS stockholders whose shares of CBS common stock remain outstanding after consummation of the exchange offer(s) (such distribution, together with the exchange offer(s), the “split-off”). If CBS does not proceed with the split-off, it could elect to dispose of our common stock in a number of different types of transactions, including open market sales, mergers with one or more third parties, sales to one or more third parties or pro rata distributions of our shares to CBS’s stockholders or a combination of these transactions. CBS could also elect not to dispose of our common stock. The determination of whether, when and how to proceed with the Separation is entirely within the discretion of CBS.

Except for the “lock-up period” described under “Underwriting,” CBS is not subject to any contractual obligation to maintain its share ownership. For more information on the potential effect of CBS’s disposition of our common stock by means of the Separation or otherwise, please read “Risk Factors—Risks Related to Our Affiliation with and Separation from CBS—Transfers of our common stock owned by CBS could adversely impact your rights as a stockholder and the market price of our common stock.

 



 

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This Offering

 

Common Stock Offered by Us

             Shares

 

Common Stock to Be Outstanding After this Offering

             Shares

 

Use of Proceeds

We estimate that we will receive gross proceeds from this offering of approximately $        , or approximately $         if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus. After deducting the underwriting discounts, commissions and other estimated expenses of this offering, we expect net proceeds from this offering of approximately $        , or approximately $         if the underwriters exercise their option to purchase additional shares in full.

 

  Prior to the offering, we will distribute the CBS Note to our parent, CBS Broadcasting Inc., an indirect wholly owned subsidiary of CBS, pursuant to which we will owe such subsidiary a principal amount equal to the net proceeds of this offering. The CBS Note will mature on the date that is 91 days after the later of (i) the latest maturity date applicable to any loan or commitment under the Credit Agreement and (ii) November 1, 2024. The CBS Note may be prepaid in whole or in part at the option of CBS Radio without premium or penalty. The CBS Note requires CBS Radio to repay it within five business days of the consummation of this offering. We intend to use the net proceeds from this offering to repay the CBS Note. Accordingly, none of the proceeds from this offering will be available to fund the operation of our business. See “Use of Proceeds.”

 

Dividend Policy

After the completion of this offering and assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover of this prospectus, we expect to pay a quarterly cash dividend on our common stock of $         per share, or $         per annum, commencing in the              quarter of             . The payment of such dividend in the              quarter of              and any future dividends will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any existing or potential indebtedness we have incurred or may incur, restrictions imposed by applicable law and other factors that our board of directors deems relevant. See “Dividend Policy” for additional information with respect to dividends.

 

  In addition, our ability to pay dividends on our common stock will be limited by restrictions on our ability to pay dividends or make distributions to our stockholders and on the ability of our subsidiaries to pay dividends or make distributions to us, in each case, under the terms of our current and any future agreements governing our indebtedness.

 



 

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Listing

We intend to apply to list our common stock on the NYSE under the symbol “CBSR.”

 

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully read and consider the information set forth under “Risk Factors” beginning on page 16 and all other information in this prospectus before investing in our common stock.

The number of shares of our common stock to be outstanding after this offering excludes shares of our common stock reserved for future issuance under the CBS Radio Omnibus Incentive Plan, which we refer to as the “Omnibus Incentive Plan,” and which we intend to adopt immediately prior to the completion of this offering.

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

 



 

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Summary Consolidated Financial Data

The following table summarizes our consolidated financial data for the periods presented. The summary historical consolidated statements of operations and cash flow data for the nine months ended September 30, 2016 and 2015 and the summary historical consolidated balance sheet information as of September 30, 2016 have been derived from our unaudited historical consolidated financial statements, included elsewhere in this prospectus. The summary historical consolidated statements of operations and cash flow data for the years ended December 31, 2015, 2014 and 2013 and the summary historical consolidated balance sheet information as of December 31, 2015 and 2014 have been derived from our audited historical consolidated financial statements, included elsewhere in this prospectus. The summary historical consolidated balance sheet information as of December 31, 2013 has been derived from our audited consolidated financial statements, not included in this prospectus. The summary historical consolidated balance sheet information as of September 30, 2015 has been derived from our unaudited consolidated financial statements, not included in this prospectus. The summary pro forma condensed consolidated statements of operations for the nine months ended September 30, 2016 and for the year ended December 31, 2015 and the summary pro forma condensed consolidated balance sheet information as of September 30, 2016 have been derived from our unaudited pro forma condensed consolidated financial statements, included elsewhere in this prospectus. The unaudited historical consolidated financial statements have been prepared on the same basis as our audited historical consolidated financial statements and in the opinion of our management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of this information. The results for any interim period are not necessarily indicative of the results that may be expected for a full year.

The summary unaudited pro forma condensed consolidated statements of operations and balance sheet information has been adjusted to reflect the incurrence of indebtedness and use of the net proceeds of the Pre-Offering Borrowing, after deducting bank fees, discounts and commissions, and other expenses payable by us incurred in connection therewith, as described under “Pre-Offering Financing”; the sale of the common stock offered hereby; the receipt and use of the estimated net proceeds from this offering after deducting underwriting discounts, commissions and other estimated expenses of this offering payable by us, as described under “Use of Proceeds”; and incremental costs we will incur as a stand-alone public company. The unaudited pro forma condensed consolidated financial information for the year ended December 31, 2015 and as of and for the nine months ended September 30, 2016 is presented as if this offering, the pre-offering financing and, in each case, the use of net proceeds therefrom all had occurred as of the last day of the period presented for the purposes of the unaudited pro forma condensed consolidated balance sheet information and on January 1, 2015 for the purposes of the unaudited pro forma condensed consolidated statements of operations.

No pro forma adjustments have been made with regard to the disposition of the remaining shares of common stock to be held by CBS after the completion of this offering. See “The Separation.”

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

 



 

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

 

    

Nine Months Ended

September 30,

                 

Year Ended

December 31,

 
   

Pro

Forma

          Historical                

Pro

Forma

          Historical  
    2016           2016     2015                 2015       2015     2014     2013  
(in millions, except per share
amounts)
                                                                            

Statement of Operations data:

                       

Revenues

  $ 894.1        $ 894.1      $ 907.2            $ 1,230.6        $ 1,230.6      $ 1,303.0      $ 1,306.4   
 

Operating income (loss)

  $ 199.5        $ 216.0      $ 172.0            $ (262.3     $ (240.3   $ 299.3      $ 360.2   

Net income (loss) from continuing operations

  $ 83.4        $ 130.2      $ 102.2            $ (199.3     $ (136.5   $ 176.5      $ 214.1   
 

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

  $          $   1,860,000      $   1,460,000            $          $   (1,950,000   $   2,521,429      $   3,058,571   
 

Balance Sheet data (at period end):

                       

Total assets

  $   5,167.5        $ 5,161.2      $ 5,775.8                $ 5,216.5      $ 5,771.6      $ 5,790.2   

Current liabilities

  $ 92.6        $ 82.0      $ 94.5                $ 105.9      $ 102.3      $ 112.4   

Long-term debt

  $ 1,421.5        $      $                $      $      $   

Total stockholders’ equity/invested equity

  $          $ 3,956.5      $ 4,345.9                $ 3,994.1      $ 4,360.2      $ 4,392.0   
 

Cash Flow data:

                       

Cash flow provided by operating activities from continuing operations

      $ 171.6      $ 130.5                $ 212.8      $ 276.9      $ 264.3   
 

Non-GAAP financial data:

                       

Adjusted OIBDA (b)

  $ 229.9              $ 246.4      $ 227.8                      $ 299.8              $ 321.8      $ 402.3      $ 413.1   

 

(a) 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 our common stock. Prior to the consummation of this offering, we intend to conduct a stock split to increase the aggregate number of outstanding shares of our common stock. Subsequent to the stock split, basic and diluted net income (loss) from continuing operations per common share will be restated to reflect the post-split shares for all periods presented.

 

(b) Adjusted OIBDA is a measure of performance not calculated in accordance with accounting principles generally accepted in the United States (“GAAP”). We define “Adjusted OIBDA” as operating income before depreciation, stock-based compensation expense, restructuring charges and impairment charges. We use Adjusted OIBDA to evaluate our operating performance. Adjusted OIBDA is among the primary measures we use for planning and forecasting of future periods, and it is an important indicator of our operational strength and business performance. We believe Adjusted OIBDA is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by our management, helps improve investors’ understanding of our operating performance and makes it easier for investors to compare our results with other companies that have different financing and capital structures or tax rates. In addition, Adjusted OIBDA is among the primary measures used by investors, analysts and peers in our industry for purposes of valuation and the comparison of the operating performance of companies in our industry.

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

 



 

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

 

    

Nine Months Ended

September 30,

                 

Year Ended

December 31,

 
   

Pro

  Forma  

          Historical                

Pro

  Forma  

          Historical  
    2016           2016     2015                 2015       2015     2014     2013  
(in millions)                                                                             

Net income (loss) from continuing operations

  $ 83.4        $ 130.2      $ 102.2            $   (199.3     $   (136.5   $ 176.5      $ 214.1   

Exclude:

                       

Provision (benefit) for income taxes

    55.1          85.8        69.8              (144.7       (103.8     122.8        146.1   

Interest expense

    61.0                              81.7                          

Impairment charges

                                 482.9          482.9        48.6          

Restructuring charges

                    23.3              36.5          36.5        7.0        5.1   

Depreciation

    19.8          19.8        21.3              28.5          28.5        30.8        31.3   

Stock-based compensation (1)

    10.6                10.6        11.2                        14.2                14.2        16.6        16.5   

Adjusted OIBDA

  $   229.9              $   246.4      $   227.8                      $ 299.8              $ 321.8      $   402.3      $   413.1   

 

  (1) For the nine months ended September 30, 2015 and the year ended December 31, 2015, stock-based compensation of $.9 million and $2.9 million, respectively, was reflected in restructuring charges.

 



 

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RISK FACTORS

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

Risks Related to Our Business and Operations

The success of our business is dependent on advertising revenues, which are affected by numerous factors, many of which are beyond our control. A decline in advertising revenues could adversely impact our business, financial condition and results of operations.

The majority of our revenue is generated from the sale of local and national advertising on our broadcast radio and digital platforms. Our advertising revenue is substantially impacted by overall economic conditions. If the national economy experiences a downturn or stagnation, it could result in reductions in spending by advertisers in general or in segments of the advertising market that purchase a relatively large amount of advertising from us. Such reductions could adversely impact our business, financial condition and results of operations.

Other factors that may impact our ability to sell advertising, and which are beyond our control, include:

 

    regional or local economic conditions in the areas where our radio stations are located or where potential advertisers’ businesses are located;

 

    our competitors’ activities, including increased competition from other advertising-based media;

 

    reductions in advertising spending levels or changes in advertisers’ strategies regarding advertising spending, both generally and on the platforms through which we deliver content to our customers;

 

    a general perception among advertisers of the effectiveness of advertising on the broadcast radio and digital platforms through which we deliver content to our customers; and

 

    advertising agency consolidation could result in a reduction of our rates and, in turn, advertising revenue.

We cannot ensure that our existing advertisers will continue to purchase advertising from us, or that we will be able to replace in a timely or effective manner departing advertisers with new advertisers from whom we can generate comparable revenue. Advertising agreements are generally short term in nature and are cancelable upon short notice.

Advertising rates and revenues are seasonal, which may cause our quarterly earnings to vary.

Advertising rates and revenues are impacted by seasonal cycles that are separate from general economic trends, which may cause our quarterly earnings to vary. Generally, lower revenue is generated in the first and third quarters of the year and higher revenue is generated in the second and fourth quarters of the year. This seasonality causes and will likely continue to cause a variation in our quarterly operating results, which could impact our ability to generate predictable revenue. These advertising cycles and our ability to effectively manage such cycles may adversely impact our business, financial condition and results of operations.

We operate in a highly competitive industry. We may lose audience or market share to competing media companies offering similar content on the media platforms in which we operate or other media platforms.

In each media distribution platform on which we operate, we compete for audience and advertising revenues with a wide range of media companies offering similar content, including through broadcast radio, cable and

 

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broadcast television and networks, satellite radio, local, regional and national newspapers, magazines, the internet and mobile devices and other technologically innovative platforms for content distribution. If we are unable to compete successfully with other media companies to attract and maintain our audience, advertisers may be less willing to purchase advertising from us, which could adversely impact our business, financial condition and results of operations.

We compete with other media companies by providing high-quality content to our audiences. Our ability to attract audiences depends in large part upon audience acceptance of our content, which is based, among other things, on (1) our ability to determine the type of content that our audience wants and to adapt to changes in audience’s tastes and behavior on a timely basis, (2) our ability to deliver the content we develop (see “—We compete to distribute the same or similar content across various media distribution platforms. We may lose audience or market share to competing distribution platforms. In particular, if we fail to expand our digital audience or our ability to monetize our digital platforms, it could adversely affect our business, financial condition and results of operations.”), (3) the quality and acceptance of competing content released into the marketplace at or near the same time by other media companies and (4) our ability to market our content to our potential audience. Our failure in any of these factors or others could decrease our audience size, threaten our ability to generate advertising revenues and adversely impact our business, financial condition and results of operations.

Our competitors may adversely impact our business, financial condition and results of operations.

Our broadcast radio competitors compete intensely to increase their respective audience shares, which may impact our profitability. Our competitors may drop advertising rates, operate commercial-free for periods of time or a combination of these and other practices, which could result in the loss of our audience and/or increase the market share of our competitors. In addition, some of our pure-play digital competitors in the digital marketplace operate at significant losses year-to-year to win market share or to increase interest in a particular product or platform. All of these practices make it more difficult for us to attract advertisers at profitable rates in the broadcast radio advertising market, which could adversely impact our business, financial condition and results of operations.

Increases in or new royalties, including through legislation, could adversely impact our business, financial condition and results of operations.

We 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 our radio stations and websites. The emergence of new PROs, such as Global Music Rights, could increase the royalties that we pay. Although we pay royalties to record labels and recording artists for distributing music content online, we 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. We cannot predict whether any proposed legislation will become law. In addition, royalty rates are subject to adjustment and it is possible that our royalty rates associated with obtaining rights to use musical compositions and sound recordings in our 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 us) for allegedly infringing their exclusive right of public performance in certain states. In August 2015, we were 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 case against us, which judgment is being appealed by the record companies in this case. In August 2016, the New York court denied our motion for summary judgment without reaching the merits of the motion and stayed the

 

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case until the New York Court of Appeals and the Second Circuit Court of Appeals resolve whether there exists a public performance right for Pre-1972 Recordings under New York law in the Flo & Eddie, Inc. v. Sirius XM Radio Inc. lawsuit. The court’s denial of our motion is without prejudice to our right to refile it should our case not be mooted by the decision of the appellate courts in the Flo & Eddie case. We intend to vigorously defend ourself in these matters; however, decisions adverse to us in these matters could impede our ability to broadcast or stream the Pre-1972 Recordings and/or increase our royalty payments. New or increased royalty payments could increase our expenses, which could adversely impact our business, financial condition and results of operations.

Major changes in how professional sports teams distribute and license content could adversely impact our business, financial condition and results of operations.

We are a major distributor of sports content. We are the exclusive radio broadcast play-by-play rights holder for over 30 professional sports teams in the NFL, MLB, the NBA, the NHL and MLS. Changes in how the major professional leagues or teams license or control the rights to their programming may threaten our position as a rights holder. For example, if professional sports leagues or teams decide to broadcast their own content on radio stations that they own or control, our exclusive position could be adversely impacted. Furthermore, changes in technology or audience viewing habits, or a decline in popularity in any or all sports, may negatively affect the audience for this exclusive content. Any of these events could adversely impact our business, financial condition and results of operations.

In addition, our exclusive radio broadcast rights are generally governed by multi-year contracts. If we are unable to renew these contracts, we will lose the related revenues, which we may be unable to replace through other content. Even if these contracts are renewed, the cost of obtaining the exclusive radio broadcast rights may increase and/or the related revenue may be reduced. Any of these events could adversely impact our business, financial condition and results of operations.

We compete to distribute the same or similar content across various media distribution platforms. We may lose audience or market share to competing distribution platforms. In particular, if we fail to expand our digital audience or our ability to monetize our digital platforms, it could adversely affect our business, financial condition and results of operations.

We have historically operated as a broadcast radio company, and, over time, have increased our digital presence. We now distribute our content through a variety of distribution platforms, including over-the-air and online. We compete with other radio companies as well as digital content providers in these platforms for audience attention and advertising revenues. If we are unable to continue broadening our ability to deliver content over multiple distribution platforms to meet market demands, it could threaten our ability to maintain and increase our audience size or to access different forms of advertising revenues. Furthermore, if our audiences choose to access content through platforms on which we have relatively less presence, or through which we do not distribute any content, it could result in a decrease in our audience size and loss of advertising revenues.

In the event we succeed in expanding our digital platforms, we may not be able to expand our digital audience if we fail to market our new distribution platforms properly to existing and new audiences. Potential audiences may expect to find our content on broadcast radio because we are a radio broadcaster, but may be unaware of, or not sufficiently interested in, our newer and more innovative distribution platforms. Any of these results could result in a loss of audience or market share to competing distribution platforms, which results could adversely impact our business, financial condition and results of operations.

In addition, even if we succeed in expanding our digital audience, we may risk failing to expand our ability to monetize our digital platforms. Although we are increasingly distributing our content through digital platforms, the rates we charge for online and mobile advertisements are currently less than those we charge for broadcast radio advertisements. If we are unable to sufficiently increase the rates we charge for online and

 

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mobile advertisements, a significant shift in audience to those platforms could lower our advertising revenues, which could adversely impact our business, financial condition and results of operations. Our costs associated with online distribution may be higher than distribution via broadcast radio for the same content. As more music content is distributed to customers through online platforms, these costs may increase more than if such an increase in audience size had occurred in a broadcast radio audience. These increases in costs could adversely impact our business, financial condition and results of operations.

Further, profitability is generally lower from our content distributed through digital platforms than that distributed over broadcast radio because of higher costs and lower revenue generation potential associated with digital platforms. See “—We compete to distribute the same or similar content across various media distribution platforms. We may lose audience or market share to competing distribution platforms. In particular, if we fail to expand our digital audience or our ability to monetize our digital platforms, it could adversely affect our business, financial condition and results of operations.” As a result, the distribution of content on a digital platform may, in general, be less profitable than the distribution of the same content on the broadcast radio platform, which could adversely impact our business, financial condition and results of operations.

We have experienced a declining trend in our broadcast advertising revenues.

Since 2013, we have experienced a declining trend in our traditional broadcast spot advertising revenues resulting from industry-wide challenges, as well as increased competition in the programming formats we offer. Our industry is highly competitive and the radio advertising marketplace has been affected by competition from the proliferation of digital platforms. See “—We compete to distribute the same or similar content across various media distribution platforms. We may lose audience or market share to competing distribution platforms. In particular, if we fail to expand our digital audience or our ability to monetize our digital platforms, it could adversely affect our business, financial condition and results of operations.” Any future declining trend in our broadcast advertising revenues could adversely impact our business, financial condition and results of operations.

