United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998.
OR
|_| 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 (I.R.S. I.D. No.)
of Incorporation or Organization)
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 October 31, 1998, the registrant had
outstanding 19,737,197 shares of common stock
consisting of (i) 8,575,504 shares of Class A Common
Stock; (ii) 8,785,416 shares of Class B Common Stock;
and (iii) 2,376,277 shares of Class C Common Stock.
<PAGE>
CUMULUS MEDIA INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997
Consolidated Statements of Operations for the
three and nine months ended September 30, 1998;
for the three month period ending September 30,
1997, and the period from inception on May 22,
1997 to September 30, 1997
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and the
period from inception on May 22, 1997 to
September 30, 1997
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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Cumulus Media Inc.
Consolidated Balance Sheets
(Dollars in thousands, except for share data)
September 30, December 31,
1998 1997
(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 40,179 $ 1,573
Accounts receivable, less allowance for doubtfuls
accounts of $725 and $125 respectively 27,592 5,241
Prepaid expenses and other current assets 3,793 288
Total current assets 71,564 7,102
Property and equipment, net 38,432 8,120
Intangible assets, net 391,036 90,217
Other assets 22,107 5,002
Total assets $523,139 $110,441
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued expenses $ 21,982 $ 3,643
Current portion of long-term debt 32 12
Other current liabilities -- 195
Total current liabilities 22,014 3,850
Long-term debt
Credit Facility and other long term debt,
excluding current portion 62,999 42,789
Notes 160,000 --
Other liabilities 1,406 400
Deferred income taxes 14,894 --
Total liabilities 261,313 47,039
Preferred stock subject to mandatory
redemption, stated value $10,000 per share,
12,000 shares authorized, 1,625 shares outstanding -- 13,426
Series A Cumulative Exchangeable Redeemable Preferred
Stock due 2009, Stated value $1,000 per share,
129,296 shares outstanding 129,296 --
Commitments and contingencies (Note 10)
Stockholder's equity:
Class A common stock, par value $.01 per share;
50,000,000 shares authorized; 8,575,505 shares
outstanding 86 --
Class B common stock, par value $.01 per share;
20,000,000 shares authorized; 8,785,416 shares
outstanding 88 --
Class C common stock, par value $.01 per share;
30,000,000 shares authorized; 2,376,277 shares
outstanding 24 --
Common stock, $.01 par value; authorized 10,000
shares; issued 1,000 shares -- --
Additional paid-in-capital 146,708 53,549
Accumulated other comprehensive income 5 5
Accumulated deficit (14,381) (3,578)
Total stockholder's equity 132,530 49,976
Total liabilities and stockholder's equity $523,139 $110,441
<PAGE>
Cumulus Media Inc.
Consolidated Statements of Operations
(Dollars in thousands, except for share data)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
Revenues $ 31,495 $ 69,432
Less: agency commissions (2,752) (6,307)
Net revenues 28,743 63,125
Operating expenses:
Station operating expenses, excluding
depreciation and amortization 19,961 47,236
Depreciation and amortization 6,075 12,976
Corporate general and administrative
expenses 1,664 3,895
Operating expenses 27,700 64,107
Operating income (loss) 1,043 (982)
Nonoperating income (expense):
Interest expense (5,500) (9,749)
Interest income 1,434 1,789
Other income (expense), net -- (2)
Nonoperating expenses, net (4,066) (7,962)
Loss before income taxes (3,023) (8,944)
Income tax expense (1) (22)
Loss before extraordinary item (3,024) (8,966)
Extraordinary loss of early
extinguishment of debt -- (1,837)
Net loss (3,024) (10,803)
Preferred stock dividend and accretion
of discount 7,220 9,146
Net loss attributable to common
stockholders $ (10,244) $ (19,949)
Basic and diluted loss per share $ (.53) $ (1.02)
Average shares outstanding 19,467 19,467
<PAGE>
Cumulus Media Inc.
Consolidated Statements of Operations (Continued)
(Dollars in thousands, except for share data)
(Unaudited)
For the period
Three Months from inception on
Ended May 22, 1997 to
September 30, 1997 September 30, 1997
Revenues $ 1,700 $ 1,784
Less: agency commissions (148) (150)
Net revenues 1,552 1,634
Operating expenses:
Station operating expenses, excluding
depreciation and amortization 1,143 1,439
Depreciation and amortization 365 443
Corporate general and administrative 274 411
Operating expenses 1,782 2,293
Operating income (loss) (230) (659)
Nonoperating income (expense):
Interest expense (108) (108)
Interest income 42 50
Other income (expense), net 40 16
Nonoperating expenses, net (26) (42)
Loss before income taxes (256) (701)
Income tax expense -- --
Net loss (256) (701)
Net loss attributable to common
stockholders $ (256) $ (701)
Basic and diluted loss per share $ (256) $ (701)
Average shares outstanding 1,000 1,000
See Notes to Consolidated Financial Statements
<PAGE>
Cumulus Media Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
For the period
Nine Months from inception on
Ended May 22, 1997 to
September 30, 1998 September 30, 1997
Cash flows from operating activities:
Net loss $ (10,803) $ (701)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary loss on early
extinguishement of debt 1,837
Depreciation 2,18 157
Amortization of goodwill, intangible
assets and other assets 8,645 285
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable (20,921) (1,084)
Prepaid expenses and other current assets (3,505) (178)
Accounts payable and accrued expenses 18,002 700
Other assets (152) (558)
Other liabilities (227) 37
Net cash used in operating activities (4,937) (1,342)
Cash flows from investing activities:
Acquisitions (324,287) (35,315)
Escrow deposits on pending acquisitions (8,063) (4,838)
Capital expenditures (3,541) (250)
Other 36 --
Net cash used by investing activities (335,855) (40,403)
Cash flows from financing activities:
Net proceeds from revolving line of credit 175,000 16,630
Proceeds from sale of senior subordinated notes 160,000 --
Payments on revolving line of credit (155,035)
Payments on promissory notes (14) --
Proceeds from issuance of common stock, net of
equity costs 107,352 26,743
Net proceeds from issuance of preferred stock 101,875 --
Payments for debt issuance costs (9,780) (760)
Net cash provided by financing activities $ 379,398 $ 42,613
Increase in cash and cash equivalents 38,606 868
Cash and cash equivalents at beginning of period 1,573 --
Cash and cash equivalents at end of periOd $ 40,179 $ 868
Supplemental disclosures of cash information:
Interest paid $ 4,718 $ 108
Non-cash operating and financing activities:
Trade revenue 3,922 54
Trade expense 3,851 50
Assets acquired through notes payable $1,515 $ --
See Notes to Consolidated Financial Statements
<PAGE>
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") for the period from inception on May 22,
1997 to December 31, 1997, including the notes thereto,
included in the Company's Registration Statement on
Form S-1 (No. 333-48849). The accompanying unaudited
financial statements have been prepared in accordance
with generally accepted accounting principles for
interim financial information and with Rule 10-01 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 for the three months and nine
months ended September 30, 1998 and cash flows for the
nine months ended September 30, 1998 are not
necessarily indicative of the results that can be
expected for the entire fiscal year ending December 31,
1998.
