<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 JUNE 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER 000-24525
CUMULUS MEDIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-4159663
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 E. KILBOURN AVE., SUITE 2700, MILWAUKEE, WI 53202
(Address of Principal Executive Offices) (Zip Code)
(414) 615-2800
Registrant's Telephone Number, Including Area Code:
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 1999, the registrant had outstanding 29,401,197 shares
of common stock consisting of (i) 19,393,327 shares of Class A Common Stock;
(ii) 7,856,593 shares of Class B Common Stock; and (iii) 2,151,277 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 June 30, 1999 and December 31, 1998
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1999 and 1998
Notes to Consolidated Financial Statements
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Signatures
Exhibit Index
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)
RESTATED RESTATED
-------- --------
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 9,086 $ 24,885
Accounts receivable, less allowance for doubtful accounts
of $1,646 and $895 respectively......................................... 40,289 28,056
Prepaid expenses and other current assets.................................. 5,761 2,808
---------------- --------------
Total current assets.................................................... 55,136 55,749
Property and equipment, net................................................... 49,591 41,438
Intangible assets, net........................................................ 431,113 404,220
Other assets.................................................................. 16,014 16,224
---------------- --------------
Total assets............................................................ $ 551,854 $ 517,631
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................................... $ 20,385 $ 19,028
Current portion of long-term debt.......................................... 1,020 20
Other current liabilities.................................................. 768 768
---------------- --------------
Total current liabilities 22,173 19,816
Long-term debt, excluding current portion..................................... 267,537 222,747
Other liabilities............................................................. 2,243 1,118
Deferred income taxes......................................................... 4,677 9,387
---------------- --------------
Total liabilities....................................................... 296,630 253,068
---------------- --------------
Series A Cumulative Exchangeable Redeemable Preferred
Stock due 2009, stated value $1,000 per share, 138,286
and 129,286 shares issued and outstanding, respectively.................... 143,038 133,741
---------------- --------------
Commitments and contingencies (Note 7)
Stockholders' equity:
Class A common stock, par value $.01 per share;
50,000,000 shares authorized; 8,700,504 shares outstanding.............. 87 87
Class B common stock, par value $.01 per share;
20,000,000 shares authorized; 8,660,416 shares outstanding.............. 87 87
Class C common stock, par value $.01 per share;
30,000,000 shares authorized; 2,376,277 shares outstanding.............. 24 24
Additional paid-in-capital................................................. 132,913 142,211
Accumulated other comprehensive income..................................... 5 5
Accumulated deficit........................................................ (20,930) (11,592)
---------------- --------------
Total stockholder' equity............................................... 112,186 130,822
---------------- --------------
Total liabilities and stockholders' equity.............................. $ 551,854 $ 517,631
================ ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
---- ---- ---- ----
RESTATED RESTATED
-------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $ 49,775 $ 24,155 $ 83,519 $ 37,937
Less: agency commissions.................. (3,929) (2,268) (6,462) (3,555)
-------------- -------------- ---------------- ---------------
Net revenues.............................. 45,846 21,887 77,057 34,382
Operating expenses:
Station operating expenses,
excluding depreciation and
amortization........................ 32,262 16,372 59,038 27,275
Depreciation and amortization.......... 8,785 4,154 16,384 6,901
Corporate general and administrative...... 1,736 1,270 3,410 2,231
-------------- -------------- ---------------- ---------------
Operating expenses........................ 42,783 21,796 78,832 36,407
-------------- -------------- ---------------- ---------------
Operating income (loss)................... 3,063 91 (1,775) (2,025)
-------------- -------------- ---------------- ---------------
Nonoperating income (expense):
Interest expense....................... (6,472) (2,732) (12,492) (4,249)
Interest income........................ 82 212 221 355
Other income (expense), net............ (2) 4 (2) (2)
-------------- -------------- ---------------- ---------------
Nonoperating expenses, net................ (6,392) (2,516) (12,273) (3,896)
-------------- -------------- ---------------- ---------------
Loss before income taxes.................. (3,329) (2,425) (14,048) (5,921)
Income taxes.............................. 1,116 (21) 4,710 (21)
-------------- -------------- ---------------- ---------------
Loss before extraordinary item............ (2,213) (2,446) (9,338) (5,942)
Extraordinary loss on early
extinguishment of debt................. -- -- -- (1,837)
-------------- -------------- ---------------- ---------------
Net loss.................................. (2,213) (2,446) (9,338) (7,779)
Preferred stock dividend and
accretion of discount.................. 4,752 1,084 9,297 1,926
-------------- -------------- ---------------- ---------------
Net loss attributable to
common stockholders.................... $ (6,965) $ (3,530) $ (18,635) $ (9,705)
============== ============== ================ ===============
Basic and diluted loss per share.......... $ (.35) $ (.28) $ (.94) $ (.78)
--------------- -------------- ---------------- ---------------
Weighted average common shares
outstanding............................ 19,737 12,509 19,737 12,509
============== ============== ================ ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
RESTATED
--------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (9,338) $ (7,779)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Extraordinary loss on early extinguishment of debt......................... -- 1,837
Depreciation............................................................... 3,475 1,075
Amortization of goodwill, intangible assets and other assets............... 11,817 4,030
Deferred taxes........................................................... (4,710) --
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable........................................................ (12,275) (14,214)
Prepaid expenses and other current assets.................................. (2,953) (2,523)
Accounts payable and accrued expenses...................................... 965 7,247
