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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 September 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the Transition period from to .
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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, 14th Floor, Atlanta, GA 30305
(Address of Principal Executive Offices) (Zip Code)
(404) 949-0700
(Registrant's Telephone Number, Including Area Code)
3535 Piedmont Road
Building 14, Floor 14
Atlanta, GA 30305
(Former name or former address, if changed since last report)
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 October 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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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 discussion of our financial condition and results of
operations includes the results of these acquisitions and local marketing,
management and consulting agreements. As of September 30, 2000, we currently own
and operate 301 stations in 58 U.S. markets and provide sales and marketing
services under local marketing, management and consulting agreements (pending
FCC approval of acquisition) to 74 stations in 23 U.S. markets. We are the
second largest radio broadcasting company in the U.S. based on number of
stations. We believe we are the tenth largest radio broadcasting company in the
U.S. based on 1999 pro forma net revenues. We will own and operate a total of
227 radio stations (164 FM and 63 AM) in 46 U.S. markets upon consummation of
our pending acquisitions and dispositions.
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 effected 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 nine months ended September
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 Pensacola, Florida 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.
Our operating results in any period may be effected 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 as measures of liquidity or profitability.
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RESULTS OF OPERATIONS
The following table presents summary historical consolidated financial
information and other supplementary data of Cumulus for the three and nine month
periods ended September 30, 2000 and 1999.
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------ ------------------ ------------------
OPERATING DATA:
Net broadcast revenue $ 58,127 $ 47,293 $ 168,470 $ 124,350
Stations operating expenses
excluding depreciation & amortization 62,649 30,900 151,137 89,938
Depreciation and amortization 10,173 8,621 30,477 23,396
LMA fees 897 1,479 3,739 3,088
Corporate expenses 3,762 1,740 12,460 5,150
Restructuring and other charges -- -- 9,296 --
Operating income (loss) (19,354) 4,553 (38,639) 2,778
Interest expense, net 7,175 5,037 17,977 17,308
Net income (loss) attributable to common stock 20,489 (4,764) (5,886) (23,399)
OTHER DATA:
Broadcast cash flow (1) (4,522) 16,393 17,332 34,412
Broadcast cash flow margin (7.8%) 34.7% 10.3% 27.7%
EBITDA (2) (8,284) 14,653 4,872 29,262
Cash flows related to:
Operating activities ....................... N/A N/A (11,064) (18,723)
Investing activities ....................... N/A N/A (162,477) (121,212)
Financing activities ....................... N/A N/A (3,603) 317,199
Capital expenditures ............................ N/A N/A $ (9,132) $ (10,484)
(1) Broadcast cash flow consists of operating income (loss) 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
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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 SEPTEMBER 30, 2000 VERSUS THE THREE MONTHS ENDED SEPTEMBER
30, 1999.
NET REVENUES. Net revenues increased $10.8 million, or 22.9%, to $58.1
million for the three months ended September 30, 2000, from $47.3 million for
the three months ended September 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 October 1, 1999 through September 30, 2000.
In addition, on a same station basis, net revenue for the 150 stations
in 28 markets operated for at least a full year decreased $1.4 million or 4.7%
to $28.8 million for the three months ending September 30, 2000, compared to net
revenues of $30.2 million for the three month period ending September 30, 1999.
The nominal increase is same station net revenue was primarily the 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 the same station
performance.
STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND
LMA FEES. Station operating expenses excluding depreciation, amortization and
LMA fees increased $31.7 million, or 102.7%, to $62.6 million for the three
months ending September 30, 2000, from $30.9 million for the three months ending
September 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 October 1, 1999 through September 30, 2000; and to 2) the recognition of
bad debt expense of approximately $20.2 million. The provision for doubtful
accounts increased by $19.8 million to $20.4 million for the three months ending
September 30, 2000, from $0.6 million for the three months ending September 30,
1999. As a percentage of net revenues, the provision for doubtful accounts
increased 34.0%, to 35.2% for the three months ending September 30, 2000, as
compared with 1.2% for the comparable period in the previous year. This increase
resulted from certain activities of management which yielded i) specific
write-offs of $4.6 million related to markets divested in August and October
2000, ii) $8.3 million of specific write-offs in markets being retained; and
iii) the creation of $7.3 million of additional general allowance for doubtful
accounts as of September 30, 2000. Several factors contributed to the creation
of this provision, including significant turnover of sales employees at the
market level and a collection policy that did not stringently enforce timely
cash collections.
