S-1 1 d694706ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on April 3, 2019

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

IHEARTMEDIA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   4832   26-0241222

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

20880 Stone Oak Parkway

San Antonio, Texas 78258

Telephone: (210) 822-2828

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Paul M. McNicol

Executive Vice President

20880 Stone Oak Parkway

San Antonio, Texas 78258

Telephone: (210) 822-2828

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

James S. Rowe

Kirkland & Ellis LLP

300 North LaSalle

Chicago, Illinois 60654

Telephone: (312) 862-2000

 

Michael Kaplan

Marcel Fausten

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

Telephone: (212) 450-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared 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 of 1933, 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, please 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(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.  ☐

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

 

Large accelerated filer      Accelerated filer   
Non-accelerated filer      Smaller reporting company   
     Emerging growth company   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum

Aggregate
Offering Price(1)(2)

  Amount of
Registration Fee(3)

Class A common stock, par value $0.001 per share

  $ 100,000,000   $ 12,120

 

 

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the offering price of any additional shares of Class A common stock that the underwriters have the option to purchase.

(3)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

 

 

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

 

 

 


Table of Contents

The information in this 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. The prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.

 

 

Subject to Completion

Preliminary Prospectus dated April 3, 2019

                 Shares

 

 

LOGO

Class A Common Stock

This is an initial public offering of shares of Class A common stock of iHeartMedia, Inc., par value $0.001 per share (“Class A common stock”). iHeartMedia, Inc. is offering                  shares of its Class A common stock to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional                  shares of iHeartMedia’s Class A common stock. We will not receive any proceeds from any sale of shares of Class A common stock by the selling stockholders.

Prior to this offering, our Class A common stock will trade in the pink sheets under the symbol “        ,” but will not be listed on any exchange. The estimated initial public offering price of our Class A common stock is between $             and $             per share. Our Class A common stock currently trades in the pink sheets under the symbol “        ”. We intend to apply to list our Class A common stock on the                under the symbol “        .”

By participating in this offering, you are representing that you will comply with the purchaser restrictions set forth in this prospectus. See “Notice to Investors.”

See “Risk Factors” beginning on page 23 to read about factors you should consider before buying shares of our Class A common stock.

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

 

     Per share      Total  

Public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $        $    

Proceeds, before expenses, to iHeartMedia

   $        $    

Proceeds, before expenses, to the selling stockholders

   $        $    

 

(1)

See “Underwriting” for additional information regarding underwriting compensation.

The underwriters have the option to purchase up to an additional                 shares of our Class A common stock from us at the public offering price less the underwriting discounts and commissions for a period of 30 days after the date of this prospectus.

The underwriters expect to deliver shares of our Class A common stock against payment on                , 2019.

 

Goldman Sachs & Co. LLC   Morgan Stanley

Prospectus dated                 , 2019.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Notice to Investors

     ii  

Market and Industry Data

     ii  

Trademarks and Tradenames

     iii  

Basis of Presentation

     iii  

Certain Non-GAAP Financial Measures

     iv  

Prospectus Summary

     1  

Risk Factors

     23  

Forward-Looking Statements

     38  

Use of Proceeds

     40  

Capitalization

     41  

Dividend Policy

     43  

Unaudited Pro Forma Condensed Consolidated Financial Data

     45  

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

     64  

Business

     66  

Our Separation and Reorganization

     90  

Management

     95  

Executive Compensation

     101  

Principal and Selling Stockholders

     104  

Certain Relationships and Related Party Transactions

     106  

Description of Certain Indebtedness and Subsidiary Preferred Stock

     107  

Description of Capital Stock

     114  

Shares Eligible for Future Sale

     121  

Material U.S. Federal Income Tax Consideration for Non-U.S. Holders

     123  

Underwriting

     127  

Legal Matters

     131  

Experts

     131  

Where You Can Find More Information

     131  

Incorporation by Reference of Certain Documents

     131  

Consolidated Financial Statements

     F-1  

 

 

We, the selling stockholders and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained or incorporated by reference in this prospectus or in any free writing prospectuses we have prepared. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained or incorporated by reference in this prospectus is current only as of its date.

 

 

 

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NOTICE TO INVESTORS

We hold licenses issued by the Federal Communications Commission (“FCC”) to operate radio broadcast stations. As a result of these holdings, we are subject to the Communications Act of 1934, as amended (the “Communications Act”) and FCC regulations that, among other things, generally prohibit foreign entities or individuals from directly or indirectly owning or holding the right to vote more than 25 percent of our equity. In addition, under FCC rules, a direct or indirect owner of our securities could violate and/or cause us to violate FCC media ownership limitations if such owner owns an interest in us that is “attributable” under FCC regulations and also owns or acquires an “attributable” interest in other radio stations in the same market as one or more of our radio stations.

Our Fifth Amended and Restated Certificate of Incorporation (our “certificate of incorporation”) contains provisions designed to ensure compliance with these limitations. This prospectus supplement does not constitute an offer to sell any share of common stock to any person in violation of these or any other provisions of our certificate of incorporation.

In connection with this offering, each purchaser will be required to make representations to us in order to help ensure our compliance with the FCC’s foreign ownership and media ownership limitations. Specifically, by participating, each purchaser will be deemed to be making a representation to us that (1) (i) it is not the representative of any foreign government or foreign person; (ii) if a natural person, it is a citizen of the United States; and (iii) if an entity, it is (a) organized under the laws of the United States, and (b) has less than 25 percent of its voting rights, and less than 25 percent of its equity, held directly or indirectly by non-U.S. persons or entities, as determined pursuant to the FCC’s regulations; (2) its acquisition of Class A common stock in this offering will not cause it, together with any person or entity with which its interests must be aggregated pursuant to FCC regulations, and taking into account any stock that it or any such person or entity subject to aggregation pursuant to FCC regulations already owns, to acquire a voting or equity interest in us that requires “specific approval” under the FCC’s foreign ownership limitations (generally a voting or equity interest in excess of 5 percent or 10 percent, with the applicable percentage determined by FCC regulations); and (3) its acquisition of Class A common stock in this offering will not cause it, together with any person or entity with which its interests must be aggregated pursuant to FCC regulations, and taking into account any stock that it or any such person or entity subject to aggregation pursuant to FCC regulations already owns, to acquire an “attributable” interest in us (generally a 5 percent or greater voting interest), as determined pursuant to the FCC’s regulations. If we determine that any of your representations are false or incorrect and/or that your ownership of shares could cause us to violate the FCC’s foreign ownership or media ownership limitations, we may take actions to ensure our compliance, which actions include, but are not limited to, suspending your rights of stock ownership or redeeming your shares. You should consult with counsel to ensure that you can make the representations required to purchase Class A common stock in this offering. See “Risk Factors — Risks Related to This Offering and Ownership of our Class A Common Stock—Regulations imposed by the Communications Act and the FCC limit the amount of foreign individuals or entities that may invest in our capital stock” and “—Our certificate of incorporation grants us broad authority to comply with FCC Regulations,” and “Business—Regulation of our Business” for more information.

MARKET AND INDUSTRY DATA

Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research.

Our estimates are derived from information released by third-party sources, such as Adobe, Inc (“Adobe Analytics”), Comscore, Inc. (“Comscore”, via its Media Metrix Multi-Platform, February 2019, P2 + desktop/P13 + mobile), Deloitte Touche Tohmatsu Limited (“Deloitte”), Edison Investment Research Ltd. (”Edison”), eMarketer, Inc (“eMarketer”), IPSOS Group S.A. (“IPSOS”), Miller Kaplan Arase LLP (“Miller Kaplan”), GfK

 

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MRI (“MRI”), Nuvoodoo LLC (“NuVodoo”), Podtrac, Inc. (“Podtrac”), PricewaterhouseCoopers (“PwC”), Scarborough Research Corporation (“Scarborough”), Shareablee, Inc. (“Shareablee”), Sponsorship Research International (“SRi”), The Nielsen Company (“Nielsen”), Triton Digital, Inc. (“Triton”) and Voicebot.ai by Edge Lens LLC (“Voicebot”). In addition, certain of our estimates are derived from these sources, as well as data from our internal research and studies, and are based on such data and our knowledge of our industry, which we believe to be reasonable. For example, certain of our estimates and data are based on information provided by our business unit, Media Monitors, and surveys of certain of our listeners, or radio listeners generally, that we have conducted, such as (i) our Power of Personalities & State of Listening Survey of 1,090 radio listeners we conducted in August 2017 (our “Power of Personalities Survey”), (ii) our Audio Universe Survey of 350 listeners we conducted in March 2019 (our “Audio Universe Survey”) and (iii) our iHeartMedia Trust Survey of 294 respondents we conducted in December 2018 (our “Trust Survey”). These surveys often comprise varying sample sizes and respondent pools, which may not be representative of the broader population. We have not had this information verified by any independent sources. The independent industry publications used in this prospectus were not prepared on our behalf. While we are not aware of any misstatements regarding any such information or data presented in this prospectus, forecasts, assumptions, expectations, beliefs, estimates and projections involve risk and uncertainties and are subject to change based on various factors, including those described under the headings “Forward-Looking Statements” and “Risk Factors.”

When used in this prospectus, certain data and statistics compare us to other industry participants who are (i) “commercial podcasters,” which excludes non-profit media organizations such as National Public Radio, and (ii) “advertising supported audio companies,” which excludes music content companies such as SONY Music Entertainment and Universal Music Group. References in this prospectus to “Millenials” refer to those persons between the ages of 18 and 34 years old and references to “Generation Z” or “teens” refer to those persons between the ages of 12 and 17 years old.

TRADEMARKS AND TRADENAMES

This prospectus includes our trademarks and service marks which are protected under applicable intellectual property laws and are the property of iHeartMedia or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights, of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

BASIS OF PRESENTATION

We have incorporated by reference in this prospectus the historical consolidated financial statements of iHeartMedia, Inc. as of December 31, 2018 and December 31, 2017 and for each of the three years in the period ended December 31, 2018. These historical consolidated financial statements include the financial condition and results of operations of both the radio and outdoor businesses of the Company.

This prospectus also contains unaudited pro forma condensed consolidated financial statements that have been developed by applying pro forma adjustments to the historical consolidated financial statements of iHeartMedia, Inc. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2018 gives effect to the Separation as defined in “Prospectus Summary—Recent Developments”, the Reorganization as defined in “Prospectus Summary—Recent Developments”, the application of fresh start accounting, the issuance of                 shares of Class A common stock in this offering and the application of proceeds therefrom as if they had occurred on December 31, 2018. The unaudited pro forma condensed consolidated statement of operations

 

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for the year ended December 31, 2018 gives effect to the Separation, the Reorganization, the application of fresh start accounting, the issuance of                 shares of Class A common stock in this offering and the application of proceeds therefrom as if they had occurred on January 1, 2018. The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2017 and 2016 give effect to the Separation as if it had occurred on January 1, 2016. All pro forma adjustments and underlying assumptions are described more fully in the notes to the unaudited pro forma condensed consolidated financial statements included in the prospectus.

CERTAIN NON-GAAP FINANCIAL MEASURES

Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either includes or excludes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Certain non-GAAP financial measures included in this prospectus, including Adjusted EBITDA and Adjusted EBITDA margin may not comply with these guidelines. See “Prospectus Summary—Summary Historical Consolidated Financial Data” and “Prospectus Summary—Selected Historical Supplemental Non-GAAP Measures” for definitions of Adjusted EBITDA and Adjusted EBITDA margin and a quantitative reconciliation of each of those measures to the most directly comparable GAAP financial measure.

The non-GAAP measures presented in this prospectus are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. We present these non-GAAP measures as supplemental measures of our performance and our ability to service our debt and because we believe such measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

We use these measures, among other things, to evaluate our operating performance, for planning and forecasting of future periods, and for measuring performance for compensation of executives and other members of management. We believe these measures are important indicators of our operational strength and performance of our business because they provide a link between profitability and net income. They are also primary measures used by management in evaluating companies as potential acquisition targets.

We believe the presentation of these measures is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by our management. It helps improve investors’ ability to understand our operating performance and makes it easier to compare our results with other companies that have different capital structures, stock option structures or tax rates. In addition, we believe these measures are also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to that of other companies in our industry. However, our non-GAAP financial measures, including our measure of Adjusted EBITDA and Adjusted EBITDA margin, may not be directly comparable to similarly titled measures used by other companies.

The non-GAAP measures presented in this prospectus should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. Our presentation of these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Some of the limitations of these measures are:

 

   

they do not reflect our historical cash expenditures, future requirements for capital expenditures or contractual commitments;

 

   

they do not reflect changes in, or cash requirements for, our working capital needs;

 

   

they do not reflect our tax expense or the cash requirements to pay our taxes;

 

   

they do not reflect our interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

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although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our Adjusted EBITDA measure does not reflect any cash requirements for such replacements;

 

   

the adjustments attributable to cost savings that are made in calculating Adjusted EBITDA include estimates as to the amounts of cost savings related to actions which either have been taken or are expected to be taken;

 

   

they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

 

   

they do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations, including restructuring and reorganization expense; and

 

   

they do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.

In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, the non-GAAP measures presented in this prospectus should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations, including those under the notes. You should compensate for these limitations by relying primarily on our GAAP results and using the non-GAAP measures only supplementally.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our Class A common stock. For a more complete understanding of us and this offering, you should read and carefully consider the entire prospectus, including the more detailed information set forth under “Risk Factors,” “Unaudited Pro Forma Condensed Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes and the information incorporated by reference herein. Some of the statements in this prospectus are forward-looking statements. See “Forward-Looking Statements.”

In this prospectus, references to “iHeartMedia,” “iHeart,” the “Company,” “we,” “us,” and “our” refer to iHeartMedia, Inc., the issuer of the Class A common stock offered hereby or iHeartMedia, Inc. and its consolidated subsidiaries, as the context requires. In this prospectus, references to our Class A common stock and Class B common stock are references to our Class A common stock and Class B common stock to be issued in connection with or following our Reorganization (as defined in “—Recent Development” below).

Our Company

Audio is hot, and we are the number one audio media company in the U.S. based on consumer reach. Additionally, according to Deloitte Insights’ Technology, Media and Telecommunications Predictions 2019 report, radio is characterized by Revenue, Reach and Resilience.

Within audio, there are two segments:

 

   

The ‘music collection’ segment, which essentially replaced downloads and CDs, and

 

   

The radio — ‘companionship’ — segment, in which people look to audio, starting with broadcast radio and the personalities there, as their friend and companion.

We serve this second segment and have used our large scale and national reach in broadcast radio to build additional complementary platforms. We are now the only major multi-platform audio media company, with each platform building on and extending our companionship relationship with the consumer.

Our product strategy is ‘be where our listeners are with the products and services they expect from us’. Our reach now extends across more than 250 platforms and over 2,000 different connected devices — and that reach continues to grow.

The platforms we lead in are:

 

   

Broadcast radio: We have never been stronger with consumers, and our broadcast radio assets reach more consumers today than ever. Our broadcast radio audience is almost twice as large as that of the next largest commercial broadcast radio company, as measured by Nielsen.

 

   

Digital: Our iHeartRadio digital platform is the number one streaming broadcast radio platform—with six times the digital listening of the next largest commercial broadcast radio company, as measured by Triton.

 

   

Podcasts: We are the number one commercial podcast publisher in America—and we are almost three times the size of the next largest commercial podcaster as measured by downloads, according to Podtrac.

 

   

Social media: Our personalities, stations and brands have a social footprint that includes 145 million fans and followers as measured by Shareablee, which is six times the size of the next largest commercial broadcast audio media company. This social footprint was at the heart of delivering 310 billion social media impressions for our recent iHeartRadio Music Awards and its associated activities.



 

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Events: We have over 20,000 local live events per year and eight major nationally-recognized tentpole events, which provide significant opportunities for consumer promotion, advertising and social amplification.

We have been able to unify all of our local brands under a master brand – iHeartRadio. Using that umbrella has allowed us to build our other platforms as well as extend into third-party platforms like Snapchat, YouTube and cable and broadcast television.

Our business model has been to build strong consumer relationships at scale and monetize them by renting those relationships to unaffiliated third parties. We are transforming our sales process to be more competitive with the major digital players that have brought data, targeting and technology into the media buying process. Additionally, we have built out a strong marketing sales function to support the marketing needs of advertisers and agencies in addition to the more traditional media buying transactional relationships.

iHeart is the leader in audio media built upon the strength of our broadcast assets

Broadcast radio holds a unique place in American culture. Consumers listen to the radio because the voice on the other side sounds like a friend. It is this companionship relationship that has withstood the test of time. As a result, radio has been characterized by Deloitte as having Revenue, Reach, and Resilience. Broadcast radio continues to reach more Americans each week than any other medium. While live and time-shifted television’s weekly reach has dropped to 86% for the total U.S. population—and is now only 73% for the Millennial audience in the U.S.—radio’s weekly reach has remained steady (since the 1970s) at over 90% for persons aged 18+, and today reaches over 90% of Millenials and almost 90% of Generation Z weekly in the U.S., according to Nielsen’s Q3 2018 Total Audience Report. Additionally, broadcast radio’s heaviest users tend to be almost 15 years younger on average than heavy television users, according to Scarborough, and radio offers the unique influence of a friend and word-of-mouth, giving it a distinct creative advantage over television, print and digital. Technology has expanded the opportunities to listen to the radio in the car, at work and at home, with new devices such as smart speakers, smart phones, gaming consoles and smart televisions.

iHeartMedia is the leader in the audio media sector in the U.S. We have a greater reach than any other media company in the U.S. with our broadcast radio assets alone, with our monthly reach of 275 million listeners aged 6+ (derived from a Nielsen measurement to enable like-to-like comparisons with digital media companies) representing an audience greater than the digital audience of Google (251 million, including YouTube) and Facebook (215 million, including Instagram and Messenger) in the U.S. as measured by Comscore in February 2019. We believe our advantage is driven by our unique ability to build relationships and engage a broad spectrum of audiences and demographics as we fulfill listeners’ need for companionship and to be connected with the world. We believe we have proven that we are the companion of choice through our strong engagement, with listeners spending on average 30 minutes a day with our programming, content and personalities (derived from Nielsen measurements) relative to Google’s engagement time of 27 minutes, excluding YouTube, and Facebook’s 22 minutes per visitor per day on average, excluding Instagram and Messenger (derived from Comscore’s monthly minutes per visitor measurement in February 2019). Additionally, the Company is able to serve key audiences through individual radio formats targeted to desirable lifestyle and taste segments.

The backbone of the Company is our portfolio of 848 live broadcast radio stations and a local sales force servicing approximately 160 U.S. markets, including 48 of the top 50 markets (with three markets embedded in larger markets), and 86 of the top 100 markets (with four markets embedded in larger markets). With our broadcast radio platform alone, we have almost twice the broadcast radio audience of our next closest broadcast competitor. We also have six times the digital listening of our next closest commercial broadcast competitor. Our scale, diverse audience platforms and unique value proposition for advertisers result in our higher ratio of share of radio revenue to share of audience of 1.5x, relative to Cumulus (1.2x) and Entercom (1.2x) as derived from measurements by Miller Kaplan, Media Monitors, and Nielsen.



 

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We believe that, unlike other broadcast radio companies, iHeartMedia has a national reach platform as opposed to only a portfolio of local markets. To monetize that, we have built a sizable national sales force that further enables us to compete for advertising dollars that have not traditionally been allocated to broadcast radio. We believe that this dedicated sales team, which works directly with clients and agencies, enables us to create unique marketing partnerships that allow advertisers to coordinate national-scale campaigns while also leveraging our local footprint, consumer relationships and other consumer platforms, including podcasting, events, social and digital. Additionally, we own Katz Media, a leading advertising media representation firm that services other radio companies, television companies and digital players for national advertising.

A critical element of the unique and powerful consumer bond with radio is our radio personalities. These personalities have a strong connection with their listeners, as evidenced by the fact that 86% of respondents to iHeartMedia’s Power of Personalities Survey perceive a deep connection with their favorite personality; in addition, 63% of respondents have considered purchasing a product recommended by their favorite personality. Our relationship with the consumer is further enhanced by the production and distribution of syndicated media content (for iHeartMedia stations and for affiliated stations) through our Premiere Networks business. Premiere Networks is a leading audio content syndicator, covering talk, politics, sports, entertainment, etc. and includes nationally-recognized talent such as Ryan Seacrest, Rush Limbaugh, Sean Hannity, Elvis Duran, Steve Harvey, Bobby Bones, Delilah, The Breakfast Club, Nancy Grace, Big Boy, Enrique Santos, Ellen K and Colin Cowherd. In addition, we are the number one source of real-time traffic and weather content on broadcast radio through our Total Traffic & Weather Network, providing advertisers with yet another national reach platform which, according to Nielsen, provides access to almost every commuter in America.

Our strategy is to be everywhere our listeners want us to be – making us the number one multi-platform audio media company

Our strategy is to be everywhere our listeners want to find us by having a presence on all major and emerging platforms. We believe our differentiated reach, national footprint with local execution, best-in-class engagement and shared infrastructure provide us with a strong foundation and operating efficiencies as we expand onto new platforms. In addition, we have developed an iconic master brand that resonates across our diverse geographical markets and unifies our multiple platforms and local brands. The creation of the “iHeartRadio” master brand has allowed us to consolidate all our consumer products under the iHeartRadio banner and create a highly recognizable brand with strong consumer awareness, according to IPSOS. We have evidence that both advertisers and consumers have grown to value the “iHeartRadio” brand, which is associated with consistent quality and improved satisfaction. Today, the “iHeartRadio” brand is an iconic powerhouse in the audio industry that underpins our multi-platform strategy as evidenced by:

 

   

Our Leadership in Digital Radio Streaming: We deliver broadcast radio and custom radio (with a small on-demand component) to 128 million registered users on the iHeartRadio service and app on over 250 platforms and over 2,000 different connected devices — including smart speakers, digital auto dashes, tablets, wearables, smartphones, virtual assistants, televisions and gaming consoles. This digital audience is six times larger than the digital audience of the next largest commercial broadcaster. In addition to the iHeart streaming product, the Company also has more than 800 station and personality websites reaching tens of millions of consumers monthly, and we license the iHeartRadio service and brand to international partners in Mexico, Canada, Australia and New Zealand.

 

   

Our Prominence in Live Events: We have over 20,000 local live events per year and eight major nationally-recognized tentpole events: the iHeartRadio Music Festival, the iHeartRadio Music Awards, the iHeartCountry Festival, the iHeartRadio Fiesta Latina, the



 

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iHeartRadio Podcast Awards, iHeartRadio ALTer Ego, iHeartRadio Wango Tango and the iHeartRadio Jingle Ball Tour. Our iHeartRadio Music Festival has the highest brand awareness (59%) among live music events, greater than the Coachella (54%) and Lollapalooza (52%) music festivals according to the Q4 2018 IPSOS study.

 

 

LOGO

 

   

Our Differentiated Social Reach: iHeartMedia’s personalities, stations and brands have garnered 145 million social fans and followers as compared to Spotify’s 28 million and Pandora’s 8 million, as measured by Shareablee. Our radio personalities engage with their listeners and fans across every major social platform, using technology to extend their deep listener connection and relationships. Furthermore, our “iHeart” branded events provide opportunities for significant social amplification, as evidenced in 2019 when our iHeartRadio Music Awards and associated activities generated 310 billion social media impressions. By building deep engagement on the major social platforms, we believe we have positioned ourselves around the important conversations, making social media today’s even more powerful equivalent of the radio call-in phone lines of the past.

Additionally, as of February 2019, the Company has 19 million monthly unique visitors on Snapchat and 19 million monthly unique visitors on YouTube, which we believe are larger than the audiences of the other major audio players on these platforms.

 

   

Our Leadership in Podcasting: Our multi-platform strategy has also enabled us to extend our leadership into the rapidly growing podcasting sector. The 2018 acquisition of Stuff Media, LLC solidified our position as the number one commercial podcast publisher globally, as measured by monthly downloads and monthly unique listeners according to Podtrac, the industry standard for third-party podcast measurement. Overall podcasting industry revenue is expected to increase to $0.7 billion by 2022, according to PwC, from an estimated $0.4 billion in 2018. We believe iHeartMedia has key capabilities to continue to lead in podcasting driven by the power of our multiple platforms to promote our podcasts to our entire consumer audience as well as to create and grow new podcasts. iHeart is distinguished among podcast publishers by our unique ability to both promote and air our podcasts on broadcast radio, and combine podcast advertising with broadcast advertising to give additional power to advertising messages.

Additionally, we believe we are well-positioned to leverage our iconic brand and enormous reach to benefit from incremental listening growth. As smart speakers are creating an in-home audio hub that enhances radio’s reach, developing a leadership position in this category has become a key element of our growth strategy. Smart speaker adoption has seen rapid acceleration, with a 26% penetration rate among U.S. adults in 2018, representing a 2,500% increase since 2016, as measured by Voicebot. This new technology creates a significant opportunity for iHeartMedia, as the 2019 NuVoodoo Ratings Prospect Study indicates that radio listening is one of the top activities on smart speakers, with 39% of respondents using a smart speaker to listen to FM radio, 14% listening to AM radio and 14% listening to podcasts. Year to date, smart speaker listening has grown as a share of iHeartRadio’s total AM/FM streaming by over 162% as measured by Triton, versus growth of 111% for the overall broadcast radio industry, including iHeartMedia. iHeart’s strength with Alexa and other smart speaker listening demonstrates our ability to lead with new technologies and substantially adds to radio listening opportunities in the home.

We also have two radio stations on SiriusXM, which we view primarily as a promotional vehicle since the Sirius subscription-driven revenue model is non-competitive with the Company’s strategic direction.



 

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We are developing advanced and efficient monetization platforms with the goal of providing many of the same benefits as the leading digital advertisers

The benefits of audience targeting and programmatic transaction efficiencies hold as true for audio as they do for other media formats. These include superior measurement, increased control and reduced overhead. Using technology to harness and analyze the consumer data we have at our disposal creates a more efficient value proposition for advertisers. iHeartMedia’s programmatic advertising capability is derived from our SmartAudio, SoundPoint, and iHeartMedia Analytics data and technology platforms. We continue to invest in these platforms, as evidenced by our 2018 acquisition of Jelli Inc., the technology company that powers our SoundPoint programmatic platform. Our broadcast industry-leading digital-like advertising capability has allowed us to provide advanced advertising solutions that can deliver specific audience cohorts to advertisers, as well as attribution and measurement analytics. We believe that our capabilities will transform the way advertisers plan, buy and measure their audio campaigns, making us the preferred tech-enabled broadcast audio advertising platform. Our proprietary solutions include:

 

   

SoundPoint: Our digital-like ad-buying solution that allows clients to view the available broadcast inventory across various cohorts to address their specific needs

 

   

SmartAudio: Our application of data science to aggregate business data from broadcasts and the user insights that come from listeners using our digital platform

 

   

iHeartMedia Analytics: Our tools to present the effectiveness of clients broadcast radio advertising campaigns by providing detailed digital dashboards on the results of the advertising spend

In addition, we offer local digital services for advertisers under our SLATE banner. Some of these are reseller relationships of key services, including local website maintenance, audience extension products and third-party app advertising inventory. By offering both an at-scale national platform and analytics, as well as local services, we believe we are the best positioned provider to serve advertiser needs among audio companies.

We believe our leadership position provides tangible financial benefits

Our leadership position across multiple platforms and our advancements in our digital-like broadcast advertising capabilities are starting to yield a financial impact. For the fiscal year 2018, on a pro forma basis, iHeartMedia generated $3.6 billion in Revenue, $50 million of Consolidated net income, $514 million of Operating income (14% margin) and $976 million of Adjusted EBITDA (27% margin), the highest Adjusted EBITDA margin of any major advertising-supported audio media company. Upon completion of the Reorganization, iHeartMedia will carry substantially less debt, providing the Company with significantly enhanced financial flexibility. With our inherently low maintenance capital expenditures and working capital profile, iHeartMedia expects to generate significant free cash flow and de-lever over time.

Market Opportunity

Audio plays a fundamental role in the daily lives of millions of consumers, connecting them to the world like no other medium. In the multi-tasking reality of modern-day life, audio has become more important than ever. The broader audio advertising sector in the U.S. represents an approximately $18 billion market opportunity including radio, podcasts, and digital, according to PwC’s 2018-2022 Global Entertainment & Media Outlook report. iHeart is uniquely positioned in the audio advertising ecosystem as we touch each of these markets. We also compete in the larger $238 billion U.S. advertising market — inclusive of the $18 billion radio, podcast and digital opportunity — by developing and offering competitive advertising products intended to attract advertising and marketing dollars that might otherwise go to companies in the cable and broadcast television, digital, search, Internet, audio, print, newspaper, sponsorship and other advertising spaces.



 

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We believe there are two segments within the audio media space — music collection, which replaces downloads and CDs, and radio, which provides companionship. While these two segments have co-existed for over half a century, they are different businesses. Music collection is about the individual experience, allowing listeners to escape the world by creating and listening to their own playlists and music selections. Historic examples of the music collection experience include cassette tapes, mixtapes, CDs, LPs and 45 rpm records. Today, examples of music collections include Spotify and Pandora, which have evolved from previous forms of distribution including retail stores, downloads and physical copies. Radio, on the other hand, is a two-way social experience. The radio audience wants to be connected to the outside world, they look for companionship throughout the day, even a friend to share the ride to and from work. Radio is also a source of information that keeps them connected to the world 24/7 and allows them to discover everything from a new trending artist and song to traffic and weather information, celebrity news, new restaurants and social hotspots and trends. According to our Power of Personalities Survey, 80% of listeners in the 18-44 age group discover new music primarily through broadcast radio. While approximately 54% of the radio audience also has a music collection (according to Scarborough), they understand the difference between the two and consumption of both typically moves in parallel. According to our Audio Universe Survey, consistent with our prior Power of Personalities Survey, nine out of ten people surveyed say that they listen to both radio and music collections, but at different times, and for different reasons — acknowledging the difference between these two segments. Therefore, we believe digital audio consumption is “in addition to” and not “instead of” radio, as further evidenced by the fact that despite significant growth in digital audio from 2008 to 2018 — from 33 million weekly listeners to 160 million weekly listeners — broadcast radio has also grown in the same period from 236 million weekly broadcast radio listeners to 249 million weekly broadcast radio listeners aged 12+, as measured by Nielsen.

We believe broadcast radio continues to profoundly enrich the lives of listeners and create value for advertisers. Broadcast radio is the most prevalent audio medium, owing to its nearly universal and free access, far reaching penetration, ubiquity across platforms and role as a provider of both nationally and locally relevant programming. Compared with music collection platforms, we believe that when Americans choose radio, they do so primarily because it provides them with a companionship relationship. The younger demographic also prefers radio. Broadcast radio is the number one mass reach vehicle for teens, with a 93% reach every month. In fact, based on data from Nielsen and MRI, far more teens are reached by radio than by streaming devices or digital players, which supports the view that radio is here to stay with the emerging generation. Furthermore, new platforms and devices have increased radio’s momentum and there are several reasons why we believe radio will continue to thrive in the U.S.:

Reach across demographics

Broadcast radio is a mass appeal platform and continues to reach more Americans each week than any other platform across all demographics (teens, Millennials and adults). For example, for Millennials, according to Nielsen, radio has significantly outperformed television’s reach with a weekly reach of 91% of the U.S. population versus television’s live and time-shifted reach of 73%.

Broadcast radio not only reaches more Americans; it also has the largest share of listening. Based on data from Nielsen and Triton, 84% of time spent listening (excluding satellite radio and podcasts) is over broadcast radio. An important element of broadcast radio’s reach and share is in-car consumption. Broadcast radio dominates in-car listening, with 84% of car-using respondents indicating radio usage in 2018, the same rate as in 2011, according to an Edison survey conducted in September 2018. We believe this dynamic is unlikely to change materially, as a 2017 IPSOS In-Car survey indicates that eight in ten consumers in the U.S. agree that regular AM/FM radios will remain prevalent in cars and only 1% of respondents did not want an AM/FM radio with their next car.

 



 

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Deep cultural connection with audience

Radio plays a special role in our culture. Nielsen data shows that radio still reaches essentially the same percentage of adults in the U.S. as in the early 1970s, demonstrating the enduring appeal of radio as a unique companionship medium. In contrast, television’s weekly reach of adults 18+ has declined from 94% in 2004 to 86% in 2018, and live and time-shifted television’s weekly reach among Millennials has also declined, from 91% to 73%, over the same period. In our increasingly multi-tasking lives, we believe that there will be more incremental opportunities for consumers to listen than to watch, and radio will be the major beneficiary of this opportunity.

Radio continues to offer consumers something different in the form of curated, personality-led audio. The medium is able to offer influencers a word-of-mouth style conversation, which propels audience engagement and connection in a very effective way. According to our Power of Personalities Survey, radio personalities have a unique connection with their listeners. In particular, 74% of survey respondents value the personalities’ opinions and perspectives and 63% considered or purchased a product recommended by their favorite personality. This engagement and personal relationship developed between radio personalities and the audience is also evidenced by data from a survey of 294 respondents that we conducted in December 2018 that indicates that broadcast radio is the most trusted medium in America. According to these survey respondents, broadcast radio is 81% more trustworthy than cable television, and two times more trustworthy than online websites and social media.

Additionally, radio has deep and ongoing relationships with recording artists and has a long history of also breaking new artists and music. Radio is the preferred medium for exposure as it leads to mass recognition, ultimately driving an artist’s music and concert sales. The 2017 Nielsen Music 360 Study (which is a study of the interaction with music by consumers ages 18-34 in the U.S.) and other surveys show that radio remains the number one source for discovering new music, and artists recognize the importance of broadcast radio in their success. We work closely with them on an ongoing basis to build out their marketing and career plans.

