<PAGE> 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, 2000.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-24525
CUMULUS MEDIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-4159663
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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, 2000, the registrant had outstanding 35,165,596 shares
of common stock consisting of (i) 28,378,976 shares of Class A Common Stock;
(ii) 4,479,343 shares of Class B Common Stock; and (iii) 2,307,277 shares of
Class C Common Stock.
<PAGE> 2
CUMULUS MEDIA INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999
Consolidated Statements of Operations for the Three Months Ended March
31, 2000 and 1999
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3 Quantitative and Qualitative Disclosures About Market Risk.
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CUMULUS MEDIA INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 143,681 $ 219,581
Accounts receivable, less allowance for doubtful accounts
of $4,023 and $3,118 respectively ............................................... 52,493 53,521
Prepaid expenses and other current assets .......................................... 9,931 8,351
--------- ---------
Total current assets .......................................................... 206,105 281,453
Property and equipment, net ........................................................... 73,932 66,963
Intangible assets, net ................................................................ 549,444 530,052
Other assets .......................................................................... 69,291 39,688
--------- ---------
Total assets ................................................................. $ 898,772 $ 918,156
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses .............................................. $ 19,648 $ 26,540
Current portion of long-term debt .................................................. 20 20
Other current liabilities .......................................................... 1,236 1,010
--------- ---------
Total current liabilities ..................................................... 20,904 27,570
Long-term debt ........................................................................ 285,222 285,227
Other liabilities ..................................................................... 2,087 1,977
Deferred income taxes ................................................................. 8,940 8,940
--------- ---------
Total liabilities ............................................................. 317,153 323,714
--------- ---------
Series A Cumulative Exchangeable Redeemable Preferred Stock
due 2009, stated value $1,000 per share, 102,702 shares
issued and outstanding ............................................................. 106,263 102,732
--------- ---------
Commitments and contingencies (Note 6)
Stockholders' equity:
Class A common stock, par value $.01 per share; 50,000,000
shares authorized; 28,378,976 and 26,052,393 shares issued and outstanding ...... 284 261
Class B common stock, par value $.01 per share; 20,000,000
shares authorized; 4,479,343 and 6,629,343 shares issued and outstanding ........ 45 66
Class C common stock, par value $.01 per share; 30,000,000
shares authorized; 2,307,277 and 2,151,277 shares issued and outstanding ........ 23 21
Additional paid-in-capital ......................................................... 526,091 516,576
Loan to officers .................................................................. (9,984) --
Accumulated deficit ................................................................ (41,103) (25,214)
--------- ---------
Total stockholders' equity .................................................... 475,356 491,710
--------- ---------
Total liabilities and stockholders' equity .................................... $ 898,772 $ 918,156
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
<S> <C> <C>
Revenues.............................................................................. $ 51,854 $ 33,744
Less: agency commissions .............................................................. (4,137) (2,533)
-------- --------
Net revenues .................................................................. 47,717 31,211
Operating expenses:
Station operating expenses, excluding
depreciation and amortization ................................................... 42,303 26,776
Depreciation and amortization ...................................................... 9,897 7,060
LMA fees ........................................................................... 1,179 539
Corporate general and administrative .................................................. 4,684 1,674
-------- --------
Operating expenses .................................................................... 58,063 36,049
-------- --------
Operating loss ........................................................................ (10,346) (4,838)
-------- --------
Nonoperating income (expense):
Interest expense ................................................................... (7,636) (6,020)
Interest income .................................................................... 2,092 139
Other income (expense) net ......................................................... 1 --
-------- --------
Nonoperating expenses, net ...................................................... (5,543) (5,881)
-------- --------
Loss before income taxes .............................................................. (15,889) (10,719)
Income taxes .......................................................................... -- 3,594
-------- --------
Net loss .............................................................................. (15,889) (7,125)
Preferred stock dividend .............................................................. 3,528 4,545
-------- --------
Net loss attributable to common stockholders .......................................... $(19,417) $(11,670)
======== ========
Basic and diluted loss per share ...................................................... $ (.55) $ (.59)
-------- --------
Weighted average common shares outstanding ............................................ 35,057 19,737
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
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CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (15,889) $ (7,125)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation .................................................................. 2,884 1,617
Amortization of goodwill, intangible assets and other assets .................. 7,446 5,701
Deferred Taxes ................................................................ -- (3,594)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable .............................................................. 843 (300)
Prepaid expenses and other current assets ........................................ 1,115 (1,625)
Accounts payable and accrued expenses ............................................ (3,532) (5,278)
Other assets ..................................................................... (2,324) (169)
Other liabilities ................................................................ (312) (107)
--------- ---------
Net cash used in operating activities ......................................... (9,769) (10,880)
--------- ---------
Cash flows from investing activities:
Acquisitions ..................................................................... (28,610) (26,899)
Escrow deposits on pending acquisitions .......................................... (27,491) (401)
Capital expenditures ............................................................. (4,799) (3,388)
Other ............................................................................ (1,695) (624)
--------- ---------
Net cash used in investing activities ....................................... (62,595) (31,312)
--------- ---------
Cash flows from financing activities:
Proceeds from revolving line of credit ........................................... -- 30,000
Payments on promissory notes ..................................................... (5) (5)
Payment of dividend on Series A Preferred Stock................................... (3,530) --
Payments for debt issuance costs ................................................. (1) --
--------- ---------
Net cash provided by (used in) financing activities ........................... (3,536) 29,995
--------- ---------
(Decrease)increase in cash and cash equivalents .................................... (75,900) (12,197)
Cash and cash equivalents at beginning of period ................................... $ 219,581 $ 24,885
Cash and cash equivalents at end of period .......................................... $ 143,681 $ 12,688
Non-cash operating and financing activities:
Trade revenue .................................................................... $ 2,666 $ 2,198
Trade expense .................................................................... 2,682 2,199
Assets acquired through notes payable ............................................ 3,387 1,380
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
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, 1999. The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation of results of the interim periods
have been made and such adjustments were of a normal and recurring nature. The
results of operations and cash flows for the three months ended March 31, 2000
are not necessarily indicative of the results that can be expected for the
entire fiscal year ending December 31, 2000.