Other assets............................................................... (733) (3,058)
Other liabilities.......................................................... (174) (382)
---------------- --------------
Net cash used in operating activities................................... (13,926) (13,767)
---------------- --------------
Cash flows from investing activities:
Acquisitions............................................................... (41,933) (103,741)
Escrow deposits on pending acquisitions.................................... 180 (7,735)
Capital expenditures....................................................... (5,907) (1,752)
Other...................................................................... (2) (348)
---------------- --------------
Net cash used in investing activities................................... (47,662) (113,576)
---------------- --------------
Cash flows from financial activities:
Proceeds from revolving line of credit..................................... 45,800 175,000
Payments on revolving line of credit....................................... -- (75,535)
Payments on promissory notes............................................... (11) (5)
Proceeds from issuance of preferred stock.................................. -- 16,250
Proceeds from issuance of common stock..................................... -- 15,135
Payments for debt issuance costs........................................... -- (3,208)
---------------- --------------
Net cash provided by financing activities............................... 45,789 127,637
---------------- --------------
(Decrease) increase in cash and cash equivalents.............................. (15,799) 294
Cash and cash equivalents at beginning of period.............................. $ 24,885 $ 1,573
Cash and cash equivalents at end of period.................................... $ 9,086 $ 1 ,867
Non-cash operating and financing activities:
Trade revenue.............................................................. $ 4,717 $ 2,472
Trade expense.............................................................. 4,724 2,449
Assets acquired through notes payable...................................... 1,490 1,051
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Operating results for the three and six month periods ended June 30, 1999 have
been restated to reflect the effect of (a) the correction of certain
misallocated revenues and expenses and (b) 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 being reported in the consolidated statement of operations for the
three and six month periods ended June 30, 1999:
<TABLE>
<CAPTION>
Net loss
Loss before attributable
For the three months Net Operating Operating income Income to common Loss per
ended June 30, 1999 Revenues Expenses Income taxes taxes stockholders share
- -------------------- -------- --------- --------- ----------- ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As previously reported $45,800 $42,750 $3,050 $(3,342) $ -- $(8,094) $(.41)
Restatement associated
with elimination of
deferred tax asset
valuation allowance -- -- -- -- 1,116 1,116 .06
Restatement for correction
of certain misallocated
revenues and expenses 46 33 13 13 -- 13 --
------- ------- ------ ------- ------ ------- -----
As restated $45,846 $42,783 $3,063 $(3,329) $1,116 $(6,965) $(.35)
======= ======= ====== ======= ====== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Net loss
Loss before attributable
For the three months Net Operating Operating income Income to common Loss per
ended June 30, 1999 Revenues Expenses Income taxes taxes stockholders share
- -------------------- -------- --------- --------- ----------- ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As previously reported $77,715 $78,877 $(1,162) $(13,436) $ -- $(22,733) $(1.15)
Restatement associated
with elimination of
deferred tax asset
valuation allowance -- -- -- -- 4,710 4,710 .23
Restatement for correction
of certain misallocated
revenues and expenses (658) (45) (613) (612) -- (612) (.02)
------- ------- ------- --------- ------ -------- -----
As restated $77,057 $78,832 $(1,775) $(14,048) $4,710 $(18,635) $(.94)
======= ======= ======= ========= ====== ======== ======
</TABLE>
6
<PAGE> 7
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") and the notes thereto included in the Company's Annual Report on Form
10-K / A for the year ended December 31, 1998. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of results of the
interim periods have been made and such adjustments were of a normal and
recurring nature. The results of operations and cash flows for the six months
ended June 30, 1999 are not necessarily indicative of the results that can be
expected for the entire fiscal year ending December 31, 1999.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the
Costs of Start-Up Activities." SOP 98-5, effective for 1999, requires
organization costs to be expensed as incurred. The Company's adoption of SOP
98-5 in the first quarter of 1999 had an immaterial effect on the results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement 133 standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. The Company has not engaged in any derivative or hedging
transactions. As a result, we do not anticipate that the adoption of this new
Statement will have a significant effect on our earnings or financial position.
Statement 133, as amended, is required to be adopted in years beginning after
June 15, 2000.
4. SUBSEQUENT OFFERING
On July 27, 1999, the Company completed a follow-on public stock offering
selling 9,664,000 shares of its Class A Common Stock for $22.919 per share, net
of underwriter's discounts and commissions of $1.206 per share. The net proceeds
of the offering were approximately $221.5 million. The Company also granted the
underwriters an option, exercisable for 30 days from the completion date of the
offering, to purchase up to an additional 1,449,600 shares to cover
over-allotments. On August 4, 1999, the Company was informed that the
underwriters had exercised this option in full. Exercise of the option will
result in an additional $33.2 million in net offering proceeds to the Company.
With the net proceeds from the offering, the Company will redeem a portion of
its Series A preferred stock, including redemption premium. In addition, the
Company plans to repay the principal amount outstanding under the Credit
Facility (as defined below) and fund a portion of its pending acquisitions.
5. CREDIT FACILITY
The Company's senior credit facility, as amended most recently as of April 14,
1999 and May 5, 1999 (the "Credit Facility"), provides for a revolving credit
line of $25.0 million until March 2, 2006, and 2 eight-year term loan facilities
of $62.5 million. Under the terms of the Credit Facility, the Company drew down
$62.5 million of term loan facility upon the closing of its initial public
offerings on July 1, 1998. In addition, during the first six months of 1999, the
Company drew down an additional $45.8 million in term facility. The proceeds of
the borrowings under the Credit Facility have been used to finance acquisitions
and repay the Company's outstanding indebtedness under its previous credit
facility, and to secure outstanding letters of credit issued under its previous
credit facility.