On a same station basis, for the 150 stations in 28 markets operated
for at least a full year, station operating expenses excluding depreciation,
amortization and LMA fees increased $3.0 million, or 16.3%, to $21.7 million for
the three months ending September 30, 2000, compared to $18.7 million for the
three months ending September 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 September 30,
1999 in substantially all of the markets we operated during the three months
ended September 30, 1999, in addition to increased selling costs, and
promotional and event costs associated with the same station net revenue
discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$1.6 million, or 18.0%, to $10.2 million for the three-month period ending
September 30, 2000, compared to $8.6 million for the three-month period ending
September 30, 1999. This increase was primarily attributable to depreciation and
amortization relating to radio station acquisitions consummated subsequent to
September 30, 1999 and a full quarter of depreciation and amortization on radio
station acquisitions consummated during the three month period ended September
30, 1999.
LMA FEES. LMA fees decreased $0.6 million, or 39.3%, to $0.9 million
for the three months ending September 30, 2000, from $1.5 million for the three
months ending September 30, 1999. This decrease was primarily attributable to
fewer 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 during the third quarter of 2000 as compared
with the prior year.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses increased $2.0 million, or 116.2%, to $3.8 million for
the three months ending September 30, 2000, compared to $1.7 million for the
three months ended September 30, 1999. The increase in corporate general and
administrative expense was primarily attributable to corporate resources added
subsequent to September 30, 1999 to effectively manage the Company's growing
radio station portfolio.
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OTHER EXPENSE (INCOME). Interest expense, net of interest income,
increased by $2.1 million, or 42.4%, to $7.2 million for the three months ending
September 30, 2000, compared to $5.0 million for the three months ended
September 30, 1999. This increase was primarily attributable to higher variable
rates on the Company's credit facility, as compared with the prior year, along
with lower interest income earned during the three months ended September 30,
2000 on cash balances.
Other non-operating income (expense), net, increased by $67.3 million
to $68.1 million for the three months ending September 30, 2000, compared to
$0.8 million for the three months ended September 30, 1999. This increase was
primarily attributable to the completion of the first phase of the asset
exchange and sale agreement with Clear Channel Communications on August 25, 2000
and the related recognition of a non-recurring gain on the sale of assets of
$68.1 million.
INCOME TAX EXPENSE (BENEFIT). Income tax expense increased by $17.2
million to $17.3 million for the three months ending September 30, 2000,
compared to $0.1 million for the three months ended September 30, 1999. This
increase was primarily attributable to the Company's third quarter gain on sales
of stations incurred as a result of the completion of the first phase of the
asset and exchange agreement with Clear Channel Communications.
PREFERRED STOCK DIVIDENDS, ACCRETION OF DISCOUNT AND PREMIUM ON
REDEMPTION OF PREFERRED STOCK. Preferred stock dividends and accretion of
discount decreased $1.1 million, or 23.0%, to $3.8 million for the three months
ending September 30, 2000, compared to $4.9 million for the three months ended
September 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 income attributable to common stock increased $25.3
million to $20.5 million for the three months ending September 30, 2000, as
compared with a net loss attributable to common stock of $(4.8) million for the
three months ending September 30, 1999.
BROADCAST CASH FLOW. As a result of the factors described above,
Broadcast Cash Flow decreased $20.9 million, or 127.6%, to $(4.5) million for
the three months ending September 30, 2000, compared to $16.4 million for the
three months ended September 30, 1999.
EBITDA. As a result of the decrease in broadcast cash flow and the
increase in corporate, general and administrative expenses described above,
EBITDA decreased $22.9 million, or 156.5%, to $(8.2) million for the three
months ending September 30, 2000, compared to $14.7 million for the three months
ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THE NINE MONTHS ENDED SEPTEMBER 30,
1999.
NET REVENUES. Net revenues increased $44.1 million, or 35.5%, to $168.5
million for the nine months ended September 30, 2000, from $124.4 million for
the nine months ended September 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 October 1, 1999 through September 30, 2000.
In addition, on a same station basis, net revenue for the 150 stations
in 28 markets operated for at least a full year increased $1.2 million or 1.5%
to $83.6 million for the nine months ended September 30, 2000, compared to net
revenues of $82.4 million for the nine month period ending September 30, 1999.
