<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-Q/A
(AMENDMENT NO. 1)
|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)
<TABLE>
<S> <C>
ILLINOIS 36-4159663
(STATE OR OTHER JURISDICTION (I.R.S. I.D. NO.)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
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> 2
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> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CUMULUS MEDIA INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
RESTATED
---------
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................................. $ 40,179 $ 1,573
Accounts receivable, less allowance for doubtful 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 .................................................................... 10,460 --
--------- ---------
Total liabilities .................................................................. 256,879 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)
Stockholders' 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 ...................................................................... (9,947) (3,578)
Total stockholder's equity ............................................................... 136,964 49,976
--------- ---------
Total liabilities and stockholder's equity ............................................... $ 523,139 $ 110,441
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE> 4
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
RESTATED RESTATED
-------- --------
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
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 expense, net .................................. -- (2)
Nonoperating expenses, net ....................... (4,066) (7,962)
-------- --------
Loss before income taxes ......................... (3,023) (8,944)
Income taxes ..................................... 3,700 3,679
-------- --------
Loss before extraordinary item ......................... 677 (5,265)
Extraordinary loss of early extinguishment of debt -- (1,104)
-------- --------
Net loss ......................................... 677 (6,369)
Preferred stock dividend and accretion
of discount ...................................... 7,220 9,146
Net loss attributable to common stockholders ..... $ (6,543) $(15,515)
Basic and diluted loss per share ....................... $ (.34) $ (.80)
Weighted average shares outstanding .................... 19,467 19,467
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 5
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE PERIOD
THREE MONTHS FROM INCEPTION ON
ENDED MAY 22, 1997 TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
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 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)
Weighted average shares outstanding ........... 1,000 1,000
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 6
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTATED FOR THE PERIOD
NINE MONTHS FROM INCEPTION ON
ENDED MAY 22, 1997 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $ (6,369) $ (701)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Extraordinary loss on early extinguishment of debt ........... 1,104
Depreciation ................................................. 2,187 157
Amortization of goodwill, intangible assets and other assets . 8,645 285
Deferred Taxes ............................................... (3,701) --
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 investing activities:
Trade revenue ..................................................... 3,922 54
Trade expense ..................................................... 3,851 50
Assets acquired through notes payable ................................ $ 1,515 $ --
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 7
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Operating results for the three and nine month periods ended September 30, 1998
have been restated to reflect the effect of the reversal of the valuation
allowance established against deferred taxes during such periods and related
recognition of tax benefit.
The following table reconciles the amounts previously reported to the amounts
currently reported in the consolidated statement of operations for the three and
nine month periods ended September 30, 1998:
<TABLE>
<CAPTION>
Net loss
attributable to
For the three months ended common Basic and diluted
September 30, 1998 Income taxes stockholders Loss per share
-------------------------- -------- -------- -----
<S> <C> <C> <C>
As previously reported $ (1) $(10,244) $(.53)
Restatement associated
with elimination of
deferred tax asset
valuation allowance 3,701 3,701 .19
-------- -------- -----
As restated $ 3,700 $ (6,543) $(.34)
======== ======== =====
</TABLE>
<TABLE>
<CAPTION>
Net loss
attributable to
For the nine months ended common Basic and diluted
September 30, 1998 Income taxes stockholders Loss per share
------------------------- -------- -------- -----
<S> <C> <C> <C>
As previously reported $ (22) $(19,949) $ (1.02)
Restatement associated
with elimination of
deferred tax asset
valuation allowance 3,701 4,434 .22
-------- -------- --------
As restated $ 3,679 $(15,515) $ (.80)
======== ======== ========
</TABLE>
2. INTERIM FINANCIAL DATA
The consolidated financial statements should be read in conjunction with the
consolidated financial statements of Cumulus Media Inc. ("Cumulus" or the
"Company") 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 declared effective on June 26, 1998 (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
5
<PAGE> 8
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.
3. 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 common
stock 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 Offering 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.
6
<PAGE> 9
4. ACQUISITIONS AND DISPOSITION:
The Company completed the following acquisitions of radio stations for cash
during the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1)
- -------------------- ---------------- ------------------
<S> <C> <C>
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
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1)
- -------------------- ---------------- ------------------
<S> <C> <C>
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
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1)
- -------------------- ---------------- ------------------
<S> <C> <C>
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
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1)
- -------------------- ---------------- ------------------
<S> <C> <C>
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
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1)
- -------------------- ---------------- ------------------
<S> <C> <C>
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
</TABLE>
(1.) The aforementioned acquisitions were accounted for by the purchase
method of accounting. As such, the accompanying consolidated balance
sheet as of September 30, 1998 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.
11
<PAGE> 14
An allocation of the purchase prices to the estimated fair values of
the assets acquired and liabilities assumed is presented below.
