| Emergence from Chapter 11 | Emergence from Chapter 11 On May 10, 2018, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, the Plan became effective and the Debtors emerged from Chapter 11. Plan of Reorganization A plan of reorganization determines the rights and satisfaction of claims of various creditors and security holders, but the ultimate settlement of certain claims is subject to the uncertain outcome of any litigation, negotiations and bankruptcy court decisions for a period of time after a plan of reorganization is confirmed. Cancellation of Certain Prepetition Obligations In connection with the effectiveness of and pursuant to the terms of the Plan, on the Effective Date, the obligations of Old Cumulus and its subsidiaries under the following agreements were satisfied and discharged: • Amended and Restated Credit Agreement, dated as of December 23, 2013, by and among Cumulus Media Inc., Cumulus Media Holdings Inc., as borrower, certain lenders, JPMorgan Chase Bank, N.A., as lender and Administrative Agent, Royal Bank of Canada and Macquarie Capital (USA) Inc., as co-syndication agents, and Credit Suisse AG, Cayman Islands Branch, Fifth Third Bank, Goldman Sachs Bank USA and ING Capital LLC, as co-documentation agents (“the Canceled Credit Agreement”), pursuant to which Old Cumulus had outstanding term loans in the amount of $1.7 billion (the “Predecessor Term Loan”); • Indenture, dated as of May 13, 2011, among Cumulus Media Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee, as supplemented (“ 7.75% Senior Notes”), pursuant to which Old Cumulus had outstanding senior notes with a face value of $610.0 million ; and • Rights Agreement, dated as of June 5, 2017, between Cumulus Media Inc. and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agreement”). Additional Matters Contemplated by the Plan • In accordance with the Plan, on the Effective Date each share of Old Cumulus’s Class A common stock, par value $0.01 per share (the “old Class A common stock”), Class B common stock, par value $0.01 per share (the “old Class B common stock”), and Class C common stock, par value $0.01 per share (the "old Class C common stock" and together with the old Class A common stock and the old Class B common stock, the “old common stock”) outstanding immediately prior to the Effective Date, including all stock options, warrants or other rights, including rights issued under the Rights Agreement, to purchase such old common stock, were extinguished, canceled and discharged, and each such share, option or warrant has no further force or effect. Furthermore, all of Old Cumulus’s equity award agreements under prior incentive plans, and the awards granted pursuant thereto, were extinguished, canceled and discharged and have no further force or effect; • On the Effective Date, the Company’s certificate of incorporation was amended and restated to authorize the issuance of up to 100,000,000 shares of Class A common stock, par value $0.0000001 per share (“new Class A common stock”), 100,000,000 shares of Class B common stock, par value $0.0000001 per share (“new Class B common stock” and, together with the new Class A common stock, the “new common stock”) and 100,000,000 shares of preferred stock (see Note 11, “Stockholders’ Equity”); • On the Effective Date, the Company issued 11,052,211 shares of new Class A common stock and 5,218,209 shares of new Class B common stock; • On the Effective Date, the Company issued 3,016,853 Series 1 warrants to purchase shares of new common stock; • After the Effective Date, the Company also issued or will issue 712,736 Series 2 warrants (the “Series 2 warrants” and, together with the Series 1 warrants, the “Warrants”) to purchase shares of new common stock; • The Company entered into a $1.3 billion credit agreement (the “Credit Agreement” or “Term Loan”) with Wilmington Trust, N.A., as administrative agent (the “Agent”) and the lenders named therein (see Note 8, “Long-Term Debt”); • The holders of claims with respect to the Predecessor Term Loan received the following in full and complete satisfaction of their respective claims thereunder: (i) a pro rata share of the Term Loan and (ii) a pro rata share of 83.5% of the new common stock and warrants issued, subject to dilution by certain issuances under the Long-Term Incentive Plan (the “Incentive Plan”) (see Note 11, “Stockholders’ Equity”); • The holders of unsecured claims against Old Cumulus including claims arising from the 7.75% Senior