S-1/A 1 d694706ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on May 9, 2019

Registration No. 333-230694

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

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 and General Counsel

iHeartMedia, Inc.

125 W. 55th Street

New York, New York 10019

Telephone: (212) 377-7900

(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)(3)

  Amount of
Registration Fee(3)(4)

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.

(4)

This amount was previously paid in connection with the initial filing of this registration statement.

 

 

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

 

 

 


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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 May 9, 2019

                 Shares

 

 

LOGO

Class A Common Stock

This is an initial public offering of shares of Class A common stock of iHeartMedia, Inc. (“iHeartMedia,” “we,” “us,” “our” or the “Company”) 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.

The estimated initial public offering price of our Class A common stock is between $             and $             per share. Our Class A common stock is currently quoted on the OTC Pink Market under the symbol “IHTM”. We intend to apply to list our Class A common stock on the NASDAQ Global Select Market under the symbol “IHRT.”

By participating in this offering, you are representing that (1) you (i) are not a 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 regulations of the Federal Communications Commission (“FCC”); and (2) your acquisition 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 any such person or entity subject to aggregation pursuant to FCC regulations already owns, to acquire (i) a voting or equity interest in us that requires “specific approval” under the FCC’s foreign ownership limitations; or (ii) an “attributable” interest in us, in each case as determined pursuant to the FCC’s regulations.

See “Risk Factors” beginning on page 29 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.

At our request, the underwriters have reserved up to                  shares of Class A common stock, or up to         % of the shares offered by this prospectus, for sale at the initial public offering price through a directed share program to certain individuals associated with iHeartMedia. See the section titled “Underwriting—Directed Share Program.”

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.


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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

     29  

Forward-Looking Statements

     44  

Use of Proceeds

     46  

Capitalization

     47  

Dividend Policy

     50  

Unaudited Pro Forma Condensed Consolidated Financial Data

     52  

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

     78  

Business

     80  

Our Separation and Reorganization

     105  

Management

     110  

Executive Compensation

     117  

Principal and Selling Stockholders

     120  

Certain Relationships and Related Party Transactions

     122  

Description of Certain Indebtedness and Subsidiary Preferred Stock

     123  

Description of Capital Stock

     131  

Shares Eligible for Future Sale

     138  

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

     140  

Underwriting

     144  

Legal Matters

     149  

Experts

     149  

Where You Can Find More Information

     149  

Incorporation by Reference of Certain Documents

     149  

Consolidated Financial Statements

     F-1  

Annex A - Investor Presentation

     A-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”), Bridge Ratings LLC (“Bridge Ratings”), 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”), Equirus Securities Private Limited (“Equirus”), Interpublic Group Inc. (“Magna,” the Centralized IPG Mediabrand Research), IPSOS Group S.A.

 

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(“IPSOS”), Miller Kaplan Arase LLP (“Miller Kaplan”), GfK MRI (“MRI”), Nuvoodoo LLC (“NuVodoo”), PJ Solomon LP (“PJ Solomon”), Podtrac, Inc. (“Podtrac”), S&P Global Market Intelligence (“Kagan,” a media research group within S&P Global Market Intelligence), Scarborough Research Corporation (“Scarborough”), Shareablee, Inc. (“Shareablee”), Statista Inc. (“Statista”), Sponsorship Research International (“SRi”), The Nielsen Company (“Nielsen”), Triton Digital, Inc. (“Triton”), Voicebot.ai by Edge Lens LLC (“Voicebot”) and Publicis Groupe (“Zenith,” an agency within Publicis Media). 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, and other surveys we conduct using primary research tools such as Ask Suzy, 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 “Millennials” 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 March 31, 2019, December 31, 2018 and December 31, 2017 and for the three months ended March 31, 2019 and 2018 and 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 March 31, 2019 gives

 

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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 March 31, 2019. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018 give 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.

 

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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;

 

   

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.

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 friends and companions.

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 seven times the digital listening hours of the next largest commercial broadcast radio company, as measured by Triton.

 

   

Podcasts: We are the number one commercial podcast publisher—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 146 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% among U.S. adults—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, the median age of broadcast radio’s heaviest users tends to be almost 15 years lower than the median age of television’s heaviest 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 (256 million, including YouTube) and Facebook (216 million, including Instagram and Messenger) in the U.S. as measured by Comscore in March 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 25 minutes, excluding YouTube, and Facebook’s engagement time of 18 minutes per visitor per day on average, excluding Instagram and Messenger (derived from Comscore’s monthly minutes per visitor measurement in March 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). According to Nielsen’s Fall 2018 book, we have the most number one ranked stations across the top 160 markets, and across the largest 50 markets, with 71 and 28 number one ranked stations in these markets, respectively. With our broadcast radio platform alone, we have almost twice the broadcast radio audience of our next closest broadcast competitor. We also have seven times the digital listening hours of our next closest commercial radio broadcast



 

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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 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 media representation firm which 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 are the leader across various audiences and platforms, and 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.

iHeartMedia is America’s #1 Audio Media Company By Reach

And the Only Major Multi-Platform Audio Company

Multi-Platform Audience/Usage (Millions)

 

LOGO

Source:

Broadcast Radio: Fall 2018 Nielsen Audio Nationwide - Monthly Reach People 6+



 

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Commercial Podcasts: Podtrac Ranker March 2019, Global downloads & streams

Social: Shareablee March 2019. Includes fans and followers of iHeartMedia’s stations, brands and personalities. May include some duplication

Digital Audio Streaming: comScore media-metrix; total audience March 2019; Ad-supported estimates based on Pandora and Spotify SEC Filings

Youtube: YouTube Analytics dashboard March 2019. Spotify and Pandora below minimum reporting thresholds.

Snap: Snapchat Discover Dashboard March 2019 (global)

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 an IPSOS study commissioned by us. Today, iHeart brand aided awareness is 82%, in line with other widely recognized consumer brands such as Spotify at 85% and Pandora at 89%. 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 seven times larger than the digital listening hours 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 a Q4 2018 IPSOS study commissioned by us. Additionally, we believe our festivals are the most coveted. According to the Q4 2018 IPSOS study, 44% of persons aged 13-49 would most like to attend an iHeartRadio event, greater than Coachella, Lollapalooza, Burning Man Project and SXSW.

 

 

LOGO

 

   

Our Differentiated Social Reach: iHeartMedia’s personalities, stations and brands have garnered 146 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.



 

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Additionally, as of March 2019, the Company has 17 million monthly unique visitors on Snapchat and 21 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. We also have the most downloaded podcast of all time as measured by Podtrac, with How Stuff Works at over 1 billion downloads. Overall podcasting industry revenue is expected to increase to $0.7 billion by 2020, according to the iAB, from an estimated $0.4 billion in 2018, a 28% CAGR. 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. We also publish our broadcasts as podcasts, which increases our podcast inventory. We have a 24/7 live channel on the iHeartRadio App carrying the full podcast lineup. The result is low-cost, high-quality programming for stations that builds awareness and demand for featured podcasts. We believe this offering drives consumers to the iHeartRadio service as a podcast destination.

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. As of January 2019, smart speaker listening had 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 believe we can not only differentiate our platforms relative to other radio broadcasters, but also drive revenue growth by gaining share of advertising spend currently that is allocated to other sectors such as television and digital. This potential market capture has the potential to expand 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



 

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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 2018, on a pro forma basis, iHeartMedia generated $3.6 billion in Revenue, $2 million of Consolidated net loss, $452 million of Operating income (13% margin) and $976 million of Adjusted EBITDA (27% margin), the highest Adjusted EBITDA margin of any major advertising-supported audio media company. Since 2010, we have outperformed the broadcast radio market on an average annual revenue growth basis by more than 200 basis points relative to the industry average excluding iHeartMedia, and in the first quarter ended March 31, 2019, we outperformed the market by approximately 340 basis points relative to the industry average excluding iHeartMedia, as measured by Miller Kaplan. As a result of the consummation of the Reorganization, iHeartMedia carries substantially less debt than it has historically, 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 $19 billion market opportunity including radio, podcasts, and digital, according to an aggregation of market estimates from independent firms including Kagan, Zenith, MAGNA, Equirius and the IAB. iHeart is uniquely positioned in the audio advertising ecosystem as we touch each of these markets. We also compete in the larger $248 billion U.S. advertising market — inclusive of the $19 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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Additionally, we believe there are a number of trends in advertising that favor iHeart, including vendor consolidation and the need for solutions-based marketing, data-driven insights and reliability — all of which favor scaled platforms with mass distribution, first party data and a trusted brand, such as iHeart.

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. In a recent survey by Bridge Ratings, 75% of listeners said they use broadcast radio explicitly for companionship. 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, and radio also representing 67% of listening hours in the car in 2018, according to an Edison survey conducted in September 2018. Streaming has replaced CDs and other collection devices in



 

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the car, rather than reducing the reach and share of broadcast radio. 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 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. Indeed, according to Nielsen, more than 80% of TV viewers report using other digital devices while watching TV.

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 Millennial consumers 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 cost per thousand impressions (“CPMs”) 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



 

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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%, a 2,500% increase since 2016, 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 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, with 32% of the U.S. population aged 12 and above having listened to a podcast in the last month (compared to 9% in 2008), according to Edison in January 2019. By focusing on this trend, iHeartMedia has become the number one commercial podcast publisher globally as measured by Podtrac, with 165 million monthly downloads globally and streams and nearly 18 million U.S. unique monthly users, in March 2019.

 

   

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, 7 million newsletter recipients, 71 million monthly unique visitors in March 2019 to all our digital properties (including station and on-air personality websites) according to Comscore and 146 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



 

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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 146 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.



 

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Well-positioned to benefit from incremental listening growth

Audio is hot, with multiple growth drivers. 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 165 million global monthly downloads and streams and nearly 18 million U.S. unique monthly users in March 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 estimate that in 2018 Katz represented more than 80% of non-iHeartMedia national radio advertising, and nearly 40% of the independent TV industry, excluding owned-and-operated TV and cable TV. 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.



 

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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, coupled with our scale and platform, 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 $19 billion existing pool (as estimated by our aggregation of independent third party sources) of dedicated U.S. audio advertising spend. We believe that radio is under-utilized as an ad medium relative to the time spent on the platform, and that this dynamic is another indication of our potential for growth.