2. Initial Public Offering
On July 1,1998, the Company completed its initial
public offering of common and preferred stock and debt
totaling $391.0 million. The common stock offering was
for 7,598,572 shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), including
6,428,572 shares sold by the Company and 1,170,000
shares sold by State of Wisconsin Investment Board. Of
the 7,598,572 shares of Class A Common Stock sold,
1,519,714 shares were sold in an offering outside the
U.S. and Canada and 6,078,858 shares were sold in a
concurrent offering in the United States and Canada. In
addition, on July 31, 1998 the underwriters exercised a
portion of the over-allotment options and the Company
sold an additional 800,000 shares of Class A Common
Stock for net proceeds to the Company of $10.4 million.
These offerings are collectively referred to as the
"Stock Offering." Concurrently with the Stock Offering,
the company sold in a preferred stock offering (the
"Preferred Stock Offering") $125.0 million of 13 3/4%
Series A Cumulative Exchangeable Redeemable Preferred
Stock Due 2009 (the "Series A Preferred Stock")
approximately $34.5 million of which was sold directly
by the Company to The Northwestern Mutual Life
Insurance Company at a purchase price equal to the
price to the public (as described below) and $160.0
million of 10 3/8 % Senior Subordinated Notes Due 2008
(the "Notes") (the "Debt Offering" and, together with
the stock Offerings and the Preferred Stock Offering,
the "Offerings").
Immediately prior to the completion of the Offerings,
(i) all shares of the Company's 12% Class A Cumulative
Preferred Stock which were held by The Northwestern
Mutual Life Insurance Company (the "NML Preferred
Stock") plus all accrued and unpaid dividends thereon
as of the exchange date were exchanged for shares of
Series A Preferred Stock having an equivalent aggregate
liquidation value; and (ii) Cumulus Media LLC, the
Company's parent prior to the consummation of the
Offerings ("Media LLC") was liquidated and the Shares
of Class A Common Stock, Class B Common Stock and Class
C Common Stock of the Company held by Media LLC was
distributed by Media LLC to its members in liquidation
(the "Reorganization").
Prior to the completion of the Offerings, the Company
financed its acquisitions primarily through private
equity financing and borrowings under a credit
agreement (the "Old Credit Agreement"). In March 1998,
the Company entered into a $190.0 million senior credit
facility (the "Credit Facility"). The Credit Facility
was amended as of May 1, 1998, as of June 24, 1998, and
most recently as of June 26, 1998, to provide for a
revolving credit line of $25.0 million until March
2,2006 and an eight-year term loan facility of $125.0
million. Under the terms of the Credit Facility, the
Company drew down $62.5 million of the term facility
upon the closing of the Offerings.
<PAGE>
Cumulus Media Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except for per share data)
(Unaudited)
3. Acquisitions and Disposition:
The Company completed the following acquisitions of
radio stations for cash during the nine months ended
September 30, 1998:
Markets and Stations Acquisition Date Purchase Price (1)
Columbus, Georgia
M & M Partners
(WVRK-FM, WGSY-FM,
WPNX-AM and WMLF-AM) January 6, 1998 $13,184
Minority Radio Associates
(WAGH-FM) March 17, 1998 $2,054
Tallahassee, Florida
Tally Radio, L.C.
QMNLD-FM) January 16, 1998 $1,200
HVS Partners
(WBZE-FM, WHBT-AM and WHBX-FM) January 16, 1998 $15,610
Toledo, Ohio
Venice Broadcasting Corp.
(WXKR-FM) January 27, 1998 $5,009
Salisbury, Maryland
Connor Broadcasting Corporation
(WSBY-FM and WJDY-AM) February 11, 1998 $1,361
WWFG-FM and WOSC-FM
(WOSC-FM, WWFG-FM) July 7, 1998 $7,564
Ann Arbor, Michigan
Arbor Radio LP
(WIQB-FM, WQKL-FM, WTKA-AM
and WDEO-AM) March 2, 1998 $15,317
Myrtle Beach, South Carolina
Carolina Broadcasting, Inc.
(WJXY-AM and WJXY-FM) March 16, 1998 $2,307
Seacoast Radio Company, LLC
WDAI -FM
Sunny Broadcasters, Inc.
(WSNY-FM) March 25, 1998 $8,229
WSEA Inc.
(WSEA-FM) July 31, 1998 $1,346
Florence, South Carolina
Forjay Broadcasting Corporation
(WYNN-FM and WYNN-AM) March 23, 1998 $4,393
GHB Broadcasting
(WHSC-AM and WHSC-FM) May 1, 1998 $705
Amarillo, Texas
Heritage Communications
(KZRK-AM and KZRK-FM) April 1,1998 $1,032
West Jewel
(KARX-FM) April 8, 1998 $888
Wiskes -Abaris
(KQIZ-FM) April 30, 1998 $3,207
Westwind
(KPUR-FM and KPUR-AM) June 9, 1998 $829
Augusta, Georgia
Savannah Valley Broadcasting Radio Properties
(WBBQ-AM AND WBBQ-FM) April 1, 1998 $10,206
WLOV P&T Broadcasting
(WLOV-FM AND WLOV-AM) August 14, 1998 $533
Abilene, Texas
IQ Radio, Inc.