Revenue generated from the distribution of broadcast radio to audiences in automobiles may decline as a result of various factors.

We operate in an industry that has been and will continue to be subject to significant technological change, including the addition of online and other listening platforms to deliver content in automobiles in addition to, or instead of, broadcast radio. See “—Our failure to respond timely or appropriately to changes in technology could adversely impact our business, financial condition and results of operations.” Our listeners in automobiles historically listened to our content over AM/FM broadcast radio platforms. As more automobiles are equipped with online platforms, our listeners may access that content through one of our online platforms, or not at all. Any of these developments could adversely impact our business, financial condition and results of operations.

Our failure to respond timely or appropriately to changes in technology could adversely impact our business, financial condition and results of operations.

Our industry is subject to rapid technological change, including in the ways in which content is delivered to our audience and advertisements are distributed to customers. Some recent technological changes include:

 

    personal digital audio devices (e.g., smartphones, tablets), some of which may not be compatible with the platforms on which we currently offer or plan to offer our content to our audience;

 

    satellite radio stations;

 

    internet-only content providers, cable systems, direct broadcast satellite systems, streaming services and other digital audio platforms; and

 

    on-demand streaming and podcasting that permit users to listen to programming on a time-delayed basis and to fast-forward through programming and/or advertisements.

 

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These or other new technologies have the potential to change the means by which advertisers can reach target audiences effectively. We cannot predict the effect, if any, that competition arising from these technological changes to distribution methods or other technology changes may have on our business. We may not have the resources to acquire and deploy other technologies or to create or introduce new services that could effectively compete with these technological changes to distribution methods or other technologies. Further, changes in technology and how consumers interact with new technologies could cause us to invest at higher levels on research and development relating to products, services and capabilities so that we can remain competitive. During such time as we are making such investments our profit margins may be reduced. Any of these factors could adversely impact our business, financial condition and results of operations.

We could suffer losses due to asset impairment charges for Federal Communications Commission (“FCC”) licenses and goodwill, which may adversely impact our business, financial condition and results of operations.

As of September 30, 2016, our FCC licenses and goodwill comprised 92% of the book value of our assets. We test 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 our operating segment. As of September 30, 2016, we had three reporting units. During 2015, we 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. Based on our most recent annual impairment test for goodwill and FCC licenses performed during the fourth quarter of 2015, after the above-mentioned impairment charge, the carrying value of one of our three reporting units was within 5% of its estimated fair value, another reporting unit was within 10% of its estimated fair value, the carrying values of FCC licenses in 18 radio markets was equal to their respective fair values and the carrying values of FCC licenses in four radio markets was within 10% of their respective estimated fair values. Any downward revisions to the estimated fair value of our reporting units and/or these FCC licenses could cause the estimated fair value to fall below their respective carrying values, which could result in a noncash impairment charge. Any impairment charge for goodwill and/or FCC licenses could have a material adverse effect on our net income.

We are a business with a significant number of fixed costs. These high fixed costs could adversely impact our business, financial condition and results of operations.

Our broadcast radio operations have high fixed costs. These fixed costs include talent, infrastructure (including tower leases and rent) and licensing costs (including our contracts for broadcast content), among others. We also have high fixed costs associated with our digital platforms, including talent and content licensing costs, equipment costs and computer software licensing costs. These significant fixed costs may result in greater adverse impacts during periods of economic downturn when revenues decrease and our fixed costs remain relatively constant, which could adversely impact our business, financial condition and results of operations.

Unavailability of or inaccuracies in third-party measurements of our audience size or demographics may adversely impact our ability to maintain or grow advertising revenue.

We rely on third-party services to measure the reach of our radio stations and composition of their audiences and their digital distribution. Third-party measurements may underreport our audience size or inaccurately report our audience demographics, including relative to our competitors’ comparable measurements or relative to other forms of media. In addition, if advertisers do not have confidence in the accuracy of these third-party measurements or there are changes in the measurement methodologies, such developments could lower advertiser interest in advertising with us and lower the rates that we can charge for advertising, thereby adversely impacting our business, financial condition and results of operations.

It may take time for third-party services to develop rating systems that comprehensively and accurately measure the audience reach provided by new media platforms. For example, we presently deliver content to our

 

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customers through digital platforms, including mobile hardware and through various applications on both mobile and other electronic devices. Measurement methodologies across various distribution platforms may not be consistent and, as a result, it may be difficult to ascertain the true reach of our content across multiple platforms. The lack of an accurate report of our total audience reach across distinct platforms could make it difficult to generate advertising revenues on these platforms, which could adversely impact our business, financial condition and results of operations.

Any failure to remain current with search engine methodologies and social media distribution techniques could adversely impact our online traffic.

Our ability to sell online advertising is determined in part by our volume of online traffic. Online traffic is driven in part by internet search results and discovery through social media platforms. Search engines and social media platforms frequently update the algorithms determining how and when relevant publisher content is surfaced to the consumer. The failure to successfully manage search engine optimization efforts and social media platform distribution techniques across our business could result in a decrease in traffic to our various websites. If traffic levels stagnate or decline, we may not be able to create sufficient advertiser interest in our digital platforms or maintain or increase the advertising rates. These events could adversely impact our business, financial condition and results of operations.

Current and future government regulation, including by the FCC, may limit our broadcast radio and other operations or adversely impact our business, financial condition and results of operations.

We are subject to federal regulation by the FCC. See “Regulation.” We cannot be sure that the FCC will approve the renewal of the licenses we must have to operate our radio stations or that our licenses will be renewed without conditions and for a full term. The nonrenewal, or conditioned renewal, of a substantial number of our FCC licenses could adversely impact our business, financial condition and results of operations.

Furthermore, the U.S. Congress, the FCC and other regulatory agencies have adopted, and may in the future consider and adopt, new laws, regulations, policies and decisions that could, directly or indirectly, adversely impact our business, financial condition and results of operations. These rules include:

 

    The FCC’s local radio ownership rule applies in all markets where we own radio stations. Under that rule, one party may own up to eight radio stations in the largest markets, no more than five of which may be either AM or FM. With a few exceptions, the rule permits the common ownership of eight radio stations in the top 50 radio markets, where we have significant holdings. This rule and others limit our ability to own broadcast radio and some other types of media, such as newspapers and television stations, could impede future growth in the radio or other media industries and could adversely impact our business, financial condition and results of operations.

 

    In general, the Communications Act of 1934, as amended (the “Communications Act”), prohibits foreign individuals or entities from owning more than 25% of the voting power or equity of the Company, absent an advance ruling from the FCC that permitting greater than 25% foreign ownership is in the public interest.

 

    In October 2015, the FCC proposed rules that could reduce the degree of interference protection afforded to certain of our AM radio stations that serve wide areas.

Any of these regulatory developments and other regulatory changes could adversely impact our business, financial condition and results of operations.

The failure or destruction of any transmitter or other facility that we depend upon to distribute our content could adversely impact our business, financial condition and results of operations.

We use studios, transmitter facilities and the internet to originate and/or distribute our content. We rely on third-party contracts and services to operate some of these facilities, including those providing electrical power,

 

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telecom circuits and internet connectivity. Broadcasting or digital distribution may be disrupted due to one or more third parties losing their ability to provide particular services to us. A disruption can be caused by any number of events, such as local disasters (accidental, criminal, intentional or environmental), acts of terrorism, power outages and/or telecommunications and internet connectivity failures. Furthermore, if such event occurs, until we repair or find alternative studios and/or distribution facilities, the inability to originate or distribute content could adversely impact our business, financial condition and results of operations.

The failure to protect our intellectual property could adversely impact our business, financial condition and results of operations.

Our ability to protect and enforce our intellectual property rights is important to the success of our business. We endeavor to protect our 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. We have registered trademarks in state and federal trademark offices in the United States and enforce our rights through administrative actions. There is a risk that unauthorized digital distribution of our content could occur and competitors may adopt names similar to ours or use confusingly similar terms as keywords in internet search engine advertising programs, thereby impeding our ability to build brand identity and leading to confusion among our audience or advertisers. Moreover, policing our intellectual property rights, or 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. The failure to protect our intellectual property could adversely impact our business, financial condition and results of operations.

Our success depends in part on the continued service and skills of our existing management team.

Our success depends in part on the continued service and skills of our existing management team, which has significant experience and business relationships within their respective areas of operation. Given their skills, knowledge of the market, years of industry experience and the difficulty of finding qualified replacement personnel, the loss of any of our key management personnel could adversely impact our business, financial condition and results of operations. Moreover, if any of these key management personnel were to compete with us, it could adversely impact our business, financial condition and results of operations.

The loss of key talent to media competitors could adversely impact our business, financial condition and results of operations.

We compete for talent with other radio stations and radio station groups, radio networks, other providers of syndicated content and other media such as broadcast, cable and satellite television, the internet and satellite radio, among others. Our key talent may be lost to competitors or for other reasons. Any such losses could reduce our ratings and our ability to attract advertisers, which could adversely impact our business, financial condition and results of operations.

Labor disputes or increased labor costs could adversely impact our business, financial condition and results of operations.

We employed approximately 3,800 people as of October 2016. Approximately 600 (or approximately 16%) of our employees are covered by collective bargaining agreements. Collective bargaining agreements with various unions provide specified benefits to certain of our union employees. Our collective bargaining agreements expire periodically, at which time we expect to negotiate a renewal of such agreements, but there can be no assurances that we will be able to successfully renew any such agreement. There can be no assurances that there will be no strikes, work stoppages, continued or further unionization of a significantly greater portion of our workforce or other labor disputes, including as we negotiate new or renewed collective bargaining agreements from time to time. Such actions, higher costs in connection with these collective bargaining agreements or a significant labor dispute could disrupt our ability to distribute scheduled content, cause delays in the production

 

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of our content or increase our overall costs. Any such action could adversely impact our business, financial condition and results of operations.

Our live events are sensitive to many factors, some of which are beyond our control.

Our live events business depends in part on our ability to anticipate the tastes of our audience and to offer events that appeal to them. The unavailability of popular artists, including due to illness, could affect the audience size, as could competition from other live event producers. Our live events compete with other forms of entertainment for our audience’s discretionary spending, and may suffer if audience preferences shift, or if any other unforeseen trends or occurrences result in lower attendance at our live events. For outdoor events, weather conditions could affect ticket sales and public interest in attending live events, thereby affecting audience size. While we from time to time insure against such risks, there are some risks that we cannot mitigate with insurance or for which we elect not to purchase insurance coverage, both of which may create liabilities for us. A decline in attendance at or reduction in the number of our live events could adversely impact our business, financial condition and results of operations.

Future acquisitions, dispositions and other strategic transactions could adversely impact our business, financial condition and results of operations.

We regularly evaluate strategic opportunities to pursue acquisitions and dispositions of certain businesses, and such transactions, if consummated, involve numerous risks which could adversely impact our business, financial condition and results of operations, including:

 

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

 

    there may be unanticipated liabilities of the acquired business for which we may be responsible as a successor owner or operator notwithstanding any investigation we make prior to the acquisition;

 

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

 

    we may not realize expected benefits from any potential future disposition.

We may not be successful in consummating future acquisitions, which could be an element of our business strategy, which could impair our future growth.

We may not be successful in consummating future acquisitions, which could be an element of our business strategy, which could impair our future growth, because, among other things:

 

    competitors and other parties may be able to outbid us for acquisitions;

 

    required regulatory approvals, including review by U.S. federal antitrust agencies, may result in unanticipated delays in completing acquisitions or bar us from acquiring additional radio or other media businesses in certain or any markets; and

 

    we may be required to raise additional financing to consummate future acquisitions and that financing may not be available to us on acceptable terms.

Any failure to consummate future acquisitions that we decide to pursue could adversely impact our business, financial condition and results of operations.

Radio broadcasting is a consolidating industry, with many companies seeking to consummate acquisitions and increase their market share. If we are unable to identify and consummate future acquisitions in markets where we have the opportunity to purchase additional radio stations, our ability to compete in those markets could be impaired. If there are changes in the FCC regulations that reduce existing restrictions on media ownership, and allow other companies to enter the broadcast business through acquisitions, that could further

 

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increase competition and costs of acquisitions or make them impossible to carry out. Such changes in FCC regulations could also make it legally possible for our competitors to make acquisitions and grow in size, allowing them to compete more effectively against us. The failure to continue to grow through acquisitions, including to the extent that may be anticipated by securities analysts and investors, could adversely impact our business, financial condition and results of operations.

We have substantial indebtedness, which could adversely impact our business, financial condition and results of operations.

On October 17, 2016, we entered into the Revolving Credit Facility and the Term Loan, both pursuant to the Credit Agreement, and borrowed the full amount of the Term Loan. Also on October 17, 2016, we issued the Senior Notes pursuant to the Indenture. As a result of these borrowings, we 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 us incurred in connection therewith. We distributed to our parent, an indirect wholly owned subsidiary of CBS, approximately $1.426 billion, which is an amount equal to the net proceeds of the Pre-Offering Borrowing, prior to deducting expenses payable by us, less $10 million which remained with us to use for general corporate purposes and ongoing cash needs. See “Description of Certain Indebtedness.”

Our level of indebtedness could have important consequences, including:

 

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

 

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

 

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

 

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

 

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

 

    exposing us to the risk of increased interest rates as borrowings under the Credit Agreement are subject to variable rates of interest; and

 

    limiting our ability to borrow additional funds.

The terms of the Credit Agreement and the Indenture may restrict our current and future operations, particularly the ability to incur additional debt.

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

 

    incur additional indebtedness;

 

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

 

    make investments or acquisitions;

 

    sell, transfer or otherwise convey certain assets;

 

    change our accounting methodology;

 

    create liens;

 

    enter into sale/leaseback transactions;

 

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

 

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

 

    enter into transactions with affiliates;

 

    prepay certain kinds of indebtedness;

 

    issue or sell stock of our subsidiaries; and

 

    change the nature of our business.

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

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

 

    limited in how we conduct our business;

 

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

 

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

These restrictions could hinder our ability pursue our business strategy or inhibit the ability to adhere to our intended dividend policy.

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

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

We may still be able to incur substantial additional amounts of debt, including secured indebtedness, which could further exacerbate the risks associated with our indebtedness.

We and our subsidiaries may incur substantial additional amounts of debt in the future which could further exacerbate the risks associated with our indebtedness. Although the terms of the agreements governing our 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. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our existing debt levels, the related risks that we face would intensify, and we may not be able to meet all of our debt obligations.

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

On October 17, 2016, we entered into the Revolving Credit Facility and the Term Loan, both pursuant to the Credit Agreement, and borrowed the full amount of the Term Loan. See “Description of Certain Indebtedness.” Our borrowings under the Term Loan bear, and any borrowings under the Revolving Credit Facility will bear,

 

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interest at floating rates that expose us to interest rate risk. If interest rates increase, our debt service obligations on our variable-rate indebtedness will increase, even though the amount borrowed remains the same, and our net income and cash flows will correspondingly decrease. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk—Interest Rate Risk.” In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce future interest rate volatility. However, we may not elect to maintain such interest rate swaps with respect to any of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

To service our indebtedness and other cash needs, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to satisfy our 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 our subsidiaries and upon our ability to renew or refinance borrowings. We cannot assure you that our business will generate cash flow from operations, or that we will be able to draw under our Revolving Credit Facility or otherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and interest on our indebtedness. Prevailing economic conditions and financial, business, competitive, legislative, regulatory and other factors, many of which are beyond our control, will affect our ability to make these payments.

If we are unable to make payments, refinance our debt or obtain new financing under these circumstances, we 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 our lenders to restructure the applicable debt.

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

Any decline in the ratings of our long-term debt could adversely affect our ability to access capital.

Any decline in the ratings of our corporate credit or any indications from the rating agencies that their ratings on our corporate credit are under surveillance or review with possible negative implications could adversely impact our ability to access capital.

 

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Risks Related to Our Affiliation with and Separation from CBS

We will be controlled by CBS prior to the Separation. CBS’s interests in our business may conflict with our interests or the interests of our other stockholders.

Upon completion of this offering, CBS will own approximately     % of the voting power of our outstanding stock, or approximately     % if the underwriters exercise their option to purchase additional shares in full. Accordingly, until a disposition by CBS of a substantial portion of its shares (e.g., through the Separation), CBS will continue to be able to exert significant influence over our business policies and affairs, including the composition of our board of directors and any action requiring the approval of our stockholders. The concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without the support of CBS.

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

Prior to the completion of this offering, we will have entered into or expect to enter into various agreements to govern our relationship with CBS during the period between the completion of this offering and the effective date of the Separation and to complete the Separation of our business from CBS. These agreements will include a master separation agreement, a transition services agreement, a joint digital services agreement, intellectual property license agreements and a registration rights agreement. We entered into a tax matters agreement on October 17, 2016 in connection with the pre-offering financing. Some of these agreements will continue in accordance with their terms after the Separation. The terms of our separation from CBS, the related agreements and other transactions with CBS will be determined by CBS and thus may not be representative of what we could achieve on a stand-alone basis or from an unaffiliated third party. For a description of these agreements and the other agreements that we will enter into with CBS, see “Certain Relationships and Related Person Transactions.”

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

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

 

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

 

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

 

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

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

 

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We may not realize the expected benefits from the Separation.

We believe that, as an independent publicly traded company, we will be able to benefit from designing and implementing more specific corporate strategies and structures that are more targeted to our industry. However, we may not be able to achieve some or all of the expected benefits. By separating from CBS, there is a risk that market fluctuations and other events may adversely impact us more significantly than if we were still a part of a larger company. Further, as part of CBS, we were able to enjoy certain benefits from CBS’s operating diversity, economies of scale and related cost benefits, which may no longer be available to us after we separate from CBS. In addition, completion of the Separation will require a significant amount of our management’s time and effort, which may divert attention from operating and growing our business. Lastly, we risk other operational inefficiencies from the Separation, especially for those radio stations that, prior to the Separation, shared facilities with a CBS owned and operated television station. Overall and for these radio stations in particular, there is a risk that the Separation could disrupt normal business operations. If we fail to achieve some or all of the benefits in the time frame we expect following the Separation, it could adversely impact our business, financial condition and results of operations.

CBS has historically provided us with significant overhead support and economic scale in negotiations, the absence of which could adversely impact our business, financial condition and results of operations.

While some of our predecessor entities historically operated as public companies, we have no recent operating history as an independent public company. We cannot assure you that our past experience will be sufficient to successfully operate our Company as an independent public company.