Superior value proposition for advertisers

According to Nielsen, radio offers an 8:1 return on advertising spend. Radio typically has lower CPMs (cost per thousand impressions) on average than other mass reach platforms, which we believe provides another upside opportunity for revenue.

Technology enables adoption and presents significant opportunity

In addition to the virtually universal penetration of radios in cars and strong penetration of homes and offices with traditional radios, technology has enabled radio to now be distributed across an even broader platform base, including smart phones, tablets, wearables, digital dashboards, gaming consoles and smart speakers, ultimately resulting in increased reach and return on investment. Select categories where radio benefits from recent technological advances and innovation include:

 

   

Streaming: There are two types of streaming services — streaming music and streaming radio — and both continue to grow. iHeartRadio offers consumers the ability to stream live radio broadcasts, digital-only radio stations, custom artist stations, and podcasts across a multitude of platforms and has a streaming user base of 128 million registered users.

 

   

Smart Speakers: With current market penetration levels of 26%, and the number of smart speaker users estimated to grow at a 48% compound annual growth rate between 2016 and 2020 based on eMarketer estimates, smart speakers present significant opportunity for radio’s growth in the home. Radio is one of the top activities on smart speakers, with 39% of owners using their smart speakers to listen to FM broadcast radio streams, 14% using it for AM radio



 

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stations and 14% using it for podcasts, according to NuVoodoo. In addition to existing radios, smart speakers are new devices and create incremental opportunities for additional listening in the home, expanding radio’s listening potential.

 

   

Podcasting: Podcasts continue to expand the audio landscape, and the number of users has surged to 90 million in the U.S. in 2019, according to Edison in January 2019. By focusing on this trend, iHeartMedia has become the number one commercial podcast publisher globally, with 148 million monthly downloads and streams and nearly 17 million U.S. unique monthly users, as measured by Podtrac in February 2019. iHeartMedia is the only commercial broadcast or streaming audio media company that appears in the Top 10 in Podtrac, the industry standard for third-party podcast measurement, another indication of the unique multi-platform nature of iHeartMedia.

 

   

Big Data and Technology Enabled Advertising Platforms: The next level of efficiency in radio advertising will be supported by the increasing adoption of technology-enabled advertising solutions, including data analytics and targeting and programmatic advertising. New technology solutions will enable agencies to more accurately monitor the success of campaigns and target time slots and stations that are most appropriate for their advertising material. We believe our acquisition of Jelli, Inc. and our investments in SmartAudio have positioned us to be a leader in this area.

Our Competitive Strengths

Reach leader among major U.S. media companies with a diversified, multi-platform strategy

Radio talks to everyone about everything at all times. As a result of its ubiquitous presence (made all the more possible through technology and the emergence of new platforms and devices), ease of use and diversity of audio content, radio has replaced television as the number one reach medium and iHeartMedia’s broadcast radio platform has greater reach in the U.S. than either Google or Facebook. We believe iHeartMedia is uniquely positioned within this landscape given the breadth of our portfolio — reaching 91% of Americans monthly through our broadcast radio assets alone. Our connectivity spans all demographics, including 91% of Generation Z and 92% of Millennials each month, highlighting the enduring appeal of radio. Moreover, iHeartMedia’s multi-platform approach extends this relationship and national footprint beyond broadcast radio through our 128 million registered digital users, 20,000 annual local live events, 73 million monthly unique visitors in February 2019 to all our digital properties (including station and on-air personality websites) according to Comscore and 145 million social fans and followers across our personalities, stations and brands according to Shareablee. In so doing, we seek to distance ourselves from companies that focus on only one platform in the audio ecosystem by working to be everywhere our consumers are with the products and services they expect from us.

Companionship with our audience creates a deep and engaged relationship in an increasingly fragmented world — and is a different business than ‘music collection’ or playlist experiences

A listener’s music collection or playlist experience often serves to narrowly define an individual, allowing the person a momentary escape from his or her surroundings — however, this is a different business than radio. From our first experience with radio it has always been a social experience we grow up with using together with our family and those closest to us. Audio is woven into the journey of our daily lives, and radio serves as a constant companion that we return to with increasing frequency. Indeed, Nielsen data shows that the average radio listener tunes in seven times daily to just broadcast radio. Radio is also a place for discovery and remains the number one source for discovering new music. The complementary



 

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nature of radio is supported by the fact that this statement holds true even for listeners who also use an on-demand digital service — the modern equivalent to a ‘music collection’. According to our Power of Personalities Survey, 84% of individuals ages 18 to 44 who regularly use on-demand digital services agreed that radio is the main way they discover new music.

iHeartMedia provides a platform for our listeners to start a conversation in a way that other mediums cannot. Prior generations’ experience using telephones to call in to their favorite on-air personality has been supplemented by the exponential growth of social media. Today, listeners can simultaneously interact and contribute their voices to the ongoing on-air dialogue in real time. iHeartMedia’s personalities, stations and brands have approximately 145 million social media fans and followers and many of our on-air personalities and stations have hundreds of thousands or millions of independent followers. Our presence on social platforms creates a dual path of connectivity with our audience and source of continuous feedback—we listen, we engage, and we respond.

This two-way relationship helps to create a trusted bond and strong relationship between the listener and our on-air talent. Our Power of Personalities Survey suggests that 86% of our listeners perceive a deep connection with a favorite radio personality and 74% value their opinion and perspectives. We believe this relationship is important to our listeners—and a powerful tool for our advertising partners.

We believe the cumulative impact of these deep relationships yields higher daily consumer engagement for iHeartMedia than premier digital brands, including Google and Facebook. Moreover, our tentpole live events highlight how this passionate engagement translates to massive social moments, with, for example, the 2019 iHeartRadio Music Awards and associated activities generating 310 billion social media impressions. We believe this depth of connectivity not only enriches our listeners’ experience—it also delivers insight on our audience and creates unique opportunities for our advertising partners and builds the iHeartRadio brand.

The only major audio media company with a master brand strategy

The iHeartRadio master brand ties together our radio stations, digital platforms, social, podcasts and live events in a unified manner that reflects the quality and compelling nature of our listener experiences. Consumers of both our local station brands and our national platforms trust in the uncompromising commitment to excellence that is associated with our national iHeartRadio brand, and which is expressed through each of our local broadcast stations, which refer to themselves as “an iHeartRadio station”. This dynamic creates the powerful combination of broad scope and local focus to not only attract national advertisers, but also to maintain an engrained consumer presence in the most important markets in the country. Our master brand strategy also promotes positive consumer sentiment and brand awareness, when consumers know that the station or event is associated with iHeartRadio. According to IPSOS, the iHeartRadio Music Festival has greater brand awareness than other celebrated music events including both Coachella and Lollapalooza. Similarly, according to IPSOS, iHeartRadio has 82% aided brand awareness, multiples higher than any broadcast radio company and even higher than Apple Music and SiriusXM. We continue to build and strengthen the iHeartRadio master brand and in so doing enhance the value of all of our assets.

Well-positioned to benefit from incremental listening growth

The consumer trend towards increased audio consumption has only been magnified by the proliferation of smart speakers, streaming services and podcasts as a content category. We have the scale and products to benefit from this incremental listening growth and the addition of new audio platforms that can be built as adjuncts to our existing and diversified audio platforms. We are now available on over 250 online and



 

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mobile platforms and over 2,000 different types of connected devices, including a leading position on Alexa where iHeartRadio stations were built into the platform and do not need a downloaded skill to access. In fact, according to NuVoodoo, listening to AM/FM radio is one of the top reported activities on smart speakers. This extended access allows our listeners to truly enjoy audio content wherever they are and during all of the experiences that might populate their day. Indeed, we are well-positioned to benefit from the pressures on consumers’ time, as listening is more efficient and available than watching or looking in this time-constrained, multi-tasking world. This dynamic not only increases addressable listening hours, but also drives increasing advertising impressions. In the higher at-home listening months of December 2018 and January 2019, Alexa was the largest single source of unique users for iHeartRadio according to our internal Adobe Analytics reporting—larger than iOS, Android or Web.

iHeartMedia also has the ability to add new audio platforms and to expand and promote those platforms through existing iHeart assets. In particular, according to Podtrac, iHeart has become the number one commercial podcast publisher globally, with 148 million monthly downloads in February 2019. We are also able to leverage the power and scale of radio to advance these new content categories, as exemplified through our recent launches of The Ron Burgundy Podcast and Disgraceland Season 3 podcasts (whereby excerpts of the audio series were distributed across our broadcast radio stations and via our social media channels).

Networks and industry-leading media representation business extend impact on ecosystem

iHeartMedia maintains both a leading national audio content syndicator (Premiere Networks) and the largest audio network provider of traffic, weather, news and sports reports in the U.S. (Total Traffic & Weather Network), according to Nielsen. Premiere Networks’ roster of nationally-recognized on-air talent (including Ryan Seacrest, Rush Limbaugh, Sean Hannity, Elvis Duran, Steve Harvey, Bobby Bones, Delilah, The Breakfast Club, Nancy Grace, Big Boy, Enrique Santos, Ellen K and Colin Cowherd) facilitates the type of daily dialogue and content discovery that engenders connectivity with our listeners. Moreover, the Total Traffic & Weather Network reaches more than 2,100 radio stations in over 220 markets and is available to almost every commuter in America. Through Katz Media, we also serve as an industry-leading media representation firm working with more than 3,100 non-iHeartMedia radio stations, nearly 800 television stations and their respective digital platforms, as well as digital-only players such as Spotify. We believe our understanding of, and involvement with, all of the components of the audio ecosystem allows iHeartMedia to serve as the informed thought leader in shaping the direction of the industry.

Proprietary audio technology platform drives advertiser return on investment

Through organic investment and strategic acquisitions, iHeartMedia has developed analytic products for our broadcast programmatic advertising platform that enable media buyers to evaluate and purchase radio inventory based on impressions and psychographic cohorts, with associated attribution to prove iHeartMedia’s impact. In so doing, we are able to deliver data-driven insights, targeting and analytics for advertisers that mirror the standards established by the major digital players. Our advancements in developing data services and programmatic buying platforms for our broadcast inventory will provide capabilities similar to digital players while increasing efficiency for advertising partners.

Unique music research platform is powerful and proprietary programming asset

We believe we have unique data and research that not only ascertains the popularity of songs by markets—it lets us compare and contrast markets to each other to help us better predict the future success of songs and artists and understand the segments of their appeal. Having this as a tool for our programmers gives them a competitive advantage. Additionally, we are able to use this knowledge and feedback to better help develop artists, working closely with music companies, managers, and directly with the artists themselves. We believe that no other company can provide this combination of services, information and relationships that we provide across all of iHeart’s platforms.



 

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Unique combination of reach, engagement and data-driven insight creates bespoke ad inventory

We are able to utilize our multi-platform portfolio of assets, deep engagement with listeners and digital-like analytics and targeting to deliver customized and impactful advertising solutions. The unique combination of reach, engagement, data-driven insights and marketing expertise creates bespoke opportunities for advertisers. This combination improves both our media advertising relationships and our marketing-driven advertising solutions.

Positioned to capture ad spend from other mediums

While audio has been historically disrupted by the digital advertising giants, we believe that our suite of digital data advertising products now provide the assets that enable us to respond to the new advertising world that Facebook and Google pioneered. We believe our proprietary technology and data-enhanced audience insights will enable the Company to access broader marketing budgets, including television and digital advertising budgets, for our existing advertisers, new advertisers and agencies that were previously not accessible. This potential share capture would meaningfully extend our addressable ad market beyond the $18 billion existing pool (as estimated by PwC) of dedicated U.S. audio advertising spend.

Superior unit economics

Compared to the streaming players, broadcast radio has a distinct unit economics advantage. In the U.S., radio airplay is considered a public performance. As such, while radio stations do not pay recorded music royalties, they do pay performance right royalties—approximately 3% of revenue annually. We believe iHeart’s superior cost structure is reflected in our higher operating margins for fiscal year 2018, calculated on a pro forma basis, of 14%, versus that of major music streaming players which have negative operating margins.

Resilient financial model

We believe the aggregate impact of our differentiated multi-platform strategy results in durable topline growth and increasing profitability due to the inherent operating leverage in the business. Low capital intensity should result in strong free cash flow conversion and growth. Our financial profile should provide a strong foundation for iHeartMedia to continue to drive transformation within the audio industry.

Our Growth Strategy

Our strategy is centered on building strong consumer relationships with national reach. Providing this kind of at-scale companionship creates high-value advertising inventory for current audio advertisers as well as new advertisers and delivers superior returns to both. Moreover, we believe that we can leverage our investments in technology and data-informed decision making to capture increasing market share of the long tail of national and local revenue. The key elements of this growth strategy are:

Continued capture of advertising spend from all mediums

We intend to take advantage of our national scale, the brand power of “iHeartRadio,” and product innovation to capture additional share of the overall radio advertising pool. We also believe our enhanced audience data and related analytics tools should drive capture of additional revenue from other advertising sectors, including digital and television, as advertisers are able to target audiences and measure the efficacy of their ad spend in a manner that mirrors the capabilities of these other mediums. We believe our advertising partners value the unique reach, engagement and return potential of audio, as well as iHeartMedia’s differentiated platforms and marketing expertise, positioning the Company to capitalize on this trend.



 

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We have made, and continue to make, significant investments so we can provide an ad-buying experience similar to that which was once only available from digital-only companies. Our programmatic solution for broadcast radio, SoundPoint, provides improved planning and automated ad-buying by relying on sophisticated planning algorithms and a cloud-based network across all of iHeartMedia’s broadcast radio inventory to deliver highly optimized plans to our advertising customers. SmartAudio is our audio data analytics advertising platform for broadcast radio which can be executed through the SoundPoint product. With SmartAudio, advertisers can do impression-based audience planning and dynamic radio advertising creative that utilizes real-time triggers such as weather, pollen counts, sports scores, mortgage rates and more to deploy different campaign messages based on what is happening in a specific market at a specific moment. SmartAudio has allowed brands to use broadcast radio advertisements to dynamically serve the most relevant message in each market, at each moment, just as they do with digital campaigns, to ensure increased relevance and impact. In 2018, we launched iHeartMedia Analytics, the first fully-digital measurement and attribution service for broadcast radio that we believe can transform the way advertisers plan, buy and measure much of their audio campaigns to better optimize the extensive reach of radio. We continue to look for ways to further develop our advertising capabilities in order to expand our share of advertising partners’ budgets.

Increasing share of national advertising market

Broadcast radio is the number one consumer reach medium, and advertisers have a renewed appreciation for its scale, diverse demographic access and impact. We intend to complement our current local advertising presence in approximately 160 U.S. markets by further growing our stake in national advertising campaigns through our multi-platform portfolio of audio assets, roster of on-air talent, and the amplifying effect of our listeners’ social engagement. As a result of our ongoing technology investments, national advertisers can now look to our audio offerings with their extensive reach, efficient pricing and digital-like analytics as powerful alternatives to other national ad mediums.

Broadening the scope of audio engagement

We continue to expand the spectrum of choices for our listeners — both in terms of compelling content and the array of ways in which it can be consumed. The proliferation of smart speakers and other connected devices greatly increases the range of options for accessing and interacting with our content. We are also very focused on rapidly growing content categories, such as our leadership position in podcasting. These initiatives not only improve the listener experience—they facilitate further engagement and heightened frequency of advertising impressions.

Notably, iHeartRadio, our all-in-one digital music, podcast and live streaming digital radio service, is available on an expansive range of platforms and devices including smart speakers, digital auto dashes, tablets, wearables, smartphones, virtual assistants, televisions and gaming consoles.

With the acquisition of Stuff Media, LLC in September 2018, we significantly extended our position as the largest commercial podcast publisher in the U.S. We believe that podcasting is to talk what streaming is to music and is the next strategic audio platform. Our podcasting platform will allow us to capture incremental revenue as well as extend station brands, personalities and events onto a new platform—ultimately extending and deepening our consumer relationships and our opportunities for additional advertising revenue.

Employing technology to gain greater penetration of the long tail of advertising markets

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not currently reach through direct sales operations. As indication of the size of the potential opportunity, the Company currently has roughly 60,000 total clients compared to millions of clients for some of our largest social and search competitors which utilize technology solutions for smaller advertisers.

Utilizing our unique bundle of advertising inventory to drive CPM uplift

By adding other high CPM platforms into our mix, as well as providing unique and differentiated solutions for advertisers, we believe that we have the potential to see a CPM uplift. Although our primary focus is revenue, we also aim to maximize the value of our inventory. Moreover, we are continuing to develop platforms (including podcasts) that independently garner superior CPMs.

Leveraging the iHeartRadio master brand to expand our high-profile live events platform

Audio is a social experience and an important extension of the medium is live events. For our listeners, live events are an opportunity to interact with fellow fans and engage with their favorite artists. For our advertising partners, they are a chance to reach a captivated and highly targeted audience directly tied to our high reach and strong engagement broadcast radio platform. It is also an opportunity to extend into platforms like cable and broadcast television; create ancillary licensing revenue streams; and serves as an opportunity for ticket revenue. As with all of our platforms, the data collection from these sources is valuable to both our product creation process and our advertisers. Through our portfolio of major award shows, festivals and 20,000 local live events, we intend to continue to find innovative ways to integrate sponsorships and deliver unique advertising moments. In so doing, we will seek to create additional revenue opportunities through this platform.

Recent Developments

On March 14, 2018, we, iHeartCommunications and certain of our direct and indirect domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) as a result of our significant amount of indebtedness and the continued effects of adverse market conditions following the 2008 financial crisis. On April 28, 2018, we and the other Debtors filed a plan of reorganization (as amended, the “Plan of Reorganization”) and a related disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court, which we subsequently amended by filing the second, third, fourth and fifth amended Plan of Reorganization and amended versions of the Disclosure Statement. On December 3, 2018, we announced that more than 90% of the votes cast by the creditors and shareholders who were entitled to vote had voted to accept the Plan of Reorganization, which exceeded the votes necessary for confirmation and reflected the support of holders of nearly $12 billion of outstanding debt obligations across the Debtors’ capital structure, as well as the Debtors’ equity sponsors. On January 22, 2019, our Plan of Reorganization was confirmed by the Bankruptcy Court.

On the effective date of our Plan of Reorganization (“Effective Date”), we will emerge from Chapter 11 through (a) a series of transactions (the “Separation”) through which Clear Channel Outdoor Holdings, Inc. (“CCOH”), its parent Clear Channel Holdings, Inc. (“CCH”) and its subsidiaries (collectively with CCOH and CCH, the “Outdoor Group”) will be separated from, and cease to be controlled by us and our subsidiaries, and (b) a series of transactions (the “Reorganization”) through which we will reduce iHeartCommunications’ debt from approximately $16 billion to approximately $5.8 billion and effect a global compromise and settlement among holders of claims (“Claimholders”) in connection with the Chapter 11 Cases, which involves, among others, (i) the restructuring of our indebtedness by (A) replacing our “debtor-in-possession” credit facility with a



 

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$450 million senior secured asset-based revolving credit facility (the “New ABL Facility”) and (B) issuing to certain of our prepetition senior creditors, on account of their claims, a $3.5 billion senior secured term loan credit facility (the “New Term Loan Facility”), $1.45 billion aggregate principal amount of new      % Senior Unsecured Notes due 2027 (the “New Senior Unsecured Notes”) and $800 million aggregate principal amount of new      % Senior Secured Notes due 2026 (the “New Senior Secured Notes” and, together with the New Senior Unsecured Notes, the “New Senior Notes”), (ii) our issuance of new Class A common stock, new Class B common stock, and special warrants to purchase shares of common stock (“Special Warrants”) to Claimholders, subject to required long-form change of control approvals from and ownership restrictions imposed by the FCC, and (iii) the intercompany settlement transactions and sale of the preferred stock of our indirect wholly-owned subsidiary iHeart Operations, Inc. (“iHeart Operations”) effected in connection with the Separation. See “Our Separation and Reorganization” and “Description of Certain Indebtedness and Subsidiary Preferred Stock” for more information.

Risks Associated with Our Business

There are a number of risks related to our business, this offering and our Class A common stock that you should consider before you decide to participate in this offering. You should carefully consider all the information presented in the section entitled “Risk Factors” in this prospectus. Some of the principal risks related to our business include the following:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

substantial market overhang from securities issued in the Reorganization and freely tradeable as of the date of this offering; and

 

   

regulations impacting our business and the ownership of our securities.

These and other risks are more fully described in the section entitled “Risk Factors” in this prospectus. If any of these risks actually occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, you could lose all or part of your investment in our Class A common stock.

General Corporate Information

Our corporate headquarters are in San Antonio, Texas and we have executive offices in New York, New York. Our corporate headquarters are located at 20880 Stone Oak Parkway, San Antonio, Texas 78258 (telephone: (210) 822-2828). Our corporate website is www.iheartmedia.com. The information that appears on this or any of our other websites is not part of, and is not incorporated into, this prospectus and should not be relied upon in determining whether to make an investment in our Class A common stock.



 

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Organizational Structure

The following chart summarizes our organizational structure and principal indebtedness and equity ownership immediately following the Separation and Reorganization and prior to this offering. All of our subsidiaries depicted below are wholly owned. Other materially wholly owned domestic subsidiaries of iHeartCommunications that are not shown here will also guarantee the debt issued at iHeartCommunications.

 

 

LOGO

 

(1) Represents options to purchase up to                  shares of Class A common stock and up to                  Class A restricted stock units to be awarded on the Effective Date under the Post-Emergence Equity Incentive Plan. The percentage is presented on a fully-diluted and distributed basis, assuming the conversion of all the Class B common stock and the exercise of all Special Warrants. An additional 3% of the equity on a fully-diluted and distributed basis will be reserved for issuance under the Post-Emergence Equity Incentive Plan. See “Executive Compensation — Post-Emergence Incentive Equity Plan.”



 

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The Offering

 

Issuer

iHeartMedia.

 

Class A common stock offered by us

            shares.

 

Class A common stock offered by the selling stockholders

            shares.

 

Option to purchase additional shares of our Class A common stock

            shares.

 

Class A common stock to be outstanding immediately after this offering

             shares (or             shares if the underwriters’ option to purchase additional shares is exercised in full).

 

Class B common stock, par value $0.001 per share (“Class B common stock”) to be outstanding immediately before and after this offering

            shares.

 

Total shares of Class A common stock to be outstanding immediately after this offering, assuming the conversion of all shares of Class B common stock and exercise of all Special Warrants

            shares.

 

Use of proceeds

We estimate that the net proceeds from the sale of shares of our Class A common stock in this offering will be approximately $        million (or approximately $        million if the underwriters exercise their option in full to purchase             additional shares of our Class A common stock from us), based upon the initial public offering price of $        per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses payable by us and the selling stockholders.

 

  We intend to use the net proceeds from this offering to repay indebtedness.

 

  We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders in this offering.

 

  See ‘‘Use of Proceeds.”


 

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Voting rights

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

 

Dividend policy

We currently intend to retain any future earnings for investment in our business and do not expect to pay any dividends in the foreseeable future. The declaration and payment of all future dividends, if any, will be at the discretion of our Board and will depend upon our financial condition, earnings, contractual conditions, or applicable laws and other factors that our Board may deem relevant. See “Dividend Policy.”

 

FCC Foreign Ownership Restrictions on Purchasing Class A common stock in this offering

By purchasing Class A common stock in the offering, you are hereby representing that: (i) you are not the representative of any foreign government or foreign person; (ii) if a natural person, you are a citizen of the United States; and (iii) if an entity, you are (a) organized under the laws of the United states, and (b) have less than 25% of your voting rights, and less than 25% of your equity, held directly or indirectly by non-U.S. persons or entities, as determined pursuant to the FCC’s regulations. In addition, you are representing to us that your purchase of Class A common stock in this offering will not cause you, together with any person or entity with which your interests must be aggregated pursuant to FCC regulations,



 

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and taking into account any stock that you or such person or entity subject to aggregation pursuant to FCC regulations already owns, to acquire a voting or equity interest in the Company that requires “specific approval” under the FCC’s foreign ownership limitations (generally a voting or equity interest in excess of 5 percent or 10 percent, with the applicable percentage determined by FCC regulations). See “Notice to Investors.”

 

FCC Media Ownership Restrictions on Purchasing Class A common stock in this offering

By purchasing Class A Common Stock in this offering, you are hereby representing that your acquisition of Class A Common Stock will not cause you, together with any person or entity with which your interests must be aggregated pursuant to FCC regulations, and taking into account any stock that you or such person or entity subject to aggregation pursuant to FCC regulations already owns, to acquire an “attributable” interest in the Company (generally a 5 percent or greater voting interest). See “Notice to Investors.”

 

  You should consult with counsel to ensure that you can make the representations described here and above in “FCC Foreign Ownership Restrictions on Purchasing Class A common stock in this offering.”

 

Risk factors

Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

Symbol for trading on             .

“            .”

Unless otherwise indicated, all information in this prospectus:

 

   

assumes (i) the issuance of Class A common stock, Class B common stock and Special Warrants, (ii) our entry into new debt facilities and (iii) the extinguishment or retirement, as the case may be, of all of our outstanding equity and indebtedness on the Effective Date;

 

   

excludes an aggregate of              shares of Class A common stock reserved for issuance under the iHeartMedia, Inc. 2019 Equity Incentive Plan (the “Post-Emergence Equity Plan”) we intend to adopt in connection with the Reorganization, including options to purchase up to             shares of Class A common stock and up to                  Class A restricted stock units to be awarded on the Effective Date;

 

   

excludes             shares of Class A common stock issuable upon conversion of Class B common stock, and            shares of Class A common stock and shares of Class B common stock issuable upon exercise of Special Warrants at a price of $0.001 per share;

 

   

assumes an initial public offering price of $                per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus); and

 

   

assumes no exercise of the underwriters’ option to purchase                  additional shares of our Class A common stock from us.



 

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Summary Historical and Pro Forma Financial Information

The following table sets forth summary historical consolidated financial data and summary unaudited pro forma condensed consolidated financial data as of the dates and for the periods indicated. The summary historical consolidated financial data for the years ended December 31, 2018, 2017, and 2016 and as of December 31, 2018 and 2017, is derived from the audited consolidated financial statements of iHeartMedia incorporated by reference in this prospectus. The summary historical consolidated financial data as of December 31, 2016 is derived from the audited consolidated financial statements of the iHeartMedia which are not included in this prospectus. The historical results of iHeartMedia are not necessarily indicative of the results to be expected for future periods.

The summary unaudited pro forma condensed consolidated financial data as of December 31, 2018 and for the years ended December 31, 2018, 2017 and 2016 is derived from the historical consolidated financial statements of iHeartMedia and gives effect to the Separation as of December 31, 2018 for purposes of the balance sheet, and as of January 1, 2016 for purposes of the statements of operations. The summary unaudited pro forma condensed consolidated financial data as of and for the year ended December 31, 2018 also gives effect to the Reorganization, the application of fresh start accounting, the shares of Class A common stock to be issued in this offering and the application of proceeds therefrom, as if they had occurred on December 31, 2018 for purposes of the balance sheet and as of January 1, 2018 for purposes of the statement of operations. The pro forma adjustments are based upon available data and certain estimates and assumptions we believe are reasonable. The summary unaudited pro forma condensed consolidated financial data is for informational purposes only and does not purport to represent the results of operations or financial position that the Company would actually obtain if the transactions occurred at any date, nor does such data purport to project the results of operations for any future period.

The summary historical and pro forma financial data should be read in conjunction with “Risk Factors”, “Prospectus Summary—The Offering”, “Unaudited Pro Forma Condensed Consolidated Financial Data”, Capitalization”, “Selected Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and the Company’s historical consolidated financial statements and related notes thereto which are incorporated by reference in this prospectus. The amounts in the tables may not add due to rounding.

    Historical Consolidated Results
For the Years Ended
December 31,
    Pro Forma for the Separation
For the Years Ended
December 31,
    Pro Forma for
the Separation and
Reorganization
For the Year
Ended
December 31,
 

(In thousands)

  2018     2017     2016     2018     2017     2016     2018  

Results of Operations Data:

             

Revenue

  $ 6,325,780     $ 6,168,431     $ 6,251,000     $ 3,611,323     $ 3,586,647     $ 3,574,633     $ 3,611,031  

Operating expenses:

             

Direct operating expenses (excludes depreciation and amortization)

    2,532,948       2,468,724       2,395,037       1,062,373       1,059,123       976,718       1,071,063  

Selling, general and administrative expenses (excludes depreciation and amortization)

    1,896,503       1,842,222       1,726,118       1,376,931       1,346,063       1,212,621       1,368,662  

Corporate expenses (excludes depreciation and amortization)(1)

    337,218       311,898       341,072       227,508       208,648       225,167       225,442  

Depreciation and amortization

    530,903       601,295       635,227       211,951       275,304       291,103       389,868  

Impairment charges(2)

    40,922       10,199       8,000       33,150       6,040       726       33,150  

Other operating income (expense), net

    (6,768     35,704       353,556       (9,266     9,313       (1,132     (9,266
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    980,518       969,797       1,499,102       690,144       700,782       867,166       513,580  


 

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    Historical Consolidated Results
For the Years Ended
December 31,
    Pro Forma for the Separation
For the Years Ended
December 31,
    Pro Forma for
the Separation and
Reorganization
For the Year
Ended
December 31,
 

(In thousands)

  2018     2017     2016     2018     2017     2016     2018  

Interest expense(3)

    722,931       1,864,136       1,850,119       334,798       1,484,435       1,475,090       397,357  

Equity in earnings (loss) of nonconsolidated affiliates

    1,020       (2,855     (16,733     116       (1,865     (15,044     116  

Gain on extinguishment of debt

    100       1,271       157,556       100       1,271       157,556       100  

Other expense, net

    (58,876     (20,194     (86,009     (23,579     (48,949     (15,858     (23,579

Reorganization items, net(4)

    356,119       —         —         356,119       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (156,288     (916,117     (296,203     (24,136     (833,196     (481,270     92,860  

Income tax benefit (expense)

    (46,351     457,406       49,631       (13,836     177,188       127,130       (43,085
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

  $ (202,639   $ (458,711   $ (246,572   $ (37,972   $ (656,008   $ (354,140   $ 49,775  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flow Data:

             

Cash paid for interest

  $ 397,984     $ 1,772,405     $ 1,764,776          

Capital expenditures

    296,324       291,966       314,717          

Net cash flows provided by (used for) operating activities

    966,672       (491,210     (15,765        

Net cash flows provided by (used for) investing activities

    (345,478     (214,692     533,496          

Net cash flows provided by (used for) financing activities

    (491,799     151,335       (418,231        

Other Financial Data:

             

Adjusted EBITDA(5)

  $ 1,611,397     $ 1,609,728     $ 1,852,417     $  976,430     $ 1,018,874     $ 1,202,107     $  975,717  

Adjusted EBITDA margin(6)

    25     26     30     27     28     34     27

Operating margin(7)

    16     16     24     19     20     24     14

Consolidated net income (loss) margin(8)

    (3 )%      (7 )%      (4 )%      (1 )%      (18 )%      (10 )%      1

 

    Historical Consolidated Results
As of December 31,
    Pro Forma for
the Separation

As of
December 31,
    Pro Forma for
the Separation and
Reorganization As
of December 31,
 

(In thousands)

  2018     2017     2016     2018     2018  

Balance Sheet Data:

         

Current assets

  $ 2,235,017     $ 2,067,347     $ 2,494,229     $ 1,219,424     $ 971,045  

Property, plant and equipment, net

    1,791,140       1,884,714       1,948,162       502,202       719,062  

Total assets

    12,269,515       12,260,431       12,851,789       7,902,452       10,005,996  

Current liabilities

    1,247,649       16,354,597       1,674,574       518,040       558,312  

Long-term debt, net of current maturities

    5,277,108       5,676,814       20,022,080       —         5,762,740  

Liabilities subject to compromise

    16,480,256       —         —         16,480,256       —    

Stockholders’ equity (deficit)

    (11,560,342     (11,344,344     (10,901,861     (9,325,523     2,517,903  

 

1)

Intercompany management charges of $29.3 million, $32.0 million and $36.0 million from iHeartCommunications to CCOH for 2018, 2017 and 2016, respectively, are eliminated in consolidation in the historical consolidated financial statements of the Company. Pro forma Corporate expenses for 2018, 2017 and 2016 are presented net of such charges to CCOH as if CCOH was a separate third party. In addition, trademark license fees of $38.6 million and $36.7 million for 2018 and 2017, respectively, are eliminated in consolidation in the historical consolidated financial statements of the Company, and the impacts of such charges are also excluded from pro forma Corporate expenses.



 

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2)

We recorded non-cash impairment charges of $40.9 million, $10.2 million and $8.0 million during 2018, 2017 and 2016, respectively. Of these charges, $33.2 million, $6.0 million and $0.7 million related to our audio media business (the “iHM Business”) during 2018, 2017 and 2016, respectively.

3)

Interest expense for 2018 excludes contractual interest of $1,189.1 million as a result of the Company ceasing to accrue interest on pre-petition long-term debt classified as Liabilities subject to compromise as of the March 14, 2018 petition date.

4)

Reorganization costs for 2018 consist of the write off of $67.1 million in deferred long-term debt fees, the write-off of $131.1 million of original issue discount on debt subject to compromise, $10.5 million in debtor-in-possession financing costs and $147.1 million in professional fees and other bankruptcy related costs.

