1
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-Q
XI QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999.
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.)
111 E. Kilbourn Ave., Suite 2700, Milwaukee, WI 53202
(Address of Principal Executive Offices) (Zip Code)
(414) 615-2800
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 April 30, 1999, the registrant had outstanding 19,737,197 shares of
common stock consisting of (i) 8,700,504 shares of Class A Common Stock; (ii)
8,660,416 shares of Class B Common Stock; and (iii) 2,376,277 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 March 31, 1999 and December 31,
1998
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998
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)
March 31, December 31,
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 12,688 $ 24,885
Accounts receivable, less allowance for
doubtful accounts of $1,167 and
$895 respectively 29,252 28,056
Prepaid expenses and other current assets 4,405 2,808
-------- --------
Total current assets 46,345 55,749
Property and equipment, net 46,336 41,438
Intangible assets, net 424,067 404,220
Other assets 16,978 16,224
-------- --------
Total assets $533,726 $517,631
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 14,030 $ 19,028
Current portion of long-term debt 20 20
Other current liabilities 768 768
-------- --------
Total current liabilities 14,818 19,816
Long-term debt 252,743 222,747
Other liabilities 2,310 1,118
Deferred income taxes 15,074 15,074
-------- --------
Total liabilities 284,945 258,755
-------- --------
Series A Cumulative Exchangeable Redeemable
Preferred Stock due 2009, Stated
value $1,000 per share, 133,741 and
129,286 shares issued and outstanding,
respectively 138,286 133,741
-------- --------
Commitments and contingencies (Note 6)
Stockholders' equity:
Class A common stock, par value $.01
per share; 50,000,000 shares authorized;
8,700,504 shares outstanding 87 87
Class B common stock, par value $.01
per share; 20,000,000 shares authorized;
8,660,416 shares outstanding 87 87
Class C common stock, par value $.01
per share; 30,000,000 shares authorized;
2,376,277 shares outstanding 24 24
Additional paid-in-capital 137,665 142,211
Accumulated other comprehensive income 5 5
Accumulated deficit (27,373) (17,279)
-------- --------
Total stockholders' equity 110,495 125,135
-------- --------
Total liabilities and
stockholders' equity $533,726 $517,631
======== ========
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)
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
Revenues $ 34,495 $ 13,787
Less: agency commissions (2,580) (1,287)
-------- --------
Net revenues 31,915 12,500
Operating expenses:
Station operating expenses, excluding
depreciation and amortization 26,870 10,904
Depreciation and amortization 7,584 2,748
Corporate general and administrative 1,674 961
-------- --------
Operating expenses 36,128 14,613
-------- --------
Operating income (loss) (4,213) (2,113)
-------- --------
Nonoperating income (expense):
Interest expense (6,020) (1,516)
Interest income 139 142
Other income (expense), net -- (6)
-------- --------
Nonoperating expenses, net (5,881) (1,380)
-------- --------
Loss before income taxes (10,094) (3,493)
Income tax expense -- --
-------- --------
Loss before extraordinary item (10,094) (3,493)
Extraordinary loss on early
extinguishment of debt -- (1,837)
Net loss (10,094) (5,330)
Preferred stock dividend and accretion
of discount 4,545 842
-------- --------
Net loss attributable to common stockholders $(14,639) $ (6,172)
======== ========
Basic and diluted loss per share $ (.74) $ (.49)
-------- --------
Weighted average common shares outstanding 19,737 12,509
======== ========
See Accompanying Notes to Consolidated Financial Statements
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Cumulus Media Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
Cash flows from operating activities:
Net loss $(10,094) $ (5,330)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary loss on early
extinguishment of debt -- 1,837
Depreciation 1,617 472
Amortization of goodwill, intangible
assets and other assets 5,701 1,652
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (1,196) (4,997)
Prepaid expenses and other current assets (1,597) (1,299)
Accounts payable and accrued expenses (5,278) 4,654
Other assets (99) (1,211)
Other liabilities (107) (367)
--------- --------
Net cash used in operating activities (11,053) (4,589)
--------- --------
Cash flows from investing activities:
Acquisitions (26,899) (67,224)
Escrow deposits on pending acquisitions (401) (10,523)
Capital expenditures (3,215) (1,114)
Other (624) (292)
-------- --------
Net cash used in investing activities (31,139) (79,153)
-------- --------
Cash flows from financing activities:
Proceeds from revolving line of credit 30,000 143,000
Payments on revolving line of credit -- (65,535)
Payments on promissory notes (5) (2)
Proceeds from issuance of preferred stock -- 16,250
Proceeds from issuance of common stock -- 14,985
Payments for debt issuance costs -- (3,113)
-------- --------
Net cash provided by
financing activities 29,995 105,585
-------- --------
(Decrease)increase in cash and cash
equivalents (12,197) 21,843
Cash and cash equivalents at beginning
of period $ 24,885 $ 1,573
Cash and cash equivalents at end of period $ 12,688 $ 23,416
Non-cash operating and financing activities:
Trade revenue $ 2,198 $ 912
Trade expense 2,199 912
Assets acquired through notes payable 1,380 936
See Accompanying Notes to Consolidated Financial Statements
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Cumulus Media Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. 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, 1998. 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 three months ended March 31, 1999
are not necessarily indicative of the results that can be expected for the
entire fiscal year ending December 31, 1999.