Because we operated as a subsidiary of CBS prior to the offering, CBS was responsible for a significant amount of the overhead costs and responsibilities of CBS Radio. These responsibilities included: negotiating certain CBS-wide contracts, conducting collective bargaining, recruiting personnel, providing technical support, management activities and providing accounting, legal, real estate and other services. While CBS will continue some of these activities after the Separation by contract, see “Certain Relationships and Related Person Transactions—Agreements between CBS and Us Relating to this Offering and the Separation,” we will have to develop the capabilities to conduct at least some of these activities after the Separation. Furthermore, even if we develop these capabilities quickly, we will not have the same negotiating position as that of CBS when conducting labor or contract negotiations due to our smaller market capitalization and relative negotiating inexperience. Any failure to develop these capabilities or benefit from the economies of scale could adversely impact our business, financial condition and results of operations.

Upon completion of this offering, we will be required to implement substantial control systems and procedures in order to satisfy our periodic and current reporting requirements under applicable Securities and Exchange Commission (the “SEC”) regulations and comply with the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and listing standards. As a result, we will incur significant legal, accounting and other expenses that we have not previously incurred, and our management and other personnel will need to devote a substantial amount of time to comply with these rules and regulations. These costs and time commitments could be substantially more than we currently expect. Therefore, our historical consolidated and unaudited pro forma condensed consolidated financial statements may not be indicative of our future costs and performance as a stand-alone public company. If our finance and accounting personnel are unable for any reason to respond adequately to the increased demands that will result from being an independent public company, the quality and timeliness of our financial reporting may suffer, and we could experience significant deficiencies or material weaknesses in our disclosure controls and procedures or our internal control over financial reporting.

An inability to establish effective disclosure controls and procedures and internal control over financial reporting or remediate existing deficiencies could cause us to fail to meet our reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or result in material weaknesses, material

 

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misstatements or omissions in our Exchange Act reports, any of which could cause investors to lose confidence in our Company, which could adversely impact our business, financial condition and results of operations.

If we fail to establish a new, independently recognizable brand name and a brand with a strong reputation, it could adversely impact our business, financial condition and results of operations.

Prior to the completion of this offering, we intend to enter into several licensing agreements with a CBS subsidiary. First, we will enter into a license agreement with CBS to allow us to use the company name “CBS Radio Inc.” and the brand “CBS Radio” to continue to identify our business after the Separation for six months, but we will then change our name. If we fail to establish in a timely manner a new, independently recognized brand name with a strong reputation, our audience size could decrease, especially if CBS offers similar products in the future under a “CBS” name. Loss of audience could result in fewer advertisers or lower advertising rates which could adversely impact our business, financial condition and results of operations.

Second, we also intend to enter into several other intellectual property license agreements, pursuant to which we will have the rights to continue (i) to use certain CBS-owned brands that are also used by CBS’s owned and operated television stations (“CBS TV Stations”) on or in connection with certain of our radio stations; and (ii) to use the CBS SPORTS trademark in connection with the CBS Sports Radio Network for several years. Any failure to conclude these agreements or premature loss of rights to use the “CBS” mark and other brands that we presently use could adversely impact our business, financial condition and results of operations. See “Certain Relationships and Related Person Transactions.”

After the Separation, we may compete with CBS in digital or other lines of business.

After the Separation, we may compete with CBS in digital or in other lines of business, whereas other operating segments and divisions of CBS have traditionally not engaged in competitive actions with us in the past.

After the Separation, CBS will no longer have any incentive or contractual requirement to restrict any of its operating segments or divisions from competing with us in the media industry. If such competition occurs, we may be at a competitive disadvantage given the disparity in size and financial resources and diversity of operations at CBS (particularly CBS’s experience in television and video production and distribution), both of which factors can give CBS an advantage in negotiating media contracts, attracting talent, selling advertising or other factors that may give CBS a competitive advantage over us. This competition could adversely impact our business, financial condition and results of operations.

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

 

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

 

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

Our charter will provide that we renounce any interest in any such opportunity presented to CBS. These provisions create the possibility that a corporate opportunity of CBS Radio may be used for the benefit of CBS. However, the corporate opportunity provisions in our charter will cease to apply and will have no further force and effect from and after the date that both (1) CBS ceases to own shares of our common stock representing at least 20% of the total voting power of our common stock and (2) no person who is a director or officer of our Company is also a director or officer of CBS.

 

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

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

If CBS effects the Separation by means of a tax-free split-off, and if the split-off, including the exchange offer, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify CBS for material taxes pursuant to indemnification obligations under the tax matters agreement. In addition, we may not be able to engage in desirable strategic or capital-raising transactions following the split-off, and we could be liable for adverse tax consequences resulting from engaging in significant strategic or capital-raising transactions.

CBS has advised us that it currently intends to effect the Separation by means of a tax-free split-off, pursuant to which CBS will offer its stockholders the option to exchange their shares of CBS common stock for shares of our common stock in an exchange offer. CBS expects to receive an opinion of counsel to the effect that the split-off, together with certain related transactions, will qualify as a tax-free distribution for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code (the “Code”). The opinion of counsel will be based upon and rely on, among other things, certain facts and assumptions, as well as certain representations, statements and undertakings of CBS and us, including those relating to the past and future conduct of CBS and us. If any of these representations, statements or undertakings are, or become, inaccurate or incomplete, or if CBS or we breach any of its or our covenants in the documents relating to the Separation, the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized. Notwithstanding the opinion of counsel, the Internal Revenue Service (“IRS”) could determine that the split-off, together with certain related transactions, should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations, statements or undertakings upon which the opinion of counsel was based are false or have been violated, or if it disagrees with the conclusions in the opinion of counsel. The opinion of counsel will not be binding on the IRS and there can be no assurance that the IRS will not assert a contrary position.

If the split-off were to fail to qualify for tax-free treatment, each holder of CBS Class B Common Stock who received shares of our common stock in the exchange offer would generally be treated as recognizing taxable gain or loss equal to the difference between the fair market value of the shares of our stock received by the stockholder and its tax basis in the shares of CBS Class B Common Stock exchanged therefor, or, in certain circumstances, as receiving a taxable distribution equal to the fair market value of the shares of our common stock received by the stockholder. In addition, CBS would generally recognize gains with respect to the transfer of our common stock in the exchange offer and certain related transactions.

Under the tax matters agreement that we have entered into with CBS, we generally would be required to indemnify CBS against any tax resulting from the split-off to the extent that such tax resulted from (i) an acquisition of all or a portion of our equity securities or assets, whether by merger or otherwise, (ii) other actions

 

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or failures to act by us, or (iii) any of our representations or undertakings being incorrect or violated. Our indemnification obligations to CBS and its subsidiaries, officers and directors would not be limited by any maximum amount. If we are required to indemnify CBS or such other persons under the circumstances set forth in the tax matters agreement, we may be subject to substantial liabilities. We could be liable to CBS for consolidated group losses we use even if we do not owe any amount to a governmental authority.

To preserve the tax-free treatment to CBS of the split-off, for the two-year period following the split-off, we would be prohibited, except in certain circumstances, from: (1) entering into any transaction pursuant to which all or a portion of our common stock or assets would be acquired, whether by merger or otherwise, (2) issuing equity securities beyond certain thresholds, (3) repurchasing our common stock, (4) ceasing to actively conduct our business, or (5) taking or failing to take any other action that prevents the split-off and related transactions from being tax-free. These restrictions could limit our ability to pursue strategic transactions or engage in new business or other transactions that could maximize the value of our business. For a discussion of the tax matters agreement, see “Certain Relationships and Related Person Transactions—Agreements between CBS and Us Relating to this Offering and the Separation—Tax Matters Agreement.”

Transfers of our common stock owned by CBS could adversely impact your rights as a stockholder and the market price of our common stock.

After completion of this offering and the waiver or expiration of the “lock-up period” described in “Underwriting,” CBS will be permitted to transfer all or part of the shares of our common stock that it owns, without allowing you to participate or realize a premium for your shares of common stock, or to distribute our shares that it owns to its stockholders. Sales or distributions by CBS of such common stock in the public market or to its stockholders could adversely impact prevailing market prices for our common stock.

Additionally, a sale of a controlling interest by CBS to a third party could adversely impact the market price of our common stock and our business, financial condition and results of operations. For example, a change in control caused by the sale of our shares by CBS may result in a change of management decisions and business policy. CBS has advised us that it intends to dispose of the shares of our common stock that it owns following this offering. See “The Separation.”

We cannot assure our stockholders that adequate sources of funding will be available to us on favorable terms or at all.

We distributed most of the net proceeds from the Pre-Offering Borrowing to our parent, an indirect wholly owned subsidiary of CBS, and intend to use the net proceeds from this offering to repay the CBS Note. See “Use of Proceeds.” Accordingly, none of the proceeds from this offering will be available to fund the operation of our business. In addition, following this offering, CBS will have no obligation to fund our business and operations, and we cannot assure our stockholders that adequate sources of funding will be available to us on favorable terms or at all. As a result, we may not be able to fund our future capital needs, which could adversely impact our business, financial condition and results of operations.

Risks Related to Governance Structure

Our board of directors has the power to take or cause certain actions and our amended and restated certificate of incorporation contains certain governance features that could make a change in control of our Company more difficult, which could adversely impact stockholders.

Our amended and restated certificate of incorporation will authorize our board of directors to issue authorized but unissued shares of common or preferred stock. In addition, our amended and restated certificate of incorporation will permit our board of directors to, without stockholder approval, amend our certificate of incorporation to increase or decrease the aggregate number of our shares of stock or the number of shares of

 

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stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. See “Description of Securities—Power to Increase or Decrease Authorized Shares of Stock, Reclassify Unissued Shares of Stock and Issue Additional Shares of Common and Preferred Stock.”

Other provisions in our amended and restated certificate of incorporation could also make a change in control of our Company more difficult, such as provisions providing for: the authorized number of directors to be changed only by resolution of our board of directors, no cumulative voting in the election of directors, the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, limitations on shareholder rights to act by written consent and call shareholder meetings, a prohibition on shareholders removing directors without cause and a classified board of directors for which stockholders will elect only one-third of its members every year, among others. Any of these authorized actions by our board of directors or these features of our governance structure could delay, deter, discourage or make more difficult a change in control of our Company, even if such a change in control could be in the interest of our stockholders or if such a change in control would provide our stockholders with a premium for their shares over the then-prevailing market price for the common stock.

Certain aspects of Delaware law may limit the ability of a third party to acquire control of us.

We have elected not to opt out of Section 203 of the Delaware General Corporation Law (the “DGCL”). We expect, however, to include a provision in our amended and restated certificate of incorporation that will exempt us from the provisions of the DGCL with respect to combinations between CBS or its affiliates, on the one hand, and us, on the other. In general, Section 203 of the DGCL prevents an “interested stockholder” (as defined in the DGCL) from engaging in a “business combination” (as defined in the DGCL) with us for three years following the date that person becomes an interested stockholder, unless one or more of the following occurs:

 

    before that person became an interested stockholder, our board of directors approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination;

 

    upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) stock held by directors who are also officers of our Company and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

 

    following the transaction in which that person became an interested stockholder, the business combination is approved by our board of directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least 66 2/3% of our outstanding voting stock not owned by the interested stockholder.

The DGCL generally defines “interested stockholder” as any person who, together with affiliates and associates, is the owner of 15% or more of our outstanding voting stock or is our affiliate or associate and was the owner of 15% or more of our outstanding voting stock at any time within the three-year period immediately before the date of determination.

Our amended and restated certificate of incorporation will contain a provision that eliminates the liability of our directors and officers to the maximum extent permitted by Delaware law. Any indemnification may cause any liability they incur to be paid by us, which may be costly.

Our amended and restated certificate of incorporation will contain a provision that eliminates the liability of our directors and officers to the maximum extent permitted by Delaware law. See “Management—Indemnification and Limitation of Directors’ and Officers’ Liability.”

 

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In part, our amended and restated certificate of incorporation will provide that directors of the CBS Radio shall not be personally liable to our Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director’s duty of loyalty to our Company or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL relating to prohibited dividends or distributions or the repurchase or redemption of stock, or (d) for any transaction from which the director derives an improper personal benefit.

Accordingly, in the event that any of our directors or officers is immune or exculpated from, or indemnified against, liability in connection with actions they have taken but which actions impede our performance, our and our stockholders’ ability to recover damages from that director or officer will be limited.

Our directors and officers may have interests that are different from, or in addition to, those of our stockholders generally.

Our directors and officers may not own significant quantities of our equity securities. In addition, our directors and officers will be entitled to continuing indemnification and liability insurance. These factors could result in our directors and officers having interests that are different from or additional to those interests of stockholders, which could adversely impact the interests of stockholders.

Risks Related to this Offering

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

Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price of shares of our common stock will be determined by negotiations between us and the underwriters. The initial public offering price will not necessarily bear any relationship to our book value, assets or financial condition or any other established criteria of value and may not be indicative of the market price for our common stock after this offering. Our common stock has been approved for listing on the NYSE, subject to notice of issuance. We cannot assure you, however, that an active trading market for our common stock will develop after this offering or, if one develops, that it will be sustained. Upon the completion of this offering, CBS indirectly will own approximately     % of our outstanding common stock, or approximately     % if the underwriters exercise their option to purchase additional shares in full. As a result, we will maintain a low public float following this offering. In the absence of a public market, you may be unable to resell your shares in our common stock, and the price at which shares of our common stock trade after the completion of this offering may be lower than the price at which the underwriters sell them in this offering.

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

Even if an active trading market develops for our common stock, the trading volume and market price of our common stock may be volatile. Some of these factors, many of which are beyond our control, could adversely impact the market price of our common stock or result in fluctuations in the price or trading volume of our common stock, including:

 

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

 

    changes in our funds from operations or earnings estimates;

 

    publication of research reports about us or the radio broadcast industry;

 

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

 

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    changes in market valuations of similar companies;

 

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

 

    additions or departures of key personnel;

 

    actions by institutional stockholders;

 

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

 

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

 

    general market and economic conditions.

If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the public offering price or at all.

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

In the future, we may attempt to increase our capital resources by making additional offerings of debt, preferred equity or other securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution, which could adversely impact their position relative to holders of other equity or debt. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make a distribution to the holders of our common stock. Since our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk that any future offerings could adversely impact market price of our common stock and/or dilute their holdings in us.

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

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

Increases in market interest rates may cause potential investors to seek higher returns and therefore reduce demand for our common stock, which could adversely impact the market price of our common stock.

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

 

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Our board of directors will assess relevant factors when considering the declaration of a dividend on any equity. We cannot guarantee that it will declare dividends at all or, if it does, at what rates. Furthermore, our board of directors may not have unilateral discretion to determine dividend payments, amounts or frequencies due to restrictions imposed on dividend distributions by certain debt covenants in our indebtedness. See “—Risks Related to Our Business and Operations—The terms of the Credit Agreement and the Indenture may restrict our current and future operations, particularly the ability to incur additional debt.”

We may not pay any dividend to holders of our common stock, which could affect the market price of our common stock.

We may not pay any dividend to holders of our common stock, either in the near-term or ever. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, including agreements governing our indebtedness, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, if you purchase shares in this offering, realization of a gain on your investment may depend on the appreciation of the price of our common stock, which may never occur.

The distributions we pay on our common stock may not qualify as dividends for U.S. federal income tax purposes, which could adversely affect the U.S. federal income tax consequences to you of owning our common stock.

Generally, any distributions that we make to a stockholder with respect to its shares of our common stock will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. We had no accumulated earnings and profits, as determined for U.S. federal income tax purposes, as of November 18, 2016. Furthermore, our ability to generate earnings and profits, as determined for U.S. federal income tax purposes, in the current year or any future year is subject to a number of variables that are uncertain and difficult to predict.

Any distribution not constituting a dividend will be treated as first reducing your adjusted basis in your shares of our common stock and, to the extent that the distribution exceeds your adjusted basis in your shares of our common stock, as gain from the sale or exchange of such shares, and if you are a domestic corporation, you will not be entitled to claim a “dividends-received” deduction, which generally applies to dividends received from other domestic corporations.

Prospective foreign investors should see “Certain U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders” for a more detailed description of the material U.S. federal income tax consequences of the ownership and disposition of shares of our common stock to such investors.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this prospectus that are forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology, such as “believes,” “expects,” “could,” “may,” “will,” “should,” “seeks,” “likely,” “intends,” “plans,” “pro forma,” “projects,” “estimates” or “anticipates,” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements in discussions of strategy, plans or intentions.

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

 

    a decline in advertising revenues;

 

    the seasonality of advertising revenue;

 

    competing content and other intense competition from other media companies;

 

    competition to distribute the same or similar content across various media distribution platforms;

 

    increases in or new royalties;

 

    changes in the distribution of content from the professional sports teams;

 

    impact on advertising rates and revenues due to technological changes;

 

    the declining trend in advertising revenues;

 

    a decline in revenue generated from the distribution of broadcast radio in automobiles;

 

    failure to timely or appropriately respond to changes in technology;

 

    impairment charges for FCC licenses and goodwill;

 

    high fixed costs;

 

    unavailability of or inaccuracies in third-party measurements of our audience size or demographics;

 

    failure to remain current with search engine methodologies and social media distribution techniques;

 

    current and future government regulation;

 

    the failure or destruction of any transmitter or other facility;

 

    failure to protect our intellectual property;

 

    risks of losing our existing management team;

 

    risks of losing our key talent;

 

    labor disputes or increased labor costs;

 

    risks to the popularity of our live events;

 

    risks associated with future acquisitions and other strategic transactions;

 

    failure to consummate future acquisitions;

 

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    impact of substantial indebtedness;

 

    the terms of our indebtedness agreements imposing restrictions on current and future operations;

 

    ability to incur substantial additional amounts of debt despite our indebtedness;

 

    impact of variable-rate indebtedness;

 

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

 

    any decline in our long-term debt rating;

 

    control by and conflicting interests with CBS;

 

    status as a controlled company;

 

    failure to realize the expected benefits from the Separation;

 

    loss of overhead support, service and economies of scale from CBS;

 

    failure to establish a new, independently recognizable brand name and a brand with a strong reputation;

 

    competition with CBS in broadcast radio, digital or other lines of business;

 

    financial information may not be representative of our future results;

 

    any liabilities and indemnification requirements resulting from the split-off;

 

    transfers of our common stock owned by CBS;

 

    lack of adequate sources of funding on favorable terms or at all;

 

    issuance of additional shares of our stock by our board of directors or other actions that make a change of control more difficult;

 

    aspects of Delaware law that may limit the ability of a third party to acquire control of us;

 

    limited liability of our directors and officers and our indemnity obligations;

 

    directors and officers may have interests that are different from, or in addition to, those of our stockholders generally;

 

    lack of public market for our common stock;

 

    volatile price or trading volume of our common stock;

 

    any future offerings of debt or other securities which may be senior to our common stock;

 

    dilution of book value per share of common stock upon purchase;

 

    increases in market interest rates;

 

    failure to pay any dividend to holders of our common stock; and

 

    failure of distributions on our common stock to qualify as dividends for U.S. federal income tax purposes.