5)

We define Adjusted EBITDA as consolidated Operating income adjusted to exclude restructuring and reorganization expenses included within Direct operating expenses, Selling, General and Administrative expenses, (“SG&A”) and Corporate expenses and non-cash compensation expenses included within Corporate expenses, as well as the following line items presented in our Statements of Operations: Depreciation and amortization; Impairment charges; and Other operating income (expense), net. Alternatively, Adjusted EBITDA is calculated as Consolidated net income (loss), adjusted to exclude Income tax (benefit) expense, Interest expense, Depreciation and amortization, Reorganization items, net, Other (income) expense, net, Gain on extinguishment of debt, Equity in earnings (loss) of nonconsolidated affiliates, Impairment charges, Other operating (income) expense, net, share-based compensation, and restructuring and reorganization expenses. Restructuring expenses primarily include severance expenses incurred in connection with cost-saving initiatives. Reorganization expenses primarily include the amortization of retention bonus amounts paid or payable to certain members of management directly as a result of the Reorganization. We use Adjusted EBITDA, among other measures, to evaluate the Company’s operating performance. This measure is among the primary measures used by management for the planning and forecasting of future periods, as well as for measuring performance for compensation of executives and other members of management. We believe this measure is an important indicator of our operational strength and performance of our business because it provides a link between operational performance and operating income. It is also a primary measure used by management in evaluating companies as potential acquisition targets. We believe the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. We believe it helps improve investors’ ability to understand our operating performance and makes it easier to compare our results with other companies that have different capital structures or tax rates. In addition, we believe this measure is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to other companies in our industry. Since Adjusted EBITDA is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, operating income as an indicator of operating performance and may not be comparable to similarly titled measures employed by other companies. Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs. Because it excludes certain financial information compared with operating income and compared with consolidated net income (loss), the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transactions which are excluded. See “Certain Non-GAAP Financial Measures.” The following tables reconcile Adjusted EBITDA to (i) Consolidated net income (loss), the most directly comparable GAAP measure to Adjusted EBITDA, and (ii) Operating income:



 

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    Historical Consolidated Results
For the Years Ended
December 31,
    Pro Forma for the Separation
For the Years Ended
December 31,
    Pro Forma for
the Separation and
Reorganization
For the Year
Ended
December 31,
 
(In thousands)   2018     2017     2016     2018     2017     2016     2018  

Consolidated net income (loss)

  $ (202,639   $ (458,711   $ (246,572   $ (37,972   $ (656,008   $ (354,140   $ 49,775  

Income tax (benefit) expense

    46,351       (457,406     (49,631     13,836       (177,188     (127,130     43,085  

Interest expense

    722,931       1,864,136       1,850,119       334,798       1,484,435       1,475,090       397,357  

Depreciation and amortization

    530,903       601,295       635,227       211,951       275,304       291,103       389,868  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 1,097,546     $ 1,549,314     $ 2,189,143     $ 522,613     $ 926,543     $ 1,284,923     $ 880,085  

Reorganization items, net

    356,119       —         —         356,119       —         —         —    

Other (income) expense, net

    58,876       20,194       86,009       23,579       48,949       15,858       23,579  

Gain on extinguishment of debt

    (100     (1,271     (157,556     (100     (1,271     (157,556     (100

Equity in (earnings) loss of nonconsolidated affiliates

    (1,020     142,855       16,733       (116     1,865       15,044       (116

Impairment charges

    40,922       10,199       8,000       33,150       6,040       726       33,150  

Other operating (income) expense, net

    6,768       (35,704     (353,556     9,266       (9,313     1,132       9,266  

Share-based compensation

    10,583       12,078       13,133       2,066       2,488       2,842       —    

Restructuring and reorganization expenses

    41,703       52,063       50,511       29,853       43,573       39,138       29,853  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 1,611,397     $ 1,609,728     $ 1,852,417     $ 976,430     $ 1,018,874     $ 1,202,107     $ 975,717  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Historical Consolidated Results
For the Years Ended
December 31,
    Pro Forma for the Separation
For the Years Ended
December 31,
    Pro Forma for
the Separation and
Reorganization
For the Year
Ended
December 31,
 
    2018     2017     2016     2018     2017     2016     2018  

Operating income

  $ 980,518     $ 969,797     $ 1,499,102     $ 690,144     $ 700,782     $ 867,166     $ 513,580  

Depreciation and amortization

    530,903       601,295       635,227       211,951       275,304       291,103       389,868  

Impairment charges

    40,922       10,199       8,000       33,150       6,040       726       33,150  

Other operating (income) expense, net

    6,768       (35,704     (353,556     9,266       (9,313     1,132       9,266  

Share-based compensation

    10,583       12,078       13,133       2,066       2,488       2,842       —    

Restructuring and reorganization expenses

    41,703       52,063       50,511       29,853       43,573       39,138       29,853  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 1,611,397     $ 1,609,728     $ 1,852,417     $ 976,430     $ 1,018,874     $ 1,202,107     $ 975,717  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

6)

Calculated as Adjusted EBITDA divided by Revenue.

7)

Calculated as Operating income divided by Revenue.

8)

Calculated as Consolidated net income (loss) divided by Revenue.



 

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RISK FACTORS

This offering and an investment in our Class A common stock involve a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase shares of our Class A common stock. If any of the following risks actually occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, the trading price of our Class A common stock could decline and you could lose all or part of your investment in our Class A common stock.

Risks Related to Our Business

Our results have been in the past, and could be in the future, adversely affected by economic uncertainty or deteriorations in economic conditions.

We derive revenues from the sale of advertising. Expenditures by advertisers tend to be cyclical, reflecting economic conditions and budgeting and buying patterns. Periods of a slowing economy or recession, or periods of economic uncertainty, may be accompanied by a decrease in advertising. For example, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing by our customers, which resulted in a decline in advertising revenues across our businesses. This reduction in advertising revenues had an adverse effect on our revenue, profit margins, cash flow and liquidity. Global economic conditions have been slow to recover and remain uncertain. If economic conditions do not continue to improve, economic uncertainty increases or economic conditions deteriorate again, global economic conditions may once again adversely impact our revenue, profit margins, cash flow and liquidity. Furthermore, because a significant portion of our revenue is derived from local advertisers, our ability to generate revenues in specific markets is directly affected by local and regional conditions, and unfavorable regional economic conditions also may adversely impact our results. In addition, even in the absence of a downturn in general economic conditions, an individual business sector or market may experience a downturn, causing it to reduce its advertising expenditures, which also may adversely impact our results.

We face intense competition in our business.

We operate in a highly competitive industry, and we may not be able to maintain or increase our current audience ratings and advertising revenues. Our business competes for audiences and advertising revenues with other radio businesses, as well as with other media, such as newspapers, magazines, television, direct mail, portable digital audio players, mobile devices, satellite radio, Internet-based services and live entertainment, within their respective markets. Audience ratings and market shares are subject to change for various reasons, including through consolidation of our competitors through processes such as mergers and acquisitions, which could have the effect of reducing our revenues in a specific market. Our competitors may develop technology, services or advertising media that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. For example, our competitors may develop analytic products for programmatic advertising, and data and research tools, that are superior to those that we provide or that achieve greater market acceptance. It also is possible that new competitors may emerge and rapidly acquire significant market share in our business, or make it more difficult for us to increase our share of advertising partners’ budgets. The advertiser/agency ecosystem is diverse and dynamic, with advertiser/agency relationships subject to change. This could have an adverse effect on us if an advertiser client shifts its relationship to an agency with whom we do not have as good a relationship. An increased level of competition for advertising dollars may lead to lower advertising rates as we attempt to retain customers or may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match.

Our ability to compete effectively depends in part on our ability to achieve a competitive cost structure. If we cannot do so, then our business, financial condition and operating results would be adversely affected.

 

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Alternative media platforms and technologies may continue to increase competition with our broadcasting operations.

Our terrestrial radio broadcasting operations face increasing competition from alternative media platforms and technologies, such as broadband wireless, satellite radio, audio broadcasting by cable television systems and Internet-based streaming music services, as well as consumer products, such as portable digital audio players and other mobile devices, smart phones and tablets, gaming consoles, in-home entertainment and enhanced automotive platforms. These technologies and alternative media platforms, including those used by us, compete with our broadcast radio stations for audience share and advertising revenues. We are unable to predict the effect that such technologies and related services and products will have on our broadcasting and digital operations. The capital expenditures necessary to implement these or other technologies could be substantial and we cannot assure you that we will continue to have the resources to acquire new technologies or to introduce new services to compete with other new technologies or services, or that our investments in new technologies or services will provide the desired returns. Other companies employing new technologies or services could more successfully implement such new technologies or services or otherwise increase competition with our businesses.

Our business is dependent upon the performance of on-air talent and program hosts.

We employ or independently contract with many on-air personalities and hosts of syndicated radio programs with significant loyal audiences in their respective markets. Although we have entered into long-term agreements with some of our key on-air talent and program hosts to protect our interests in those relationships, we can give no assurance that all or any of these persons will remain with us or will retain their audiences. Competition for these individuals is intense and many of these individuals are under no legal obligation to remain with us. Our competitors may choose to extend offers to any of these individuals on terms which we may be unwilling to meet. Furthermore, the popularity and audience loyalty of our key on-air talent and program hosts is highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond our control and could have a material adverse effect on our ability to attract local and/or national advertisers and on our revenue and/or ratings, and could result in increased expenses.

If events occur that damage our reputation and brand, our ability to grow our user base, advertiser relationships, and partnerships may be impaired, and our business may be harmed.

We have developed a brand that we believe has contributed to our success. We also believe that maintaining and enhancing our brand is critical to growing our user base, advertiser relationships, and partnerships. The iHeartRadio master brand ties together our radio stations, digital platforms, social, podcasts and live events in a unified manner that reflects the quality and compelling nature of our listener experiences. Maintaining and enhancing our brand depends on many factors, including factors that are not entirely within our control. If we fail to successfully promote and maintain our brand or if we suffer damage to the public perception of our brand, our business may be harmed.

Our business is dependent on our management team and other key individuals.

Our business is dependent upon the performance of our management team and other key individuals. Although we have entered into agreements with members of our senior management team and certain other key individuals, we can give no assurance that any or all of them will remain with us, or that we won’t continue to make changes to the composition of, and the roles and responsibilities of, our management team. Competition for these individuals is intense and many of our key employees are at-will employees who are under no obligation to remain with us, and may decide to leave for a variety of personal or other reasons beyond our control. We have also experienced management transition in anticipation of the Separation and Reorganization. For instance, our treasurer will become the Chief Financial Officer of CCOH, and we will have a new General Counsel. If members of our management or key individuals decide to leave us in the future, if we decide to make further changes to the composition of, or the roles and responsibilities of, these individuals, or if we are not successful in attracting, motivating and retaining other key employees, our business could be adversely affected.

 

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Our financial performance may be adversely affected by many factors beyond our control.

Certain factors that could adversely affect our financial performance by, among other things, decreasing overall revenues, the numbers of advertising customers, advertising fees or profit margins include:

 

   

unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers;

 

   

our inability to successfully adopt or our being late in adopting technological changes and innovations that offer more attractive advertising or listening alternatives than what we offer, which could result in

  a loss of advertising customers or lower advertising rates, which could have a material adverse effect on our operating results and financial performance;

 

   

the impact of potential new or increased royalties or license fees charged for terrestrial radio broadcasting or the provision of our digital services, which could materially increase our expenses;

 

   

unfavorable shifts in population and other demographics, which may cause us to lose advertising customers as people migrate to markets where we have a smaller presence or which may cause advertisers to be willing to pay less in advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective;

 

   

continued dislocation of advertising agency operations from new technologies and media buying trends;

 

   

adverse political effects and acts or threats of terrorism or military conflicts; and

 

   

unfavorable changes in labor conditions, which may impair our ability to operate or require us to spend more to retain and attract key employees.

Future acquisitions, dispositions and other strategic transactions could pose risks.

We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue acquisitions of certain businesses as well as strategic dispositions. These acquisitions or dispositions could be material. Acquisitions or dispositions involve numerous risks, including:

 

   

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

 

   

to successfully manage our business, we may need to:

 

   

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

 

   

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

 

   

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

 

   

we may encounter difficulties in the integration of new management teams, operations and systems;

 

   

our management’s attention may be diverted from other business concerns;

 

   

our dispositions may negatively impact revenues from our national, regional and other sales networks; and

 

   

our dispositions may make it difficult to generate cash flows from operations sufficient to meet our anticipated cash requirements, including debt service requirements.

 

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Acquisitions and dispositions of media and entertainment businesses may require antitrust review by U.S. federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions. We can give no assurances that the Department of Justice (“DOJ”), the U.S. Federal Trade Commission (“FTC”) or foreign antitrust agencies will not seek to bar us from acquiring or disposing of media and entertainment businesses or impose stringent undertaking on our business as a condition to the completion of an acquisition in any market where we already have a significant position.

Further, radio acquisitions are subject to FCC approval. Such transactions must comply with the Communications Act and FCC regulatory requirements and policies, including with respect to the number of broadcast licenses in which a person or entity may have an ownership or attributable interest in a given local market and the level of interest that may be held by a foreign individual or entity. The FCC’s media ownership rules remain subject to ongoing agency and court proceedings. Future changes could restrict our ability to dispose of or acquire new radio assets or businesses. See “Business—Regulation of our Business.”

Extensive current government regulation, and future regulation, may limit our radio broadcasting and other operations or adversely affect our business and financial results.

The U.S. Congress (the “Congress”) and several federal agencies, including the FCC, extensively regulate the domestic radio industry. For example, the FCC could impact our profitability by imposing large fines on us if, in response to pending or future complaints, it finds that we broadcast indecent programming or committed other violations of FCC regulations. Additionally, FCC’ s regulations prohibit the broadcast of “obscene” material at any time, and “indecent” material between the hours of 6:00 a.m. and 10:00 p.m. The FCC has historically enforced licensee compliance in this area through the assessment of monetary forfeitures. Such forfeitures may include: (i) imposition of the maximum authorized fine for egregious cases ($397,251 for a single violation, up to a maximum of $3,666,930 for a continuing violation); and (ii) imposition of fines on a per utterance basis instead of a single fine for an entire program. The FCC has also recently increased its enforcement of regulations requiring a radio station to include an on-air announcement which identifies the sponsor of all advertisements and other matter broadcast by any radio station for which any money, service or other valuable consideration is received. Similarly, the FCC has recently sought to impose substantial fines on broadcasters who transmit EAS codes, or simulations thereof, in the absence of an actual emergency or authorized test of the EAS.

Additionally, we cannot be sure that the FCC will approve renewal of the licenses we must have in order to operate our stations. Nor can we be assured that our licenses will be renewed without conditions and for a full term. The non-renewal, or conditioned renewal, of a substantial number of our FCC licenses, particularly those that are up for renewal starting in June 2019, could have a materially adverse impact on our operations. Furthermore, possible changes in interference protections, spectrum allocations and other technical rules may 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. The FCC is also considering the adoption of rules which may limit our ability to prevent interference by FM translators to the reception of our full-power radio stations. In addition, Congress, the FCC and other regulatory agencies have considered, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, have an adverse effect on our business operations and financial performance. For example, Congress may consider and adopt legislation that would impose an obligation upon all U.S. broadcasters to pay performing artists a royalty for the on-air broadcast of their sound recordings (this would be in addition to payments already made by broadcasters to owners of musical work rights, such as songwriters, composers and publishers). In October 2018, legislation was signed into law that creates a public performance right for pre-February 15, 1972 recordings streamed online. This law may increase our licensing costs. Moreover, it is possible that our license fees and negotiating costs associated with obtaining rights to use musical compositions and sound recordings in our programming content could sharply increase as a result of private negotiations, one or more regulatory rate-setting processes, or administrative and court decisions. The Copyright Royalty Board (“CRB”) has issued a final determination establishing copyright royalty rates for the

 

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public performance and ephemeral reproduction of sound recordings by various non-interactive webcasters, including radio broadcasters that simulcast their terrestrial programming online, to apply to the period from January 1, 2016 to December 31, 2020 under the webcasting statutory license. A proceeding to establish the rates for 2021-2025 is expected to begin in 2019. Increased royalty rates could significantly increase our expenses, which could adversely affect our business. Additionally, there are conditions applicable to the webcasting statutory license. Some, but not all, record companies have agreed to waive or provide limited relief from certain of these conditions under certain circumstances for set periods of time. Some of these conditions may be inconsistent with customary radio broadcasting practices and various regulatory matters relating to our business are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our business

Also, in December 2017, the FCC voted to repeal its “net neutrality” Open Internet rules, effective June 2018. The rules were designed to ensure that all online content is treated the same by internet service providers and other companies that provide broadband services. The FCC’s new rules, which took effect on June 11, 2018, repealed the neutrality obligations imposed by the Open Internet rules and granted providers of broadband internet access services greater freedom to make changes to their services, including, potentially, changes that may discriminate against or harm our business. A number of parties have appealed this order, which is currently being reviewed by the D.C. Circuit Court of Appeals. If those appeals fail and the net neutrality rules are relaxed or eliminated, we could incur greater operating expenses, which could harm our results of operations.

Regulations and consumer concerns regarding data privacy and data protection, or any failure to comply with these regulations, could hinder our operations.

We utilize demographic and other information from and about our listeners, consumers, business partners and advertisers as they interact with us. For example: (1) our broadcast radio station websites and our iHeartRadio digital platform collect personal information as users register for our services, fill out their listener profiles, post comments, use our social networking features, participate in polls and contests and sign-up to receive email newsletters; (2) we use tracking technologies, such as “cookies,” to manage and track our listeners’ interactions with us so that we can deliver relevant music content and advertising; (3) we collect credit card or debit card information from consumers, business partners and advertisers who use our services; and (4) we collect precise location data about certain of our Platform users for analytics, attribution and advertising purposes.

We are subject to numerous federal, state and foreign laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws are still evolving, new laws may be enacted and any of these laws could be amended or interpreted by the courts or regulators in ways that could harm our business. For example, our ongoing efforts to comply with the European Union (“E.U.”) General Data Protection Regulation (“GDPR”), effective as of May 2018, or the new California Consumer Privacy Act (“CCPA”) effective as of January 2020 may entail substantial expenses, may divert resources from other initiatives and projects, and could limit the services we are able to offer. The CCPA provides for a private right of action for unauthorized access, theft or disclosure of personal information in certain situations with possible damage awards of $100 to $750 per consumer per incident, or actual damages, whichever is greater, and also permits class action lawsuits. In addition, changes in consumer expectations and demands regarding privacy and data protection could restrict our ability to collect, use, disclose and derive economic value from demographic and other information related to our listeners, consumers, business partners and advertisers, or to transfer employee data within the corporate group. Such restrictions could limit our ability to provide customized music content to our listeners, interact directly with our listeners and consumers and offer targeted advertising opportunities to our business partners and advertisers. Although we have implemented and are implementing policies and procedures designed to comply with these laws and regulations, any failure or perceived failure by us to comply with our policies or applicable regulatory requirements related to consumer protection, information security, data protection and privacy could result in a loss of confidence in us, damage to our brands, the loss of listeners, consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could hinder our operations and adversely affect our business.

 

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If our security measures are breached, we could lose valuable information, suffer disruptions to our business, and incur expenses and liabilities including damages to our relationships with listeners, consumers, business partners, employees and advertisers.

Although we have implemented physical and electronic security measures that are designed to protect against the loss, misuse and alteration of our websites, digital assets and proprietary business information as well as listener, consumer, business partner and advertiser personally identifiable information, no security measures are perfect and impenetrable and we may be unable to anticipate or prevent unauthorized access. Our websites and digital platforms are vulnerable to software bugs, computer viruses, internet worms, break-ins, phishing attacks, attempts to overload servers with denial-of-service, or other attacks and similar disruptions from unauthorized use of our and third-party computer systems, any of which could lead to system interruptions, delays, or shutdowns, causing loss of critical data or the unauthorized access to personal data. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our services and technical infrastructure to the satisfaction of our listeners may harm our reputation and our ability to retain existing listeners and attract new listeners. We cannot assure you that the systems and processes that we have designed to protect our data and our listeners’ data, to prevent data loss and to prevent or detect security breaches will provide absolute security, and we may incur significant costs in protecting against or remediating cyber-attacks. If an actual or perceived breach of our security occurs, we may face regulatory or civil liability, lose competitively sensitive business information or suffer disruptions to our business operations, information processes and internal controls. In addition, the public perception of the effectiveness of our security measures or services could be harmed, we could lose listeners, consumers, business partners and advertisers. In the event of a security breach, we could suffer financial exposure in connection with penalties, remediation efforts, investigations and legal proceedings and changes in our security and system protection measures. Currently, not all of our systems are fully compliant with the new E.U. GDPR standards and, as a result, we may face additional liability in the event of a security breach. In Europe, we may be required to notify European Data Protection Authorities, within strict time periods, about any personal data breaches, unless the personal data breach is unlikely to result in a risk to the rights and freedoms of the affected individuals. We may also be required to notify the affected individuals of the personal data breach where there is a high risk to their rights and freedoms. If we suffer a personal data breach, we could be fined up to EUR 20 million or 4% of worldwide annual turnover of the preceding financial year, whichever is greater. Any data breach by service providers that are acting as data processors (i.e., processing personal data on our behalf) could also mean that we are subject to these fines and have to comply with the notification obligations set out above.

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

As the owner or operator of various real properties and facilities, we must comply with various foreign, federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances and employee health and safety as well as zoning restrictions. Historically, we have not incurred significant expenditures to comply with these laws. However, additional laws which may be passed in the future, or a finding of a violation of or liability under existing laws, could require us to make significant expenditures and otherwise limit or restrict some of our operations.

Risks Related to the Separation and Reorganization

Our substantial indebtedness following the Reorganization may adversely affect our financial health and operating flexibility.

We substantially reduced our indebtedness as a result of the Reorganization. Nevertheless, immediately following the Reorganization, we will have a substantial amount of indebtedness, and would have had

 

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approximately $5.8 billion of indebtedness outstanding as of December 31, 2018 on a pro forma basis after giving effect to the Separation and the Reorganization. On the Effective Date, we will enter into a $450 million New ABL Facility and a $3.5 billion New Term Loan Facility, and will issue $800 million aggregate principal amount of New Senior Secured Notes and $1.45 billion of New Senior Unsecured Notes. This substantial amount of indebtedness could have important consequences to us, including:

 

   

limiting our ability or increasing the costs to refinance our indebtedness;

 

   

limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our business strategy or other purposes;

 

   

limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service debt;

 

   

increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given our substantial indebtedness that bears interest at variable rates; and

 

   

limiting our ability to capitalize on business opportunities and to react to competitive pressures.

Under the terms of the agreements and indentures governing our indebtedness, we are permitted to incur additional indebtedness, which could further accentuate these risks.

We and our subsidiaries may not be able to generate enough cash to service all of our indebtedness, may not be able to refinance all of our indebtedness before it becomes due and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability and our subsidiaries’ ability to make scheduled payments on our respective debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. In addition, because we derive a substantial portion of or operating income from our subsidiaries, our ability to repay our debt depends upon the performance of our subsidiaries, their ability to dividend or distribute funds to us and our receipt of funds.

We and our subsidiaries may not be able to generate cash flows from the operations on an amount sufficient to fund our liquidity needs. If our and our subsidiaries’ cash flow from operations are insufficient to fund our respective debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations or seek additional capital. We may not be able to take any of those actions, and these actions may not be successful or permit us to meet the scheduled debt service obligations. Furthermore, these actions may not be permitted under the terms of existing or future debt agreements. The ability to refinance 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 increase debt services obligations and may require us and our subsidiaries to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. These alternatives measures may not be successful and may not permit us or our subsidiaries to meet scheduled debt service obligations.

The documents that will govern our indebtedness following the Separation and Reorganization contain restrictions that limit our flexibility in operating our business.

Our material financing agreements, including our credit agreements and indentures, will contain various covenants restricting, among other things, our ability to:

 

   

pay dividends;

 

   

make acquisitions or investments;

 

   

make loans or otherwise lend credit to others;

 

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incur indebtedness or guarantees of indebtedness or issue preferred stock;

 

   

create liens;

 

   

enter into transactions with affiliates;

 

   

sell or dispose of assets;

 

   

merge or consolidate with other companies; and

 

   

make a substantial change to the general nature of our business.

The restrictions contained in these credit agreements and indentures could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. For example, such restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, investments or alliances, restructure our organization or finance our capital needs. Additionally, our ability to comply with these covenants and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions.

The Chapter 11 Cases may give rise to unfavorable tax consequences for us.

The consummation of the Chapter 11 Cases may have an adverse tax impact on us. The Separation is intended to be a taxable transaction. The gain or loss recognized with respect to these transactions will depend on, among other things: (a) the value and tax basis of the assets of the radio businesses of the Company that will be transferred by CCH to a new subsidiary of the Company formed for the purpose of holding such assets and the value and tax basis of the new common stock of CCOH to be issued on the Effective Date (such values will be determined by reference to, among other things, the trading value of the Company’s equity and the new common stock of CCOH following the Effective Date); (b) complex modeling considerations under certain U.S. Department of Treasury Regulations; (c) the amount of cancellation of indebtedness income realized in connection with the Chapter 11 Cases; and (d) the extent to which any “excess loss accounts” (as defined under applicable Treasury Regulations) are taken into account. The extent to which any related taxable gain or loss will result in any cash tax liabilities will depend on whether our tax attributes, including our net operating losses (“NOLs”) (including those of CCOH and its subsidiaries), are sufficient to offset any net taxable gain attributable to the transactions.

In addition, we will be required to reduce (potentially to zero) certain of our tax attributes, including NOL carryforwards, as a result of any cancellation of indebtedness income realized in connection with the Chapter 11 Cases.

Because certain of the factors that will determine whether the Separation will give rise to any cash tax liability cannot be known until the Effective Date, we cannot say with certainty whether any such cash tax liability will be owed. To the extent the transactions do give rise to any cash tax liability, CCOH, iHeartCommunications, the Company and various other entities would be jointly and severally liable under applicable law for any such amounts. The allocation of any such liabilities among the Company and its subsidiaries post-consummation of the Plan of Reorganization and CCOH will be addressed by a new tax matters agreement that will be entered into in connection with the Separation.

Additionally, our ability to utilize our NOL carryforwards to offset future taxable income and to reduce federal income tax liability is subject to certain requirements and restrictions. If we experience an “ownership change,” as defined in Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), then our ability to use our NOL carryforwards may be substantially limited, which could have a negative impact on our financial position and results of operations. Generally, there is an “ownership change” if one or more shareholders owning 5% or more of a corporation’s common stock have aggregate increases in their ownership of such stock of more than 50 percentage points over the prior three-year period. Following the implementation

 

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of a plan of reorganization in the Chapter 11 Cases, it is expected that we will experience an “ownership change.” Under Section 382 of the Code, absent an application exception, if a corporation undergoes an “ownership change,” the amount of its NOLs that may be utilized to offset future taxable income generally is subject to an annual limitation on the amount of federal income tax NOL carryforwards existing prior to the change that it could utilize to offset its taxable income in any future taxable year to an amount generally equal to the value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate, subject to adjustments to reflect the differences between the fair market value of the corporation’s assets and the tax basis in such assets. Because the value of our stock can fluctuate materially, it is possible an ownership change would materially limit our ability to utilize our substantial federal income tax NOL carryforwards in the future. Accordingly, there can be no assurance that we will be able to utilize our federal income tax NOL carryforwards to offset future taxable income, even if any such attributes survive reduction as a result of cancellation of indebtedness income.

The unaudited pro forma condensed consolidated financial information in this prospectus is based on estimates and assumptions that may prove to be materially different from our actual experience.

In preparing the unaudited pro forma condensed consolidated financial information included elsewhere in this prospectus, we have made certain adjustments to the historical consolidated financial information based upon currently available information and upon estimates and assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Separation, the Reorganization, the application of fresh start accounting and the issuance of Class A common stock in this offering. However, these estimates are predicated on assumptions, judgments and other information which are inherently uncertain.

These estimates and assumptions used in the preparation of the unaudited pro forma condensed consolidated financial information in this prospectus may be materially different from our actual financial condition and results of operation. The unaudited pro forma condensed consolidated financial information included elsewhere in this prospectus does not purport to represent what our results of operations would actually have been had we operated as a standalone public company during the periods presented, nor do the pro forma data give effect to any events other than those discussed in the unaudited pro forma condensed consolidated financial information and related notes. See “Unaudited Pro Forma Condensed Consolidated Statement of Operations.”

In connection with the Separation, the Outdoor Group will indemnify us and we will indemnify the Outdoor Group for certain liabilities. There can be no assurance that the indemnities from the Outdoor Group will be sufficient to insure us against the full amount of such liabilities.

Pursuant to agreements that we entered into with the Outdoor Group in connection with the Separation, the Outdoor Group agreed to indemnify us for certain liabilities, and we agreed to indemnify the Outdoor Group for certain liabilities. For example, we will indemnify the Outdoor Group for liabilities to the extent such liabilities related to the business, assets and liabilities of the iHeartMedia as well as liabilities relating to a breach of the Separation Agreement. We will also indemnify the Outdoor Group for 50% of certain tax liabilities imposed on the Outdoor Group in connection with the Separation on or prior to the third anniversary of the Separation in excess of $5.0 million, with our aggregate liability limited to $15.0 million, and will reimburse the Outdoor Group for one-third of potential costs relating to certain agreements between the Outdoor Group and third parties in excess of $10.0 million up to the first $35.0 million of such costs such that we will not bear more than $8.33 million of such costs. However, third parties might seek to hold us responsible for liabilities that the Outdoor Group agreed to retain, and there can be no assurance that the Outdoor Group will be able to fully satisfy their respective indemnification obligations under these agreements. In addition, indemnities that we may be required to provide to the Outdoor Group could be significant and could adversely affect our business.

 

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Our ability to change the public perception relating to our bankruptcy proceedings may have an impact on our ability to continue to attract our audience, which is critical to our ability to achieve long-term profitability.

Our ability to achieve long-term profitability depends on our ability to reach our audience. A negative public perception of our business due to our bankruptcy proceedings may have a materially adverse effect on our results of operations and financial condition.

Following our emergence from bankruptcy, we will have a new board of directors.

The new directors who will serve on our Board following the Reorganization will have different backgrounds, experiences and perspectives from those individuals who have historically served on our Board and may have different views on the direction of our business and the issues that will determine our future. The effect of implementation of those views may be difficult to predict and may, in the short term, result in disruption to the strategic direction of the business.

Additionally, the ability of our new directors to quickly expand their knowledge of our operations will be critical to their ability to make informed decisions about our business and strategies, particularly given the competitive environment in which we operate. The transition of our Board may, during the period of transition, compromise our ability to compete effectively.

Our actual financial results following the Separation and Reorganization will not be comparable to our historical financial information or the projections prepared in connection with the Reorganization.

Following the Separation and Reorganization, we will operate under a new capital structure. In addition, we will adopt fresh-start accounting and, as a result, at the Effective Date, our assets and liabilities will be recorded at fair value, which could result in values that are materially different than the values recorded in our historical financial statements. Accordingly, our financial condition and results of operations from and after the Effective Date will not be comparable to the financial condition or results of operations reflected in our historical financial statements. Further, as a result of the Separation and Reorganization and the transactions contemplated thereby, our historical financial information may not be indicative of our future financial performance.

We may be subject to claims that will not be discharged in the bankruptcy proceedings.

The Bankruptcy Code provides that the confirmation of a Plan of Reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to the filing of our Chapter 11 proceedings (i) are subject to compromise and/or treatment under the Plan of Reorganization or (ii) will be discharged in accordance with the Bankruptcy Code and the terms of the Plan of Reorganization. However, there can be no assurance that the aggregate amount of such claims that are not subject to treatment under the Plan of Reorganization or that are not discharged will not be material.

Risks Related to This Offering and Ownership of our Class A Common Stock

Our Class A common stock price may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the public offering price.

Volatility in the market price of our Class A common stock may prevent you from being able to sell your shares at or above the price you paid for them. Many factors, which are outside our control, may cause the market price of our Class A common stock to fluctuate significantly, including those described elsewhere in this “Risk Factors” section and this prospectus, as well as the following:

 

   

our operating and financial performance and prospects;

 

   

our quarterly or annual earnings or those of other companies in our industry compared to market expectations;

 

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future announcements concerning our business or our competitors’ businesses;

 

   

the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

   

the composition of our public float, including substantial holdings by former creditors that may wish to dispose of our securities;

 

   

coverage by or changes in financial estimates by securities analysts or failure to meet their expectations;

 

   

market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

 

   

strategic actions by us or our competitors, such as acquisitions or restructurings;

 

   

changes in laws or regulations which adversely affect our industry or us;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

changes in senior management or key personnel;

 

   

issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock;

 

   

adverse resolution of new or pending litigation against us; and

 

   

changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events.

These broad market and industry factors may materially reduce the market price of our Class A common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our Class A common stock is low. As a result, you may suffer a loss on your investment.

Substantial blocks of our outstanding shares may be sold into the market, including by the selling stockholders in this offering. If there are substantial sales of shares of our Class A common stock, the price of our Class A common stock could decline.

The price of our Class A common stock could decline if there are substantial sales of our Class A common stock, particularly sales by our directors, executive officers and significant stockholders. After this offering, we will have                  shares of our Class A common stock outstanding and                  shares of our Class B common stock outstanding, which is convertible into an equivalent number of shares of Class A common stock on a share-for-share basis upon the satisfaction of certain conditions, and Special Warrants to purchase, at an exercise price of $0.001,             additional shares of Class A common stock or Class B common stock. Substantially all of our outstanding common stock and the Special Warrants will be issued in connection with the Reorganization and will be freely transferable without restriction subject to the limitations described under “Shares Eligible for Future Sale—Shares of Class A Common Stock and Class B Common Stock Issued in Connection with the Reorganization Eligible for Future Sale.”

The market price of the shares of our Class A common stock could decline as a result of the sale of a substantial number of our shares of Class A common stock in the public market, or the perception in the market that the holders of a large number of such shares, or securities convertible or exercisable into such shares, intend to sell their shares or such other securities.

We do not know whether an active, liquid and orderly trading market will develop for our Class A common stock or what the market price of our Class A common stock will be, and as a result, it may be difficult for you to sell your shares of our Class A common stock.