2. Recent Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the
Costs of Start-Up Activities." SOP 98-5, effective for 1999, requires
organization costs to be expensed as incurred. The Company's adoption of SOP
98-5 in the first quarter of 1999 had an immaterial effect on the results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement 133 standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. The Company has not engaged in any derivative or hedging
transactions. As a result, we do not anticipate that the adoption of the this
new Statement will have a significant effect on our earnings or financial
position. Statement 133 is required to be adopted in years beginning after June
15, 1999.
3. Acquisitions:
During the quarter ended March 31, 1999, the Company completed 8 acquisitions of
radio stations for a total purchase price of $28.3 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 $ 3,301
Intangible assets 24,978
--------
$ 28,279
========
The unaudited consolidated condensed pro forma results of operations data for
the three months ended March 31, 1999 and 1998, as if all acquisitions completed
during 1998 and during the first quarter of 1999 occurred at January 1, 1998,
follow:
Three Months Ended
------------------
March 31, March 31,
1999 1998
---- ----
Net revenues 32,302 28,241
Operating loss (4,492) (6,346)
Net loss (10,704) (12,558)
Net loss attributable to common
stockholders (15,249) (17,103)
======== ========
Basic and diluted loss per common
share(in dollars) (0.77) (0.87)
Escrow funds of approximately $3.7 million paid by the Company in
connection with pending acquisitions as of March 31, 1999 have been classified
as other assets at March 31, 1999 in the accompanying consolidated balance
sheet.
At March 31, 1999 the Company operated 36 stations under local marketing
agreements ("LMA"). The statement of operations for the quarter ended March 31,
1999 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 March 31, 1999.
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4. Guarantor's Financial Information
All of the Company's direct and indirect subsidiaries (all such subsidiaries are
directly or indirectly wholly owned by the Company) of the Company will provide
full and unconditional senior subordinated guarantees for the 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 consolidating condensed financial information
pertaining to the Company and the Guarantor Subsidiaries. The Company has not
presented separate financial statements for the Guarantor Subsidiaries because
management does not believe that such information is material to investors.
As of March 31, 1999
--------------------
(Unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
Cash and cash equivalents $ (5,970) $ 18,658 $ -- $ 12,688
Accounts receivable, net -- 29,252 -- 29,252
Prepaid expenses and other
currents assets 2,308 2,097 -- 4,405
-------- -------- --------- --------
Total current assets (3,662) 50,007 -- 46,345
Property and equipment, net 1,610 44,726 -- 46,336
Investment in subsidiaries 472,357 -- (472,357) --
Intangible assets, net -- 424,067 -- 424,067
Other assets 36,777 4,804 (24,603) 16,978
-------- -------- --------- --------
Total assets $507,082 $523,604 $(496,960) $533,726
======== ======== ========= ========
Accounts payable $ 5,223 $ 8,807 $ -- $ 14,030
Current portion of LTD 20 -- -- 20
Other current liabilities 768 -- -- 768
-------- -------- --------- --------
Total current liabilities 6,011 8,807 -- 14,818
Long-term debt, excluding
current portion 252,743 -- -- 252,743
Other liabilities 5,394 21,519 (24,603) 2,310
Deferred income taxes -- 15,074 -- 15,074
-------- -------- --------- --------
Total liabilities 264,148 45,400 (24,603) 284,945
-------- -------- --------- --------
Preferred stock 138,286 -- -- 138,286
-------- -------- --------- --------
Stockholders' equity 104,648 478,204 (472,357) 110,495
-------- -------- --------- --------
Total liabilities and
stockholders' equity $507,082 $523,604 $(496,960) $533,726
======== ======== ========= ========
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For the Three Months Ended March 31, 1999
-----------------------------------------
(Unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------
Revenues $ -- $ 34,495 $ -- $ 34,495
Less: agency commissions -- (2,580) -- (2,580)
-------- -------- --------- --------
Net revenues -- 31,915 -- 31,915
Operating expenses:
Station operating expenses,
excluding depreciation
and amortization -- 26,870 -- 26,870
Depreciation and amortization 137 7,447 -- 7,584
Corporate G&A expenses 1,674 -- -- 1,674
-------- -------- --------- --------
Operating expenses 1,811 34,317 -- 36,128
-------- -------- --------- --------
Operating income (loss) (1,811) (2,402) -- (4,213)
-------- -------- --------- --------
Interest (expense) (6,005) (15) -- (6,020)
Interest income 139 -- -- 139
Other income (expense) -- -- -- --
-------- -------- --------- --------
Non operating expenses, net (5,866) (15) -- (5,881)
-------- -------- --------- --------
Income (loss) before
income taxes (7,677) (2,417) -- (10,094)
Income tax expense -- -- -- --
-------- -------- --------- --------
Income (loss) before
extraordinary item (7,677) (2,417) -- (10,094)
Extraordinary (loss) -- -- -- --
-------- -------- --------- --------
Net loss before equity
adjustment (7,677) (2,417) -- (10,094)
Equity income (loss) in
subsidiaries (2,417) -- 2,417 --
-------- -------- --------- --------
Net loss (10,094) (2,417) 2,417 (10,094)
Preferred stock dividend 4,545 -- -- 4,545
-------- -------- --------- --------
Net income (loss)
attributable to common
stockholders $(14,639) $ (2,417) $ 2,417 $(14,639)
======== ======== ========= ========
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For the Three Months Ended March 31, 1999
-----------------------------------------
(Unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------
Cash flows from operating
activities:
Net loss $ (7,677) $ (2,417) $ -- $(10,094)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation 46 1,571 -- 1,617
Amortization 370 5,331 -- 5,701
Changes in assets and
liabilities, net of
effect of acquisitions:
Accounts receivable -- (1,196) -- (1,196)
Prepaid expenses and other
current assets (1,560) (37) -- (1,597)
Accounts payable and
accrued expenses (5,521) 243 -- (5,278)
Other assets (3,956) (1,034) 4,891 (99)
Other liabilities 586 4,198 (4,891) (107)
-------- -------- --------- --------
Net cash (used in) provided
by operating activities (17,712) 6,659 -- (11,053)
-------- -------- --------- --------
Cash flows from investing
activities:
Acquisitions -- (26,899) -- (26,899)
Investment in subsidiaries (26,899) -- 26,899 --
Escrow deposits on
pending acquisitions (401) -- -- (401)
Capital expenditures (468) (2,747) -- (3,215)
Other (624) -- -- (624)
-------- -------- --------- --------
Net cash used by
investing activities (28,392) (29,646) 26,899 (31,139)
Cash flows from financing
activities:
Contribution from parent -- 26,899 (26,899) --
Proceeds from revolving
line of credit 30,000 -- -- 30,000
Payments on promissory notes (5) -- -- (5)
-------- -------- --------- --------
Net cash provided by
financing activities 29,995 26,899 (26,899) 29,995
-------- -------- --------- --------
(Decrease)increase in cash
and cash equivalents (16,109) 3,912 -- (12,197)
Cash and cash equivalents
at beginning of period $ 10,139 $ 14,746 $ -- $ 24,885
Cash and cash equivalents
at end of period $ (5,970) $ 18,658 $ -- $ 12,688
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As of December 31, 1998
-----------------------
(Unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------
Cash and cash equivalents $ 10,139 $ 14,746 $ -- $ 24,885
Accounts receivable, net -- 28,056 -- 28,056
Prepaid expenses and other
currents assets 749 2,059 -- 2,808
-------- -------- --------- --------
Total current assets 10,888 44,861 -- 55,749
Property and equipment, net 1,188 40,250 -- 41,438
Investment in subsidiaries... 444,078 -- (444,078) --
Intangible assets, net -- 404,220 -- 404,220
Other assets 32,166 3,775 (19,717) 16,224
-------- -------- --------- --------
Total assets $488,320 $493,106 $(463,795) $517,631
======== ======== ========= ========
Accounts payable $ 10,659 $ 8,370 $ (1) $ 19,028
Current portion of LTD 20 -- -- 20
Other current liabilities 768 -- -- 768
-------- -------- --------- --------
Total current
liabilities 11,447 8,370 (1) 19,816
Long-term debt, excluding
current portion 222,747 -- -- 222,747
Other liabilities 3,513 17,322 (19,717) 1,118
Deferred income taxes -- 15,074 -- 15,074
-------- -------- --------- --------
Total liabilities 237,707 40,766 (19,718) 258,755
-------- -------- --------- --------
Preferred stock 133,741 -- -- 133,741
-------- -------- --------- --------
Stockholders' equity 116,872 452,340 (444,077) 125,135