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

 

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USE OF PROCEEDS

We estimate that we will receive gross proceeds from this offering of approximately $        , or approximately $         if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus. After deducting the underwriting discounts, commissions and other estimated expenses of this offering, we expect net proceeds from this offering of approximately $        , or approximately $         if the underwriters exercise their option to purchase additional shares in full.

Prior to the offering, we will distribute the CBS Note to our parent, CBS Broadcasting Inc., an indirect wholly owned subsidiary of CBS, pursuant to which we will owe such subsidiary a principal amount equal to the net proceeds of this offering. The CBS Note will mature on the date that is 91 days after the later of (i) the latest maturity date applicable to any loan or commitment under the Credit Agreement and (ii) November 1, 2024. Pursuant to the CBS Note, CBS Radio will promise to pay our parent the principal amount of the CBS Note with accrued interest from the issue date. From the issue date until the date that is 30 days after the issue date, interest will accrue at rate per annum equal to 3.50% and, after the date that is 30 days after the issue date, at a rate per annum equal to 8.25%. The CBS Note may be prepaid in whole or in part at the option of CBS Radio without premium or penalty. The CBS Note requires CBS Radio to repay it within five business days of the consummation of this offering. We intend to use the net proceeds from this offering to repay the CBS Note. Accordingly, none of the proceeds from this offering will be available to fund the operation of our business.

 

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DIVIDEND POLICY

After the completion of this offering and assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover of this prospectus, we expect to pay a quarterly cash dividend on our common stock of $             per share, or $             per annum, commencing in the             quarter of           . The payment of such dividend in the             quarter of            and any future dividends will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, business prospects, capital requirements, contractual restrictions, any existing or potential indebtedness we have incurred or may incur, restrictions imposed by applicable law and other factors that our board of directors deems relevant. See “Risk Factors—Risks Related to this Offering—Increases in market interest rates may cause potential investors to seek higher returns and therefore reduce demand for our common stock, which could adversely impact the market price of our common stock.” and “Risk Factors—Risks Related to this Offering—We may not pay any dividend to holders of our common stock, which could affect the market price of our common stock.” In addition, our ability to pay dividends on our common stock will be limited by restrictions on our ability to pay dividends or make distributions to our stockholders and on the ability of our subsidiaries to pay dividends or make distributions to us, in each case, under the terms of our current and any future agreements governing our indebtedness.

 

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CAPITALIZATION

The following table sets forth our cash and capitalization as of September 30, 2016:

 

    on a historical basis;

 

    on a pro forma basis to give effect to the pre-offering financing; and

 

    on a pro forma basis to give effect to (1) the pre-offering financing, (2) the issuance of              shares of common stock in this offering at an assumed public offering price of $         per share after deducting the underwriting discounts, commissions and other estimated expenses of this offering payable by us and (3) the use of proceeds as described herein in “Use of Proceeds.”

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

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

 

     As of September 30, 2016  
     Historical     

Pro Forma for

Pre-Offering
Financing

   

Pro Forma for

Pre-Offering
Financing and
Offering

 
     (Unaudited; in millions)  

Cash (1)(3)

   $ 1.2       $ 7.5      $ 7.5   

Debt:

       

Revolving credit facility (2)

   $       $      $   

Term Loan (1)

             1,054.7        1,054.7   

$400 million 7.250% Senior Notes due 2024 (1)

             400.0        400.0   

Deferred financing costs

             (22.6     (22.6

Total Debt

             1,432.1        1,432.1   

Stockholders’ Equity:

       

Common stock, par value $0.01 per share, 1,000 shares authorized, and 70 shares issued and outstanding on a historical basis and on a pro forma basis for the pre-offering financing; and              shares issued and outstanding on a pro forma basis for the pre-offering financing and Offering (3)

                 

Additional paid-in-capital (1)(3)

     3,956.5         2,530.7           

Stockholders’ Equity (1)(3)

     3,956.5         2,530.7           

Total Capitalization

   $ 3,956.5       $ 3,962.8      $     

 

(1) On October 17, 2016, we incurred indebtedness of $1.460 billion through the Pre-Offering Borrowing, resulting in net proceeds of approximately $1.432 billion after deducting bank fees, discounts and commissions and other expenses payable by us incurred in connection therewith. We distributed to our parent, an indirect wholly owned subsidiary of CBS, approximately $1.426 billion, which is an amount equal to the net proceeds of the Pre-Offering Borrowing, prior to deducting expenses payable by us, less $10 million which remained with us to use for general corporate purposes and ongoing cash needs. Additional paid-in-capital on a pro forma basis for the pre-offering financing reflects the transfer of such proceeds to CBS. Pro forma cash is presented net of expenses of $3.7 million payable by us in connection with the pre-offering financing. The Term Loan is presented net of the original issue discount of $5.3 million.

 

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(2) On October 17, 2016, we entered into the $250 million Revolving Credit Facility due 2021. At November 18, 2016 there were no outstanding borrowings under the Revolving Credit Facility. The Revolving Credit Facility will be used for general corporate purposes, including the issuance of letters of credit, and ongoing cash needs.
(3) We estimate that we will receive net proceeds from this offering of approximately $            , or approximately $             if the underwriters exercise their option to purchase additional shares in full, in each case based on the midpoint of the price range set forth on the front cover of this prospectus, and after deducting the underwriting discounts, commissions and other estimated expenses of this offering. We intend to use the net proceeds from this offering to repay the CBS Note. Accordingly, none of the proceeds from this offering will be available to fund the operation of our business. The above table includes shares of our common stock outstanding as of             , after the issuance of shares in this offering. Additional paid-in-capital on a pro forma basis for the pre-offering financing and this offering reflects the transfer of the proceeds from the Pre-Offering Borrowing and this offering to CBS.

 

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DILUTION

Our net tangible book value represents the amount of our total tangible assets less total liabilities. We calculate the net tangible book value per share by dividing the net tangible book value by the number of outstanding shares of our common stock. As of             , our historical net tangible book value was $         million, or approximately $         per share of our total outstanding common stock, based on the shares of our outstanding common stock immediately prior to the completion of this offering. As of             , after giving effect to the pre-offering financing, our pro forma net tangible book value would have been approximately $        , or approximately $         per share of our total outstanding common stock, based on shares of our outstanding common stock immediately prior to the completion of this offering. After giving effect to the pre-offering financing and the sale of shares of common stock offered by us at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts, commissions and offering expenses payable by us, our pro forma net tangible book value as of              would have been approximately $        , or $         per share of our total outstanding common stock. This represents an immediate dilution of $         per share to new investors purchasing shares of our common stock in this offering.

The following table presents the per share dilution.

 

Assumed initial public offering price per share

   $                

Pro forma net tangible book value per share as of immediately prior to the pre-offering financing

  

Net decrease in net tangible book value per share attributable to the pre-offering financing

  

Net tangible book value per share as of immediately following the pre-offering financing

  

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

  

Pro forma net tangible book value per share after this offering

  

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

  

The foregoing discussion does not give effect to shares of common stock that we will issue if the underwriters exercise their option to purchase additional shares of common stock from us.

The following table summarizes, as of             , the differences between the number of shares of our common stock purchased from us, the total cash consideration paid, and the average price per share paid by our existing stockholders and by our new investors purchasing shares of common stock in this offering at the assumed initial public offering price of the common stock of $             per share, which is the midpoint of the price range on the cover page of this prospectus, before deducting underwriting discounts, commissions and other estimated expenses of this offering payable by us:

 

         Shares Purchased        

 

    Total Consideration    

    Average
Price Per
      Share      
 
       Number         Amount         Number         Amount      

Existing stockholders

          

New investors

          

Total

       100       100  

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

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

 

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The above table and discussion include shares of our common stock outstanding as of             , and exclude shares of common stock reserved for future issuance under the Omnibus Incentive Plan, which we will adopt in connection with this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents our selected consolidated financial data. The selected historical consolidated statements of operations and cash flow data for the nine months ended September 30, 2016 and 2015 and the selected historical consolidated balance sheet information as of September 30, 2016 have been derived from our unaudited historical consolidated financial statements, included elsewhere in this prospectus. The selected historical consolidated statements of operations and cash flow data for the years ended December 31, 2015, 2014 and 2013 and the selected historical consolidated balance sheet information as of December 31, 2015 and 2014 have been derived from our audited historical consolidated financial statements, included elsewhere in this prospectus. The selected historical consolidated balance sheet information as of December 31, 2013 has been derived from our audited consolidated financial statements, not included in this prospectus. The selected historical consolidated statements of operations and cash flow data for the years ended December 31, 2012 and 2011 and the selected historical consolidated balance sheet information as of September 30, 2015 and December 31, 2012 and 2011 have been derived from our unaudited consolidated financial statements, not included in this prospectus. The unaudited historical consolidated financial statements have been prepared on the same basis as our audited historical consolidated financial statements and, in the opinion of our management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of this information. The results for any interim period are not necessarily indicative of the results that may be expected for a full year.

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

 

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

 

    

Nine Months

Ended September 30,

                  Year Ended December 31,  
     2016     2015                   2015 (a)     2014 (b)     2013     2012 (c)     2011  
(in millions, except
per share amounts)
                                                     

Statement of Operations data:

                   

Revenues

  $ 894.1      $ 907.2            $ 1,230.6      $ 1,303.0      $ 1,306.4      $ 1,313.4      $ 1,340.2   
 

Operating income (loss)

  $ 216.0      $ 172.0            $ (240.3   $ 299.3      $ 360.2      $ 362.2      $ 362.4   

Net income (loss) from continuing operations

  $ 130.2      $ 102.2            $ (136.5   $ 176.5      $ 214.1      $ 207.4      $ 208.2   
 

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

  $   1,860,000      $   1,460,000              $  (1,950,000   $   2,521,429      $   3,058,571      $   2,962,857      $   2,974,286   
 

Balance Sheet data (at period end):

                   

Total assets

  $ 5,161.2      $ 5,775.8            $ 5,216.5      $ 5,771.6      $ 5,790.2      $ 5,769.1      $ 5,706.9   

Current liabilities

  $ 82.0      $ 94.5            $ 105.9      $ 102.3      $ 112.4      $ 127.0      $ 134.9   

Stockholders’ equity/invested equity

  $ 3,956.5      $ 4,345.9            $ 3,994.1      $ 4,360.2      $ 4,392.0      $ 4,401.7      $ 4,382.1   
 

Cash Flow data:

                   

Cash flow provided by operating activities from continuing operations

  $ 171.6      $ 130.5            $ 212.8      $ 276.9      $ 264.3      $ 308.9      $ 337.0   
 

Non-GAAP financial data:

                   

Adjusted OIBDA (e)

  $ 246.4      $ 227.8                      $ 321.8      $ 402.3      $ 413.1      $ 425.5      $ 416.6   

 

(a) For the year ended December 31, 2015, we 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.
(b) In 2014, we completed a radio station swap with Beasley Broadcast Group, Inc. In connection with the swap, we 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.
(c) In 2012, in connection with the sale of five radio stations in West Palm Beach, we 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.
(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 our common stock. Prior to the consummation of this offering, we intend to conduct a stock split to increase the aggregate number of outstanding shares of our 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.

 

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

 

    

Nine Months

  Ended September 30,  

                  Year Ended December 31,  
       2016         2015                     2015     2014     2013     2012     2011  
(in millions)                                                      

Net income (loss) from continuing operations

  $ 130.2      $ 102.2            $ (136.5   $ 176.5      $ 214.1      $ 207.4      $ 208.2   

Exclude:

                   

Provision (benefit) for income taxes

    85.8        69.8              (103.8     122.8        146.1        154.8        154.2   

Impairment charges

                        482.9        48.6               11.4          

Restructuring charges

           23.3              36.5        7.0        5.1        4.7          

Depreciation

    19.8        21.3              28.5        30.8        31.3        32.1        39.9   

Stock-based compensation (1)

    10.6        11.2                        14.2        16.6        16.5        15.1        14.3   

Adjusted OIBDA

  $   246.4      $   227.8                      $     321.8      $   402.3      $   413.1      $   425.5      $   416.6   

 

  (1) For the nine months ended September 30, 2015 and the year ended December 31, 2015, stock-based compensation of $.9 million and $2.9 million, respectively, was reflected in restructuring charges.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We currently expect that, at all times prior to the completion of this offering, CBS indirectly will own 100% of our outstanding common stock. We are offering             shares of our common stock in this offering, and upon the completion of this offering, CBS indirectly will own approximately     % of our outstanding common stock, or approximately     % if the underwriters exercise their option to purchase additional shares in full, and we will continue to be controlled by CBS.

The following unaudited pro forma condensed consolidated statements of operations and balance sheet have been adjusted to reflect the incurrence of indebtedness and use of the net proceeds of the Pre-Offering Borrowing, after deducting bank fees, discounts and commissions, and other expenses payable by us incurred in connection therewith, as described under “Pre-Offering Financing”; the sale of the common stock offered hereby; the receipt and use of the estimated net proceeds from this offering after deducting underwriting discounts, commissions and other estimated expenses of this offering payable by us, as described under “Use of Proceeds”; and incremental costs we will incur to operate as a stand-alone public company. The unaudited pro forma condensed consolidated balance sheet at September 30, 2016 is presented as if each of these events had occurred at September 30, 2016. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2016 and the year ended December 31, 2015 are presented as if these events had occurred on January 1, 2015. No pro forma adjustments have been made with regard to the disposition of the remaining shares of common stock to be held by CBS after the completion of this offering.

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

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

(a) our unaudited interim consolidated financial statements and the notes thereto as of and for the nine months ended September 30, 2016;

(b) our audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2015; and

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

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AT SEPTEMBER 30, 2016

(In millions, except share and per share amounts)

 

     Historical    

Pro Forma

Adjustments

    Pro Forma  

Assets

     

Current assets:

     

Cash

  $ 1.2      $ 6.3 (1)(2)    $ 7.5   

Receivables, net

    249.2               249.2   

Prepaid expenses and other current assets

    36.6               36.6   

Total current assets

    287.0        6.3        293.3   

Property and equipment, net

    142.9               142.9   

FCC licenses

    2,868.1               2,868.1   

Goodwill

    1,861.9               1,861.9   

Other assets

    1.3               1.3   

Total assets

  $   5,161.2      $ 6.3      $   5,167.5   

Liabilities and Stockholders’ Equity

     

Current liabilities:

     

Accounts payable and other current liabilities

  $ 82.0      $      $ 82.0   

Current portion of long-term debt

           10.6 (1)      10.6 (1) 

CBS Note

                (2)        

Total current liabilities

    82.0        10.6        92.6   

Long-term debt

           1,421.5 (1)      1,421.5   

Deferred income tax liabilities, net

    1,062.5               1,062.5   

Other liabilities

    60.2               60.2   

Stockholders’ equity:

     

Common stock, par value $.01 per share 1,000 shares authorized; 70 shares issued and outstanding on a historical basis and             shares authorized and             shares issued and outstanding on a pro forma basis

                (2)   

Additional paid-in-capital

    3,956.5        (1,425.8 )(1)   
                   (2)         

Stockholders’ equity

    3,956.5                   

Total liabilities and stockholders’ equity

  $ 5,161.2      $        $     

The accompanying notes are an integral part of these

unaudited pro forma condensed consolidated financial statements.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2016

(In millions, except share and per share amounts)

 

      Historical    

Pro Forma

Adjustments

    Pro Forma  

Revenues

   $ 894.1      $  —      $   894.1   

Operating expenses

     299.0               299.0   

Selling, general and administrative expenses

     359.3        16.5 (5)      375.8   

Depreciation

     19.8               19.8   

Operating income

     216.0        (16.5     199.5   

Interest expense

            (61.0 )(3)      (61.0

Income before income taxes

     216.0        (77.5     138.5   

(Provision) benefit for income taxes

     (85.8     30.7 (4)      (55.1

Net income

   $ 130.2      $   (46.8   $ 83.4   

Net income per basic and diluted common share

   $   1,860,000      $   (2)    $     

Weighted average number of common shares outstanding:

      

Basic

     70             (2)   

Diluted

     70             (2)         

The accompanying notes are an integral part of these

unaudited pro forma condensed consolidated financial statements.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2015

(In millions, except share and per share amounts)

 

      Historical    

Pro Forma

Adjustments

    Pro Forma  

Revenues

   $        1,230.6      $  —      $   1,230.6   

Operating expenses

     421.6               421.6   

Selling, general and administrative expenses

     501.4        22.0 (5)      523.4   

Depreciation

     28.5               28.5   

Restructuring charges

     36.5               36.5   

Impairment charges

     482.9               482.9   

Operating loss

     (240.3     (22.0     (262.3

Interest expense

            (81.7 )(3)      (81.7

Loss from continuing operations before income taxes

     (240.3     (103.7     (344.0

Benefit for income taxes

     103.8             40.9 (4)      144.7   

Net loss from continuing operations

     (136.5     (62.8     (199.3

Net income from discontinued operations, net of tax

     3.8               3.8   

Net loss

   $ (132.7   $ (62.8   $ (195.5

Net income (loss) per basic and diluted common share:

      

Net loss from continuing operations

   $ (1,950,000   $   (2)    $     

Net income from discontinued operations

   $ 54,286      $   (2)    $     

Net loss

   $ (1,895,714   $   (2)    $     

Weighted average number of common shares outstanding:

      

Basic

     70             (2)   

Diluted

     70             (2)         

The accompanying notes are an integral part of these

unaudited pro forma condensed consolidated financial statements.

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollars in millions)

 

1) PRE-OFFERING FINANCING

On October 17, 2016, we entered into the five-year $250 million senior secured Revolving Credit Facility due 2021 and the $1.06 billion senior secured Term Loan due 2023 pursuant to the Credit Agreement. On October 17, 2016, we borrowed the full amount of the Term Loan. At November 18, 2016, there were no outstanding borrowings under the Revolving Credit Facility. The Revolving Credit Facility will be used for general corporate purposes, including the issuance of letters of credit, and ongoing cash needs. Under the Term Loan, we will make quarterly principal payments at an annual rate of 1% of the initial principal amount of $1.06 billion. Each fiscal year beginning in 2018 we will be required to make a prepayment of the Term Loan equal to 50%, subject to certain step-downs based on our consolidated net secured leverage ratio, of our Excess Cash Flow (as defined in the Credit Agreement). We may prepay additional amounts under the Term Loan from time to time. On November 17, 2016, we prepaid $45 million of the Term Loan, leaving $1.015 billion outstanding on the Term Loan.

Also on October 17, 2016, we issued $400 million aggregate principal amount of 7.250% Senior Notes due 2024 pursuant to the Indenture. The Senior Notes were offered within the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act, and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.