While one of the primary purposes of this offering is to increase liquidity in the trading of our Class A common stock, prior to this offering, our Class A common stock will trade in the pink sheets and is expected to be

 

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thinly traded, in large part because a majority of our equity to be issued in the Reorganization will be issued in the form of Special Warrants and Class B common stock. An active trading market in our Class A common stock may never develop or be sustained following this offering. The initial public offering price for our common stock was determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of our Class A common stock after this offering. If an active market for our Class A common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all.

Your voting rights as a holder of Class A common stock will be diluted upon the exercise of Special Warrants or the conversion of Class B common stock

A majority of our equity to be issued in the Reorganization will be issued in the form of Special Warrants, which have no voting rights, and Class B common stock, which have only limited voting rights. The Special Warrants are currently exercisable into Class A common stock at an exercise price of $0.001 per share, and the Class B common stock is currently convertible into Class A common stock on a share-for-share basis, in each case subject to the Ownership Restrictions described in this prospectus. Upon the exercise of any Special Warrants or the conversion of any shares of Class B common stock, your voting rights as a holder of Class A common stock will be proportionately diluted.

The underwriters of this offering may waive or release parties to the lock-up agreements entered into in connection with this offering, which could adversely affect the price of our common stock.

We, the selling stockholders, our directors and officers, and the beneficial owners of     % of our Class A common stock and Class B common stock have entered into lock-up agreements in connection with this offering that will restrict us and them from selling their shares for an additional 180 days from the date of this prospectus. In addition, Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. Sales of a substantial number of such shares upon expiration of the lock-up agreements, the perception that such sales may occur or early release of these agreements could cause the market price of our Class A common stock to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate. See “Underwriting—Lock-Up Agreements.” Certain shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).

We do not intend to pay dividends on our Class A common stock for the foreseeable future.

We currently have no intention to pay dividends on our Class A common stock at any time in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board may deem relevant. Certain of our debt instruments contain covenants that restrict the ability of our subsidiaries to pay dividends to us.

We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.

We are a holding company that does not conduct any business operations of our own. As a holding company, our investments in our operating subsidiaries constitute all of our operating assets. Our subsidiaries conduct all of our consolidated operations and own substantially all of our consolidated assets. As a result, we must rely on dividends and other advances, distributions and transfers of funds from our subsidiaries to meet our obligations. The ability of our subsidiaries to pay dividends or make other advances, distributions and transfers of funds will depend on their respective results of operations and may be restricted by, among other things, applicable laws limiting the amount of funds available for payment of dividends and certain restrictive covenants

 

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contained in the agreements of those subsidiaries. The deterioration of income from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us.

Delaware law and certain provisions in our certificate of incorporation may prevent efforts by our stockholders to change the direction or management of our company.

Our certificate of incorporation and our by-laws will contain provisions that may make the acquisition of our company more difficult without the approval of our Board, including, but not limited to, the following:

 

   

for the first few years following the Effective Date, our board of directors will be divided into three equal classes, with members of each class elected in different years for different terms, making it impossible for stockholders to change the composition of our entire Board in any given year;

 

   

action by stockholders may only be taken at an annual or special meeting duly called by or at the direction of a majority of our Board;

 

   

advance notice for all stockholder proposals is required;

 

   

subject to the rights of holders of any outstanding shares of our preferred stock, for so long as our board remains classified our directors may only be removed for cause and upon the affirmative vote of holders of a majority of the voting power of the outstanding shares of our Class A common stock; and

 

   

any amendment, alteration, rescission or repeal of the anti-takeover provisions of the charter, requires the affirmative vote of at least 66 2/3% in voting power of the outstanding shares of our stock entitled to vote generally in the election of directors.

These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by our then-current Board, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see “Description of Capital Stock.”

Our certificate of incorporation will designate the Court of Chancery of the State of Delaware, subject to certain exceptions, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation will provide that the Court of Chancery of the State of Delaware, subject to certain exceptions, will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against the company or any director or officer or employee of the company arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employee, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

 

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If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our industry, or if they adversely change their recommendations regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our industry or our competitors. If we do not establish and maintain adequate research coverage or if any of the analysts who may cover us downgrade our stock, publish inaccurate or unfavorable research about our business or provide relatively more favorable recommendations about our competitors, our stock price could decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports about us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Regulations imposed by the Communications Act and the FCC limit the amount of foreign individuals or entities that may invest in our capital stock.

The Communications Act and FCC regulations restrict foreign ownership or control of any entity licensed to provide broadcast and certain other communications services. Among other prohibitions, foreign entities may not have direct or indirect ownership or voting rights of more than 25 percent in a corporation controlling the licensee of a radio broadcast station if the FCC finds that the public interest will be served by the refusal or revocation of such a license due to foreign ownership or voting rights. The FCC has interpreted this provision to mean that it must make an affirmative public interest finding before a broadcast license may be held by a corporation that is more than 25 percent owned or controlled, directly or indirectly, by foreign persons or other non-U.S. entities.

We intend to file a petition for declaratory ruling (“Declaratory Ruling”) requesting FCC consent to exceed the 25 percent foreign ownership and voting benchmarks that currently apply to us, but we cannot predict whether the FCC will grant a Declaratory Ruling, the amount of foreign equity and voting rights such a ruling will allow us to have if one is granted, or how long it will take to obtain such a ruling.

The FCC calculates foreign voting rights separately from equity ownership, and both must be at or below the 25 percent thresholds unless the FCC has issued a declaratory ruling allowing foreign ownership or voting in excess of those thresholds. Warrants and other future interests typically are not taken into account in determining foreign ownership compliance. To the extent that our aggregate foreign ownership or voting percentages would exceed 25 percent, any individual foreign holder of our common stock whose ownership or voting percentage would exceed 5 percent or 10 percent (with the applicable percentage determined pursuant to FCC rules) will additionally be required to obtain the FCC’s specific approval.

Direct or indirect ownership of our securities could result in the violation of the FCC’s media ownership rules by investors with “attributable interests” in other radio stations or in the same market as one or more of our broadcast stations.

Under the FCC’s media ownership rules, a direct or indirect owner of our securities could violate and/or cause us to violate the FCC’s structural media ownership limitations if that person owns or acquires an “attributable” interest in other radio stations in the same market as one or more of our radio stations. Under the FCC’s “attribution” policies the following relationships and interests generally are cognizable for purposes of the substantive media ownership restrictions: (1) ownership of 5 percent or more of a media company’s voting stock (except for “investment companies” as defined in 15 U.S.C. § 80a-3, insurance companies and bank trust departments, whose holdings are subject to a 20 percent voting stock benchmark); (2) officers and directors of a media company and its direct or indirect parent(s); (3) any general partnership or limited liability company manager interest; (4) any limited partnership interest or limited liability company member interest that is not “insulated,” pursuant to FCC-prescribed criteria, from material involvement in the management or operations of the media company; (5) certain same-market time brokerage agreements; (6) certain same-market joint sales

 

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agreements; and (7) under the FCC’s “equity/debt plus” standard, otherwise non-attributable equity or debt interests in a media company if the holder’s combined equity and debt interests amount to more than 33 percent of the “total asset value” of the media company and the holder has certain other interests in the media company or in another media property in the same market. Under the FCC’s rules, discrete ownership interests under common ownership, management, or control must be aggregated to determine whether or not an interest is “attributable.”

Our certificate of incorporation grants us broad authority to comply with FCC Regulations.

To the extent necessary to comply with the Communications Act, FCC rules and policies, and any FCC declaratory ruling, and in accordance with our certificate of incorporation, we may request information from any stockholder or proposed stockholder to determine whether such stockholder’s ownership of shares of capital stock may result in a violation of the Communications Act, FCC rules and policies, or any FCC declaratory ruling. We may further take the following actions, among others, to help ensure compliance with and to remedy any actual or potential violation of the Communications Act, FCC rules and policies, or any FCC declaratory ruling, or to prevent the loss or impairment of any of our FCC licenses: (i) prohibit, suspend or rescind the ownership, voting or transfer of any portion of our outstanding capital stock; (ii) redeem capital stock; and (iii) exercise any and all appropriate remedies, at law or in equity, in any court of competent jurisdiction, against any stockholder, to cure any such actual or potential violation or impairment.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

 

 

   

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

 

   

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

 

   

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

 

   

fluctuations in operating costs;

 

   

technological changes and innovations;

 

   

shifts in population and other demographics;

 

   

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

 

   

legislative or regulatory requirements;

 

   

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

 

   

risks associated with the Separation and Reorganization;

 

   

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

 

   

substantial market overhang from securities issued in the Reorganization and freely tradeable as of the date of this offering;

 

   

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

 

   

other factors disclosed in the section entitled “Risk Factors” and elsewhere in this prospectus.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors,” “Unaudited Pro Forma Condensed Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

 

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We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the shares of our Class A common stock offered by us will be approximately $        million, based upon the initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $        million, after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders in this offering.

Each $1.00 increase or decrease in the public offering price per share would increase or decrease, as applicable, our net proceeds by $         (assuming no exercise of the underwriters’ option to purchase additional shares), assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. Similarly, an increase or decrease of one million shares of Class A common stock sold in this offering by us would increase or decrease, as applicable, our net proceeds by $        , assuming the initial public offering price of $         per share (the midpoint of the estimated offering price range set forth on the cover page of this prospectus) remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering to repay indebtedness. The interest rate on the indebtedness that we intend to repay is        percent, and the maturity date is                ,         .

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and consolidated capitalization:

 

   

of iHeartMedia as of December 31, 2018 on an actual basis;

 

   

of iHeartMedia as of December 31, 2018 on a pro forma basis, after giving effect to the Separation and Reorganization and application of fresh start accounting; and

 

   

of iHeartMedia as of December 31, 2018 on a pro forma as adjusted basis, after giving effect to the Separation and Reorganization and application of fresh start accounting and as adjusted to reflect (i) the sale of                shares of Class A common stock by us in this offering at an assumed public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the application of the net proceeds from this offering as described in “Use of Proceeds.”

You should read this table in conjunction with the consolidated financial statements and the related notes incorporated by reference in this prospectus, “Use of Proceeds,” “Organizational Structure,” “Unaudited Pro Forma Condensed Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included or incorporated by reference in this prospectus.

 

     As of December 31, 2018  
(in thousands)    Actual     Pro Forma      Pro Forma as
Adjusted(1)(2)
 

Cash and cash equivalents

   $ 406,493     $ —        $                    
  

 

 

   

 

 

    

 

 

 

Pre-emergence debt:

       

Long-term debt, including current portion

   $ 5,323,440     $ —        $    

Debt subject to compromise

     15,149,477       —       

Post-emergence debt:

       

New Term Loan Facility

     —         3,500,000     

New Senior Secured Notes

     —         800,000     

New Senior Unsecured Notes

     —         1,450,000     

New ABL Facility(2)

     —         —       

Other debt

     —         65,420     
  

 

 

   

 

 

    

 

 

 

Total Company Debt

     20,472,917       5,815,420     

Subsidiary Preferred stock(3)

     —         60,000     

STOCKHOLDERS’ EQUITY (DEFICIT)

       

Noncontrolling interest

     30,868       386     

Pre-emergence common stock

     92       —       

Class A common stock, $0.001 par value $0.001 per share,                  shares authorized; no shares issued and outstanding, actual;                  shares issued and outstanding, pro forma;                  shares issued and outstanding, pro forma as adjusted

     —         —       

Class B common stock, $0.001 par value $0.001 per share,                  shares authorized; no shares issued and outstanding, actual;                  shares issued and outstanding, pro forma;                  shares issued and outstanding, pro forma as adjusted

       

Additional paid-in capital

     2,074,632       2,517,517     

Accumulated deficit

     (13,345,346     —       

Accumulated other comprehensive income

     (318,030     —       

Cost of shares held in treasury

     (2,558     —       
  

 

 

   

 

 

    

 

 

 

Total Stockholders’ Equity (Deficit)

     (11,560,342     2,517,903     
  

 

 

   

 

 

    

 

 

 

Total Capitalization

   $ 8,912,575     $ 8,393,323      $    
  

 

 

   

 

 

    

 

 

 

 

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(1)

Each $1.00 increase or decrease in the public offering price per share would increase or decrease, as applicable, our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $             million (assuming no exercise of the underwriters’ option to purchase additional shares), assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. Similarly, an increase or decrease of one million shares of Class A common stock sold in this offering by us would increase or decrease, as applicable, our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $             million, assuming the initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable to us.

(2)

As of December 31, 2018, on a pro forma and pro forma as adjusted basis, we would have had no amounts drawn under the New ABL Facility and would have had $400.0 million in undrawn capacity (with $50.0 million being used for letters of credit).

(3)

Represents 60,000 shares of preferred stock of iHeart Operations, a newly formed wholly-owned subsidiary of iHeart Communications. See “Description of Certain Indebtedness and Subsidiary Preferred Stock—iHeart Operations Preferred Stock.”

 

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DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board, subject to compliance with covenants in current and future agreements governing our and our subsidiaries’ indebtedness, and will depend on our results of operations, financial condition, capital requirements and other factors that our Board deems relevant.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

For the selected consolidated financial data of the Company and its subsidiaries for each of the five fiscal years prior to the Separation and Reorganization, please refer to Item 6, “Selected Financial Data” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (our “2018 Annual Report”) filed with the SEC on March 5, 2019 and incorporated by reference herein. The selected consolidated financial data incorporated by reference herein should be read together with the “Prospectus Summary—Summary Historical and Pro Forma Financial Data,” “Use of Proceeds,” “Capitalization,” “Unaudited Pro Forma Condensed Consolidated Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes included elsewhere or incorporated by reference in this prospectus.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma condensed consolidated financial statements have been developed by applying pro forma adjustments to the historical consolidated financial statements incorporated by reference in this prospectus. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2018 gives effect to the Separation, the Reorganization, the application of fresh start accounting, the issuance of                 shares of Class A common stock in this offering and the application of proceeds therefrom as if they had occurred on December 31, 2018. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2018 gives effect to the Separation, the Reorganization, the application of fresh start accounting, the issuance of                  shares of Class A common stock in this offering and the application of proceeds therefrom as if they had occurred on January 1, 2018. The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2017 and 2016 give effect to the Separation as if it had occurred on January 1, 2016. All pro forma adjustments and underlying assumptions are described more fully in the notes to the unaudited pro forma condensed consolidated financial statements.

The unaudited pro forma condensed consolidated financial data presented in this prospectus is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Separation, the Reorganization, the application of fresh start accounting, the issuance of                  shares of Class A common stock in this offering and the application of proceeds therefrom were completed on the dates indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon available information and certain assumptions that management believes to be reasonable. Because the Separation, the Reorganization, the application of fresh start accounting, the issuance of                  shares of Class A common stock in this offering and the application of proceeds therefrom have not been completed as of the date of this prospectus, the estimates and assumptions regarding the impact of the Separation, the Reorganization, the application of fresh start accounting, the issuance of                  shares of Class A common stock in this offering and the application of proceeds therefrom are preliminary. The actual impacts of the Separation, the Reorganization, the application of fresh start accounting, the issuance of                 shares of Class A common stock in this offering and the application of proceeds therefrom will be determined when effectuated, and management expects the actual impacts to differ from the estimates and assumptions used in these unaudited pro forma condensed consolidated financial statements, and these differences could be material. Furthermore, the ability of iHeartMedia to realize the benefits of the Separation, the Reorganization and this offering remains subject to a number of risks and uncertainties. See “Risk Factors.”

The unaudited pro forma condensed consolidated statements of operations do not include the effects of nonrecurring impacts arising directly as a result of the transactions described above. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2018 and the unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016 have been derived from the historical consolidated financial statements incorporated by reference in this prospectus. The amounts in the tables may not add due to rounding.

You should read these unaudited pro forma condensed consolidated financial statements in conjunction with:

 

   

the accompanying notes to the unaudited pro forma condensed consolidated financial statements;

 

   

the audited historical consolidated financial statements of iHeartMedia as of and for the three years ended December 31, 2018, which are incorporated by reference in this prospectus; and

 

   

the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.

The unaudited pro forma condensed consolidated balance sheet and statement of operations as of and for the year ended December 31, 2018 give effect to the application of fresh start accounting and reporting in accordance

 

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with ASC 852—Reorganizations (“ASC 852”), which requires the Company to reflect the financial statements of iHeartMedia on a fair value basis as of the Effective Date. The pro forma adjustments are based on an assumed Enterprise value of approximately $8.75 billion, which is the midpoint of a range of estimated enterprise values of $8.0 billion to $9.5 billion as of January 22, 2019, as confirmed by the Bankruptcy Court. Refer to the notes to the unaudited pro forma condensed consolidated financial statements for a reconciliation of the midpoint of enterprise value to reorganization value.

Estimated fair values of assets and liabilities presented in the unaudited pro forma condensed consolidated balance sheet, and the related impacts on the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2018 are based on preliminary valuations, made solely for the purposes of developing the pro forma condensed consolidated financial information, and are subject to further revisions and adjustments. Updates to such preliminary valuations will be completed in the periods subsequent to those reported in this prospectus, and will be calculated as of the Effective Date. To the extent such updates reflect valuations different than those used in these unaudited pro forma condensed consolidated financial statements, there may be adjustments in the values of certain assets and liabilities and related tax impacts, and such adjustments may also affect revenues, expenses and related gains or losses from the Separation, the Reorganization, the application of fresh start accounting, this offering and the application of proceeds therefrom that would be recognized in the statement of operations for the period including the Effective Date. As such, the following pro forma financial statements are not intended to represent our actual post-Effective Date financial condition or results of operations, and any differences could be material.

In addition, the historical consolidated financial statements of the Company will not be comparable to these unaudited pro forma condensed consolidated financial statements or to the financial statements following the Effective Date of the Reorganization due to the Separation and to the effects of the Reorganization, as well as the impact of applying fresh start accounting.

As more fully discussed elsewhere in this prospectus, the following will occur as part of the Reorganization:

 

   

the existing indebtedness of iHeartCommunications of approximately $16 billion will be discharged and the Company will enter into the New Term Loan Facility and the New ABL Facility and will issue the New Senior Secured Notes and the New Senior Unsecured Notes, which will result in approximately $5.8 billion in the aggregate of outstanding indebtedness;

 

   

the settlement or reinstatement of all balances included within Liabilities subject to compromise; and

 

   

the issuance of new Class A common stock and Class B common stock of iHeartMedia, along with Special Warrants to purchase shares of Class A common stock or Class B common stock of iHeartMedia post-emergence to holders of claims pursuant to the Plan of Reorganization.

In addition, as part of the separation and settlement agreement entered into in connection with the Separation, iHeartCommunications, CCH and CCOH agreed to the following:

 

   

the termination of the cash sweep agreement under a corporate services agreement and any agreements or licenses requiring royalty payments to iHeartMedia by CCOH for trademarks or other intellectual property (“Trademark License Fees”);

 

   

the entry into a transition services agreement by iHeartCommunications, iHeartMedia, iHeartMedia Management Services, Inc., CCH and CCOH (the “Transition Services Agreement”) to provide administrative services currently and historically provided to CCOH by iHeartCommunications;

 

   

the waiver by iHeartMedia of any Trademark License Fees charged to CCOH during the post-petition period;

 

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the repayment of the post-petition intercompany balance due to CCOH, after being adjusted for the post-petition Trademark License Fees charged to CCOH in 2018;

 

   

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

 

   

the payment by iHeartMedia to CCOH of $149.0 million as CCOH’s recovery of its claim under the Due from iHeartCommunications Note; and

 

   

the issuance of preferred stock of iHeart Operations, Inc. to third parties for cash.

The unaudited condensed pro forma balance sheet as of December 31, 2018 also reflects the amount of $         million of proceeds from the issuance of                  shares of Class A common stock in this offering which will be used to repay indebtedness.

 

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IHEARTMEDIA, INC.

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET

As of December 31, 2018

(in thousands)

 

CURRENT ASSETS   Historical     Separation
of CCOH

(A)
    Pro Forma for
the Separation
of CCOH
    Reorganization
Adjustments
(B)
        Fresh Start
Adjustments
(C)
          Pro Forma
for the
Separation,
Reorganization
and Fresh
Start
    The
Offering
Adjustments
(D)
    Pro Forma for
the Separation,
Reorganization,
Fresh Start and
the Offering
 

Cash and cash equivalents

  $ 406,493     $ (182,456   $ 224,037     $ (232,029   (1)   $ 7,992       (1)     $ —        

Accounts receivable, net of allowance

    1,575,170       (706,309     868,861       —           —           868,861      

Prepaid expenses

    195,266       (95,527     99,739       —           (20,914     (2)       78,825      

Other current assets

    58,088       (31,301     26,787       (3,428   (1)     —           23,359      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Total Current Assets

    2,235,017       (1,015,593     1,219,424       (235,457       (12,922       971,045      

PROPERTY, PLANT AND EQUIPMENT

                   

Structures, net

    1,053,016       (1,053,016     —         —           —           —        

Other property, plant and equipment, net

    738,124       (235,922     502,202       —           216,860       (3)       719,062      

INTANGIBLE ASSETS AND GOODWILL

                   

Indefinite-lived intangibles—licenses

    2,417,915       —         2,417,915       —           (65,663     (1)       2,352,252      

Indefinite-lived intangibles—permits

    971,163       (971,163     —         —           —           —        

Other intangible assets, net

    453,284       (252,862     200,422       (86,156   (2)     2,267,689       (1)       2,381,955      

Goodwill

    4,118,756       (706,003     3,412,753       —           55,890       (1)       3,468,643      

OTHER ASSETS

                   

Other assets

    282,240       (132,504     149,736       —           (36,697     (2)       113,039      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Total Assets

  $ 12,269,515     $ (4,367,063   $ 7,902,452     $ (321,613     $ 2,425,157       $ 10,005,996      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

CURRENT LIABILITIES

                   

Accounts payable

  $ 163,149     $ (113,714   $ 49,435     $ 32,831     (1, 5)   $ 7,992       (4)     $ 90,258      

Accrued expenses

    826,865       (528,482     298,383       11,741     (5)     (16,368     (4)       293,756      

Accrued interest

    3,108       (2,341     767       (763   (4)     —           4      

Deferred income

    208,195       (84,845     123,350       —           (1,736     (5)       121,614      

Current portion of long-term debt

    46,332       (227     46,105       6,575     (5)     —           52,680      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    1,247,649       (729,609     518,040       50,384         (10,112       558,312      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Long-term debt

    5,277,108       (5,277,108     —         5,766,740     (4, 5)     (4,000     (4)       5,762,740      

Deferred income taxes

    335,015       (335,015     —         619,458     (5, 6)     356,678       (7)       976,136      

Other long-term liabilities

    489,829       (260,150     229,679       87,095     (5)     (185,869     (4, 5)       130,905      

Liabilities subject to compromise

    16,480,256       —         16,480,256       (16,480,256   (5)     —           —        

Commitments and contingent liabilities

                   

Subsidiary preferred stock, par value $.001 per share

    —         —         —         60,000     (3)     —           60,000      

STOCKHOLDERS’ EQUITY (DEFICIT)

                   

Noncontrolling interest

    30,868       (30,482     386       —           —           386      

Common stock

    92       —         92       (92   (8)     —           —        

Class A common stock, $0.001 par value per share,          shares authorized; no shares issued and outstanding, actual;          shares issued and outstanding pro forma for the Separation, Reorganization, Fresh Start and the Offering

    —         —         —         —       (8)     —           —        

Class B common stock, $0.001 par value per share,          shares authorized; no shares issued and outstanding, actual;          shares issued and outstanding pro forma for the Separation, Reorganization, Fresh Start and the Offering

    —         —         —         —       (8)     —           —        

Additional paid-in capital

    2,074,632       —         2,074,632       444,976     (7, 8)     (2,091     (6)       2,517,517      

Accumulated deficit

    (13,345,346     1,920,812       (11,424,534     9,127,524         2,297,010       (6)       —        

Accumulated other comprehensive income (loss)

    (318,030     344,489       26,459       —           (26,459     (6)       —        

Cost of shares held in treasury

    (2,558     —         (2,558     2,558     (8)     —           —        
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Total Stockholders’ Equity (Deficit)

    (11,560,342     2,234,819       (9,325,523     9,574,966         2,268,460         2,517,903      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity (Deficit)

  $ 12,269,515     $ (4,367,063   $ 7,902,452     $ (321,613     $ 2,425,157       $ 10,005,996      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

 

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IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2018

(in thousands)

 

    Historical     Separation
of CCOH

(A)
    Pro Forma
for the
Separation
of CCOH
    Reorganization
Adjustments
(B)
          Fresh Start
Adjustments

(C)
          Pro Forma for
the Separation,
Reorganization
and Fresh
Start
    The
Offering
Adjustments

(D)
    Pro Forma for
the Separation,
Reorganization,
Fresh Start and
the Offering
 

Revenue

  $ 6,325,780     $ (2,714,457   $ 3,611,323     $ —         $ (292     (2)     $ 3,611,031      

Operating expenses:

                   

Direct operating expenses (excludes depreciation and amortization)

    2,532,948       (1,470,575     1,062,373       —           8,690       (3, 4)       1,071,063      

Selling, general and administrative expenses (excludes depreciation and amortization)

    1,896,503       (519,572     1,376,931       —           (8,269     (3)       1,368,662      

Corporate expenses (excludes depreciation and amortization)

    337,218       (109,710     227,508       (2,066     (5)       —           225,442      

Depreciation and amortization

    530,903       (318,952     211,951       (8,990     (1)       186,907       (1)       389,868      

Impairment charges

    40,922       (7,772     33,150       —           —           33,150      

Other operating income (expense), net

    (6,768     (2,498     (9,266     —           —           (9,266    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Operating income

    980,518       (290,374     690,144       11,056         (187,620       513,580      

Interest expense, net

    722,931       (388,133     334,798       62,559       (2, 3)       —           397,357      

Equity in earnings of nonconsolidated affiliates

    1,020       (904     116       —           —           116      

Gain on extinguishment of debt

    100       —         100       —           —           100      

Other expense, net

    (58,876     35,297       (23,579     —           —           (23,579    

Reorganization items, net

    356,119       —         356,119       (356,119     (4)       —           —        
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (156,288     132,152       (24,136     304,616         (187,620       92,860      

Income tax benefit (expense)

    (46,351     32,515       (13,836     (76,154       46,905         (43,085    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

  $ (202,639   $ 164,667     $ (37,972   $ 228,462       $ (140,715     $ 49,775      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

 

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IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2017

(in thousands)

 

     Historical     Separation of
CCOH

(A)
    Pro Forma
for the
Separation of
CCOH
 

Revenue

   $ 6,168,431     $ (2,581,784   $ 3,586,647  

Operating expenses:

      

Direct operating expenses (excludes depreciation and amortization)

     2,468,724       (1,409,601     1,059,123  

Selling, general and administrative expenses (excludes depreciation and amortization)

     1,842,222       (496,159     1,346,063  

Corporate expenses (excludes depreciation and amortization)

     311,898       (103,250     208,648  

Depreciation and amortization

     601,295       (325,991     275,304  

Impairment charges

     10,199       (4,159     6,040  

Other operating income (expense), net

     35,704       (26,391     9,313  
  

 

 

   

 

 

   

 

 

 

Operating income

     969,797       (269,015     700,782  

Interest expense, net

     1,864,136       (379,701     1,484,435  

Equity in loss of nonconsolidated affiliates

     (2,855     990       (1,865

Gain on extinguishment of debt

     1,271       —         1,271  

Other expense, net

     (20,194     (28,755     (48,949
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (916,117     82,921       (833,196

Income tax benefit

     457,406       (280,218     177,188  
  

 

 

   

 

 

   

 

 

 

Consolidated net loss

   $ (458,711   $ (197,297   $ (656,008
  

 

 

   

 

 

   

 

 

 

 

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IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2016

(in thousands)

 

     Historical     Separation of
CCOH

(A)
    Pro Forma
for the
Separation of
CCOH
 

Revenue

   $ 6,251,000     $ (2,676,367   $ 3,574,633  

Operating expenses:

      

Direct operating expenses (excludes depreciation and amortization)

     2,395,037       (1,418,319     976,718  

Selling, general and administrative expenses (excludes depreciation and amortization)

     1,726,118       (513,497     1,212,621  

Corporate expenses (excludes depreciation and amortization)

     341,072       (115,905     225,167  

Depreciation and amortization

     635,227       (344,124     291,103  

Impairment charges

     8,000       (7,274     726  

Other operating income (expense), net

     353,556       (354,688     (1,132
  

 

 

   

 

 

   

 

 

 

Operating income

     1,499,102       (631,936     867,166  

Interest expense, net

     1,850,119       (375,029     1,475,090  

Equity in loss of nonconsolidated affiliates

     (16,733     1,689       (15,044

Gain on extinguishment of debt

     157,556       —         157,556  

Other income, net

     (86,009     70,151       (15,858
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (296,203     (185,067     (481,270

Income tax benefit

     49,631       77,499       127,130  
  

 

 

   

 

 

   

 

 

 

Consolidated net loss

   $ (246,572   $ (107,568   $ (354,140
  

 

 

   

 

 

   

 

 

 

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

NOTE 1 — PRO FORMA BALANCE SHEET ADJUSTMENTS

In order to reflect the pro forma capital structure of iHeartMedia, the unaudited pro forma condensed consolidated balance sheet as of December 31, 2018 includes the following adjustments related to the Separation, the Reorganization, the application of fresh start accounting, the issuance of                  shares of Class A common stock in this offering and the application of the proceeds therefrom:

 

A.

The Separation

As part of the Separation, the outstanding shares of both classes of CCOH common stock will be consolidated such that CCH will hold all of the outstanding Class A common stock of CCOH currently held by subsidiaries of iHeartCommunications, through a series of share distributions by other subsidiaries who hold CCOH common stock and a conversion of Class B common stock that CCH holds in CCOH to Class A common stock. iHeartCommunications owns approximately 89.1% of the economic rights and approximately 99% of the voting rights of CCOH. CCOH will merge with and into CCH, with CCH surviving the merger and changing its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”), and shares of CCOH Class A common stock (other than shares of CCOH Class A common stock held by CCH or any direct or indirect wholly-owned subsidiary of CCH) will be converted into an equal number of shares of common stock of New CCOH. iHeartCommunications will transfer the common stock of New CCOH it holds to Claimholders pursuant to the Plan of Reorganization, and New CCOH will become an independent public company.

The balance sheet adjustments reflect the assets and liabilities of CCOH, which are derived from the consolidated balance sheet of CCOH included in CCOH’s Annual Report on Form 10-K for the year ended December 31, 2018. CCOH’s assets and liabilities are adjusted to: (1) eliminate the Due from iHeartCommunications and the Due to iHeartCommunications, post iHeart Chapter 11 Cases, line items from CCOH’s consolidated balance sheet, which are intercompany amounts that were eliminated in consolidation; (2) eliminate CCOH Noncontrolling interest and CCOH treasury shares; and (3) eliminate other intercompany balances.

 

B.

Reorganization Adjustments

The following are adjustments to reflect the impact of the Reorganization. The difference between the settled amount of a liability and its recorded amount are reflected as an adjustment to Accumulated deficit.

 

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Table of Contents
  (1)

Sources and Uses of Cash (in millions):

 

Historical cash at December 31, 2018

   $ 224.0  

Net cash to be received from exit financing

     5,750.0  

Cash to be paid to predecessor debtholders

     (5,750.0

Payment to CCOH to settle intercompany balances

     (159.2 )(a) 

Proceeds to be received from issuance of preferred stock

     58.9  

Payments to be made for professional fees contingent upon emergence

     (98.9 )(b) 

Release of restricted cash (Other current assets)

     3.4  

Payments to cure contracts (Liabilities subject to compromise)

     (16.5

Payments for general unsecured claims (Liabilities subject to compromise)

     (19.7
  

 

 

 

Total pro forma use of cash

     (232.0

Reclassification of negative cash to Accounts payable

     8.0 (c) 
  

 

 

 

Pro forma cash upon emergence

   $ —    
  

 

 

 

 

  (a)

Includes the payment by iHeartCommunications to CCOH of $149.0 million as CCOH’s recovery of its claims under the Due from iHeartCommunications Note and the payment by iHeartMedia of $10.2 million in settlement of the Due to iHeartCommunications balance of $21.6 million as of December 31, 2018, after adjusting for the waiver of $31.8 million of post-petition license fees charged to CCOH by iHeartCommunications during the year ended December 31, 2018. In addition, any intercompany balance that accrues under the corporate services agreement between iHeartCommunications and CCOH (after the termination of royalties and license fees on intellectual property) in favor of iHeartCommunications or CCOH from January 1, 2019 through the Effective Date will be paid by CCOH or iHeartCommunications, as applicable, within five business days of the Effective Date.

  (b)

In addition to the payment for professional fees contingent upon emergence, the Company estimates an additional $32.8 million (in fees) will be payable post-emergence. Such fees are included in Accounts payable.

  (c)

Because the Company is not paying cash interest on pre-petition debt while a debtor-in-possession, our cash balance is expected to grow in the period from January 1, 2019 until Emergence. As a result of cash flows from operations, changes in working capital balances and movements in intercompany balances with CCOH between December 31, 2018 and the expected Effective Date, the Company expects to have a cash balance of approximately $90 million on the Effective Date after payment of all reorganization items described above. In addition, the Company expects to have approximately $400 million available under its New ABL Facility at the Effective Date.

 

  (2)

The contribution of the CC Intellectual Property to CCOH at its historical book value of $86.2 million.

 

  (3)

The issuance by iHeart Operations of $60.0 million in preferred stock for cash in an aggregate amount equal to $58.9 million, net of issuance costs. The terms of the preferred stock have not been finalized as of the date of this prospectus.

 

  (4)

The exit financing consisting of the New Term Loan Facility of $3.5 billion and New Senior Secured Notes totaling $800 million, maturing seven years from the date of issuance, New Senior Unsecured Notes totaling $1.45 billion, maturing eight years from the date of issuance and a $450 million New ABL Facility with no amount drawn at emergence, which matures five years from the date of issuance.