Notes received, in the aggregate, 16.5% of the new common stock and warrants issued, subject to dilution by certain issuances under the Incentive Plan; • The Company’s board of directors was reconstituted to consist of the Company’s President and Chief Executive Officer and six independent directors selected by the holders of the Predecessor Term Loan; and • Intercompany Claims and Interests (as defined in the Plan) were canceled without any distribution on account of such Intercompany Claims and Interests. The foregoing description of certain matters effected pursuant to the Plan, and the transactions related to and contemplated thereunder, is not intended to be a complete description of, or a substitute for, a full and complete reading of the Plan. Fresh Start Accounting In connection with the Company’s emergence from Chapter 11 on the Effective Date, the Company qualified for fresh start accounting under ASC 852 as (i) the holders of voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. ASC 852 requires that fresh start accounting be applied when the Bankruptcy Court enters a confirmation order confirming a plan of reorganization, or as of a later date when all material conditions precedent to the effectiveness of a plan of reorganization are resolved, which for CUMULUS MEDIA was June 4, 2018. The Company has applied fresh start accounting as of the Effective Date. Upon the application of fresh start accounting, CUMULUS MEDIA allocated the reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, Business Combinations (“ASC 805”). Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities. Liabilities existing as of the Effective Date, other than deferred taxes, were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates. Deferred taxes were determined in conformity with applicable accounting standards. Predecessor Company accumulated depreciation, accumulated amortization, and accumulated deficit were eliminated. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Company’s consolidated financial statements after June 3, 2018 are not comparable to the Company’s consolidated financial statements as of or prior to that date. Reorganization Value As set forth in the Plan, the enterprise value of the Successor Company was estimated to be between $1.5 billion and $1.7 billion . Based on the estimates and assumptions discussed below, CUMULUS MEDIA estimated the enterprise value to be $1.675 billion , which was confirmed by the Bankruptcy Court. Management estimated the enterprise value of the Successor Company utilizing the guideline public company method and discounted cash flow method (“DCF”). The use of each approach provides corroboration for the other approach. To estimate enterprise value utilizing the guideline public company method, management applied valuation multiples, derived from the operating data of publicly-traded benchmark companies, to the same operating data of CUMULUS MEDIA. The guideline public company analysis identified a group of comparable companies giving consideration to lines of business and markets served, size and geography. The valuation multiples were derived based on projected financial measures of revenue and earnings before interest, taxes, depreciation and amortization and applied to projected operating data of CUMULUS MEDIA. To estimate enterprise value utilizing the discounted cash flow method, management established an estimate of future cash flows for the period 2018 to 2024 with a terminal value and discounted the estimated future cash flows to present value. The expected cash flows for the period 2018 to 2024 with a terminal value were based upon certain financial projections and assumptions provided to the Bankruptcy Court. The expected cash flows for the period 2018 to 2024 were derived from earnings forecasts and assumptions regarding growth and margin projections, as applicable. A terminal value was included, calculated using the constant growth method, based on the cash flows of the final year of the forecast period. The Company’s enterprise value represents the fair value of its interest-bearing debt and equity capital, while the reorganization value is derived from the enterprise value by adding back non-interest-bearing liabilities. The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date (dollars in thousands): Enterprise value $ 1,675,000 Less: Cash balance difference (1) (20,000 ) Less: Effect of deferred tax liability (2) (30,000 ) Plus: Fair value of