7
<PAGE> 8
Under the terms of the Credit Facility, the Company is subject to certain
restrictive financial and operating covenants, including but not limited to
maximum leverage covenants, minimum interest and fixed charge coverage
covenants, limitations on asset dispositions and the payment of dividends. The
failure to comply with the covenants would result in an event of default, which
in turn would permit acceleration of debt under those instruments. As of the
filing date, the Company did not meet certain of these financial covenant
requirements. However, in a letter dated June 30, 1999, the lender waived these
covenant requirements.
In connection with the July 27, 1999 public offering discussed above, the
Company signed a commitment letter with its existing lenders providing for a new
credit facility in an aggregate principal amount of $225.0 million. As of August
6, 1999 the Company was negotiating the final terms of the agreement with its
lenders.
6. ACQUISITIONS:
During the six months ended June 30, 1999, the Company completed 13 acquisitions
of radio stations for a total purchase price of $43.4 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 consolidated 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.
<TABLE>
<S> <C>
Property and equipment................................................................. $ 5,722
Intangible assets...................................................................... 37,702
---------------
43,424
</TABLE>
The unaudited consolidated condensed pro forma results of operations data for
the six months ended June 30, 1999 and 1998, presented as if all acquisitions
completed during 1998 and during the first six months of 1999 occurred at
January 1, 1998, follow:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
RESTATED RESTATED
-------- --------
<S> <C> <C> <C> <C>
Net revenues $ 46,005 $ 39,704 $ 80,297 $ 71,047
Operating income (loss) $ 2,855 $ (360) $ (1,813) $(10,143)
Net loss $ (2,666) $ (6,997) $ (9,865) $(22,906)
Net loss attributable to common
stockholders $ (7,418) $(11,749) $(19,162) $(32,203)
======== ======== ======== ========
Basic and diluted loss per
common share (in dollars) $ (0.38) $ (0.94) $ (.97) $ (2.57)
======== ======== ======== ========
</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 $3.2 million paid by the Company in connection
with pending acquisitions as of June 30, 1999 have been classified as other
assets at June 30, 1999 in the accompanying consolidated balance sheet.
8
<PAGE> 9
At June 30, 1999 the Company operated 38 stations under local marketing
agreements ("LMA"). The consolidated statements of operations for the three
months ended and six months ended June 30, 1999 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 June 30,
1999.
7. GUARANTOR'S FINANCIAL INFORMATION
All of the Company's direct and indirect subsidiaries (all such subsidiaries are
directly or indirectly wholly owned by the Company) will provide full and
unconditional senior subordinated guarantees for the senior subordinated notes
on a joint and several basis. There are no significant restrictions on the
ability of the guarantor subsidiaries to pay dividends or make loans to the
Company.
The following tables provide consolidating condensed financial information
pertaining to the Company and the Guarantor Subsidiaries. The Company has not
presented separate financial statements for the Guarantor Subsidiaries because
management does not believe that such information is material to investors.
<TABLE>
<CAPTION>
RESTATED
AS OF JUNE 30, 1999
-------------------
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ (12,503) $ 21,589 $ -- $ 9,086
Accounts receivable, net.................. -- 40,289 -- 40,289
Prepaid expenses and other
currents assets........................ 2,838 2,923 -- 5,761
-------------- -------------- ---------------- ---------------
Total current assets................... (9,665) 64,801 -- 55,136
Property and equipment, net............... 1,461 48,130 -- 49,591
Investment in subsidiaries................ 487,500 -- (487,500) --
Intangible assets, net.................... -- 431,113 -- 431,113
Other assets.............................. 40,782 5,910 (30,678) 16,014
-------------- -------------- ---------------- ---------------
Total assets.............................. $ 520,078 $ 549,954 $ (518,178) $ 551,854
============== ============== ================ ===============
Accounts payable.......................... $ 9,972 $ 10,413 $ -- $ 20,385
Current portion of LTD.................... 1,020 -- -- 1,020
Other current liabilities................. 768 -- -- 768
-------------- -------------- ---------------- ---------------
Total current liabilities.............. 11,760 10,413 -- 22,173
Long-term debt, excluding
current portion........................... 267,537 -- -- 267,537
Other liabilities......................... 6,103 26,816 (30,676) 2,243
Deferred income taxes..................... -- 4,677 -- 4,677
-------------- -------------- ---------------- ---------------
Total liabilities......................... 285,400 41,906 (30,676) 296,630
-------------- -------------- ---------------- ---------------
Preferred stock........................... 143,038 -- -- 143,038
-------------- -------------- ---------------- ---------------
Stockholders' equity...................... 91,640 508,048 (487,502) 112,186
-------------- -------------- ---------------- ---------------
Total liabilities and stockholders'
equity................................. $ 520,078 $ 549,954 $ (518,178) $ 551,854
============== ============== ================ ===============
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
RESTATED
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ............................ $ -- $ 83,519 $ -- $ 83,519
Less: agency commissions ............ -- (6,462) -- (6,462)
-------- -------- -------- --------
Net revenues ..................... -- 77,057 -- 77,057
Operating expenses:
Station operating expenses, excluding