Superior unit economics

Compared to streaming audio services, radio broadcasters have distinct unit economics advantages because unlike radio stations, streaming audio services are required to pay royalties with respect to the public performance of sound recordings. For non-subscription, non-interactive streaming (like radio from simulcasts or iHeartRadio’s custom radio feature), the statutory rate set by the Copyright Royalty Board (“CRB”) for the period from 2016 to 2020 is currently $0.0018 per performance and the rate for subscription non-interactive streaming is $0.0023 per performance (these rates are subject to annual adjustment based on the Consumer Price Index). Also, interactive streaming services must license the right to use sound recordings in their services privately from sound recording copyright owners. We understand that these royalties plus the royalties paid to copyright owners in the underlying musical compositions in total average approximately 60% to 70% of revenue related to these services. Our understanding is based primarily on our own experience licensing such rights for the iHeartRadio All Access and iHeartRadio Plus audio services, as well as an analysis of Pandora’s and Spotify’s public filings, which indicate that the rates we pay for such services are in line with the general market rates. However, in the case of the iHeartRadio All Access and iHeartRadio Plus audio services, since revenue from these streaming services represents a small portion of our overall revenue, the rates we pay for these streaming services do not materially affect the overall average licensing rates we pay. Our broadcast radio business enjoys superior unit economics because in the U.S., radio airplay of sound recordings is considered a public performance, and accordingly,



 

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radio stations do not pay recorded music royalties for over-the-air broadcast. They do pay performance royalties to songwriters, but these royalties generally represent only about 3% of annual revenue. As a result of these economics, we believe that we have a superior overall cost structure, which is reflected in our higher operating margins, versus that of major music streaming services such as Pandora and Spotify which have reported 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. This trend is best seen in through the growth in ad spend by our top 250 customers for 2018, which collectively grew at 10% CAGR from 2014 to 2018.

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 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.



 

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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 globally. 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. They also provide an opportunity to extend into



 

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platforms like cable and broadcast television, create ancillary licensing revenue streams and serve 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, Inc. (“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 May 1, 2019 (the “Effective Date”), the conditions to the effectiveness of the Plan of Reorganization were satisfied and we emerged from Chapter 11 through (a) a series of transactions (the “Separation”) through which Clear Channel Outdoor Holdings, Inc. (“CCOH”), its parent Clear Channel Holdings, Inc. (“CCH”) and its subsidiaries (collectively with CCOH and CCH, the “Outdoor Group”) were separated from, and cease to be controlled by us and our subsidiaries, and (b) a series of transactions (the “Reorganization”) through which we reduced iHeartCommunications’ debt from approximately $16 billion to approximately $5.8 billion and effected 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 $450 million senior secured asset-based revolving credit facility and (B) issuing to certain of our pre-petition senior creditors, on account of their claims, an approximately $3.5 billion senior secured term loan credit facility, approximately $1.45 billion aggregate principal amount of new 8.375% Senior Unsecured Notes due 2027 and approximately $800 million aggregate principal amount of new 6.375% Senior Secured Notes due 2026, (ii) our issuance of the Class A common stock, new Class B 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, and (iii) the intercompany settlement transactions and sale of the preferred stock of our indirect wholly-owned subsidiary iHeart Operations, Inc. effected in connection with the Separation. See “Our Separation and Reorganization” and “Description of Certain Indebtedness and Subsidiary Preferred Stock” for more information.



 

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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 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 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 (“RSUs”) to be awarded prior to this offering under the iHeartMedia, Inc. 2019 Incentive Equity Plan (the “Incentive Equity 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 4% of the equity on a fully-diluted and distributed basis will be reserved for issuance under the Incentive Equity Plan. See “Executive Compensation — 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 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 a portion of the borrowings under our New Term Loan Facility.

 

  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.”

 

Voting rights

We have two classes of common stock: Class A common stock and Class B common stock. Holders of Class A common stock are



 

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entitled to one vote per share on all matters submitted to a vote of the Company’s stockholders. Holders of Class B common stock are not entitled to vote in the election of directors or, in general, on any other matter submitted to a vote of the Company’s stockholders, but are entitled to one vote per share on the following matters: (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, and taking into account any stock that you or such person or entity subject to aggregation pursuant to FCC regulations already owns, to



 

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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.

 

Directed Share Program

At our request, the underwriters have reserved up to              shares of Class A common stock, or up to     % of the shares offered by this prospectus, for sale at the initial public offering price through a directed share program to certain individuals associated with iHeartMedia. The sales will be made at our direction by                      and its affiliates through a directed share program. The number of shares of our Class A common stock available for sale to the general public in this offering will be reduced to the extent that such individuals purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered by this prospectus. Participants in this directed share program will not be subject to lock-up or market standoff restrictions with the underwriters or with us with respect to any shares of Class A common stock purchased through the directed share program. For additional information, see the section titled “Underwriting—Directed Share Program.”

 

Symbol for trading on the NASDAQ Global Select Market

“IHRT.”

Unless otherwise indicated, all information in this prospectus:

 

   

excludes an aggregate of 14,366,686 shares of Class A common stock reserved for issuance under the Incentive Equity Plan;



 

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excludes 6,947,567 shares of Class A common stock issuable upon conversion of Class B common stock, and 81,453,648 shares of Class A common stock or 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 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 as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 is derived from the unaudited consolidated financial statements of iHeartMedia incorporated by reference in this prospectus. 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 consolidated financial statements of iHeartMedia incorporated by reference in this prospectus. The summary historical consolidated financial data as of March 31, 2018 and December 31, 2016 is derived from the consolidated financial statements of iHeartMedia which are not included or incorporated by reference in this prospectus. The historical results of iHeartMedia are not necessarily indicative of the results to be expected for future periods, and our historical results for any interim period are not necessarily indicative of results to be expected for a full fiscal year. The historical results of iHeartMedia also do not reflect the Separation of the Outdoor Group. See “Unaudited Pro Forma Condensed Consolidated Financial Data.”

The summary unaudited pro forma condensed consolidated financial data as of March 31, 2019, and for the three months ended March 31, 2019 and 2018 and 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 March 31, 2019 for purposes of the balance sheet, as of January 1, 2018 for purposes of the statements of operations for the three months ended March 31, 2019 and 2018 for the year ended December 31, 2018, and as of January 1, 2016 for purposes of the statements of operations for the years ended December 31, 2017 and 2016. The summary unaudited pro forma condensed consolidated financial data as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 and 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 March 31, 2019 for purposes of the balance sheet and as of January 1, 2018 for purposes of the statements 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.



 

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Summary Historical Consolidated Financial Data:

 

     Historical Consolidated Results
For the Years Ended December 31,
    Historical Consolidated Results
For the Three Months Ended
March 31,
 

(In thousands)

   2018     2017     2016             2019                     2018          
                       (unaudited)  

Results of Operations Data:

          

Revenue

   $ 6,325,780     $ 6,168,431     $ 6,251,000     $ 1,381,899     $ 1,369,648  

Operating expenses:

          

Direct operating expenses (excludes depreciation and amortization)

     2,532,948       2,468,724       2,395,037       614,919       602,355  

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

     1,896,503       1,842,222       1,726,118       455,723       472,987  

Corporate expenses (excludes depreciation and amortization)(1)

     337,218       311,898       341,072       74,700       78,734  

Depreciation and amortization

     530,903       601,295       635,227       113,366       151,434  

Impairment charges(2)

     40,922       10,199       8,000       91,382       —    

Other operating income (expense), net

     (6,768     35,704       353,556       (3,549     (3,286
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     980,518       969,797       1,499,102       28,260       60,852  

Interest expense(3)

     722,931       1,864,136       1,850,119       114,764       418,397  

Equity in earnings (loss) of nonconsolidated affiliates

     1,020       (2,855     (16,733     (214     157  

Gain (loss) on extinguishment of debt

     100       1,271       157,556       (5,474     100  

Other expense, net

     (58,876     (20,194     (86,009     (10,722     (1,063

Reorganization items, net(4)

     356,119       —         —         36,118       192,055  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (156,288     (916,117     (296,203     (139,032     (550,406

Income tax benefit (expense)

     (46,351     457,406       49,631       3,431       117,366  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net loss

   $ (202,639   $ (458,711   $ (246,572   $ (135,601   $ (433,040
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flow Data:

          

Cash paid for interest

   $ 397,984     $ 1,772,405     $ 1,764,776     $ 103,897     $ 94,533  

Capital expenditures

     296,324       291,966       314,717       51,126       38,703  

Net cash flows provided by (used for) operating activities

     966,672       (491,210     (15,765     88,987       175,476  

Net cash flows provided by (used for) investing activities

     (345,478     (214,692     533,496       (52,411     (37,196

Net cash flows provided by (used for) financing activities

     (491,799     151,335       (418,231     1,996       (92,445

Other Financial Data:

          

Adjusted EBITDA(5)

   $ 1,611,397     $ 1,609,728     $ 1,852,417     $ 247,335     $ 225,966  

Adjusted EBITDA margin(6)

     25     26     30     18     16

Operating margin(7)

     16     16     24     2     4

Consolidated net loss margin(8)

     (3 )%      (7 )%      (4 )%      (10 )%      (32 )% 


 

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     Historical Consolidated Results
As of December 31,
    Historical Consolidated Results
As of March 31,
 

(In thousands)

   2018     2017     2016     2019     2018  
                       (unaudited)  

Balance Sheet Data:

          

Current assets

   $ 2,235,017     $ 2,067,347     $ 2,494,229     $ 2,090,052     $ 2,082,205  

Property, plant and equipment, net

     1,791,140       1,884,714       1,948,162       1,741,238       1,838,799  

Total assets

     12,269,515       12,260,431       12,851,789       14,285,970       12,192,993  

Current liabilities

     1,247,649       16,354,597       1,674,574       1,439,572       1,000,043  

Long-term debt, net of current maturities

     5,277,108       5,676,814       20,022,080       5,293,405       5,636,670  

Liabilities subject to compromise

     16,480,256       —         —         16,829,329       16,488,391  

Stockholders’ deficit

     (11,560,342     (11,344,344     (10,901,861     (11,566,113     (11,771,410

Summary Unaudited Pro Forma Condensed Consolidated Financial Data:

 

    Pro Forma for Separation
For the Years Ended
December 31,
    Pro Forma for Separation
For the Three Months Ended

March 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments

For the Year
Ended
December 31,
    Pro Forma for
Separation,
Reorganization and
Fresh Start

Adjustments
For the Three
Months Ended
March 31,
 

(In thousands)

  2018     2017     2016           2019                 2018                     2018               2019     2018  

Results of Operations Data:

               

Revenue

  $ 3,611,323     $ 3,586,647     $ 3,574,633     $ 795,797     $ 772,786     $ 3,611,031     $ 796,007     $ 772,713  

Operating expenses:

               

Direct operating expenses (excludes depreciation and amortization)

    1,062,373       1,059,123       976,718       267,115       241,066       1,071,063       265,600       243,238  

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

    1,376,931       1,346,063       1,212,621       332,980       346,092       1,368,662       331,197       344,025  

Corporate expenses (excludes depreciation and amortization)(1)

    227,508       208,648       225,167       46,854       52,912       260,877       50,891       61,193  

Depreciation and amortization

    211,951       275,304       291,103       38,290       67,374       415,733       106,675       104,252  

Impairment charges(2)

    33,150       6,040       726       91,382       —         33,150       91,382       —    

Other operating income (expense), net

    (9,266     9,313       (1,132     (27     (3,232     (9,266     (27     (3,232
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    690,144       700,782       867,166       19,149       62,110       452,280       (49,765     16,773  