 

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Table of Contents

The terms from the exit financing are expected to be as follows:

 

(in millions)    Term      Interest Rate      Amount  

New Term Loan Facility

     7 years        Libor + 3.75%      $ 3,500.0  

New Senior Secured Notes

     7 years        6.50% - 6.75%        800.0  

New Senior Unsecured Notes

     8 years        8.50% - 8.75%        1,450.0  

New ABL Facility

     5 years        Libor + 2.25%        —    
        

 

 

 

Pro forma net proceeds from exit financing

         $ 5,750.0  
        

 

 

 

 

  (5)

As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in our consolidated balance sheet at allowed claim amounts.

The table below indicates the disposition of Liabilities subject to compromise (in millions):

 

Liabilities subject to compromise pre-emergence

   $ 16,480.3  

To be reinstated:

  

Deferred taxes

     (644.9

Accrued lease expense

     (11.7

Capital leases and other debt(a)

     (22.6

Other long-term liabilities

     (87.1

Settlement of long-term debt and accrued interest(b)

     (15,669.6

Payments to cure contracts

     (16.5

Settlement of general unsecured claims

     (27.9
  

 

 

 

Liabilities subject to compromise post-emergence

   $ —    
  

 

 

 

(a) Includes capital leases liabilities and other debt of $6.6 million and $16.0 million classified as current and long-term debt, respectively.

(b) Includes Long-term debt of $15,149.5 million and accrued interest of $542.7 million, less reinstated capital leases and other debt of $22.6 million.

 

  (6)

Reflects the reinstatement of deferred tax liabilities included within Liabilities subject to compromise of $644.9 million, offset by an adjustment to net deferred tax liabilities of $25.5 million. Upon emergence from bankruptcy proceedings under Chapter 11 of the Bankruptcy Code, iHeartMedia’s federal and state net operating loss carryforwards will be reduced in accordance with Code Section 108 due to cancellation of debt income, which is not includable in U.S. federal taxable income. The estimated remaining federal and state net operating loss carryforwards upon emergence is zero. The pro forma reorganization adjustments reflect a reduction in deferred tax assets for federal and state net operating loss carryforwards as described above, a reduction in deferred tax liabilities attributed to long-term debt as a result of the restructuring of our indebtedness upon emergence and a reduction in valuation allowance.

 

  (7)

Per the terms of the Plan of Reorganization, as of the Effective Date, all pre-emergence common stock and stock-based compensation awards will be cancelled without any distribution, resulting in the recognition of $2.1 million in compensation expense immediately prior to Emergence related to the unrecognized portion of share-based compensation.

 

  (8)

The adjustments reflect the cancellation of iHeartMedia’s common stock and related components of its Stockholders’ equity, and the issuance of              shares of iHeartMedia Class A common stock,              shares of Class B common stock and              Special Warrants to purchase Class A common stock or Class B common stock in exchange for claims against or interests in iHeartMedia pursuant to the Plan of Reorganization.

 

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C.

Fresh Start Accounting Adjustments

Upon the Effective Date, we are required to apply fresh start accounting in accordance with ASC 852—Reorganizations. Fresh start accounting requires the revaluation of our assets and liabilities to fair value, including both existing and new intangible assets, such as FCC licenses, developed technology, customer relationships and tradenames. Fresh start accounting also requires the Company to eliminate all predecessor earnings or deficits in Accumulated deficit and Accumulated other comprehensive loss. These adjustments reflect preliminary estimates and actual amounts recorded as of the Effective Date may be materially different from these estimates.

 

  (1)

In accordance with ASC 852, historical goodwill and other intangible assets have been eliminated and the Company has recognized certain intangible assets at estimated current fair values using the income approach. The Company expects to record material intangible assets as part of fresh start accounting and the application of ASC 852, with the most material intangible assets being the FCC licenses related to the Company’s 848 radio stations. The Company also expect to record customer-related, technology-related and marketing-related intangible assets, including the iHeart tradenames.

The following table sets forth preliminary valuations, which are subject to change, of the components of these intangible assets and their estimated useful lives:

 

(in thousands)    Preliminary
Fair Value
    Estimated
Useful Life

FCC licenses

   $ 2,352,252     Indefinite

Customer / advertiser relationships

     1,661,010     3 - 15 years

Talent contracts

     375,190     4 - 13 years

Trademarks and tradenames

     324,380     5 - 15 years

Other

     21,375     Various
  

 

 

   

Total pro forma intangible assets upon emergence

     4,734,207    

Elimination of historical acquired intangible assets

     (2,532,181  
  

 

 

   

Fresh start adjustment to acquired intangible assets

   $ 2,202,026    
  

 

 

   

The following table sets forth the estimated adjustments to goodwill (in millions):

 

Pro forma reorganization value

   $ 10,006.0  

Less: Fair value of pro forma assets (excluding goodwill)

     (6,537.4
  

 

 

 

Total pro forma goodwill upon emergence

     3,468.6  

Elimination of historical goodwill

     (3,412.8
  

 

 

 

Fresh start adjustment to goodwill

   $ 55.8  
  

 

 

 

As set forth in the Plan of Reorganization, which was confirmed by the Bankruptcy Court on January 22, 2019, the agreed-upon enterprise value of iHeartMedia is $8.75 billion. This value is the midpoint of the range of approximately $8.0 billion and $9.5 billion, which was determined using the income approach.

 

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The pro forma reorganization value indicated above was determined as follows:

The reconciliation of the Company’s enterprise value to pro forma reorganization value is as follows:

 

Midpoint of enterprise value range

   $ 8,750.0  

Debt to be issued upon Reorganization

     (5,750.0

Other long-term debt

     (65.4

Preferred stock issuance

     (60.0

Change in deferred tax liabilities(a)

     (356.7

Noncontrolling interest

     (0.4
  

 

 

 

Pro forma equity value

   $ 2,517.5  

Pro forma current and long-term liabilities

     7,428.1  

Pro forma Preferred stock and Noncontrolling interest

     60.4  
  

 

 

 

Pro forma Reorganization value

   $ 10,006.0  
  

 

 

 

 

  (a)

Represents the change in deferred tax liabilities upon application of fresh start accounting.

While the pro forma reorganization value approximates the amount a willing buyer would pay for the assets of the Company immediately before the restructuring, it is derived from estimated amounts that may have materially changed as a result of confirmation of the Plan of Reorganization by the Bankruptcy Court.

 

  (2)

Reflects the fair value adjustment as of December 31, 2018 to eliminate prepaid expenses related to implementation costs and other upfront payments that were determined to not provide any rights that result in future economic benefits and to adjust other assets to estimated fair values.

 

  (3)

Reflects the fair value adjustment to recognize the Company’s property, plant and equipment as of December 31, 2018 based on the estimated fair values of such property, plant and equipment.

 

  (4)

Reflects the fair value adjustment to recognize the Company’s Other liabilities, including the elimination of deferred gains on sale-leaseback transactions and accruals primarily related to operating leases with escalating payments, as of December 31, 2018 based on the estimated fair value of these liabilities upon emergence.

 

  (5)

Reflects the fair value adjustment to adjust deferred revenue as of December 31, 2018 to its estimated fair value based on how much an acquirer would be required to pay a third party to assume the remaining performance obligations.

 

  (6)

Reflects the fresh start accounting adjustment to reset Accumulated deficit and Accumulated other comprehensive income.

 

  (7)

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

 

D.

The Offering

Reflects the issuance of            shares of Class A common stock for cash of $         million, the proceeds of which will be used to repay certain indebtedness.

 

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NOTE 2 — PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS

 

A.

The Separation

The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016 include the following adjustments related to the Separation:

The adjustments reflect the revenues and expenses of CCOH, which are derived from the consolidated statements of operations of CCOH. CCOH’s statements of operations are adjusted to: (1) eliminate interest income on Due from iHeartCommunications of $0.4 million, $68.9 million and $50.3 million recognized by CCOH for the years ended December 31, 2018, 2017 and 2016, respectively, which was an intercompany expense of iHeartCommunications that was eliminated in consolidation, (2) eliminate the $855.6 million loss on Due from iHeartCommunications recognized by CCOH in 2017, which was an intercompany amount that was eliminated in consolidation and (3) eliminate the Trademark License Fees charged by iHeartMedia to CCOH of $38.6 million and $36.7 million for the years ended December 31, 2018 and 2017, respectively, which were intercompany amounts that were eliminated in consolidation. The Trademark License Fees were not charged to CCOH in 2016.

The unaudited pro forma statements of operations assume that the amounts to be charged to CCOH under the Transition Services Agreement are equivalent to the amounts charged for the services historically provided under the Corporate Services Agreement.

In addition, the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2018 includes the following adjustments related to the Reorganization, the application of fresh start accounting, the shares of Class A common stock to be issued in this offering and the application of proceeds therefrom:

 

B.

Reorganization Adjustments

 

  1.

Elimination of historical amortization expense of $9.0 million for of the year ended December 31, 2018 recognized in relation to the CC Intellectual Property that will be transferred to CCOH as part of the Separation.

 

  2.

Elimination of historical pre-petition interest expense of $337.4 million recognized during the year ended December 31, 2018 related to long-term debt that was eliminated in connection with the Reorganization.

 

  3.

Recognition of $399.9 million in interest expense related to post-emergence long-term debt issued in connection with the Reorganization calculated using average LIBOR for the year ended December 31, 2018 plus 3.75% (approximately 6.27%) for the New Term Loan Facility and using the mid-points of the interest rates indicated above for the New Senior Secured Notes and New Senior Unsecured Notes, in each case to be issued following the Effective Date. Such pro forma interest expense also includes a 0.375% fee on the unused balance of the New ABL Facility of $400.0 million and a 1.625% fee on amounts to be used by letters of credit (assumed to be $50.0 million). No balance is assumed to be drawn on the New ABL Facility during 2018.

 

  4.

Removal of Reorganization items, net, which represents charges for professional fees incurred as a result of the Chapter 11 Cases and write-offs of deferred long-term debt fees and original issue discount recognized in relation to the Company’s long-term debt included within Liabilities subject to compromise.

 

  5.

Removal of share-based compensation expense resulting from the cancellation of pre-emergence stock-based compensation awards.

 

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C.

Fresh Start Accounting Adjustments

 

  1.

Reversal of historical depreciation and amortization of $203.0 million and recognition of $389.9 million in depreciation and amortization related to acquired tangible and intangible assets.

 

  2.

Reduction of historical revenue of $0.3 million related to the adjustment to deferred revenue to its estimated fair value.

 

  3.

Reversal of historical expenses of $11.4 million in prepaid expenses related to implementation costs and other upfront fees that were determined to have no future economic benefits.

 

  4.

The Company eliminated the impact of the amortization of deferred gains on sale-leaseback transactions and straight-line lease adjustments, primarily related to operating lease, with escalating payments, totaling $11.8 million.

The pro forma adjustments to income tax benefit (expense) have been calculated assuming a 25% statutory tax rate, which is comprised of the U.S. federal tax rate of 21% and a blended 4% rate to account for the various state and local tax jurisdictions in which the Company operates for the year ended December 31, 2018. The effects on income tax benefit (expense) from the pro forma adjustments to deferred income tax assets and liabilities are not included in the unaudited condensed consolidated pro forma statement of operations because the items are non-recurring in nature.

 

D.

The Offering

 

  1.

Reflects the reduction in interest expense of $             million, resulting from the repayment of indebtedness using the proceeds from this Offering.

Pro Forma Discussion and Analysis of Financial Condition and Results of Operations

Our Sources of Revenue

We generate advertising revenue through three primary channels. The first—and still the most prevalent—is a transactional media relationship with national agencies where the Company is selling defined advertising units and impressions, primarily of inventory on our broadcast radio stations. The second is through a direct marketing relationship with both local and national clients and agencies where we use our diverse portfolio of assets to help develop a specific marketing solution tailored to the defined needs of the advertising partner. The third channel is the newest and smallest, but fastest growing, channel—a digital interface using data to develop specific targets and executed most often over a technology platform. These three channels can all be used in varying degrees of efficiency over our multiple platforms including broadcast radio, digital streaming and display, podcast, social amplification and events. Our national scale and structure allow us to offer these solutions at a national, regional or local level, or any combination thereof.

We have the following revenue streams:

 

   

Broadcast Local and Broadcast National: We generate revenue by selling local and national advertising time on our domestic radio stations, generating revenue through local and national channels. Advertising rates are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by independent ratings services.

Increasingly, across both national and local markets, our advertisers are demanding data rich, analytics-driven advertising solutions. iHeartMedia offers a comprehensive suite of tech-enabled advertising solutions (SoundPoint, SmartAudio and iHeartAnalytics) that provide advanced attribution and analytics capability. We expect programmatic to account for an increasing proportion of ad buying in the future.

 

   

Digital: Our company’s reach now extends across more than 250 platforms and 2,000 different connected devices. We generate digital revenue comprised of streaming, subscription, display

 

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advertisements, podcasting and other content that is disseminated over digital platforms. Our leading streaming product, iHeartRadio, is a free downloadable mobile app and web-based service that allows users to listen to their favorite radio stations, as well as digital-only stations, custom artist stations, and podcasts. Monetization on the free streaming application occurs through national and local advertising. We also have two subscription based offerings—iHeartRadio Plus and iHeartRadio All Access.

 

   

Networks: We enable advertisers to engage with consumers through our Premiere Networks and Total Traffic & Weather services. We generate broadcast advertising revenue from selling local and national advertising on our programs featuring top personalities, and also generate revenue through the syndication of our programming to other media companies.

 

   

Premiere Networks is a national radio network that produces, distributes or represents more than 110 syndicated radio programs and services for more than 6,000 radio station affiliates. Our broad distribution capabilities enable us to attract and retain top programming talent. Some of our more popular syndicated programs feature top talent including Ryan Seacrest, Big Boy, Rush Limbaugh, Sean Hannity, Glenn Beck, Steve Harvey, Elvis Duran, Bobby Bones, Breakfast Club and Delilah. We believe recruiting and retaining top talent is an important component of the success of our radio networks.

 

   

Total Traffic & Weather Network delivers real-time local traffic flow and incident information along with weather updates, sports and news to more than 2,100 radio stations and approximately 100 television affiliates, as well as through Internet and mobile partnerships, reaching over 210 million consumers each month. Total Traffic & Weather Network services more than 220 markets in the U.S. and Canada. It operates the largest broadcast traffic navigation network in North America.

 

   

Sponsorship & Events: We generate revenue through our 20,000 local live events per year and eight major nationally-recognized tent pole events, as well as appearance fees generated by on-air talent from sponsorship, endorsement and other advertising revenue, as well as ticket sales and licensing.

 

   

Other: Other revenue streams connected to our core broadcast and digital radio operations include fees earned for miscellaneous services such as on-site promotions, activations, LMA fees and tower rental provided to advertisers and other media companies.

 

   

Audio & Media Services: We also provide services to radio and television broadcast industry participants through our Katz Media and RCS businesses

 

   

Katz Media Group is a leading media representation firm in the U.S., Katz Media represents more than 3,100 non-iHeartMedia radio stations and nearly 800 television stations and their respective digital platforms. Katz generates revenue via commissions on media sold.

 

   

RCS is a leading provider of broadcast and webcast software. Our software (radio station automation, music scheduling, HD2 solutions, newsroom software, audio logging and archiving, single station automation and contest tracking software) and technology (real-time audio recognition technology) is used by more than 9,000 radio stations, television music channels, cable companies, satellite music networks and Internet stations worldwide.

Ultimately, our superior local, national, and online sales force combined with our leading digital, events, content, and representation business position us to cover a wide range of advertiser categories, including consumer services, retailers, entertainment, health and beauty products, telecommunications, automotive, media and political. Our contracts with our advertisers range from less than one-year to multi-year terms.

Year ended December 31, 2018 compared to Year Ended December 31, 2017

The unaudited condensed consolidated pro forma statement of operations for the years ended December 31, 2018, 2017 and 2016 reflect the Separation as if it occurred on January 1, 2016. In addition, the unaudited

 

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condensed consolidated pro forma statement of operations for the year ended December 31, 2018 reflects the Reorganization, the application of fresh start accounting and the application of proceeds from this offering as if they occurred on January 1, 2018. As a result of the application of fresh start accounting as required by ASC 852, the pro forma results of operations for the year ended December 31, 2018 are not comparable to the pro forma results of operations for the years ended December 31, 2017 and 2016. As presented in the unaudited condensed consolidated pro forma statement of operations for the year ended December 31, 2018, fresh start accounting adjustments have impacted certain financial statement line items as follows:

 

   

Direct operating expenses—$8.7 million increase as a result of adjustments to lease expense due to fair value adjustments applied to accruals as of January 1, 2018 for operating leases, with escalating payments, partially offset by a decrease resulting from adjusting prepayments on talent contracts to fair value.

 

   

Selling, general and administrative expenses—$8.3 million decrease as a result of adjusting prepaid implementation fees and other prepaid balances to fair value.

 

   

Depreciation and amortization—$186.9 million increase as a result of adjusting the balances of existing fixed assets and intangible assets to fair value, recording new intangible assets at fair value and recording the associated depreciation and amortization.

The net impact of the fresh start accounting adjustments is a $187.6 million decrease in operating income.

The comparison of our unaudited pro forma results of operations for the year ended December 31, 2018 reflecting the impacts of the Separation, the Reorganization and the application of the proceeds of this Offering to our unaudited pro forma results of operations for the year ended December 31, 2017 reflecting the impacts of the Separation is as follows:

Consolidated Revenue

Consolidated revenue increased $24.4 million, primarily driven by political revenue, which increased $75.4 million in connection with the 2018 mid-term election cycle. Of the increase in political revenue, $39.6 million was generated by our iHM business and $35.8 million was generated by our media representation business. Digital revenue, including subscription revenue from our iHeartRadio on-demand service, increased $36.2 million. These increases were partially offset by lower broadcast revenues, which decreased $65.1 million, primarily from local spot revenue, driven by lower local agency revenue. We believe disruption to certain of our business processes resulting from the Chapter 11 Cases negatively impacted our revenue in the first half of the year.

Consolidated Direct Operating Expenses

Consolidated direct operating expenses increased $11.9 million during 2018 compared to 2017. Excluding the impact of fresh start accounting adjustments indicated above, the increase is due primarily to higher digital fees resulting from revenue growth by our iHeartRadio on-demand service and higher compensation and profit sharing expenses related to acquisitions and higher podcast revenues. These increases were partially offset by lower music license fees.

Consolidated Selling, General and Administrative Expenses

Consolidated SG&A expenses increased $22.6 million during 2018 compared to 2017. Excluding the impact of fresh start accounting adjustments indicated above, the increase resulted primarily due to increased expenses for our iHM Business including higher third-party sales activation fees and trade and barter expenses, partially offset by lower bad debt. SG&A expenses also increased for our media representation business as a result of higher variable compensation expense as a result of higher revenue.

 

 

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Corporate Expenses

Corporate expenses increased $16.8 million during 2018 compared to 2017. Excluding the impact of fresh start accounting adjustments indicated above, the increase was primarily as a result of higher employee-related expenses, including variable incentive compensation resulting from higher profitability, as well as employee benefits expense. These increases were partially offset by lower management fees and lower spending on efficiency initiatives.

Depreciation and Amortization

Depreciation and amortization increased $114.6 million during 2018 compared to 2017. Excluding the impact of fresh start accounting adjustments indicated above, and the $9.0 million decrease as a result of eliminating amortization of the Clear Channel trade name due to the CCOH Settlement Agreement depreciation and amortization decreased primarily due to historical assets becoming fully depreciated or fully amortized, including intangible assets that were recorded as part of the merger of iHeartCommunications with iHeartMedia in 2008.

Impairment Charges

During 2018 we recorded impairment charges of $33.2 million related primarily to FCC licenses in several of our markets, and during 2017 we recorded an impairment charge of $6.0 million related to FCC licenses in one of our markets in connection with our annual impairment testing.

Other Operating Income (Expense), Net

Other operating expense, net of $9.3 million in 2018, primarily related to asset acquisition costs and net losses recognized on the disposal of assets. Other operating income, net of $9.3 million in 2017, primarily related to the gain on the exchange of four radio stations in Chattanooga, TN and six radio stations in Richmond, VA for four radio stations in Boston, MA and three radio stations in Seattle, WA.

Interest Expense

Interest expense decreased $1,087.1 million during 2018 compared to 2017 as a result of the Company ceasing to accrue interest expense on long-term debt reclassified as Liabilities subject to compromise as of the Petition Date, partially offset by interest incurred on the new debt issued in connection with the Reorganization as if the Reorganization had occurred on January 1, 2018.

Other Expense, Net

Other expense, net was $23.6 million for the year 2018 related primarily to expenses incurred in connection with negotiations with lenders and other activities related to our capital structure which were incurred prior to the filing of the Chapter 11 Cases. Other expense, net was $48.9 million for the year 2017 related primarily to expenses incurred in connection with negotiations with lenders and other activities related to our capital structure, including $41.8 million related to the notes exchange offers and term loan offers that were launched in early 2017.

Income Tax Expense (Benefit)

Income tax expense of $43.1 million on income before income taxes of $92.9 million was an increase of $220.3 million during 2018 compared to 2017, which reflected an income tax benefit of $177.2 million on loss before income taxes of $833.2 million as a result of the impacts of the Reorganization. The Reorganization, which is assumed to have occurred on January 1, 2018 for purposes of the 2018 unaudited pro forma condensed consolidated statement of operations, resulted in a significant increase in income before income taxes, primarily due to a decrease in interest expense compared to 2017 as discussed above.

 

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Year ended December 31, 2017 compared to Year Ended December 31, 2016

The comparison of our unaudited pro forma results of operations for the year ended December 31, 2017 reflecting the impacts of the Separation to our unaudited pro forma results of operations for the year ended December 31, 2016 reflecting the impacts of the Separation is as follows:

Consolidated Revenue

Consolidated revenue increased $12.0 million during the year ended December 31, 2017 compared to 2016, due to our iHM business revenues, which increased $39.2 million driven by growth in national trade and barter and digital revenue. Digital revenue grew $41.6 million as a result of digital subscription revenue from our iHeartRadio on-demand service, which was launched in 2017. These increases were partially offset by lower political revenue compared to the prior year as a result of 2016 being a presidential election year. iHM political revenue decreased $35.9 million and political revenue generated by our media representation business decreased $29.0 million.

Consolidated Direct Operating Expenses

Consolidated direct operating expenses increased $82.4 million during 2017 compared to 2016, which included a $33.8 million prior year benefit resulting from the renegotiation of certain contracts. Direct operating expenses also increased as a result of higher content and programming costs, including compensation for on-air talent, and digital performance license fees which increased due to the launch of iHeartRadio+, as well as higher music royalty fees.

SG&A Expenses

Consolidated SG&A expenses increased $133.4 million during 2017 compared to 2016, including a $142.7 million increase in our iHM Business due to higher trade and barter expenses, investments in national and digital sales capabilities, and higher variable expenses, including sales activation costs and commissions. SG&A expenses in our media representation business decreased $9.3 million primarily as a result of expense savings initiatives executed early in 2017.

Corporate Expenses

Corporate expenses decreased $16.5 million during the year ended December 31, 2017 compared to 2016. In 2017, we incurred professional fees directly related to negotiations with lenders and other activities related to our capital structure, including the notes exchange offers and term loan offers, and, accordingly, such fees are reflected in Other Income (Expense), net as further discussed below. In 2016, professional fees incurred in connection with our capital structure activities were reflected as part of corporate expenses. Employee benefit expense was also lower due to lower claims.

Depreciation and Amortization

Depreciation and amortization decreased $15.8 million during 2017 compared to 2016, primarily due to assets becoming fully depreciated or fully amortized.

Impairment Charges

During 2017 we recorded an impairment charge of $6.0 million related to FCC licenses in one of our markets, and during 2016 we recorded an impairment charge of $0.7 million related to FCC licenses in one of our markets in connection with our annual impairment testing.

 

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Other Operating Income, Net

Other operating income, net of $9.3 million in 2017 primarily related to a gain recognized in connection with an exchange of four radio stations in Chattanooga, TN and six radio stations in Richmond, VA for four radio stations in Boston, MA and three radio stations in Seattle, WA. In 2016, we incurred net other operating losses of $1.1 million, primarily related to the disposal of assets.

Interest Expense

Interest expense increased $9.3 million during 2017 compared to 2016 due to higher interest rates on floating rate loans and new debt issuances.

Equity in Loss of Nonconsolidated Affiliates

During the years ended December 31, 2017 and 2016, we recognized losses of $1.9 million and $15.0 million, respectively, related to equity-method investments. The loss in 2016 related primarily to a $15.0 million non-cash impairment recorded in connection with an other-than-temporary decline in the value of one of our equity investments.

Gain on Extinguishment of Debt

During the fourth quarter of 2017, Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, repurchased approximately $4.0 million aggregate principal amount of iHeartCommunications’ 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $2.7 million. In connection with this repurchase, we recognized a gain of $1.3 million.

During the third quarter of 2016, Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications’ 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. In connection with this repurchase, we recognized a gain of $157.6 million.

Other Expense, Net

Other expense, net was $48.9 million for the year 2017, which relates primarily to expenses incurred in connection with negotiations with lenders and other activities related to our capital structure, including the notes exchange offers and term loan offers of $41.8 million.

Other expense, net was $15.9 million for the year 2016, which primarily related to a $14.5 million non-cash impairment recorded in connection with an other-than-temporary decline in the value of one of our cost investments.

Income Tax Benefit (Expense)

Income tax benefit of $177.2 million on loss before income taxes of $833.2 million was an increase of $50.1 million during 2017 compared to 2016, which reflected an income tax benefit of $127.1 million on loss before income taxes of $481.3 million.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis, including the discussion and analysis incorporated by reference herein, summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this prospectus or incorporated by reference herein. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the section entitled “Risk Factors” and “Forward-Looking Statements.”

Overview

Our primary business provides media and entertainment services via broadcast and digital delivery, including our network businesses, which prior to the Separation was presented as our iHM segment. We also operate a full-service media representation business, Katz Media Group (“Katz Media”), which is ancillary to our other businesses. Following the Separation, we will no longer operate the outdoor business, which prior to the Separation was presented as our Americas outdoor segment and our International outdoor segment. As a result, we expect to have a single reportable business segment following the Separation.

Results of Operations

For a discussion and analysis of the historical results of operations prior to the Separation and Reorganization, including the results of our iHM segment, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report, which is incorporated by reference herein.

For a discussion and analysis of the pro forma results of operations, see “Unaudited Pro Forma Condensed Consolidated Financial Data—Pro Forma Discussion and Analysis of Financial Condition and Results of Operations.”

 

Liquidity and Capital Resources Following the Separation and Reorganization

The Separation and Reorganization will result in a new capital structure with significantly lower levels of long-term debt and a corresponding decrease in debt service requirements after emergence compared to our historical debt levels. As a result of the Separation and Reorganization, our long-term debt is expected to decrease from $20.5 billion to $5.8 billion (before application of the proceeds of this offering). In 2018, we paid $398.0 million of cash interest, and incurred contractual interest of $1,189.1 million that was not paid. In 2017, we paid cash interest of $1,772.4 million. After the Effective Date, we anticipate that annual cash interest payments will be less than $400 million.

Upon effectiveness of the Separation and Reorganization, we will be required to make cash payments in connection with the CCOH Separation Agreement and per the terms of the Plan of Reorganization, including $159.2 million to be paid to CCOH in settlement of intercompany payable balances as of December 31, 2018, $16.5 million to cure contracts, $19.7 million for general unsecured claims, and $131.7 million for professional fees (of which $98.9 million is to be paid on the Effective Date). Other anticipated cash requirements for the year ended December 31, 2019 include capital expenditures of $129 million and $47.4 million to be paid in the fourth quarter of 2019 for the remaining consideration for two businesses acquired in the fourth quarter of 2018.

 

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Upon emergence, our primary sources of liquidity will be cash on hand, cash flow from operations and borrowing capacity under our $450 million New ABL Facility. Upon emergence, we expect to have on hand approximately $90.0 million after payment of settlement amounts and professional fees on the Effective Date. As of December 31, 2018, we had no borrowings outstanding under the DIP facility. We had $70.2 million of outstanding letters of credit and had an availability block requirement of $37.5 million, resulting in $342.3 million of excess availability. On a pro forma basis, we would have had $3.5 billion of borrowings under our New Term Loan Facility, $800 million of outstanding New Senior Secured Notes, $1.45 billion of New Senior Unsecured Notes and $400 million of undrawn borrowing capacity under the New ABL Facility (net of $50 million being used for letters of credit).

Upon emergence, our primary anticipated uses of liquidity will be to fund our working capital, debt service, capital expenditures and other obligations. Our ability to fund our working capital, debt service, capital expenditures and other obligations, and to comply with the financial covenants under our new financing agreements, depends on our future operating performance and cash flows from operations, which are subject to prevailing economic conditions and other factors, many of which are beyond our control. A significant amount of our cash requirements are for debt service obligations, and we anticipate having approximately $0.4 billion of annual cash interest payment after emergence. Our future success will depend on our ability to achieve our operating performance goals, address our annual cash interest obligations and reduce our outstanding debt.

Although we expect to emerge from bankruptcy in the second quarter of 2019, we are currently debtors-in-possession in the Chapter 11 Cases, and continue to be subject to risks and uncertainties inherent in Chapter 11 bankruptcy processes. Our historical consolidated financial statements incorporated by reference in this prospectus have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not reflect any adjustments that might result from the outcome of the Chapter 11 Cases. As of December 31, 2018, we had significant indebtedness and we have reclassified substantially all of the Debtors’ indebtedness other than the DIP Facility and other liabilities arising subsequent to the petition date, to Liabilities Subject to Compromise at December 31, 2018. Our level of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. As a result of our financial condition, the defaults under our debt agreements, and the risks and uncertainties surrounding our ability or the timing to consummate the Plan of Reorganization, substantial doubt exists that we will be able to continue as a going concern.

Indebtedness Following the Separation and Reorganization

For a summary of the terms of the agreements governing out principal indebtedness outstanding following the Separation and Reorganization, see “Description of Certain Indebtedness and Subsidiary Preferred Stock”.

This summary is not a complete description of all of the terms of the agreements. The agreements setting forth the principal terms and conditions of this indebtedness are filed as exhibits to the registration statement of which this prospectus forms a part.

 

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BUSINESS

Overview

Audio is hot, and iHeartMedia, Inc. (the “Company”, “iHeartMedia”, “iHeart”, “we” or “us”) is the number one audio media company in the U.S. based on consumer reach. Additionally, according to Deloitte Insights’ Technology, Media and Telecommunications Predictions 2019 report, radio is characterized by Revenue, Reach and Resilience.

Within audio, there are two segments:

 

   

The ‘music collection’ segment, which essentially replaced downloads and CDs, and

 

   

The radio—‘companionship’—segment, in which people look to audio, starting with broadcast radio and the personalities there, as their friend and companion.

We serve this second segment and have used our large scale and national reach in broadcast radio to build additional complementary platforms. We are now the only major multi-platform audio media company, with each platform building on and extending our companionship relationship with the consumer.

Our product strategy is ‘be where our listeners are with the products and services they expect from us’. Our reach now extends across more than 250 platforms and over 2,000 different connected devices—and that reach continues to grow.

The platforms we lead in are:

 

   

Broadcast radio: We have never been stronger with consumers, and our broadcast radio assets reach more consumers today than ever. Our broadcast radio audience is almost twice as large as that of the next largest commercial broadcast radio company, as measured by Nielsen.

 

   

Digital: Our iHeartRadio digital platform is the number one streaming broadcast radio platform—with six times the digital listening of the next largest commercial broadcast radio company, as measured by Triton.

 

   

Podcasts: We are the number one commercial podcast publisher in America—and we are almost three times the size of the next largest commercial podcaster as measured by downloads, according to Podtrac.

 

   

Social media: Our personalities, stations and brands have a social footprint that includes 145 million fans and followers as measured by Shareablee, which is six times the size of the next largest commercial broadcast audio media company. This social footprint was at the heart of delivering 310 billion social media impressions for our recent iHeartRadio Music Awards and its associated activities.

 

   

Events: We have over 20,000 local live events per year and eight major nationally-recognized tentpole events, which provide significant opportunities for consumer promotion, advertising and social amplification.

We have been able to unify all of our local brands under a master brand—iHeartRadio. Using that umbrella has allowed us to build our other platforms as well as extend into third-party platforms like Snapchat, YouTube and cable and broadcast television.

Our business model has been to build strong consumer relationships at scale and monetize them by renting those relationships to unaffiliated third parties. We are transforming our sales process to be more competitive with the major digital players that have brought data, targeting and technology into the media buying process. Additionally, we have built out a strong marketing sales function to support the marketing needs of advertisers and agencies in addition to the more traditional media buying transactional relationships.