depreciation and amortization .... -- 59,038 -- 59,038
Depreciation and amortization ....... 284 16,100 -- 16,384
Corporate G&A expenses .............. 3,410 -- -- 3,410
-------- -------- -------- --------
Operating expenses .................. 3,694 75,138 -- 78,832
-------- -------- -------- --------
Operating income (loss) ............. (3,694) 1,919 -- (1,775)
-------- -------- -------- --------
Interest (expense) .................. (12,459) (33) -- (12,492)
Interest income ..................... 220 1 -- 221
Other income (expense) .............. -- (2) -- (2)
-------- -------- -------- --------
Non operating expenses, net ......... (12,239) (34) -- (12,273)
-------- -------- -------- --------
Income (loss) before income taxes ... (15,933) 1,885 -- (14,048)
Income tax benefit .................. -- 4,710 -- 4,710
-------- -------- -------- --------
Income (loss) before
extraordinary item ............... (15,933) 6,595 -- (9,338)
Extraordinary (loss) ................ -- -- -- --
-------- -------- -------- --------
Net loss before equity adjustment ... (15,933) 6,595 -- (9,338)
Equity income (loss) in subsidiaries 6,595 -- (6,595) --
-------- -------- -------- --------
Net loss ............................ (9,338) 6,595 (6,595)
(9,338)
Preferred stock dividend ............ 9,297 -- -- 9,297
-------- -------- -------- --------
Net income (loss) attributable to
common stockholders .............. $(18,635) $ 6,595 $ (6,595) $(18,635)
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
RESTATED
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................ $(15,933) $ 6,595 $ -- $ (9,338)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation ..................... 104 3,371 -- 3,475
Amortization ..................... 741 11,076 -- 11,817
Deferred taxes ................... -- (4,710) -- (4,710)
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable .............. -- (12,275) -- (12,275)
Prepaid expenses and other current
assets ........................ (2,090) (863) -- (2,953)
Accounts payable and accrued
expenses ...................... (877) 1,844 (2) 965
Other assets ........................ (9,533) (2,161) 10,961 (733)
Other liabilities ................... 1,289 9,496 (10,959) (174)
-------- -------- -------- --------
Net cash (used in) provided
by operating activities .......... (26,299) 12,373 -- (13,926)
-------- -------- -------- --------
Cash flows from investing activities:
Acquisitions ..................... -- (41,933) -- (41,933)
Investment in subsidiaries ....... (41,933) -- 41,933 --
Escrow deposits on pending
acquisitions .................. 180 -- -- 180
Capital expenditures ............. (377) (5,530) -- (5,907)
Other ............................ (2) -- -- (2)
-------- -------- -------- --------
Net cash used by investing
activities ....................... (42,132) (47,463) 41,933 (47,662)
-------- -------- -------- --------
Cash flows from financing activities:
Contribution from parent ......... -- 41,933 (41,933) --
Proceeds from revolving line
of credit ..................... 45,800 -- -- 45,800
Payments on promissory notes ........ (11) -- -- (11)
-------- -------- -------- --------
Net cash provided by financing
activities ....................... 45,789 41,933 (41,933) 45,789
-------- -------- -------- --------
(Decrease)increase in cash
and cash equivalents .......... (22,642) 6,843 -- (15,799)
Cash and cash equivalents at
beginning of period ........... $ 10,139 $ 14,746 $ -- $ 24,885
Cash and cash equivalents at
end of period ................. $(12,503) $ 21,589 $ -- $ 9,086
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
RESTATED
AS OF DECEMBER 31, 1998
--------------------------------------------------------
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ......... $ 10,139 $ 14,746 $ -- $ 24,885
Accounts receivable, net .......... -- 28,056 -- 28,056
Prepaid expenses and other
currents assets ................ 749 2,059 -- 2,808
--------- --------- --------- ---------
Total current assets .............. 10,888 44,861 -- 55,749
Property and equipment, net ....... 1,188 40,250 -- 41,438
Investment in subsidiaries ........ 444,078 -- (444,078) --
Intangible assets, net ............ -- 404,220 -- 404,220
Other assets ...................... 32,166 3,775 (19,717) 16,224
--------- --------- --------- ---------
Total assets ...................... $ 488,320 $ 493,106 $(463,795) $ 517,631
========= ========= ========= =========
Accounts payable .................. $ 10,659 $ 8,370 $ (1) $ 19,028
Current portion of LTD ............ 20 -- -- 20
Other current liabilities ......... 768 -- -- 768
--------- --------- --------- ---------
Total current liabilities ...... 11,447 8,370 (1) 19,816
Long-term debt, excluding current
portion ........................ 222,747 -- -- 222,747
Other liabilities ................. 3,513 17,322 (19,717) 1,118
Deferred income taxes ............. -- 9,387 -- 9,387
--------- --------- --------- ---------
Total liabilities ................. 237,707 35,079 (19,718) 253,068
--------- --------- --------- ---------
Preferred stock ................... 133,741 -- -- 133,741
--------- --------- --------- ---------
Stockholders' equity .............. 116,872 458,027 (444,077) 130,822
--------- --------- --------- ---------
Total liabilities and stockholders'
equity ......................... $ 488,320 $ 493,106 $(463,795) $ 517,631
========= ========= ========= =========
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ............................ $ -- $ 37,937 $ -- $ 37,937
Less: agency commissions ............ -- (3,555) -- (3,555)
-------- -------- -------- --------
Net revenues ........................ -- 34,382 -- 34,382
Operating expenses:
Station operating expenses, excluding
depreciation and amortization .... -- 27,275 -- 27,275
Depreciation and amortization ....... 241 6,660 -- 6,901
Corporate general and
administrative expenses .......... 2,231 -- -- 2,231
-------- -------- -------- --------
Operating expenses .................. 2,472 33,935 -- 36,407
-------- -------- -------- --------