As a result of the borrowings under the Term Loan and the issuance of the Senior Notes described above, we 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 us incurred in connection therewith. We distributed to our parent, a wholly owned subsidiary of CBS, approximately $1.426 billion, which is an amount equal to the net proceeds of the Pre-Offering Borrowing, prior to deducting expenses payable by us, less $10 million which remained with us to use for general corporate purposes and ongoing cash needs. Pro forma cash is presented net of expenses of $3.7 million payable by us in connection with the pre-offering financing.

 

2) SHARE ISSUANCE AND USE OF PROCEEDS

Prior to the consummation of this offering, our board of directors will declare a             -for-one split of our common stock effected through a dividend to our parent, a wholly owned subsidiary of CBS. As a result of the stock split, the            shares of our common stock then outstanding will be converted into             shares of our common stock. Also on             , prior to the consummation of this offering, our board of directors will declare a contingent dividend to our parent, payable in an aggregate amount of shares of our common stock less the total number of shares of our common stock actually purchased by the underwriters pursuant to their option to purchase additional shares. These shares of our common stock, if any, are payable to our parent at the end of the           -day period in which the underwriters may exercise their option to purchase additional shares. As a result, there will be             shares of our common stock outstanding regardless of whether the underwriters exercise their option to purchase additional shares. All historical share data of our Company presented in this prospectus will be adjusted to reflect this stock split. All pro forma share data assumes that the full amount of the contingent dividend has been paid to our parent.

We expect to issue approximately             shares of common stock in connection with this offering, and upon the completion of this offering, CBS indirectly will own approximately     % of our outstanding common stock, or approximately     % if the underwriters exercise their option to purchase additional shares in full, and we will continue to be controlled by CBS.

We estimate that we will receive net proceeds from this offering of approximately $            , or approximately $             if the underwriters exercise their option to purchase additional shares in full, after

 

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deducting the underwriting discounts, commissions and other estimated expenses of this offering. We intend to use the net proceeds from this offering to repay the CBS Note. Accordingly, none of the proceeds from this offering will be available to fund the operation of our business.

 

3) INTEREST EXPENSE

The adjustments to interest expense reflect interest expense and the amortization of deferred financing costs on the pre-offering financing, as well as commitment fees associated with the Revolving Credit Facility. The estimates of interest expense, including amortization of deferred financing costs and commitment fees, for the nine months ended September 30, 2016 and the year ended December 31, 2015 are presented as if the pre-offering financing occurred on January 1, 2015. Such estimates are calculated based on the initial debt principal amount of $1.460 billion, adjusted to reflect required quarterly principal payments of the Term Loan at an annual rate of 1% of the initial principal balance. Pro forma interest expense does not include an estimate of the required annual prepayment of the Term Loan, which is based on 50% of the Excess Cash Flow (as defined in the Credit Agreement) we generated during the prior fiscal year. The following table presents the pro forma adjustment to interest expense. Interest on the Term Loan is variable. For illustrative purposes, we are assuming the interest rate on the Term Loan is 4.5%, which reflects the interest rate at inception of the borrowing.

 

     

Nine Months Ended

September 30, 2016

    

Year Ended

December 31, 2015

 

$1.06 billion Term Loan

   $ 35.3       $ 47.5   

$400 million 7.250% Senior Notes due 2024

     21.8         29.0   

Deferred financing costs and amortization of original issue discount

     3.0         4.0   

Revolving Credit Facility commitment fees

     .9         1.2   

Pro forma adjustment to interest expense

   $   61.0       $   81.7   

An increase or decrease of 1/8% in the interest rate on the variable-rate portion of the debt will change interest expense by approximately $1.0 million and $1.3 million for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively. Pro forma interest expense does not reflect the prepayment of $45 million of the Term Loan on November 17, 2016 or estimates of the required Excess Cash Flow prepayment or optional prepayments of the Term Loan. During 2015, we generated operating cash flow from continuing operations of $212.8 million and paid $21.5 million for capital expenditures, resulting in a net cash inflow of $191.3 million. After considering required principal payments of the Term Loan of $10.6 million, representing 1% of the initial principal amount; payments of pro forma interest expense, net of tax, of $47.1 million; and incremental public company costs, net of tax, of $13.3 million, we estimate that we would have had $120.3 million of cash available for discretionary use. The following table illustrates the annualized interest savings assuming we had used the following amounts of this cash to prepay the Term Loan and assuming an interest rate on the Term Loan of 4.5%.

 

Prepayment of

Term Loan

  

Annualized Interest

Savings

$  50

   $2.3

$  75

   $3.4

$100

   $4.5

 

4) (PROVISION) BENEFIT FOR INCOME TAXES

Adjustments to the (provision) benefit for income taxes on the unaudited pro forma condensed consolidated statements of operations are calculated at blended statutory tax rates of 39.6% and 39.4% for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively.

 

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5) OTHER

Our 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. CBS provides us with certain services, such as insurance and support for technology systems, and also provides benefits to our employees, including medical, dental, life and disability insurance, participation in a 401(k) savings plan and certain postemployment benefits. The costs of these services and benefits have been charged to us based on the specific identification of costs. Our historical 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 allocated based on various allocation methods, including factors such as headcount, time and effort spent on matters relating to the Company, and the number of CBS operating entities benefiting from such services. We believe that the assumptions and estimates used to allocate these expenses are reasonable. Effective January 1, 2017, it is contemplated that our employees will begin participating in employee plans maintained by us, although certain of our employees will continue to be entitled to benefits under certain CBS defined benefit pension and post retirement health plans.

We expect to enter into several agreements with CBS immediately prior to completing this offering to cover substantially all of the services CBS currently provides to us, including the use of certain brands and call signs, until such time that we establish our own infrastructure. See “Certain Relationships and Related Person Transactions.” As a stand-alone public company, we expect to incur incremental expenses for services previously provided by CBS and for additional public company expenses that did not apply to us historically. We estimate these incremental expenses to be approximately $16.5 million for the nine months ended September 30, 2016 and $22.0 million for the year ended December 31, 2015. These incremental costs were determined principally based on various agreements we intend to enter into with CBS prior to completing this offering to cover the services that CBS will be providing to us (see “Certain Relationships and Related Person Transactions”), employment agreements for new senior executives, as well as other expenses associated with being a public company, including but not limited to, board of directors fees, directors and officers insurance, and incremental audit fees. We expect public company costs, including these incremental costs as well as those incurred historically, to total approximately $25 million on an annual basis.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Tabular dollars in millions)

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

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

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

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. We focus on three areas of content: Sports, News and Music & Entertainment. Our 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 Alternative Rock (KROQ in Los Angeles) radio stations. We own the #1- or #2-rated local Sports radio station and the #1-rated All-News radio station in each of the markets in which we program these formats. Our radio stations reached an audience of more than 65 million people per week in 2015, making us the second largest radio group in the United States as measured both by audience and by revenue. We also distribute our 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 63.1 million internet and mobile unique users per month in 2015. In addition, we produce events across our markets, including concerts, multi-day musical festivals, speaker series, trade shows and sports-related events. We produced, co-produced or co-promoted approximately 500 such events in 2015.

We focus primarily on large metropolitan markets through clusters of radio stations and digital properties. We have the #1- or #2-ranked station clusters in approximately 75% of our markets as measured by revenue, as reported by Miller Kaplan Arase, LLP. As of October 2016, we employed over 900 sales personnel dedicated to local and national radio advertising, digital advertising and events, with a local presence in all of the markets in which we operate.

 

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Since 2013, we have experienced a declining trend in our 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 we offer. Our 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, we have initiated several strategic changes to our business to regain market share in our traditional radio broadcast spot advertising business and reduce our cost structure. Such actions included appointing a new President as well as other members of our senior management team; realigning and enhancing our sales team; combining certain station management functions; better aligning our programming with consumer and market demand; and initiating measures intended to improve our overall pricing discipline. We believe that taken together, these actions will enable us to maintain and expand our operating margins and continue to generate significant levels of operating cash flow, therefore enhancing the overall value of our business. During 2016, we have begun to see the benefit of these strategic initiatives. While revenues for the first seven months of 2016 were lower than revenues for the same prior-year period, we have begun to see signs of improvement, with low-single-digit revenue increases in August, September and October of 2016 compared with the same prior-year period. In addition, our profit for the first nine months of 2016 has increased compared with the profit for the same prior-year period, benefiting primarily from the reduced cost structure resulting from our 2015 restructuring activities. As we continue to execute such changes, we will look for opportunities to further reduce our cost structure, which could lead to additional restructuring activities during the fourth quarter of 2016.

In addition, we will continue to pursue opportunities for revenue growth beyond our broadcast advertising revenues, including from our digital platforms and non-traditional revenue sources such as events, programming sponsorships, and naming rights of radio station studios and performance spaces. We also continue to develop and invest in compelling local and national content, and enhance our existing radio clusters and digital assets. We believe this strategy will increase our relevance among our audiences and advertisers, strengthen our local brands and provide us with additional opportunities to monetize our content. See “Prospectus Summary—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

We derive our revenues from the following revenue streams:

Broadcasting Revenue. We generate broadcasting revenue from the sale of advertising time on our 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 is generated across our markets and 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. We also earn 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. We generate digital revenue primarily from the sale of display, audio and video advertising across our digital properties, which enables us to further monetize the content produced by our radio stations. Events revenue is generated primarily from advertising and sponsorships as well as ticket sales associated with various live events which we produce, promote, co-produce and co-promote. Other revenues are generated primarily from the syndication of our 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.

 

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Expenses

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

Selling, General and Administrative Expenses. Our 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 our operations.

Discontinued Operations

Discontinued operations reflect the results of several non-radio businesses which were historically included in the legal entity structure of CBS Radio Inc. During 2015, these businesses were distributed to another subsidiary of CBS.

Non-GAAP Measures

Adjusted OIBDA and Adjusted net income from continuing operations are measures of performance not calculated in accordance with GAAP. We calculate “Adjusted OIBDA” as operating income (loss) before depreciation, stock-based compensation expense, restructuring charges and impairment charges and “Adjusted net income from continuing operations” as net income (loss) from continuing operations before restructuring charges and impairment charges. We use Adjusted OIBDA and Adjusted net income from continuing operations to evaluate our operating performance. We believe 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 our management, help improve investors’ understanding of our operating performance and make it easier for investors to compare our results with other companies that have different financing and capital structures or tax rates. Adjusted OIBDA is among the primary measures we use for planning and forecasting of future periods, and it is an important indicator of our operational strength and business performance. In addition, Adjusted OIBDA is among the primary measures used by investors, analysts and peers in our industry for purposes of valuation and the comparison of the operating performance of companies in our industry. 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 from continuing operations, the most directly comparable GAAP financial measure, are provided when Adjusted OIBDA and Adjusted net income from continuing operations are presented.

Results of Operations—Nine Months Ended September 30, 2016 versus Nine Months Ended September 30, 2015

Operational Highlights Nine Months Ended September 30, 2016 versus Nine Months Ended September 30, 2015

 

      Nine Months Ended September 30,  
                 Increase/(Decrease)  
      2016     2015          $                %       

Revenues

   $   894.1      $   907.2      $   (13.1      (1 )% 

Operating income

   $ 216.0      $ 172.0      $ 44.0         26

Operating income margin (a)

     24     19     

Net income from continuing operations

   $ 130.2      $ 102.2      $ 28.0         27

Operating cash flow from continuing operations

   $ 171.6      $ 130.5      $ 41.1         31

Non-GAAP Measures:

         

Adjusted OIBDA (b)

   $ 246.4      $ 227.8      $ 18.6         8

Adjusted OIBDA margin (a)

     28     25     

Adjusted net income from continuing operations (b)

   $ 130.2      $ 116.3      $ 13.9         12

 

  (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.

 

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For the nine months ended September 30, 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. Operating income increased 26% and Adjusted OIBDA increased 8%, with the operating income margin expanding 5 percentage points to 24% and the Adjusted OIBDA margin expanding 3 percentage points to 28%, demonstrating improvement in our profitability resulting from the strategic changes and restructuring activities we implemented during 2015. The growth in operating income and net income from continuing operations also reflects restructuring charges of $23.3 million recorded during the nine months ended September 30, 2015.

Our business converts a significant amount of its revenues and earnings to operating cash flow. We generated operating cash flow from continuing operations of $171.6 million for the nine months ended September 30, 2016 compared to $130.5 million for the nine months ended September 30, 2015. This increase was primarily due to the increase in net income from continuing operations and the collection of $13.3 million in 2016 relating to a past due receivable account.

Reconciliation of Non-GAAP Measures

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

 

      Nine Months Ended September 30,  
           

Increase/(Decrease)

 
      2016      2015           $                %       

Net income from continuing operations

   $   130.2       $   102.2       $   28.0         27

Exclude:

           

Provision for income taxes

     85.8         69.8         

Restructuring charges

             23.3         

Depreciation

     19.8         21.3         

Stock-based compensation (a)

     10.6         11.2                     

Adjusted OIBDA

   $ 246.4       $ 227.8       $ 18.6         8

 

  (a) For the nine months ended September 30, 2015, stock-based compensation of $.9 million was reflected in restructuring charges.

 

      Nine Months Ended September 30,  
                   Increase/(Decrease)  
     2016      2015           $                %       

Net income from continuing operations

   $   130.2       $   102.2       $   28.0         27

Exclude:

           

Restructuring charges (net of tax benefit of $9.2 million)

             14.1                     

Adjusted net income from continuing operations

   $ 130.2       $ 116.3       $ 13.9         12

 

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Revenues

 

      Nine Months Ended September 30,  
Revenues by Type    2016     

% of Total

Revenues

    2015     

% of Total

Revenues

    Increase/(Decrease)  
                 $             %      

Broadcasting revenue

   $   727.3         81   $   741.4         82   $   (14.1     (2 )% 

Digital, events and other revenue

     166.8         19        165.8         18        1.0        1   

Total revenues

   $ 894.1         100   $ 907.2         100   $ (13.1     (1 )% 

Broadcasting Revenue

 

      Nine Months Ended September 30,  
                   Increase/(Decrease)  
      2016      2015          $              %    

Local

   $     502.2       $     521.3         $    (19.1      (4 )% 

National

     163.3         160.8         2.5         2   

Political

     9.4         2.9         6.5         n/m   

Network and other

     52.4         56.4         (4.0      (7

Total broadcasting revenue

   $ 727.3       $ 741.4       $ (14.1      (2 )% 

n/m–not meaningful

Local Advertising

For the nine months ended September 30, 2016, the 4% decrease in local advertising revenue reflects decreased spending by advertisers primarily in the entertainment, healthcare and financial services 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 we offer, as well as lower demand in the radio marketplace. Our revenue decrease on a market basis was primarily driven by the New York, Detroit and Chicago markets, partially offset by growth in the Dallas market. To counteract the recent trend of declining local broadcast spot advertising, we are focusing on enhancing and realigning our sales team and better aligning our programming with consumer and market demand. In addition, we are pursuing opportunities for revenue growth beyond our broadcast advertising revenues, including from our digital offerings, events, programming sponsorships, and naming rights of radio station studios and performance spaces.

National Advertising

For the nine months ended September 30, 2016, the 2% increase in national advertising revenue reflects increased spending by advertisers primarily in the restaurant 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 we outperformed the industry in most of the markets where we operate for the first nine months of 2016. Our revenue increase on a market basis was primarily driven by the Dallas, New York and San Francisco markets. During 2016, we have experienced improving trends in our national advertising, with the first quarter down 5%, the second quarter up 3% and the third quarter up 6% compared to the respective prior-year periods.

Political Advertising

For the nine months ended September 30, 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. In the fourth quarter of 2016, we will continue to benefit from higher political spending.

 

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Network and Other Advertising

For the nine months ended September 30, 2016, the 7% decrease in network and other advertising revenue was principally driven by lower sales from 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 our radio stations) across the United States.

Digital, Events and Other Revenue

For the nine months ended September 30, 2016, the 1% 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, and sponsorships of programming features, partially offset by lower syndication of our programming.

Costs and Expenses

 

      Nine Months Ended September 30,  
            % of
Revenues
           % of
Revenues
    Increase/(Decrease)  
     2016        2015              $                 %        

Operating

   $   299.0         34   $   317.2         35   $ (18.2     (6 )% 

Selling, general and administrative

     359.3         40        373.4         41     (14.1     (4

Depreciation

     19.8         2        21.3         2     (1.5     (7

Restructuring charges

                    23.3         n/m        (23.3     n/m   

Total costs and expenses

   $ 678.1         76   $ 735.2         n/m      $   (57.1     (8 )% 

n/m–not meaningful

Operating Expenses

For the nine months ended September 30, 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 we 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 nine months ended September 30, 2016, the 4% decrease in SG&A expenses was principally driven by lower employee compensation costs resulting from the restructuring activities in connection with the strategic changes we implemented during 2015. The decrease also reflects lower sales promotion costs and the impact of a favorable contract renegotiation. As we continue to execute these strategic changes, we will look for opportunities to further reduce our cost structure, which could lead to additional restructuring activities during the fourth quarter of 2016.

Depreciation

For the nine months ended September 30, 2016, the 7% decrease in depreciation expense was the result of lower capital expenditure levels in recent years.

Restructuring Charges

During the nine months ended September 30, 2015, we implemented restructuring activities in an effort to streamline our operations, create efficiencies and reduce our cost structure. Such actions included appointing a new President as well as other members of our senior management team, realigning the structure of our sales team, and combining certain station management functions. As a result, we recorded restructuring charges of $23.3 million, reflecting $18.9 million of severance costs and $4.4 million of costs associated with exiting contractual obligations.

 

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Provision for Income Taxes

 

          Nine Months Ended September 30,  
                   Increase/(Decrease)    
      2016     2015         $              %      

Provision for income taxes

   $ 85.8      $ 69.8      $ 16.0         23

Operating income from continuing operations before income taxes

   $   216.0      $   172.0      $   44.0         26

Effective tax rate

     40     41                 

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

Cash Flows

Prior to the pre-offering financing, we participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash we generated was automatically transferred to CBS and any additional daily cash flow needs were funded by CBS. As such, CBS benefited from the positive cash flow we generated and CBS also provided us with sufficient daily liquidity to fund our ongoing cash needs. As a result, we have historically required minimal cash on hand. On October 17, 2016, at the time of the pre-offering financing, our participation in CBS’s centralized cash management system ceased. The changes in cash for the nine months ended September 30, 2016 and 2015 were as follows:

 

            Nine Months Ended September 30,        
        2016         2015      

Increase/

  (Decrease)  

 

Net cash flow provided by operating activities from:

      

Continuing operations

   $ 171.6      $ 130.5      $ 41.1   

Discontinued operations

            7.4        (7.4

Net cash flow provided by operating activities

     171.6        137.9        33.7   

Net cash flow used for investing activities from:

      

Continuing operations

     (2.2     (14.8     12.6   

Discontinued operations

            (.2     .2   

Net cash flow used for investing activities

     (2.2     (15.0     12.8   

Net cash flow used for financing activities

     (174.0     (127.0     (47.0

Net decrease in cash

   $ (4.6   $ (4.1   $ (.5

Operating Activities. For the nine months ended September 30, 2016, the increase in cash provided by operating activities from continuing operations was driven primarily by an increase in net income from continuing operations and the collection of $13.3 million in 2016 relating to a past due receivable account.

