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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 2)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the Transition period from ________ to _________.
Commission File Number 000-24525
CUMULUS MEDIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-4159663
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3535 Piedmont Road, Building 14, Floor 14, Atlanta, GA 30305
(Address of Principal Executive Offices) (Zip Code)
(404) 949-0700
Registrant's Telephone Number, Including Area Code:
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2000, the registrant had outstanding 35,165,596 shares of
common stock consisting of (i) 28,378,976 shares of Class A Common Stock; (ii)
4,479,343 shares of Class B Common Stock; and (iii) 2,307,277 shares of Class C
Common Stock.
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CUMULUS MEDIA INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements.
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the Six Months Ended June
30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3 Quantitative and Qualitative Disclosures About Market Risk.
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CUMULUS MEDIA INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
RESTATED RESTATED
---------- ------------
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 73,710 $ 219,581
Accounts receivable, less allowance for doubtful accounts
of $5,150 and $3,118 respectively.............................. 61,444 53,521
Prepaid expenses and other current assets......................... 8,507 8,351
--------- ---------
Total current assets......................................... 143,661 281,453
Property and equipment, net.......................................... 78,453 66,963
Intangible assets, net............................................... 595,087 526,784
Other assets......................................................... 74,762 39,688
--------- ---------
Total assets................................................ $ 891,963 $ 914,888
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses............................. $ 26,877 $ 26,540
Current portion of long-term debt................................. 20 20
Other current liabilities......................................... 958 1,010
--------- ---------
Total current liabilities.................................... 27,855 27,570
Long-term debt....................................................... 285,217 285,227
Other liabilities.................................................... 1,823 1,977
Deferred income taxes................................................ 2,326 8,940
--------- ---------
Total liabilities............................................ 317,221 323,714
--------- ---------
Series A Cumulative Exchangeable Redeemable Preferred Stock
due 2009, stated value $1,000 per share, 102,702 and 102,702 shares
issued and outstanding, respectively.............................. 109,905 102,732
--------- ---------
Commitments and contingencies (Note 7)
Stockholders' equity:
Class A common stock, par value $.01 per share; 50,000,000
shares authorized; 28,378,976 and 26,052,393 shares issued and 284 261
outstanding..........................................................
Class B common stock, par value $.01 per share; 20,000,000
shares authorized; 4,479,343 and 6,629,343 shares issued and 45 66
outstanding..........................................................
Class C common stock, par value $.01 per share; 30,000,000
shares authorized; 2,307,277 and 2,151,277 shares issued and 23 21
outstanding..........................................................
Additional paid-in-capital........................................... 522,153 516,576
Loan to officers.................................................... (9,984) -
Accumulated deficit.................................................. (47,684) (28,482)
--------- ---------
Total stockholders' equity................................... 464,837 488,442
--------- ---------
Total liabilities and stockholders' equity................... $ 891,963 $ 914,888
========= =========
See Accompanying Notes to Consolidated Financial Statements
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CUMULUS MEDIA INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
RESTATED RESTATED
------------ ----------
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
Revenue........................................... $ 68,095 $ 49,775 $ 119,950 $ 83,519
Less: agency commissions:......................... (5,468) (3,929) (9,606) (6,462)
-------- -------- --------- --------
Net revenues...................................... 62,627 45,846 110,344 77,057
Operating expenses:
Station operating expenses, excluding depreciation
and amortization (including provision for doubtful
accounts of $1,190, $511, $2,169 and
$861 respectively).............................. 46,186 32,262 88,489 59,038
Depreciation and amortization..................... 10,408 7,688 20,304 14,733
LMA fees.......................................... 1,663 1,097 2,842 1,651
Corporate general and administrative.............. 4,014 1,736 8,698 3,410
Restructuring and other charges................... 9,296 -- 9,296 --
-------- -------- --------- --------
Operating expenses................................ 71,567 42,783 129,629 78,832
-------- -------- --------- --------
Operating income (loss)........................... (8,940) 3,063 (19,285) (1,775)
-------- -------- --------- --------
Nonoperating income (expense):
Interest expense............................. (7,779) (6,472) (15,415) (12,492)
Interest income.............................. 2,521 82 4,613 221
Other income (expense), net.................. (13) (2) (12) (2)
-------- -------- --------- --------
Nonoperating expenses, net........................ (5,271) (6,392) (10,814) (12,273)
-------- -------- --------- --------
Loss before income taxes.......................... (14,211) (3,329) (30,099) (14,048)
Income taxes...................................... 5,128 1,116 10,897 4,710
-------- -------- --------- --------
Net loss.......................................... (9,083) (2,213) (19,202) (9,338)
Preferred stock dividend and accretion of discount 3,642 4,752 7,173 9,297
-------- -------- --------- --------
Net loss attributable to common stockholders...... $(12,725) $ (6,965) $ (26,375) $(18,635)
======== ======== ========= ========
Basic and diluted loss per share.................. $ (.36) $ (.35) $ (.75) $ (.94)
-------- -------- --------- ---------
Weighted average common shares outstanding........ 35,166 19,737 35,111 19,737
======== ======== ========= ========
See Accompanying Notes to Consolidated Financial Statements
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CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
RESTATED
--------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
-----------------------------
Cash flows from operating activities:
Net loss.......................................................... $ (19,202) $ (9,338)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation................................................ 6,250 3,475
Amortization of goodwill, intangible assets and other assets 14,924 11,817
Provision for doubtful accounts............................. 2,169 861
Deferred Taxes.............................................. (10,897) (4,710)
Non-cash restructuring charges.............................. 9,296 -
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable............................................ (9,987) (13,136)
Prepaid expenses and other current assets...................... 203 (2,953)
Accounts payable and accrued expenses.......................... (1,674) 965
Other assets................................................... (2,629) (733)
Other liabilities.............................................. (261) (174)
--------- --------
Net cash used in operating activities....................... (11,808) (13,926)
--------- --------
Cash flows from investing activities:
Acquisitions................................................... (34,561) (41,933)
Escrow deposits on pending acquisitions........................ (86,160) 180
Capital expenditures........................................... (7,431) (5,907)
Other.......................................................... (2,313) (2)
--------- --------
Net cash used in investing activities..................... (130,465) (47,662)
--------- --------
Cash flows from financing activities:
Proceeds from revolving line of credit......................... - 45,800
Payments on promissory notes................................... (10) (11)
Payment of dividend on Series A Preferred Stock.............. (3,530) -
Payments for debt issuance costs............................... (57) -
--------- --------
Net cash provided by (used in) financing activities......... (3,597) 45,789
--------- --------
(Decrease) increase in cash and cash equivalents................. (145,870) (15,799)
Cash and cash equivalents at beginning of period................. $ 219,581 $ 24,885
Cash and cash equivalents at end of period........................ $ 73,710 $ 9,086
Non-cash operating and financing activities:
Trade revenue.................................................. $ 3,402 $ 4,717
Trade expense.................................................. 3,376 4,724
Assets acquired through notes payable.......................... 129 1,490
See Accompanying Notes to Consolidated Financial Statements
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CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Operating results for the three and six month periods ended June 30, 2000 have
been restated to reflect the effect of the reversal of the valuation allowance
established against deferred taxes during such periods and related recognition
of a tax benefit.