On April 17, 2000, the Company was notified by PricewaterhouseCoopers LLP that
it had resigned as independent accountants of the Company. On May 8, 2000, the
Company engaged KPMG LLP as its new independent accountants. Because KPMG LLP
has only recently been engaged as the Company's independent accountants, it has
not completed its review of the Company's interim consolidated financial
statements included in this Quarterly Report. The Company has asked KPMG LLP to
complete such review as soon as possible.
The Company has restated its consolidated financial statements as of and for the
three months ended March 31, 1999 as reported in Amendment No. 1 to its
Quarterly Report on Form 10-Q filed on May 15, 2000.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 clarifies certain existing accounting principles for the recognition and
classification of revenues in financial statements. The new rules are expected
to result in some changes as to how the broadcast industry reports revenues
earned under barter agreements, but is not expected to result in any changes to
net income. In March 2000, the SEC issued SAB No. 101A to defer for one quarter
the effective date of implementation of SAB No. 101 with earlier application
encouraged. The Company is required to adopt SAB 101 during the second quarter
of 2000. As a result, the Company is in the process of evaluation the overall
impact of SAB 101 on its consolidated financial statements.
6
<PAGE> 7
3. ACQUISITIONS:
During the quarter ended March 31, 2000, the Company completed 9 acquisitions of
radio stations. On February 2, 2000 we purchased the assets of the Advisory
Board, Inc., a sales training company serving the radio broadcasting industry.
The total purchase price for these ten acquisitions was $32.0 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.
Current assets, other than cash........................ $ 354
Property and equipment................................. 5,603
Intangible assets...................................... 26,497
Current liabilities.................................... (457)
-----------
$ 31,997
===========
The unaudited consolidated condensed pro forma results of operations
data for the three months ended March 31, 2000 and 1999, as if all acquisitions
completed during 1999 and during the first quarter of 2000 occurred at January
1, 1999, follow:
Three Months Ended
March 31, March 31,
2000 1999
-------- --------
Net revenues ........................................... $ 56,502 $ 52,729
Operating loss ......................................... (7,090) (4,024)
Net loss ............................................... (12,633) (9,567)
Net loss attributable to common stockholders ........... (16,161) (13,095)
======== ========
Basic and diluted loss per common share(in dollars) .... $ (.46) $ (.37)
The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had the
acquisitions occurred at the beginning of 1999, nor is it indicative of future
results of operations.
Escrow funds of approximately $50.2 million paid by the Company in
connection with pending acquisitions as of March 31, 2000 have been classified
as other assets at March 31, 2000 in the accompanying consolidated balance
sheet.
7
<PAGE> 8
At March 31, 2000 the Company operated 90 stations under local
marketing agreements ("LMA"). The statement of operations for the quarter ended
March 31, 2000 includes the revenue and broadcast operating expenses of these
radio stations and any related fees associated with the LMA from the effective
date of the LMA through March 31, 2000.
4. GUARANTOR'S FINANCIAL INFORMATION
Certain of the Company's direct and indirect subsidiaries (all such
subsidiaries are directly or indirectly wholly owned by the Company) will
provide full and unconditional guarantees for the Company's senior subordinated
notes on a joint and several basis. There are no significant restrictions on the
ability of the guarantor subsidiaries to pay dividends or make loans to the
Company.
The following tables provide consolidated condensed financial
information pertaining to the Company's subsidiary guarantors. The Company has
not presented separate financial statements for the subsidiary guarantors and
non-guarantors because management does not believe that such information is
material to investors.