Interest expense(3)

    334,798       1,484,435       1,475,090       712       321,133       405,446       102,079       101,292  

Equity in earnings (loss) of nonconsolidated affiliates

    116       (1,865     (15,044     (7     (31     116       (7     (31

Gain on extinguishment of debt

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

Other expense, net

    (23,579     (48,949     (15,858     (10,364     (20,516     (23,579     (10,364     (20,516

Reorganization items, net(4)

    356,119       —         —         36,118       192,055       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (24,136     (833,196     (481,270     (28,052     (471,525     23,471       (162,215     (104,966

Income tax benefit (expense)

    (13,836     177,188       127,130       61,194       162,733       (25,738     94,735       71,093  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

  $ (37,972   $ (656,008   $ (354,140   $ 33,142     $ (308,792   $ (2,267   $ (67,480   $ (33,873
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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Table of Contents
    Pro Forma for Separation
For the Years Ended
December 31,
    Pro Forma for Separation
For the Three Months Ended

March 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments

For the Year
Ended
December 31,
    Pro Forma for
Separation,
Reorganization and
Fresh Start

Adjustments
For the Three
Months Ended
March 31,
 

(In thousands)

  2018     2017     2016           2019                 2018                     2018               2019     2018  

Other Financial Data:

               

Adjusted EBITDA(5)

  $ 976,430     $ 1,018,874     $ 1,202,107     $ 156,356     $ 139,973     $ 975,717     $ 159,864     $ 139,795  

Adjusted EBITDA margin(6)

    27     28     34     20     18     27     20     18

Operating margin(7)

    19     20     24     2     8     13     (6 )%      2

Consolidated net income (loss) margin(8)

    (1 )%      (18 )%      (10 )%      4     (40 )%      0     (8 )%      (4 )% 

 

(In thousands)

 

   Pro Forma for
Separation

As of March 31,
    Pro Forma for
Separation,
Reorganization
and Fresh
Start
Adjustments
As of March 31
 
   2019     2019  

Balance Sheet Data:

    

Current assets

   $ 1,192,148     $ 933,148  

Property, plant and equipment, net

     496,678       731,828  

Total assets

     8,116,148       10,689,817  

Current liabilities

     394,500       400,585  

Long-term debt, net of current maturities

     —         5,743,271  

Liabilities subject to compromise

     16,829,329       —    

Stockholders’ equity (deficit)

     (9,229,272     2,592,317  

 

1)

Intercompany management charges from iHeartCommunications to CCOH of $7.4 million and $8.6 million for the three months ended March 31, 2019 and 2018, respectively, and $29.3 million, $32.0 million and $36.0 million for 2018, 2017 and 2016, respectively, are eliminated in consolidation in the historical consolidated financial statements of the Company. Pro forma Corporate expenses are presented net of such charges to CCOH as if CCOH was a separate third party. In addition, trademark license fees of $8.6 million for the three months ended March 31, 2018 and $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. No trademark license fees were charged after December 31, 2018.

2)

We recorded non-cash impairment charges of $91.4 million for the three months ended March 31, 2019 and $40.9 million, $10.2 million and $8.0 million during 2018, 2017 and 2016, respectively. Of these charges, $91.4 million for the three months ended March 31, 2019 and $33.2 million, $6.0 million and $0.7 million during 2018, 2017 and 2016, respectively, related to our audio media business (the “iHM Business”).

3)

Interest expense for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018 excludes contractual interest of $397.5 million, $66.3 million and $1,189.1 million, respectively, 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 items for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018 consist of the write off of $0.0 million, $54.7 million and $67.1 million in deferred long-term debt fees, the write-off of $0.0 million, $131.1 million and $131.1 million of original issue discount on debt subject to compromise, $0.0 million, $0.0 million and $10.5 million in debtor-in-possession financing costs and $36.1 million, $6.3 million and $147.1 million in professional fees and other bankruptcy related costs, respectively.

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),



 

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Table of Contents
  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.”

Reconciliation of Historical Consolidated Net Loss to EBITDA and Adjusted EBITDA:

The following table provides a reconciliation of our historical Consolidated net loss to EBITDA and Adjusted EBITDA:

 

    Historical Consolidated Results
For the Years Ended December 31,
    Historical Consolidated Results
For the Three Months Ended
March 31,
 

(In thousands)

  2018     2017     2016             2019                     2018          

Consolidated net loss

  $ (202,639   $ (458,711   $ (246,572   $ (135,601   $ (433,040

Income tax (benefit) expense

    46,351       (457,406     (49,631     (3,431     (117,366

Interest expense(3)

    722,931       1,864,136       1,850,119       114,764       418,397  

Depreciation and amortization

    530,903       601,295       635,227       113,366       151,434  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 1,097,546     $ 1,549,314     $ 2,189,143     $ 89,098     $ 19,425  

Reorganization items, net(4)

    356,119       —         —         36,118       192,055  

Other expense, net

    58,876       20,194       86,009       10,722       1,063  

(Gain) loss on extinguishment of debt

    (100     (1,271     (157,556     5,474       (100

Equity in (earnings) loss of nonconsolidated affiliates

    (1,020     2,855       16,733       214       (157

Impairment charges(2)

    40,922       10,199       8,000       91,382       —    

Other operating (income) expense, net

    6,768       (35,704     (353,556     3,549       3,286  

Share-based compensation

    10,583       12,078       13,133       2,227       2,684  

Restructuring and reorganization expenses

    41,703       52,063       50,511       8,551       7,710  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 1,611,397     $ 1,609,728     $ 1,852,417     $ 247,335     $ 225,966  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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The following table provides a reconciliation of our historical Operating income to Adjusted EBITDA:

 

     Historical Consolidated Results
For the Years Ended December 31,
    Historical Consolidated Results
For the Three Months Ended
March 31,
 
(In thousands)    2018      2017     2016             2019                      2018          

Operating income

   $ 980,518      $ 969,797     $ 1,499,102     $ 28,260      $ 60,852  

Depreciation and amortization

     530,903        601,295       635,227       113,366        151,434  

Impairment charges(2)

     40,922        10,199       8,000       91,382        —    

Other operating (income) expense, net

     6,768        (35,704     (353,556     3,549        3,286  

Share-based compensation

     10,583        12,078       13,133       2,227        2,684  

Restructuring and reorganization expenses

     41,703        52,063       50,511       8,551        7,710  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

   $ 1,611,397      $ 1,609,728     $ 1,852,417     $ 247,335      $ 225,966  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Reconciliation of Pro Forma Consolidated Net Income (Loss) to pro forma EBITDA and pro forma Adjusted EBITDA:

The following table provides a reconciliation of our pro forma consolidated net income (loss) to pro forma EBITDA and pro forma Adjusted EBITDA:

 

    Pro Forma for Separation
For the Years Ended
December 31,
    Pro Forma for Separation
For the Three Months
Ended March 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments
For the Year
Ended
December 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments
For the Three
Months Ended
March 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments
For the Three
Months Ended
March 31
 

(In thousands)

  2018     2017     2016           2019                 2018           2018     2019     2018  

Consolidated net income (loss)

  $ (37,972   $ (656,008   $ (354,140   $ 33,142     $ (308,792   $ (2,267   $ (67,480   $ (33,873

Income tax (benefit) expense

    13,836       (177,188     (127,130     (61,194     (162,733     25,738       (94,735     (71,093

Interest expense(3)

    334,798       1,484,435       1,475,090       712       321,133       405,446       102,079       101,292  

Depreciation and amortization

    211,951       275,304       291,103       38,290       67,374       415,733       106,675       104,252  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 522,613     $ 926,543     $ 1,284,923     $ 10,950     $ (83,018   $ 844,650     $ 46,539     $ 100,578  

Reorganization items, net(4)

    356,119       —         —         36,118       192,055       —         —         —    

Other expense, net

    23,579       48,949       15,858       10,364       20,516       23,579       10,364       20,516  

(Gain) on extinguishment of debt

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

Equity in (earnings) loss of nonconsolidated affiliates

    (116     1,865       15,044       7       31       (116     7       31  

Impairment charges(2)

    33,150       6,040       726       91,382       —         33,150       91,382       —    

Other operating (income) expense, net

    9,266       (9,313     1,132       27       3,232       9,266       27       3,232  

Share-based compensation

    2,066       2,488       2,842       393       578       35,435       4,430       8,859  

Restructuring and reorganization expenses

    29,853       43,573       39,138       7,115       6,679       29,853       7,115       6,679  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 976,430     $ 1,018,874     $ 1,202,107     $ 156,356     $ 139,973     $ 975,717     $ 159,864     $ 139,795  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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The following table provides a reconciliation of our pro forma Operating income (loss) to pro forma Adjusted EBITDA:

 

    Pro Forma for Separation
For the Years Ended
December 31,
    Pro Forma for Separation
For the Three Months
Ended March 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments
For the Year
Ended
December 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments
For the Three
Months Ended
March 31,
    Pro Forma for
Separation,
Reorganization
and Fresh Start
Adjustments
For the Three
Months Ended
March 31
 
(in thousands)   2018     2017     2016             2019                     2018             2018     2019     2018  

Operating income (loss)

  $ 690,144     $ 700,782     $ 867,166     $ 19,149     $ 62,110     $ 452,280     $ (49,765   $ 16,773  

Depreciation and amortization

    211,951       275,304       291,103       38,290       67,374       415,733       106,675       104,252  

Impairment charges(2)

    33,150       6,040       726       91,382       —         33,150       91,382       —    

Other operating (income) expense, net

    9,266       (9,313     1,132       27       3,232       9,266       27       3,232  

Share-based compensation

    2,066       2,488       2,842       393       578       35,435       4,430       8,859  

Restructuring and reorganization expenses

    29,853       43,573       39,138       7,115       6,679       29,853       7,115       6,679  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 976,430     $ 1,018,874     $ 1,202,107     $ 156,356     $ 139,973     $ 975,717     $ 159,864     $ 139,795  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

6)

Calculated as Adjusted EBITDA divided by Revenue.

7)

Calculated as Operating income (loss) 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 also experienced management transition in connection with the Separation and Reorganization. For instance, our former treasurer became the Chief Financial Officer of CCOH, and we 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 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 ($407,270 for a single violation, up to a maximum of $3,759,410 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. Beginning in June 2019 (for our stations in Maryland, the District of Columbia, Virginia and West Virginia), and continuing through April 2022, we (along with all other FCC radio broadcast licensees) will be submitting applications to renew the FCC licenses for each of our broadcast radio stations on an every two-month rolling schedule by state. The non-renewal, or conditioned renewal, of a substantial number of these FCC licenses 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-

 

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setting processes, or administrative and court decisions. 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 from January 1, 2016 to December 31, 2020 under the webcasting statutory license. A proceeding to establish the rates for 2021 to 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.

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.

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

 

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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.