The following table reconciles the amounts previously reported to the amounts
currently being reported in the consolidated statement of operations for the
three and six month periods ended June 30, 2000:
Income(loss) Net loss
For the three before attributable
Months ended Net Operating Operating income Income to common Loss per
June 30, 2000 revenues expenses income(loss) taxes taxes stockholders share
- ----------------------------------------------------------------------------------------------------------------------
As previously reported $ 62,627 $ 71,567 $ (8,940) $ (14,211) -- $ (17,853) $ (.51)
Restatement associated with
elimination of deferred tax
asset valuation allowance -- -- -- -- 5,128 5,128 .15
------- ------- ------- ------- ------- ------- ---
As restated $ 62,627 $ 71,567 $ (8,940) $ (14,211) $ 5,128 $ (12,725) $ (.36)
========= ========= ========== ========== ======== ========== ========
Income(loss) Net loss
For the six before attributable
Months ended Net Operating Operating income Income to common Loss per
June 30, 2000 revenues expenses income(loss) taxes taxes stockholders share
- ----------------------------------------------------------------------------------------------------------------------
As previously reported $ 110,344 $ 129,629 $ (19,285) $ (30,099) -- $ (37,272) $ (1.06)
Restatement associated with
elimination of deferred tax
asset valuation allowance -- -- -- -- 10,897 10,897 .31
------- ------- ------- ------- ------- ------- ---
As restated $ 110,344 $ 129,629 $ (19,285) $ (30,099) $ 10,897 $ (26,375) $ (.75)
========= ========= ========== ========== ======== ========== ========
The financial information reflected on the balance sheet for the year ended
December 31, 1999 has been restated in order to give effect to the previously
reported adjustments to the Company's 1998 operating results related to a
reduction in goodwill and reversal of previously recorded income tax benefits,
all as described in more detail in footnote 1 to the Company's consolidated
financial statements, included in the Company's Form 10-K/A (Amendment No. 2)
for the year ended December 31, 1999.
2. INTERIM FINANCIAL DATA
The consolidated financial statements should be read in conjunction with the
consolidated financial statements of Cumulus Media Inc. ("Cumulus" or the
"Company") and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999. The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation of results of the interim periods
have been made and such adjustments were of a normal and recurring nature. The
results of operations and cash flows for the six months ended June 30, 2000 are
not necessarily indicative of the results that can be expected for the entire
fiscal year ending December 31, 2000.
On May 5, 2000 the board of directors of Cumulus Media Inc. (the "Registrant")
approved the engagement of KPMG LLP as its new
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independent accountants for the fiscal year ending December 31, 2000. On May 8,
2000 the Company filed a Current Report on Form 8-K disclosing the engagement of
KPMG as independent accountants of the Registrant.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies certain existing accounting principles for the
recognition and classification of revenue in financial statements. The new rules
are expected to result in some changes as to how the broadcast industry reports
revenues earned under barter agreements, but is not expected to result in any
changes to the net income. In June 2000, the SEC issued SAB No. 101B to defer
the effective date of implementation of SAB No. 101 until the fourth quarter of
2000 with earlier application encouraged. As the Company will be required to
adopt SAB 101 by the end of 2000, it is in the process of evaluating the overall
impact of SAB 101 on its consolidated financial statements.
4. ACQUISITIONS:
During the quarter ended June 30, 2000, the Company completed 8 acquisitions of
radio stations for a total purchase price of $57.4 million plus various other
direct acquisition costs.
Acquisitions were accounted for by the purchase method of accounting. As such,
the accompanying consolidated balance sheet includes the acquired assets and
liabilities and the statement of operations includes the results of operations
of the acquired entities from their respective dates of acquisition.
An allocation of the aggregate purchase prices to the estimated fair values of
the assets acquired and liabilities assumed is presented below.
Property and equipment.................. $ 7,481
Intangible assets....................... 54,224
Current liabilities..................... (4,284)
--------
$ 57,421
========
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The unaudited consolidated condensed pro forma results of operations data
for the six months ended June 30, 2000 and 1999, as if all acquisitions
completed during 1999 and during the first and second quarter of 2000 occurred
at January 1, 1999, follow:
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------
Net revenues $ 69,141 $ 69,711 $125,900 $123,295
Operating income (loss) $ 1,488 $ 4,895 $ (6,062) $ 222
Net loss $ (2,857) $ (808) $(11,352) $ (7,574)
Net loss attributable to common stockholders $ (6,499) $ (4,450) $(18,525) $(14,747)
========= ========= ======== ========
Basic and diluted loss per common share (in $ (0.18) $ (0.13) $ (0.53) $ (0.42)
dollars) ========= ========= ========== =========
Escrow funds of approximately $57.3 million paid by the Company in
connection with pending acquisitions as of June 30, 2000 have been classified as
other assets at June 30, 2000 in the accompanying consolidated balance sheet.
At June 30, 2000 the Company operated 70 stations under local marketing
agreements ("LMA"). The statement of operations for the quarter and the six
months ended June 30, 2000 includes the revenue and broadcast operating expenses
of these radio stations and any related fees associated with the LMA from the
effective date of the LMA through June 30, 2000.
5. RESTRUCTURING CHARGE
During June 2000 the Company implemented two separate Board-approved
restructuring programs. These restructuring programs were designed to improve
the Company's competitive position as well as to enhance the Company's
allocation of resources.
These June 2000 restructuring programs were implemented to (i) focus the
Company's operations on its core business, radio broadcasting, by terminating
several Internet service pilot projects and Internet infrastructure development
projects, and (ii) make the Company's corporate infrastructure more efficient
and responsive to our markets by relocating, effective October 1, 2000, all
corporate services currently conducted in Milwaukee, WI and Chicago, IL to
Atlanta, GA.
The June, 2000 restructuring programs were the result of Board-approved
mandates to discontinue the operations of Cumulus Internet Services and to
centralize the Company's corporate administrative organization and employees in
Atlanta. The programs included severance and related costs, and costs for
vacated leased facilities, impaired leasehold improvements at vacated leased
facilities, and impaired assets related to the Internet businesses.
These restructuring programs also resulted in the write-off of capitalized
assets associated with Internet Service proprietary software and systems
infrastructure, and severance and related costs for corporate positions in
Milwaukee and Chicago as well as costs for vacating the leased facilities in
Milwaukee and Chicago.
The reduction in work force primarily affected employees in Milwaukee and
Chicago. Total costs incurred as a result of the restructuring were $9.3
million, which include severance and related charges associated with the
reduction in force and charges related to vacating leased facilities. As of
August 11, 1999, $5.2 million remains accrued and is expected to be paid by the
end of fiscal 2003.
The following table depicts the amounts associated with and activity
related to the June 2000 restructuring programs through August 11, 2000:
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Asset Write-Off's Paid Through Unpaid Balance
Restructure Through August 11, as of
Expense Category Charge August 11, 2000 2000 August 11, 2000
- ---------------- ----------- --------------- ------------ ---------------
Employee severance and related costs $ 978,365 $ - $ - $ 978,365
Lease termination costs 2,557,041 - - 2,557,041
Impaired leasehold improvements at
Vacated facilities 429,654 429,654 - -
Office relocation subtotal 3,965,060 429,654 - 3,535,406
---------- --------- ------------ ----------
Internet asset write-off 4,849,023 4,099,988 - 749,035
Internet lease termination costs 481,521 - - 458,183
Internet services subtotal 5,330,544 4,099,988 - 1,230,556
---------- ---------- ------------ ----------
Restructure charge totals $9,295,604 $4,529,642 $ - $4,765,962
---------- ---------- ------------ ----------
Employee severance and retention costs include involuntary termination and
COBRA benefits, outplacement costs, and payroll taxes for Milwaukee and Chicago
employees. The reduction in the corporate work force consisted of 1 executive
position, 6 employees from the engineering and facilities functions, 5 employees
from the information technology functions, 3 employees from the legal function,
7 employees from the finance and accounting functions, 2 employees from the
human resource function, 7 employees from various administrative functions, 3
employees from the wireless services function, and 6 Internet Services
employees. The decision was made to relocate or outsource a majority of these
functions to make the Company's corporate infrastructure more efficient and
responsive to our markets by relocating all corporate services to Atlanta.