March 31, 2000 December 31, 1999
-------------- -----------------
Current assets ............... $ 94,038 $ 91,509
Noncurrent assets ............ 628,196 597,938
Current liabilities .......... 11,038 12,135
Noncurrent liabilities ....... 70,405 61,048
Three Months Ended
------------------
March 31, 2000 March 31, 1999
-------------- --------------
Net revenue ................................. $ 44,565 $ 31,211
Operating expenses .......................... 49,668 34,238
Income (loss) ............................... (5,145) (3,042)
Net loss .................................... (5,145) (3,042)
5. STOCKHOLDERS' EQUITY
On February 2, 2000 the Company loaned each of Mr. Richard W. Weening,
Executive Chairman and Mr. Lewis W. Dickey, Jr., Executive Vice-Chairman and
President, $4,992, respectively for the purpose of enabling Mr. Weening and Mr.
Dickey to purchase 128,000 shares of newly issued shares of Class C Common Stock
from the Company. The price of the shares was $39.00 each, which was the
approximate market price for the Company's Class A Common Stock on that date.
The loans are represented by recourse promissory notes executed by each of Mr.
Weening and Mr. Dickey which provide for the payment of interest at the greater
of 9.0% or the maximum rate paid by the Company under its Credit Facility.
Interest accrues on the notes from February 2, 2000 through December 31, 2003
and is payable on that date. All accrued and unpaid interest and the principal
amount of the loans are due and payable in a lump sum on December 31, 2003. The
note receivables of $4,992 have been classified as contra-equity at March 31,
2000 in the accompanying consolidated balance sheet.
On February 23, 2000 BA Capital Company LP converted 2,150,000 Class B
Common shares to Class A Common shares.
On March 16, 2000 Quaestus Management Corporation converted 100,000
Class C Common shares to Class A Common shares.
<PAGE> 9
6. EARNINGS PER SHARE
The following table sets forth the computation of basic loss per share
for the three month periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Numerator:
Net loss ................................................ $(15,889) (7,125)
Preferred stock dividend ................................ (3,528) (4,545)
-------- --------
Numerator for basic earnings per share - income
available for common stockholders .................... $(19,417) $(11,670)
Denominator:
Denominator for basic earnings per
share - weighted-average shares ...................... 35,057 19,737
-------- --------
Net loss per common share ............................... $ (.55) $ (.59)
======== ========
</TABLE>
During fiscal 1998 and 1999 the Company issued options to key
executives and employees to purchase shares of common stock as part of the
Company's stock option plans. At March 31, 2000 there were options issued to
purchase the following classes of common stock:
Options to purchase class A common stock........................ 2,114,309
Options to purchase class C common stock........................ 3,001,380
Earnings per share assuming dilution has not been presented as the effect of the
options above would be antidilutive.
7. COMMITMENTS AND CONTINGENCIES
As of March 31, 2000 the Company has entered into various asset purchase
agreements to acquire radio stations. In general, the transactions are
structured such that if the Company can not consummate these acquisitions
because of a breach of contract, the Company may be liable for a percentage of
the purchase price, as defined by the agreements. The ability of the Company to
complete the pending acquisitions is dependent upon the Company's ability to
obtain additional equity and/or debt financing. We intend to finance the pending
acquisitions with cash on hand, the proceeds of borrowings under our credit
facility or future credit facilities, and other sources to be identified. There
can be no assurance the Company will be able to obtain such financing. In the
event that the Company can not consummate these acquisitions because of breach
of contract, the Company may be liable for approximately $50.2 million in
purchase price.
Subsequent to December 31, 1999, nine separate civil actions were filed in
United States District Court for the Eastern District of Wisconsin, alleging
that the Company and certain present and former directors and officers violated
various provisions of the Securities and Exchange Act of 1934 and the Securities
Act of 1933, and various rules and regulations under those statutes. The actions
are based on the Company's restatement of its financial statements for the first
three quarters of fiscal year 1999. The plaintiffs seek significant damages on
their own behalf and on behalf of certain classes of shareholders of the
Company. It is possible that additional claims may be filed against the Company
in connection with these events, although ultimately all similar claims likely
will be consolidated into one proceeding. Although the Company has certain
defenses it may assert in these proceedings, we cannot predict how the
plaintiffs' claims will ultimately be resolved. The Company ultimately may be
required to pay significant damages either as a result of a judgement or a
negotiated settlement, including damages which may not be covered by insurance.
Such damages could have a material adverse effect on the Company's financial
position, results of operations or cash flows.
The Company is also a defendant from time to time in various other 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.
9
<PAGE> 10
8. SUBSEQUENT EVENTS
Subsequent to March 31, 2000 the Company completed acquisitions of a total of 7
radio stations located in 4 separate markets for an aggregate purchase price of
approximately $27.3 million. These transactions will be accounted for by the
purchase method of accounting. The Company intends to execute a supplemental
indenture pursuant to which any subsidiaries acquired in these transactions
would become subsidiary guarantors.
On April 17, 2000, the Company was notified by PricewaterhouseCoopers LLP
("PwC") that it had resigned as independent accountants of the Company. The
reports of PwC on the Company's consolidated financial statements as of December
31, 1999 and 1998 and for each of the years then ended did not contain an
adverse opinion or a disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope or accounting principles.