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

We substantially reduced our indebtedness as a result of the Reorganization. Nevertheless, we continue to have a substantial amount of indebtedness. On the Effective Date, we entered into a $450 million New ABL Facility and an approximately $3.5 billion New Term Loan Facility, and issued approximately $800 million aggregate principal amount of New Senior Secured Notes and approximately $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;

 

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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 our 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 in 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 govern our indebtedness contain restrictions that limit our flexibility in operating our business.

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

 

   

pay dividends;

 

   

make acquisitions or investments;

 

   

make loans or otherwise lend credit to others;

 

   

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

 

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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.

Risks Related to our Recent Emergence from the Chapter 11 Cases

The ongoing effects of the Chapter 11 Cases following our emergence could adversely affect our business and relationships.

We have only recently emerged from bankruptcy. Our ability to change the public perception relating to our recently consummated Chapter 11 Cases may have an impact on our ability to continue to attract our audience, which is critical to our ability to achieve long-term profitability, and a negative public perception of our business due to our recently consummated bankruptcy proceedings may have a materially adverse effect on our results of operations and financial condition, particularly because our ability to achieve long-term profitability depends on our ability to reach our audience.

Furthermore, we may be subject to ongoing claims that were not discharged in the Chapter 11 Cases. 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) were subject to compromise and/or treatment under the Plan of Reorganization or (ii) were 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 were not subject to treatment under the Plan of Reorganization or that were not discharged will not be material.

Our actual financial results following our emergence from the Chapter 11 Cases will not be comparable to our historical financial information.

Following the Separation and Reorganization, we began to operate under a new capital structure. As a result of the Separation and Reorganization, we will not include CCOH in our consolidated financial statements following the Effective Date. In addition, we adopted fresh-start accounting and, as a result, at the Effective Date, our assets and liabilities were recorded at fair value, which resulted in values that are different than the values recorded in our historical financial statements. Accordingly, our financial condition and results of operations from and after the Effective Date are not comparable to the financial condition or results of operations reflected in our historical financial statements. As a result of all these factors, our historical financial information is not indicative of our future financial performance.

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 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 and income attributable to the transactions.

 

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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 after 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 are addressed by a new tax matters agreement that was entered into in connection with the Separation.

Additionally, our ability to utilize our NOL carryforwards to offset future U.S. taxable income and to reduce U.S. 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 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 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 U.S. federal income tax NOL carryforwards existing prior to the change that it could utilize to offset its taxable income in any future U.S. taxable year in 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 U.S. federal income tax NOL carryforwards in the future. Accordingly, there can be no assurance that we will be able to utilize our U.S. 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.”

 

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In connection with the Separation, the Outdoor Group agreed to indemnify us and we agreed to 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.

The transition of our board of directors following our emergence from bankruptcy may compromise our ability to compete effectively.

The new directors who began serving on our Board on the Effective Date 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.

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;

 

   

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;

 

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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 6,947,567 shares of our Class B common stock outstanding, which are 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, 81,453,648 additional shares of Class A common stock or Class B common stock. Substantially all of our outstanding common stock and the Special Warrants were 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.

There is not an active, liquid and orderly trading market for our Class A common stock, 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 has not been trading on a national securities exchange and it has been thinly traded, in large part because a majority of our equity consists 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.

 

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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 was 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 or Class B 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 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.

 

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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 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 three 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

 

   

for the first three years following the Effective Date, 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 Board, including actions to 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 designates 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 provides that the Court of Chancery of the State of Delaware, subject to certain exceptions, is 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.

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

 

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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 exceeding that threshold. 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 threshold unless the FCC has issued a declaratory ruling allowing foreign ownership or voting in excess of that threshold. 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 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.”

 

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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 our emergence from the Chapter 11 Cases;

 

   

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;

 

   

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 a portion of the borrowings under our New Term Loan Facility. The interest rate on such borrowings is the Applicable Base Rate (as defined in the New Term Loan Facility) plus 3.00% or LIBOR plus 4.00%, at the Company’s option, and the maturity date is May 1, 2026. See “Description of Certain Indebtedness and Subsidiary Preferred Stock—New Term Loan Facility.” Certain of the underwriters and/or affiliates thereof are lenders under our New Term Loan Facility that will be repaid with the proceeds of this offering. As such, certain of the underwriters, or affiliates thereof, will receive a portion of the proceeds from this offering. See “Underwriting.”

 

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CAPITALIZATION

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

 

   

of iHeartMedia as of March 31, 2019 on an actual basis;

 

   

of iHeartMedia as of March 31, 2019 on a pro forma basis, after giving effect to the Separation and Reorganization and application of fresh start accounting; and

 

   

of iHeartMedia as of March 31, 2019 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.

 

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     As of March 31, 2019

(Unaudited)
 
(in thousands)    Actual     Pro Forma      Pro Forma as
Adjusted(1)(2)
 

Cash and cash equivalents

   $ 448,130     $ 34,505      $                    
  

 

 

   

 

 

    

 

 

 

Pre-emergence debt:

       

Long-term debt, including current portion

   $ 5,340,149     $ —        $    

Debt subject to compromise

     15,143,713       —       

Post-emergence debt:

       

New Term Loan Facility

     —         3,487,400     

New Senior Secured Notes

     —         800,000     

New Senior Unsecured Notes

     —         1,450,000     

New ABL Facility(2)

     —         —       

Other debt

     —         58,964     
  

 

 

   

 

 

    

 

 

 

Total Company Debt

     20,483,862       5,796,364     

Subsidiary Preferred stock(3)

     —         59,087     

STOCKHOLDERS’ EQUITY (DEFICIT)

       

Noncontrolling interest

     11,437       386     

Pre-emergence common stock

     92       —       

Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized; no shares issued and outstanding, actual; 56,861,941 shares issued and outstanding, pro forma;                  shares issued and outstanding, pro forma as adjusted(4)

     —         138     

Class B common stock, $0.001 par value per share, 1,000,000,000 shares authorized; no shares issued and outstanding, actual; 6,947,567 shares issued and outstanding, pro forma;                  shares issued and outstanding, pro forma as adjusted(4)

     —         7     

Additional paid-in capital

     2,075,025       2,591,786     

Accumulated deficit

     (13,330,821     —       

Accumulated other comprehensive income

     (319,284     —       

Cost of shares held in treasury

     (2,562     —       
  

 

 

   

 

 

    

 

 

 

Total Stockholders’ Equity (Deficit)

     (11,566,113     2,592,317     
  

 

 

   

 

 

    

 

 

 

Total Capitalization

   $ 8,917,749     $ 8,447,768      $    
  

 

 

   

 

 

    

 

 

 

 

(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 March 31, 2019, 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 $391.0 million in undrawn capacity (with $59.0 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 issued for $59.1 million, net of issuance costs. See “Description of Certain Indebtedness and Subsidiary Preferred Stock—iHeart Operations Preferred Stock.”

 

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(4)

As of March 31, 2019, on a pro forma and pro forma as adjusted basis, we would have had outstanding Special Warrants exercisable for 81,453,648 shares of Class A common stock or Class B common stock at an exercise price of $0.001 per share. For purposes of the pro forma financial information, the shares of common stock into which the Special Warrants are exercisable are assumed to have been issued to the Claimholders as Class A common 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 ended December 31, 2018 and the three months ended March 31, 2018 and 2019 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”) and Part I, “Financial Information” of our Quarterly Report on Form 10-Q for the three months ended March 31, 2019 (our “2019 Q1 Quarterly Report”), filed with the SEC on March 5, 2019 and April 25, 2019, respectively, 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 March 31, 2019 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 March 31, 2019. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018 give 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 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 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 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 items arising directly as a result of the transactions described above. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2019 and the unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 and 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;

 

   

the unaudited historical consolidated financial statements of iHeartMedia as of March 31, 2019 and for the three months ended March 31, 2019 and 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.

 

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The unaudited pro forma condensed consolidated balance sheet as of March 31, 2019 and statements of operations for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018 give effect to the application of fresh start accounting and reporting in accordance 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 statements of operations for the three months ended March 31, 2019 and 2018 and 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, the effects of the Reorganization and the impact of applying fresh start accounting.

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

 

   

the existing indebtedness of iHeartCommunications of approximately $16 billion was discharged, the Company entered into the New Term Loan Facility and the New ABL Facility and issued the New Senior Secured Notes and the New Senior Unsecured Notes, which resulted in approximately $5.8 billion in the aggregate of outstanding indebtedness;

 

   

all balances included within Liabilities subject to compromise were settled or reinstated; and

 

   

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, were issued 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, iHeart Communications and CCOH consummated the following transactions:

 

   

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”) were terminated;

 

   

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

 

   

the Trademark License Fees charged to CCOH during the post-petition period were waived by iHeartMedia;

 

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the post-petition intercompany balance due to iHeartCommunications was repaid, after being adjusted for the post-petition Trademark License Fees charged to CCOH during the post-petition period;

 

   

iHeartMedia contributed 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”) to CCOH;

 

   

iHeartMedia paid $107.0 million to CCOH, which consisted of the $149.0 million payment by iHeart Communications to CCOH as CCOH’s recovery of its claims under the Due from iHeart Communications Note, partially offset by the $41.9 million net amount payable to iHeartCommunications under the post-petition intercompany balance between iHeartCommunications and CCOH, after adjusting for the post-petition Trademark License Fees which were waived as part of the settlement agreement;

 

   

iHeartCommunications entered into a credit agreement with Clear Channel Outdoor, LLC (“CCOL”), a wholly-owned subsidiary of CCOH, to provide a line of credit in an aggregate amount not to exceed $200 million at the prime rate of interest; and

 

   

iHeart Operations, Inc. issued preferred stock to a third party for cash.

The unaudited condensed pro forma balance sheet as of March 31, 2019 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 a portion of the borrowings under our New Term Loan Facility.

 

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IHEARTMEDIA, INC.