 

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Investing Activities

 

      Nine Months Ended
September 30,
 

 

       2016              2015      

Capital expenditures (a)

   $   (14.0    $   (15.9

Proceeds from dispositions (b)

     8.0         1.1   

Proceeds from sale of investments (c)

     3.8           

Net cash flow used for investing activities from continuing operations

     (2.2    $ (14.8

Net cash flow used for investing activities from discontinued operations

             (.2

Net cash flow used for investing activities

   $ (2.2    $ (15.0

 

  (a) Our capital expenditures for the years ended December 31, 2015, 2014 and 2013 were $21.5 million, $26.7 million and $23.3 million, respectively. We anticipate capital expenditures for the year ended December 31, 2016 to be at a similar level to the prior three years.  
  (b) The nine months ended September 30, 2016 reflects the sale of KFWB (AM)® in Los Angeles.  
  (c) Reflects the sale of our investment in Spanish Broadcasting System, Inc.  

Financing Activities. For both the nine months ended September 30, 2016 and 2015, cash used for financing activities reflects net cash distributions to CBS.

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 our Company. During this period our sales performance was below the overall radio market. We initiated several strategic changes to our business in an effort to streamline our operations, create efficiencies, reduce our cost structure, and improve our overall pricing discipline. Such actions included appointing a new President, as well as other members of our senior management team, realigning the structure of our sales team and combining certain station management functions. These actions were implemented with the ultimate goal of improving our long-term profitability and enhancing the overall value of our business. In an effort to regain market share in our traditional radio broadcast advertising business, we are focusing on enhancing our sales team and better aligning our 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.

 

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We 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.

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

          

% of Total

Revenues

           

% of Total

Revenues

    Increase/(Decrease)  
   2015        2014              $                 %        

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 we offer, 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. To counteract the recent trend of declining local broadcast spot advertising, we are focusing on enhancing and realigning our sales team and better aligning our programming with consumer and market demand. In addition, we have been pursuing opportunities for revenue growth beyond our broadcast advertising revenues, including from our digital offerings, events, programming sponsorships, and naming rights of radio station studios and performance spaces.

National Advertising

For the year ended December 31, 2015, national advertising revenue declined 7%. In connection with initiatives implemented by our new management, beginning in the second quarter of 2015 we stopped entering into those national advertising sales contracts that resulted in significant discounts and which in our view did not preserve the long-term value of our 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 our national advertising revenue comparisons. We believe that this and other measures intended to improve overall pricing discipline will benefit our 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, we completed a radio station swap with Beasley Broadcast Group, Inc. through which we exchanged 13 of our 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.

 

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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 our sports programming. These increases 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

 

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

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 we 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, we implemented restructuring activities in an effort to streamline our operations, create efficiencies and reduce our cost structure. Such actions included appointing a new President as well as other members of our senior management team, realigning the structure of our sales team, and combining certain station management functions. As a result, we 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 our annual cost structure by approximately $50 million.

During the year ended December 31, 2014, we 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. During the year ended December 31, 2013, we recorded restructuring charges of $5.1 million reflecting severance costs. As of December 31, 2015, the cumulative settlements for the 2015, 2014 and 2013 restructuring charges were $24.4 million, of which $19.7 million was for severance costs and $4.7 million related to costs associated with exiting contractual obligations. We expect to substantially utilize our restructuring reserves by the end of 2016.

Impairment Charges

During 2015, we 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. (See “Critical Accounting Policies.”)

 

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In December 2014, we completed a radio station swap with Beasley Broadcast Group, Inc. through which we exchanged 13 of our radio stations in Tampa and Charlotte and one radio station in Philadelphia, for two radio stations in Philadelphia and three radio stations in Miami. In connection with the radio station swap, we 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   

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

Prior to the pre-offering financing, we participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash we generated was automatically transferred to CBS and any additional daily cash flow needs were funded by CBS. As such, CBS benefited from the positive cash flow we generated and CBS also provided us with sufficient daily liquidity to fund our ongoing cash needs. As a result, we have historically required minimal cash on hand. On October 17, 2016, at the time of the pre-offering financing, our participation in CBS’s centralized cash management system ceased. 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

 

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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 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.

Results of Operations—2014 versus 2013

Operational Highlights 2014 versus 2013

 

                    Increase/(Decrease)  
Year Ended December 31,    2014     2013         $              %    

Revenues

   $   1,303.0      $   1,306.4      $ (3.4     

Operating income

   $ 299.3      $ 360.2      $   (60.9      (17 )% 

Operating income margin (a)

     23     28     

Net income from continuing operations

   $ 176.5      $ 214.1      $ (37.6      (18 )% 

Operating cash flow from continuing operations

   $ 276.9      $ 264.3      $ 12.6         5

Non-GAAP Measures:

         

Adjusted OIBDA (b)

   $ 402.3      $ 413.1      $ (10.8      (3 )% 

Adjusted OIBDA margin (a)

     31     32     

Adjusted net income from continuing operations (b)

   $ 210.0      $ 217.2      $ (7.2      (3 )% 

 

  (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 year ended December 31, 2014, the decrease in revenues reflects weakness in the radio advertising market partially offset by higher political advertising, driven by the benefit in 2014 from midterm elections, and growth in digital advertising and events. Operating income was $299.3 million for the year ended December 31, 2014 and $360.2 million for the year ended December 31, 2013. Included in operating income was an impairment charge of $48.6 million for the year ended December 31, 2014 and restructuring charges of $7.0 million and $5.1 million for the years ended December 31, 2014 and 2013, respectively. Adjusted OIBDA, which excludes these impairment and restructuring charges, declined 3%, primarily as a result of the decline in revenues and increased costs to promote our business and support the growth from our digital platforms.

 

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We generated operating cash flow from continuing operations of $276.9 million for the year ended December 31, 2014 and $264.3 million for the year ended December 31, 2013. This increase primarily reflects the timing of payments and lower assumed payments for income taxes.

Reconciliation of Non-GAAP Measures

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

 

                      Increase/(Decrease)  
Year Ended December 31,    2014      2013          $              %      

Net income from continuing operations

   $   176.5       $   214.1       $ (37.6      (18 )% 

Exclude:

           

Provision for income taxes

     122.8         146.1         

Impairment charge

     48.6                 

Restructuring charges

     7.0         5.1         

Depreciation

     30.8         31.3         

Stock-based compensation

     16.6         16.5                     

Adjusted OIBDA

   $ 402.3       $ 413.1       $   (10.8      (3 )% 

 

                      Increase/(Decrease)  
Year Ended December 31,    2014      2013          $             %      

Net income from continuing operations

   $   176.5       $   214.1       $   (37.6)        (18 )% 

Exclude:

          

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

     29.3                

Restructuring charges (net of tax benefit of $2.8 million in 2014 and $2.0 million in 2013)

     4.2         3.1                    

Adjusted net income from continuing operations

   $ 210.0       $ 217.2       $ (7.2     (3 )% 

Revenues

 

Revenues by Type

Year Ended December 31,

   2014     

% of Total

Revenues

    2013     

% of Total

Revenues

    Increase/(Decrease)  
                 $             %      

Broadcasting revenue

   $   1,077.8         83   $   1,108.8         85   $   (31.0     (3 )% 

Digital, events and other revenue

     225.2         17        197.6         15        27.6        14   

Total revenues

   $ 1,303.0         100   $ 1,306.4         100   $ (3.4    

Broadcasting Revenue

 

                      Increase/(Decrease)  
Year Ended December 31,    2014      2013          $              %    

Local

   $ 745.1       $ 784.0       $ (38.9      (5 )% 

National

     237.2         239.5         (2.3      (1

Political

     17.1         5.7         11.4         n/m   

Network and other

     78.4         79.6         (1.2      (2

Total broadcasting revenue

   $   1,077.8       $   1,108.8       $   (31.0      (3 )% 

n/m—not meaningful

 

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Local Advertising

For the year ended December 31, 2014, the 5% decrease in local advertising revenue reflects the effects of a challenging advertising marketplace in the local broadcast radio industry during 2014. The declines affected many of our radio markets, including New York, Chicago, Dallas and San Francisco. While local advertising revenues declined during 2014, our overall local market share increased slightly. The decline in the New York market also reflects the nonrenewal of an unprofitable sports contract.

In an effort to counteract the decline in the local advertising marketplace, we have been pursuing opportunities for revenue growth beyond our broadcast advertising revenues, including from our digital offerings, events, programming sponsorships, and naming rights of radio station studios and performance spaces.

National Advertising

For the year ended December 31, 2014, the 1% decrease in national advertising revenues reflects weakness in the radio advertising marketplace; however, the performance of our stations, in the aggregate, outperformed the national advertising marketplace.

Political Advertising

The increase in political advertising revenues was driven by the benefit in 2014 from midterm elections.

Network and Other Advertising

For the year ended December 31, 2014, the 2% decrease in network and other advertising was driven by lower sales due to the expiration of a network agreement.

Digital, Events and Other

For the year ended December 31, 2014, the 14% increase in digital, events and other revenue was primarily driven by an 18% increase in digital advertising, reflecting the acquisition of Eventful, Inc. in July 2014, expansion of our digital offerings and growth from advertising on our local websites. Revenue growth also reflects the addition of new events in 2014 and higher revenues from newer sources of revenue, including sponsorships of programming features and naming rights of radio station studios and performance spaces.

Costs and Expenses

 

Year Ended December 31,    2014      % of
Revenues
    2013      % of
Revenues
    Increase/(Decrease)  
                 $             %      

Operating

   $ 408.1         31   $ 405.8         31   $ 2.3        1

Selling, general and administrative

     509.2         39        504.0         39        5.2        1   

Depreciation

     30.8         2        31.3         2        (.5     (2

Restructuring charges

     7.0         n/m        5.1         n/m        1.9        37   

Impairment charges

     48.6         n/m                       48.6        n/m   

Total costs and expenses

   $   1,003.7         n/m      $   946.2         n/m      $   57.5        6

n/m—not meaningful

Operating Expenses

For the year ended December 31, 2014, the 1% increase in operating expenses was principally driven by higher employee compensation costs to support the growth in our digital businesses, partially offset by lower costs from the nonrenewal of an unprofitable sports programming contract.

 

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Selling, General and Administrative Expenses

For the year ended December 31, 2014, the 1% increase in SG&A expenses was primarily driven by higher marketing and promotion costs relating to the growth in our digital and events revenues.

Restructuring Charges

During the year ended December 31, 2014, we 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. During the year ended December 31, 2013, we recorded restructuring charges of $5.1 million reflecting severance costs.

Impairment Charges

In December 2014, we completed a radio station swap with Beasley Broadcast Group, Inc., through which we exchanged 13 of our radio stations in Tampa and Charlotte and one radio station in Philadelphia, for two radio stations in Philadelphia and three radio stations in Miami. In connection with the radio station swap, we recorded a pretax noncash impairment charge of $48.6 million to reduce the carrying value of the allocated goodwill.

Provision for Income Taxes

 

                   Increase/(Decrease)  
Year Ended December 31,   2014     2013           $                 %        

Provision for income taxes

  $ 122.8      $ 146.1      $ (23.3     (16 )% 

Operating income from continuing operations before income taxes

  $   299.3      $   360.2      $   (60.9     (17 )% 

Effective tax rate

    41     41                

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

Cash Flows

The changes in cash for 2014 and 2013 were as follows:

 

Year Ended December 31,    2014     2013     Increase/(Decrease)  

Net cash flow provided by operating activities from:

      

Continuing operations

   $ 276.9      $ 264.3      $ 12.6   

Discontinued operations

     4.2        3.8        .4   

Net cash flow provided by operating activities

     281.1        268.1        13.0   

Net cash flow used for investing activities from:

      

Continuing operations

     (49.0     (22.5     (26.5

Discontinued operations

     (.3     (2.4     2.1   

Net cash flow used for investing activities

     (49.3     (24.9       (24.4

Net cash flow used for financing activities

       (230.0     (243.9     13.9   

Net increase (decrease) in cash

   $ 1.8      $ (.7   $ 2.5   

 

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Operating Activities. For the year ended December 31, 2014, the increase in cash provided by operating activities from continuing operations was principally driven by the timing of payments. Cash paid for income taxes was assumed to be $109.1 million for the year ended December 31, 2014 and $112.8 million for the year ended December 31, 2013.

Investing Activities

 

Year Ended December 31,    2014      2013

Capital expenditures

   $   (26.7    $   (23.3

Acquisitions (a)

     (25.4        

Proceeds from dispositions

     3.1         .8   

Net cash flow used for investing activities from continuing operations

     (49.0      (22.5

Net cash flow used for investing activities from discontinued operations

     (.3      (2.4

Net cash flow used for investing activities

   $ (49.3    $ (24.9

 

  (a) Reflects the 2014 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, 2014 and December 31, 2013, cash used for financing activities reflects net cash distributions to CBS.

Capital Structure

Our long-term debt at October 17, 2016 was as follows:

 

     

At

October 17, 2016

 

Term Loan due 2023, net of discount

   $ 1,054.7   

7.250% Senior Notes due 2024

     400.0   

Deferred financing costs

     (22.6

Total long-term debt

   $   1,432.1   

On October 17, 2016, we entered into the $250 million senior secured Revolving Credit Facility due 2021 and the $1.06 billion senior secured Term Loan due 2023 pursuant to the Credit Agreement. On October 17, 2016, we borrowed the full amount of the Term Loan. At November 18, 2016, there were no outstanding borrowings under the Revolving Credit Facility and the remaining availability under the Revolving Credit Facility, net of outstanding letters of credit, was approximately $249 million. The Revolving Credit Facility will be used for general corporate purposes, including the issuance of letters of credit, and ongoing cash needs. Also on October 17, 2016, we issued $400 million aggregate principal amount of 7.250% Senior Notes due 2024 pursuant to the 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 under the Term Loan and the issuance of the Senior Notes, we 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 us incurred in connection therewith. We distributed to our parent, an indirect wholly owned subsidiary of CBS, approximately $1.426 billion, which is an amount equal to the net proceeds of the Pre-Offering Borrowing, prior to deducting expenses payable by us, less $10 million which remained with us to use for general corporate purposes and ongoing cash needs.

The Term Loan requires us 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 Term Loan also requires us to prepay certain amounts outstanding thereunder with the net cash proceeds of

 

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certain asset sales, certain casualty events and certain issuances of debt. Each fiscal year beginning in 2018 we will be required to make a prepayment of the Term Loan equal to 50%, subject to certain step-downs based on our consolidated net secured leverage ratio, of our Excess Cash Flow (as defined in the Credit Agreement). We may prepay additional amounts under the Term Loan from time to time. On November 17, 2016, we prepaid $45 million of the Term Loan, leaving $1.015 billion outstanding on the Term Loan. If a prepayment of the Term Loan is made on or prior to October 17, 2017, as a result of certain refinancing or repricing transactions, we will be required to pay a fee equal to 1.00% of the principal amount of the obligation so refinanced or repriced.

The 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 initial interest rate on the Term Loan was 4.50% per annum at October 17, 2016. Borrowing rates under the Revolving Credit Facility are based on LIBOR or a base rate plus a margin based on our consolidated net secured leverage ratio, which is the ratio of (i) our consolidated secured debt (less up to $150 million of cash and cash equivalents) to (ii) our consolidated EBITDA (as defined in the Credit Agreement). Interest on the Term Loan and Revolving Credit Facility is payable at the end of each 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 Revolving Credit Facility. The 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 Credit Agreement could result in the termination of the commitments under the Revolving Credit Facility and the acceleration of all outstanding borrowings under the 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 Revolving Credit Facility require us 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.

Interest on the Senior Notes is payable on May 1 and November 1 of each year, beginning on May 1, 2017. We 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, we may redeem some or all of such notes subject to payment of a customary make-whole premium. In addition, prior to November 1, 2019, we 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 Indenture) with respect to the Senior Notes, the holders of the Senior Notes may require us 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.

The 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 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 Credit Agreement.

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

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

 

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Liquidity and Capital Resources

We have generated cash flows from operating activities from continuing operations of $212.8 million for the year ended December 31, 2015, $276.9 million for the year ended December 31, 2014, $264.3 million for the year ended December 31, 2013 and $171.6 million for the nine months ended September 30, 2016. Prior to the pre-offering financing, we participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash we generated was automatically transferred to CBS and any additional daily cash flow needs were funded by CBS. As such, CBS benefited from the positive cash flow we generated, and CBS also provided us with sufficient daily liquidity to fund our ongoing cash needs. As a result, we have historically required minimal cash on hand. On October 17, 2016, at the time of the pre-offering financing, our participation in CBS’s centralized cash management system ceased.

We intend to use the net proceeds from this offering to repay the CBS Note. Accordingly, none of the proceeds from this offering will be available to fund the operation of our business.

We continually project anticipated cash requirements for our operating, investing and financing needs and cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include payments for programming and talent commitments, operating leases and capital expenditures. After completion of the pre-offering financing, our short-term cash requirements also include interest payments on the Senior Notes and Term Loan and principal payments on the Term Loan. After completion of this offering, our short term cash requirements will also include the intended payment of dividends. We believe that cash remaining on hand after the completion of this offering of approximately $7.5 million, on a pro forma basis at September 30, 2016, as well as our operating cash flows and borrowing capacity under the Revolving Credit Facility, will be sufficient to fund our short-term cash needs.

Our long-term cash needs will primarily include principal payments on outstanding indebtedness and payments for acquisitions. Funding for long-term cash needs will come from our operating cash flows, our ability to issue debt and equity securities, and borrowing capacity under the Revolving Credit Facility.

Contractual Obligations

As of December 31, 2015, our significant contractual obligations and payments due by period were as follows:

 

      Payments Due by Period  
      Total      2016      2017-2018      2019-2020     

2021 and

thereafter

 

Programming commitments (a)

   $   263.8       $ 53.3       $ 86.2       $ 63.8       $ 60.5   

Talent commitments

     87.0         42.7         42.9         1.4           

Purchase obligations (b)

     9.3         3.9         4.0         1.1         .3   

Operating leases (c)

     211.6         28.1         48.2         40.8         94.5   

Total

   $ 571.7       $   128.0       $   181.3       $   107.1       $   155.3   

 

(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.

The above table excludes $3.7 million of reserves for uncertain tax positions and the related accrued interest and penalties, as we cannot reasonably predict the amount of and timing of cash payments relating to this obligation.