On April 24, 2000 the Company filed a Current Report on Form 8-K disclosing the
circumstances surrounding the resignation of PwC.
On May 4, 2000 the Company announced that, as previously disclosed, it will
acquire 11 stations in 4 markets from Clear Channel Communications. In a
modification to the previous transaction terms, Cumulus also announced it would,
in lieu of the previously announced purchase terms, deliver to Clear Channel 25
stations owned by the Company in 5 markets plus cash. The total acquisition
transaction is valued at $209 million. The asset exchange uses the same cash
flow valuation multiple basis for assets exchanged and assets received, and
represents the first significant asset divestiture by the Company. The balance
of the compensation will be paid in cash and is estimated to be approximately
$36.6 million, pending the outcome of additional negotiation between Cumulus and
Clear Channel.
On May 5, 2000 the board of directors of Cumulus Media Inc. (the "Registrant")
approved the engagement of KPMG LLP as its new independent accountants for the
fiscal year ending December 31, 2000. On May 8, 2000 the Company filed a Current
Report on Form 8-K disclosing the engagement of KPMG as independent accountants
of the Registrant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the consolidated financial condition and results of
operations of Cumulus Media Inc. ("Cumulus" or the "Company") should be read in
conjunction with the consolidated financial statements and related notes thereto
of the Company included elsewhere in this quarterly report. This discussion
contains certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
herein. 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. Actual results may differ from those in the
forward-looking statements as a result of various factors. Risks and
uncertainties that may effect forward looking statements in this document
include, without limitation, risks and uncertainties relating to leverage, the
need for additional funds, FCC and government approval pending acquisitions, 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 these
risks and uncertainties 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.
OVERVIEW
The following is a discussion of the key factors that have affected our business
since its inception on May 22, 1997. The following information should be read in
conjunction with the consolidated financial statements and related notes thereto
included elsewhere in this report. Unless otherwise indicated, amounts set forth
herein are expressed in thousands. We commenced operations in May 1997. For the
period from our inception through March 31, 2000, we purchased or entered into
local marketing, management and consulting agreements with a total of 315
stations in 60 U.S. markets and currently we own and operate five stations in
the Caribbean, and have obtained a license to commence operations on one
additional station in the Caribbean market.
The following discussion of our financial condition and results of
operations includes the results of these acquisitions and local marketing,
management and consulting agreements. We currently own and operate 225 stations
in 51 U.S. markets and provide sales and marketing services under local
marketing, management and consulting agreements (pending FCC approval of
acquisition) to 90 stations in 31 U.S. markets. We are the third largest radio
broadcasting company in the U.S. based on number of stations and believe we will
be the second largest such company following
10
<PAGE> 11
completion of the acquisition of AMFM by Clear Channel. We believe we are the
eighth largest radio broadcasting company in the U.S. based on 1999 pro forma
net revenues and believe we will be the seventh largest such company following
completion of the Clear Channel/AMFM acquisition. We will own and operate a
total of 304 radio stations (214 FM and 90 AM) in 60 U.S. markets upon
consummation of our pending acquisitions.
ADVERTISING REVENUE AND BROADCAST CASH FLOW
Our primary source of revenues is the sale of advertising time on our
radio stations. Our sales of advertising time are primarily affected by the
demand for advertising time from local, regional and national advertisers and
the advertising rates charged by our radio stations. Advertising demand and
rates are based primarily on a station's ability to attract audiences in the
demographic groups targeted by its advertisers, as measured principally by
Arbitron on a periodic basis, generally once, twice or four times per year.
Because audience ratings in local markets are crucial to a station's financial
success, we endeavor to develop strong listener loyalty. We believe that the
diversification of formats on our stations helps to insulate them from the
effects of changes in the musical tastes of the public with respect to any
particular format. The number of advertisements that can be broadcast without
jeopardizing listening levels and the resulting rating is limited in part by the
format of a particular station. Our stations strive to maximize revenue by
continually managing the number of commercials available for sale and adjusting
prices based upon local market conditions. In the broadcasting industry, radio
stations sometimes utilize trade or barter agreements which exchange advertising
time for goods or services such as travel or lodging, instead of for cash. Our
use of trade agreements was immaterial during the three months ended March 31,
2000 and 1999. We will seek to continue to minimize our use of trade agreements.
Our advertising contracts are generally short-term. We generate most of
our revenue from local advertising, which is sold primarily by a station's sales
staff. During the three months ended March 31, 2000 and 1999 approximately 89%
and 88%, respectively, of our revenues were from local advertising. To generate
national advertising sales, we engage Interep National Radio Sales, Inc., a
national representative company. Our revenues vary throughout the year. As is
typical in the radio broadcasting industry, we expect our first calendar quarter
will produce the lowest revenues for the year, and the fourth calendar quarter
will generally produce the highest revenues for the year, with the exception of
certain of our stations such as those in Salisbury-Ocean City, Maryland and
Myrtle Beach, South Carolina, where the stations generally earn higher revenues
in the second and third quarters of the year because of the higher seasonal
population in those communities.