The nominal increase in same station net revenue was primarily the 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 $61.2 million, or 68.0%, to $151.1 million for the nine
months ending September 30, 2000, from $89.9 million for the nine months ending
September 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 October 1, 1999 through September 30, 2000; and to 2) the recognition of
$20.2 million in bad debt expense during the third quarter of 2000. The
provision for doubtful accounts increased by $21.2 million to $22.7 million for
the nine months ending September 30, 2000, from $1.4 million for the nine months
ending
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September 30, 1999. As a percentage of net revenues, the provision for doubtful
accounts increased 12.3%, to 13.4% for the nine months ending September 30,
2000, as compared with 1.1% for the comparable period in the previous year. This
increase resulted from certain activities of management which yielded i)
specific write-offs of $4.6 million related to markets divested in August and
October of 2000, ii) $8.3 million of specific write-offs in markets being
retained, and iii) the creation of $7.3 million of additional general allowance
for doubtful accounts as of September 30, 2000. Several factors contributed to
the creation of this provision including significant turnover of sales employees
at the market level and a collection policy that did not stringently enforce
timely cash collections.
On a same station basis, for the 150 stations in 28 markets operated
for at least a full year, station operating expenses excluding depreciation,
amortization and LMA fees increased $9.1 million, or 15.6%, to $67.7 million for
the nine months ending September 30, 2000, compared to $58.5 million for the
nine months ending September 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 September 30,
1999 in substantially all of the markets we operated at September 30, 1999, in
addition to increased selling costs, and promotional and event costs associated
with the net revenue of the same station group.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$7.1 million, or 30.2%, to $30.5 million for the nine month period ending
September 30, 2000, compared to $23.4 million for the nine month period ending
September 30, 1999. This increase was primarily attributable to depreciation and
amortization relating to radio station acquisitions consummated subsequent to
September 30, 1999 and nine months of depreciation and amortization on radio
station acquisitions consummated subsequent to September 30, 1999.
LMA FEES. LMA fees increased $0.6 million, or 21.4%, to $3.7 million
for the nine months ending September 30, 2000, from $3.1 million for the nine
months ending September 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 September 30, 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses increased $7.3 million, or 141.9%, to $12.5 million for
the nine months ending September 30, 2000, compared to $5.2 million for the nine
months ended September 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 nine months of 2000 related to
severance costs, professional fees and other miscellaneous charges and the
addition of corporate resources subsequent to September 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, costs for vacated
leased facilities, impaired leasehold improvements at vacated leased facilities,
and impaired assets related to the Internet businesses.
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, charges related to vacating leased facilities, impaired
leasehold improvements at vacated leased facilities, and impaired assets related
to the Internet businesses. As of September 30, 2000, $4.4 million remains
accrued and is expected to be paid by the end of fiscal 2003.
OTHER EXPENSE (INCOME). Interest expense, net of interest income,
increased by $0.7 million, or 3.8%, to $18.0 million for the nine months ending
September 30, 2000, compared to $17.3 million for the nine months ended
September 30, 1999. This increase was primarily attributable to higher debt
levels incurred to finance the Company's acquisitions, offset by higher interest
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income earned during the nine months ended September 30, 2000 on cash balances
held as a result of capital raising activities subsequent to September 30, 1999.
Other non-operating income (expense), net, increased by $67.3 million
to $68.1 million for the nine months ending September 30, 2000, compared to $0.8
million for the nine months ending September 30, 1999. This increase was
primarily attributable to the completion of the first phase of the asset
exchange and sale agreement with Clear Channel Communications on August 25, 2000
and the related recognition of a non-recurring gain on the sale of assets of
$68.1 million.
INCOME TAX EXPENSE (BENEFIT). Income tax expense was $6.4 million for
the nine months ending September 30, 2000, compared to an income tax benefit of
$4.6 million for the nine months ended September 30, 1999. Current year income
tax expense was primarily attributable to the income before taxes generated by a
gain on sale of assets mentioned above, offset by the realization of net
operating loss carryforwards in Q1 and Q2 of 2000.
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 $3.3 million, or 22.8%,
to $11.0 million for the nine months ending September 30, 2000, compared to
$14.2 million for the nine months ended September 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 decreased $17.5
million to $5.9 million for the nine months ending September 30, 2000, compared
to $23.4 million for the nine months ended September 30, 1999.
BROADCAST CASH FLOW. As a result of the factors described above,
Broadcast Cash Flow decreased $17.1 million, or 49.6%, to $17.3 million for the
nine months ending September 30, 2000, compared to $34.4 million for the nine
months ended September 30, 1999.