(KHXS-FM) April 7, 1998 $385
Big Country Broadcasting
(KBCY-FM and KCDD-FM) April 15, 1998 $2,004
Esprit Communications Co.
(KFQX-FM) August 14, 1998 $1,695
Beaumont, Texas
Beaumont Skywave, Inc.
(KTCX-FM) May 15, 1998 $3,804
Ninety-Four Point One, Inc.
(KAYD-FM, KAYD-AM, KQXY-FM,
KQHN-AM) May 15, 1998 $11,654
Dubuque, Iowa
KIKR, Inc.
(KIKR-FM) June 3, 1998 $1,350
Communications Properties, Inc.
(KLYV-FM, KXGE-FM, WJOD-FM,
WDBQ-AM) September 15, 1998 $6,045
Odessa-Midland, Texas
New Frontier Communications, Inc.
(KBAT-FM, KODM-FM, KNFM-FM,
KGEE-FM, KMND-AM) July 2, 1998 $14,534
Chattanooga, Tennessee
Republic Corporation
(WUSY-FM) July 2, 1998 $20,931
Chattanooga Broadcasting Group
(WLMX-FM, WLMX-AM, WZST-FM) July 31, 1998 $6,000
Montgomery, Alabama
Republic Corporation
(WMSP-AM, WNZZ-AM, WMXS-FM
and WLWI-FM) July 2, 1998 $21,016
Marion - Carbondale, Illinois
Clearly Superior Radio Properties, LLC
(WDDD-FM, WDDD-AM, WFRX-AM,
WTAO-FM, WVZA-FM, WQUL-FM) July 2, 1998 $12,753
Savannah, Georgia
Lewis Broadcasting
(WJCL) July 6, 1998 $7,421
Savannah Communications, L.P.
(WIXV-FM, WSGF-FM, WBMQ-AM) July 31, 1998 $5,268
Ocmulgee Broadcasting Co., Inc.
(WEAS-FM, WEAS-AM) September 24, 1998 $5,206
Phoenix Broadcast Partners
(WZAT-FM) September 30, 1998 $3,518
Grand Junction, Colorado
Jan-Di Broadcasting, Inc.
(KBKL-FM, KEKB-FM, KMXY-FM) July 8, 1998 $6,300
Bangor, Maine
Castle Broadcasting, L.P.
(WQCB-FM AND WBZN-FM) July 10, 1998 $6,604
Monroe, Michigan
Lesnick Communications, Inc.
(WTWR-FM) July 23, 1998 $3,353
Lake Charles, Louisiana
Louisiana Media Interests, Inc.
(KKGB-FM, KBIU-FM, KYKZ-FM, KXZZ-AM)
July 24, 1998 $16,346
Kalamazoo, Michigan
Crystal Radio Group, Inc.
(WKFR-FM, WRKR-FM, WKMI-AM) July 31, 1998 $14,138
Bismarck, North Dakota
JKJ Broadcasting, Inc. Missouri River
Broadcasting, Inc., Ingstad Mankato,
Inc., James Ingstand Broadcasting, Inc.,
And Hometown Wireless, Inc.
(KBYZ-FM, KACL-FM, KKCT-FM,
KLXX-AM) August 14, 1998 $7,030
New Ulm - Springfield - Marshall, Minnesota
JKJ Broadcasting, Inc., Missouri River
Broadcasting, Inc., Ingstad Mankato, Inc.,
James Ingstad Broadcasting, Inc.,
and Hometown Wireless, Inc.
(KNUJ-FM, KNUJ-AM, KNSG-FM) August 14, 1998 $5,351
Waseca, Minnesota
JKJ Broadcasting, Inc., Missouri River
Broadcasting, Inc., Ingstad Mankato, Inc.,
James Ingstad Broadcasting,Inc.,
and Hometown Wireless, Inc.
(KOWO-AM, KRUE-FM) August 14, 1998 $2,380
Owatonna, Minnesota
JKJ Broadcasting, Inc., Missouri River
Broadcasting, Inc., Ingstad Mankato, Inc.,
James Ingstad Broadcasting, Inc.,
and Hometown Wireless, Inc.
(KRFO-FM, KRFO-AM) August 14, 1998 $2,380
Mankato, Minnesota
JKJ Broadcasting, Inc., Missouri River
Broadcasting, Inc., Ingstad Mankato, Inc.,
James Ingstad Broadcasting, Inc.,
and Hometown Wireless, Inc.
(KXLP-FM, KYSM-AM, KYSM-FM) August 14, 1998 $11,044
Mason City, Iowa
JKJ Broadcasting, Inc., Missouri River
Broadcasting, Inc., Ingstad Mankato, Inc.,
James Ingstad Broadcasting, Inc.,
And Hometown Wireless, Inc.
(KCHA-FM, KGLO-AM, KIAI-FM,
KLKK-FM) August 14, 1998 $11,295
Faribault, Minnesota
Radio Ingstad Minnesota, Inc., Radio Albert Lea,
Inc., and KRCH of Minnesota
(KRCH-FM, KWEB-AM, KMFX-FM,
KMFX-AM) August 14, 1998 $4,088
Rochester, Minnesota
Radio Ingstad Minnesota, Inc., Radio Albert Lea,
Inc., and KRCH of Minnesota
(KRCH-FM, KWEB-AM, KMFX-FM,
KMFX-AM) August 14, 1998 $6,133
Topeka, Kansas
Midland Broadcasters, Inc.
(KMAJ-FM, KMAJ-AM, KDVV-FM,
KTOP-AM) September 30, 1998 $10,781
TOTAL $325,781
<PAGE>
Cumulus Media Inc.
Notes to Acquisitions and Disposition (Continued)
(Dollars in thousands, except for per share data)
(Unaudited)
(1) Includes acquisition related costs.
The aforementioned acquisitions were accounted for
by the purchase method of accounting. As such, the
accompanying consolidated September 30, 1998 balance
sheet includes the acquired assets and liabilities and
the consolidated statements of operations for the three
and nine months ended September 30, 1998 include the
results of operations of the acquired entities from
their respective dates of acquisition.
An allocation of the purchase prices to the
estimated fair values of the assets acquired and
liabilities assumed is presented below.