Our operating results in any period may be affected by the incurrence
of advertising and promotion expenses that typically do not have an effect on
revenue generation until future periods, if at all. Our most significant station
operating expenses are employee salaries and commissions, programming expenses,
advertising and promotional expenditures, technical expenses, and general and
administrative expenses. We strive to control these expenses by working closely
with local station management. The performance of radio station groups, such as
ours, is customarily measured by the ability to generate broadcast cash flow and
EBITDA. Broadcast cash flow consists of operating income (loss) before
depreciation and amortization, LMA fees, corporate general and administrative
expenses and non-cash stock compensation expense. EBITDA consists of operating
income (loss) before depreciation and amortization, LMA fees and non-cash stock
compensation expense. Broadcast cash flow and EBITDA, as defined by us, may not
be comparable to similarly titled measures used by other companies. Although
broadcast cash flow and EBITDA are not measures of performance calculated in
accordance with GAAP, management believes that they are useful to an investor in
evaluating us because they are measures widely used in the broadcast industry to
evaluate a radio company's operating performance. However, broadcast cash flow
and EBITDA should not be considered in isolation or as substitutes for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as measures of liquidity or
profitability. The Company's results from operations from period to period are
not historically comparable due to the impact of the various acquisitions and
dispositions that the Company has completed.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table presents summary historical consolidated financial
information and other supplementary data of Cumulus for the three months ended
March 31, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenue ............................. $ 47,717 $ 31,211
Stations operating expenses
Excluding depreciation & amortization ..... 42,303 26,776
Depreciation and amortization ..................... 9,897 7,060
LMA fees .......................................... 1,179 539
Corporate expenses ................................ 4,684 1,674
Operating (loss) ............................ (10,346) (4,838)
Interest expense (net) ............................ (5,544) (5,881)
Net loss attributable to common stockholders....... (19,417) (11,670)
OTHER DATA:
Broadcast cash flow (1) ........................... 5,414 4,435
Broadcast cash flow margin ........................ 11.3% 14.2%
EBITDA (2) ........................................ 730 2,761
Cash flows related to:
Operating activities ...................... (13,299) (10,880)
Investing activities ...................... (62,595) (31,312)
Financing activities ...................... (6) 29,995
Capital expenditures .............................. $ 4,799 $ 3,388
</TABLE>
(1) Broadcast cash flow consists of operating loss before depreciation,
amortization, corporate expenses, and noncash stock compensation expense.
Although broadcast cash flow is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcasting
industry to evaluate a radio Company's operating performance. Nevertheless, it
should not be considered in isolation or as a substitute for net income,
operating income (loss), cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity that is
calculated in accordance with GAAP. As broadcast cash flow is not a measure
calculated in accordance with GAAP, this measure may not be compared to
similarly titled measures employed by other companies.
(2) EBITDA consists of operating 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.
12
<PAGE> 13
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THE THREE MONTHS ENDED MARCH 31, 1999.
NET REVENUES. Net revenues increased $16.5 million, or 52.9%, to $47.7
million for the three months ended March 31, 2000 from $31.2 million for the
three months ended March 31, 1999. This increase was primarily attributable to
the acquisition of radio stations and revenues generated from local marketing,
management and consulting agreements entered into during the period from
April 1, 1999 through March 31, 2000.
In addition, on a same station basis, net revenue for the 195 stations
in 36 markets operated for at least a full year increased $2.3 million or 7.3%
to $33.0 million for the three months ending March 31, 2000, compared to net
revenues of $30.7 million for the three month period ending March 31, 1999. The
increase in same station net revenue is the result of additional local revenue
generated from improved spot utilization from the sale of radio spots, combined
with increases in promotional and event revenue.
STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND
LMA FEES. Station operating expenses excluding depreciation, amortization and
LMA fees increased $15.5 million, or 58.0%, to $42.3 million for the three
months ending March 31, 2000 from $26.8 million for the three months ending
March 31, 1999. This increase was primarily attributable to 1) the acquisition
of radio stations and operating expenses incurred from local marketing,
management and consulting agreements entered into during the period from
April 1, 1999 through March 31, 2000; and to 2) the $5.1 million increase in
same station operating expenses discussed below.
On a same station basis, for the 195 stations in 36 markets operated
for at least a full year, station operating expenses excluding depreciation,
amortization and LMA fees increased $5.1 million, or 19.3%, to $31.4 million for
the three months ending March 31, 2000 compared to $26.3 million for the three
months ending December 31, 1999. The increase in same station operating expenses
excluding depreciation, amortization and LMA fees is attributable to the
additional sales and programming personnel added subsequent to March 31, 1999 in
substantially all of the markets we operated during the three months ended March
31, 1999, in addition to the increased variable selling costs, and promotional
and event costs associated with additional same station net revenue discussed
above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$2.8 million, or 39.4%, to $9.9 million for the three month period ending March
31, 2000 compared to $7.1 million for the three month period ending March 31,
1999. This increase was primarily attributable to depreciation and amortization
relating to radio station acquisitions consummated subsequent to the three
months ended March 31, 1999 and a full quarter of depreciation and amortization
on radio station acquisitions consummated during the three month period ended
March 31, 1999.