 

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iHeart is the leader in audio media built upon the strength of our broadcast assets

Broadcast radio holds a unique place in American culture. Consumers listen to the radio because the voice on the other side sounds like a friend. It is this companionship relationship that has withstood the test of time. As a result, radio has been characterized by Deloitte as having Revenue, Reach, and Resilience. Broadcast radio continues to reach more Americans each week than any other medium. While live and time-shifted television’s weekly reach has dropped to 86% for the total U.S. population—and is now only 73% for the Millennial audience in the U.S.—radio’s weekly reach has remained steady (since the 1970s) at over 90% for persons aged 18+, and today reaches over 90% of Millennials and almost 90% of Generation Z weekly in the U.S., according to Nielsen’s Q3 2018 Total Audience Report. Additionally, broadcast radio’s heaviest users tend to be almost 15 years younger on average than heavy television users, according to Scarborough, and radio offers the unique influence of a friend and word-of-mouth, giving it a distinct creative advantage over television, print and digital. Technology has expanded the opportunities to listen to the radio in the car, at work and at home, with new devices such as smart speakers, smart phones, gaming consoles and smart televisions.

iHeartMedia is the leader in the audio media sector in the U.S. We have a greater reach than any other media company in the U.S. with our broadcast radio assets alone, with our monthly reach of 275 million listeners aged 6+ (derived from a Nielsen measurement to enable like-to-like comparisons with digital media companies) representing an audience greater than the digital audience of Google (251 million, including YouTube) and Facebook (215 million, including Instagram and Messenger) in the U.S. as measured by Comscore in February 2019. We believe our advantage is driven by our unique ability to build relationships and engage a broad spectrum of audiences and demographics as we fulfill listeners’ need for companionship and to be connected with the world. We believe we have proven that we are the companion of choice through our strong engagement, with listeners spending on average 30 minutes a day with our programming, content and personalities (derived from Nielsen measurements) relative to Google’s engagement time of 27 minutes, excluding YouTube, and Facebook’s 22 minutes per visitor per day on average excluding Instagram and Messenger (derived from Comscore’s monthly minutes per visitor measurement in February 2019). Additionally, the Company is able to serve key audiences through individual radio formats targeted to desirable lifestyle and taste segments.

The backbone of the Company is our portfolio of 848 live broadcast radio stations and a local sales force servicing approximately 160 U.S. markets, including 48 of the top 50 markets (with three markets embedded in larger markets), and 86 of the top 100 markets, (with four markets embedded in larger markets). With our broadcast radio platform alone, we have almost twice the broadcast radio audience of our next closest broadcast competitor. We also have six times the digital listening of our next closest commercial broadcast competitor. Our scale, diverse audience platforms and unique value proposition for advertisers result in our higher ratio of share of radio revenue to share of audience of 1.5x, relative to Cumulus (1.2x) and Entercom (1.2x) as derived from measurements by Miller Kaplan, Media Monitors, and Nielsen.

We are deeply embedded in each of our local markets, with a network of over 2,000 local sales professionals across approximately 160 U.S. markets. This local sales team provides a differentiated perspective that we believe yields tailored solutions for our advertising partners across our portfolio of assets. In addition, we understand our local on-air talent has earned our listeners’ trust and our local stations attract the key demographics and audiences that our advertisers want to reach. As we look to capture additional advertising spend beyond that allocated to broadcast radio, we believe our on-the-ground presence and resulting insights serve as competitive advantages relative to many digital-only players.

We believe that, unlike other broadcast radio companies, iHeartMedia has a national reach platform as opposed to only a portfolio of local markets. To monetize that, we have built a sizable national sales force that further enables us to compete for advertising dollars that have not traditionally been allocated to broadcast radio. We believe that this dedicated sales team, which works directly with clients and agencies, enables us to create unique marketing partnerships that allow advertisers to coordinate national-scale

 

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campaigns while also leveraging our local footprint, consumer relationships and other consumer platforms, including podcasting, events, social and digital. Additionally, we own Katz Media, a leading advertising sales representation firm which services other radio companies, television companies and digital players for national advertising. iHeartMedia’s strategic and integrated approach of addressing both local and national advertising markets has a multiplying effect on value that we believe is greater than simply a sum of its parts and that is very difficult to replicate—especially at scale.

A critical element of the unique and powerful consumer bond with radio is our radio personalities. These personalities have a strong connection with their listeners, as evidenced by the fact that 86% of respondents to iHeartMedia’s Power of Personalities & State of Listening Survey perceive a deep connection with their favorite personality; in addition, 63% of respondents have considered purchasing a product recommended by their favorite personality. Our relationship with the consumer is further enhanced by the production and distribution of syndicated media content (for iHeartMedia stations and for affiliated stations) through our Premiere Networks business. Premiere Networks is a leading audio content syndicator, covering talk, politics, sports, entertainment, etc. and includes nationally-recognized talent such as Ryan Seacrest, Rush Limbaugh, Sean Hannity, Elvis Duran, Steve Harvey, Bobby Bones, Delilah, The Breakfast Club, Nancy Grace, Big Boy, Enrique Santos, Ellen K and Colin Cowherd. In addition, we are the number one source of real-time traffic and weather content on broadcast radio through our Total Traffic & Weather Network, providing advertisers with yet another national reach platform which, according to Nielsen, provides access to almost every commuter in America.

Our strategy is to be everywhere our listeners want us to be—making us the number one multi-platform audio media company

Our strategy is to be everywhere our listeners want to find us by having a presence on all major and emerging platforms. We believe our differentiated reach, national footprint with local execution, best-in-class engagement and shared infrastructure provide us with a strong foundation and operating efficiencies as we expand onto new platforms. In addition, we have developed an iconic master brand that resonates across our diverse geographical markets and unifies our multiple platforms and local brands. The creation of the “iHeartRadio” master brand has allowed us to consolidate all our consumer products under the iHeartRadio banner and create a highly recognizable brand with strong consumer awareness, according to IPSOS. We have evidence that both advertisers and consumers have grown to value the “iHeartRadio” brand, which is associated with quality and improved satisfaction. Today, the “iHeartRadio” brand is an iconic powerhouse in the audio industry that underpins our multi-platform strategy as evidenced by:

 

   

Our Leadership in Digital Radio Streaming: We deliver broadcast radio and custom radio (with a small on-demand component) to 128 million registered users on the iHeartRadio service and app on over 250 platforms and over 2,000 different connected devices — including smart speakers, digital auto dashes, tablets, wearables, smartphones, virtual assistants, televisions and gaming consoles. This digital audience is six times larger than the digital audience of the next largest commercial broadcaster. In addition to the iHeart streaming product, the Company also has more than 800 station and personality websites reaching tens of millions of consumers monthly, and we license the iHeartRadio service and brand to international partners in Mexico, Canada, Australia and New Zealand.

 

   

Our Prominence in Live Events: We have over 20,000 local live events per year and eight major nationally-recognized tentpole events: the iHeartRadio Music Festival, the iHeartRadio Music Awards, the iHeartCountry Festival, the iHeartRadio Fiesta Latina, the iHeartRadio Podcast Awards, iHeartRadio ALTer Ego, iHeartRadio Wango Tango, and the iHeartRadio Jingle Ball Tour. Our iHeartRadio Music Festival has the highest brand awareness (59%) among live music events, greater than the Coachella (54%) and Lollapalooza (52%) music festivals according to the Q4 2018 IPSOS study.

 

 

 

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LOGO

 

   

Our Differentiated Social Reach: iHeartMedia’s personalities, stations and brands have garnered 145 million social fans and followers as compared to Spotify’s 28 million and Pandora’s 8 million, as measured by Shareablee. Our radio personalities engage with their listeners and fans across every major social platform, using technology to extend their deep listener connection and relationships. Furthermore, our “iHeart” branded events provide opportunities for significant social amplification, as evidenced in 2019 when our iHeartRadio Music Awards and associated activities generated 310 billion social media impressions. By building deep engagement on the major social platforms, we believe we have positioned ourselves around the important conversations, making social media today’s even more powerful equivalent of the radio call-in phone lines of the past.

Additionally, as of February 2019, the Company has 19 million monthly unique visitors on Snapchat and 19 million monthly unique visitors on YouTube, which we believe are larger than the audiences of the other major audio players on these platforms.

 

   

Our Leadership in Podcasting: Our multi-platform strategy has also enabled us to extend our leadership into the rapidly growing podcasting sector. The 2018 acquisition of Stuff Media, LLC solidified our position as the number one commercial podcast publisher globally, as measured by monthly downloads and monthly unique listeners according to Podtrac, the industry standard for third-party podcast measurement. Overall podcasting industry revenue is expected to increase to $0.7 billion by 2022, according to PwC, from an estimated $0.4 billion in 2018. We believe iHeartMedia has key capabilities to continue to lead in podcasting driven by the power of our multiple platforms to promote our podcasts to our entire consumer audience as well as to create and grow new podcasts. iHeart is distinguished among podcast publishers by our unique ability to both promote and air our podcasts on broadcast radio, and combine podcast advertising with broadcast advertising to give additional power to advertising messages.

Additionally, we believe we are well-positioned to leverage our iconic brand and enormous reach to benefit from incremental listening growth. As smart speakers are creating an in-home audio hub that enhances radio’s reach, developing a leadership position in this category has become a key element of our growth strategy. Smart speaker adoption has seen rapid acceleration, with a 26% penetration rate among U.S. adults in 2018, representing a 2,500% increase since 2016, as measured by Voicebot. This new technology creates a significant opportunity for iHeartMedia, as the 2019 NuVoodoo Ratings Prospect Study indicates that radio listening is one of the top activities on smart speakers, with 39% of respondents using a smart speaker to listen to FM radio, 14% listening to AM radio and 14% listening to podcasts. Year to date, smart speaker listening has grown as a share of iHeartRadio’s total AM/FM streaming by over 162% as measured by Triton, versus growth of 111% for the overall broadcast radio industry, including iHeartMedia. iHeart’s strength with Alexa and other smart speaker listening demonstrates our ability to lead with new technologies and substantially adds to radio listening opportunities in the home.

We also have two radio stations on SiriusXM, which we view primarily as a promotional vehicle since the Sirius subscription-driven revenue model is non-competitive with the Company’s strategic direction.

We are developing advanced and efficient monetization platforms with the goal of providing many of the same benefits as the leading digital advertisers

With our continued technology investments and market-leading position, we believe iHeartMedia is poised to transform the broadcast radio industry by bringing digital-like solutions to broadcast radio. In so doing, we will not only differentiate our platform relative to other radio broadcasters, but also drive revenue

 

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growth by gaining share of advertising spend currently that is allocated to other sectors such as television and digital. This potential market capture expands the scope of our addressable market beyond U.S. radio advertising budgets.

The benefits of audience targeting and programmatic transaction efficiencies hold as true for audio as they do for other media formats. These include superior measurement, increased control and reduced overhead. Using technology to harness and analyze the consumer data we have at our disposal creates a more efficient value proposition for advertisers. iHeartMedia’s programmatic advertising capability is derived from our SmartAudio, SoundPoint, and iHeartMedia Analytics data and technology platforms. We continue to invest in these platforms, as evidenced by our 2018 acquisition of Jelli Inc., the technology company that powers our SoundPoint programmatic platform. Our broadcast industry-leading digital-like advertising capability has allowed us to provide advanced advertising solutions that can deliver specific audience cohorts to advertisers, as well as attribution and measurement analytics. We believe that our capabilities will transform the way advertisers plan, buy and measure their audio campaigns, making us the preferred tech-enabled broadcast audio advertising platform. Our proprietary solutions include:

 

   

SoundPoint: Our digital-like ad-buying solution that allows clients to view the available broadcast inventory across various cohorts to address their specific needs

 

   

SmartAudio: Our application of data science to aggregate business data from broadcasts and the user insights that come from listeners using our digital platform

 

   

iHeartMedia Analytics: Our tools to present the effectiveness of clients broadcast radio advertising campaigns by providing detailed digital dashboards on the results of the advertising spend

In addition, we offer local digital services for advertisers under our SLATE banner. Some of these are reseller relationships of key services, including local website maintenance, audience extension products and third-party app advertising inventory. By offering both an at-scale national platform and analytics, as well as local services, we believe we are the best positioned provider to serve advertiser needs among audio companies.

We believe our leadership position provides tangible financial benefits

Our leadership position across multiple platforms and our advancements in our digital-like broadcast advertising capabilities are starting to yield a positive financial impact. For the fiscal year 2018, on a pro forma basis, iHeartMedia generated $3.6 billion in Revenue, $50 million of Consolidated net income, $514 million of Operating income (14% margin) and $976 million of Adjusted EBITDA (27% margin), the highest Adjusted EBITDA margin of any major advertising-supported audio media company. Upon completion of the Reorganization, iHeartMedia will carry substantially less debt, providing the Company with significantly enhanced financial flexibility. With our inherently low maintenance capital expenditures and working capital profile, iHeartMedia expects to generate significant free cash flow and de-lever over time.

Our Competitive Strengths

Reach leader among major U.S. media companies with a diversified, multi-platform strategy

Radio talks to everyone about everything at all times. As a result of its ubiquitous presence (made all the more possible through technology and the emergence of new platforms and devices), ease of use and diversity of audio content, radio has replaced television as the number one reach medium and iHeartMedia’s broadcast radio platform has greater reach in the U.S. than either Google or Facebook. We believe iHeartMedia is uniquely positioned within this landscape given the breadth of our portfolio—reaching 91% of Americans monthly through our broadcast radio assets alone. Our connectivity spans all demographics, including 91% of Generation Z and 92% of Millennials each month, highlighting the enduring appeal of

 

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radio. Moreover, iHeartMedia’s multi-platform approach extends this relationship and national footprint beyond broadcast radio through our 128 million registered digital users, 20,000 annual local live events, 73 million monthly unique visitors in February 2019 to all our digital properties (including station and on-air personality websites) according to Comscore and 145 million social fans and followers across our personalities, stations and brands according to Shareablee. In so doing, we seek to distance ourselves from companies that focus on only one platform in the audio ecosystem by working to be everywhere our consumers are with the products and services they expect from us.

Companionship with our audience creates a deep and engaged relationship in an increasingly fragmented world—and is a different business than ‘music collection’ or playlist experiences

A listener’s music collection or playlist experience often serves to narrowly define an individual, allowing the person a momentary escape from his or her surroundings—however, this is a different business than radio. From our first experience with radio it has always been a social experience we grow up with using together with our family and those closest to us. Audio is woven into the journey of our daily lives, and radio serves as a constant companion that we return to with increasing frequency. Indeed, Nielsen data shows that the average radio listener tunes in seven times daily to just broadcast radio. Radio is also a place for discovery and remains the number one source for discovering new music. The complementary nature of radio is supported by the fact that this statement holds true even for listeners who also use an on-demand digital service—the modern equivalent to a ‘music collection’. According to our Power of Personalities Survey, 84% of individuals ages 18 to 44 who regularly use on-demand digital services agreed that radio is the main way they discover new music.

iHeartMedia provides a platform for our listeners to start a conversation in a way that other mediums cannot. Prior generations’ experience using telephones to call in to their favorite on-air personality has been supplemented by the exponential growth of social media. Today, listeners can simultaneously interact and contribute their voices to the ongoing on-air dialogue in real time. iHeartMedia’s personalities, stations and brands have approximately 145 million social media fans and followers and many of our on-air personalities and stations have hundreds of thousands or millions of independent followers. Our presence on social platforms creates a dual path of connectivity with our audience and source of continuous feedback—we listen, we engage, and we respond.

This two-way relationship helps to create a trusted bond and strong relationship between the listener and our on-air talent. Our Power of Personalities Survey suggests that 86% of our listeners perceive a deep connection with a favorite radio personality and 74% value their opinion and perspectives. We believe this relationship is important to our listeners—and a powerful tool for our advertising partners.

We believe the cumulative impact of these deep relationships yields higher daily consumer engagement for iHeartMedia than premier digital brands, including Google and Facebook. Moreover, our tentpole live events highlight how this passionate engagement translates to massive social moments, with, for example, the 2019 iHeartRadio Music Awards and associated activities generating 310 billion social media impressions. We believe this depth of connectivity not only enriches our listeners’ experience—it also delivers insight on our audience and creates unique opportunities for our advertising partners and builds the iHeartRadio brand.

The only major audio media company with a master brand strategy

The iHeartRadio master brand ties together our radio stations, digital platforms, social, podcasts and live events in a unified manner that reflects the quality and compelling nature of our listener experiences. Consumers of both our local station brands and our national platforms trust in the uncompromising commitment to excellence that is associated with our national iHeartRadio brand, and which is expressed through each of our local broadcast stations, which refer to themselves as “an iHeartRadio station”. This dynamic creates the powerful combination of broad scope and local focus to not only attract national

 

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advertisers, but also to maintain an engrained consumer presence in the most important markets in the country. Our master brand strategy also promotes positive consumer sentiment and brand awareness when consumers know that the station or event is associated with iHeartRadio. According to IPSOS, the iHeartRadio Music Festival has greater brand awareness than other celebrated music events including both Coachella and Lollapalooza. Similarly, according to IPSOS, iHeartRadio has 82% aided brand awareness, multiples higher than any broadcast radio company and even higher than Apple Music and SiriusXM. We continue to build and strengthen the iHeartRadio master brand and in so doing enhance the value of all of our assets.

Well-positioned to benefit from incremental listening growth

The consumer trend towards increased audio consumption has only been magnified by the proliferation of smart speakers, streaming services and podcasts as a content category. We have the scale and products to benefit from this incremental listening growth and the addition of new audio platforms that can be built as adjuncts to our existing and diversified audio platforms. We are now available on over 250 online and mobile platforms and over 2,000 different types of connected devices, including a leading position on Alexa where iHeartRadio stations were built into the platform and do not need a downloaded skill to access. In fact, according to NuVoodoo, listening to AM/FM radio is one of the top reported activities on smart speakers. This extended access allows our listeners to truly enjoy audio content wherever they are and during all of the experiences that might populate their day. Indeed, we are well-positioned to benefit from the pressures on consumers’ time, as listening is more efficient and available than watching or looking in this time-constrained, multi-tasking world. This dynamic not only increases addressable listening hours, but also drives increasing advertising impressions. In the higher at-home listening months of December 2018 and January 2019, Alexa was the largest single source of unique users for iHeartRadio according to our internal Adobe Analytics reporting—larger than iOS, Android, or Web.

iHeartMedia also has the ability to add new audio platforms and to expand and promote those platforms through existing iHeart assets. In particular, according to Podtrac, iHeart has become the number one commercial podcast publisher globally, with 148 million monthly downloads in February 2019. We are also able to leverage the power and scale of radio to advance these new content categories, as exemplified through our recent launches of The Ron Burgundy Podcast and Disgraceland Season 3 podcasts (whereby excerpts of the audio series were distributed across our broadcast radio stations and via our social media channels).

Networks and industry-leading media representation business extend impact on ecosystem.

iHeartMedia maintains both a leading national audio content syndicator (Premiere Networks) and the largest audio network provider of traffic, weather, news and sports reports in the U.S. (Total Traffic & Weather Network), according to Nielsen. Premiere Networks’ roster of nationally-recognized on-air talent (including Ryan Seacrest, Rush Limbaugh, Sean Hannity, Elvis Duran, Steve Harvey, Bobby Bones, Delilah, The Breakfast Club, Nancy Grace, Big Boy, Enrique Santos, Ellen K and Colin Cowherd) facilitates the type of daily dialogue and content discovery that engenders connectivity with our listeners. Moreover, the Total Traffic & Weather Network reaches more than 2,100 radio stations in over 220 markets and is available to almost every commuter in America. Through Katz Media, we also serve as an industry-leading sales representation firm working with more than 3,100 non-iHeartMedia radio stations, nearly 800 television stations and their respective digital platforms, as well as digital-only players such as Spotify. We believe our understanding of, and involvement with, all of the components of the audio ecosystem allows iHeartMedia to serve as the informed thought leader in shaping the direction of the industry.

Proprietary audio technology platform drives advertiser return on investment

Through organic investment and strategic acquisitions, iHeartMedia has developed analytic products for our broadcast programmatic advertising platform that enable media buyers to evaluate and purchase radio

 

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inventory based on impressions and psychographic cohorts, with associated attribution to prove iHeartMedia’s impact. In so doing, we are able to deliver data-driven insights, targeting and analytics for advertisers that mirror the standards established by the major digital players. Our advancements in developing data services and programmatic buying platforms for our broadcast inventory will provide capabilities similar to digital players while increasing efficiency for advertising partners.

Unique music research platform is powerful and proprietary programming asset

We believe we have unique data and research that not only ascertains the popularity of songs by markets—it lets us compare and contrast markets to each other to help us better predict the future success of songs and artists and understand the segments of their appeal. Having this as a tool for our programmers gives them a competitive advantage. Additionally, we are able to use this knowledge and feedback to better help develop artists, working closely with music companies, managers, and directly with the artists themselves. We believe that no other company can provide this combination of services, information and relationships that we provide across all of iHeart’s platforms.

Unique combination of reach, engagement and data-driven insight creates bespoke ad inventory

We are able to utilize our multi-platform portfolio of assets, deep engagement with listeners and digital-like analytics and targeting to deliver customized and impactful advertising solutions. The unique combination of reach, engagement, data-driven insights and marketing expertise creates bespoke opportunities for advertisers. This combination improves both our media advertising relationships and our marketing-driven advertising solutions.

Positioned to capture ad spend from other mediums

While audio has been historically disrupted by the digital advertising giants, we believe that our suite of digital data advertising products now provide the assets that enable us to respond to the new advertising world that Facebook and Google pioneered. We believe our proprietary technology and data-enhanced audience insights will enable the Company to access broader marketing budgets, including television and digital advertising budgets, for our existing advertisers, new advertisers and agencies that were previously not accessible. This potential share capture would meaningfully extend our addressable ad market beyond the $18 billion existing pool (as estimated by PwC) of dedicated U.S. audio advertising spend.

Superior unit economics

Compared to the streaming players, broadcast radio has a distinct unit economics advantage. In the U.S., radio airplay is considered a public performance. As such, while radio stations do not pay recorded music royalties, they do pay performance right royalties—approximately 3% of revenue annually. We believe iHeart’s superior cost structure is reflected in our higher operating margins for fiscal year 2018, calculated on a pro forma basis, of 14%, versus that of major music streaming players which have negative operating margins.

Resilient Financial Model

We believe the aggregate impact of our differentiated multi-platform strategy results in durable topline growth and increasing profitability due to the inherent operating leverage in the business. Low capital intensity should result in strong free cash flow conversion and growth. Our financial profile should provide a strong foundation for iHeartMedia to continue to drive transformation within the audio industry.

Our Growth Strategy

Our strategy is centered on building strong consumer relationships with national reach. Providing this kind of at-scale companionship creates high-value advertising inventory for current audio advertisers as well as new

 

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advertisers and delivers superior returns to both. Moreover, we believe that we can leverage our investments in technology and data-informed decision making to capture increasing market share of the long tail of national and local revenue. The key elements of this growth strategy are:

Continued capture of advertising spend from all mediums

We intend to take advantage of our national scale, the brand power of “iHeartRadio,” and product innovation to capture additional share of the overall radio advertising pool. We also believe our enhanced audience data and related analytics tools should drive capture of additional revenue from other advertising sectors, including digital and television, as advertisers are able to target audiences and measure the efficacy of their ad spend in a manner that mirrors the capabilities of these other mediums. We believe our advertising partners value the unique reach, engagement and return potential of audio, as well as iHeartMedia’s differentiated platforms and marketing expertise, positioning the Company to capitalize on this trend.

We have made, and continue to make, significant investments so we can provide an ad-buying experience similar to that which was once only available from digital-only companies. Our programmatic solution for broadcast radio, SoundPoint, provides improved planning and automated ad-buying by relying on sophisticated planning algorithms and a cloud-based network across all of iHeartMedia’s broadcast radio inventory to deliver highly optimized plans to our advertising customers. SmartAudio is our audio data analytics advertising platform for broadcast radio which can be executed through the SoundPoint product. With SmartAudio, advertisers can do impression-based audience planning and dynamic radio advertising creative that utilizes real-time triggers such as weather, pollen counts, sports scores, mortgage rates and more to deploy different campaign messages based on what is happening in a specific market at a specific moment. SmartAudio has allowed brands to use broadcast radio advertisements to dynamically serve the most relevant message in each market, at each moment, just as they do with digital campaigns, to ensure increased relevance and impact. In 2018, we launched iHeartMedia Analytics, the first fully-digital measurement and attribution service for broadcast radio that we believe can transform the way advertisers plan, buy and measure much of their audio campaigns to better optimize the extensive reach of radio. We continue to look for ways to further develop our advertising capabilities in order to expand our share of advertising partners’ budgets.

Increasing share of national advertising market

Broadcast radio is the number one consumer reach medium, and advertisers have a renewed appreciation for its scale, diverse demographic access and impact. We intend to complement our current local advertising presence in approximately 160 markets by further growing our stake in national advertising campaigns through our multi-platform portfolio of audio assets, roster of on-air talent, and the amplifying effect of our listeners’ social engagement. As a result of our ongoing technology investments, national advertisers can now look to our audio offerings with their extensive reach, efficient pricing and digital-like analytics as powerful alternatives to other national ad mediums.

Broadening the scope of audio engagement

We continue to expand the spectrum of choices for our listeners—both in terms of compelling content and the array of ways in which it can be consumed. The proliferation of smart speakers and other connected devices greatly increases the range of options for accessing and interacting with our content. We are also very focused on rapidly growing content categories, such as our leadership position in podcasting. These initiatives not only improve the listener experience—they facilitate further engagement and heightened frequency of advertising impressions.

Notably, iHeartRadio, our all-in-one digital music, podcast and live streaming digital radio service, is available on an expansive range of platforms and devices including smart speakers, digital auto dashes, tablets, wearables, smartphones, virtual assistants, televisions and gaming consoles.

 

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With the acquisition of Stuff Media, LLC in September 2018, we significantly extended our position as the largest commercial podcast publisher in the U.S. We believe that podcasting is to talk what streaming is to music and is the next strategic audio platform. Our podcasting platform will allow us to capture incremental revenue as well as extend station brands, personalities and events onto a new platform –ultimately extending and deepening our consumer relationships and our opportunities for additional advertising revenue.

Employing technology to gain greater penetration of the long tail of advertising markets

In addition to having sellers in approximately 160 local markets across the U.S., which few media companies can claim, we intend to extend our technology platform to address the smaller clients that we do not currently reach through direct sales operations. As indication of the size of the potential opportunity, the Company currently has roughly 60,000 total clients compared to millions of clients for some of our largest social and search competitors which utilize technology solutions for smaller advertisers.

Utilizing our unique bundle of advertising inventory to drive CPM uplift

By adding other high CPM platforms into our mix, as well as providing unique and differentiated solutions for advertisers, we believe that we have the potential to see a CPM uplift. Although our primary focus is revenue, we also aim to maximize the value of our inventory. Moreover, we are continuing to develop platforms (including podcasts) that independently garner superior CPMs.

Leveraging the iHeartRadio master brand to expand our high-profile live events platform

Audio is a social experience and an important extension of the medium is live events. For our listeners, live events are an opportunity to interact with fellow fans and engage with their favorite artists. For our advertising partners, they are a chance to reach a captivated and highly targeted audience directly tied to our high reach and strong engagement broadcast radio platform. It is also an opportunity to extend into platforms like cable and broadcast television; create ancillary licensing revenue streams; and serves as an opportunity for ticket revenue. As with all of our platforms, the data collection from these sources is valuable to both our product creation process and our advertisers. Through our portfolio of major award shows, festivals and 20,000 local live events, we intend to continue to find innovative ways to integrate sponsorships and deliver unique advertising moments. In so doing, we will seek to create additional revenue opportunities through this platform.

Our Sources of Revenue

We generate advertising revenue through three primary channels. The first—and still the most prevalent—is a transactional media relationship with national agencies where the Company is selling defined advertising units and impressions, primarily of inventory on our broadcast radio stations. The second is through a direct marketing relationship with both local and national clients and agencies where we use our diverse portfolio of assets to help develop a specific marketing solution tailored to the defined needs of the advertising partner. The third channel is the newest and smallest, but fastest growing, channel—a digital interface using data to develop specific targets and executed most often over a technology platform. These three channels can all be used in varying degrees of efficiency over our multiple platforms including broadcast radio, digital streaming and display, podcast, social amplification and events. Our national scale and structure allows us to offer these solutions at a national, regional or local level, or any combination thereof.

We have the following revenue streams:

 

   

Broadcast Local and Broadcast National: Our primary source of revenue is derived from selling local and national advertising time on our domestic radio stations, generating local broadcast revenue of $1,438 million in 2018 and $1,478 million in 2017, and generating national broadcast revenue of $826

 

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million in 2018 and $813 million in 2017. Advertising rates are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by independent ratings services.

Increasingly, across both national and local markets, our advertisers are demanding data rich, analytics-driven advertising solutions. iHeartMedia offers a comprehensive suite of tech-enabled advertising solutions (SoundPoint, SmartAudio and iHeartAnalytics) that provide advanced attribution and analytics capability. We expect programmatic to account for an increasing proportion of ad buying in the future.

 

   

Digital: Our Company’s reach now extends across more than 250 platforms, and 2,000 different connected devices. We generated digital revenue of $284 million in 2018 and $248 million in 2017, comprised of streaming, subscription, display advertisements, podcasting and other content that is disseminated over digital platforms. Our leading streaming product, iHeartRadio, is a free downloadable mobile app and web-based service that allows users to listen to their favorite radio stations, as well as digital-only stations, custom artist stations, and podcasts. Monetization on the free streaming application occurs through national and local advertising. We also have two subscription based offerings–iHeartRadio Plus and iHeartRadio All Access.

 

 

   

Networks: We enable advertisers to engage with consumers through our Premiere Networks and Total Traffic & Weather services. We generate broadcast advertising revenue from selling local and national advertising on our programs featuring top personalities, and also generate revenue through the syndication of our programming to other media companies. Premiere Networks and Total Traffic & Weather generated revenue of $583 million in 2018 and $582 million in 2017.

 

   

Premiere Networks is a national radio network that produces, distributes or represents more than 110 syndicated radio programs and services for more than 6,000 radio station affiliates. Our broad distribution capabilities enable us to attract and retain top programming talent. Some of our more popular syndicated programs feature top talent including Ryan Seacrest, Big Boy, Rush Limbaugh, Sean Hannity, Glenn Beck, Steve Harvey, Elvis Duran, Bobby Bones, Breakfast Club and Delilah. We believe recruiting and retaining top talent is an important component of the success of our radio networks.

 

   

Total Traffic & Weather Network delivers real-time local traffic flow and incident information along with weather updates, sports and news to more than 2,100 radio stations and approximately 100 television affiliates, as well as through Internet and mobile partnerships, reaching over 210 million consumers each month. Total Traffic & Weather Network services more than 220 markets in the U.S. and Canada. It operates the largest broadcast traffic navigation network in North America.

 

   

Sponsorship & Events: Through our 20,000 local events per year and eight major nationally-recognized tent pole events, as well as endorsement and appearance fees generated by on-air talent, we generated $201 million of revenue in 2018 and $203 million of revenue in 2017 from sponsorship, endorsement and other advertising revenue, as well as ticket sales and licensing.

 

   

Other: Other revenue streams connected to our core broadcast and digital radio operations include fees earned for miscellaneous services such as on-site promotions, activations, LMA fees and tower rental provided to advertisers and other media companies. These services generated revenue of $22 million in 2018 and $33 million in 2017.

 

   

Audio & Media Services: We also provide services to broadcast industry participants through our Katz Media and RCS businesses, which accounted for $257 million of revenue in 2018 and $230 million of revenue in 2017.

 

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Katz Media Group is a leading media representation firm in the U.S. Katz Media represents more than 3,100 non-iHeartMedia radio stations and nearly 800 television stations and their respective digital platforms. Katz generates revenue via commissions on media sold.

 

   

RCS is a leading provider of broadcast and webcast software. Our software (radio station automation, music scheduling, HD2 solutions, newsroom software, audio logging and archiving, single station automation and contest tracking software) and technology (real-time audio recognition technology) is used by more than 9,000 radio stations, television music channels, cable companies, satellite music networks and Internet stations worldwide.

Ultimately, our superior local, national, and online sales force combined with our leading digital, events, content, and representation business position us to cover a wide range of advertiser categories, including consumer services, retailers, entertainment, health and beauty products, telecommunications, automotive, media and political. Our contracts with our advertisers range from less than one-year to multi-year terms.

Radio Stations

As of December 31, 2018, we owned and operated 848 radio stations, including 239 AM and 609 FM radio stations. All of our radio stations are located in the U.S. No one station is material to our overall operations. We believe that our properties are in good condition and suitable for our operations.

 

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Radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). As described in “—Regulation of Our iHeartMedia Business” below, the FCC grants us licenses in order to operate our radio stations. The following table provides the number of our owned and operated radio stations in the top 25 Nielsen-ranked markets:

 

Nielsen
Market
Rank(1)

  

Market

   Number of
Stations(2)

1

  

New York, NY

   6

2

  

Los Angeles, CA

   8

3

  

Chicago, IL

   6

4

  

San Francisco, CA

   6

5

  

Dallas-Ft. Worth, TX

   6

6

  

Houston-Galveston, TX

   6

7

  

Washington, DC

   5

8

  

Atlanta, GA

   7

9

  

Philadelphia, PA

   6

10

  

Boston, MA

   8

11

  

Miami-Ft. Lauderdale-Hollywood, FL

   7

12

  

Seattle-Tacoma, WA

   8

13

  

Detroit, MI

   6

14

  

Phoenix, AZ

   8

15

  

Puerto Rico

   0

16

  

Minneapolis-St. Paul, MN

   6

17

  

San Diego, CA

   7

18

  

Denver-Boulder, CO

   8

19

  

Tampa-St. Petersburg-Clearwater, FL

   8

20

  

Nassau-Suffolk, NY—(New York Embedded Market)

   1

21

  

Baltimore, MD

   4

22

  

Portland, OR

   7

23

  

St. Louis, MO

   6

24

  

Charlotte-Gastonia-Rock Hill, NC-SC

   4

25

  

Riverside-San Bernardino, CA

   6
     

 

  

Total Top 25 Markets

   149(3)
     

 

 

(1)

Source: Fall 2018 Nielsen Audio Radio Market Rankings.

(2)

Excludes stations held in trust for sale.

(3)

Our station in the Nassau-Suffolk, NY market is also represented in the New York, NY Nielsen market. Thus, the actual number of stations in the top 25 markets is 149.