In addition, as a result of the Pre-Offering Borrowing, we incurred indebtedness of $1.460 billion (consisting of the $1.06 billion Term Loan and the issuance of $400 million of Senior Notes). Under the Term Loan, we will make quarterly principal payments at an annual rate of 1% of the initial principal amount of $1.06

 

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billion. Each fiscal year beginning in 2018 we will be required to make a prepayment of the Term Loan equal to 50% of Excess Cash Flow (as defined in the Credit Agreement). We may prepay additional amounts under the Term Loan from time to time. The following table presents principal and interest payments related to this debt due by period.

For illustrative purposes, we are assuming an interest rate on the Term Loan of 4.5% for all periods, which reflects our interest rate at October 17, 2016. The principal payments do not include estimates for the required Excess Cash Flow prepayment or optional prepayments of the Term Loan. An increase or decrease of 1/8% in the interest rate on the variable-rate portion of the debt will change annual interest expense by approximately $1.3 million.

 

      Payments Due by Period  
      Total      2016      2017-2018      2019-2020     

2021 and

thereafter

 

Long-term debt (a)

   $ 1,460.0       $ 45.0       $ 21.2       $ 21.2       $ 1,372.6   

Interest on long-term debt

     542.7         7.8         149.6         146.6         238.7   

Total

   $   2,002.7       $   52.8       $   170.8       $   167.8       $   1,611.3   

 

(a) The 2016 payment reflects an optional prepayment of $45 million on November 17, 2016.

Guarantees

We use 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 $7.4 million at September 30, 2016 and $6.0 million at December 31, 2015, respectively, and were not recorded on the Consolidated Balance Sheets.

Critical Accounting Policies

The preparation of our financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our 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.

We consider the following accounting policies to be the most critical as they are important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a summary of our significant accounting policies, see pages F-20 to F-23 of the accompanying notes to the consolidated financial statements.

Impairment of Goodwill and FCC Licenses

We test 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. We consider each geographic market, which is comprised of all of our 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, 2015, we had FCC license book values for radio stations in 25 radio markets.

 

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For the year ended December 31, 2015, we 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, which is based on projected long-range inflation in the United States 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, 2015, the discount rate and perpetual nominal growth rate used for each market was 7.75% and 1.0%, respectively.

We concluded that the estimated fair values of the FCC licenses in 18 radio markets were lower than their respective carrying values. Accordingly, we recognized a pretax noncash impairment charge of $482.9 million related to FCC licenses in these markets. This impairment was the result of a sustained decline in industry projections for the radio advertising marketplace since 2014. The charge included $39.6 million to reduce the book value of KFWB (AM) in Los Angeles to its fair value. KFWB (AM) was classified as held for sale at December 31, 2015 and was sold in March 2016.

For the remaining seven radio markets, we concluded that the estimated fair values of FCC licenses in each market exceeded their respective carrying values and therefore no impairment charge was necessary. Two markets, which had an aggregate carrying value of FCC licenses of $203 million, were each within 5% of their estimated fair value and two markets, which had an aggregate carrying value of FCC licenses of $193 million, were each within 10% of their estimated fair value. In each of the remaining markets, the estimated fair value of FCC licenses was in excess of the respective carrying values by more than 10%.

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 we own and operate 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 our 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 our statement of operations and balance sheet.

Goodwill—Goodwill is tested for impairment at the reporting unit level. At December 31, 2015, we had three reporting units, which are one level below our operating segment. For our 2015 annual impairment test, we performed a quantitative goodwill impairment test for each of our 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

 

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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 our 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, 2015, the discount rate and perpetual nominal growth rate used for each reporting unit was 8.0% and 1.5%, respectively.

We concluded that the estimated fair value of each of the three reporting units exceeded their respective carrying values, after the above-mentioned FCC licenses impairment charge, and therefore the second step of the goodwill impairment test was unnecessary. One reporting unit, with a goodwill balance of $730 million, was within 5% of its estimated fair value and one reporting unit, with a goodwill balance of $597 million, was within 10% of its estimated fair value. The estimated fair value of the third reporting unit exceeded its carrying value by more than 10%.

Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in the advertising market in the markets we operate 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. We would then perform the second step of the goodwill impairment test to determine the amount of any noncash impairment charge. Such a charge could have a material effect on our 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.

Our 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 our 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 our 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 we 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

Our 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 our accounts receivable. We believe our allowance for doubtful accounts is adequate; however, if circumstances change that affect a customer’s ability to make payments, we may be required to record an additional allowance.

 

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Legal Matters

On an ongoing basis, we vigorously defend ourself in numerous lawsuits and proceedings and respond to various investigations and inquiries from federal, state and local authorities (collectively, “litigation”). Litigation may be brought against us without merit, is inherently uncertain and always difficult to predict. However, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the litigation to which we are a party is not likely to have a material adverse effect on our results of operations, financial position or cash flows.

Market Risk

Interest Rate Risk

We are subject to interest rate risk to the extent we have variable-rate debt outstanding, including under the Credit Agreement. On October 17, 2016, we entered into a $1.06 billion variable-rate Term Loan due 2023, which has an initial interest rate of 4.5% per year. An increase or decrease of 1/8% in our interest rate on the Term Loan will change our annualized interest expense by approximately $1.3 million. We do not currently use derivatives or other financial instruments to mitigate interest rate risk, although we may do so in the future.

Credit Risk

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

Related Parties

CBS Corporation. We are indirectly wholly owned by CBS. CBS provides us with certain services, such as insurance and support for technology systems, and also provides benefits to our employees, including medical, dental, life and disability insurance, participation in a 401(k) savings plan and certain post-employment benefits. Charges for these services and benefits are reflected in the consolidated financial statements based on the specific identification of costs, assets and liabilities. These financial statements also include allocations of centralized corporate expenses from CBS for services, such as tax, internal audit, cash management and other services. These expenses were determined based on various allocation methods, including factors such as headcount, time and effort spent on matters relating to us, 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 $64.1 million and $62.8 million for the nine months ended September 30, 2016 and 2015, respectively, and $84.1 million, $76.5 million and $74.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. Management believes that the assumptions and estimates used to allocate these expenses are reasonable. However, our expenses as a stand-alone company may be different from those reflected in the Consolidated Statements of Operations.

Effective January 1, 2017, it is contemplated that our employees will begin participating in employee plans maintained by us, although certain of our employees will continue to be entitled to benefits under certain CBS defined benefit pension and post-retirement health plans.

In addition, prior to the pre-offering financing, we participated in CBS’s centralized cash management system. Under this system, on a daily basis, any excess cash we generated was automatically transferred to CBS and any additional daily cash flow needs were funded by CBS. As such, CBS benefited from the positive cash flow we generated and CBS also provided us with sufficient daily liquidity to fund our ongoing cash needs. As a result, we have historically required minimal cash on hand. On October 17, 2016, at the time of the pre-offering financing, our participation in CBS’s centralized cash management system ceased.

 

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Prior to the completion of this offering, we expect to enter into various agreements to govern our relationship with CBS during the period between the completion of this offering and the effective date of the Separation and to complete the Separation of our business from CBS. These agreements will include a master separation agreement, a transition services agreement, a joint digital services agreement (see “—Collaborative Arrangement”), intellectual property license agreements and a registration rights agreement. Some of these agreements will continue in accordance with their terms after the Separation. We entered into a tax matters agreement on October 17, 2016 in connection with the pre-offering financing. The terms of our separation from CBS, the related agreements and other transactions with CBS will be determined by CBS and thus may not be representative of what we could achieve on a stand-alone basis or from an unaffiliated third party. For a description of these agreements and the other agreements that we will enter into with CBS, see “Certain Relationships and Related Person Transactions.”

We also expect to distribute the CBS Note to our parent, CBS Broadcasting Inc., an indirect wholly owned subsidiary of CBS, pursuant to which we will owe such subsidiary a principal amount equal to the net proceeds of this offering. The CBS Note will mature on the date that is 91 days after the later of (i) the latest maturity date applicable to any loan or commitment under the Credit Agreement and (ii) November 1, 2024. The CBS Note may be prepaid in whole or in part at the option of CBS Radio without premium or penalty. The CBS Note requires CBS Radio to repay it within five business days of the consummation of this offering.

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

In addition, in connection with the pre-offering financing, we 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 us incurred in connection therewith. We distributed to our parent, an indirect wholly owned subsidiary of CBS, approximately $1.426 billion, which is an amount equal to the net proceeds of the Pre-Offering Borrowing, prior to deducting expenses payable by us, less $10 million which remained with us to use for general corporate purposes and ongoing cash needs.

We also generate revenues from sales to various subsidiaries and joint ventures of CBS. Our total revenues from these transactions were $8.7 million and $5.9 million for the nine months ended September 30, 2016 and 2015, respectively, and $8.4 million, $8.5 million and $8.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Collaborative Arrangement. We operate market-focused local websites with CBS TV Stations, which combine local radio and television content within markets where both we and CBS TV Stations operate. In connection with this arrangement, advertisements displayed on these websites are sold by both our employees and those of CBS TV Stations. We recognize revenues for advertising sales generated by our employees. Costs associated with the operation and maintenance of these websites are allocated to us and CBS TV Stations in proportion to our respective revenues generated.

Other Related Parties. Viacom Inc. is controlled by National Amusements, Inc. (“NAI”), the controlling stockholder of CBS. We recognized revenues of $2.8 million and $2.0 million for the nine months ended September 30, 2016 and 2015, respectively, and $2.9 million, $2.4 million and $2.5 million for the years ended December 31, 2015, 2014 and 2013, respectively, for the sale of advertising spots to subsidiaries of Viacom Inc. We are involved in other transactions with related parties that have not been material in any of the periods presented.

Adoption of New Accounting Standards

Simplifying the Accounting for Measurement Period Adjustments

During the first quarter of 2016, we adopted amended Financial Accounting Standards Board (“FASB”) guidance that eliminates the requirement to retrospectively account for adjustments to provisional amounts

 

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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 acquirer 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 our consolidated financial statements.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

During the first quarter of 2016, we 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 our 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

During the first quarter of 2016, we adopted FASB guidance on the accounting for stock-based compensation when the terms of an award provide that a performance target that affects vesting could be achieved after the requisite service period. Under this guidance, such performance target should not be reflected in estimating the grant-date fair value of the award. We 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 our consolidated financial statements.

Balance Sheet Classification of Deferred Taxes

During 2015, we early adopted amended FASB guidance which eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. Rather, the amended guidance requires deferred tax liabilities and assets be classified as noncurrent on the balance sheet. Prior period amounts were reclassified to conform with this presentation. The adoption of this guidance resulted in a decrease to “Deferred income tax liabilities, net” of $2.2 million and the elimination of “Deferred income tax assets, net” within current assets on our Consolidated Balance Sheet at December 31, 2014.

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

During 2015, we adopted amended FASB guidance which changes the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations and disposals of components of an entity that do not qualify for discontinued operations reporting. Under this guidance, only a disposal of a component of an entity or a group of components of an entity that represents a strategic shift that has (or will have) a major effect on our Company’s operations and financial results should be reported in discontinued operations. The guidance also expands the definition of a discontinued operation to include a business or nonprofit activity that, on acquisition, meets the criteria to be classified as held for sale and disposals of equity method investments that meet the definition of discontinued operations. The adoption of this guidance did not have an effect on our consolidated financial statements.

 

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Recent Pronouncements

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. The Company is currently assessing the impact of this guidance on its consolidated statement of cash flows.

Improvements to Employee Share-Based Payment Accounting

In March 2016, the FASB issued amended guidance which simplifies several aspects of the accounting for employee share-based payment transactions. Under this amended guidance, all excess tax benefits and tax deficiencies will be 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 will be 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 and increases the threshold for awards that are partially settled in cash to qualify for equity classification. We expect that the adoption of this guidance will introduce volatility into our income tax provision. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, 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, we will be required to recognize on our balance sheet a lease liability and a right-of-use asset representing our right to use the underlying asset for the lease term. The new guidance retains a distinction between finance 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. We are 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.

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

In August 2014, the FASB issued 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. This guidance, which is effective for the first annual period ending after December 15, 2016, is not expected to have an impact on our consolidated financial statements.

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. We are currently evaluating the impact of this guidance, which is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016.

 

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REGULATION

Federal Regulation of Radio Broadcasting

The radio broadcasting industry is subject to extensive and changing regulation by the FCC and other federal agencies of ownership, programming, technical operations, employment and other business practices. The FCC regulates broadcast radio stations pursuant to the Communications Act. The Communications Act permits the operation of broadcast radio stations only in accordance with a license issued by the FCC upon a finding that the grant of a license would serve the public interest, convenience and necessity. Among other things, the FCC:

 

    assigns frequency bands for radio broadcasting;

 

    determines the particular frequencies, locations, operating power, interference standards and other technical parameters for broadcast radio stations;

 

    issues, renews, revokes and modifies broadcast radio station licenses;

 

    imposes annual regulatory fees and application processing fees to recover its administrative costs;

 

    establishes technical requirements for certain transmitting equipment to restrict harmful emissions;

 

    adopts and implements regulations and policies that affect the ownership, operation, program content, employment and business practices of broadcast radio stations; and

 

    has the power to impose penalties, including monetary forfeitures, for violations of its rules and the Communications Act.

The Communications Act prohibits the assignment of an FCC license, or transfer of control of an FCC licensee, without the prior approval of the FCC. We will be required to obtain approval from the FCC in order to complete the Separation, because the Separation will result in CBS no longer controlling the Company. Third parties may oppose our applications to assign, transfer or acquire an FCC license. In determining whether to grant or renew a radio broadcast license or consent to assignment or transfer of a license, the FCC considers a number of factors, including restrictions on foreign ownership, compliance with FCC media ownership limits and other FCC rules, the character and other qualifications of the licensee (or proposed licensee) and compliance with the Anti-Drug Abuse Act of 1988. A licensee’s failure to comply with the requirements of the Communications Act or FCC rules and policies may result in the imposition of sanctions, including admonishment, fines, the grant of a license renewal for less than a full eight-year term or with conditions, denial of a license renewal application, the revocation of an FCC license, and/or the denial of FCC consent to acquire additional broadcast properties.

The FCC’s rules prohibit the broadcast of obscene material at any time and indecent or profane material between the hours of 6:00 a.m. and 10:00 p.m., local time. Broadcasters risk violating the prohibition against broadcasting indecent or profane material because the vagueness of the FCC’s indecency/profanity definition makes it difficult to apply, particularly with respect to spontaneous, live programming. The FCC’s maximum forfeiture penalty per radio station for broadcasting indecent or profane programming is $383,038 per indecent or profane utterance with a maximum forfeiture exposure of $3,535,740 (as of August 1, 2016) for any continuing violation arising from a single act or failure to act. Our Company has been involved in litigation and, from time to time, has received and may receive in the future letters of inquiry from the FCC prompted by complaints alleging that certain programming on its broadcast radio stations included indecent or profane material.

Ownership Regulation

The Communications Act and FCC rules and regulations limit the ability of individuals and entities to have an official position or ownership interest, known as an “attributable” interest, above specific levels in broadcast radio stations and in other specified mass media entities. Under these rules, attributable interests generally include: (1) officers and directors of a licensee or of its direct or indirect parent; (2) general partners; (3) limited partners and limited liability company members, unless properly “insulated” from management activities; (4) a

 

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5% or more direct or indirect voting stock interest in a corporate licensee or parent, except that, for a narrowly defined class of passive investors, the attribution threshold is a 20% or more voting stock interest; and (5) combined equity and debt interests in excess of 33% of a licensee’s total asset value, if the interest holder provides over 15% of the licensee radio station’s total weekly programming, or has an attributable broadcast or newspaper interest in the same market (the “EDP Rule”). An entity that owns one or more radio stations in a market and programs more than 15% of the broadcast time, or sells more than 15% per week of the advertising time, on a radio station in the same market is generally deemed to have an attributable interest in that radio station. Debt instruments, non-voting corporate stock, minority voting stock interests in corporations having a single majority stockholder, and properly insulated limited partnership and limited liability company interests generally are not subject to attribution unless such interests implicate the EDP Rule.

The FCC’s current ownership rules as applicable to the Company are briefly summarized below.

Local Radio Ownership. The FCC’s local radio ownership rule applies in all markets where the Company owns radio stations. Under that rule, one party may own up to eight radio stations in the largest markets, no more than five of which may be either AM or FM. With a few exceptions, the rule permits the common ownership of eight radio stations in the top 50 radio markets, where CBS Radio has significant holdings.

Radio-Television Cross-Ownership Rule. The FCC’s radio-television cross-ownership rule limits the common ownership of radio and television stations in the same market. The numeric limit varies according to the number of independent media voices in the market. In most markets where the Company owns radio stations and CBS owns a television station, the rule limits the Company to owning no more than six or seven radio stations.

Newspaper-Broadcast Cross-Ownership. The newspaper-broadcast cross-ownership rule prohibits the common ownership of a radio or television station and daily newspaper in the same market absent a waiver by the FCC.

The FCC is required to periodically review certain of its media ownership rules, and it completed its most recent review in August 2016 when it affirmed, with minor changes, the rules summarized above. The FCC’s August 2016 decision is subject to review by the U.S. Court of Appeals.

Attribution of Ownership. As discussed above, the FCC’s ownership rules apply to persons or entities that hold “attributable interests” in broadcast stations. Thus, the ownership rules may limit direct or indirect purchases of our stock. Under the current attribution rules, a minority shareholder is not attributed with an ownership interest even it directly or indirectly owns 5% or more of the voting stock of a licensee, if there is a single majority voting shareholder. Until the Separation, CBS will be the single majority voting shareholder of the Company. Because NAI holds an attributable interest in both CBS and Viacom Inc., the business of each company is attributable to the other, which may have the effect of limiting and affecting the activities, strategic business alternatives and business terms available to the Company. In particular, until the Separation, the Company will be treated for FCC purposes as commonly owned with CBS. Because CBS owns television stations in 15 of our markets where we own radio stations, we will continue to be subject to the limits of the radio-television cross-ownership rule in those markets (or in any other market where CBS may acquire a television station) until CBS and NAI cease to own an attributable interest in the Company and we and CBS or NAI cease to have common officers or directors.

Alien Ownership. In general, the Communications Act prohibits foreign individuals or entities from owning more than 25% of the voting power or equity of the Company. In November 2013, the FCC confirmed that it will consider on a case-by-case basis petitions for approval of foreign ownership that exceeds the 25% threshold and, in September 2016, the FCC adopted specific rules and procedures for the filing and review of such requests. In the September 2016 decision, the FCC confirmed that it will allow companies like CBS Radio to seek approval of up to 100% foreign ownership. The FCC also adopted a methodology for determining the citizenship of the beneficial owners of publicly held shares that companies may use to ascertain compliance with the foreign ownership rules.