LMA FEES. LMA fees increased $.7 million, or 118.7%, to $1.2 million
for the three months ending March 31, 2000 from $.5 million for the three months
ending March 31, 1999. This increase was primarily attributable to local
marketing, management and consulting fees paid to sellers in connection with the
commencement of operations, management of or consulting services provided to
radio stations subsequent to March 31, 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses increased $3.0 million, or 180.0%, to $4.7 million for
the three months ending March 31, 2000 compared to $1.7 million for the three
months ended March 31, 1999. The increase in corporate general and
administrative expense was primarily attributable to $2.0 million of
non-recurring expense recorded in the first quarter of 2000 comprised of 1) $0.9
million in severance related expense associated with the management
reorganization announced on March 16, 2000; 2) $0.5 million in travel related
expense associated with acquisition due diligence, capital raising and
corporate related initiatives; 3) $0.3 million in professional fees related to
the Company's restatement of 1999 quarterly financial information; 4) $0.3
million for conferences held during the three months ended March 31, 2000 in
connection with the implementation of enhanced operating systems; and 5) $0.3
million in other miscellaneous non-recurring charges. The increase in corporate
general and administrative expense is also partially attributable corporate
resources added subsequent to the three months ending March 31, 1999 to
effectively manage the Company's growing radio station portfolio.
13
<PAGE> 14
OTHER EXPENSE (INCOME). Interest expense, net of interest income,
decreased by $0.4 million, or 6.8%, to $5.5 million for the three months ending
March 31, 2000 compared to $5.9 million for the three months ended March 31,
1999. This decrease was primarily attributable to higher debt levels incurred to
finance the Company's acquisitions, offset by higher interest income earned
during the three months ended March 31, 2000 on cash balances held as a result
of capital raising activities subsequent to the three months ended March 31,
1999.
INCOME TAXES. Income tax benefits decreased by $3.6 million, or 100.0%,
to $0 million for the three months ending March 31, 2000 compared to $3.6
million for the three months ended March 31, 1999. This decrease was
attributable to the Company's current assessment of the probability of
realization of its deferred tax asset, which will be considered further in
subsequent periods.
PREFERRED STOCK DIVIDENDS, ACCRETION OF DISCOUNT AND PREMIUM ON
REDEMPTION OF PREFERRED STOCK. Preferred stock dividends, accretion of discount
and premium on redemption of preferred stock decreased $1.0 million, or 22.2%,
to $3.5 million for the three months ended March 31, 2000 compared to $4.5
million for the three months ended March 31, 1999. This decrease was
attributable to the on the redemption of 43,750 shares of the Company's Series A
Preferred Stock on October 1, 1999, resulting in a lower aggregate liquidation
preference on the Company's Series A Preferred Stock subsequent to the
redemption.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK. As a result of the
factors described above, net loss attributable to common stock increased $7.7
million, or 65.8%, to $19.4 million for the three months ending March 31, 2000
compared to $11.7 million for the three months ended March 31, 1999.
BROADCAST CASH FLOW. As a result of the factors described above,
Broadcast Cash Flow increased $1.0 million, or 22.7%, to $5.4 million for the
three months ending March 31, 2000 compared to $4.4 million for the three months
ended March 31, 1999.
EBITDA. As a result of the increase in broadcast cash flow, offset by
the increase in corporate, general and administrative expenses described above,
EBITDA decreased $2.1 million, or 75.0%, to $0.7 million for the three months
ending March 31, 2000 compared to $2.8 million for the three months ended March
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our principal need for funds has been to fund the acquisition of radio
stations and to a lesser extent, working capital needs, capital expenditures and
interest and debt service payments. Our principal sources of funds for these
requirements have been cash flows from financing activities, such as the
proceeds from the offering of our debt and equity securities and borrowings
under credit agreements. Our principal need for funds in the future are expected
to include the need to fund pending and future acquisitions, interest and debt
service payments, working capital needs and capital expenditures. We believe
that availability under our credit facility, cash generated from operations and
proceeds from future debt or equity financing will be sufficient to meet our
capital needs. The ability of the Company to complete the pending acquisitions
is dependent upon on the Company's ability to obtain additional equity and/or
debt financing. There can be no assurance that the Company will be able to
obtain such financing on favorable terms, if at all.
For the three months ended March 31, 2000, net cash used in operations
decreased $1.1 million, or 10.0%, to $9.8 million from net cash used in
operations of $10.9 million for the three months ended March 31, 1999. This
increase was due primarily to the increase in our net loss in 2000, as offset by
the increase in noncash charges included in the net loss for the three months
ended March 31, 2000, and the reduction in net cash utilized for working capital
when compared to the three months ended March 31, 1999.