Market Opportunity

Audio plays a fundamental role in the daily lives of millions of consumers, connecting them to the world like no other medium. In the multi-tasking reality of modern-day life, audio has become more important than ever. The broader audio advertising sector in the U.S. represents an approximately $18 billion market opportunity including radio, podcasts and digital, according to PwC’s 2018-2022 Global Entertainment & Media Outlook report. iHeart is uniquely positioned in the audio advertising ecosystem as we touch each of these markets. We also compete in the larger $238 billion U.S. advertising market—inclusive of the $18 billion radio, podcast, and digital opportunity—by developing and offering competitive advertising products intended attract advertising and marketing dollars that might otherwise go to companies in the cable and broadcast television, digital, search, Internet, audio, print, newspaper, sponsorship and other advertising spaces.

 

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We believe there are two segments within the audio media space — music collection, which replaces downloads and CDs, and radio, which provides companionship. While these two segments have co-existed for over half a century, they are different businesses. Music collection is about the individual experience, allowing listeners to escape the world by creating and listening to their own playlists and music selections. Historic examples of the music collection experience include cassette tapes, mixtapes, CDs, LPs and 45 rpm records. Today, examples of music collections include Spotify and Pandora, which have evolved from previous forms of distribution including retail stores, downloads and physical copies. Radio, on the other hand, is a two-way social experience. The radio audience wants to be connected to the outside world, they look for companionship throughout the day, even a friend to share the ride to and from work. Radio is also a source of information that keeps them connected to the world 24/7 and allows them to discover everything from a new trending artist and song to traffic and weather information, celebrity news, new restaurants and social hotspots and trends. According to our Power of Personalities Survey, 80% of listeners in the 18-44 age group discover new music primarily through broadcast radio. While approximately 54% of the radio audience also has a music collection (according to Scarborough), they understand the difference between the two and consumption of both typically moves in parallel. According to our Audio Universe Survey, consistent with our prior Power of Personalities Survey, nine out of ten people surveyed say that they listen to both radio and music collections, but at different times, and for different reasons — acknowledging the difference between these two segments. Therefore, we believe digital audio consumption is “in addition to” and not “instead of” radio, as further evidenced by the fact that despite significant growth in digital audio from 2008 to 2018 — from 33 million weekly listeners to 160 million weekly listeners — broadcast radio has also grown in the same period from 236 million weekly broadcast radio listeners to 249 million weekly broadcast radio listeners aged 12+, as measured by Nielsen.

We believe broadcast radio continues to profoundly enrich the lives of listeners and create value for advertisers. Broadcast radio is the most prevalent audio medium, owing to its nearly universal and free access, far reaching penetration, ubiquity across platforms and role as a provider of both nationally and locally relevant programming. Compared with music collection platforms, we believe that when Americans choose radio, they do so primarily because it provides them with a companionship relationship. The younger demographic also prefers radio. Broadcast radio is the number one mass reach vehicle for teens, with a 93% reach every month. In fact, based on data from Nielsen and MRI, far more teens are reached by radio than by streaming devices or digital players, which supports the view that radio is here to stay with the emerging generation. Furthermore, new platforms and devices have increased radio’s momentum and there are several reasons why we believe radio will continue to thrive in the U.S.:

Reach across demographics

Broadcast radio is a mass appeal platform and continues to reach more Americans each week than any other platform across all demographics (teens, Millennials and adults). For example, for Millenials, according to Nielsen, radio has significantly outperformed television’s reach with a weekly reach of 91% of the U.S. population versus television’s live and time-shifted reach of 73%.

Broadcast radio not only reaches more Americans; it also has the largest share of listening. Based on data from Nielsen and Triton, 84% of time spent listening (excluding satellite radio and podcasts) is over broadcast radio. An important element of broadcast radio’s reach and share is in-car consumption. Broadcast radio dominates in-car listening, with 84% of car-using respondents indicating radio usage in 2018, the same rate as in 2011, according to an Edison survey conducted in September 2018. We believe this dynamic is unlikely to change materially, as a 2017 IPSOS In-Car survey indicates that eight in ten consumers in the U.S. agree that regular AM/FM radios will remain prevalent in cars and only 1% of respondents did not want an AM/FM radio with their next car.

Deep cultural connection with audience

Radio plays a special role in our culture. Nielsen data shows that radio still reaches essentially the same percentage of adults in the U.S. as in the early 1970s, demonstrating the enduring appeal of radio as a

 

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unique companionship medium. In contrast, television’s weekly reach of adults 18+ has declined from 94% in 2004 to 86% in 2018, and live and time-shifted television’s weekly reach among Millennials has also declined, from 91% to 73%, over the same period. In our increasingly multi-tasking lives, we believe that there will be more incremental opportunities for consumers to listen than to watch, and radio will be the major beneficiary of this opportunity.

Radio continues to offer consumers something different in the form of curated, personality-led audio. The medium is able to offer influencers a word-of-mouth style conversation, which propels audience engagement and connection in a very effective way. According to our Power of Personalities Survey, radio personalities have a unique connection with their listeners. In particular, 74% of survey respondents value the personalities’ opinions and perspectives and 63% considered or purchased a product recommended by their favorite personality. This engagement and personal relationship developed between radio personalities and the audience is also evidenced by data from a survey of 294 respondents that we conducted in December 2018 that indicates that broadcast radio is the most trusted medium in America. According to these survey respondents, broadcast radio is 81% more trustworthy than cable television, and two times more trustworthy than online websites and social media.

Additionally, radio has deep and ongoing relationships with recording artists and has a long history of also breaking new artists and music. Radio is the preferred medium for exposure as it leads to mass recognition, ultimately driving an artist’s music and concert sales. The 2017 Nielsen Music 360 Study (which is a study of the interaction with music by consumers ages 18-34 in the U.S.) and other surveys show that radio remains the number one source for discovering new music, and artists recognize the importance of broadcast radio in their success. We work closely with them on an ongoing basis to build out their marketing and career plans.

Superior Value Proposition For Advertisers

According to Nielsen, radio offers an 8:1 return on advertising spend. Radio typically has lower CPMs (cost per thousand impressions) on average than other mass reach platforms, which we believe provides another upside opportunity for revenue.

Technology Enables Adoption and Presents Significant Opportunity

In addition to the virtually universal penetration of radios in cars and strong penetration of homes and offices with traditional radios, technology has enabled radio to now be distributed across an even broader platform base, including smart phones, tablets, wearables, digital dashboards, gaming consoles and smart speakers, ultimately resulting in increased reach and return on investment. Select categories where radio benefits from recent technological advances and innovation include:

 

   

Streaming: There are two types of streaming services — streaming music and streaming radio — and both continue to grow. iHeartRadio offers consumers the ability to stream live radio broadcasts, digital-only radio stations, custom artist stations, and podcasts across a multitude of platforms and has a streaming user base of 128 million registered users.

 

   

Smart Speakers: With current market penetration levels of 26%, and the number of smart speaker users estimated to grow at a 48% compound annual growth rate between 2016 and 2020 based on eMarketer estimates, smart speakers present significant opportunity for radio’s growth in the home. Radio is one of the top activities on smart speakers, with 39% of owners using their smart speaker to listen to FM broadcast radio streams, 14% using it for AM radio stations and 14% using it for podcasts, according to NuVoodoo. In addition to existing radios, smart speakers are new devices and create incremental opportunities for additional listening in the home, expanding radio’s listening potential.

 

   

Podcasting: Podcasts continue to expand the audio landscape, and the number of users has surged to 90 million in the U.S. in 2019, according to Edison Infinite Dial in January 2019.

 

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By focusing on this trend, iHeartMedia has become the number one commercial podcast publisher globally, with 148 million monthly downloads and streams and nearly 17 million U.S. unique monthly users, as measured by Podtrac in February 2019. iHeartMedia is the only commercial broadcast or streaming audio media company that appears in the Top 10 in Podtrac, the industry standard for third-party podcast measurement, another indication of the unique multi-platform nature of iHeartMedia.

 

   

Big Data and Technology Enabled Advertising Platforms: The next level of efficiency in radio advertising will be supported by the increasing adoption of technology-enabled advertising solutions, including data analytics and targeting and programmatic advertising. New technology solutions will enable agencies to more accurately monitor the success of campaigns and target time slots and stations that are most appropriate for their advertising material. We believe iHeartMedia’s acquisition of Jelli, Inc. and our investments in SmartAudio have positioned us to be a leader in this area.

Competition

We compete for share of our listeners’ time and engagement, a challenging task in today’s fragmented and multi-tasking world. We believe our national reach, the strength of our brand and assets, the quality of our programming and personalities, and the companionship nature of our medium allows us to compete effectively against both our legacy competition—cable and broadcast television, and other broadcast radio operators—as well the new, digital competition, including streaming music and video services, social media, and other digital companies.

Similarly, we compete for advertising and marketing dollars in the U.S. advertising market against an increasingly diverse set of competitors. Our legacy competition for the $18 billion radio, podcast and digital advertising market includes legacy broadcast radio operators, as well as satellite radio companies, podcasters and streaming music companies with ad supported components of their business. We also compete in the larger $238 billion U.S. advertising market—inclusive of the $18 billion radio, podcast and digital opportunity—by developing and offering competitive advertising products intended to attract advertising and marketing dollars that might otherwise go to companies in the cable and broadcast television, digital, search, Internet, audio, print, newspaper, sponsorship and other advertising spaces.

Intellectual Property

Our success is dependent on our ability to obtain and maintain proprietary protection for our technology and the know-how related to our business, defend and enforce our intellectual property rights and operate our business without infringing, misappropriating or otherwise violating valid and enforceable intellectual property rights of others. We seek to protect our investments made into the development of our technology by relying on a combination of patents, trademarks, copyrights, trade secrets, know-how, confidentiality agreements and procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements and other contractual rights.

As of March 21, 2019, we own approximately 141 issued U.S. patents, 121 pending U.S. patent applications, 10 issued foreign patents and 10 pending foreign patent applications, in addition to 356 U.S. trademarks registrations, 27 U.S. trademark applications, 864 state trademark registrations, 35 state trademark applications, 516 foreign registered trademarks and 64 foreign trademark applications.

We have filed and acquired dozens of issued patents and active patent applications in the U.S. and we continue to pursue additional patent protection where appropriate and cost effective. We intend to hold these patents as part of our strategy to protect and defend the Company’s technology, including to protect and defend the Company in patent-related litigation. Our registered trademarks in the U.S. include our primary mark

 

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“iHeartRadio” and various versions of the iHeart word marks and logos. We have a portfolio of internet domain names, including our primary domains www.iheart.com and www.iheartmedia.com. We also have licenses with various rights holders to stream sound recordings and the musical compositions embodied therein, as further described under “—Regulation of our Business—Content, Licenses and Royalties” below.

We believe that our intellectual property has significant value and is important to our brand-building efforts and the marketing of our products and services. We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation of these rights. In addition to the forms of intellectual property listed above, we own rights to proprietary processes and trade secrets, including those underlying the iHeartRadio digital platform. While we use contractual and technological means to control the use and distribution of our proprietary software, trade secrets, and other confidential information, both internally and externally, including by entering into confidentiality agreements with our employees, contractors, and partners and maintaining physical security of our premises and physical and electronic security of our information technology systems, such measures can be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

Regulation of our Business

General

The following is a brief summary of certain statutes, regulations, policies and proposals affecting our business. For example, radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act. The Communications Act permits the operation of a radio broadcast station only under a license issued by the FCC upon a finding that grant of the license would serve the public interest, convenience and necessity. Among other things, the Communications Act empowers the FCC to: issue, renew, revoke and modify broadcasting licenses; assign frequency bands for broadcasting; determine stations’ frequencies, locations, power and other technical parameters; impose penalties and sanctions for violation of its regulations, including monetary forfeitures and, in extreme cases, license revocation; impose annual regulatory and application processing fees; and adopt and implement regulations and policies affecting the ownership, program content, employment practices and many other aspects of the operation of broadcast stations.

This summary does not comprehensively cover all current and proposed statutes, regulations and policies affecting our business. Reference should be made to the Communications Act, FCC rules, public notices and rulings and other relevant statutes, regulations, policies and proceedings for further information concerning the nature and extent of regulation of our business. Finally, several of the following matters are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our business.

Transfer or Assignment of Licenses

The Communications Act prohibits the assignment of a license or the transfer of control of an FCC licensee without prior FCC approval. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the existing licensee and the proposed licensee, including:

 

   

compliance with the FCC’s ownership rules;

 

   

the “character” of the proposed licensee; and

 

   

compliance with the Communications Act’s limitations on alien ownership as well as general compliance with FCC regulations and policies.

Applications for license assignments or transfers involving a substantial change in ownership are subject to a 30-day period for public comment, during which petitions to deny the application may be filed and considered by the FCC.

 

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License Renewal

The FCC grants broadcast licenses for a term of up to eight years. The FCC will renew a license for an additional eight-year term if, after consideration of the renewal application and any objections thereto, it finds that the station has served the public interest, convenience and necessity and that, with respect to the station seeking renewal, there have been no serious violations of either the Communications Act or the FCC’s rules and regulations by the licensee and no other such violations which, taken together, constitute a pattern of abuse. The FCC may grant the license renewal application with or without conditions, including renewal for a term less than eight years. The vast majority of radio licenses are renewed by the FCC for the full eight-year term. While we cannot guarantee the grant of any future renewal application, our stations’ licenses historically have been renewed for the full eight-year term.

Ownership Regulation

FCC rules and policies define the interests of individuals and entities, known as “attributable” interests, which implicate FCC rules governing ownership of broadcast stations. Under these rules, attributable interests generally include: (1) officers and directors of a licensee and of its direct and indirect parents; (2) general partners; (3) limited partners and limited liability company members, unless properly “insulated” from management activities; (4) a 5 percent or more direct or indirect voting stock interest in a corporate licensee or parent, except that, for a narrowly defined class of passive investors (consisting of “investment companies” as defined in 15 U.S.C. § 80a-3, insurance companies, and bank trust department), the attribution threshold is a 20 percent or more voting stock interest; and (5) combined equity and debt interests in excess of 33 percent of a licensee’s total asset value, if the interest holder provides over 15 percent of the licensee station’s total weekly programming, or has an attributable same-service (radio or television) broadcast 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 percent of the broadcast time, or sells more than 15 percent per week of the advertising time, on a radio station in the same market is generally deemed to have an attributable interest in that 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. To the best of our knowledge at present, none of our officers, directors or 5 percent or greater stockholders holds an interest in another broadcast station that is inconsistent with the FCC’s ownership rules.

The current FCC ownership rules relevant to our business are summarized below.

 

   

Local Radio Ownership Rule. The maximum allowable number of radio stations that may be commonly owned in a market is based on the size of the market. In markets with 45 or more stations, one entity may have an attributable interest in up to eight stations, of which no more than five are in the same radio service (AM or FM). In markets with 30-44 stations, one entity may have an attributable interest in up to seven stations, of which no more than four are in the same service. In markets with 15-29 stations, one entity may have an attributable interest in up to six stations, of which no more than four are in the same service. In markets with 14 or fewer stations, one entity may have an attributable interest in up to five stations, of which no more than three are in the same service, so long as the entity does not have an interest in more than 50 percent of all stations in the market. To apply these ownership tiers, the FCC relies on Nielsen Metro Survey Areas, where they exist, and a signal contour-overlap methodology where they do not exist. An FCC rulemaking is pending to determine how to define radio markets for stations located outside Nielsen Metro Survey Areas.

 

   

Newspaper-Broadcast Cross-Ownership Rule. FCC rules formerly prohibited an individual or entity from having an attributable interest in either a radio or television station and a daily newspaper located in the same market. As noted below, the FCC has adopted an order eliminating this prohibition, although the order remains subject to pending court appeals.

 

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Radio-Television Cross-Ownership Rule. FCC rules formerly limited the common ownership of television same-market radio stations. As noted below, the FCC has adopted an order eliminating limitations on radio-television cross-ownership, although the order remains subject to pending court appeals.

In order to help ensure our compliance with the FCC’s media ownership rules, by purchasing Class A common stock in this offering, you are representing to us that your purchase of stock will not cause you, together with any person or entity with which your interests must be aggregated pursuant to FCC regulations, and taking into account any stock that you or such person or entity subject to aggregation already owns, to acquire an “attributable” interest in us. See Prospectus Summary—“The Offering”—“FCC media ownership restrictions on purchasing Class A common stock in this offering.” You should consult with counsel to ensure that you can make the representation required to purchase Class A common stock in this offering and before making significant investments in our securities and in other media companies.

The FCC is required to conduct periodic reviews of its media ownership rules. In August 2016, the FCC concluded its 2010 and 2014 quadrennial reviews with a decision retaining the local radio ownership rules, the radio-television cross-ownership rule and the prohibition on newspaper-broadcast cross-ownership without significant change. In November 2017, however, the FCC adopted an order reconsidering the August 2016 decision and modifying it in a number of respects. The November 2017 order on reconsideration did not significantly modify the August 2016 decision with respect to the local radio ownership limits. It did, however, eliminate the FCC’s previous limits on radio-television cross-ownership and newspaper-broadcast cross-ownership. These rule changes became effective on February 7, 2018, but the November 2017 order on reconsideration has been appealed. In December 2018, the FCC commenced its 2018 quadrennial review of its media ownership regulations. Among other things, the FCC is seeking comment on all aspects of the local radio ownership rule’s implementation and whether the current version of the rule remains necessary 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.

Irrespective of the FCC’s media ownership rules, the Antitrust Division of the U.S. Department of Justice (“DOJ”) and the U.S. Federal Trade Commission (“FTC”) have the authority to determine that a particular transaction presents antitrust concerns. In particular, where the proposed purchaser already owns one or more radio stations in a particular market and seeks to acquire radio stations in that market, the DOJ has, in some cases, obtained consent decrees requiring radio station divestitures.

Alien Ownership Restrictions

The Communications Act and FCC regulations restrict foreign entities or individuals from owning or voting more than 20 percent of the equity of a broadcast licensee directly. They also restrict foreign entities or individuals from owning or voting more than 25 percent of a licensee’s equity indirectly (i.e., through a parent company), unless the FCC has made a finding that greater indirect foreign ownership is in the public interest. Since we serve as a holding company for FCC licensee subsidiaries, we are effectively restricted from having more than one-fourth of our stock owned or voted directly or indirectly by foreign entities or individuals. The FCC will entertain and authorize, on a case-by-case basis and upon a sufficient public interest showing, proposals to exceed the 25 percent foreign ownership limit in broadcasting holding companies. In September 2016, the FCC adopted rules to simplify and streamline the process for broadcasters to request authority to exceed the 25 percent indirect foreign ownership limit and reformed the methodology that publicly-traded broadcasters must use to assess their compliance with the foreign ownership restrictions.

The FCC calculates foreign voting rights separately from equity ownership, and both must be at or below the 25 percent thresholds unless the FCC has issued a declaratory ruling allowing foreign ownership or voting in excess of those thresholds. Warrants and other future interests typically are not taken into account in determining foreign ownership compliance. To the extent that our aggregate foreign ownership or voting percentages would

 

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exceed 25 percent, any individual foreign holder or “group” as holders, as defined pursuant to FCC regulations, of our common stock whose ownership or voting percentage would exceed 5 percent or 10 percent (with the applicable percentage determined pursuant to FCC rules) will additionally be required to obtain the FCC’s “specific approval.” In general, “specific approval” is required for a foreign entity or individual or group to hold a greater than 5 percent equity or voting interest in an entity that is subject to the FCC’s foreign ownership limitations and has received a declaratory ruling authorizing foreign ownership in excess of those limitations. The higher 10 percent threshold applies only if an entity (i) does not and would not hold a controlling interest in the entity subject to the FCC’s foreign ownership limitations, and (ii) is an “institutional investor” that is eligible to report its beneficial ownership interests in the company’s voting equity securities in excess of 5 percent (not to exceed 10 percent) pursuant to Exchange Act Rule 13d-1(b), 17 C.F.R. § 240.13d-1(b), or a substantially comparable foreign law or regulation.

In order to help ensure our compliance with the FCC’s foreign ownership limitations, by purchasing Class A common stock in this offering, you are representing to us that you (i) are not the representative of any foreign government or foreign person; (ii) if a natural person, are a citizen of the United States; and (iii) if an entity, are (a) organized under the laws of the United States, and (b) have less than 25 percent of your voting rights, and less than 25 percent of your equity, held directly or indirectly by non-U.S. persons or entities, as determined pursuant to the FCC’s regulations. In addition, you are representing to us that your purchase of Class A common stock in this offering will not cause you, together with any person or entity with which your interests must be aggregated pursuant to FCC regulations, and taking into account any stock that you or such person or entity subject to aggregation pursuant to FCC regulations already owns, to acquire a voting or equity interest in the Company that requires “specific approval” under the FCC’s foreign ownership limitations (generally a voting or equity interest in excess of 5 percent or 10 percent, with the applicable percentage determined by FCC regulations). See “Prospectus Summary—The Offering—FCC foreign ownership restrictions on purchasing Class A common stock in this offering.” You should consult with counsel to ensure that you can make the representations required to purchase Class A common stock in this offering.

Programming and Indecency Regulation

The Communications Act requires broadcasters to serve the “public interest.” A licensee is required to present programming that is responsive to issues in the station’s community of license and to maintain records demonstrating this responsiveness. The FCC also regulates, among other things, political advertising; sponsorship identification; the advertisement of contests and lotteries; the conduct of station-run contests and obscene, indecent and profane broadcasts.

Federal law regulates the broadcast of obscene, indecent or profane material. Legislation enacted by Congress provides the FCC with authority to impose fines of up to $397,251 per utterance with a cap of $3.667 million for any violation arising from a single act. In June 2012, the U.S. Supreme Court ruled on the appeals of several FCC indecency enforcement actions. While setting aside the particular FCC actions under review on narrow due process grounds, the Supreme Court declined to rule on the constitutionality of the FCC’s indecency policies, and the FCC has since solicited public comment on those policies. We have received, and may receive in the future, letters of inquiry and other notifications from the FCC concerning complaints that programming aired on our stations contains indecent or profane language. We cannot predict the outcome of any outstanding or future letters of inquiry and notifications from the FCC or the nature or extent of future FCC indecency enforcement actions.

The FCC regulates the conduct of on-air station contests, requiring in general that the material rules and terms of the contest be broadcast periodically or posted online and that the contest be conducted substantially as announced.

 

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Equal Employment Opportunity

The FCC’s rules require broadcasters to engage in broad equal employment opportunity recruitment efforts, retain data concerning such efforts and report much of this data to the FCC and to the public via periodic reports filed with the FCC or placed in stations’ public files and websites. Broadcasters could be sanctioned for noncompliance.

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 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. The FCC is also considering the adoption of rules which may limit our ability to prevent interference by FM translators to the reception of our full-power radio stations.

Content, Licenses and Royalties

We must pay royalties to copyright owners of musical compositions (typically, songwriters and publishers) whenever we broadcast or stream musical compositions. Copyright owners of musical compositions most often rely on intermediaries known as performing rights organizations (“PROs”) to negotiate licenses with copyright users for the public performance of their compositions, collect royalties under such licenses and distribute them to copyright owners. We have obtained public performance licenses from, and pay license fees to, the three major PROs in the U.S., which are the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”) and SESAC, Inc. (“SESAC”). There is no guarantee that a given songwriter or publisher will remain associated with ASCAP, BMI or SESAC or that additional PROs will not emerge. In 2013, a new PRO was formed named Global Music Rights (“GMR”). GMR has secured the rights to certain copyrights and is seeking to negotiate individual licensing agreements with radio stations for songs in its repertoire. GMR and the Radio Music License Committee, Inc. (“RMLC”), which negotiates music licensing fees with PROs on behalf of many U.S. radio stations, have instituted antitrust litigation against one another. The litigation is ongoing. The withdrawal of a significant number of musical composition copyright owners from the three established PROs; the emergence of one or more additional PROs; and the outcome of the GMR/RMLC litigation could impact, and in some circumstances increase, our royalty rates and negotiation costs.

To secure the rights to stream music content over the Internet, we also must obtain performance rights licenses and pay public performance royalties to copyright owners of sound recordings (typically, performing artists and record companies). Under Federal statutory licenses, we are permitted to stream any lawfully released sound recordings and to make ephemeral reproductions of these recordings on our computer servers without having to separately negotiate and obtain direct licenses with each individual copyright owner as long as we operate in compliance with the rules of those statutory licenses and pay the applicable royalty rates to SoundExchange, the organization designated by the Copyright Royalty Board (“CRB”) to collect and distribute royalties under these statutory licenses. Sound recordings fixed on or after February 15, 1972 are protected by federal copyright law. Sound recording copyright owners have asserted that state law provides copyright protection for recordings fixed before that date (“pre-72 recordings”). Sound recording copyright owners have sued radio broadcasters and digital audio transmission services (including us) for unauthorized public performances and reproductions of pre-72 recordings under various state laws. In October 2018, federal legislation was signed into law that applies a statutory licensing regime to pre-72 recordings similar to that which governs post-72 recordings. Among other things, the new law extends remedies for copyright infringement to owners of pre-72 recordings when recordings are used without authorization. The new law creates a public performance right for pre-72 recordings streamed online that may increase our licensing costs.

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deliveries of and, in some cases, to directly license their sound recordings for use in our Internet operations. There is no guarantee that the licenses and associated royalty rates that currently are available to us will be available to us in the future. Congress may consider and adopt legislation that would require us to pay royalties to sound recording copyright owners for broadcasting those recordings on our terrestrial radio stations. In addition, the CRB has issued a final determination establishing copyright royalty rates for the public performance and ephemeral reproduction of sound recordings by various non-interactive webcasters, including radio broadcasters that simulcast their terrestrial programming online, to apply to the period January 1, 2016-December 31, 2020 under the so-called webcasting statutory license. A proceeding to establish the rates for 2021-2025 is expected to begin in 2019. Increased royalty rates could significantly increase our expenses, which could adversely affect our business. Additionally, there are conditions applicable to the webcasting statutory license. Some, but not all, record companies have agreed to waive or provide limited relief from certain of these conditions under certain circumstances for set periods of time. Some of these conditions may be inconsistent with customary radio broadcasting practices.

Proposed Changes

Congress, the FCC and other government agencies and regulatory bodies may in the future adopt new laws, regulations and policies that could affect, directly or indirectly, the operation, profitability and ownership of our broadcast stations and Internet-based audio music services. In addition to the regulations, proceedings and procedures noted above, such matters may include, for example: proposals to impose spectrum use or other fees on FCC licensees; changes to the political broadcasting rules, including the adoption of proposals to provide free air time to candidates; restrictions on the advertising of certain products, such as beer and wine; frequency allocation, spectrum reallocations and changes in technical rules; and the adoption of significant new programming and operational requirements designed to increase local community-responsive programming and enhance public interest reporting requirements.

Local Marketing Agreements

A number of radio stations, including certain of our stations, have entered into local marketing agreements (“LMAs”). In a typical LMA, the licensee of a station makes available, for a fee and reimbursement of its expenses, airtime on its station to a party which supplies programming to be broadcast during that airtime, and collects revenues from advertising aired during such programming. LMAs are subject to compliance with the antitrust laws and the Communications Laws, including the requirement that the licensee must maintain independent control over the station and, in particular, its personnel, programming, and finances.

A station that brokers more than 15 percent of the weekly programming hours on another station in its market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC’s ownership rules. As a result, a radio station may not enter into an LMA that allows it to program more than 15 percent of the weekly programming hours of another station in the same market that it could not own under the FCC’s multiple ownership rules.

Antitrust and Market Concentration Considerations

Pending and potential future acquisitions, to the extent they meet specified size thresholds, will be subject to applicable waiting periods and possible review under the Hart-Scott-Rodino Act (the “HSR Act”), by the DOJ or the FTC, either of which can be required to, or can otherwise decide to, evaluate a transaction to determine whether that transaction should be challenged under the federal antitrust laws. Transactions generally are subject to the HSR Act if the acquisition price or fair market value of the stations to be acquired is $90 million or more (such threshold effective April 3, 2019). Acquisitions that are not required to be reported under the HSR Act may still be investigated by the DOJ or the FTC under the antitrust laws before or after consummation. At any time before or after the consummation of a proposed acquisition, the DOJ or the FTC could take such action under the antitrust laws as it deems necessary, including seeking to enjoin the acquisition or seeking divestiture of the

 

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business acquired or certain of our other assets. The DOJ has reviewed numerous potential radio station acquisitions where an operator proposed to acquire additional stations in its existing markets or multiple stations in new markets, and has challenged a number of such transactions. Some of these challenges have resulted in consent decrees requiring the sale of certain stations, the termination of LMAs or other relief. In general, the DOJ has more closely scrutinized radio mergers and acquisitions resulting in local market shares in excess of 35 percent of local radio advertising revenues, depending on format, signal strength and other factors. There is no precise numerical rule, however, and certain transactions resulting in more than 35 percent revenue shares have not been challenged, while certain other transactions may be challenged based on other criteria such as audience shares in one or more demographic groups as well as the percentage of revenue share. We estimate that we have more than a 35% share of radio advertising revenues in many of our markets.

There can be no assurance that future acquisitions will not be the subject of an investigation or enforcement action by the DOJ or the FTC. Similarly, there can be no assurance that the DOJ, the FTC or the FCC will not prohibit such acquisitions, require that they be restructured, or in appropriate cases, require that we divest stations we already own in a particular market or divest specific lines of business. In addition, private parties may under certain circumstances bring legal action to challenge an acquisition under the antitrust laws.

As part of its review of certain radio station acquisitions, the DOJ has stated publicly that it believes that commencement of operations under LMAs, JSAs and other similar agreements customarily entered into in connection with radio station ownership assignments and transfers prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. In connection with acquisitions subject to the waiting period under the HSR Act, we will not commence operation of any affected station to be acquired under an LMA, a JSA, or similar agreement until the waiting period has expired or been terminated.

No assurances can be provided that actual, threatened or possible future DOJ or FTC action in connection with potential transactions would not have a material adverse effect on our ability to enter into or consummate various transactions, or operate any acquired stations at any time in the future.

Privacy and Data Protection

We obtain certain types of information from users of our technology platforms, including, without limitation, our websites, web pages, interactive features, applications, social media pages, and mobile application (“Platforms”), in accordance with the privacy policies and terms of use posted on the applicable Platform. We collect personally identifiable information directly from Platform users in several ways, including when a user purchases our products or services, registers to use our services, fills out a listener profile, posts comments, uses our social networking features, participates in polls and contests and signs up to receive email newsletters. We also may obtain information about our listeners from other listeners and third parties. We use and share this information for a variety of business purposes including for analytics, attribution and advertising purposes. Outside our radio business, we collect personally identifiable information from our employees, from users of our public bike services, from our business partners and from consumers who interact with our digital panels, including the use of behavioral analysis software. In addition, we obtain anonymous and aggregated audience behavior information from third-party data providers who represent to us that they are compliant with applicable laws.

We are subject to a number of laws and regulations relating to consumer protection, information security, data protection and privacy. Many of these laws and regulations are still evolving (such as the new California Consumer Privacy Act) and could be interpreted in ways that could harm our business or limit the services we are able to offer. In the area of information security and data protection, the laws in several states in the United States and most countries require companies to implement specific information security controls and legal protections to protect certain types of personally identifiable information. Likewise, most states in the United States and most countries have laws in place requiring companies to notify users if there is a security breach that compromises certain categories of their personally identifiable information. Any failure on our part to comply with these laws may subject us to significant liabilities.

 

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We regularly review and implement commercially reasonable organizational and technical physical and electronic security measures that are designed to protect against the loss, misuse, and alteration of our listeners’, employees’, clients’ and customers’ personally identifiable information and to protect our proprietary business information. Despite our best efforts, no security measures are perfect or impenetrable. Any failure or perceived failure by us to protect our information or information about our listeners, employees, clients and customers or to comply with our policies or applicable regulatory requirements could result in damage to our business and loss of confidence in us, damage to our brands, the loss of users of our services, including listeners, consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could harm our business.

Employees

As of December 31, 2018, we had approximately 12,500 employees, of which approximately 11,600 were in direct operations and 900 were in administrative or corporate related activities. Approximately 700 of our employees are subject to collective bargaining agreements. We are a party to numerous collective bargaining agreements, none of which represent a significant number of employees. We believe that our relationship with our union and non-union employees is good.

Properties

For a description of our principal properties as of December 31, 2018, please refer to Item 2, “Properties” of our 2018 Annual Report, which is incorporated by reference herein.

Following the Separation and Reorganization, we expect that our principal properties will be as follows:

Our corporate headquarters are located in San Antonio, Texas, where we lease space for executive offices and a data and administrative service center. In addition, certain of our executive and other operations are located in New York, New York.

The types of properties required to support each of our radio stations include offices, studios, transmitter sites and antenna sites. We either own or lease our transmitter and antenna sites. During 2015 and 2016, we sold approximately 382 of our owned broadcast communication tower sites and entered into operating leases for the use of the sites. These leases generally have expiration dates that range from five to 30 years. A radio station studios are generally housed with its offices in downtown or business districts. A radio stations transmitter sites and antenna sites are generally positioned in a manner that provides maximum market coverage.

The studios and offices of our radio stations are located in leased or owned facilities. These leases generally have expiration dates that range from one to 40 years. We do not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. We lease substantially all of our towers and antennas and own substantially all of the other equipment used in our business.

Legal Proceedings

We are subject to various lawsuits and other claims in the normal course of business. In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with law or regulations in jurisdictions in which we operate.

 

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OUR SEPARATION AND REORGANIZATION

On March 14, 2018, we, iHeartCommunications and certain of our direct and indirect domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the Bankruptcy Court. On April 28, 2018, we and the other Debtors filed a plan of reorganization (as amended, the “Plan of Reorganization”) and a related disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court, which we subsequently amended by filing the second, third, fourth and fifth amended Plan of Reorganization and amended versions of the Disclosure Statement. On December 3, 2018, we announced that more than 90% of the votes cast by the creditors and shareholders who were entitled to vote had voted to accept the Plan of Reorganization, which exceeded the votes necessary for confirmation and reflected the support of holders of nearly $12 billion of outstanding debt obligations across the Debtor’s capital structure, as well as the Debtors’ equity sponsors. On January 22, 2019, our Plan of Reorganization was confirmed by the Bankruptcy Court.