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET

As of March 31, 2019

(in thousands)

 

ASSETS   Historical     Separation
of the
Outdoor
Group (A)
    Pro Forma
for Separation
of the

Outdoor
Group
    Reorganization
Adjustments
(B)
    Fresh Start
Adjustments
(C)
    Pro Forma
for Separation,
Reorganization
and

Fresh Start
Adjustments
    The
Offering
(D)
    Pro Forma
as
Adjusted
 

Cash and cash equivalents

  $ 448,130     $ (170,510   $ 277,620     $ (243,115 )(1)    $ —       $ 34,505     $                               

Accounts receivable, net of allowance

    1,387,122       (636,520     750,602       —         —         750,602      

Prepaid expenses

    179,823       (59,232     120,591       —         (19,270 )(2)      101,321      

Other current assets

    74,977       (31,642     43,335       3,385  (1)      —         46,720      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    2,090,052       (897,904     1,192,148       (239,730     (19,270     933,148      

PROPERTY, PLANT AND EQUIPMENT

               

Structures, net

    1,014,688       (1,014,688     —         —         —         —        

Other property, plant and equipment, net

    726,550       (229,872     496,678       —         235,150  (3)      731,828      

INTANGIBLE ASSETS AND GOODWILL

               

Indefinite-lived intangibles—licenses

    2,326,533       —         2,326,533       —         (2,956 )(1)      2,323,577      

Indefinite-lived intangibles—permits

    971,163       (971,163     —         —         —         —        

Other intangible assets, net

    439,864       (249,184     190,680       (83,909 )(2)      2,251,583  (1)      2,358,354      

Goodwill

    4,118,312       (702,819     3,415,493       —         (50,369 )(1)      3,365,124      

OTHER ASSETS

               

Operating lease right-of-use assets

    2,359,275       (2,004,486     354,789       —         510,570  (4)      865,359      

Other assets

    239,533       (99,706     139,827       —         (27,400 )(2)      112,427      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 14,285,970     $ (6,169,822   $ 8,116,148     $ (323,639   $ 2,897,308     $ 10,689,817     $      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CURRENT LIABILITIES

               

Accounts payable

  $ 146,853     $ (105,026   $ 41,827     $ —       $ —       $ 41,827     $      

Current operating lease liabilities

    366,902       (366,433     469       32,065  (5)      16,829  (4)      49,363      

Accrued expenses

    632,078       (458,582     173,496       (47,656 )(1)      —         125,840      

Accrued interest

    12,323       (11,649     674       —         —         674      

Deferred income

    234,672       (103,148     131,524       —         (1,736 )(5)      129,788      

Current portion of long-term debt

    46,744       (234     46,510       6,583  (5)      —         53,093      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    1,439,572       (1,045,072     394,500       (9,008     15,093       400,585      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt

    5,293,405       (5,293,405     —         5,747,271  (4)      (4,000 )(5)      5,743,271      

Noncurrent operating lease liabilities

    1,669,447       (1,668,558     889       397,158  (5)      406,921  (4)      804,698      

Deferred income taxes

    323,434       (323,434     —         619,342  (6)      336,737  (7)      956,079      

Other long-term liabilities

    296,896       (176,194     120,702       15,942  (5)      (3,134 )(5)      133,510      

Subsidiary preferred stock

    —         —         —         59,087  (3)      —         59,087      

Liabilities subject to compromise

    16,829,329       —         16,829,329       (16,829,329 )(5)      —         —        

Commitments and contingent liabilities

               

STOCKHOLDERS’ EQUITY (DEFICIT)

               

Noncontrolling interest

    11,437       (11,051     386       —         —         386      

Common stock

    92       —         92       (92 )(8)      —         —        

New iHeartMedia, Inc. common stock, par value $0.001 per share

    —         —         —         145  (8)      —         145      

Additional paid-in capital

    2,075,025       —         2,075,025       518,461  (7)      (1,700     2,591,786      

Accumulated deficit

    (13,330,821     2,042,219       (11,288,602     9,154,822       2,133,780  (6)      —        

Accumulated other comprehensive loss

    (319,284     305,673       (13,611     —         13,611  (6)      —        

Cost of shares held in treasury

    (2,562     —         (2,562     2,562  (8)      —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Stockholders’ Equity (Deficit)

    (11,566,113     2,336,841       (9,229,272     9,675,898       2,145,691       2,592,317      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity (Deficit)

  $ 14,285,970     $ (6,169,822   $ 8,116,148     $ 323,639     $ 2,897,308     $ 10,689,817     $       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2019

(in thousands)

 

    Historical     Separation of the
Outdoor Group

(A)
    Pro Forma
for Separation
of the Outdoor
Group
    Reorganization
Adjustments
(B)
    Fresh Start
Adjustments
(C)
    Pro Forma
for Separation,
Reorganization

and Fresh
Start

Adjustments
    The
Offering
(D)
    Pro Forma
As Adjusted
 

Revenue

  $ 1,381,899     $ (586,102   $ 795,797     $ —       $ 210  (2)(3)    $ 796,007     $              

Operating expenses:

               

Direct operating expenses (excludes depreciation and amortization)

    614,919       (347,804     267,115       —         (1,515 )(3)(4)      265,600      

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

    455,723       (122,743     332,980       —         (1,783 )(3)      331,197      

Corporate expenses (excludes
depreciation and amortization)

    74,700       (27,846     46,854       4,037  (5)      —         50,891      

Depreciation and amortization

    113,366       (75,076     38,290       (2,248 )(1)      70,633  (1)      106,675      

Impairment charges

    91,382       —         91,382       —         —         91,382      

Other operating expense, net

    (3,549     3,522       (27     —         —         (27    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    28,260       (9,111     19,149       (1,789     (67,125     (49,765    

Interest expense, net

    114,764       (114,052     712       101,367  (2)(3)      —         102,079      

Equity in loss of nonconsolidated affiliates

    (214     207       (7     —         —         (7    

Loss on extinguishment of debt

    (5,474     5,474       —         —         —         —        

Other expense, net

    (10,722     358       (10,364     —         —         (10,364    

Reorganization items, net

    36,118       —         36,118       (36,118 )(4)      —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (139,032     110,980       (28,052     (67,038     (67,125     (162,215    

Income tax benefit

    3,431       57,763       61,194       16,760       16,781       94,735      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

  $ (135,601   $ 168,743     $ 33,142     $ (50,278   $ (50,344   $ (67,480   $              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2018

(in thousands)

 

    Historical     Separation of the
Outdoor Group
(A)
    Pro Forma
for Separation
of the Outdoor
Group
    Reorganization
Adjustments
(B)
    Fresh Start
Adjustments
(C)
    Pro Forma for
Separation,

Reorganization
and

Fresh Start
Adjustments
    The
Offering
(D)
    Pro Forma
As Adjusted
 

Revenue

  $ 1,369,648     $ (596,862   $ 772,786     $ —       $ (73 )(2)(3)    $ 772,713     $              

Operating expenses:

               

Direct operating expenses (excludes depreciation and amortization)

    602,355       (361,289     241,066       —         2,172  (3)(4)      243,238      

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

    472,987       (126,895     346,092       —         (2,067 )(3)      344,025      

Corporate expenses (excludes depreciation and amortization)

    78,734       (25,822     52,912       8,281  (5)      —         61,193      

Depreciation and amortization

    151,434       (84,060     67,374       (2,248 )(1)      39,126  (1)      104,252      

Other operating expense, net

    (3,286     54       (3,232     —         —         (3,232    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    60,852       1,258       62,110       (6,033     (39,304     16,773      

Interest expense, net

    418,397       (97,264     321,133       (219,841 )(2)(3)      —         101,292      

Equity in earnings (loss) of nonconsolidated affiliates

    157       (188     (31     —         —         (31    

Gain on extinguishment of debt

    100       —         100       —         —         100      

Other expense, net

    (1,063     (19,453     (20,516     —         —         (20,516    

Reorganization items, net

    192,055       —         192,055       (192,055 )(4)      —         —        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (550,406     78,881       (471,525     405,863       (39,304     104,966      

Income tax benefit

    117,366       45,367       162,733       (101,466     9,826       71,093      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net loss

  $ (433,040   $ 124,248     $ 308,792     $ 304,397     $ (29,478   $ (33,873   $              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2018

(in thousands)

 

    Historical     Separation of the
Outdoor Group
(A)
    Pro Forma
for Separation
of the Outdoor
Group
    Reorganization
Adjustments
(B)
    Fresh Start
Adjustments
(C)
    Pro Forma for
Separation,
Reorganization
and
Fresh Start

Adjustments
    The
Offering
(D)
    Pro Forma
As Adjusted
 

Revenue

  $ 6,325,780     $ (2,714,457   $ 3,611,323     $ —       $ (292 )(2)(3)    $ 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       33,369  (5)      —         260,877      

Depreciation and amortization

    530,903       (318,952     211,951       (8,990 )(1)      212,772  (1)      415,733      

Impairment charges

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

Other operating expense, net

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    980,518       (290,374     690,144       (24,379     (213,485     452,280      

Interest expense, net

    722,931       (388,133     334,798       70,648   (2)(3)      —         405,446      

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     261,092       (213,485     23,471      

Income tax expense

    (46,351     32,515       (13,836     (65,273     53,371       (25,738    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net loss

  $ (202,639   $ 164,667     $ (37,972   $ 195,819     $ (160,114   $ (2,267   $              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2017

(in thousands)

 

     Historical     Separation of
the Outdoor Group
(A)
    Pro Forma
for the
Separation of

the Outdoor Group
 

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, 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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Table of Contents

IHEARTMEDIA, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

For the Year Ended December 31, 2016

(in thousands)

 

     Historical     Separation of
the Outdoor Group
(A)
    Pro Forma
for the
Separation of

the Outdoor Group
 

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 expense, 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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Table of Contents

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 March 31, 2019 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

On May 1, 2019, as part of the Separation, the outstanding shares of both classes of CCOH common stock were consolidated such that CCH held all of the outstanding CCOH Class A common stock that was held by subsidiaries of iHeartCommunications, through a series of share distributions by other subsidiaries that held CCOH common stock and a conversion of CCOH Class B common stock that CCH held to CCOH Class A common stock. Prior to the Separation, iHeartCommunications owned approximately 89.1% of the economic rights and approximately 99% of the voting rights of CCOH. To complete the Separation, CCOH merged with and into CCH, with CCH surviving the merger and changing its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”), and pre-merger 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) were converted into an equal number of shares of post-merger common stock of New CCOH. iHeartCommunications transferred the post-merger common stock of New CCOH it held to Claimholders pursuant to the Plan of Reorganization but retained 31,269,762 shares which will be distributed to two affiliated Claimholders when the iHeartCommunications Warrants are exercised for nominal consideration. Upon completion of the merger and distribution of the shares held by iHeartCommunications to Claimholders, New CCOH became an independent public company. The unaudited pro forma condensed consolidated balance sheet assumes that the iHeartCommunications Warrants have been exercised and the shares have been distributed to the Claimholders.

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 Quarterly Report on Form 10-Q for the three months ended March 31, 2019. CCOH’s assets and liabilities are adjusted to: (1) eliminate the balance on the Due from iHeartCommunications Note and the balance on the intercompany payable due to iHeartCommunications from CCOH’s consolidated balance sheet, which are intercompany amounts that were eliminated in consolidation; (2) eliminate CCOH’s Noncontrolling interest and 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 March 31, 2019 (excluding CCOH)

   $ 277.6  

Net cash received from exit financing

     5,737.4  

Cash paid to predecessor debtholders

     (5,750.0

Payment to CCOH to settle intercompany balances

     (107.0 )(a) 

Proceeds received from sale of preferred stock

     59.1  

Payments made for professional fees

     (148.8 )(b) 

Release of restricted cash (Other current assets)

     3.4  

Payments to cure contracts (Liabilities subject to compromise)

     (17.7

Payments for general unsecured claims (Liabilities subject to compromise)

     (17.5

Other cash payments

     (2.0 )(b) 
  

 

 

 

Total pro forma use of cash

     (243.1
  

 

 

 

Pro forma cash upon emergence

   $ 34.5  
  

 

 

 

 

  (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 post-petition intercompany 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, offset by $52.1 million accrued under the corporate services agreement between iHeartCommunications and CCOH (after the termination of royalties and license fees on intellectual property) in favor of iHeartCommunications from January 1, 2019 through March 31, 2019. Within 15 business days after the Effective Date, iHeartCommunications will pay CCOH for the intercompany liability incurred from April 1, 2019 through the Effective Date.