Current assets, other than cash $ 1,429
Property and equipment 29,023
Intangible assets 310,360
Current liabilities (137)
Other liabilities (14,894)
$ 325,781
The unaudited consolidated condensed pro forma
results of operations data for the nine months ended
September 30, 1998 as if the acquisitions had occurred
on January 1, 1998 follows:
Net revenues $ 84,410
Operating loss $ (1,644)
Net loss $ (20,003)
Net loss attributable to
common stockholders $ (32,893)
Basic loss per common share
(in dollars) $ (1.67)
Escrow funds of approximately $10.1 million paid by
the Company in connection with transactions completed
subsequent to September 30, 1998 and for transactions
which the Company has signed an agreement for the
purchase of an entity have been classified as other
assets at September 30, 1998 in the accompanying
consolidated balance sheet.
During the nine months ended September 30, 1998, the
Company operated the following stations under local
marketing agreements ("LMA"):
Market and Stations LMA Effective Date
Green Bay, Wisconsin
American Communications Co.
(WJLW-FM) February 15, 1998
Brillion Radio Company
(WEZR-FM) February 15, 1998
Augusta, Georgia
Savannah Valley Broadcasting Radio Properties
(WBBQ-AM and WBBQ-FM) September 4, 1997
Salisbury, Maryland
WWFG-FM and WOSC-FM
(WWFG-FM and WOSC-FM) February 1, 1998
Tallahassee, Florida
HVS Partners
(WHBX-FM, WBZE-FM and WHBT-AM) August 18, 1997
Tally Radio, L.C.
(WWLD-FM) August 18, 1997
Tallahassee Broadcasting, Inc.
(WGLF-FM) August 18, 1997
Abilene, Texas
Big Country Broadcasting
(KBCY-FM and KCDD-FM) November 1, 1997
10 Radio, Inc.
(KHXS-FM) November 1, 1997
I-Q Radio, Inc.
(KFOX-FM) April 1, 1998
Amarillo, Texas
Westwind
(KPUR-FM and KPUR-AM) January 1, 1998
Heritage Communications
(KZRK-FM and KZRK-AM) January 1, 1998
West Jewel
(KARX-FM) January 1, 1998
Wiskes -Abaris
(KQIZ-FM) February 15, 1998
Odessa-Midland, Texas
New Frontier Communications, Inc.
(KGEE-FM, KODM-FM, KNFM-FM, KMND-AM and
KBAT-FM) January 1, 1998
Marion Carbondale, Illinois
Clearly Superior Radio Properties
(WDDD-FM, WDDD-AM, WTAO-FM, WVZA-FM,
WQUL-FM and WFRX-AM) January 1, 1998
Columbus, Georgia
Minority Associates
(WAGH-FM) January 1, 1998
Savannah, Georgia
Savannah Communications, L.P.
(WBMQ-AM, WIXV-FM and WSGF-FM) January 1, 1998
WJCL-FM
(WJCL-FM) January 1, 1998
Phoenix Broadcast Partners, Inc.
(WZAT-FM) March 16, 1998
Beaumont, Texas
Beaumont Skywave, Inc.
(KTCX-FM) February 15, 1998
Myrtle Beach, South Carolina
Carolina Broadcasting, Inc.
(WXJY-FM) March 16, 1998
Florence, South Carolina
Clarendon County Broadcasting
(WHLZ-FM, WYMB-AM) March 18, 1998
Pamplico Broadcasting, L.P.
(WBZF-FM, WMXT-FM, (WWFN-FM) March 16, 1998
Montgomery, Alabama
Republic Corporation
(WMSP-AM, WNZZ-AM, WMXS-FM
and WLWI-FM) February 11, 1998
McDonald Media Group, Inc.
(WHHY-AM, WJCC-FM, WXFX-FM) August 17, 1998
Chattanooga, Tennessee
Republic Corporation
(WUSY-FM) February 11, 1998
Marson Broadcasting, Inc.
(WKXJ-FM) July 1, 1998
Augusta, Georgia
P&T Broadcasting, Inc.
(WLOV-AM, WLOV-FM) April 1, 1998
Dubuque, Iowa
KIKR, INC.
(KIKR-FM) April 1, 1998
Albany, Georgia
Brooks Broadcasting Co.
(WKAK-FM, WEGC-FM, WALG-AM,
WJAD-FM) April 1, 1998
Albany Broadcasting Co.
(WGPC-FM and WGPC-AM) June 1, 1998
Williams Communications Systems, Inc.
(WQVE-FM) July 2, 1998
Monroe, Michigan
Lesnick Communications, Inc.
(WTWR-FM) April 1, 1998
Florence, South Carolina
Nautical Broadcasting
(WCMG-FM) April 1, 1998
Myrtle Beach, South Carolina
Blue Dolphin of South Carolina, Inc.
(WSEA-FM) April 1, 1998
Columbus - Starksville, Mississippi
Charisma Communications
(WSSO-AM, WMXU-FM, WSMS-FM, WKOR-FM,
WKOR-AM, WMSU-FM) September 30, 1998
Tupelo, Mississippi
Charisma Communications
(WESE-FM, WTUP-AM, WNRX-AM,
WWZD-FM) September 30, 1998
The statements of operations for the three and nine
months ended September 30, 1998 include 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 the earlier of the
acquisition date or September 30, 1998.
Cumulus Media Inc.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except for per share data)
(unaudited)
4. Guarantor's Financial Information
The Company has registered and issued the Notes under
the Securities Act of 1933, as amended (the Act).
Pursuant to the terms of the indenture governing the
Notes, all of the direct and indirect subsidiaries (all
such subsidiaries are directly or indirectly wholly-
owned by the Company) of the Company (the "Guarantor
Subsidiaries") provided full and unconditional senior
subordinated guarantees of the 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 include 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 has determined that
such information is not material to investors.