Operating income (loss) ............. (2,472) 447 -- (2,025)
-------- -------- -------- --------
Interest (expense) .................. (4,234) (15) -- (4,249)
Interest income ..................... 355 -- -- 355
Other income (expense) .............. (2) -- -- (2)
-------- -------- -------- --------
Non operating expenses, net ......... (3,881) (15) -- (3,896)
-------- -------- -------- --------
Income (loss) before income taxes ... (6,353) 432 -- (5,921)
Income tax benefit/(expense) ........ (21) -- -- (21)
-------- -------- -------- --------
Income (loss) before
extraordinary item ............... (6,374) 432 -- (5,942)
Extraordinary (loss) ................ (1,837) -- -- (1,837)
-------- -------- -------- --------
Net loss before equity adjustment ... (8,211) 432 -- (7,779)
Equity income (loss) in subsidiaries 432 -- (432) --
-------- -------- -------- --------
Net loss ............................ (7,779) 432 (432) (7,779)
Preferred stock dividend ............ 1,926 -- -- 1,926
-------- -------- -------- --------
Net income (loss) attributable
to common stockholders ........... $ (9,705) $ 432 $ (432) $ (9,705)
======== ======== ======== ========
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................ $ (8,211) $ 432 $ -- $ (7,779)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Extraordinary loss on early
extinguishment of debt ........ 1,837 -- -- 1,837
Depreciation ..................... 36 1,039 -- 1,075
Amortization ..................... 165 3,865 -- 4,030
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable .............. -- (14,214) -- (14,214)
Prepaid expenses and other
current assets ................ (1,736) (787) -- (2,523)
Accounts payable and accrued
expenses.......................... 172 7,075 -- 7,247
Other assets ........................ (8,953) 5,895 -- (3,058)
Other liabilities ................... 323 (705) -- (382)
--------- --------- --------- ---------
Net cash (used in) provided by
operating activities ............. (16,367) 2,600 -- (13,767)
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisitions ..................... -- (103,741) -- (103,741)
Investment in subsidiaries ....... (103,741) -- 103,741 --
Escrow deposits on pending
acquisitions .................. (7,735) -- -- (7,735)
Capital expenditures ............. (5) (1,747) -- (1,752)
Other ............................ (348) -- -- (348)
--------- --------- --------- ---------
Net cash used by investing
activities ....................... (111,829) (105,488) 103,741 (113,576)
Cash flows from financing activities:
Contribution from parent ......... -- 103,741 (103,741) --
Proceeds from revolving line
of credit ..................... 175,000 -- -- 175,000
Payments on revolving line of
credit ........................ (75,535) -- -- (75,535)
Payments on promissory notes ..... (5) -- -- (5)
Proceeds from issuance of
preferred stock ............... 16,250 -- -- 16,250
Proceeds from issuance of common
stock ......................... 15,135 -- -- 15,135
Payments for debt issuance costs . (3,208) -- -- (3,208)
--------- --------- --------- ---------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------------
(UNAUDITED)
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by financing
activities ................... 127,637 103,741 (103,741) 127,637
--------- --------- --------- ---------
Increase(decrease) in cash and
cash equivalents .......... (559) 853 -- 294
Cash and cash equivalents at
beginning of period ....... $ 1,080 $ 493 $ -- $ 1,573
Cash and cash equivalents at
end of period ............. $ 521 $ 1,346 $ -- $ 1,867
</TABLE>
15
<PAGE> 16
8. EARNINGS PER SHARE
The following table sets forth the computation of basic loss per share
for the three and six months ended June 30, 1999 and 1998. In order to reflect
the initial public offerings on July 1, 1998, the weighted average number of
shares outstanding for the three month and six month periods ended June 30, 1998
were determined after giving effect to the exchange of the Company's shares by
Cumulus Media, LLC in the initial public offerings.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
---- ---- ---- ----
RESTATED RESTATED
<S> <C> <C> <C> <C>
Numerator:
Net loss before extraordinary item .... $ (2,213) $ (2,446) $ (9,338) $ (5,942)
Preferred stock dividend .............. (4,752) (1,084) (9,297) (1,926)
Accretion of preferred stock discount . -- -- -- --
Numerator for basic earnings per
share - income available for
common stockholders ................ $ (6,965) $ (3,530) $(18,635) $ (7,868)
-------- -------- -------- --------
Denominator:
Denominator for basic earnings per
share - weighted-average
shares after giving effect to
initial public offering ............ 19,737 12,509 19,737 12,509
-------- -------- -------- --------
Net loss per common share -
before extraordinary item .......... $ (0.35) $ (0.28) $ (.94) $ (0.63)
Extraordinary item ....................... -- -- -- (0.15)
-------- -------- -------- --------
Net loss per common share ................ $ (0.35) $ (0.28) $ (.94) $ (0.78)
======== ======== ======== ========
</TABLE>
During the twelve months ended December 31, 1998 and the six months
ended June 30, 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 June 30, 1999, there were options issued to purchase the following classes of
common stock:
<TABLE>
<S> <C>
Options to purchase Class A common stock 1,285,284
Options to purchase Class C common stock 2,001,380
</TABLE>
Earnings per share assuming dilution has not been presented as the effect of the
options above would be antidilutive.
9. COMMITMENTS AND CONTINGENCIES
On April 29, 1999, Cumulus was served with a complaint filed in state court in
New York, seeking approximately $1.9 million in damages arising from our alleged
breach of national representation agreements. The Company believes they have a
variety of defenses to this claim and, as such, do not foresee the claim having
a material adverse effect on the business, results of operations or financial
condition.