Lease termination costs of $2.6 million represent remaining lease
obligations related to the Milwaukee and Chicago corporate offices. Impairment
of leasehold improvements at vacated facilities represent charges for the
write-down of the net book value of equipment and improvements specifically
identified under the restructuring program as assets held for disposal. These
assets were written down in accordance with the provisions of FAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of."
Internet Asset write-off charges of $4.8 million represent the write-down
of the net book value of proprietary software costs, hardware and other
equipment costs, and systems infrastructure improvements capitalized in
connection with the business conducted within Cumulus Internet Services through
June 30, 2000. In connection with the Board's decision to terminate all business
activity related to these Internet service pilot projects and Internet
infrastructure development projects identified under the restructuring programs,
these assets were written-off in accordance with the nature of the assets, and
the provisions of FAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of."
Internet lease termination charges of $0.5 million represent remaining
lease obligations related to the portion of the Milwaukee corporate offices that
were allocated to Cumulus Internet Services.
As of August 11, 2000, approximately $4.8 million in accrued restructuring
costs remain related to the Company's June, 2000 restructuring programs. This
balance is comprised of $1.0 million in employee severance and retention
charges, $2.6 million in lease termination costs, $0.7 million related to
amounts owed for software development and asset acquisitions related to
capitalized Internet system and infrastructure assets, and $0.5 in Internet
lease termination charges. The remaining portion of the unpaid balance is
expected to be paid by the end of 2000, except for the Company's lease
obligations at the vacated facilities in Milwaukee and Chicago. Lease
obligations will be paid by the end of 2003.
6. GUARANTOR'S FINANCIAL INFORMATION
Certain of the Company's direct and indirect subsidiaries (all such
subsidiaries are directly or indirectly wholly owned by the Company) provide
full and unconditional guarantees for the Company's senior subordinated notes on
a joint and several basis. There are no significant restrictions on the ability
of the guarantor subsidiaries to pay dividends or make loans to the Company.
The following tables provide consolidated condensed financial information
pertaining to the Company's subsidiary guarantors. The Company has not presented
separate financial statements for the subsidiary guarantors and non-guarantors
because management does not believe that such information is material to
investors.
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June 30, December 31,
2000 1999
--------- ------------
Current assets.............. $ 110,066 $ 91,509
Noncurrent assets.......... 685,779 594,670
Current liabilities......... 11,268 12,135
Noncurrent liabilities...... 79,435 57,780
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
Net revenue.................. $ 58,649 $ 45,846 $103,214 $ 77,057
Operating Expenses........... 41,227 32,262 80,107 59,038
Income before extraordinary
item....................... 5,721 4,947 575 1,919
Net income................... 5,721 4,947 575 1,919
7. EARNINGS PER SHARE
The following table sets forth the computation of basic loss per share for
the three and six month periods ended June 30, 2000 and 1999.
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
RESTATED RESTATED
Numerator:
Net loss (9,083) (2,446) (19,202) (9,338)
Preferred stock dividend (3,642) (4,752) (7,173) (9,297)
-------- -------- -------- --------
Numerator for basic earnings per share -
income available for common stockholders (12,725) (6,965) (26,375) (18,635)
-------- -------- -------- --------
Denominator:
Denominator for basic earnings per
Share - weighted-average shares 35,166 19,737 35,111 19,737
-------- -------- -------- --------
Net loss per common share (0.36) (0.35) (0.75) (0.94)
-------- -------- -------- --------
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During fiscal 1998 and 1999 the Company issued options to key executives
and employees to purchase shares of common stock as part of the Company's stock
option plans. At June 30, 2000 there were options issued to purchase the
following classes of common stock:
Options to purchase class A common stock....................................... 2,114,309
Options to purchase class C common stock....................................... 3,001,380
Earnings per share assuming dilution has not been presented as the effect of the
options above would be antidilutive.
7. COMMITMENTS AND CONTINGENCIES
As of June 30, 2000 the Company has entered into various asset purchase
agreements to acquire radio stations. In general, the transactions are
structured such that if the Company can not consummate these acquisitions
because of a breach of contract, the Company may be liable for a percentage of
the purchase price, as defined by the agreements. The ability of the Company to
complete the pending acquisitions is dependent upon the Company's ability to
obtain additional equity and/or debt financing. We intend to finance the pending
acquisitions with cash on hand, the proceeds of our credit facility or future
credit facilities, and other sources to be identified. There can be no assurance
the Company will be able to obtain such financing. In the event that the Company
can not consummate these acquisitions because of breach of contract, the Company
may be liable for approximately $57.3 million in purchase price.
In the first and second quarter of 2000, eleven separate civil actions were
filed in United States District Court for the Eastern District of Wisconsin,
alleging that the Company and certain present and former directors and officers
violated various provisions of the Securities and Exchange Act of 1934 and the
Securities Act of 1933, and various rules and regulations under those statutes.
The actions are based on the Company's decision to restate its financial
statements for the first three quarters of fiscal year 1999. The plaintiffs seek
significant damages on their own behalf and on behalf of certain classes of
shareholders of the Company. It is possible that additional claims may be filed
against the Company in connection with these events, although ultimately all
similar claims likely will be consolidated into one proceeding. Although the
Company has certain defenses it may assert in these proceedings, we cannot
predict how the plaintiffs' claims will ultimately be resolved. The Company
ultimately may be required to pay significant damages either as a result of a
judgement or a negotiated settlement, including damages which would be covered
by insurance. Such damages could have a material effect on the Company's
financial position, results of operations or cash flows.
The Company is also a defendant from time to time in various lawsuits, which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
8. SUBSEQUENT EVENTS
Subsequent to June 30, 2000 the Company completed acquisitions of a total of 3
radio stations located in 3 separate markets for an aggregate purchase price of
approximately $2.3 million. These transactions will be accounted for by the
purchase method of accounting. The Company intends to execute a supplemental
indenture pursuant to which any subsidiaries acquired in these transactions
would become guarantor subsidiaries.
On July 25, 2000 the Company announced that an agreement had been reached with
Clear Channel Communications to amend the existing station swap agreement,
previously disclosed on May 25, 2000. Under the new agreement, Cumulus will
acquire 7 stations in 3 markets from Clear Channel Communications and, in two
stages, will transfer to Clear Channel 55 stations in 10 markets.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the consolidated financial condition and
results of operations of Cumulus Media Inc. ("Cumulus" or the "Company") should
be read in conjunction with the consolidated financial statements and related
notes thereto of the Company included elsewhere in this quarterly report. This
discussion contains certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
herein.
OVERVIEW
The following is a discussion of the key factors that have affected our
business since its inception on May 22, 1997. The following information should
be read in conjunction with the consolidated financial statements and related
notes thereto included elsewhere in this report. Unless otherwise indicated,
amounts set forth herein are expressed in thousands. We commenced operations in
May 1997. For the period from our inception through June 30, 2000, we purchased
or entered into local marketing, management and consulting agreements with a
total of 317 stations in 64 U.S. markets and obtained a license to commence
operations on one station in the Caribbean market.