  (b)

Approximately $46.2 million in professional fees and $2.0 million related to other cash payments were accrued for in the historical balance sheet as of March 31, 2019.

 

  (2)

The contribution of the CC Intellectual Property to CCOH at its historical book value of $83.9 million.

 

  (3)

The issuance by iHeart Operations of $60 million in aggregate liquidation preference of its Series A Perpetual Preferred Stock, par value $0.001 per share, for an aggregate amount equal to $59.1 million, net of issuance costs. On May 1, 2029, the shares of the Preferred Stock will be subject to mandatory redemption for $60 million in cash, plus any accrued and unpaid dividends, unless waived by the holders of the Preferred Stock. Because the Preferred Stock is mandatorily redeemable for cash at a date certain, the Preferred Stock is classified as a liability in the Company’s unaudited pro forma condensed consolidated balance sheet.

 

  (4)

The exit financing consists of the New Term Loan Facility of approximately $3.5 billion and New Senior Secured Notes totaling $800 million, both 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 four years from the date of issuance.

The terms from the exit financing are as follows:

 

(in millions)    Term      Interest Rate      Amount  

New Term Loan Facility

     7 years        Libor + 4.00%      $ 3,487.4  

New Senior Secured Notes

     7 years        6.375%        800.0  

New Senior Unsecured Notes

     8 years        8.375%        1,450.0  

New ABL Facility

     4 years        Varies1        —    
        

 

 

 

Pro forma net proceeds from exit financing

         $ 5,737.4  
        

 

 

 

 

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(1) Borrowings under the New ABL Facility bear interest at a rate per annum equal to the applicable rate plus, at iHeartCommunications’ option, either (1) a eurocurrency rate or (2) a base rate. The applicable margin for borrowings under the New ABL Facility range from 1.25% to 1.75% for eurocurrency borrowings and from 0.25% to 0.75% for base-rate borrowings, in each case, depending on average excess availability under the New ABL Facility based on the most recently delivered borrowing base certificate.

 

  (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

   $ 16,829.3  

To be reinstated:

  

Deferred taxes

     (653.5

Accrued expenses

     (0.5

Current operating lease liabilities

     (32.1

Capital leases(a)

     (16.8

Noncurrent operating lease liabilities

     (397.2

Other long-term liabilities

     (15.8

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

     (15,669.6

Payments to cure contracts

     (17.7

Settlement of general unsecured claims

     (26.1 )(c) 
  

 

 

 

Liabilities subject to compromise post-emergence

   $ —    
  

 

 

 
  (a)

Includes capital leases liabilities and other debt of $6.6 million and $10.2 million classified as current and long-term debt, respectively.

  (b)

Includes Long-term debt of $15,143.7 million and accrued interest of $542.7 million, less reinstated capital leases and other debt of $16.8 million.

  (c)

Cash of $6.8 million is reserved for future general unsecured claims and is classified as restricted cash.

 

  (6)

Reflects the reinstatement of deferred tax liabilities included within Liabilities subject to compromise of $653.5 million, offset by an adjustment to net deferred tax liabilities of $34.2 million. Upon emergence from bankruptcy proceedings under Chapter 11 of the Bankruptcy Code, iHeartMedia’s federal and state net operating loss carryforwards were reduced in accordance with Code Section 108 due to cancellation of debt income, which is not includable in U.S. federal taxable income. The remaining federal and state net operating loss carryforwards upon emergence totaled $40.8 million. 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)

Pursuant to the terms of the Plan of Reorganization, as of the Effective Date, all pre-emergence common stock and stock-based compensation awards were cancelled without any distribution, resulting in the recognition of $1.7 million in compensation expense immediately prior to our emergence related to the unrecognized portion of share-based compensation. Following the Effective Date, the Company intends to issue 5,170,918 non-qualified stock options and 2,750,140 restricted stock awards pursuant to the Incentive Equity Plan.

 

  (8)

The adjustments reflect the cancellation of iHeartMedia’s common stock and related components of its Stockholders’ deficit, and the issuance of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and Special Warrants to purchase 81,453,648 shares of 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

We have applied 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 elimination of 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)

Historical goodwill and other intangible assets have been eliminated and we have recognized certain intangible assets at estimated current fair values 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. We have also recorded 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 millions)    Preliminary
Fair Value
    Estimated
Useful Life

FCC licenses(a)

   $ 2,323.6     Indefinite

Customer / advertiser relationships(b)

     1,663.0     5 - 15 years

Talent contracts(b)

     362.2     2 - 10 years

Trademarks and tradenames(b)

     323.4     7 - 15 years

Other(b)

     9.7    
  

 

 

   

Total pro forma intangible assets upon emergence

     4,681.9    

Elimination of historical acquired intangible assets

     (2,433.3  
  

 

 

   

Fresh start adjustment to acquired intangible assets

   $ 2,248.6    
  

 

 

   

 

  (a)

FCC licenses. The fair value of the indefinite-lived FCC licenses was determined primarily using the direct valuation method of the Income Approach and, for smaller markets a combination of the Income approach and the Market Approach. The Company engaged a third-party valuation firm to assist it in the development of the assumptions and the Company’s determination of the fair value of its FCC licenses.

Under the direct valuation method, the fair value of the FCC licenses was calculated at the market level as prescribed by ASC 350. The application of the direct valuation method attempts to isolate the income that is properly attributable to the FCC licenses alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. Under the direct valuation method, it is assumed that rather than acquiring FCC licenses as part of a going concern business, the buyer hypothetically obtains FCC licenses and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in value that is directly attributable to the FCC licenses. In applying the direct valuation method to the Company’s FCC licenses, the licenses are grouped by type (e.g. FM licenses vs. AM licenses) and market size in order to ensure appropriate assumptions are used in valuing the various FCC licenses based on population and demographics that influence the level of revenues generated by each FCC license, using industry projections. The key assumptions used in applying the direct valuation method include market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate (“WACC”) and terminal values. The WACC was calculated by weighting the

 

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required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages based on a market participant capital structure.

For licenses valued using the Market Transaction Method, the Company used publicly available data, which included sales of comparable radio stations and FCC auction data involving radio broadcast licenses to estimate the fair value of FCC licenses. Similar to the application of the Income approach for the FCC licenses, the Company grouped licenses by type and market size for comparison to historical market transactions.

The historical book value of the FCC licenses as of March 31, 2019 was subtracted from the fair value of the FCC licenses to determine the pro forma adjustment to decrease the value of Indefinite-lived intangible assets-licenses by $3.0 million.

 

  (b)

Definite-lived intangible assets. Definite-lived intangible assets include customer/advertiser relationships, talent contracts for on-air personalities, trademarks and tradenames and other intangible assets. The Company engaged a third-party valuation firm to assist in developing the assumptions and determining the fair values of each of these assets.

For purposes of estimating the fair values of customer/advertiser relationships and talent contracts, the Company primarily utilized the Income Approach (specifically, the multi-period excess earnings method, or MPEEM) to estimate fair value based on the present value of the incremental after-tax cash flows attributable only to the subject intangible assets after deducting contributory asset charges. The cash flows attributable to each grouping of customer/advertiser relationships were adjusted for the appropriate contributory asset charges (e.g., FCC licenses, working capital, tradenames, technology, workforce, etc.). The discount rate utilized to present-value the after-tax cash flows was selected based on consideration of the overall business risks and the risks associated with the specific assets being valued. Additionally, the Company used the Cost Approach using historical financial data regarding the sales, administrative and overhead expenses related to the Company’s selling efforts associated with revenue for both existing and new advertisers. The ratio of expenses for selling efforts to revenue was applied to total revenue from new customers to determine an estimated cost per revenue dollar of revenue generated by new customers. This ratio was applied to total revenue from existing customers to estimate the replacement cost of existing customer/advertiser relationships. The historical book value of customer/advertiser relationships as of March 31, 2019 was subtracted from the fair value of the customer/advertiser relationships determined as described above to determine the pro forma adjustment to increase the value of the customer/advertiser relationship intangible assets by $1,627.5 million.

For purposes of estimating the fair value of trademarks and tradenames, the Company primarily used the Royalty Savings Method, a variation of the Income approach. Estimated royalty rates were determined for each of the trademarks and tradenames considering the relative contribution to the Company’s overall profitability as well as available public information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the trademarks and tradenames to determine the amount of royalty payments saved as a result of owning these assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. The historical book values of talent contracts, trademarks and tradenames and other intangible assets as of March 31, 2019 were subtracted from the fair values determined as described above to determine the pro forma adjustments as follows:

 

Talent contracts

   $342.5 million increase in value

Trademarks and tradenames

   $275.3 million increase in value

Other

   $6.3 million increase in value

 

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

 

Pro forma reorganization value

   $ 10,689.8  

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

     (7,324.7
  

 

 

 

Total pro forma goodwill upon emergence

     3,365.1  

Elimination of historical goodwill

     (3,415.5
  

 

 

 

Fresh start adjustment to goodwill

   $ (50.4
  

 

 

 

As set forth in the Plan of Reorganization, which was confirmed by the Bankruptcy Court on January 22, 2019 and became effective on May 1, 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.

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

 

Midpoint of enterprise value range

   $ 8,750.0  

Debt issued upon Reorganization

     (5,737.4

Other long-term debt

     (59.0

Preferred stock issuance

     (59.1

Change in deferred tax liabilities(a)

     (336.8

Noncontrolling interest

     (0.3

Pro forma cash and cash equivalents

     34.5  
  

 

 

 

Pro forma equity value

   $ 2,591.9  

Pro forma current and long-term liabilities excluding Subsidiary preferred stock

     8,038.4  

Pro forma Subsidiary preferred stock and Noncontrolling interest

     59.5  
  

 

 

 

Pro forma Reorganization value

   $ 10,689.8  
  

 

 

 

 

  (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 Reorganization, 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 March 31, 2019 to eliminate certain prepaid expenses related to implementation costs and other upfront payments. The Company historically incurred third-party implementation fees in connection with installing various cloud-based software products, and these amounts were recorded as prepaid expenses and recognized as a component of Selling, general and administrative expense over the term of the various contracts. The Company determined that the remaining unamortized costs related to such implementation fees do not provide any rights that result in future economic benefits. In addition, the Company pays signing bonuses to certain of its on-air personalities, and these amounts were recorded as prepaid expenses and recognized as a component of Direct operating expenses over the terms of the various contracts. To the extent these contracts do not contain substantive claw-back provisions, these prepaid amounts do not provide any enforceable rights that result in future economic benefits. Accordingly, the balances related to these contracts as of March 31, 2019 were adjusted to zero.