The Company is a defendant from time to time in various lawsuits, which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
As of June 30, 1999, the Company has entered into various asset purchase
agreements to acquire radio stations. In general, the transactions are
structured such that if the Company cannot consummate these acquisitions because
of a breach of contract, the Company may be liable for five percent of the
purchase price, as defined by the agreements.
16
<PAGE> 17
10. SUBSEQUENT EVENTS
Subsequent to June 30, 1999 the Company completed acquisitions of 2 radio
stations located in 1 market for an aggregate purchase price of approximately
$2.1 million. These transactions will be accounted for by the purchase method of
accounting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the consolidated financial condition and results of
operations of Cumulus Media Inc. ("Cumulus" or the "Company") should be read in
conjunction with the consolidated financial statements and related notes thereto
of the Company included elsewhere in this Quarterly Report. This Quarterly
Report contains statements that constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements appear in a number of places in this Quarterly Report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers primarily with respect to the future operating
performance of the Company. Any such forward-looking statements are not
guarantees of future performance and may involve risks and uncertainties and
actual results may differ from those in the forward-looking statements as a
result of various factors (including, without limitation, risks and
uncertainties relating to leverage, the need for additional funds, the inability
of the Company to renew one or more of its broadcast licenses, changes in
interest rates, consummation of the Company's pending acquisitions, integration
of the pending acquisitions, the ability of the Company to eliminate certain
costs, the management of rapid growth, the popularity of radio as a broadcasting
and advertising medium and changing consumer tastes), many of which are beyond
the control of the Company. This discussion identifies important factors that
could cause such differences. The occurrence of any such factors not currently
expected by the Company would significantly alter the results set forth in these
statements.
A radio broadcast company's revenues are derived primarily from the sale of
advertising time to local and national advertisers. Those revenues are affected
by the advertising rates that a radio station is able to charge and the number
of advertisements that can be broadcast without jeopardizing listener levels
(and resulting ratings). Advertising rates tend to be based upon demand for a
station's advertising inventory and its ability to attract audiences in targeted
demographic groups, as measured principally by Arbitron. Radio stations attempt
to maximize revenues by adjusting rates based upon local market conditions,
controlling advertising inventory and creating demand and audience ratings.
Seasonal revenue fluctuations are common in the radio broadcasting industry and
are due primarily to fluctuations in advertising expenditures by local and
national advertisers, with revenues typically being lowest in the first calendar
quarter and higher in the second, third and fourth calendar quarters of each
year. A radio station's operating results in any period may be affected by the
occurrence of advertising and promotion expenses that do not produce
commensurate revenues in the period in which the expenditures are made. Because
Arbitron reports audience ratings on a semi-annual basis in most of the
Company's markets, a radio station's ability to realize revenues as a result of
increased advertising and promotional expenses and any resulting audience
ratings improvements may be delayed for several months.
The Company's results of operations from period to period are not historically
comparable due to the impact of the various acquisitions and dispositions that
the Company has completed.
As of June 30, 1999, the Company owns and operates, operates, provides
programming to or sells advertising on behalf of 228 radio stations located in
41 U.S. markets. Following completion of all of its pending acquisitions, the
Company will own and operate, provide programming to or sell advertising on
behalf of 246 radio stations located in 45 U.S. markets. The Company anticipates
that it will consummate the pending acquisitions, however the closing of each
such acquisition is subject to various conditions, including FCC and other
governmental approvals, which are beyond the Company's control. No assurances
can be given that the regulatory approval will be received or that the Company
will complete the pending acquisitions on a timely basis, if at all.
- -17-
<PAGE> 18
In the following analysis, management discusses broadcast cash flow and EBITDA.
Broadcast cash flow consists of operating income (loss) before depreciation,
amortization, corporate expenses and noncash compensation expense. EBITDA
consists of operating income (loss) before depreciation, amortization and
noncash compensation expense. Although broadcast cash flow and EBITDA are not
measures of performance calculated in accordance with generally accepted
accounting principles ("GAAP"), management believes that they are useful to an
investor in evaluating the Company because it is a measure widely used in the
broadcasting industry to evaluate a radio company's operating performance.
Nevertheless, they should not be considered in isolation, or as a substitute for
net income, operating income (loss), cash flows from operating activities or any
other measure for determining the Company's operating performance or liquidity
that is calculated in accordance with GAAP.
RESULTS OF OPERATIONS
The following table presents summary historical consolidated financial
information and other supplementary data of Cumulus for the three and six months
ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
-------- -------- -------- ---------
RESTATED RESTATED
-------- --------
<S> <C> <C> <C> <C>
OPERATING DATA:
Net broadcast revenue $ 45,846 $ 21,887 $ 77,057 $ 34,382
Stations operating expenses
excluding depreciation &
amortization 32,262 16,372 59,038 27,275
Depreciation and amortization 8,785 4,154 16,384 6,901
Corporate expenses 1,736 1,270 3,410 2,231
Operating income(loss) 3,063 91 (1,775) (2,025)
Interest expense (net) 6,390 2,520 12,271 3,894
Net income (loss) attributable to
common stock (6,965) (3,530) (18,635) (9,705)
OTHER DATA:
Broadcast cash flow (1) 13,584 5,515 18,019 7,107
Broadcast cash flow margin 29.6% 25.2% 23.4% 20.7%
EBITDA
(before noncash compensation
expense)(2) 11,848 4,245 14,609 4,876
Cash flows related to:
Operating activities N/A N/A (13,926) (13,767)
Investing activities N/A N/A (47,662) (113,576)
Financing activities N/A N/A 45,789 127,637
Capital expenditures N/A N/A $ 5,907 $ 1,752
</TABLE>
(1) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses, and noncash stock compensation expense.