The following discussion of our financial condition and results of
operations includes the results of these acquisitions and local marketing,
management and consulting agreements. We currently own and operate 244 stations
in 51 U.S. markets and provide sales and marketing services under local
marketing, management and consulting agreements (pending FCC approval of
acquisition) to 73 stations in 31 U.S. markets. We are the third largest radio
broadcasting company in the U.S. based on number of stations and believe we will
be the second largest such company following completion of the acquisition of
AMFM by Clear Channel. We believe we are the eighth largest radio broadcasting
company in the U.S. based on 1999 pro forma net revenues and believe we will be
the seventh largest such company following completion of the Clear Channel/AMFM
acquisition. We will own and operate a total of 271 radio stations (193 FM and
78 AM) in 54 U.S. markets upon consummation of our pending acquisitions.
ADVERTISING REVENUE AND BROADCAST CASH FLOW
Our primary source of revenues is the sale of advertising time on our radio
stations. Our sales of advertising time are primarily affected by the demand for
advertising time from local, regional and national advertisers and the
advertising rates charged by our radio stations. Advertising demand and rates
are based primarily on a station's ability to attract audiences in the
demographic groups targeted by its advertisers, as measured principally by
Arbitron on a periodic basis, generally once, twice or four times per year.
Because audience ratings in local markets are crucial to a station's financial
success, we endeavor to develop strong listener loyalty. We believe that the
diversification of formats on our stations helps to insulate them from the
effects of changes in the musical tastes of the public with respect to any
particular format. The number of advertisements that can be broadcast without
jeopardizing listening levels and the resulting rating is limited in part by the
format of a particular station. Our stations strive to maximize revenue by
constantly managing the number of commercials available for sale and adjusting
prices based upon local market conditions. In the broadcasting industry, radio
stations sometimes utilize trade or barter agreements which exchange advertising
time for goods or services such as travel or lodging, instead of for cash. Our
use of trade agreements was immaterial during the six months ended June 30, 2000
and 1999. We will seek to continue to minimize our use of trade agreements.
Our advertising contracts are generally short-term. We generate most of our
revenue from local advertising, which is sold primarily by a station's sales
staff. To generate national advertising sales, we engage Interep National Radio
Sales, Inc., a national representative company. Our revenues vary throughout the
year. As is typical in the radio broadcasting industry, we expect our first
calendar quarter will produce the lowest revenues for the year, and the fourth
calendar quarter will generally produce the highest revenues for the year, with
the exception of certain of our stations such as those in Salisbury-Ocean City,
Maryland and Myrtle Beach, South Carolina, where the stations generally earn
higher revenues in the second and third quarters of the year because of the
higher seasonal population in those communities.
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Our operating results in any period may be affected by the incurrence of
advertising and promotion expenses that typically do not have an effect on
revenue generation until future periods, if at all. Our most significant station
operating expenses are employee salaries and commissions, programming expenses,
advertising and promotional expenditures, technical expenses, and general and
administrative expenses. We strive to control these expenses by working closely
with local station management. The performance of radio station groups, such as
ours, is customarily measured by the ability to generate broadcast cash flow.
Broadcast cash flow consists of operating income (loss) before depreciation and
amortization, LMA fees, corporate general and administrative expenses and
non-cash stock compensation expense. EBITDA consists of operating income (loss)
before depreciation and amortization, LMA fees and non-cash stock compensation
expense. Broadcast Cash Flow and EBITDA, as defined by us, may not be comparable
to similarly titled measures used by other companies. Although broadcast cash
flow and EBITDA are not measures of performance calculated in accordance with
GAAP, management believes that they are useful to an investor in evaluating us
because they are measures widely used in the broadcast industry to evaluate a
radio company's operating performance. However, broadcast cash flow and EBITDA
should not be considered in isolation or as substitutes for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or a measures of liquidity or profitability.
RESULTS OF OPERATIONS
The following table presents summary historical consolidated financial
information and other supplementary data of Cumulus for the three and six month
periods ended June 30, 2000 and 1999.
RESTATED RESTATED
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
--------------- --------------- --------------- --------------
OPERATING DATA:
Net broadcast revenue $ 62,627 $ 45,846 $ 110,344 $ 77,057
Stations operating expenses
excluding depreciation & amortization 46,186 32,262 88,489 59,038
Depreciation and amortization 10,408 7,688 20,304 14,733
LMA fees 1,663 1,097 2,842 1,651
Corporate expenses 4,014 1,736 8,698 3,410
Restructuring and other charges 9,296 - 9,296 -
Operating income(loss) (8,940) 3,063 (19,285) (1,775)
Interest expense (net) (5,258) (6,390) (10,802) (12,271)
Net income (loss) attributable to common (12,725) (6,965) (26,375) (18,635)
stock
OTHER DATA:
Broadcast cash flow (1) 16,441 13,584 21,855 18,019
Broadcast cash flow margin 26.3% 29.6% 19.8% 23.4%
EBITDA (2) 12,427 11,848 13,157 14,609
Cash flows related to:
Operating activities................ (11,808) (13,926)
Investing activities................ (130,465) (47,662)
Financing activities................ (3,597) 45,789
Capital expenditures..................... $ 7,431 $ 5,907
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(1) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses, and noncash stock compensation expense.
Although broadcast cash flow is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcasting
industry to evaluate a radio Company's operating performance. Nevertheless, it
should not be considered in isolation or as a substitute for net income,
operating income (loss), cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity that is
calculated in accordance with GAAP. As broadcast cash flow is not a measure
calculated in accordance with GAAP, this measure may not be compared to
similarly titled measures employed by other companies.
(2) EBITDA consists of operating income (loss) before depreciation,
amortization, and noncash stock compensation expense. Although EBITDA (before
noncash stock compensation expense) is not a measure of performance calculated
in accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcasting
industry to evaluate a radio company's operating performance. Nevertheless, it
should not be considered in isolation or as a substitute for net income,
operating income (loss), cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity that is
calculated in accordance with GAAP. As EBITDA (before noncash stock compensation
expense), is not a measure calculated in accordance with GAAP, this measure may
not be compared to similarly titled measures employed by other companies.
THREE MONTHS ENDED JUNE 30, 2000 VERSUS THE THREE MONTHS ENDED JUNE 30, 1999.
NET REVENUES. Net revenues increased $16.8 million, or 36.7%, to $62.6
million for the three months ended June 30, 2000, from $45.8 million for the
three months ended June 30, 1999. This increase was primarily attributable to
the acquisition of radio stations and revenues generated from local marketing,
management and consulting agreements entered into during the period from July 1,
1999 through June 30, 2000.
In addition, on a same station basis, net revenue for the 212 stations in
39 markets operated for at least a full year decreased $1.5 million or 3.3% to
$43.6 million for the three months ending June 30, 2000, compared to net
revenues of $45.1 million for the three month period ending June 30, 1999. The
decrease in same station net revenue is the result of the Company's renewed
commitment to improve the spot pricing structure across all of its market
clusters, which will result in some moderate revenue declines in the next 90 to
180 days due to the Company's customer reluctance to pay higher spot rates in
the near term.
STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND LMA
FEES. Station operating expenses excluding depreciation, amortization and LMA
fees increased $13.9 million, or 43.0%, to $46.2 million for the three months
ending June 30, 2000, from $32.3 million for the three months ending June 30,
1999. This increase was primarily attributable to 1) the acquisition of radio
stations and operating expenses incurred from local marketing, management and
consulting agreements entered into during the period from July 1, 1999 through
June 30, 2000; and to 2) the $1.9 million increase in same station operating
expenses discussed below. The provision for doubtful accounts increased by $0.7
million to $1.2 million for the three months ending June 30, 2000, from $0.5
million for the three months ending June 30, 1999. As a percentage of net
revenues, the provision for doubtful accounts increased 0.8%, to 1.9% for the
three months ending June 30, 2000 and as compared with 1.1% for the comparable
period in the previous year. This increase was solely related to increased
reserves associated with increasing revenues and management's review of the
adequacy of its reserves based on historical write-off experience.