non-debt current liabilities 114,573 Plus: Fair value of non-debt long term liabilities 63,921 Reorganization value $ 1,803,494 (1) Difference in the estimated cash balance in the reorganization value versus the actual cash on hand as of June 3, 2018. (2) Difference in the assumed effect of deferred taxes in the reorganization value versus the actual deferred taxes as of June 3, 2018. Unaudited Condensed Consolidated Balance Sheet The adjustments set forth in the following unaudited Condensed Consolidated Balance Sheet reflect the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs (dollars in thousands). Predecessor Company Reorganization Adjustments Fresh Start Adjustments Successor Company Assets Current assets: Cash and cash equivalents $ 108,480 $ (58,434 ) (1) $ — $ 50,046 Restricted cash 13,720 24,585 (2) — 38,305 Accounts receivable 215,724 — — 215,724 Trade receivable 5,221 — — 5,221 Prepaid expenses and other current assets 49,912 (19,990 ) (3) — 29,922 Total current assets 393,057 (53,839 ) — 339,218 Property and equipment, net 193,574 — 121,732 (12) 315,306 Broadcast licenses 1,203,809 — (285,309 ) (13) 918,500 Other intangible assets 75,056 — 137,402 (13) 212,458 Goodwill 135,214 — (135,214 ) (14) — Other assets 18,012 — — 18,012 Total assets $ 2,018,722 $ (53,839 ) $ (161,389 ) $ 1,803,494 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable and accrued expenses $ 108,448 $ 6,253 (4) $ (128 ) (15) 114,573 Current portion of Term Loan — 13,000 (5) — 13,000 Total current liabilities 108,448 19,253 (128 ) 127,573 Term Loan — 1,268,983 (5) 18,017 (16) 1,287,000 Other liabilities 2,801 21,312 (6) 13 (17) 24,126 Deferred income taxes — 50,437 (7) (10,642 ) (18) 39,795 Total non-current liabilities 2,801 1,340,732 7,388 1,350,921 Liabilities subject to compromise 2,647,110 (2,647,110 ) (8) — — Total liabilities 2,758,359 (1,287,125 ) 7,260 1,478,494 Stockholder's (deficit) equity: Predecessor Class A common stock 320 (320 ) (9) — — Predecessor Class C common stock 1 (1 ) (9) — — Predecessor treasury stock (229,310 ) 229,310 (9) — — Predecessor additional-paid-in-capital 1,626,906 (1,626,906 ) (9) — — Successor Class A common stock — — — — Successor Class B common stock — — — — Successor additional-paid-in-capital — 325,000 (10) — 325,000 (Accumulated deficit) retained earnings (2,137,554 ) 2,306,203 (11) (168,649 ) (19) — Total stockholders' (deficit) equity (739,637 ) 1,233,286 (168,649 ) 325,000 Total liabilities and stockholders’ equity (deficit) $ 2,018,722 $ (53,839 ) $ (161,389 ) $ 1,803,494 Reorganization adjustments 1. Reflects cash payments and the funding of professional fee escrow account from the implementation of the Plan as follows (dollars in thousands): Payment of professional fees $ 3,118 Adequate protection payment 1,326 Payment of contract cure claims 20,341 Funding of professional fee escrow amount 32,517 Other fees and expenses 1,132 Net cash payments $ 58,434 2. Reflects net additions to restricted cash giving effect to the funding of professional fee escrow account for professional fees accrued and the payment of restructuring fees (dollars in thousands): Funding of professional fee escrow account $ 32,517 Payment of restructuring fees (7,932 ) Net changes to restricted cash $ 24,585 3. Reflects the reclassification of $17.8 million debt issuance costs from prepaid expense to offset the Term Loan as well as the write-off of $2.2 million of certain assets which do not benefit the Successor Company. 4. Represents the reinstatement of certain accounts payable and accrued expenses that were previously classified as Liabilities subject to compromise as well as accrued state income taxes. 5. Represents the current and non-current portion, net of debt issuance costs of $18.0 million , of the Term Loan. 6. Represents the reinstatement of tax liabilities, lease liabilities and long-term deposits from Liabilities subject to compromise. 7. Represents the partial reinstatement of the deferred tax liability of $50.4 million of the original $237.2 million that was included in Liabilities subject to compromise. 