Although broadcast cash flow is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcasting
industry to evaluate a radio Company's operating performance. Nevertheless, it
should not be considered in isolation or as a substitute for net income,
operating income (loss), cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity that is
calculated in accordance with GAAP. As broadcast cash flow is not a measure
calculated in accordance with GAAP, this measure may not be compared to
similarly titled measures employed by other companies.
- -18-
<PAGE> 19
(2) EBITDA consists of operating income (loss) before depreciation,
amortization, and noncash stock compensation expense. Although EBITDA (before
noncash stock compensation expense) is not a measure of performance calculated
in accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcasting
industry to evaluate a radio company's operating performance. Nevertheless, it
should not be considered in isolation or as a substitute for net income,
operating income (loss), cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity that is
calculated in accordance with GAAP. As EBITDA (before noncash stock compensation
expense), is not a measure calculated in accordance with GAAP, this measure may
not be compared to similarly titled measures employed by other companies.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net Broadcast Revenue. Net broadcast revenue increased $23.9 million to $45.8
million for the three months ended June 30, 1999 from $21.9 million for the
three month period ending June 30, 1998. This increase was primarily
attributable to the acquisition of radio stations and revenue generated from
LMAs entered into through June 30, 1999, as well as the sale of incremental
advertising time, primarily to local advertisers for the stations owned or
operated.
For the markets where the Company has operated stations since the second quarter
of 1998 (defined as the 119 stations owned or operated in 20 U.S. markets), net
broadcast revenue increased $5.6 million or 25.3% to $27.7 million for the three
months ended June 30, 1999, compared to the three months ended June 30, 1998.
This increase was primarily attributable to growth in the sale of commercial
time to local and national advertisers.
For the markets where the Company has operated stations since January 1, 1999
(defined as 195 stations in 36 U.S. markets), net broadcast revenue increased
$8.2 million to $41.7 million for the three month period ended June 30, 1999
from the pro forma $33.5 million for the three month period ended June 30, 1998.
Station Operating Expenses excluding Depreciation & Amortization. As a result of
the factors described above, station operating expenses, excluding depreciation
and amortization, increased $15.9 million to $32.3 million for the three months
ended June 30, 1999 from $16.4 million for the three month period ended June 30,
1998. The increase was attributable to the station operating expenses of the
acquired stations and the LMAs entered into through June 30, 1999.
Corporate Expenses. As a result of the factors described above, and due to
certain personnel additions incurred during the second half of 1998, corporate
expenses increased $0.4 million to $1.7 million for the three months ended June
30, 1999 from 1.3 million for the three months ended June 30, 1998.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $4.6 million to $8.8 million for the three months ended June 30, 1999
from $4.2 million for the period ended June 30, 1998, primarily due to the
impact of various acquisitions consummated during fiscal 1998.
Interest Expense (Income). Interest expense, net of interest income, increased
from $2.5 million during the three months ended June 30, 1998 to $6.4 million
for the three months ended June 30, 1999, primarily due to (i) additional
borrowings under the Company's term loan facility to finance acquisitions and
(ii) the issuance of the 10 3/8% Senior Subordinated Notes on July 1, 1998 in
connection with the Company's initial public offerings.
Net Income (Loss) Attributable to Common Stockholders. As a result of the
factors described above and the accrual of stock dividends on the Company's
issued and outstanding preferred stock; the net loss attributable to common
stockholders increased $3.5 million to $7.0 million for the three months ended
June 30, 1999 from $3.5 million for the three month period ended June 30, 1998.
- -19-
<PAGE> 20
Broadcast Cash Flow. Broadcast cash flow increased $8.1 million to $13.6 million
for the three months ended June 30, 1999 from $5.5 million for the three month
period ended June 30, 1998. The increase was primarily due to acquisitions of
radio stations and cash flow generated from LMAs entered into before June 30,
1999, as well as net overall operational improvements realized by the Company.
The broadcast cash flow margin was 29.6% for the three months ended June 30,
1999 compared with 25.2% during the same period in 1998.
EBITDA (before noncash compensation expense). As a result of the factors
described above, EBITDA increased $7.7 million to $11.9 million for the three
months ended June 30, 1999 from $4.2 million for the three month period ended
June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Broadcast Revenue. Net broadcast revenue increased $42.8 million to $77.1
million for the six months ended June 30, 1999 from $34.4 million for the six
month period ending June 30, 1998. This increase was primarily attributable to
the acquisition of radio stations and revenue generated from LMAs entered into
through June 30, 1999, as well as the sale of incremental advertising time,
primarily to local advertisers for the stations owned or operated.
For the markets where the Company has operated stations since the second quarter
of 1998 (defined as the 119 stations owned or operated in 20 U.S. markets), net
broadcast revenue increased $8.5 million or 21.9% to $47.4 million for the six
months ended June 30, 1999, compared to $38.9 million for the six months ended
June 30, 1998. This increase was primarily attributable to growth in the sale of
commercial time to local and national advertisers.
For the markets where the Company has operated stations since January 1, 1999
(defined as 195 stations in 36 U.S. markets), net broadcast revenue increased
$12.7 million to $72.4 million for the six month period ended June 30, 1999 from
the pro forma $59.7 million for the six month period ended June 30, 1998.
Station Operating Expenses excluding Depreciation & Amortization. As a result of
the factors described above, station operating expenses, excluding depreciation
and amortization, increased $31.8 million to $59.0 million for the six months
ended June 30, 1999 from $27.3 million for the six month period ended June 30,
1998. The increase was attributable to the station operating expenses of the
acquired stations and the LMAs entered into through June 30, 1999.