 

  (3)

Reflects the fair value adjustment to recognize the Company’s property, plant and equipment as of March 31, 2019 based on the estimated fair values of such property, plant and equipment. Property was

 

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  valued using a market approach comparing similar properties to recent market transactions. Equipment was valued primarily using a replacement cost approach. Internally-developed and owned software technology assets were valued primarily using the Royalty Savings Method, similar to the approach used in valuing the Company’s tradenames and trademarks. Estimated royalty rates were determined for each of the software technology assets considering the relative contribution to the Company’s overall profitability as well as available public market information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the software technology assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. For certain of the software technology assets, the Company used the cost approach which utilized historical financial data regarding development costs and expected future profit associated with the assets.

The adjustment to the Company’s property, plant and equipment consists of a $78.9 million increase in tangible property and equipment and a $156.3 million increase in software technology assets.

 

  (4)

The operating lease obligation recorded by the Company as of March 31, 2019 was calculated using an incremental borrowing rate applicable to the Company while it was a debtor-in-possession before its emergence from bankruptcy. Upon application of fresh start accounting, the lease obligation was recalculated using the incremental borrowing rate applicable to the Company after emergence from bankruptcy and commensurate to its new capital structure. Accordingly, the Company’s Operating lease liabilities and corresponding Operating lease right-of-use assets increased by $423.8 million to reflect the higher balances resulting from the application of a lower incremental borrowing rate. The Operating lease right-of-use assets were further adjusted to reflect the resetting of the Company’s straight-line lease calculation. In addition, the Company increased the Operating lease right-of-use assets to recognize $11.0 million related to favorable lease contracts.

 

  (5)

Reflects the fair value adjustment to adjust deferred revenue and other liabilities as of March 31, 2019 to its estimated fair value based on the amount 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 loss.

 

  (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 the 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 a portion of the borrowings under the New Term Loan Facility.

NOTE 2 — PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS

 

A.

The Separation

The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 and for the years ended December 31, 2018, 2017 and 2016 include the following adjustments related to the Separation:

 

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The adjustments reflect the revenue 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 the Due from iHeartCommunications Note of $68.9 million and $50.3 million recognized by CCOH for the years ended December 31, 2017 and 2016, respectively, which was an intercompany expense of iHeartCommunications that was eliminated in consolidation (no interest income was recognized on the Due from iHeartCommunications Note after December 31, 2017);

 

  (2)

eliminate interest income (expense) on the post-petition intercompany balance with iHeartCommunications of $(0.8) million, $0.0 million and $0.4 million for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018, respectively, which was eliminated in consolidation;

 

  (3)

eliminate the $855.6 million loss on the Due from iHeartCommunications Note recognized by CCOH in 2017, which was an intercompany amount that was eliminated in consolidation; and

 

  (4)

eliminate the Trademark License Fees charged by iHeartMedia to CCOH of $8.6 million, $38.6 million and $36.7 million for the three months ended March 31, 2018 and 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 the three months ended March 31, 2019 or in 2016.

The unaudited pro forma statements of operations assume that the amounts to be charged to CCOH under the Transition Services Agreement after emergence are equivalent to the amounts charged for the services historically provided under the Corporate Services Agreement. Accordingly, for purposes of the pro forma statements of operations, pro forma Corporate expenses are presented net of intercompany management charges to CCOH.

In addition, the unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018 include 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 $2.2 million, $2.2 million and $9.0 million for of the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018, respectively, recognized in relation to the CC Intellectual Property that was transferred to CCOH as part of the Separation.

 

  (2)

Elimination of historical pre-petition interest expense of $0.6 million, $321.8 million and $337.4 million recognized during the three months ended March 31, 2019 and 2018 and during the year ended December 31, 2018, respectively, related to long-term debt that was eliminated in connection with the Reorganization.

 

  (3)

Recognition of $100.2 million, $100.2 million and $400.9 million in interest expense related to post-emergence long-term debt issued in connection with the Reorganization calculated using average LIBOR for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018 plus 4.00% for the New Term Loan Facility, and 6.375% for the New Senior Secured Notes and 8.375% for the New Senior Unsecured Notes, in each case issued following the Effective Date. Such pro forma interest expense also includes a 0.250% fee on the unused balance of the New ABL Facility of $391.0 million and a 1.375% fee on amounts used by letters of credit (assumed to be $59.0 million). No balance is assumed to be drawn on the New ABL Facility or the iHeartCommunications Line of Credit for the purposes of the unaudited pro forma condensed consolidated statements of operations. In addition, interest expense was adjusted by $1.8 million, $1.8 million and $7.1 million for the three

 

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  months ended March 31, 2019 and 2018 and for the year ended December 31, 2018, respectively, to reflect as interest expense the dividends on the $60.0 million of mandatorily redeemable Subsidiary Preferred Stock.

 

  (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 historical share-based compensation expense of $0.4 million, $0.6 million and $2.1 million for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018, respectively, resulting from the cancellation of pre-emergence stock-based compensation awards, and replaced by share-based compensation expenses of $4.4 million, $8.9 million and $35.4 million for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018, respectively, resulting from the expected issuance of 5,170,918 non-qualified stock options and 2,750,140 restricted stock units pursuant to the Incentive Equity Plan.

 

C.

Fresh Start Accounting Adjustments

 

  (1)

Reversal of historical depreciation and amortization (after adjusting for the contribution of the CC Intellectual Property discussed above) of $36.0 million, $65.1 million and $203.0 million for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018, respectively, and recognition of $106.7 million, $104.3 million and $415.7 million for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018, respectively, in depreciation and amortization related to tangible and intangible assets identified and adjusted to estimated fair values.

 

  (2)

Reduction of historical revenue of $0.4 million, $0.4 million and $1.7 million for the three months ended March 31, 2019 and 2018 and for the year ended December 31, 2018, respectively, related to the adjustment to deferred revenue to its estimated fair value.

 

  (3)

Reversal of historical expenses related to implementation costs and other upfront fees that were determined to have no future economic benefits. As discussed in footnote C(2) to the unaudited pro forma condensed consolidated balance sheet, the remaining unamortized balances related to prepaid implementation costs for cloud-based software and for signing bonuses related to talent contracts without substantive claw-back provisions were determined to not provide any enforceable rights to future economic benefits and were adjusted to zero. Accordingly, historical Selling, general and administrative expenses arising from the amortization of prepaid implementation fees of $1.8 million, $2.1 million and $8.3 million for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018, respectively, were reversed. In addition, historical Direct operating expenses arising from the amortization of signing bonuses of $3.2 million, $0.8 million and $3.1 million for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018, respectively, were reversed. Revenue was also adjusted in relation to an arrangement with a customer, resulting in an adjustment of $0.6 million, $0.4 million and $1.4 million for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018, respectively.

 

  (4)

The Company eliminated the impact of the amortization of deferred gains on sale-leaseback transactions, which resulted in an increase in Direct operating expense of $1.2 million and $4.8 million for the three months ended March 31, 2018 and the year ended December 31, 2018, respectively. Unamortized deferred gains on sale-leaseback transactions were written-off on January 1, 2019 upon adoption of the new leasing standard. In addition, the Company eliminated the impact of the amortization of straight-line lease adjustments related to operating leases with escalating payments and reset its straight-line lease amortization for purposes of the unaudited pro forma condensed consolidated statements of operations. Resetting the Company’s straight-line lease amortization resulted in an increase to Direct operating expenses of $1.7 million, $1.7 million and $7.0 million for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018, respectively.

 

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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 three months ended March 31, 2019 and 2018 and 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 statements 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 borrowings under our New Term Loan Facility 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 Radio: We generated revenue of $487 million and $490 million for the three months ended March 31, 2019 and 2018, respectively 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 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. Digital generated revenue of $76 million and $59 million for the three months ended March 31, 2019 and 2018, respectively.

 

   

Networks: We enable advertisers to engage with consumers through our Premiere Networks and Total Traffic & Weather Network services. We generate broadcast advertising revenue from selling local and

 

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national advertising on our programs featuring top personalities, and also generate revenue through the syndication of our programming to other media companies. Networks generated revenue of $138 million and $132 million for the three months ended March 31, 2019 and 2018, respectively.

 

   

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. Sponsorship and events generated revenue of $40 million and $38 million for the three months ended March 31, 2019 and 2018, respectively.

 

   

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 $5 million and $6 million for the three months ended March 31, 2019 and 2018, respectively.

 

   

Audio & Media Services: We also provide services to radio and television broadcast industry participants through our Katz Media and RCS businesses which generated revenue of $50 million and $48 million for the three months ended March 31, 2019 and 2018, respectively.

 

   

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.

Three Months ended March 31, 2019 compared to Three Months ended March 31, 2018

The unaudited condensed consolidated pro forma statements of operations for the quarters ended March 31, 2019 and 2018 reflect the Separation, Reorganization, the application of fresh start accounting and the application of the net proceeds from this offering as if they occurred on January 1, 2018. The comparison of our

 

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unaudited pro forma results of operations for the quarter ended March 31, 2019 to our unaudited pro forma results of operations for the quarter ended March 31, 2018 is as follows:

Consolidated Revenue

Revenue increased $23.3 million during the three months ended March 31, 2019 compared to the same period of 2018. Digital revenue increased $16.6 million, driven by growth in podcasting, primarily as a result of our acquisition of Stuff Media in October 2018, as well as growth in other digital revenue, such as live radio and other on-demand services. Broadcast radio spot revenue decreased $2.9 million as a result of lower local broadcast revenues, primarily offset by higher national revenues driven primarily by increased programmatic buying by our national customers. Revenue from our Network businesses, including both Premiere and Total Traffic & Weather, increased $6.1 million, and revenues from our Audio and Media services increased $2.1 million. Consolidated political revenue was $4.1 million lower in the first quarter of 2019 compared to the first quarter of 2018.

Consolidated Direct Operating Expenses

Consolidated direct operating expenses increased $22.4 million during the three months ended March 31, 2019 compared to the same period of 2018. The increase in direct operating expenses was primarily driven by higher digital royalties, content costs and compensation-related expenses from higher podcasting and digital subscription revenue. We also incurred higher production costs related to our events, including the iHeartRadio Music Awards.

Consolidated Selling, General and Administrative Expenses

Consolidated SG&A expenses decreased $12.8 million during the three months ended March 31, 2019 compared to the same period of 2018, primarily due to lower trade and barter expenses, primarily resulting from the timing, partially offset by higher third-party digital sales activation fees.