On the Effective Date, we will emerge from Chapter 11 through (a) the Separation, a series of transactions through which the Outdoor Group (as defined below) and its related businesses will be separated from, and cease to be controlled by, us and our subsidiaries, and (b) the Reorganization, a series of transactions through which we will reduce iHeartCommunications’ debt from approximately $16 billion to approximately $5.75 billion and effect a global compromise and settlement among Claimholders, which involves, among others, (i) the restructuring of our indebtedness by (A) replacing our “debtor-in-possession” credit facility with $450.0 million senior secured asset-based revolving credit facility (the “New ABL Facility”) and (B) issuing to certain of its prepetition senior creditors, on account of their claims, a $3.5 billion senior secured term loan credit facility (the “New Term Loan Facility”), $1.45 billion aggregate in principal amount of new     % Senior Unsecured Notes due 2027 (the “New Senior Unsecured Notes”) and $800.0 million aggregate principal amount of new     % Senior Secured Notes due 2026 (the “New Senior Secured Notes” and, together with the New Senior Unsecured Notes, the “New Senior Notes”), (ii) our issuance of new Class A common stock, Class B common stock, and special warrants to purchase shares of Class A common stock or Class B common stock (“Special Warrants”) to Claimholders, subject to required long-form change of control approvals from and ownership restrictions imposed by the FCC, and (iii) the intercompany settlement transactions and sale of the iHeart Operations Preferred Stock effected in connection with the Separation. See “Description of Certain Indebtedness and Subsidiary Preferred Stock” for more information.

The Separation

Through the Separation, CCOH, its parent Clear Channel Holdings, Inc. (“CCH”) and its subsidiaries (the “Outdoor Group”) will be separated from, and cease to be controlled by, us and our subsidiaries. The Separation involves the following series of transactions:

 

   

Consolidation in ownership of CCOH at CCH: The equity ownership in CCOH will be consolidated such that CCH will hold all of the outstanding Class A common stock of CCOH, through a series of share distributions by other subsidiaries who hold CCOH common stock and a conversion of Class B common stock that CCH holds in CCOH to Class A common stock.

 

   

Separation between Outdoor Group and iHeart Group: Pursuant to the Separation and Settlement Agreement (“Separation Agreement”) entered into among us, iHeartCommunications, CCH and CCOH, (a) CCH and CCOH will or will cause their subsidiaries to transfer to us and our subsidiaries (the “iHeart Group”) all direct or indirect title and interest in the assets of the business we conduct after giving effect to the Separation, and we will assume the liabilities associated with such assets and (b) we and iHeartCommunications will, and will cause each of our relevant subsidiaries to transfer to iHeartCommunications, and iHeartCommunications will in turn transfer to CCH or the relevant member of the Outdoor Group, any and all direct or indirect title and interest in the assets related to or used in connection with the business of the Outdoor Group, and such member of the Outdoor Group

 

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will assume the liabilities associated with such assets. The Separation Agreement also contemplates a series of intercompany settlement transactions which are reflected in the Reorganization, as described in “The Reorganization” below.

 

   

Creation of iHeart Operations and its independence from the Outdoor Group: CCH will transfer its interest in all of its subsidiaries other than CCOH to a newly formed corporation called iHeart Operations, Inc. (“iHeart Operations”) in exchange for newly-issued common stock (“iHeart Operations Common Stock”) and 60,000 shares of Series A preferred stock of iHeart Operations (“iHeart Operations Preferred Stock”). CCH will distribute all of the iHeart Operations Common Stock to iHeartCommunications so that we assume control of iHeart Operations.

 

   

Creation of New CCOH and its independence from the iHeart Group: CCOH will merge with and into CCH, with CCH surviving the merger and changing its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”), and shares of CCOH Class A common stock (other than shares of CCOH Class A common stock held by CCH or any direct or indirect wholly-owned subsidiary of CCH) will be converted into an equal number of shares of common stock of New CCOH. iHeartCommunications will transfer the common stock of New CCOH it holds to Claimholders pursuant to the Plan of Reorganization, and New CCOH will become an independent public company.

Immediately following the Separation, the following arrangements will be in place between the Outdoor Group and the iHeart Group.

iHeartCommunications Line of Credit

iHeartCommunications will provide Clear Channel Outdoor, LLC (“CCOL”), a subsidiary of CCH, with a revolving credit facility that provides for borrowings, at CCOL’s option, of up to $200 million, with any borrowings bearing interest at a rate equal to the prime lending rate (the “iHeartCommunications Line of Credit”). The iHeartCommunications Line of Credit will be unsecured. The facility will have a three year maturity, and may be terminated by CCOL earlier at its option. The terms of the iHeartCommunications Line of Credit have yet to be fully negotiated and the facility remains subject to approval by the parties. It is expected that the parties will enter into this facility upon consummation of the iHeart Chapter 11 Cases and the Separation.

Borrowings under the iHeartCommunications Line of Credit are expected to bear interest at the U.S. prime rate, provided that so long as any event of default has occurred and is continuing, at the option of iHeartCommunications, interest shall accrue at the rate of the prime rate plus 2.0% per annum. The iHeartCommunications Line of Credit is expected to: (a) require prepayments in the event that the Outdoor Group’s consolidated liquidity (as defined by the revolving loan agreement governing the iHeartCommunications Line of Credit) exceeds $137.5 million, in the amount of such excess, (b) contain affirmative covenants requiring CCOL to deliver monthly unaudited financial information and three-month projected monthly sources and uses of cash, (c) contain negative covenants restricting the ability of CCOL to repay any indebtedness, subject to certain exceptions and (d) contain customary events of default, including default in the payment of principal or interest and default in the payment of certain other indebtedness.

Transition Services Agreement

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

 

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The charges for the transition services will generally be intended to be consistent with the Corporate Services Agreement. The allocation of cost is expected to be based on various measures depending on the service provided, which measures include relative revenue, employee headcount or number of users of a service. New CCOH may request an extension of the term for all services or individual services for one-month periods for up to an additional 12 months, and the price for transition services provided during such extended term will be increased for any service other than those identified in the schedules to the Transition Services Agreement as an “IT Service” or any other service the use and enjoyment of which requires the use of another IT Service.

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

New Tax Matters Agreement

In connection with the Separation, we will enter into the New Tax Matters Agreement by and among iHeartMedia, iHeartCommunications, iHeart Operations, Inc., CCH, CCOH and Clear Channel Outdoor, Inc., to allocate the responsibility of iHeartMedia and its subsidiaries, on the one hand, and CCOH and its subsidiaries, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation.

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

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

Any tax liability of CCH attributable to any taxable period ending on or before the date of the completion of the separation of CCOH, other than any such tax liability resulting from CCH’s being a successor of CCOH in connection with the merger of CCOH with and into CCOH or arising from the operation of the business of CCOH and its subsidiaries after the merger of CCOH with and into CCH, will not be treated as a liability of CCOH and its subsidiaries for purposes of the New Tax Matters Agreement. CCOH’s obligations and rights under the New Tax Matters Agreement will be assumed by CCH in the merger of CCOH with and into CCH (subject to the note above regarding tax liability of CCH for taxable periods ending on or before the date of the completion of the separation of CCOH).

 

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The Reorganization

In order to reduce iHeartCommunications’ debt from $16 billion to $5.75 billion and effect a global compromise and settlement among Claimholders, we will engage in the Reorganization, which includes, among others, (a) the restructuring of our indebtedness by replacing our “debtor-in-possession” credit facility with the New Credit ABL Facility, borrowing under the New Term Loan Facility, and issuing a series of New Senior Notes, (b) our issuance of new Class A and Class B common stock and Special Warrants to Claimholders, subject to required long-form change of control approvals from and ownership restrictions imposed by the FCC, (c) the intercompany settlement transactions and sale of iHeart Operations Preferred Stock for cash in connection with the Separation as defined above and (d) our entry into post-emergence equity incentive programs and extending certain executive compensation arrangements.

Entry into New Indebtedness

On the Effective Date, iHeartCommunications will (a) replace its “debtor-in-possession” credit facility with a $450.0 million senior secured asset-based revolving credit facility and (b) will issue to certain of its prepetition senior creditors, on account of their claims, (i) a $3.5 billion senior secured term loan credit facility, and (ii) $1.450 billion aggregate principal amount of     % Senior Unsecured Notes due 2027 and $800.0 million aggregate principal amount of     % Senior Secured Notes due 2026. See “Description of Certain Indebtedness”.

Issuance of New Common Stock

On the Effective Date, the outstanding shares of our capital stock will be cancelled, and we will issue new shares of Class A common stock, Class B common stock and Special Warrants to our existing creditors and equity holders under section 1145 of the Bankruptcy Code.

As described below, we are subject to certain voting and equity ownership restrictions imposed by the Communications Act and the rules and regulations of the FCC, and we have taken, and will continue to take certain measures to comply with such restrictions.

Long-Form Change of Control Approval

The assignment or transfer of control of FCC-issued licenses requires consent of the FCC. We had previously obtained approval through the short-form procedures in March and April of 2018 for the “involuntary” assignment that was deemed to occur upon our entry into the Chapter 11 Cases. However, the issuance of new voting common stock to Claimholders will effect a substantial change in ownership of us and trigger a “voluntary” assignment and will require us to obtain approval through the long-form application (“Long Form Approval”).

We filed the Long Form Approval in October 2018, and our obtaining such Long Form Approval is a condition to our emergence and the effectiveness of the Plan of Reorganization. We expect to receive the Long-Form Approval soon.

Ownership Restrictions

Under the Communications Act and FCC regulations, foreign entities may not have direct or indirect ownership or voting rights of more than 25 percent in a corporation controlling the licensee of a radio broadcast station if the FCC finds that the public interest will be served by the refusal or revocation of such a license due to foreign ownership or voting rights (the “Foreign Ownership Rule”). Thus, the FCC must make an affirmative public interest finding before a broadcast license may be held by a corporation that is more than 25 percent owned or controlled, directly or indirectly, by foreign persons or other non-U.S. entities. In determining foreign ownership, the FCC separately considers voting rights and equity ownership, but generally does not take into account warrants and other future interests. Since November 2013, the FCC has permitted, on a case-by-case basis, certain entities that have filed a petition for a declaratory ruling (“Declaratory Ruling”) to exceed the 25 percent foreign equity and voting ownership threshold, subject to certain conditions. Under our Plan of

 

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Reorganization, we plan to file a petition for Declaratory Ruling, but the FCC’s granting our Declaratory Ruling is not a condition to our emergence, and we do not expect the FCC to do so prior to the Reorganization in any case. Furthermore, FCC rules provide that an owner of equity in a corporation that controls FCC broadcast licenses may be deemed “attributable” if it owns, directly or indirectly, 5 percent or more of the voting equity of such corporation (the “Attributable Interest Rule”, and, together with the Foreign Ownership Rule, the “Ownership Restrictions”).

We believe that the equity allocation mechanism (“Equity Allocation Mechanism”) set forth in the Plan of Reorganization enables us to comply with the Ownership Restrictions in connection with our emergence. The Equity Allocation Mechanism imposes an obligation on each Claimholder to provide written certification sufficient for us to determine whether issuance of common stock to such Claimholder would cause us to violate the Ownership Restrictions, and restricts us from issuing common stock to Claimholders such that it would cause us to exceed an aggregate alien ownership or voting percentage of 22.5 percent (the “22.5 Percent Threshold”), subject to certain exceptions if the FCC grants our Declaratory Ruling. We believe that the 22.5 Threshold will promote the liquidity of our stock by permitting market purchases by individuals or entities that may have the effect of increasing or decreasing the aggregate foreign ownership levels in small amounts, while ensuring that we comply with the Ownership Rules. The Equity Allocation Mechanism also provides that Claimholders may only receive a distribution of more than 4.99 percent of our issued and outstanding Class A common stock if such distribution would allow us to comply with the Attributable Interest Rule.

Furthermore, our certificate of incorporation effective upon emergence allows us to take certain protective measures if we believe that the ownership or proposed ownership of shares of capital stock by any person or entity may result in, among others, violation of the Ownership Rules. See “Description of Capital Stock— Restrictions relating to FCC Regulations.”

Intercompany Settlement and Sale of iHeart Operations Preferred Stock

Under the Separation Agreement, certain intercompany notes and intercompany accounts among the Outdoor Group and the iHeart Group will be settled, terminated and cancelled. The note payable by iHeartCommunications to CCOH will be cancelled, and any agreements or licenses requiring royalty payments to the iHeart Group by the Outdoor Group for trademarks or other intellectual property will terminate effective as of December 31, 2018. Furthermore, each of the following will be terminated, canceled and be of no further force or effect (including any provisions that purport to survive termination): (i) all agreements, arrangements, commitments or understandings, whether or not in writing, between or among members of the Outdoor Group, on the one hand, and members of the iHeart Group, on the other hand, relating to the sweep of the cash balance in CCOH’s concentration account to iHeartCommunications’ master account; (ii) that certain Master Agreement, dated as of November 16, 2005, by and between iHeartCommunications and CCOH; (iii) that certain Employee Matters Agreement, dated as of November 10, 2005, by and between iHeartCommunications and CCOH; (iv) that certain Corporate Services Agreement, dated as of November 10, 2005, by and between iHeartMedia Management Services, Inc. and CCOH (the “Corporate Services Agreement”); and (v) that certain Amended and Restated License Agreement, dated as of November 10, 2005, by and between iHM Identity, Inc. and Outdoor Management Services, Inc., as amended by that certain First Amendment dated as of January 1, 2011.

The iHeart Preferred Stock issued to CCH in connection with the Separation will be sold to third parties for cash, which cash will further be distributed to iHeartCommunications. See “Description of Certain Indebtedness and Subsidiary Preferred Stock—iHeart Operations Preferred Stock” for a description of the iHeart Operations Preferred Stock.

Entry into a Post-Emergence Equity Incentive Program and Extensions of Executive Compensation Arrangements

We plan to enter into a post-emergence equity incentive program and extensions of the employment agreements with each of our chief executive officer and chief financial officer. See “Executive Compensation.”

 

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MANAGEMENT

Below is a list of the names, ages as of date of this prospectus, positions and a brief account of the business experience of the individuals who will serve as our executive officers and directors as of emergence.

 

Name

   Age     

Position

Robert W. Pittman

     65      Chairman and Chief Executive Officer

Gary Barber

     61      Director

Richard J. Bressler

     61      President, Chief Financial Officer, Chief Operating Officer and Director

Brad Gerstner

     47      Director

Sean Mahoney

     56      Director

Jay Rasulo

     63      Director

Kamakshi Sivaramakrishnan

     43      Director

Steven J. Macri

     50      Senior Vice President-Corporate Finance

Scott D. Hamilton

     49      Senior Vice President, Chief Accounting Officer and Assistant Secretary

Paul M. McNicol

     62      Executive Vice President, General Counsel and Secretary

Executive Officers, Directors and Director Nominees

Robert W. Pittman, age 65, was appointed as our Chairman and as Chairman of iHeartCommunications in May 17, 2013, prior to adding the Chairmanship he was the Chief Executive Officer and a director of ours and iHeartCommunications and a director of CCOH in October 2011. He also was appointed as Chairman and Chief Executive Officer and a member of the board of managers of iHeartMedia Capital I, LLC in April 2013, and as Chairman and Chief Executive Officer of CCOH in March, 2015. Prior to October 2011, Mr. Pittman served as Chairman of Media and Entertainment Platforms for us and iHeartCommunications since November 2010. He was the founding member and investor in the Pilot Group LP, a private equity investment company, since April 2003. Mr. Pittman was formerly Chief Operating Officer of AOL Time Warner, Inc. from May 2002 to July 2002. He also served as Co-Chief Operating Officer of AOL Time Warner, Inc. from January 2001 to May 2002, and earlier, as President and Chief Operating Officer of America Online, Inc. from February 1998 to January 2001. Earlier in his career, he was the programmer who led the team that created MTV and was later CEO of MTV Networks, Inc. and CEO of Six Flags Theme Parks, Inc., Time Warner Enterprises, Inc. and Century 21 Real Estate Corporation. Mr. Pittman was selected to serve as a member of our Board because of his service as our Chief Executive Officer, as well as his extensive media experience gained through the course of his career.

Gary Barber, age 61, will become a director of the Board in connection with the Separation and Reorganization. Mr. Barber served as the Chairman and CEO of Metro-Goldwyn-Mayer Inc. (MGM) from 2010 through March 2018 leading its turn-around out of bankruptcy. Prior to his role at MGM, he co-founded Chairman and Chief Executive Officer of Spyglass Entertainment, LLC which he founded in 1998. Prior to Spyglass Entertainment, LLC, Mr. Barber served as Vice Chairman and Chief Operating Officer of Morgan Creek Productions and President of Vestron International Group. Mr. Barber received his undergraduate and post-graduate degrees from the University of Witwatersrand in South Africa and he practiced as a chartered accountant and certified public accountant in both South Africa and the U.S. with Price Waterhouse. Mr. Barber’s extensive experience in finance, media and marketing coupled with his position as chairman of the board of a large public company will bring tremendous value to the Board.

Richard J. Bressler, age 61, was appointed as our President and Chief Financial Officer, as President and Chief Financial Officer of iHeartCommunications and iHeartMedia Capital I, LLC and as Chief Financial Officer of CCOH in July 2013 and as our Chief Operating Officer in February 2015. Prior thereto, Mr. Bressler was a Managing Director at THL. Prior to joining THL, Mr. Bressler was the Senior Executive Vice President and

 

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Chief Financial Officer of Viacom, Inc. from 2001 through 2005. He also served as Chairman and Chief Executive Officer of Time Warner Digital Media and, from 1995 to 1999, was Executive Vice President and Chief Financial Officer of Time Warner Inc. Prior to joining Time Inc. in 1988, Mr. Bressler was a partner with the accounting firm of Ernst & Young LLP since 1979. Mr. Bressler has been one of our directors since May 2007. Mr. Bressler also currently is a director of iHeartCommunications, Civic Entertainment, Seacrest Global Group, LLC and Gartner, Inc. and a member of the board of managers of iHeartMedia Capital I, LLC. Mr. Bressler previously served as a member of the boards of directors of, Nielsen Holdings B.V. and Warner Music Group Corp. and as a member of the J.P. Morgan Chase National Advisory Board. Mr. Bressler holds a B.B.A. in Accounting from Adelphi University. Mr. Bressler was selected to serve as a member of our Board for his experience in and knowledge of the industry gained through his various positions with Viacom and Time Warner as well as his knowledge of finance and accounting gained from his experience at THL and Ernst & Young LLP.

Brad Gerstner, age 47, will become a director of the Board in connection with the Separation and Reorganization. Since 2008, Mr. Gerstner has served as the CEO and CIO of Altimeter Capital Management, LP, an internet, software, and travel focused investment firm that he founded in 2008. Prior to launching Altimeter, Mr. Gerstner was the co- founder of three Internet Search start-ups. Additionally, Mr. Gerstner serves as a board member and compensation committee member of Orbitz, Inc., as well as the following private companies: SilverRail Technologies, Duetto Research and HotelTonight. Mr. Gerstner earned a Bachelor of Science Degree in economics and political science from Wabash College in 1993, a Juris Doctorate from Indiana University School of Law in 1996 and an MBA from Harvard Business School in 2000. Mr. Gerstner has advised a broad range of companies on business, financial and value-creation strategies. Mr. Gerstner’s proven financial acumen and background in analyzing financial markets will bring a depth of knowledge and practical experience to the Board.

Sean Mahoney, age 56, will become a director of the Board in connection with the Reorganization and Separation. Mr. Mahoney has extensive experience in capital markets and business strategy across a wide variety of companies and sectors. Since 2008, Mr. Mahoney has been a private investor in public and private securities. Prior to 2008, Mr. Mahoney spent 17 years in investment banking at Goldman, Sachs & Co., where he was a partner and head of the Financial Sponsors Group, followed by four years at Deutsche Bank Securities, where he served as Vice Chairman, Global Banking. Mr. Mahoney currently serves on the board of directors of Arconic, Inc. and Aptiv Plc. In addition, Mr. Mahoney has served on the post-bankruptcy board of Lehman Brothers Holdings Inc. since 2012. He also serves on the Development Committee for the Rhodes Trust, an educational charity whose principal activity is to support the international selection of Rhodes Scholars for study at Oxford University in England (which Mr. Mahoney attended as a Rhodes Scholar from 1984 through 1987). Mr. Mahoney was previously a director of Delphi Automotive PLC, Cooper-Standard Holdings, Inc., and Formula One Holdings. Mr. Mahoney holds a Master of Letters Degree from Oxford University and a Bachelor of the Arts from University of Chicago. Mr. Mahoney has advised a broad range of companies on business, financial and value-creation strategies. He has served as senior advisor on a range of major equity, debt and M&A projects during his career. Mr. Mahoney’s proven business and investment acumen brings valuable insight and perspectives to the Board.

Jay Rasulo, age 63, will become a director of the Board in connection with the Separation and Reorganization. Since September 2016, Mr. Rasulo has been the Director at Saban Capital Acquisition Corporation. Mr. Rasulo was formerly an executive at Walt Disney Company from 1986 through 2015, having spent his last five years at Disney as the Chief Financial Officer and Senior Executive Vice President. During his tenure at Walt Disney, among other roles, he served as the Chairman of Walt Disney Parks & Resorts. Mr. Rasulo serves on numerous charitable organizations, including the board of the Los Angeles Philharmonic Association, Director and Treasurer of HeritX cancer research foundation. Mr. Rasulo is a graduate of Columbia University and received his MA & MBA from the University of Chicago. Mr. Rasulo’s proven business acumen and extensive experience serving in executive management roles at a large publicly traded company brings tremendous value to the Board.

 

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Kamakshi Sivaramakrishnan, age 43, will become a director of the Board in connection with the Reorganization and Separation. Ms. Sivaramakrishnan is the founder and CEO of Drawbridge, the leading identity management company that enables brands and enterprises to create personalized online and offline experiences. Drawbridge uses large-scale AI and machine learning technologies to build democratized solutions for identity, driving the intersect between mar-tech and other categories with applications including advertising, personalization, content management, product recommendations, authentication, and risk detection. Prior to founding Drawbridge in November 2010, Ms. Sivaramakrishnan was a Senior Research Scientist at AdMob, which was acquired by Google in 2010. Ms. Sivaramakrishnan has been named one of Business Insider’s “Most Powerful Women in Mobile Advertising” for five consecutive years. Ms. Sivaramakrishnan received the Women of Vision ABIE Award for Technology Entrepreneurship from the Anita Borg Institute, and has been named one of the San Francisco Business Times’ Most Admired CEOs and a Mar-Tech Trailblazer by AdWeek. Ms. Sivaramakrishnan also has the unique distinction of her work being onboard NASA’s New Horizons mission to Pluto and the outer planetary system. Ms. Sivaramakrishnan received her PhD in Information Theory and Algorithms from Stanford University Ms. Sivaramakrishnan’s entrepreneurial experience and business acumen bring extensive knowledge to the Board.

Steven J. Macri, age 50, is the Senior Vice President-Corporate Finance of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and CCOH and the Chief Financial Officer of iHeartMedia’s iHM segment. Mr. Macri was appointed Senior Vice President—Corporate Finance of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and CCOH in September 2014 and as the Chief Financial Officer of iHeartMedia division in October 2013. Prior to joining the company, Mr. Macri served as Chief Financial Officer for LogicSource Inc., from March 2012 to September 2013. Prior to joining LogicSource, Mr. Macri was Executive Vice President and Chief Financial Officer at Warner Music Group Corp. from September 2008 to December 2011 and prior thereto served as Controller and Senior Vice President-Finance from February 2005 to August 2008. Mr. Macri began his career at PwC. He has an MBA from New York University Stern School of Business and a B.S. in Accounting from Syracuse University.

Scott D. Hamilton, age 49, is the Senior Vice President, Chief Accounting Officer and Assistant Secretary of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and CCOH. Mr. Hamilton was appointed Senior Vice President, Chief Accounting Officer and Assistant Secretary of iHeartMedia, iHeartCommunications and CCOH in April 2010 and was appointed as Senior Vice President, Chief Accounting Officer and Assistant Secretary of iHeartMedia Capital I, LLC in April 2013. Prior to April 2010, Mr. Hamilton served as Controller and Chief Accounting Officer of Avaya Inc., a multinational telecommunications company, from October 2008 to April 2010. Prior thereto, Mr. Hamilton served in various accounting and finance positions at Avaya, beginning in October 2004. Prior thereto, Mr. Hamilton was employed by PwC from September 1992 until September 2004 in various roles including audit, global capital markets transaction services based in London, UK and technical accounting consulting services as part of PwC’s national office. Mr. Hamilton earned a Bachelor’s of Business Administration degree in Accounting from Abilene Christian University.

Paul M. McNicol, age 62, is the current Executive Vice President and Deputy General Counsel for iHeartMedia, Inc., and has held that position since August 2016. Prior to 2016, Mr. McNicol served as the Managing Partner of the private equity firm, Pilot Group LP, from 2003 to 2016. From 2000 to 2003, Mr. McNicol was the Senior Vice President of AOL Corporation Digital Advertising Sales Group. Prior thereto, Mr. McNicol was the Senior Vice President and General Counsel of the real estate division for HSF Corporation (succeeded by Cendant Corporation) from 1997 to 2000. Prior thereto, Mr. McNicol was the Senior Vice President and General Counsel for Six Flags Theme Parks from 1994 to 1997. Mr. McNicol was a lawyer in private practice in New York from 1982 to 1994. Mr. McNicol earned a B.A. from Harvard College in 1979 and a J.D. from Fordham School of Law in 1982.

For information regarding our directors and executive officers as of March 29, 2019. please refer to Item 10, “Directors, Executive Offers and Corporate Governance” of our Annual Report on Form 10-K/A filed with the SEC on March 29, 2019, which is incorporated by reference herein.

 

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The Audit Committee

The Audit Committee assists the board of directors in its general oversight of our financial reporting, internal control and audit functions.

The Audit Committee’s primary responsibilities, which are discussed in detail within its charter, include the following:

 

   

select the independent registered public accounting firm;

 

   

approve or pre-approve all auditing and non-audit services by the independent registered public accounting firm;

 

   

review, evaluate and discuss reports regarding the independent registered public accounting firm’s independence;

 

   

review with the internal auditors and the independent registered public accounting firm the scope and plan for audits;

 

   

review with management, the internal auditors and the independent registered public accounting firm, our system of internal control, financial and critical accounting practices and its policies relating to risk assessment and risk management, including legal and ethical compliance programs;

 

   

review information technology procedures and controls, including as they relate to data privacy and cyber-security;

 

   

review and discuss with management and the independent registered public accounting firm the annual and quarterly financial statements and the specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company prior to the filing of the Annual Report on Form 10-K and Quarterly Reports on Form 10-Q; and

 

   

review material pending legal proceedings involving the Company and other contingent liabilities.

The full text of the Audit Committee’s charter can be found on our website at www.iheartmedia.com.

Upon the Effective Date, we anticipate that our audit committee will consist of Messrs. Gerstner, Rasulo and Mahoney with Mr. Gerstner serving as chairman.

The Compensation Committee

The Compensation Committee determines compensation arrangements for executive officers, administers our performance-based cash compensation plans and makes recommendations to our board of directors concerning the compensation, if any, of directors of iHeartMedia.

The Compensation Committee has the ability, under its charter, to select and retain, at the expense of iHeartMedia, legal and financial counsel and other consultants necessary to assist it as it may deem appropriate, in its sole discretion. The Compensation Committee also has the authority to select and retain a compensation consultant to be used to survey the compensation practices in our industry and to provide advice so that we can maintain its competitive ability to recruit and retain highly qualified personnel. The Compensation Committee has the sole authority to approve related fees and retention terms for any of its counsel and consultants. The Compensation Committee also has the authority to delegate to subcommittees of the Compensation Committee any of the responsibilities of the full Compensation Committee, subject to certain exceptions specified in the Compensation Committee’s charter.

The Compensation Committee’s primary responsibilities, which are discussed in detail within its charter, are to:

 

   

review and approve corporate goals and objectives relevant to Chief Executive Officer and other executive officer compensation, evaluate the Chief Executive Officer’s and other executive officers’ performance in light of those goals and objectives and, either as a committee or together with the other independent directors (as directed by our board of directors), determine and approve the Chief Executive Officer’s and other executive officers’ compensation level based on this evaluation;

 

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approve all awards to executive officers under our incentive compensation plans, as well as adopt, administer, amend or terminate such plans;

 

   

perform tasks similar to those in the two preceding bullets with respect to those other members of senior management whose compensation is the responsibility of our board of directors or whose compensation the Chief Executive Officer requests the Compensation Committee to review and affirm;

 

   

recommend to the Board all awards under our equity-based plans and recommend to the board of directors the adoption, amendment or termination of any compensation plan under which stock may be issued;

 

   

assist our board of directors in developing and evaluating potential candidates for executive positions (including the Chief Executive Officer) and oversee the development of executive succession plans;

 

   

obtain through discussions with management an understanding of our risk management practices and policies in order to appropriately evaluate whether our compensation policies or practices create incentives that affect risk taking;

 

   

review and discuss with management the Compensation Discussion and Analysis and, based on that review and discussion, recommend to our board of directors that the Compensation Discussion and Analysis be included in the proxy statement or annual report on Form 10-K;

 

   

produce a Compensation Committee report on executive compensation for inclusion in the proxy statement or annual report; and

 

   

make recommendations to the board of directors regarding compensation, if any, of the board of directors.

The full text of the Compensation Committee’s charter can be found on our website at www.iheartmedia.com.

Upon the Effective Date, we anticipate that our compensation committee will consist of Messrs. Barber and Rasulo and Ms. Sivaramakrishan with Mr. Barber serving as chairman.

The Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee’s primary responsibilities, which are discussed in detail within its charter, include the following:

 

   

identify individuals qualified to become members of our board of directors;

 

   

receive nominations for qualified individuals and review recommendations put forward by the Chief Executive Officer or recommended by stockholders;

 

   

establish any qualifications, desired background, expertise and other selection criteria for members of our board of directors and any committee; and

 

   

recommend to our board of directors the director nominees for the next annual meeting of stockholders.

The full text of the Nominating and Corporate Governance Committee’s charter can be found on our website at www.iheartmedia.com.

Our directors play a critical role in guiding our strategic direction and overseeing the management of iHeartMedia. We do not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to recommend the nomination of directors with a variety of complementary skills so that, as a group, the board of directors will possess the appropriate mix of experience, skills and expertise to oversee our businesses. Director candidates should have experience in positions with a high degree of responsibility, be leaders in the organizations with which they are affiliated and have the time, energy, interest and willingness to serve as a member of our board of directors.

 

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The Nominating and Corporate Governance Committee evaluates each individual in the context of our board of directors as a whole, with the objective of recommending a group that can best perpetuate the success of our business and represent stockholder interests through the exercise of sound judgment using its diversity of experience. The Nominating and Corporate Governance Committee evaluates each incumbent director to determine whether he or she should be nominated to stand for re-election, based on the types of criteria outlined above as well as the director’s contributions to our board of directors during their current term.

Upon the Effective Date, we anticipate that our Nominating and Corporate Governance Committee will consist of Messrs. Rasulo and Barber and Ms. Sivaramakrishnan with Mr. Rasulo serving as chairman.

Code of Business Conduct and Ethics

Our Code of Business Conduct and Ethics (the “Code of Conduct”) applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Conduct constitutes a “code of ethics” as defined by Item 406(b) of Regulation S-K. The Code of Conduct is publicly available on our internet website at www.iheartmedia.com. We intend to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer or principal accounting officer and relates to any element of the definition of code of ethics set forth in Item 406(b) of Regulation S-K by posting such information on our website, www.iheartmedia.com.

 

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EXECUTIVE COMPENSATION

For a description of executive compensation for our directors and executive officers for the fiscal year ended December 31, 2018, please refer to Item 11, “Executive Compensation” of our Annual Report on Form 10-K/A filed with the SEC on March 29, 2019.

Post-Emergence Incentive Equity Plan

The Post-Emergence Equity Plan, which will become effective on the Effective Date, allows us to grant stock options and restricted stock units (each, an “Award”), and up to                 shares of Class A common stock may be issued or used for reference purposes with respect to such Awards, which amount equals 8% of our fully-diluted and distributed shares of Class A common stock as of the Effective Date (the “Reserve”). On the Effective Date, we will make Award grants to certain eligible participants collectively representing 62.5% of the Reserve (the “Emergence Pool”).

Each of Messrs. Pittman and Bressler will receive Awards totaling 22.5% of the Emergence Pool (the “NEO Grants”), with 25% of the NEO Grants in the form of restricted stock units (the “RSUs”) and 75% of the NEO Grants in the form of stock options (the “Options”). Under the applicable awards agreements, and pursuant to the Employment Agreement Amendments (as defined and discussed in the “—Post-Emergence Executive Employment Agreements” section below), (i) the Options will have a term of six years and an exercise price calculated on the basis of our aggregate equity value as of the Effective Date; (ii) the NEO Grants will vest 20% on the Effective Date and an additional 20% on each of the first, second, third and fourth anniversaries of the Effective Date, with 100% acceleration upon a “change in control” (as defined in the Equity Plan), in each case, subject to the relevant executive’s continued employment with us through the applicable vesting date; and (iii) if either Messrs. Pittman or Bressler terminates employment with us due to non-renewal of the employment agreement, “cause” or “good reason” (as such terms are defined in the Employment Agreement Am