8. Liabilities subject to compromise immediately prior to the Effective Date consisted of the following (dollars in thousands): Accounts payable and accrued expenses $ 66,515 Other liabilities 21,364 Deferred tax liability 237,247 Accounts payable, accrued expenses and other liabilities 325,126 Predecessor Term Loan 1,684,407 7.75% Senior Notes 610,000 Accrued interest 27,577 Long-term debt and accrued interest 2,321,984 Total Liabilities subject to compromise $ 2,647,110 Liabilities subject to compromise have been, or will be settled as follows in accordance with the Plan (dollars in thousands): Liabilities subject to compromise $ 2,647,110 Cash payments at the Effective Date (33,657 ) Liabilities reinstated at the Effective Date: Accounts payable (3,215 ) Other liabilities (21,160 ) Deferred tax liability (50,437 ) Total liabilities reinstated at the Effective Date (74,812 ) Adjustment for deferred tax liability impact (186,810 ) Fair value of common stock issued to Predecessor Term Loan holders, 7.75% Senior Notes holders and unsecured creditors (264,394 ) Fair value of warrants issued to Predecessor Term Loan holders, 7.75% Senior Notes holders and unsecured creditors (60,606 ) Fair value of Term Loan provided by Predecessor Term Loan holders (1,300,000 ) Gain on settlement of Liabilities subject to compromise $ 726,831 Refer to Note 11, “Stockholders’ Equity” for the determination of fair value of equity issued to unsecured creditors. 9. Pursuant to the Plan, all equity interests of the Predecessor that were issuable or issued and outstanding immediately prior to the Effective Date were cancelled. The elimination of the carrying value of the canceled equity interests was recorded as an offset to retained earnings (accumulated deficit). 10. In settlement of the Predecessor Term Loan, 7.75% Senior Notes, and other general unsecured claims, the Company issued new common stock and Successor warrants. 11. Adjustment made to accumulated deficit consisted of the following (dollars in thousands): Cancellation of Predecessor equity $ 1,397,917 Gain on settlement of Liabilities subject to compromise 726,831 Income tax benefit 184,005 Other items (2,550 ) Total adjustment to retained earnings $ 2,306,203 Fresh Start adjustments 12. Reflects the increase in net book value of property and equipment to the estimated fair value as of the Effective Date. The following table summarizes the components of property and equipment, net as of June 4, 2018, and the fair value as of the Effective Date (dollars in thousands): Estimated Useful Life Successor Company Predecessor Company Land N/A $ 159,464 $ 86,287 Broadcasting and other equipment 3 to 30 years 58,369 248,607 Computer and capitalized software costs 1 to 3 years 11,791 34,924 Furniture and fixtures 5 years 4,432 15,571 Leasehold improvements 5 years 24,089 46,471 Buildings 9 to 20 years 26,964 51,994 Construction in progress N/A 30,197 30,197 315,306 514,051 Less: accumulated depreciation — (320,477 ) Property and equipment, net $ 315,306 $ 193,574 To estimate the fair value of personal property such as broadcasting and other equipment, the Company utilized a combination of the cost approach and market approach. The Company recognized the contributory value associated with the necessary installation, engineering, and set-up costs related to the installed complement of equipment by using the cost approach. The market approach was used for assets where a viable, transparent secondary market existed, such as motor vehicle assets. To estimate the fair value of real property, the Company considered the cost approach and sales comparison approach. Buildings were primarily valued using the cost approach, under which the Company developed a replacement cost new for the improvements and applied deductions for physical depreciation based on the age of the assets. Land was valued under the sales comparison approach, whereby the Company researched transactions involving comparable parcels to provide an indication of the fair value of the various subject parcels. 13. The Company recorded an adjustment to intangible assets of $147.9 million as follows (dollars in thousands): Successor Company Predecessor Company Difference Broadcast licenses $ 918,500 $ 1,203,809 $ (285,309 ) Other intangible assets 212,458 75,056 137,402 $ 1,130,958 $ 1,278,865 $ (147,907 ) The fair values of broadcasting licenses and other intangible assets were determined as follows: a. Broadcast licenses ( $918.5 million as of June 4, 2018): The fair value of broadcast licenses was determined using the Greenfield approach, a derivation of the income approach that isolates the income that is properly attributable to the license alone. It is based upon modeling a hypothetical “Greenfield” build-up to a normalized enterprise that, by design, lacks inherent goodwill and has other assets that have