For the three months ended March 31, 2000, net cash used in investing
activities increased $31.3 million, or 100.0%, to $62.6 million from $31.3
million for the three months ended March 31, 1999. This increase was due
primarily to a $27.0 million increase in cash used for escrow deposits for
14
<PAGE> 15
acquisitions for the three months ended March 31, 2000 when compared to the
three months ended March 31, 1999.
For the three months ended March 31, 2000, net cash provided from
financing activities decreased $33.5 million, to ($3.5) million compared to
$30.0 million during the three months ended March 31, 1999. This decrease in net
cash provided from financing activities during the three months ended March 31,
2000 was the result of the absence of borrowings under the Company's credit
facilities for the three months ended March 31, 2000 when compared to the three
months ended March 31, 1999, combined with the $3.5 million dividend payment
made on the Company's Series A Preferred Stock on January 3, 2000.
On July 27, 1999, we completed a follow-on public stock offering of
9,664,000 shares of our Class A Common Stock for $22.919 per share, after
underwriter's discounts and commissions. The net proceeds of the offering were
approximately $221.5 million. We used the net proceeds from the offering to
redeem a portion of our Series A Preferred Stock, repay the principal amount of
indebtedness outstanding under our old credit facility and fund the completion
of a portion of our pending acquisitions. We sold an additional 1,449,600
shares of our Class A common stock as a result of the exercise of underwriters'
overallotment option, for $22.919 per share, resulting in $33.2 million
additional net proceeds to Cumulus.
On November 18, 1999, the Company completed a secondary public stock
offering selling 4,700,000 (3,700,000 primary and 1,000,000 secondary) shares of
its Class A Common Stock for $37.05 per share, after underwriter's discounts and
commissions. The net proceeds of the offering to the Company were approximately
$137.1 million. In addition, on November 24, 1999, the underwriters exercised
their option to purchase an additional 204,000 shares of Class A Common Stock
(102,000 primary shares and 102,000 secondary shares) at $37.05 per share.
Exercise of the option resulted in an additional $3.8 million in net offering
proceeds to the Company.
Historical Acquisitions. During the three months ended March 31, 2000,
the Company completed 10 acquisitions (including The Advisory Board, Inc.)
across 7 markets having an aggregate purchase price of $32.0 million. Additional
acquisitions have been subsequently completed in 2000 in 4 markets for an
aggregate purchase price of $27.3 million. The sources of funds for these
acquisitions were primarily the proceeds from the offering of the Company's
equity securities referred to above.
Pending Acquisitions. The aggregate purchase price of the pending
acquisitions is expected to be approximately $560.7 million, consisting of
primarily cash, except in the case of certain asset swaps with Clear Channel
Communications which the Company announced on May 4, 2000. We intend to finance
the pending acquisitions with cash on hand, the proceeds of borrowings under our
Credit Facility or future credit facilities, and other sources to be identified.
The ability of the Company to complete the pending acquisitions is dependent
upon on the Company's ability to obtain additional equity and/or debt financing
on favorable terms, if at all. There can be no assurance that the Company will
be able to obtain such financing on favorable terms, if at all. We expect to
consummate most of our pending acquisitions during the second, third and fourth
quarters of 2000, although there can be no assurance that the transactions will
be consummated within that time frame, or at all. In four of the markets in
which there are pending acquisitions (Columbus-Starkville, MS; Columbus, GA;
Wilmington, NC; and Topeka, KS;), petitions to deny have been filed against the
Company's FCC assignment applications. All such petitions and FCC staff
inquiries must be resolved before FCC approval can be obtained and the
acquisitions consummated. There can be no assurance that the pending
acquisitions will be consummated. In addition, from time to time the Company
completes acquisitions following the initial grant of an assignment application
by the FCC staff but before such grant becomes a final order, and a petition to
review such a grant may be filed. There can be no assurance that such grants may
not ultimately be reversed by the FCC or an appellate court as a result of such
petitions, which could result in the Company being required to divest the assets
it has acquired.
Sources of Liquidity. We financed our acquisitions primarily through
the July 1999 and November 1999 equity financings described above and borrowings
under our credit facility. Our credit facility with Lehman Brothers Inc. as
15
<PAGE> 16
arranger, Barclays Capital, as syndication agent and Lehman Brothers Commercial
Paper Inc., as administrative agent, consists of a seven-year revolving credit
facility of $50.0 million, a revolving credit facility of $50.0 million that
will convert into a seven-year term loan 364 days after closing, an eight-year
term loan facility of $75.0 million and an eight and one-half year term loan
facility of $50.0 million. The amount available under the seven-year revolving
credit facility will be automatically reduced by 5% of the initial aggregate
principal amount in each of the third and fourth years following closing, 10% of
the initial aggregate principal amount in the fifth year following the closing,
20% of the initial aggregate principal amount in the sixth year following the
closing and the remaining 60% of the initial aggregate principal amount in the
seventh year following the closing.