-------- -------- --------- --------
Total liabilities and
stockholders' equity $488,320 $493,106 $(463,795) $517,631
======== ======== ========= ========
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For the Three Months Ended March 31, 1998
-----------------------------------------
(Unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------
Revenues $ -- $ 13,787 $ -- $ 13,787
Less: agency commissions -- (1,287) -- (1,287)
-------- -------- --------- --------
Net revenues -- 12,500 -- 12,500
Operating expenses:
Station operating expenses,
excluding depreciation
and amortization -- 10,904 -- 10,904
Depreciation and amortization 79 2,669 -- 2,748
Corporate general and
administrative expenses 961 -- -- 961
-------- -------- --------- --------
Operating expenses 1,040 13,573 -- 14,613
-------- -------- --------- --------
Operating income (loss) (1,040) (1,073) -- (2,113)
-------- -------- --------- --------
Interest (expense) (1,509) (7) -- (1,516)
Interest income 142 -- -- 142
Other income (expense) -- (6) -- (6)
-------- -------- --------- --------
Non operating expenses, net (1,367) (13) -- (1,380)
-------- -------- --------- --------
Income (loss) before
income taxes (2,407) (1,086) -- (3,493)
Income tax expense -- -- -- --
-------- -------- --------- --------
Income (loss) before
extraordinary item (2,407) (1,086) -- (3,493)
Extraordinary (loss) (1,837) -- -- (1,837)
-------- -------- --------- --------
Net loss before equity
adjustment (4,244) (1,086) -- (5,330)
Equity income (loss) in
subsidiaries (1,086) -- 1,086 --
-------- -------- --------- --------
Net loss (5,330) (1,086) 1,086 (5,330)
Preferred stock dividend 842 -- -- 842
-------- -------- --------- --------
Net income (loss)
attributable to common
stockholders $ (6,172) $ (1,086) $ 1,086 $ (6,172)
======== ======== ========= ========
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For the Three Months Ended March 31, 1998
-----------------------------------------
(Unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------
Cash flows from operating
activities:
Net loss $ (4,249) $ (1,081) $ -- $ (5,330)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Extraordinary loss on
early extinguishment
of debt 1,837 -- -- 1,837
Depreciation 15 457 -- 472
Amortization 39 1,613 -- 1,652
Changes in assets and
liabilities, net of effect
of acquisitions:
Accounts receivable -- (4,997) -- (4,997)
Prepaid expenses and
other current assets (654) (645) -- (1,299)
Accounts payable and
accrued expenses 194 4,460 -- 4,654
Other assets (1,211) -- -- (1,211)
Other liabilities (25) (342) -- (367)
-------- -------- --------- --------
Net cash (used in) provided
by operating activities (4,054) (535) -- (4,589)
-------- -------- --------- --------
Cash flows from investing
activities:
Acquisitions -- (67,224) -- (67,224)
Investment in subsidiaries (67,224) -- 67,224 --
Escrow deposits on
pending acquisitions (10,523) -- -- (10,523)
Capital expenditures (273) (841) -- (1,114)
Other (292) -- -- (292)
-------- -------- --------- --------
Net cash used by investing
activities (78,312) (68,065) 67,224 (79,153)
Cash flows from financing
activities:
Contribution from parent -- 67,224 (67,224) --
Proceeds from revolving
line of credit 143,000 -- -- 143,000
Payments on revolving
line of credit (65,535) -- -- (65,535)
Proceeds from sale of
senior subordinated notes
Payments on promissory
notes (2) -- -- (2)
Proceeds from issuance
of preferred stock 16,250 -- -- 16,250
Proceeds from issuance of
common stock 14,985 -- -- 14,985
Payments for debt
issuance costs (3,113) -- -- (3,113)
-------- -------- --------- --------
Net cash provided by
financing activities 105,585 67,224 (67,224) 105,585
-------- -------- --------- --------
Increase(decrease) in
cash and cash
equivalents 23,219 (1,376) -- 21,843
Cash and cash equivalents
at beginning of period $ (1,077) $ 2,650 $ -- $ 1,573
Cash and cash equivalents
at end of period $ 22,142 $ 1,274 $ -- $ 23,416
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5. Earnings Per Share
The following table sets forth the computation of basic loss per share for
the periods ended March 31, 1999 and 1998. In order to reflect the initial
public offering on July 1, 1998, the weighted average number of shares
outstanding for the three months ended March 31, 1998 were determined after
giving effect to the exchange of the Company's shares by Cumulus Media, LLC for
the initial public offering.