As of September 30, 1998
(unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
Current assets $ 34,224 $ 37,340 $ -- $ 71,564
Property and equipment, net 678 37,754 -- 38,432
Investment in subsidiaries 436,326 554 (436,880) --
Intangible assets, net -- 391,036 -- 391,036
Other assets 20,606 1,501 -- 22,107
Total assets 491,834 468,185 (436,880) 523,139
Current liabilities 8,901 13,098 15 22,014
Long-term debt, excluding
current portion 222,999 -- -- 222,999
Other liabilities 2,051 11,272 (11,917) 1,406
Deferred income taxes -- 14,894 -- 14,894
Total liabilities 233,951 39,264 (11,902) 261,313
Preferred stock 129,296 -- -- 129,296
Stockholder's equity 128,587 428,921 (424,978) 132,530
Total liabilities and
stockholder's equity $491,834 $468,185 $(436,880) $523,129
For the Nine Months Ended September 30, 1998
(unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
Net revenues $ -- $ 63,125 $ -- $ 63,125
Operating expenses 4,498 59,609 -- 64,107
Operating income (loss) (4,498) 3,516 -- (982)
Net interest, income (expense)
and other (7,937) (25) -- (7,962)
Income (Loss) before income
taxes (12,435) 3,491 -- (8,944)
Income tax expense (21) (1) -- (22)
Income (Loss) before
extraordinary item (12,456) 3,490 -- (8,966)
Extraordinary loss (1,837) -- -- (1,837)
Net loss before equity
adjustment (14,293) 3,490 -- (10,803)
Equity Income (loss) in
subsidiaries 3,490 -- (3,490) --
Net loss (10,803) 3,490 (3,490) (10,803)
Preferred stock dividend 9,146 -- -- 9,146
Net loss attributable to
common stockholders $ (19,949) $ 3,490 $(3,490) $(19,949)
<PAGE>
Cumulus Media Inc.
Notes to Consolidated Finacial Statements (continued)
(Dollars in thousands, except for per share data)
(unaudited)
For the Nine Months
Ended September 30, 1998
(unaudited)
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
Cash flows from operating activities:
Net cash (used in) provided
by operating activities $ (16,072) $ 11,135 $ -- $ (4,937)
Cash flows from investing activities:
Acquisitions -- (324,287) -- (324,287)
Investment in subsidiaries (324,287) -- 324,287 --
Escrow deposits on pending
acquisitions (8,063) -- -- (8,063)
Other (373) (3,132) -- (3,505)
Net cash (used in) provided
by investing activities (332,723) (327,419) 324,287 (335,855)
Cash flows from financing
activities:
Net proceeds from revolving
line of credit and other
debt 10,171 -- -- 10,171
Proceeds from Senior notes 160,000 -- -- 160,000
Contribution from parent -- 324,287 (324,287) --
Proceeds from issuance of
preferred stock 101,875 -- -- 101,875
Proceeds from issuance of
common stock 107,352 -- -- 107,352
Net cash (used in) provided by
financing activities 379,398 324,287 (324,287) 379,398
Increase in cash 30,603 8,003 -- 38,606
Cash beginning of period 1,080 493 -- 1,573
Cash end of period 31,683 8,496 -- 40,179
As of December 31, 1997
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
Current assets $ 3,588 $ 3 ,514 $ -- $ 7,102
Property and equipment, net 317 7,803 -- 8,120
Investment in subsidiaries 101,732 40 (101,772) --
Intangible assets, net -- 90,217 -- 90,217
Other assets 2,706 2,296 -- 5,002
Total assets $108,343 $103,870 $(101,772) $110,441
Current liabilities $ 1,869 $ 1,981 $ -- $ 3,850
Long-term debt, excluding current
portion 42,789 -- -- 42,789
Other liabilities 286 2,269 (2,155) 400
Total liabilities 44,944 4,250 (2,155) 47,039
Preferred stock 13,426 -- -- 13,426
Stockholder's equity 49,973 99,620 (99,617) 49,976
Total liabilities and stockholder's
Equity $108,343 $103,870 $(101,772) $110,441
<PAGE>
Cumulus Media Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except for per share data)
(Unaudited)
For the Period from Inception on
May 22, 1997 to September 30, 1997
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
Net revenues $ -- $ 1,634 $ -- $ 1,634
Operating expenses 429 1,864 -- 2,293
Operating income (loss) (429) (230) -- (659)
Net interest income
(expense) and other (101) 59 -- (42)
Income (loss) before
income taxes (530) (171) -- (701)
Income tax expense -- -- -- --
Income (loss) before
extra (530) (171) -- (701)
Extraordinary (loss) -- -- --
Net loss before equity
adjustment (530) (171) -- (701)
Equity income (loss)
in subsidiaries (171) -- 171 --
Net loss (701) (171) 171 (701)
Preferred Stock Dividend -- -- -- --
Net income (loss)
attributable to common
stockholders $ (701) $ (171) $ 171 $ (701)
For the Period from
Inception on May 22, 1997
to September 30, 1997
Guarantor Total
Parent Subsidiaries Eliminations Consolidated
Cash flows from operating activities:
Net cash used in provided
by operating activities $ (979) $ (363) $ -- $(1,342)
Cash flows from investing activities:
Acquisitions -- (35,315) -- (35,315)
Investment in subsidiaries (35,315) -- 35,315 --
Escrow deposits on pending
acquisitions (4,838) -- -- (4,838)
Other (111) (139) -- (250)
Net cash used by investing
activities (40,264) (35,454) 35,315 (40,403)
Cash flows from financing
activities:
Net proceeds from revolver 15,870 -- -- 15,870
Contribution from Parent -- 35,315 (35,315) --
Proceeds from issuance of
common stock 26,743 -- -- 26,743
Net cash provided by
financing activities 42,613 35,315 (35,315) 42,613
Increase in cash and cash
equivalents 1,370 (502) -- 868
Cash and cash equivalents
at beginning of period -- -- -- --
Cash and cash equivalents
at end of period $ 1,370 $ (502) $ -- $ 868
<PAGE>
Cumulus Media Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except for per share data)
(Unaudited)
5. Subsequent Events
Subsequent to September 30, 1998 the Company completed
acquisitions of 9 radio stations in 3 separate markets
for an aggregate purchase price of approximately $10.4
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.
The Company's pending acquisitions include various
agreements to acquire 39 stations in 11 markets for an
aggregate purchase price of approximately $53.6
million.
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 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 because the
Company began operations on May 22, 1997 and also due
to the impact of the various acquisitions and
dispositions that the Company has since completed.
As of the filing date, the Company owns and operates,
provides programming to or sells advertising on behalf
of 185 radio stations located in 36 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 204
radio stations located in 39 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 (before noncash stock
compensation expense). Broadcast cash flow consists of
operating income (loss) before depreciation,
amortization, corporate general and administrative
expenses and noncash stock compensation expense. EBITDA
(before noncash stock compensation expense) consists of
operating income (loss) before depreciation,
amortization and noncash stock compensation expense.