We have issued $160.0 million in aggregate principal amount of our
10 3/8% senior subordinated notes which have a maturity date of July 1, 2008.
The notes are our general unsecured obligations and are subordinated in right of
payment to all our existing and future senior debt (including obligations under
our credit facility). Interest on the notes is payable semi-annually in arrears.
We issued $125.0 million of our Series A Preferred Stock in our initial
public offerings on July 1, 1998. The holders of the Series A Preferred Stock
are entitled to receive cumulative dividends at an annual rate equal to 13 3/4%
of the liquidation preference per share of Series A Preferred Stock, payable
quarterly, in arrears. On or before July 1, 2003, we may, at our option, pay
dividends in cash or in additional fully paid and non-assessable shares of
Series A Preferred Stock. From July 1, 1998 until December 31, 1999, we issued
an additional $23.1 million of shares of Series A Preferred Stock as dividends
on the Series A Preferred Stock. After July 1, 2003, dividends may only be paid
in cash. To date, all of the dividends on the Series A Preferred Stock have been
paid in shares, except for a $3.5 million cash dividend paid on January 1, 2000
to holders of record on December 15, 1999 for the period commencing October 1,
1999 and ending December 31, 1999. The shares of Series A Preferred Stock are
subject to mandatory redemption on July 1, 2009 at a price equal to 100% of the
liquidation preference plus any and all accrued and unpaid cumulative dividends.
On October 1, 1999 we used $51.3 million of the proceeds of our July 1999
offering of our Class A Common Stock to redeem a portion of our Series A
Preferred Stock, including a $ 6.0 million redemption premium and $ 1.5 million
in accrued and unpaid dividends as of the redemption date.
The Indenture governing the notes and the Certificate of Designation
governing the Series A Preferred Stock limit the amount we may borrow without
regard to the other limitations on incurrence of indebtedness contained therein
under credit facilities to $150.0 million. As of March 31, 2000, we would be
permitted, by the terms of the indenture and the certificate of designation, to
incur approximately $125 million of additional indebtedness under our credit
facility without regard to the debt ratios included in our indenture.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 2000 approximately 43.9% of the Company's long-term debt bore
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 $0.3 million for the three months ending March 31, 2000. In the
event of an adverse change in interest rates, management would likely take
actions to further mitigate its exposure. However, due to the uncertainty of the
actions that would be taken and their possible effects, additional analysis is
not possible at this time. Further, such analysis would not consider the effects
of the change in the level of overall economic activity that could exist in such
an environment.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in the following eight class
action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc.,
et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v.
Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus
Media Inc., et al.; (7) Kincer v. Weening, et al; (8) Krim v. Cumulus Media
Inc., et al.; and (9) Baldwin v. Cumulus Media Inc., et al. Certain present and
former directors and officers of the Company, and certain underwriters of the
Company's stock, have also been named as defendants. The complaints have all
been filed in the United States District Court for the Eastern District of
Wisconsin. They were filed as class actions on behalf of persons who purchased
or acquired Cumulus Media common stock during various time periods between May
11, 1999 and April 24, 2000. The complaints allege, among other things,
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder, and Sections 11 and 12(a) of the
Securities Act of 1933, and seek unspecified damages. The plaintiffs allege that
the defendants issued false and misleading statements and failed to disclose
material facts concerning, among other things, the Company's financial condition
as a result of the restatement on March 16, 2000 of the Company's results for
the first three quarters of 1999. The plaintiffs further allege that because of
the issuance of false and misleading statements and/or failure to disclose
material facts, the price of Cumulus Media stock was artificially inflated.
In 1999, the Company was served with a complaint filed in state court
in New York, seeking approximately $1.9 million in damages arising from the
Company's alleged breach of national representation agreements. The action is
currently in discovery.
In 1999, the Company was served with a complaint filed in county court
in Alabama alleging that in August 1997, an employee of Colonial Broadcasting,
Inc., which we acquired in July 1998, was at fault in connection with an
automobile accident. The plaintiff is seeking $8.5 million damages. We believe
we have a right to indemnification from the sellers of Colonial Broadcasting
under the related purchase agreement. The sellers' insurance company has assumed
the defense of the matter.
In addition, we currently and from time to time are involved in
litigation incidental to the conduct of our business. Other than as discussed
above, the Company is not a party to any lawsuit or proceeding which, in our
opinion, is likely to have a material adverse effect on the Company.
Item 2. Changes in Securities and Use of Proceeds
No items to report.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 18, 2000 the Company filed a Current Report on Form 8-K
disclosing certain financial information regarding certain of its pending
acquisitions.
In addition, the Company filed the Current Reports on Form 8-K
subsequent to March 31, 2000 referenced elsewhere in this Form 10-Q:
Current Report on Form 8-K dated April 24, 2000
Current Report on Form 8-K dated as of May 8, 2000
17
<PAGE> 18
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 15, 2000 By: /s/ Daniel O'Donnell
----------------------------
Daniel O'Donnell
Vice President, Finance
Principal Financial and
Accounting Officer
18
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