1999 1998
---- ----
Numerator:
Net loss before extraordinary item ($10,094) 3,493)
Preferred stock dividend (4,545) (842)
Accretion of preferred stock discount -- --
Numerator for basic earnings per share - income -- --
--------- --------
Available for common stockholders ($14,639) ($4,335)
Denominator:
Denominator for basic earnings per
share - weighted- Average shares after
giving effect to initial public
Offering 19,737 12,509
--------- --------
Net loss per common share - before
extraordinary item ($ 1.70) ($ 0.35)
Extraordinary item -- (0.14)
--------- --------
Net loss per common share ($ 1.70) ($ 0.49)
========= ========
During fiscal 1998 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 March 31, 1999 there were options issued to purchase the
following classes of common stock:
Options to purchase class A common stock 1,120,745
Options to purchase class C common stock 2,001,380
Earnings per share assuming dilution has not been presented as the effect of the
options above would be antidilutive.
6. Commitments and Contingencies
The Company is 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.
As of March 31, 1999 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 five percent of
the purchase price, as defined by the agreements.
7. Subsequent Events
Subsequent to March 31, 1999 the Company completed acquisitions of a total of 5
radio stations located in 2 separate markets for an aggregate purchase price of
approximately $6.2 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.
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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 quarterly
report contains statements that constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements appear in a number of places in this quarterly report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers primarily with respect to the future operating
performance of the Company. Any such forward-looking statements are not
guarantees of future performance and may involve risks and uncertainties and
actual results may differ from those in the forward-looking statements as a
result of various factors (including, without limitation, risks and
uncertainties relating to leverage, the need for additional funds, the inability
of the Company to renew one or more of its broadcast licenses, changes in
interest rates, consummation of the Company's pending acquisitions, integration
of the pending acquisitions, the ability of the Company to eliminate certain
costs, the management of rapid growth, the popularity of radio as a broadcasting
and advertising medium and changing consumer tastes), many of which are beyond
the control of the Company. This discussion identifies important factors that
could cause such differences. The occurrence of any such factors not currently
expected by the Company would significantly alter the results set forth in these
statements.
A radio broadcast company's revenues are derived primarily from the sale of
advertising time to local and national advertisers. Those revenues are affected
by the advertising rates that a radio station is able to charge and the number
of advertisements that can be broadcast without jeopardizing listener levels
(and resulting ratings). Advertising rates tend to be based upon demand for a
station's advertising inventory and its ability to attract audiences in targeted
demographic groups, as measured principally by Arbitron. Radio stations attempt
to maximize revenues by adjusting rates based upon local market conditions,
controlling advertising inventory and creating demand and audience ratings.
Seasonal revenue fluctuations are common in the radio broadcasting industry and
are due primarily to fluctuations in advertising expenditures by local and
national advertisers, with revenues typically being lowest in the first calendar
quarter and higher in the second, third and fourth calendar quarters of each
year. A radio station's operating results in any period may be affected by the
occurrence of advertising and promotion expenses that do not produce
commensurate revenues in the period in which the expenditures are made. Because
Arbitron reports audience ratings on a semi-annual basis in most of the
Company's markets, a radio station's ability to realize revenues as a result of
increased advertising and promotional expenses and any resulting audience
ratings improvements may be delayed for several months.
The Company's results of operations from period to period are not historically
comparable due to the impact of the various acquisitions and dispositions that
the Company has since completed.
As of March 31, 1999, the Company owns and operates, operates, provides
programming to or sells advertising on behalf of 216 radio stations located in
41 U.S. markets. Following completion of all of its pending acquisitions, the
Company will own and operate, provide programming to or sell advertising on
behalf of 232 radio stations located in 44 U.S. markets. The Company anticipates
that it will consummate the pending acquisitions, however the closing of each
such acquisition is subject to various conditions, including FCC and other
governmental approvals, which are beyond the Company's control. No assurances
can be given that the regulatory approval will be received or that the Company
will complete the pending acquisitions on a timely basis, if at all.
In the following analysis, management discusses broadcast cash flow and EBITDA.