Although broadcast cash flow and EBITDA (before noncash
stock compensation expense) 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.
<PAGE>
Cumulus Media Inc.
(Dollars in thousands, except for per share data)
(Unaudited)
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, 1998 and from the
period from the Company's inception, May 22, 1997,
through September 30, 1997.
For the Period
For the Three from May 22, 1997 For the Three For the Nine
Months Ended through Months Ended Months Ended
September 30, 1997 September 30, 1997 September 30, 1998 September 30, 1998
OPERATING DATA:
Net broadcast revenue
$ 1,552 $ 1,634 $ 28,743 $ 63,125
Stations operating expenses
Excluding depreciation & amortization
1,143 1,439 19,961 47,236
Depreciation and amortization
365 443 6,075 12,976
Corporate general and administrative expenses
274 411 1,664 3,895
Operating income (loss)
(230) (659) 1,043 (982)
Interest expense (net)
(66) 58 (4,066) (7,960)
Net income (loss)
attributable to common stock
$ (256) $ (701) $ (10,244) $ (19,949)
OTHER DATA:
Broadcast cash flow (1)
$ 409 $ 195 $ 8,782 $ 15,889
Broadcast cash flow margin
26.4% 11.9% 30.6% 25.2%
EBITDA
(before noncash stock compensation expense)(2)
$ 135 $ (216) $ 7,118 $ 11,994
Cash flows related to:
Operating activities
N/A $ (1,342) N/A $ (4,937)
Investing activities
N/A $ (40,403) N/A $(335,855)
Financing activities
N/A $ 42,613 N/A $ 379,398
Capital expenditures
N/A -- N/A $ 3,541
(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 (before noncash stock compensation expense)
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 SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
Net Broadcast Revenue. As a result of the stations
acquired since the Company's inception and the other
factors described above, net broadcast revenue
increased $27.1 million to $28.7 million for the three
months ended September 30, 1998 from $1.6 million for
the three month period ending September 30, 1997. This
increase was attributable to the acquisition of radio
stations and revenue generated from LMA's entered into
since the Company's inception on May 22, 1997.
On a same station basis, (defined as the 59 stations
owned or operated from January 1, 1998 through
September 30, 1998), net revenue increased $2.8 million
or 25.5% to $13.6 million for the three months ended
September 30, 1998, compared to the prior owner's three
months ended September 30, 1997. This increase was
primarily attributable to growth in the sale of
commercial time to local and national advertisers.
Station Operating Expenses excluding Depreciation &
Amortization. As a result of the factors described
above, station operating expenses, excluding
depreciation and amortization, increased $18.8 million
to $20.0 million for the three months ended September
30, 1998 from $1.2 million for the three month period
ended September 30, 1997. The increase was attributable
to the station operating expenses of the acquired
stations and the LMA's entered into since the Company's
inception.
Corporate General and Administrative Expenses. As a
result of the Company's inception on May 22, 1997, the
factors described above, and due to certain personnel
additions and recruiting expenses and certain franchise
tax expenses which were incurred during the quarter,
corporate general and administrative expenses increased
$1.4 million to $1.7 million for the three months ended
September 30, 1998.
Other Operating Expenses. Depreciation and amortization
increased $5.7 million to $6.1 million for the three
months ended September 30, 1998 from $.4 million for
the period ended September 30, 1997 primarily due to
the impact of various acquisitions consummated since
the Company's inception.
Other Expense (Income). Interest expense, net of
income, increased from $.1 million during the three
month ended September 30, 1997 to $4.0 million for the
three months ended September 30, 1998 primarily due to
indebtedness incurred in connection with the Company's
acquisitions. An extraordinary loss of approximately
$1.9 million on of debt was recorded in the first
quarter of 1998, related to the write-off of deferred
financing fees in connection with the refinancing of
the Company's Old Credit Agreement during the first
quarter.
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 and the accretion of any related
discount; net loss attributable to common stock
increased $ 9.9 million to $ 10.2 million for the three
months ended September 30, 1998 from $.3 million for
the three month period September 30, 1997. For the
three months ending September 30, 1998 Preferred Stock
dividends includes $2.9 million of accelerated
accretion of discount relating to the exchange of the
Company's previously issued preferred shares into 13 _%
Series A Cumulative Exchangeable Redeemable Preferred
Stock Due 2009 (see Liquidity and Capital Resources).
Broadcast Cash Flow. As a result of the factors
described above, broadcast cash flow increased $8.4
million to $8.8 million for the three months ended
September 30, 1998 from $.4 million for the three month
period ended September 30, 1997. The broadcast cash
flow margin was 30.6% for the three months ended
September 30, 1998.
EBITDA (before noncash stock compensation expense). As
a result of the factors described above, EBITDA (before
noncash stock compensation expense) increased $7.0
million to $7.1 million for the three months ended
September 30, 1998 from $.1 million for the three month
period ended September 30, 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, net cash
used in operations increased $3.6 million to $4.9
million from net cash used in operations of $1.3
million for the period from inception May 22, 1997 to
September 30, 1997, primarily due to the investment in
working capital and other current assets made in
connection with acquisitions completed since the
Company's inception.
For the nine months ended September 30, 1998, net cash
used in investing activities, primarily for
acquisitions, increased $295.5 million to $335.9
million from $40.4 million in the period from inception
on May 22, 1997 to September 30, 1997.
For the nine months ended September 30, 1998, net cash
provided from financing activities was $379.4 million
compared to $42.6 million in the period from the
inception on May 22, 1997 to September 30, 1997. This
increase is the result of the completion of the
Offerings as well as increased borrowings.
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, proceeds from the
Offerings, and revolving loans under the Company's
Credit Facility should be sufficient to permit the
Company to meet its financial obligations and to fund
its operations for at least the next 12 months,
although additional capital resources may be required
in connection with the further implementation of the
Company's acquisition strategy.