 

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To maintain compliance with the FCC’s ownership rules, including rules limiting foreign ownership, the Company’s amended and restated certificate of incorporation will require shareholders to provide the Company with ownership information upon request. If a shareholder does not provide the requested information, or if the Company concludes that a stockholder’s ownership of shares of the Company would create FCC regulatory issues, the Company may take various actions, including (i) refuse to permit a transfer of shares, (ii) suspend a shareholder’s rights of ownership, (iii) require the exchange of a shareholder’s shares in the Company for warrants to acquire, at a nominal price, the same number of shares, (iv) redeem the shares held by the shareholder, or (v) condition a shareholder’s acquisition of shares on the receipt of the prior approval of the FCC. See “Description of Securities—Regulatory Restrictions.”

In seeking FCC approval for the acquisition of a broadcast radio or television station license, the acquiring person or entity must demonstrate that the acquisition complies with the FCC’s ownership rules or that a waiver of the rules is in the public interest. We cannot predict the outcome of the FCC’s media ownership proceedings or their effects on our business in the future.

The U.S. Congress, the FCC and, in some cases, local jurisdictions, are considering or may in the future consider and adopt new laws, regulations and policies that could affect the operation, ownership and profitability of our radio stations, result in the loss of audience share and advertising revenue for our broadcast radio stations or affect our ability to acquire additional broadcast radio stations or finance such acquisitions. Such matters include or may include:

 

    changes to the license authorization and renewal process;

 

    proposals to increase recordkeeping, including enhanced disclosure of radio stations’ efforts to serve the public interest;

 

    proposals to impose spectrum use or other fees on FCC licensees;

 

    changes to rules relating to political broadcasting, including proposals to grant free air time to candidates and other changes regarding political and non-political program content, political advertising rates and sponsorship disclosures;

 

    proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages;

 

    revised rules and policies regarding the regulation of the broadcast of indecent content;

 

    proposals to increase the actions radio stations must take to demonstrate service to their local communities;

 

    technical and frequency allocation matters, including changes to the requirements for protecting certain of our AM radio stations from interference;

 

    changes in broadcast multiple ownership, foreign ownership, cross-ownership and ownership attribution policies;

 

    changes to allow satellite radio operators to insert local content into their programming service;

 

    service and technical rules for digital radio, including possible additional public interest requirements for digital audio broadcasters;

 

    legislation that would provide for the payment of sound recording royalties to artists, musicians or record companies whose music is played on broadcast radio stations; and

 

    proposals to alter provisions of the tax laws affecting broadcast operations and acquisitions.

The FCC also has adopted procedures for the auction of broadcast spectrum in circumstances where two or more parties have filed mutually exclusive applications for authority to construct new radio stations or certain major changes in existing radio stations. Such procedures may limit our efforts to modify or expand the broadcast signals of our radio stations.

 

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We cannot predict what changes, if any, might be adopted or considered in the future, or what impact, if any, the implementation of any particular proposals or changes might have on our business.

FCC License Grants and Renewals

Certain of our program origination and distribution activities involve the use of FCC-licensed radio frequencies. We are required to apply for, maintain and renew such licenses in accordance with the Communications Act and the FCC’s rules, and to operate our FCC-licensed facilities in accordance with the Communications Act and those rules.

In making licensing determinations, the FCC considers an applicant’s legal, technical, financial and other qualifications. The FCC grants broadcast radio station licenses for specific periods of time and, upon application, may renew them for additional terms. A radio station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. Under the Communications Act, broadcast radio station licenses may be granted for a maximum term of eight years.

Generally, the FCC renews radio broadcast licenses without a hearing upon a finding that:

 

    the radio station has served the public interest, convenience and necessity;

 

    there have been no serious violations by the licensee of the Communications Act or FCC rules and regulations; and

 

    there have been no other violations by the licensee of the Communications Act or FCC rules and regulations which, taken together, indicate a pattern of abuse.

After considering these factors and any petitions to deny a license renewal application (which may lead to a hearing) that have been filed by third parties, the FCC may grant the license renewal application with or without conditions, including renewal for a term less than the maximum otherwise permitted. Historically, our licenses have been renewed for full eight-year terms without any conditions or sanctions imposed; however, there can be no assurance that the licenses of each of our radio stations will be renewed for a full term without conditions or sanctions. All of the renewal applications for our stations filed during the most recent renewal window have been granted.

Types of FCC Broadcast Licenses. The FCC classifies each AM and FM radio station. An AM radio station operates on either a clear channel, regional channel or local channel. A clear channel serves wide areas, particularly at night. A regional channel serves primarily a principal population center and the contiguous rural areas. A local channel serves primarily a community and the suburban and rural areas immediately contiguous to it. Class A, B and C radio stations each operate unlimited time. Class A radio stations render primary and secondary service over an extended area. Class B radio stations render service only over a primary service area. Class C radio stations render service only over a primary service area that may be reduced as a consequence of interference. Class D radio stations operate either during daytime hours only, during limited times only, or unlimited time with low nighttime power.

FM class designations depend upon the geographic zone in which the transmitter of the FM radio station is located. The minimum and maximum facilities requirements for an FM radio station are determined by its class. In general, commercial FM radio stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1, C0 and C. The FCC has adopted a rule subjecting Class C FM radio stations that do not satisfy a certain antenna height requirement to an involuntary downgrade in class to Class C0 under certain circumstances.

Technical Rules

Numerous FCC rules govern the technical operating parameters of radio stations, including permissible operating frequency, power and antenna height and interference protections between stations. Changes to these

 

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rules could negatively affect the operation of our stations. For example, in October 2015, the FCC proposed rules which could reduce the degree of interference protection afforded to certain of our AM radio stations that serve wide areas if adopted.

Laws Affecting Intellectual Property

Laws affecting intellectual property are of significant importance to us to protect our brands and copyrights. Protection of brands requires the vigilance and action by the brand owner. We seek trademark registrations for significant brand assets and enforce our brand rights against infringing parties through legal actions, including enforcement actions in the United States Patent and Trademark Office.

Unauthorized Distribution of Copyright Content and Piracy. Unauthorized distribution or reproduction of content, especially in digital formats such as unlicensed live simultaneous or stored streaming of audio recordings and peer-to-peer file “sharing,” are threats to any copyright owners’ ability to protect and exploit their property. We monitor legal changes that might impact the exclusive rights we have in broadcasts, streams and recorded content. Our digital delivery services and commercial arrangements with digital content providers help reduce the risks associated with unauthorized access to our content. We are also engaged in enforcement and other activities to protect our intellectual property. Policing our intellectual property rights, or 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.

 

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BUSINESS AND PROPERTIES

Overview

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. We focus on three areas of content: Sports, News and Music & Entertainment. Our 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 Alternative Rock (KROQ in Los Angeles) radio stations. We own the #1- or #2-rated local Sports radio station and the #1-rated All-News radio station in each of the markets in which we program these formats. Our radio stations reached an audience of more than 65 million people per week in 2015, making us the second largest radio group in the United States as measured both by audience and by revenue. We also distribute our 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 63.1 million internet and mobile unique users per month in 2015. In addition, we produce events across our markets, including concerts, multi-day musical festivals, speaker series, trade shows and sports-related events. We produced, co-produced or co-promoted approximately 500 such events in 2015.

We focus primarily on large metropolitan markets through clusters of radio stations and digital properties. We have the #1- or #2-ranked station clusters in approximately 75% of our markets as measured by revenue, as reported by Miller Kaplan Arase, LLP. As of October 2016, we employed over 900 sales personnel dedicated to local and national radio advertising, digital advertising and events, with a local presence in all of the markets in which we operate.

Upon completion of both this offering and the Separation, we believe we will be a very well-capitalized company and well-positioned to take advantage of our strong assets, scale and competitive strengths to grow our business.

Content and Programming

We produce and distribute compelling content for multiple media platforms, including our radio stations and owned web, mobile, streaming and podcast properties, as well as on third party platforms such as Facebook, Twitter, Instagram, Tune-In and YouTube. Our 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. We are 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 WBZ-FM in Boston). We own the #1-rated local Sports radio station in 13 of the 14 markets in which we program a local Sports format. For the year ended December 31, 2015, we 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. Our sports radio stations feature popular local personalities, who deliver sports-related news, opinion and debate and facilitate audience interaction on local sports. In addition, we own 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 our radio stations) across the United States.

 

   

News. We provide our communities with trusted, live, up-to-the-minute news, traffic and weather information. We own the #1-rated All-News radio station in all of the markets in which we program an all-news format and the #1-rated News-Talk station in six markets where we program the format. We

 

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also own seven of the top eight most listened to all-news stations in the United States. Our award-winning All-News radio stations include 1010 WINS in New York, KNX(AM) in Los Angeles and WBBM(AM) in Chicago. Our News Talk stations include KDKA (AM) in Pittsburgh, KMOX(AM) in St. Louis and WTIC (AM) in Hartford.

 

    Music & Entertainment. We provide our audience with unique music and entertainment experiences through personality-driven local programming. Our 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. We have 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), Alternative Rock (KROQ-FM in Los Angeles) , Rhythmic AC (94.7 The Wave in Los Angeles) and Adult Album Alternative (WXRT-FM in Chicago), according to Nielsen. We also introduce new and emerging artists to our audiences through our over-the-air and digital platforms and develop exclusive content with artists, including interviews and live performances.

Digital Properties

We operate digital properties on multiple platforms, including websites, mobile apps, and social media, and through third-party distribution partners. We stream our over-the-air radio station broadcasts and internet-only stations and provide on-demand audio and video content and text, imagery and event information. Our digital properties complement our business and operations and positively impact our operating results.

 

    Music & Entertainment Station Websites. We maintain an online presence for each of our Music & Entertainment stations, including KROQ.com in Los Angeles, B96.com in Chicago and V-103.com in Atlanta. We distribute content that we broadcast on our radio stations across our Music & Entertainment station websites, and we drive traffic to these websites by using extensive and integrated on-air promotion. Our Music & Entertainment station websites, in turn, promote and drive traffic to our radio stations.

 

    Market-Focused Local Websites. All of our Sports and News radio stations have a digital presence on 23 market-focused local websites that are operated jointly with CBS, including CBSNewYork.com, CBSBoston.com and CBSSanFrancisco.com. Each of these market-focused local websites provides extensive locally focused news, sports and traffic and weather information utilizing the video and audio content produced by our radio stations and CBS’s owned and operated television stations, where applicable, in that market. In connection with this offering, we will enter into a joint digital services agreement with CBS, pursuant to which, for a period of time following this offering, CBS will continue to operate certain aspects of the market-focused local websites covering our markets on behalf of both CBS and CBS Radio, and CBS Radio will continue to sell advertising on these websites. See “Certain Relationships and Related Person Transactions.”

 

    Radio.com. We provide streaming services through our Radio.com platform where users can listen live to over 250 stations online, including simulcasts of our over-the-air radio stations as well as internet-only radio stations, such as Today’s Big Country and Smooth Jazz. Radio.com generates more than 24.5 million listening hours per month.

 

    Eventful. Our local event discovery business, Eventful, provides its 26 million registered users and over 9 million monthly unique visitors with local event information ranging from concerts to movies to restaurants. Eventful’s services can also be accessed through our music radio station websites and the 23 CBS market-focused local websites in all of our markets. Eventful also provides ticketing services to consumers and licenses its events data to third parties.

 

    Play.it. Our podcast network, Play.it, offers a portfolio of over 300 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.

 

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Events

We create, promote and produce a diverse range of live events, ranging from concerts and multi-day music festivals to speaker series and sports-related events. Our events complement our business and operations and positively impact our operating results. In 2015, we produced, co-produced or co-promoted approximately 500 live events. Live events offer unique, out-of-home experiences for our audiences, as well as sponsorships, exhibit space and consumer engagement opportunities for our advertisers. Our events in 2015 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

Our revenue is derived from Broadcasting and Digital, Events and Other sources. For the year ended December 31, 2015, we generated approximately 75% of our revenue from local advertisers and 25% from national advertisers.

Broadcasting Revenue. We generate Broadcasting revenue from the sale of advertising time on our 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, 2015, we generated Broadcasting revenue of $1.00 billion, representing approximately 81% of our total revenues for this period.

Digital, Events and Other Revenue. We generate digital revenue primarily from the sale of display, audio and video advertising across our digital properties, which enables us to further monetize the content produced by our radio stations. We also generate 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 we produce, co-produce and co-promote. Other revenues are generated primarily from the syndication of our programming, sponsorships of programming features and naming rights of radio station assets. For the year ended December 31, 2015, we generated Digital, Events and Other revenues of $229.5 million, representing approximately 19% of our total revenues for this period.

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 230 million listeners in 2006 to 240 million listeners in 2015, according to Nielsen.

 

  3. Radio listening predominantly occurs away from home, according to Nielsen, and it remains the primary in-car medium according to Edison Research and Triton Digital.

 

  4. 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 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.

 

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  5. In 2014, radio delivered a high return on investment across major listener categories, with payback per dollar spent ranging from $7.33 to $23.21, according to Nielsen.

Business Strengths

Large Market Focus and National Footprint. Our 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 “Broadcast Industry Overview: U.S. TV & Radio Stations, 2016 edition,” the 25 top radio markets generated $6.51 billion in radio advertising revenue for the year ended December 31, 2015. Our radio stations are in all 10 of the top radio markets, and 20 of the top 25 radio markets by revenue. We generate approximately 90% of our revenue from these 19 markets. Our share of revenue in the top 25 radio markets was 25% in 2015, based on Miller Kaplan Arase, LLP. In addition, our average revenue per station in these top 25 markets was twice that of our average revenue per station in non-top 25 markets. Our portfolio of large market stations and digital properties, such as Radio.com, Eventful.com and Play.it, provides us with a national footprint and the ability to create compelling local and national campaigns for our advertisers across our broadcast, digital and live event offerings.

Strong Radio Station Clusters and Local Market Scale. We own three or more radio stations in 24 of our 26 markets. Owning multiple stations and digital properties in a market allows us to capture a greater share of audience and advertising dollars. Station clusters allow us to gain scale in local markets, which increases our operating efficiency and profitability. We carefully construct our clusters and program our stations to appeal to distinct demographic groups to maximize their collective in-market reach. For example, in New York, we own 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. Our 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), Alternative Rock (KROQ in Los Angeles), Adult Album Alternative (WXRT in Chicago) and Adult Hits (KCBS-FM in Los Angeles) radio stations in the United States. We also own the #1- or #2-rated Sports radio stations and the #1-rated All-News radio stations in each of the markets in which we program these formats. Among our powerful local brands are the “World Famous KROQ” in Los Angeles and the unmistakable “teletype” sound of 1010 WINS, 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. We produce 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 our audience. Our audience turns to us for exclusive content, including news, live sports and sports talk. We employ more than 900 on-air talent who inform and entertain their listeners and serve their local communities. For the year ended December 31, 2015, we broadcast more than 3,000 live games for over 30 professional sports franchises in the NFL, MLB, the NBA, the NHL and MLS and for over 15 collegiate sports programs.

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

 

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Attractive Financial Profile. Our business requires low levels of capital expenditures and generates significant operating cash flow. We also benefit from our national scale and the local clustering of our radio station and digital assets, which allows us to generate significant cash flows from incremental revenues.

Upon completion of both this offering and the Separation, we believe we will be a very well-capitalized company and well-positioned to take advantage of our strong assets, scale and competitive strengths to grow our business.

Sales-Oriented Organization Led by Experienced Management Team. We have a strong sales-oriented culture with extensive local relationships focused on growing revenue across our platform through innovative marketing campaigns for our advertising clients. As of October 2016, we employed over 900 sales personnel dedicated to local and national advertising, digital advertising and events, with a local presence in all of the markets in which we operate. In the year ended December 31, 2015, we generated revenue share in excess of our audience share in every one of our 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. Our President, 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, we benefit from highly experienced, sales-focused management teams in each of our local markets.

Operating Strategy

Continue to Develop Compelling Content. We develop and invest 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 our integrated radio, digital and event offerings. We focus on news and sports content in particular because of the live, up-to-the-minute nature of news and our audience’s passion for local sports, which increases our audience size and engagement with our radio stations and affiliated digital properties, providing attractive platforms for our advertisers. By continuing to seek, develop and invest in relevant audio, video and digital content, we intend to build upon the longstanding and intimate relationship between our local brands and on-air personalities and their audiences to sustain and increase listenership and provide effective advertising campaigns to our marketing partners.

Expand Multi-Platform Distribution. We distribute our audio and video content across our owned sites and third-party digital and mobile platforms to maximize our reach, serve our audience and enhance our offerings. Our 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 our digital platforms deliver. We believe that by increasing the availability and accessibility of our content across multiple platforms, including mobile and social media, we will expand our audience, strengthen our local brands and increase our relevance among our audience and our advertisers.

Grow Digital, Events and Other Revenues. We are focused on growing our digital and other non-broadcasting based revenues. Our large market footprint of strong radio station clusters and promotional capabilities provide us with a platform to expand our brands and content into digital platforms and develop new, complementary marketing products, including live local events. Digital platforms provide us opportunities to monetize our audio and video content through syndication, licensing and sponsorship arrangements. These non-broadcast revenue sources enhance our local brands and provide additional channels for us and our advertisers to engage audience via immersive and novel experiences.

Drive Enhanced Revenue Management. We focus on advertising rate discipline to improve revenue yield on our radio and digital properties. By carefully managing the amount of advertising inventory sold through third-party networks and selling that inventory at higher local and national spot rates, we seek to improve revenue yield on spot advertising. In addition, we collect and use audience data to inform our programming and enhance the targeting and measurement capabilities of our advertisers’ marketing campaigns. This data allows us to

 

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demonstrate to our advertisers the effectiveness of their campaigns, and helps us to attract and retain new advertisers for radio and digital platforms. We use our national radio and digital footprints to enhance our appeal to national advertisers and grow our national revenues.

Enhance Radio Clusters and Digital Assets via Selective Acquisitions. We will seek to optimize our existing radio clusters and expand into new markets. We will also evaluate opportunities to acquire synergistic digital properties and capabilities to enhance our local presence and broaden our national footprint. We believe that our existing scale, digital capabilities, strong balance sheet and management experience position us well to exploit potential consolidation opportunities to grow our business.

Station Profile

The following table sets forth information with regard to the Company’s radio stations and digital properties as of September 30, 2016, within top radio markets:

 

Market  

Market

Rank (1)

  Stations  

AM/ 

FM 

  Format   Website

New York, NY

  1   WBMP   FM   Top 40   www.923ampradiony.com
        WCBS   AM   News   *
        WCBS   FM   Classic Hits   www.wcbsfm.com
        WFAN   AM   Sports   *
        WFAN   FM   Sports   *
        WINS   AM   News   *
        WNEW   FM   Hot Adult Contemporary   www.fresh1027.com

Los Angeles, CA

  2   KAMP   FM   Top 40