Corporate Expenses

Corporate expenses decreased $10.3 million during the three months ended March 31, 2019 compared to the same period of 2018. The decrease was primarily as a result of lower non-cash stock compensation expense due to the fact that 20% of the equity awards to be granted in connection with emergence vest 180 days after the grant date, thus not impacting pro forma corporate expenses in 2019 because, for purposes of the pro forma financial statements, the equity awards are assumed to be granted on January 1, 2018. In addition, sponsor management fees decreased because such fees have not been charged since the March 14, 2018 bankruptcy petition date, and compensation expense was lower related to retention awards granted in prior periods.

Depreciation and Amortization

Depreciation and amortization increased $2.4 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018, relating primarily to the acquisition of computers and other technology related equipment.

Impairment Charges

We perform our annual impairment test on our goodwill, FCC licenses and other intangible assets as of July 1 of each year. In addition, we test for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired. During the three months ended March 31, 2019, we determined that our weighted average cost of capital increased, indicating a potential decrease in the fair values of our intangible assets. As a result of our interim impairment testing, we recorded a non-cash impairment charge of $91.4 million to our indefinite-lived FCC licenses as a result of the increase in our weighted average cost of capital.

 

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Other Operating Expense, Net

Other operating expense, net of $3.2 million in the three months ended 2018 related primarily to net losses recognized on asset disposals.

Interest Expense

Interest expense increased $0.8 million during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily as a result of the interest on notes payable issued in the fourth quarter of 2018 related to the acquisitions of Stuff Media, LLC and Jelli Inc.

Other Expense, Net

Other expense, net was $10.4 million for the three months ended March 31, 2019 and related primarily to losses on investments. Other expense, net was $20.4 million for the three months ended March 31, 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.

Income Tax Expense (Benefit)

The income tax benefit for the three months ended March 31, 2019 was primarily attributed to the tax effects of the impairment charge recorded in relation to indefinite-lived FCC licenses in the current period. The income tax benefit for the three months ended March 31, 2018 was attributed to the change in valuation allowance recorded against deferred tax assets resulting from current period net operating losses in U.S. federal and state jurisdictions due to uncertainty regarding the Company’s ability to realize those assets in future periods.

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 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 for operating leases with escalating payments and deferred gains on sale-leaseback transactions, 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—$212.8 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 $213.2 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, the application of fresh start accounting and the

 

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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 our business 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.

Corporate Expenses

Corporate expenses increased $52.2 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 non-cash stock compensation resulting from the equity awards expected to be granted in connection with the Reorganization, 20% of which vest 180 days after the grant date, and the cancellation of the previous stock compensation plan, as well as 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 $140.4 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.

 

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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 $1,079.0 million during 2018 compared to 2017 as a result of the significant decrease in long-term debt 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 $25.7 million on income before income taxes of $23.5 million was an increase of $202.9 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.

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. 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 subscription services, as well as higher music royalty fees.

 

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SG&A Expenses

Consolidated SG&A expenses increased $133.4 million during 2017 compared to 2016, including a $142.7 million increase 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.

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.

 

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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 networks 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 ceased to 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 currently have a single reportable business segment.

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 and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2019 Q1 Quarterly Report filed on March 5, 2019 and April 25, 2019, respectively, each of which is incorporated by reference herein.

On May 1, 2019, we consummated the Separation and Reorganization, resulting in a substantial reduction in our long-term indebtedness and corresponding cash interest expenses and significantly extending the maturities of our outstanding indebtedness, as more fully described under “Liquidity and Capital Resources” below. Over the past ten years, we have transitioned our media business from a single platform radio broadcast operator to a company with multiple platforms including podcasting, networks and live events. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. We believe that our ability to generate free cash flow from these business initiatives coupled with the significant reduction in interest payments due to our reduced level of indebtedness and the elimination of all of our near-term debt maturities will enable us to operate our business without the need to incur the levels of indebtedness that ultimately precipitated our bankruptcy filing in 2018.

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

For a discussion and analysis of our liquidity and capital resources, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report and Item 2,

 

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2019 Q1 Quarterly Report filed on March 5, 2019 and April 25, 2019, respectively, each of which is incorporated by reference herein.

The Separation and Reorganization resulted in a new capital structure with significantly lower levels of long-term debt and a corresponding decrease in debt service requirements after emergence. As a result of the Separation and Reorganization, our long-term debt decreased from $20.5 billion to $5.8 billion (before application of the proceeds of this offering, a portion of which will be used to further reduce our indebtedness). In 2018, we paid $398.0 million of cash interest, and incurred contractual interest of $1,189.1 million that was not paid on account of our bankruptcy proceedings. In 2017, we paid cash interest of $1,772.4 million. As a result of the Separation and Reorganization, our annual cash interest payment following emergence will be less than $400 million and our principal outstanding indebtedness, our New Term Loan Facility, New Senior Secured Notes and New Senior Unsecured Notes will not mature until 2026, 2026 and 2027 respectively.

On the Effective Date, we made cash payments in connection with the CCOH Separation Agreement and per the terms of the Plan of Reorganization, including $107.0 million to CCOH in settlement of intercompany payable balances as of March 31, 2019, $17.7 million to cure contracts, $19.7 million for general unsecured claims, and $148.8 million for professional fees. Other anticipated cash requirements for the year ending 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 the acquisition of Stuff Media, LLC and Jelli Inc. acquired in the fourth quarter of 2018.

Our primary sources of liquidity are cash on hand, cash flow from operations and borrowing capacity under our the New ABL Facility. As of May 1, 2019, we had cash on hand of approximately $78.3 million. As of May 1, 2019, we had no borrowings outstanding under the New ABL Facility, a borrowing limit of $450 million, and $64 million of outstanding letters of credit, resulting in $386.5 million of excess availability.

Our primary anticipated uses of liquidity are funding our working capital, debt service, capital expenditures and other obligations. These other obligations include dividend payments due to the investor of preferred stock of iHeart Operations, the terms of which are further described in Note 9 to our financial statements included in the 2019 Q1 Quarterly Report filed on April 25, 2019 and incorporated by reference herein, and any borrowings to be provided to Clear Channel Outdoor, LLC (“CCOL”) and Clear Channel International, Ltd. (“CCI”) under the iHeartCommunications Line of Credit. 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 payments based on our indebtedness at 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.

Our Indebtedness

For a summary of the terms of the agreements governing out principal indebtedness outstanding, 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.

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 friends and companions.

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 seven times the digital listening hours of the next largest commercial broadcast radio company, as measured by Triton.

 

   

Podcasts: We are the number one commercial podcast publisher—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 146 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.

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

 

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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% among U.S. adults—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, the median age of broadcast radio’s heaviest users tends to be almost 15 years lower than the median age of television’s heaviest 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 (256 million, including YouTube) and Facebook (216 million, including Instagram and Messenger) in the U.S. as measured by Comscore in March 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 25 minutes, excluding YouTube, and Facebook’s engagement time of 18 minutes per visitor per day on average excluding Instagram and Messenger (derived from Comscore’s monthly minutes per visitor measurement in March 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). According to Nielsen’s Fall 2018 book, we have the most number one ranked stations across the top 160 markets, and across the largest 50 markets, with 71 and 28 number one ranked stations in these markets, respectively. With our broadcast radio platform alone, we have almost twice the broadcast radio audience of our next closest broadcast competitor. We also have seven times the digital listening hours of our next closest commercial radio 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 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 media representation firm which 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

 

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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 are the leader across various audiences and platforms, and 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.

iHeartMedia is America’s #1 Audio Media Company By Reach

And the Only Major Multi-Platform Audio Company

Multi-Platform Audience/Usage (Millions)

 

LOGO

Source: Broadcast Radio: Fall 2018 Nielsen Audio Nationwide—Monthly Reach People 6+ Commercial Podcasts: Podtrac Ranker March 2019, Global downloads & streams

Social: Shareablee March 2019. Includes fans and followers of iHeartMedia’s stations, brands and personalities. May include some duplication Digital Audio Streaming: comScore media-metrix; total audience March 2019; Ad-supported estimates based on Pandora and Spotify SEC Filings

Youtube: YouTube Analytics dashboard March 2019. Spotify and Pandora below minimum reporting thresholds.

Snap: Snapchat Discover Dashboard March 2019 (global)

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 an IPSOS study commissioned by us. Today, iHeart brand aided awareness is 82%, in line with other widely recognized consumer brands such as Spotify at 85% and Pandora at 89%. We have evidence that both advertisers and consumers have grown to value the “iHeartRadio” brand, which is associated with consistent quality and improved satisfaction.

 

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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 seven times larger than the digital listening hours of the next largest commercial radio 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. Additionally, we believe our festivals are the most coveted. According to the Q4 2018 IPSOS study, 44% of persons aged 13-49 would most like to attend an iHeartRadio event, greater than Coachella, Lollapalooza, Burning Man Project and SXSW.

 

 

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Our Differentiated Social Reach: iHeartMedia’s personalities, stations and brands have garnered 146 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 March 2019, the Company has 17 million monthly unique visitors on Snapchat and 21 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. We also have the most downloaded podcast of all time as measured by Podtrac, with How Stuff Works at over 1 billion downloads. Overall podcasting industry revenue is expected to increase to $0.7 billion by 2020, according to the iAB, from an estimated $0.4 billion in 2018, a 28% CAGR. 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

 

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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. We also publish our broadcasts as podcasts, which increases our podcast inventory. We have a 24/7 live channel on the iHeartRadio App carrying the full podcast lineup. The result is low-cost, high-quality programming for stations that builds awareness and demand for featured podcasts. We believe this offering drives consumers to the iHeartRadio service as a podcast destination.

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. As of January 2019, smart speaker listening had 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 believe we can not only differentiate our platform relative to other radio broadcasters, but also drive revenue growth by gaining share of advertising spend currently that is allocated to other sectors such as television and digital. This potential market capture has the potential to expand 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

 

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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, $2 million of Consolidated net loss, $452 million of Operating income (13% margin) and $976 million of Adjusted EBITDA (27% margin), the highest Adjusted EBITDA margin of any major advertising-supported audio media company. Since 2010, we have outperformed the broadcast radio market on an average annual revenue growth basis by more than 200 basis points relative to the industry average excluding iHeartMedia, and in the first quarter ended March 31, 2019, we outperformed the market by approximately 340 basis points relative to the industry average excluding iHeartMedia, as measured by Miller Kaplan. As a result of the consummation of the Reorganization, iHeartMedia carries substantially less debt than it has historically, 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 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, 7 million newsletter recipients, 71 million monthly unique visitors in March 2019 to all our digital properties (including station and on-air personality websites) according to Comscore and 146 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.

 

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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 146 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

Audio is hot, with multiple growth drivers. 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

 

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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 165 million global monthly downloads and streams and nearly 18 million U.S. unique monthly users in March 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 estimate that in 2018 Katz represented more than 80% of non-iHeartMedia national radio advertising, and nearly 40% of the independent TV industry, excluding owned-and-operated TV and cable TV. 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.

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

 

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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, coupled with our scale and platform, now provide the assets that enable us to r