On a same station basis, for the 212 stations in 39 markets operated for at
least a full year, station operating expenses excluding depreciation,
amortization and LMA fees increased $ 1.9 million, or 6.0%, to $33.4 million for
the three months ending June 30, 2000, compared to $31.5 million for the three
months ending June 30, 1999. The increase in same station operating expenses
excluding depreciation, amortization and LMA fees is attributable to the
additional sales and programming personnel added subsequent to June 30, 1999 in
substantially all of the markets we operated during the three months ended June
30, 1999, in addition to increased selling costs, and promotional and event
costs associated with the same station net revenue discussed above.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $2.7
million, or 35.1%, to $10.4 million for the three-month period ending June 30,
2000, compared to $7.7 million for the three-month period ending June 30, 1999.
This increase was primarily attributable to depreciation and amortization
relating to radio station acquisitions consummated subsequent to June 30, 1999
and a full quarter of depreciation and amortization on radio station
acquisitions consummated during the three month period ended June 30, 1999.
LMA FEES. LMA fees increased $0.6 million, or 54.5%, to $1.7 million for
the three months ending June 30, 2000, from $1.1 million for the three months
ending June 30, 1999. This increase was primarily attributable to local
marketing, management and consulting fees paid to sellers in connection with the
commencement of operations, management of or consulting services provided to
radio stations subsequent to June 30, 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses increased $2.3 million, or 135.3%, to $4.0 million for
the three months ending June 30, 2000, compared to $1.7 million for the three
months ended June 30, 1999. The increase in corporate general and administrative
expense was primarily attributable to $1.2 million of non-recurring expense
recorded in the second quarter of 2000 comprised of 1) $0.3 million in severance
related expense associated with the replacement of market level management
during the quarter; 2) $0.4 million in professional fees related to the
Company's restatement of 1999 quarterly financial information, ongoing
shareholder litigation and regulatory compliance; 3) $ 0.3 in non-recurring
programming consultant costs; and 4) $0.2 in other miscellaneous corporate
charges. The increase in corporate general and administrative expense over the
prior year is also partially attributable to corporate resources added
subsequent to June 30, 1999 to effectively manage the Company's growing radio
station portfolio.
RESTRUCTURING CHARGE. During June 2000 the Company implemented two separate
Board-approved restructuring programs. These restructuring programs were
designed to improve the Company's competitive position as well as to enhance the
Company's allocation of resources.
These June 2000 restructuring programs were implemented to (i) focus the
Company's operations on its core business, radio broadcasting, by terminating
several Internet service pilot projects and Internet infrastructure development
projects, and (ii) make the Company's corporate infrastructure more efficient
and responsive to our markets by relocating, effective October 1, 2000, all
corporate services currently conducted in Milwaukee, WI and Chicago, IL to
Atlanta, GA.
The June, 2000 restructuring programs were the result of Board-approved
mandates to discontinue the operations of Cumulus Internet Services and to
centralize the Company's corporate administrative organization and employees in
Atlanta. The program included severance and related costs, and costs for vacated
leased facilities, impaired leasehold improvements at vacated leased facilities,
and impaired assets related to the Internet businesses.
These restructuring programs also resulted in the write-off of capitalized
assets associated with Internet Service proprietary software and systems
infrastructure, and severance and related costs for corporate positions in
Milwaukee and Chicago as well as costs for vacating the leased facilities in
Milwaukee and Chicago.
The reduction in work force primarily affected employees in Milwaukee and
Chicago. Total costs incurred as a result of the restructuring were $9.3
million, which include severance and related charges associated with the
reduction in force and charges related to vacating leased facilities. As of
August 11, 1999, $5.2 million remains accrued and is expected to be paid by the
end of fiscal 2003.
OTHER EXPENSE (INCOME). Interest expense, net of interest income, decreased
by $1.1 million, or 17.2%, to $5.3 million for the three months ending June 30,
2000, compared to $6.4 million for the three months ended June 30, 1999. This
decrease was primarily attributable to higher debt levels incurred to finance
the Company's acquisitions, offset by higher interest income earned during the
three months ended June 30, 2000 on cash balances held as a result of capital
raising activities subsequent to June 30, 1999.
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16
INCOME TAX EXPENSE (BENEFIT). Income tax benefits increased by $4.0
million, for the three months ending June 30, 2000, compared to $1.1 million for
the three months ended June 30, 1999. This increase was primarily attributable
to the increase in the Company's loss before income taxes, to $14.2 million, for
the three months ending June 30, 2000 compared to the $3.3 million loss before
income taxes for the three months ending June 30, 1999.
PREFERRED STOCK DIVIDENDS, ACCRETION OF DISCOUNT AND PREMIUM ON REDEMPTION
OF PREFERRED STOCK. Preferred stock dividends, accretion of discount and premium
on redemption of preferred stock decreased $1.2 million, or 25.0%, to $3.6
million for the three months ending June 30, 2000, compared to $4.8 million for
the three months ended June 30, 1999. This decrease was attributable to the
redemption of 43,750 shares of the Company's Series A Preferred Stock on October
1, 1999, resulting in a lower aggregate liquidation preference on the Company's
Series A Preferred Stock subsequent to the redemption.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK. As a result of the factors
described above, net loss attributable to common stock increased $5.8 million,
or 82.7%, to $12.7 million for the three months ending June 30, 2000, compared
to $7.0 million for the three months ended June 30, 1999.
BROADCAST CASH FLOW. As a result of the factors described above, Broadcast
Cash Flow increased $2.8 million, or 20.6%, to $16.4 million for the three
months ending June 30, 2000, compared to $13.6 million for the three months
ended June 30, 1999.
EBITDA. As a result of the increase in broadcast cash flow, offset by the
increase in corporate, general and administrative expenses described above,
EBITDA increased $0.6 million, or 5.0%, to $12.4 million for the three months
ending June 30, 2000, compared to $11.8 million for the three months ended June
30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 VERSUS THE SIX MONTHS ENDED JUNE 30, 1999.
NET REVENUES. Net revenues increased $33.2 million, or 43.1%, to $110.3
million for the six months ended June 30, 2000, from $77.1 million for the six
months ended June 30, 1999. This increase was primarily attributable to the
acquisition of radio stations and revenues generated from local marketing,
management and consulting agreements entered into during the period from July 1,
1999 through June 30, 2000.
In addition, on a same station basis, net revenue for the 212 stations in
39 markets operated for at least a full year was unchanged at $79 million for
the six month period June 30, 2000, compared to net revenues of $79 million for
the six month period ending June 30, 1999. Same station net revenue was
unchanged as a result of the Company's renewed commitment to improve the spot
pricing structure across all of its market clusters. In the short term, these
improvement activities will result in minimal revenue growth and some moderate
declines in same station performance.
STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND LMA
FEES. Station operating expenses excluding depreciation, amortization and LMA
fees increased $29.5 million, or 50.0%, to $88.5 million for the six months
ending June 30, 2000, from $59.0 million for the six months ending June 30,
1999. This increase was primarily attributable to 1) the acquisition of radio
stations and operating expenses incurred from local marketing, management and
consulting agreements entered into during the period from July 1, 1999 through
June 30, 2000; and to 2) the $6.3 million increase in same station operating
expenses discussed below. The provision for doubtful accounts increased by $1.3
million to $2.2 million for the six months ending June 30, 2000, from $0.9
million for the six months ending June 30, 1999. As a percentage of net
revenues, the provision for doubtful accounts increased 0.8%, to 1.9% for the
six months ending June 30, 2000 and as compared with 1.1% for the comparable
period in the previous year. This increase was solely related to increased
reserves associated with increasing revenues and management's review of the
adequacy of its reserves based on historical write-off experience.