Broadcast cash flow consists of operating income (loss) before depreciation,
amortization, corporate expenses and noncash compensation expense. EBITDA
consists of operating income (loss) before depreciation, amortization and
noncash compensation expense. Although broadcast cash flow and EBITDA are not
measures of performance calculated in accordance with generally accepted
accounting principles ("GAAP"), management believes that they are 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, they 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.
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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 ended March
31, 1999 and 1998.
For the Three For the Three
Months Ended Months Ended
March 31, 1999 March 31, 1998
OPERATING DATA:
Net broadcast revenue $ 31,915 $ 12,500
Stations operating expenses
Excluding depreciation & amortization 26,870 10,904
Depreciation and amortization 7,584 2,748
Corporate expenses 1,674 961
Operating (loss) (4,213) (2,113)
Interest expense (net) (5,881) (1,380)
Net income (loss) attributable to common stock (14,639) (6,172)
OTHER DATA:
Broadcast cash flow (1) 5,045 1,596
Broadcast cash flow margin 15.8% 12.8%
EBITDA
(before noncash compensation expense)(2) 3,371 635
Cash flows related to:
Operating activities (11,053) (4,589)
Investing activities (31,139) (79,153)
Financing activities 29,995 105,585
Capital expenditures $ 3,215 $ 1,114
(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 MARCH 31, 1999
COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net Broadcast Revenue. Net broadcast revenue increased $19.4 million to $31.9
million for the three months ended March 31, 1999 from $12.5 million for the
three month period ending March 31, 1998. This increase was primarily
attributable to the acquisition of radio stations and revenue generated from
LMA's entered into during fiscal 1998, as well as the sale of incremental
advertising time, primarily to local advertisers for the stations owned or
operated.
For the markets where the Company has operated stations since the first quarter
of 1998 (defined as the 80 stations owned or operated in 14 U.S. markets), net
revenue increased $2.6 million or 22.6% to $14.3 million for the three months
ended March 31, 1999, compared to the prior year's three months ended March 31,
1998. This increase was primarily attributable to growth in the sale of
commercial time to local and national advertisers.
Based on the 195 stations owned or operated as of January 1, 1999, net revenue
increased $4.4 million to $30.7 million for the three month period ended March
31, 1999 from the proforma $26.2 million for the three month period ended March
31, 1998.
Station Operating Expenses excluding Depreciation & Amortization. As a result of
the factors described above, station operating expenses, excluding depreciation
and amortization, increased $16.0 million to $26.9 million for the three months
ended March 31, 1999 from $10.9 million for the three month period ended March
31, 1998. The increase was attributable to the station operating expenses of the
acquired stations and the LMA's entered into during fiscal 1998.
Corporate Expenses. As a result of the factors described above, and due to
certain personnel additions and recruiting expenses incurred during the second
half of 1998, corporate expenses increased $0.7 million to $1.7 million for the
three months ended March 31, 1999.
Other Operating Expenses. Depreciation and amortization increased $4.8 million
to $7.6 million for the three months ended March 31, 1999 from $2.7 million for
the period ended March 31, 1998 primarily due to the impact of various
acquisitions consummated during fiscal 1998.
Other Expense (Income). Interest expense, net of interest income, increased from
$1.4 million during the three months ended March 31, 1998 to $5.9 million for
the three months ended March 31, 1999 primarily due to (i) additional borrowings
under the Company's term loan facility to finance acquisitions and (ii) the
issuance of the 10 3/8% Senior Subordinated Notes on July 1, 1998 in connection
with the Company's initial public offering.
Net Income (Loss) Attributable to Common Stock. As a result of the factors
described above and the accrual of dividends on the Company's issued and
outstanding preferred stock; net loss attributable to common stock increased
$8.5 million to $14.6 million for the three months ended March 31, 1999 from
$6.2 million for the three month period ended March 31, 1998.
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Broadcast Cash Flow. Broadcast cash flow increased $3.4 million to $5.0 million
for the three months ended March 31, 1999 from $1.6 million for the three month
period ended March 31, 1998. The increase was primarily due to acquisitions of
radio stations and cash flow generated from LMA's entered into during fiscal
1998, as well as net overall operational improvements realized by the Company.
The broadcast cash flow margin was 15.8% for the three months ended March 31,
1999.
EBITDA (before noncash compensation expense). As a result of the factors
described above, EBITDA increased $2.7 million to $3.4 million for the three
months ended March 31, 1999 from $0.6 million for the three month period ended
March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999, net cash used in operations increased
$6.5 million to $11.1 million from net cash used in operations of $4.6 million
for the three month period ended March 31, 1998, primarily due to the investment
in working capital and other current assets made in connection with acquisitions
completed during fiscal 1998.