On July 1, 1998, the Company completed its initial
public offering of common and preferred stock and debt
totaling $391.0 million. The common stock offering was
for 7,598,572 shares of Class A Common Stock (the
"Class A Common Stock"), including 6,428,572 shares
sold by the Company and 1,170,000 sold by State of
Wisconsin Investment Board. Of the 7,598,572 shares of
Class A Common Stock sold, 1,519,714 shares were sold
in an offering outside the U.S. and Canada and
6,078,858 shares were sold in a concurrent offering in
the United States and Canada. In addition, on July 31,
1998, the underwriters exercised a portion of the over-
allotment options and the Company sold an additional
800,000 shares of Class A Common Stock for net proceeds
to the Company of $10.4 million. These offerings are
collectively referred to as the "Stock Offerings."
Concurrently with the Stock Offerings, the Company sold
in a preferred stock offering (the "Preferred Stock
Offering") $125.0 million of 13 3/4% Series A Cumulative
Exchangeable Redeemable Preferred Stock Due 2009 (the
"Series A Preferred Stock"), approximately $34.5
million of which was sold directly by the Company to
The Northwestern Mutual Life Insurance Company at a
purchase price equal to the price to the public (as
described below); and $160.0 million of 10 3/8% Senior
Subordinated Notes Due 2008 (the "Notes") (the "Debt
Offering" and, together with the Stock Offerings and
the Preferred Stock Offering, the ("Offerings").
Immediately prior to the completion of the Offerings:
(i) all shares of the Company's 12% Class A Cumulative
Preferred Stock which were held by The Northwestern
Mutual Life Insurance Company (the "NML Preferred
Stock") plus all accrued and unpaid dividends thereon
as of the exchange date were exchange for shares of
Series A Preferred Stock having an equivalent
aggregated liquidation value pursuant to the Preferred
Stock Offering; and (ii) Cumulus Media LLC, the
Company's parent prior to the consummation of the
Offerings ("Media LLC"), was liquidated and the shares
of Class A Common Stock, Class B Common Stock and Class
C Common Stock of the Company held by Media LLC was
distributed by Media LLC to its members in liquidation
(the "Reorganization"). Prior to the completion of the
Offerings, the Company financed its acquisitions
primarily through private equity financing and
borrowings under a credit agreement (the "Old Credit
Agreement"). In March 1998, the Company entered into a
$190.0 million senior credit facility (the "Credit
Facility"). The Credit Facility was amended most
recently as of June 26, 1998, to provide for a
revolving credit line of $25.0 million until March 2,
2006 and an eight-year term loan facility of $125.0
million. Under the terms of the Credit Facility, the
Company drew down $62.5 million of the term facility
upon the closings of the Offerings.
Subsequent to September 30, 1998, the Company completed
acquisitions of 9 radio stations in 3 separate markets
for an aggregate purchase price of approximately $10.4
million. These transactions will be accounted for by
the purchase method of accounting.
The Company has also entered into various agreements to
acquire 39 stations in 11 markets for an aggregate
purchase price of approximately $53.6 million.
The Credit Facility, provides for a revolving credit
line of $25.0 million until March 2, 2006, and an eight-
year loan facility of $125.0 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. The remaining $62.5 million of term loan
facility is available through January 15, 1999. The
proceeds of the borrowings under the Credit Facility
have been used to finance acquisitions and repay the
Company's outstanding indebtedness under the Old Credit
Agreement, and to secure outstanding letters of credit
issued under its previous credit facility in an
aggregated amount equal to approximately $6.2 million.
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).
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 2004 through 2005, and
$2.5 million in 2006.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and
Restated Information," which establishes standards for
the way that public business enterprises report
information about operating segments in annual
financial statements and requires that those
enterprises report selected information about operating
segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic
areas and major customers.
In February 1998, the FASB issued SFAS No. 132
"Employers' Disclosures about Pensions and Other Post
retirement Benefits," which significantly changes
current financial statement disclosure requirements
from those that were required under SFAS No. 87,
"Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination
Benefits," and SFAS No. 106, "Employers' Accounting for
Post retirement Benefits Other Than Pensions." SFAS No.
132 does not change the existing measurement or
recognition provision of SFAS Nos. 87, 88, or 106.
These pronouncements are effective for financial
statements issued for periods beginning after December
15, 1997. Management does not believe the
implementation of these accounting pronouncements will
have a material effect on its consolidated financial
statements.
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.
Management believes that adoption of SOP 98-5 in the
first quarter of 1999 will result in a non-cash charge
of approximately $200.
INFLATION
The Company does not believe that inflation has a
material effect on its operations.
YEAR 2000 RISK
The Year 2000 Issue ("Y2K") 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
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 of existing software and
certain hardware, the Y2K issue can be mitigated. If
such modifications and replacements are not made, or
are not completed in time, the Y2K issue could have a
material impact on the operations of the Company.
The Company's plan to resolve the Y2K issue involves
the identification and assessment of the existing
problem, the development of a 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 Y2K
issue:
Broadcast Locations:
Broadcast studio equipment and software necessary
to deliver audio and video programming; this
includes but is not limited to:
Hardware: Transmission control systems, digital
workstations, personal computers, encoders,
decoders, etc.
Software: Studio automation systems, advertising
inventory management systems responsible for
managing, scheduling and billing customer's
broadcast advertising purchases; data interchange
systems, production software, promotion software
and sales system software;
Office Systems: Telephone and voice mail,
photocopying equipment, facsimile equipment,
postage meters; etc.
Corporate Offices:
Hardware: Computer hardware running critical
financial and operational software that is not
capable of recognizing a four-digit code for the
applicable year; business data interchange and
storage equipment; personal computers;
Software: Corporate financial accounting and
information system software;
Office Systems: Telephone and voice mail,
photocopying equipment, facsimile equipment,
postage meters; etc.
Significant non-technical systems and equipment
that may contain microcontrollers which are not Y2K
compliant are being identified and addressed if
deemed critical.
Cumulus Media Inc.
YEAR 2000 RISK
Dollars in thousands, except for per share data)
(Unaudited)
The Company has instituted the following remediation
plan to address the Y2K issues:
A computer hardware replacement plan for computers
running essential broadcast, operational and
financial software applications with Y2K compatible
computers has been instituted. As of September 30,
1998 approximately 20 % of all essential system
hardware and software related to broadcast
locations have been verified as Y2K compatible.