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17
On a same station basis, for the 212 stations in 39 markets operated for at
least a full year, station operating expenses excluding depreciation,
amortization and LMA fees increased $6.5 million, or 10.8%, to $66.7 million for
the six months ending June 30, 2000, compared to $60.2 million for the six
months ending June 30, 1999. The increase in same station operating expenses
excluding depreciation, amortization and LMA fees is attributable to the
additional sales and programming personnel added subsequent to June 30, 1999 in
substantially all of the markets we operated at June 30, 1999, in addition to
the increased selling costs, and promotional and event costs associated with the
same station net revenue discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $5.6
million, or 38.1%, to $20.3 million for the six month period ending June 30,
2000, compared to $14.7 million for the six month period ending June 30, 1999.
This increase was primarily attributable to depreciation and amortization
relating to radio station acquisitions consummated subsequent to June 30, 1999
and six months of depreciation and amortization on radio station acquisitions
consummated subsequent to June 30, 1999.
LMA Fees. LMA fees increased $1.2 million, or 70.6%, to $2.8 million for
the six months ending June 30, 2000, from $1.7 million for the six months ending
June 30, 1999. This increase was primarily attributable to local marketing,
management and consulting fees paid to sellers in connection with the
commencement of operations, management of or consulting services provided to
radio stations subsequent to June 30, 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses increased $5.3 million, or 155.9%, to $8.7 million for
the six months ending June 30, 2000, compared to $3.4 million for the six months
ended June 30, 1999. The increase in corporate general and administrative
expense was primarily attributable to $2.4 million of non-recurring expense
recorded in the first six months of 2000 comprised of 1) $1.4 million in
severance related expense associated with the replacement of corporate and
market level management during the quarter; 2) $0.5 million in professional fees
related to the Company's restatement of 1999 quarterly financial information,
ongoing shareholder litigation and regulatory compliance; 3) $0.3 in
non-recurring programming consultant costs; and 4) $0.2 in other miscellaneous
corporate charges. The increase in corporate general and administrative expense
over the prior year is also partially attributable to corporate resources added
subsequent to June 30, 1999 to effectively manage the Company's growing radio
station portfolio.
RESTRUCTURING CHARGE. During June 2000 the Company implemented two separate
Board-approved restructuring programs. These restructuring programs were
designed to improve the Company's competitive position as well as to enhance the
Company's allocation of resources.
These June 2000 restructuring programs were implemented to (i) focus the
Company's operations on its core business, radio broadcasting, by terminating
several Internet service pilot projects and Internet infrastructure development
projects, and (ii) make the Company's corporate infrastructure more efficient
and responsive to our markets by relocating, effective October 1, 2000, all
corporate services currently conducted in Milwaukee, WI and Chicago, IL to
Atlanta, GA.
The June, 2000 restructuring programs were the result of Board-approved
mandates to discontinue the operations of Cumulus Internet Services and to
centralize the Company's corporate administrative organization and employees in
Atlanta. The program included severance and related costs, and costs for vacated
leased facilities, impaired leasehold improvements at vacated leased facilities,
and impaired assets related to the Internet businesses.
These restructuring programs also resulted in the write-off of capitalized
assets associated with Internet Service proprietary software and systems
infrastructure, and severance and related costs for corporate positions in
Milwaukee and Chicago as well as costs for vacating the leased facilities in
Milwaukee and Chicago.
The reduction in work force primarily affected employees in Milwaukee and
Chicago. Total costs incurred as a result of the restructuring were $9.3
million, which include severance and related charges associated with the
reduction in force and charges related to vacating leased facilities. As of
August 11, 1999, $5.2 million remains accrued and is expected to be paid by the
end of fiscal 2003.
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OTHER EXPENSE (INCOME). Interest expense, net of interest income, decreased
by $1.5 million, or 12.2%, to $10.8 million for the six months ending June 30,
2000, compared to $12.3 million for the six months ended June 30, 1999. This
decrease was primarily attributable to higher debt levels incurred to finance
the Company's acquisitions, offset by higher interest income earned during the
six months ended June 30, 2000 on cash balances held as a result of capital
raising activities subsequent to June 30, 1999.
INCOME TAX EXPENSE (BENEFIT). Income tax benefits increased by $6.2 million
to $10.9 million for the six months ending June 30, 2000, compared to $4.7
million for the six months ended June 30, 1999. This increase was primarily
attributable to the loss before income taxes, which increased $16.0 million to
$30.1 million for the six months ended June 30, 2000 compared to $14.1 million
for the six months ended June 30, 1999.
PREFERRED STOCK DIVIDENDS, ACCRETION OF DISCOUNT AND PREMIUM ON REDEMPTION
OF PREFERRED STOCK. Preferred stock dividends, accretion of discount and premium
on redemption of preferred stock decreased $2.1 million, or 22.6%, to $7.2
million for the six months ending June, 2000, compared to $9.3 million for the
six months ended June 30, 1999. This decrease was attributable to the redemption
of 43,750 shares of the Company's Series A Preferred Stock on October 1, 1999,
resulting in a lower aggregate liquidation preference on the Company's Series A
Preferred Stock subsequent to the redemption.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK. As a result of the factors
described above, net loss attributable to common stock increased $7.7 million,
or 41.5%, to $26.4 million for the six months ending June 30, 2000, compared to
$18.6 million for the six months ended June 30, 1999.
BROADCAST CASH FLOW. As a result of the factors described above, Broadcast
Cash Flow increased $3.9 million, or 21.7%, to $21.9 million for the six months
ending June 30, 2000, compared to $18.0 million for the six months ended June
30, 1999.
EBITDA. As a result of the increase in broadcast cash flow, offset by the
increase in corporate, general and administrative expenses described above,
EBITDA decreased $1.4 million, or 9.6%, to $13.2 million for the six months
ending June 30, 2000, compared to $14.6 million for the six months ended June
30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our principal need for funds has been to fund the acquisition of radio
stations and to a lesser extent, working capital needs, capital expenditures and
interest and debt service payments. Our principal sources of funds for these
requirements have been cash flow from financing activities, such as the proceeds
from the offering of our debt and equity securities and borrowings under credit
agreements. Our principal need for funds in the future are expected to include
the need to fund future acquisitions, interest and debt service payments,
working capital needs and capital expenditures. We believe that the Company's
present cash positions, as of July 31, 2000, will be sufficient to meet our
capital needs through October 1, 2000. Beyond, October 1, 2000, the Company
will need to raise approximately $440.3 million through additional equity and/or
debt financing, asset sales or other to be identified sources, to fund its
pending acquisitions. We believe that availability under our credit facility,
cash generated from operations and proceeds from future debt or equity financing
will be sufficient to meet our capital needs. The ability of the Company to
complete the pending acquisitions is dependent on the Company's ability to
obtain additional equity and/or debt financing. There can be no assurance that
the Company will be able to obtain such financing.
For the six months ended June 30, 2000, net cash used in operations
decreased $2.1 million, or 15.2%, to $11.8 million when compared to net cash
used in operations of $13.9 million for the six months ended June 30, 1999. This
decrease was due to the change in deferred taxes, combined with a reduction in
net cash utilized for working capital when compared to the six months ended June
30, 1999 and the timing of payments associated with a one-time restructuring
charge recorded in June 2000.