Net cash used in investing activities decreased $48.0 million to $31.1 million
from $79.2 million in the three month period ended March 31, 1998, primarily due
to less acquisition activity during the first quarter of 1999 as compared with
the same period in fiscal 1998.
For the three months ended March 31, 1999, net cash provided from financing
activities was $30.0 million compared to $105.6 million during the three month
period ended March 31, 1998. The level of financing activity during the three
month period ended March 31, 1998 was the result of initial borrowings under the
Company's credit facility as well as capital contributions from Cumulus Media,
LLC, the Company's immediate parent prior to the consummation of the offerings.
In addition to acquisitions and debt service, the Company's principal liquidity
requirements will be for working capital and general corporate purposes,
including capital expenditures. Management believes that cash from operating
activities and revolving loans under the Company's credit facility should be
sufficient to permit the Company to fund its operations for at least the next 12
months, although additional capital resources may be required in connection with
the Company's acquisition plan. The Company is currently reviewing its capital
needs and researching various financing alternatives.
Subsequent to March 31, 1999, the Company completed acquisitions of 5 radio
stations in 2 separate markets for an aggregate purchase price of approximately
$6.2 million. These transactions will be accounted for by the purchase method of
accounting.
The Company has also entered into various agreements to acquire 49 stations in
17 markets for an aggregate purchase price of approximately $114.7 million.
The Company's senior credit facility, as amended most recently as of April 14,
1999 and May 5, 1999 (the "Credit Facility"), provides for a revolving credit
line of $25.0 million until March 2, 2006, and 2 eight-year term loan facilities
of $62.5 million. Under the terms of the Credit Facility, the Company drew down
$62.5 million of term loan facility upon the closing of the offerings on July 2,
1998. In addition, during the first quarter of 1999, the Company drew down an
additional $30.0 million in term facility. The proceeds of the borrowings under
the Credit Facility have been used to finance acquisitions and repay the
Company's outstanding indebtedness under its previous credit facility, and to
secure outstanding letters of credit issued under its previous credit facility.
As of the filing date, the Company was in negotiations with its existing lender
regarding a new credit facility. In connection with these negotiations, the
existing credit facility was amended to modify certain restrictive financial and
operating covenants. The Company expects to have negotiations for a new credit
facility concluded by June 30, 1999.
The Company's obligations under the Credit Facility are secured by substantially
all of its assets in which a security interest may lawfully be granted
(including FCC licenses held by the Company's subsidiaries). The obligations
under the Credit Facility are also guaranteed by each of the domestic
subsidiaries of the Company and are required to be guaranteed by any additional
subsidiaries acquired by the Company.
Both 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 the Credit Facility) plus a margin ranging between 0.50% to
1.75% or the Eurodollar Rate (as defined under the terms of the credit facility)
plus a margin ranging between 1.50 to 2.75% (in each case dependent upon the
leverage ratio of the Company). As of March 31, 1999, the Company's effective
interest rate on amounts outstanding under the credit facility during the
quarter was 8.00%.
The revolving credit and term loan borrowings are repayable in quarterly
installments beginning in 2000, subject to mandatory prepayment in certain
circumstances. The scheduled annual amortization of the term loans is $2.0
million in each of the years 2000 through 2002, $10.0 million in 2003, $20.0
million in 2004, $69.0 million in 2005, and $20.0 million at maturity. The
scheduled annual reduction in availability under the revolving credit loans is
$7.5 million in each of the years 2003 through 2005, and $2.5 million in 2006.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the
Costs of Start-Up Activities." SOP 98-5, effective for 1999, requires
organization costs to be expensed as incurred. The Company's adoption of SOP
98-5 in the first quarter of 1999 had an immaterial effect on the results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement 133 standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. The Company has not engaged in any derivative or hedging
transactions. As a result, we do not anticipate that the adoption of the this
new Statement will have a significant effect on our earnings or financial
position. Statement 133 is required to be adopted in years beginning after June
15, 1999.
YEAR 2000 RISK
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the Year
2000. This could cause a system failure or miscalculation in the Company's
broadcast and corporate
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locations which could cause disruptions of operations, including, among other
things, a temporary inability to produce broadcast signals, process financial
transactions, or engage in similar normal business activities.