Approximately 90% of all essential corporate office
systems have been verified as Y2K compliant. The
Company anticipates the verification of systems as
Y2K compliant to be 100% complete by the end of
1999.
Software upgrades or replacement of advertising
inventory management software which is Y2K
compliant have been planned, are in process, or
have been completed as of September 30, 1998. The
company has received assurances from its software
vendors that supply the Company's advertising
inventory management software that this software is
Y2K or will become Y2K complaint 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 1999. The
Company is dependent upon the vendors and
manufacturers of its software and hardware for
compliance information. There can be no assurance
regarding the completeness and accuracy of their
representations regarding the Y2K compliance of
their software or hardware.
Financial accounting software for the broadcast
locations is currently being replaced by Y2K
compliant software. This conversion will be
completed in the second quarter of 1999.
While the Company believes its efforts will adequately
address the Y2K issue, there can be no assurance that
the Company will not experience material disruptions to
its business as a result of the Y2K issue.
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 Y2K 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
Y2K compliant. The inability of external agents to
complete their Y2K 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 Y2K
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 initially planned without specific
regard to the Y2K issue. These system enhancements
resolve many Y2K problems and have not been delayed as
a result of any additional efforts addressing the Y2K
issue.
However, there are several hardware and software
expenditures that have been, or will be incurred, to
specifically remediate Y2K non-compliance. Incremental
hardware and software costs that the company has
attributed to the Y2K issue could be as much as
$600,000 for each of the company's 39 markets. The
Company is in the process of completing a market by
market analysis of specific Y2K compliance costs. This
analysis will be completed by December 31, 1998. The
majority of these costs will be incurred over the next
12 months. Of this cost, the Company believes 90% of
the costs will be 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 the Credit Facility.
The Company's accounting policy is to expense costs
incurred due to maintenance, minor modification or
upgrade costs and to capitalize the cost of new
hardware and software.
Management believes it has an effective program in
place to resolve the Y2K issue in a timely manner. As
noted above, the company has not yet completed all
necessary phases of the Y2K 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 Y2K 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 Y2K
program. The Company plans to evaluate the status of
completion of its Y2K program in March 1999 and
determine whether such contingency plans are necessary.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable.
Cumulus Media Inc.
Dollars in thousands, except for per share data)
(Unaudited)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No items to report.
Item 2. Changes in Securities and Use of Proceeds
Pursuant to a Registration Statement on Form S-1
(Commission File No. 333-48849) declared effective by
the Securities and Exchange Commission on June 26, 1998
(the "Registration Statement"), the Company sold
7,228,572 shares (including 800,000 shares pursuant to
the exercise of an over allotment option) of its Class
A Common Stock, par value $.01 per share (the "Class A
Common Stock") in an initial public offering (the
"Common Stock Offering"). An additional 1,170,000
shares of the Class A Common Stock were sold by a
selling stockholder in the Common Stock Offering. Of
the 7,598,572 shares of Class A Common Stock sold,
1,519,714 shares were sold in an offerings outside the
U.S. and Canada (the "International Common Stock
Offering", and together with the Common Stock Offering,
the "Common Stock Offerings"). The offering price of
the Class A Common Stock was $14.00 per share,
resulting in an aggregate offering price of $101.2
million for the account of the Company and $16.4
million for the selling stockholder. After underwriting
discounts, the proceeds to the Company from the Common
Stock Offerings were $94.2 million and the proceeds to
the selling stockholder were $15.2 million. All of the
shares registered in the Common Stock Offerings were
sold.
Concurrently with the Common Stock Offerings, the
Company sold in a preferred stock offering $125.0
million of its 13 3/4% Series A Cumulative Exchangeable
Redeemable Preferred Stock Due 2009 (the "Preferred
Stock Offering"). Concurrently with the Common Stock
Offering and the Preferred Stock Offering, the Company
sold in a debt offering $160.0 million of its 10 3/8%
Senior Subordinated Notes due 2008 (the "Debt
Offering"). The net proceeds of the Preferred Stock
Offering and the Debt Offering were $87.3 million and
$156.0 million, respectively.
The Common Stock Offering closed on July 1,1998 and
the managing underwriters for the Common Stock Offering
were Lehman Brothers Inc., Bear, Stearns & Co. Inc.,
and BT Alex. Brown. The International Common Stock
Offering also closed on July 1, 1998 and the managing
underwriters for the Common Stock Offering were Lehman
Brothers International, Bear, Stearns International
Limited, BT Alex. Brown International, and Credit
Lyonnais Securities.
Cumulus Media Inc.
Dollars in thousands, except for per share data)
(Unaudited)
The Preferred Stock Offering closed on July 1, 1998
and the managing underwriters for the Preferred Stock
Offering were Bear, Stearns & Co. Inc. and Lehman
Brothers Inc. The Debt Offering closed on July 1,1998
and the managing underwriters for the Debt Offering
were Bear, Stearns & Co. Inc. and Lehman Brothers Inc.
The amount of expenses incurred for the Company's
account in connection with the Offering were as
follows:
Underwriters' discounts 15,459,000
Other expenses (approximate) 9,541,000
Total 25,000,000
Of these amounts, 0 were direct or indirect
payments to officers, directors or their associates, or
persons owning 10% or more of any class of equity
securities of the Company and $25.0 million were direct
or indirect payments to others.
The net offering proceeds to the Company were used
for repayment of bank debt (approximately $80.0
million); to complete the Pending Acquisitions
(approximately $325.0 million of which have closed to
date, and the balance of which will close over the next
three to six months, subject to all applicable
regulatory approvals), and finally to fund working
capital, capital expenditures, and other general
corporate purposes.
Of these amounts none were direct or indirect
payments to officers, directors or their associates, or
persons owning 10% or more of any class of equity
securities of the Company. All material use of proceeds
were direct or indirect payments to others.
Item 3. Defaults upon Senior Securities
No items to report.
Item 4. Submission of Matters to a Vote of Security
Holders
No items to report.
Item 5. Other Information
No items to report.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on July 17, 1998 and
Amendment No.1 to such report filed on August 13, 1998.
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: November 16, 1998
By: /s/ Richard J. Bonick Jr.
---------------------------------
Richard J. Bonick Jr.
Chief Financial Officer
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<PERIOD-END> SEP-30-1998
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