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For the six months ended June 30, 2000, net cash used in investing
activities increased $82.8 million, or 173.4%, to $130.4 million from $47.7
million for the six months ended June 30, 1999. This increase was due primarily
to $86.1 million in cash used for escrow deposits for the six months ended June
30, 2000 when compared to the six months ended June 30, 1999.
For the six months ended June 30, 2000, net cash used from financing
activities was $3.6 million compared to net cash provided of $45.8 million
during the six months ended June 30, 1999. This decrease in net cash provided
from financing activities was the result of the lower borrowings under the
Company's credit facilities for the six months ended June 30, 2000 when compared
to the six months ended June 30, 1999.
On July 27, 1999, we completed a follow-on public stock offering of
9,664,000 shares of our Class A Common Stock for $22.919 per share, after
underwriter's discounts and commissions. The net proceeds of the offering were
approximately $221.5 million. We used the net proceeds from the offering to
redeem a portion of our Series A Preferred Stock, repay the principal amount of
indebtedness outstanding under our old credit facility and fund the completion
of a portion of our pending acquisitions. We sold an additional 1,449,600 shares
of our Class A common stock as a result of the exercise of underwriters'
overallotment option, for $22.919 per share, resulting in $33.2 million
additional net proceeds to Cumulus.
On November 18, 1999, the Company completed a follow-on, secondary public
stock offering selling 4,700,000 (3,700,000 primary and 1,000,000 secondary)
shares of its Class A Common Stock for $37.05 per share, after underwriter's
discounts and commissions. The net proceeds of the offering were approximately
$137.1 million. In addition, on November 24, 1999, the underwriters exercised
their option to purchase an additional 204,000 shares of Class A Common Stock
(102,000 primary shares and 102,000 secondary shares) at 37.05 per share.
Exercise of the option resulted in an additional $3.8 million in net offering
proceeds to the Company.
Historical Acquisitions. During the six months ended June 30, 2000, the
Company completed 18 acquisitions across 14 markets having an aggregate purchase
price of $88.3 million. Additional acquisitions have been subsequently completed
in 2000 in 3 markets for an aggregate purchase price of $2.3 million. The
sources of funds for these acquisitions were primarily the proceeds from the
offering of the Company's equity securities.
Pending Acquisitions. The aggregate purchase price of the pending acquisitions
is expected to be approximately $466.2 million, consisting of primarily cash,
except in the case of the asset swap agreement with Clear Channel Communications
which the Company originally announced on May 4, 2000 and amended and announced
on July 25, 2000. Under the amended agreement, Cumulus will acquire 7 stations
in 3 markets from Clear Channel Communications and, in two stages, will transfer
to Clear Channel 55 stations in 10 markets. The result of the entire set of
transactions will be to generate approximately $166 million in cash. We intend
to finance the remaining pending acquisitions, which commit the Company to
various agreements to acquire 86 stations across 29 markets, with cash on hand,
the proceeds of our credit facility or future credit facilities, and other
sources to be identified. The ability of the Company to complete the pending
acquisitions is dependent upon on the Company's ability to obtain additional
equity and/or debt financing. There can be no assurance that the Company will be
able to obtain such financing. We expect to consummate most of our pending
acquisitions during the third and fourth quarters of 2000, although there can be
no assurance that the transactions will be consummated within that time frame.
In four of the markets in which there are pending acquisitions
(Columbus-Starkville, MS; Columbus, GA; Wilmington, NC; and Topeka, KS;),
petitions to deny have been filed against the Company's FCC assignment
applications. All such petitions and FCC staff inquiries must be resolved before
FCC approval can be obtained and the acquisitions consummated. There can be no
assurance that the pending acquisitions will be consummated. In addition, from
time to time the Company completes acquisitions following the initial grant of
an assignment application by the FCC staff but before such grant becomes a final
order, and a petition to review such a grant may be filed. There can be no
assurance that such grants may not ultimately be reversed by the FCC or an
appellate court as a result of such petitions, which could result in the Company
being required to divest the assets it has acquired. The ability of the Company
to make future acquisitions in addition to the pending acquisitions is dependent
upon on the Company's ability to obtain additional equity and/or debt financing.
There can be no assurance that the Company will be able to obtain such
financing. In the event the Company cannot consummate these acquisitions because
of breach of contract, the Company will be liable for approximately $97.3
million in purchase price.
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Sources of Liquidity. We financed our acquisitions primarily through the
July 1999 and November 1999 equity financings described above and borrowings
under our credit facilities.
On August 31, 1999, the Company's existing $190.0 million senior credit
facility was amended and restated to provide for aggregated principal
commitments of $225 million. The amended facility consists of an eight-year term
loan facility of $75 million, an eight and one-half year term loan facility of
$50 million, a seven-year revolving credit facility of $50 million and revolving
credit facility of $50 million that will convert to a seven-year term loan, at
the option of the Company, 364 days from closing. The amount available under the
seven-year revolving credit facility will be automatically reduced by 5% of the
initial aggregate principal amount in each of the third and fourth years
following closing, 10% of the initial aggregate principal amount in the fifth
year following closing, 20% of the initial aggregate principal amount in the
sixth year following the closing and the remaining 60% of the initial aggregate
principal amount in the seventh year following closing. Under the terms of the
facility, the Company drew down $125 million of the term loan facility on August
31, 1999, a portion of which was used to satisfy the principal amount of
indebtedness on its preexisting credit facility with the same lender. As of June
30, 2000 and July 31, 2000, $125 million was outstanding under the term loan
facilities.
The Company's obligations under its current credit facility are
collateralized by substantially all of its assets in which a security interest
may lawfully be granted (including FCC licenses held by its subsidiaries),
including, without limitation, intellectual property, real property, and all of
the capital stock of the Company's direct and indirect domestic subsidiaries,
except the capital stock of Broadcast Software International, Inc., Cumulus
Internet Services Inc. and Cumulus Telecommunications, Inc., and 65% of the
capital stock of any first-tier foreign subsidiary. The obligations under the
credit facility are also guaranteed by each of the direct and indirect domestic
subsidiaries, except Broadcast Software, Cumulus Internet services and Cumulus
Telecommunications, and are required to be guaranteed by any additional
subsidiaries acquired by Cumulus.
Both the revolving credit and term loan borrowings under the credit
facility bear interest, at the Company's option, at a rate equal to the Base
Rate (as defined under the terms of our credit facility, 9.5% as of June 30,
2000) plus a margin ranging between 0.50% to 2.125%, or the Eurodollar Rate (as
defined under the terms of the credit facility, 6.72% as of June 30, 2000) plus
a margin ranging between 1.50% to 3.125% (in each case dependent upon the
leverage ratio of the Company). At June 30, 2000, the Company's effective
interest rate on term loan amounts outstanding under the credit facility was
9.77%.
A commitment fee calculated at a rate ranging from 0.375% to 0.75% per
annum (depending upon the Company's utilization rate) of the average daily
amount available under the revolving lines of credit is payable quarterly in
arrears, and fees in respect of letters of credit issued under the Credit
Facility equal to the interest rate margin then applicable to Eurodollar Rate
loans under the seven-year revolving credit facility also will be payable
quarterly in arrears. In addition, a fronting fee of 0.125% is payable quarterly
to the issuing bank.