EBITDA. As a result of the decrease in broadcast cash flow and the
increase in corporate, general and administrative expenses described above,
EBITDA decreased $24.4 million, or 83.4%, to $4.9 million for the nine months
ending September 30, 2000, compared to $29.3 million for the nine months ended
September 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 needs 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 October 31, 2000, will be sufficient to meet our
capital needs through June 30, 2001. Beyond, June 30, 2001, the Company will
need to raise approximately $40.0 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 nine months ended September 30, 2000, net cash used in
operations decreased $7.7 million, or 40.9%, to $11.1 million from net cash used
in operations of $18.7 million for the nine months ended September 30, 1999.
This decrease was the combined result of a reduction in net cash utilized for
working capital and the change in deferred income taxes when compared to the
nine months ended September 30, 1999 and the timing of payments associated with
a one-time restructuring charge recorded in June 2000.
For the nine months ended September 30, 2000, net cash used in
investing activities increased $41.2 million, or 34.0%, to $162.4 million from
$121.2 million for the nine months ended September 30, 1999. This increase is
primarily due to current year acquisition activity and cash escrows posted on
pending acquisitions.
For the nine months ended September 30, 2000, net cash used from
financing activities was $3.6 million compared to net
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cash provided of $317.2 million during the nine months ended September 30, 1999.
This decrease in net cash provided from financing activities was the result of
the equity offering in July of 1999 discussed below and the change in net
proceeds from the credit facility for the nine months ending September 30, 1999
when compared to the nine months ending September 30, 2000
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 nine months ended September 30,
2000, the Company completed 36 acquisitions across 18 markets having an
aggregate purchase price of $172.0 million. In addition, the Company made escrow
deposits totaling $56.1 million, and received proceeds of $166.2 million from
the sale of radio station assets for the nine months ending September 30, 2000.
On October 2, 2000 the Company completed the acquisition of 35 radio
station across 9 markets from Connoisseur Communications for $ 257.8 million in
cash. This transaction, which has been under contract since November 29, 1999
transfers ownership of the Connoisseur assets in Rockford, IL, Quad Cities, IL
and IA, Waterloo-Cedar Falls, IA, Evansville, IN, Flint, MI, Muskegon, MI,
Saginaw-Bay City-Midland, MI, Canton, OH, Youngstown-Warren, OH, to Cumulus.
Four stations in the Evansville, IN market were immediately sold, and an
agreement to sell the five stations in the Muskegon, MI market was reached as
described below.
To facilitate the Connoisseur closing, on October 2, 2000 the Company
received $68.9 million in initial proceeds from the second phase of its
previously announced asset exchange and sale to Clear Channel Communications
(NYSE: CCU). As previously announced, this transaction transfers 30 stations
from Columbus, GA, Mason City, IA, Mankato-New Ulm-St. Peter, MN, Rochester, MN,
and Evansville, IN (acquired from Connoisseur) to Clear Channel. The transfer of
the radio stations in Columbus, GA has not yet received FCC approval, and
accordingly will be completed upon receipt of all applicable regulatory
approvals. The parties have entered into an agreement pursuant to which Clear
Channel will commence providing programming and marketing services to the
Columbus stations.
Additionally, the Company announced that it would also transfer to
Clear Channel Communications 45 stations in 8 markets in exchange for 4 stations
and cash in a transaction that will generate approximately $52.0 million in cash
to Cumulus.
Additional acquisitions have been subsequently completed in 2000 in 4
markets for an aggregate purchase price of $10.1 million. The sources of funds
for these acquisitions were primarily the proceeds from the offering of the
Company's equity securities.
Cumulus will acquire the 4 former AMFM stations being divested by Clear
Channel in Harrisburg, PA and approximately $52.0 million in cash, $15.0 million
of which was received on October 2nd in an initial closing. Harrisburg becomes
Cumulus' largest market. In return, Clear Channel will acquire 44 stations in
Jonesboro, AR, Muskegon, MI (previously acquired from Connoisseur), Augusta, GA,
Augusta-Waterville, ME, Florence/Muscle Shoals, AL, Tupelo, MS,
Marion-Carbondale, IL, and Laurel-Hattiesburg, MS. This transaction is expected
to close in the fourth quarter of 2000, subject to the approval of the Federal
Communications Commission and the satisfaction of various closing conditions.
The parties have entered into agreements pursuant to which Clear Channel will
provide programming and marketing services to those Cumulus stations, and
Cumulus will provide similar services to the former AMFM stations in Harrisburg,
PA.