Based on recent system evaluations, surveys, and ongoing, on-site inventories,
the Company determined that it will be required to modify or replace portions of
its software and certain hardware so that those systems will properly utilize
dates beyond December 31, 1999. The Company presently believes that with
modifications or replacements or existing software and certain hardware, the
Year 2000 issue can be mitigated. If such modifications and replacements are not
made, or are not completed in time, the Year 2000 issue could have a material
impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the identification
and assessment of the existing problem, plan of remediation, as well as a
testing and implementation plan. To date, the Company has substantially
completed the identification and assessment process, with the following
significant financial and operational components identified as being affected by
the Year 2000 issue:
Computer hardware running critical financial and operational software
that is not capable of recognizing a four-digit code for the applicable
year.
The Company's advertising inventory management software responsible for
managing, scheduling and billing customer's broadcast advertising
purchases.
Broadcast studio equipment and software necessary to deliver radio
programming.
Corporate financial accounting and information system software
Significant non-technical systems and equipment that may contain
microcontrollers which are not Year 2000 compliant are being identified
and addressed if deemed critical.
The Company has instituted the following remediation plan to address the Year
2000 issues:
A computer hardware replacement plan for computers running essential
broadcast, operational and financial software applications with Year 2000
compatible computers has been instituted. As of March 31, 1999
approximately 75% of all essential computers related to broadcast or
studio equipment are Year 2000 compliant. Approximately 95% of all
essential financial based computers areYear 2000 compliant. The Company
anticipates this replacement plan to be 100% complete by the end of the
third quarter in 1999.
Software upgrades or replacement of advertising inventory management
software which is Year 2000 compliant have been planned, are in process,
or have been completed as of March 31, 1999. The Company has received
assurances from its software vendors that supply the Company's
advertising inventory management software that this software is Year 2000
compliant with a few minor exceptions. For these non-compliant vendors,
the Company will install inventory management software from a compliant
vendor by the end of the third quarter of 1999. Approximately 80% of the
broadcast properties have Year 2000 compliant advertising inventory
management software as of March 31, 1999.
The Company has received assurances from its software vendors that supply
broadcasting digital automation systems that the software used by the
Company is currently compliant or has upgrades currently available that
are compliant. Broadcast software and studio equipment is considered to
be 80% compliant as of March 31, 1999 and is anticipated to be 100%
compliant by the third quarter of 1999. Financial accounting software for
the broadcast segment has been replaced and is Year 2000 compliant.
While the Company believes its efforts will provide reasonable assurance that
material disruptions will not occur due to internal failure, the possibility of
interruption still exists. The Company is currently querying other significant
vendors that do not share information systems with the Company (external
agents). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. The inability of external agents
to complete their Year 2000 resolution process is a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
In the ordinary course of business, the Company has acquired or plans to acquire
the necessary Year 2000 compliant hardware and software. These purchases are
part of specific operational and financial system enhancements with completion
dates during 1998 and early 1999 that were planned without specific regard to
the Year 2000 issue. These system enhancements resolve many Year 2000 problems
and have not been delayed as a result of any additional efforts addressing the
Year 2000 issue. Accordingly, these costs have not been included as part of the
costs of Year 2000 remediation. However, there are several hardware and software
expenditures that have been or will be incurred to specifically remediate Year
2000 non-compliance. Incremental hardware and software costs that the Company
has attributed to the Year 2000 issue are estimated to be less than $1.5
million. The majority of these expenditures will have been incurred by September
30, 1999. Of this cost, approximately 10% will be expensed as modification or
upgrade costs with the remaining costs being capitalized as new hardware or
software. Sources of funds for these expenditures will be supplied through cash
flow generated from operations and/or available borrowings from our credit
facility.
The Company's accounting policy is to expense costs incurred due to maintenance,
modification or upgrade costs and to capitalize the cost of new hardware and
software. The Company believes that they have an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete any additional phases, it could experience
disruptions in its operations, including among other things, a temporary
inability to produce broadcast signals, process financial transactions, or
engage in similar normal business activities. In addition, disruptions in the
economy generally resulting from the Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems failures, equipment shutdowns or failure to properly date
business records. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time. The Company currently has no contingency
plans in place in the event it does not complete all phases of the Year 2000
program. The Company plans to evaluate the status of completion in June 1999 and
determine whether such contingency plans are necessary.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 1999, approximately 37% 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 $0.9 million. 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,
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such analysis would not consider the effects of the change in the level of
overall economic activity that could exist in such an environment.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No items to report.
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.
Item 6. Exhibits
(a) Exhibits
27.1 Financial Data Schedule
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: May 14, 1999 By: /s/ Richard J. Bonick
-------------------------------
Richard J. Bonick
Principal Financial and
Accounting Officer
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