The eight-year term loan borrowings are repayable in quarterly installments
beginning in 2001. The schedule annual amortization is $0.75 million for each of
the third, fourth, fifth, sixth and seventh years following closing and $71.25
million in the eighth year following closing. The eight and a half year term
loan is repayable in two equal installments on November 30, 2007 and February
28, 2008. The first revolving credit loan, upon conversion to a seven-year term
loan, is repayable in quarterly installments beginning in 2001. The schedule
annual amortization is 10% of the initial aggregate principal amount in each of
the third and fourth years following closing, 15% of the initial aggregate
principal amount in each of the fifth and sixth years following closing and the
remaining 50% of the initial aggregate principal amount in the seventh year
following closing. The amount available under the second revolving credit
facility will be automatically reduced in quarterly installments as described in
the first paragraph above. Certain mandatory prepayments of the term loan
facility and the revolving credit line and reductions in the availability of the
revolving credit line are required to be made including: (i) 100% of the net
proceeds from any issuance of capital stock or incurrence of indebtedness; (ii)
100% of the net proceeds from certain asset sales; and (iii) between 50% and 75%
(dependent on our leverage ratio) of our excess cash flow.
Under the terms of the amended and restated credit facility, the Company is
subject to certain restrictive financial and operating covenants, including but
not limited to maximum leverage covenants, minimum interest and fixed charge
coverage covenants, limitations on asset dispositions and the payment of
dividends. The failure to comply with the covenants would result in an event of
default, which in turn would permit acceleration of debt under those
instruments. At June 30, 2000, the Company was in compliance with such financial
and operating covenants. On April 12, 2000 the Company received a waiver of
certain technical requirements of the Credit Agreement related to the
requirement that the annual financial statements for fiscal 1998 previously
furnished to the Lenders pursuant to Section 6.1(a), and the quarterly financial
statements for the third and fourth fiscal quarters of fiscal 1998 and the
first, second and third fiscal quarters of fiscal 1999 previously furnished to
the Lenders pursuant Section 6.1(b), be complete and correct in all material
respect. The waiver was requested as a result of the restatement of its first,
second and third quarter of fiscal 1999 quarterly financial statements and the
determination subsequent to the end of 1999 as part of our year end tax review
that due to the existence of offsetting deferred tax liabilities the valuation
allowance against deferred tax assets established in 1998 was not required.
The terms of the facility contain events of default after expiration of
applicable grace periods, including failure to make payments on the credit
facility, breach of covenants, breach of representations and warranties,
invalidity of the agreement governing the credit facility and related documents,
gross default under other agreements or conditions relating to indebtedness of
Culumus or the Company's restricted subsidiaries, certain events of liquidation,
moratorium, insolvency, bankruptcy or similar events, enforcement of security,
certain litigation or other proceedings, and certain events relating to changes
in control. Upon the occurrence of an event of default under the terms of the
credit facility, the majority of the lenders are able to declare all amounts
under our credit facility to be due and payable and take certain other actions,
including enforcement of rights in respect of the collateral. The majority of
the banks extending credit under each term loan facility and the majority of the
banks under each revolving credit facility may terminate such term loan facility
and such revolving credit facility, respectively.
We have issued $160.0 million in aggregate principal amount of Senior
Subordinated Notes which have a maturity date of July 1, 2008. The Notes are our
general unsecured obligations and are subordinated in right of payment to all
our existing and future senior debt (including obligations under our credit
facility). Interest on the Notes is payable semi-annually in arrears.
We issued $125.0 million of our Series A Preferred Stock in our initial
public offering on July 1, 1998. The holders of the Series A Preferred Stock are
entitled to receive cumulative dividends at an annual rate equal to 13 3/4% of
the liquidation preference per share of Series A Preferred Stock, payable
quarterly, in arrears. On or before July 1, 2003, we may, at our option, pay
dividends in cash or in additional fully paid and non-assessable shares of
Series A Preferred Stock. From July 1, 1998 until December 31, 1999, we issued
an additional $23.1 million of shares of Series A Preferred Stock as dividends
on the Series A Preferred Stock. After July 1, 2003, dividends may only be paid
in cash. To date, all of the dividends on the Series A Preferred Stock have been
paid in shares, except for a $3.5 million cash dividend paid on January 1, 2000
to holders of record on December 15, 1999 for the period commencing October 1,
1999 and ending December 31, 1999. The shares of Series A Preferred Stock are
subject to mandatory redemption on July 1, 2009 at a price equal to 100% of the
liquidation preference plus any and all accrued and unpaid cumulative dividends.
On October 1, 1999 we used $51.3 million of the proceeds of our July 1999
offering of our Class A Common Stock to redeem a portion of our Series A
Preferred Stock, including a $ 6.0 million redemption premium and $ 1.5 million
in accrued and unpaid dividends as of the redemption date.
The Indenture governing the Notes and the Certificate of Designation
governing the Series A Preferred Stock limit the amount we may borrow without
regard to the other limitations on incurrence of indebtedness contained therein
under credit facilities to $150.0 million. As of June 30, 2000, we would be
permitted, by the terms of the indenture and the certificate of designation, to
incur approximately $35 million of additional indebtedness under our credit
facility without regard to the debt ratios included in our indenture.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2000 approximately 43.8% of the Company's long-term debt bears
interest at variable rates. Accordingly, the Company's earnings and after tax
cash flow are affected by changes in interest rates. Assuming the current level
of borrowings at variable rates and assuming a 1% increase in the effective rate
of the loans, it is estimated that the Company's interest expense would have
increased by $0.6 million for the six months ending June 30, 2000. In the event
of an adverse change in interest rates, management would likely take actions to
further mitigate its exposure. However, due to the uncertainty of the actions
that would be taken and their possible effects, additional analysis is not
possible at this time. Further, such analysis would not consider the effects of
the change in the level of overall economic activity that could exist in such an
environment.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in the following eleven class
action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc.,
et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v.
Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus
Media Inc., et al.; (7) Kincer v. Weening, et al; and (8) Krim v. Cumulus Media
Inc., et al; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening,
et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former
directors and officers of the Company, and certain underwriters of the Company's
stock, have also been named as defendants. The complaints have all been filed in
the United States District Court for the Eastern District of Wisconsin. They
were filed as class actions on behalf of persons who purchased or acquired
Cumulus Media common stock during various time periods between May 11, 1999 and
April 24, 2000. The complaints allege, among other things, violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, and Sections 11 and 12(a) of the Securities Act of 1933,
and seek unspecified damages. The plaintiffs allege that the defendants issued
false and misleading statements and failed to disclose material facts
concerning, among other things, the Company's financial condition as a result of
the restatement on March 16, 2000 of the Company's results for the first three
quarters of 1999. The plaintiffs further allege that because of the issuance of
false and misleading statements and/or failure to disclose material facts, the
price of Cumulus Media stock was artificially inflated.
In 1999, the Company was served with a complaint filed in state court in
New York, seeking approximately $1.9 million in damages arising from the
Company's alleged breach of national representation agreements. The action is
currently in discovery.
In 1999, the Company was served with a complaint filed in county court in
Alabama alleging that in August 1997, an employee of Colonial Broadcasting,
Inc., which we acquired in July 1998, was at fault in connection with an
automobile accident. The plaintiff is seeking $8.5 million damages. We believe
we have a right to indemnification from the sellers of Colonial Broadcasting
under the related purchase agreement. The sellers' insurance company has assumed
the defense of the matter.
In addition, we currently and from time to time are involved in litigation
incidental to the conduct of our business. Other than as discussed above, the
Company is not a party to any lawsuit or proceeding which, in our opinion, is
likely to have a material adverse effect on the Company.
Item 2. Changes in Securities and Use of Proceeds
No items to report.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated April 24, 2000
Current Report on Form 8-K dated as of May 8, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CUMULUS MEDIA INC.
Date: March 28, 2001 By: /s/ Martin R. Gausvik
----------------------------
Martin Gausvik
Executive Vice President, Treasurer
and Chief Financial Officer
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