<TABLE>
<S> <C>
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
</TABLE>
The unaudited consolidated condensed pro forma results of operations
data for the nine months ended September 30, 1998, presented as if the
acquisitions had occurred on January 1, 1998, follows:
<TABLE>
<S> <C>
Net revenues......................................................................... $ 84,410
Operating loss....................................................................... $ (1,644)
Net loss............................................................................. $ (15,569)
Net loss attributable to
common stockholders................................................................ $ (28,459)
Basic and diluted loss per common share (in dollars)................................. $ (1.44)
</TABLE>
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 $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"):
<TABLE>
<CAPTION>
MARKET AND STATIONS LMA EFFECTIVE DATE
- ------------------- ------------------
<S> <C>
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
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
MARKET AND STATIONS LMA EFFECTIVE DATE
- ------------------- ------------------
<S> <C>
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
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
MARKET AND STATIONS LMA EFFECTIVE DATE
- ------------------- ------------------
<S> <C>
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
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
MARKET AND STATIONS LMA EFFECTIVE DATE
- ------------------- ------------------
<S> <C>
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
</TABLE>
The consolidated 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.
5. 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.
15
<PAGE> 18
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.
<TABLE>
<CAPTION>
RESTATED
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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 ................... -- 10,460 -- 10,460
Total liabilities ....................... 233,951 34,830 (11,902) 256,879
Preferred stock ......................... 129,296 -- -- 129,296
Stockholder's equity .................... 128,587 433,355 (424,978) 136,964
Total liabilities and
stockholder's equity .............. $ 491,834 $ 468,185 $(436,880) $ 523,139
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
RESTATED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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 benefit/(expense) ........... (21) 3,700 -- 3,679
Income (Loss) before extraordinary item (12,456) 7,191 -- (5,265)
Extraordinary loss ..................... (1,837) 733 -- (1,104)
Net loss before equity adjustment ...... (14,293) 7,924 -- (6,369)
Equity Income (loss) in subsidiaries ... 7,924 -- (7,924) --
Net loss ............................... (6,369) 7,924 (7,924) (6,369)
Preferred stock dividend ............... 9,146 -- -- 9,146
Net loss attributable to
common stockholders ................. $(15,515) $ 7,924 $ (7,924) $(15,515)
</TABLE>
17
<PAGE> 20
RESTATED
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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 stockholders' equity $ 108,343 $ 103,870 $(101,772) $ 110,441
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
FOR THE PERIOD FROM INCEPTION ON
MAY 22, 1997 TO SEPTEMBER 30, 1997
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------- ------- -------
<S> <C> <C> <C> <C>
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)
Net income (loss) attributable to common stockholders $ (701) $ (171) $ 171 $ (701)
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION ON MAY 22, 1997
TO SEPTEMBER 30, 1997
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
21
<PAGE> 24
6. 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
22
<PAGE> 25
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.
23
<PAGE> 26
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.
<TABLE>
<CAPTION>
RESTATED RESTATED
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, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1998 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA:
Net broadcast revenue ........................ $ 1,552 $ 1,634 $ 28,743 $ 63,125
Station 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) $ (6,543) $ (15,515)
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
</TABLE>
(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
24
<PAGE> 27
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 from $.3 million for the three months ended September 30,
1997.
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 months 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 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 $ 6.2 million to $ 6.5 million for the
three months ended September 30, 1998 from $0.3 million for the three month
period ended September 30, 1997. For the three months ended 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 13.75% 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.
25
<PAGE> 28
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.
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 for 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 for 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 under the Credit
Facility.
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
common stock 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 Offering 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 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.
26
<PAGE> 29
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.
27
<PAGE> 30
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:
28
<PAGE> 31
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
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.
29
<PAGE> 32
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.
30
<PAGE> 33
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.
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.
31
<PAGE> 34
The amount of expenses incurred for the Company's account in connection
with the Offering were as follows:
<TABLE>
<S> <C>
Underwriters' discounts............................ 15,459,000
Other expenses (approximate)....................... 9,541,000
Total ........................................... 25,000,000
</TABLE>
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 Company's 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.
32
<PAGE> 35
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. This report
disclosed the acquisition by the Company of all outstanding stock of Republic
Corporation.
33
<PAGE> 36
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 25, 2000
By: /s/ Daniel O'Donnell
Daniel O'Donnell
Vice President, Finance
Principal Financial and
Accounting Officer
34
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 40,179,000
<SECURITIES> 0
<RECEIVABLES> 28,317,000
<ALLOWANCES> 725,000
<INVENTORY> 0
<CURRENT-ASSETS> 71,564,000
<PP&E> 41,012,000
<DEPRECIATION> 2,580,000
<TOTAL-ASSETS> 523,139,000
<CURRENT-LIABILITIES> 22,014,000
<BONDS> 222,999,000
129,296,000
0
<COMMON> 198,000
<OTHER-SE> 136,766,000
<TOTAL-LIABILITY-AND-EQUITY> 523,139,000
<SALES> 0
<TOTAL-REVENUES> 69,432,000
<CGS> 0
<TOTAL-COSTS> 6,307,000
<OTHER-EXPENSES> 64,107,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,749,000
<INCOME-PRETAX> (8,944,000)
<INCOME-TAX> (3,679,000)
<INCOME-CONTINUING> (5,265,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,104,000)
<CHANGES> 0
<NET-INCOME> (6,369,000)
<EPS-BASIC> (.80)
<EPS-DILUTED> (.80)
</TABLE>