Pending Acquisitions. The aggregate purchase price of the pending
acquisitions other than the Connoisseur and Clear Channel transactions discussed
above, is expected to be approximately $115.6 million, consisting of primarily
cash, except in the case
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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.
The pending acquisitions commit the Company to various agreements to acquire 32
stations across 14 markets. We intend to finance the remaining pending
acquisitions with cash on hand, the proceeds of the asset sales to Clear Channel
described above, 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 fourth quarter of 2000 and the first six
months in 2001, although there can be no assurance that the transactions will be
consummated within that time frame. In three of the markets in which there are
pending acquisitions (Columbus-Starkville, MS; 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 $76.9
million in purchase price.
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
aggregate 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 September 30, 2000, and October 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 September
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, 6.66% as of September 30,
2000) plus a margin ranging between 1.50% to 3.125% (in each case dependent upon
the leverage ratio of the Company). At December 31, 1999 the Company's
effective interest rate on term loan amounts outstanding under the credit
facility was 9.71%.
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 scheduled 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 scheduled 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 September 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
respects. The waiver was requested the 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,
cross default under other agreements or conditions relating to indebtedness of
Cumulus 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.
On July 25, 2000 the Company received a waiver from its Lenders under
its credit facility in order to allow the Company to complete the first phase of
the asset exchange and sale with Clear Channel Communications. In this phase,
the Company received radio station assets in Cedar Rapids, IA, Shreveport, LA
and Melbourne, FL and $91.6 million in cash from Clear Channel in exchange for
Company radio stations in Ann Arbor, MI, Chattanooga, TN, Eau Claire, WI,
McAllen-Brownsville, TX and Salisbury-Ocean City, MD. This transaction
subsequently closed on August 25, 2000.
On August 29, 2000 the Company's ability to borrow under a $50 million
revolving credit facility that would convert to a seven-year term loan expired
in accordance with the terms of the Credit Agreement. The Company did not seek
reinstatement of this facility.
On September 27, 2000 the Company and its Lenders under the Credit
Facility entered into the Third Amendment, Consent and Waiver to the Amended and
Restated Credit Agreement dated as of August 31, 1999 (the "Third Amendment").
The Third Amendment allows the Company to complete the second and third phases
of the asset exchange and sale with Clear Channel Communications, the
acquisitions of radio station assets from Connoisseur Communications Partners,
L.P., Cape Fear Broadcasting and McDonald Media Inc. subject to the satisfaction
of renegotiated financial covenants. The Third Amendment also modified the
financial covenant requirements, including the consolidated leverage ratio, the
consolidated senior debt ratio, the consolidated interest coverage ratio, and
the consolidated fixed charge coverage ratio commencing with the trailing four
quarterly periods ending September 30, 2000. In addition to modifying certain
financial covenants, the methodology for the calculation of these covenants was
also modified. In consideration for entering into the Third Amendment, the
Company paid the administrative agent a fee in the amount of $875,000 and the
lenders a fee of $815,000. In addition, the applicable maximum Eurodollar Loan
margin on Revolving Credit Loans was increased from 3.00% to 3.25%; the
applicable maximum Eurodollar Loan margin on Term Loan B Loans was increased
from 3.000% to 3.375%; and the applicable maximum Eurodollar Loan margin on Term
Loan C Loans was increased from 3.125% to 3.50%. A copy of the Third Amendment
is filed with the Securities and Exchange Commission as an exhibit to this
Quarterly Report on Form 10-Q.
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
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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.
Subsequent to September 30, 2000, we issued and sold 250 shares of our
Series B Preferred Stock at a purchase price of $10,000 per share, or an
aggregate purchase price of $2,500,000. The proceeds were applied for working
capital and other general corporate purposes. The Series B Preferred Stock ranks
on parity with the Series A Preferred Stock, and the holders thereof are
entitled to receive cumulative dividends at an annual rate equal to 12% of the
liquidation preference per share, payable quarterly, in arrears. We may, at our
option, pay dividends in cash or in additional fully paid and non-assessable
shares of Series B Preferred Stock. The shares of Series B Preferred Stock are
subject to mandatory redemption on October 3, 2009 at a price equal to 100% of
the liquidation preference plus any and all accrued and unpaid cumulative
dividends.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
CUMULUS MEDIA INC.
Date: August 29, 2001 By: /s/ Martin R. Gausvik
------------------------------------
Martin Gausvik
Executive Vice President, Treasurer and Chief
Financial Officer
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