essentially been paid for or added as part of the build-up process. b. Other intangible assets ( $212.5 million as of June 4, 2018): i. Broadcasting, affiliate and producer relationships ( $162.0 million as of June 4, 2018): The customer relationship intangibles including broadcasting and affiliate and producer relationships were valued utilizing the excess earning method, a derivation of the income approach that considers cash flows related to the customers after accounting for a fair return to the other supporting assets of the business. ii. Trademarks and trade names ( $21.2 million as of June 4, 2018): In estimating the fair value of trademarks and trade names, management used the relief from royalty method, a derivation of the income approach, for analyzing the trade names. iii. Tower income contracts ( $15.1 million as of June 4, 2018): The fair value of these were determined utilizing a discounted cash flow analysis. iv. Advertiser backlog ( $12.0 million as of June 4, 2018): The fair value of advertiser backlog was analyzed using the multi-period excess earning method. Estimated duration of advertiser backlog as of the Effective Date was used as a point of recognition for net sales attributable to that backlog. v. Leasehold intangible asset, net ( $2.2 million as of June 4, 2018): The fair value of leasehold interests was determined utilizing a discounted cash flow analysis, wherein leases for real property were assessed for favorable or unfavorable contract rental rates. 14. Reflects the elimination of the Predecessor goodwill balance of $135.2 million . 15. Reflects the elimination of the carrying value of short-term deferred rent to adjust accounts payable and accrued expenses to estimated fair value. 16. Represents the fair value adjustment of the Term Loan including the elimination of debt issuance costs of $18.0 million incurred prior to and upon emergence from bankruptcy. The fair value of debt is comprised of $13.0 million of short-term debt and $1,287.0 million of long-term debt. The fair value of the Term Loan was determined based on a market approach utilizing market yields and was estimated to be 100% of par value. 17. Represents the increase of a liability related to a failed sale leaseback transaction and elimination of the carrying value of long-term deferred rent in accordance with fresh start reporting to adjust net book value to estimated fair value. 18. Reflects the impact of fresh start adjustments on deferred taxes. 19. Reflects the cumulative impact of the fresh start accounting adjustments discussed above on accumulated deficit as follows (dollars in thousands): Property and equipment fair value adjustment $ 121,732 Intangible assets fair value adjustment (147,907 ) Goodwill adjustment (135,214 ) Term Loan fair value adjustment (18,017 ) Other assets and liabilities fair value adjustments 115 Net loss on fresh start adjustments $ (179,291 ) Tax impact on fresh start adjustments 10,642 Net impact on retained earnings $ (168,649 ) Reorganization Items, Net Reorganization items incurred as a result of the Chapter 11 Cases are presented separately in the accompanying Condensed Consolidated Statement of Operations as follows (dollars in thousands): Predecessor Company Period from April 1, 2018 through June 3, 2018 Three Months Ended June 30, 2017 Period from January 1, 2018 through June 3, 2018 Gain on settlement of Liabilities subject to compromise (a) $ 726,831 $ — $ 726,831 Fresh start adjustments (b) (179,291 ) — (179,291 ) Professional fees (c) (29,560 ) — (54,386 ) Non-cash claims adjustments (d) (15,364 ) — (15,364 ) Rejected executory contracts (e) (2,936 ) — (5,976 ) Other (f) (3,312 ) — (5,613 ) Reorganization items, net $ 496,368 $ — $ 466,201 (a) Liabilities subject to compromise have been, or will be settled in accordance with the Plan. (b) Revaluation of certain assets and liabilities upon the adoption of fresh start accounting. (c) Legal, financial advisory and other professional costs directly associated with the reorganization process. (d) The carrying value of certain claims were adjusted to the estimated value of the claim that will be allowed by the Bankruptcy Court. (e) Non-cash expenses to record estimated allowed claim amounts related to rejected executory contracts. (f) Federal Communications Commission filing and United States Trustee fees directly associated with the reorganization process and the write-off of Predecessor director and officer insurance policies. |