Corporate Expenses. As a result of the factors described above, and due to
certain personnel additions incurred during the second half of 1998, corporate
expenses increased $1.2 million to $3.4 million for the six months ended June
30, 1999 from $2.2 million for the six months ended June 30, 1998.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $9.5 million to $16.4 million for the six months ended June 30, 1999
from $6.9 million for the period ended June 30, 1998, primarily due to the
impact of various acquisitions consummated during fiscal 1998 and the six months
ended June 30, 1999.
Interest Expense (Income). Interest expense, net of interest income, increased
from $3.9 million during the six months ended June 30, 1998 to $12.3 million for
the six months ended June 30, 1999, primarily due to (i) additional borrowings
under the Company's term loan facility to finance acquisitions and (ii) the
issuance of the 10 3/8% Senior Subordinated Notes on July 1, 1998 in connection
with the Company's initial public offerings.
Net Income (Loss) Attributable to Common Stockholders. As a result of the
factors described above and the accrual of dividends on the Company's issued and
outstanding preferred stock; net loss attributable to common stockholders
increased $8.9 million to $18.6 million for the six months ended June 30, 1999
from $9.7 million for the six month period ended June 30, 1998.
- -20-
<PAGE> 21
Broadcast Cash Flow. Broadcast cash flow increased $10.9 million to $18.0
million for the six months ended June 30, 1999 from $7.1 million for the six
month period ended June 30, 1998. The increase was primarily due to acquisitions
of radio stations and cash flow generated from LMAs entered into before June 30,
1999, as well as net overall operational improvements realized by the Company.
The broadcast cash flow margin was 23.4% for the six months ended June 30, 1999
compared with 20.7% during the same period in 1998.
EBITDA (before noncash compensation expense). As a result of the factors
described above, EBITDA increased $9.7 million to $14.6 million for the six
months ended June 30, 1999 from $4.9 million for the six month period ended June
30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1999, net cash used in operations increased
$0.1 million to $13.9 million from net cash used in operations of $13.8 million
for the six month period ended June 30, 1998, primarily due to the investment in
working capital and other current assets made in connection with acquisitions
completed during fiscal 1998.
Net cash used in investing activities decreased $65.9 million to $47.7 million
from $113.6 million in the six month period ended June 30, 1998, primarily due
to less acquisition activity during the first half of 1999 as compared with the
same period in fiscal 1998.
For the six months ended June 30, 1999, net cash provided from financing
activities was $45.8 million compared to $127.6 million during the six month
period ended June 30, 1998. The level of financing activity during the six month
period ended June 30, 1998 was the result of initial borrowings under the
Company's credit facility as well as capital contributions from Cumulus Media,
LLC, the Company's immediate parent prior to the consummation of the initial
public debt and equity offerings. The 1999 financing activity was the result of
additional borrowings under the Credit Facility (as defined below).
On July 27, 1999, the Company completed a follow-on public stock offering
selling 9,664,000 shares of its 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. The Company intends to redeem a portion of
its Series A preferred stock, repay the principal amount of indebtedness
outstanding under the Credit Facility and fund the completion of a portion of
the Company's pending acquisitions. In addition, on August 4, 1999, the Company
was informed that the underwriters had exercised their option to purchase an
additional 1,449,600 shares of Class A Common Stock at $22.919 per share.
Exercise of the option will result in an additional $33.2 million in net
offering proceeds to the Company.
In connection with the July 1999 public offering, the Company signed a
commitment letter with its existing lenders providing for a new credit facility
in an aggregate principal amount of $225.0 million. It is anticipated by the
Company that the new agreement will consist of an eight-year term loan facility
in the amount of $75.0 million, an eight and one-half year term loan facility in
the amount of $50.0 million, a revolving credit facility in the amount of $50.0
million that converts to a seven-year term loan 364 days after closing and a
seven-year revolving credit facility in the amount of $50.0 million.
In addition to acquisitions and debt service, the Company's principal liquidity
requirements will be for working capital and general corporate purposes,
including capital expenditures. Management believes that cash from operating
activities and revolving loans under the Company's Credit Facility should be
sufficient to permit the Company to fund its operations and satisfy its debt
service requirements for at least the next 12 months. The Company regularly
reviews potential acquisitions. Future acquisitions are expected to be made from
available cash balances and additional borrowings under the Credit Facility.
Subsequent to June 30, 1999, the Company completed acquisitions of 2 radio
stations in 1 market for an aggregate purchase price of approximately $2.1
million. These transactions will be accounted for by the purchase method of
accounting.
- -21-
<PAGE> 22
The Company has also entered into various agreements to acquire 54 stations in
19 markets for an aggregate purchase price of approximately $162.3 million.
The Company's senior credit facility, as amended most recently as of April 14,
1999 and May 5, 1999 (the "Credit Facility"), provides for a revolving credit
line of $25.0 million until March 2, 2006, and 2 eight-year term loan facilities
of $62.5 million. Under the terms of the Credit Facility, the Company drew down
$62.5 million of term loan facility upon the closing of the offerings on July 2,
1998. In addition, during the first six months of 1999, the Company drew down an
additional $45.8 million in term facility. The proceeds of the borrowings under
the Credit Facility have been used to finance acquisitions and repay the
Company's outstanding indebtedness under its previous credit facility, and to
secure outstanding letters of credit issued under its previous credit facility.
Under the terms of the Credit Facility, the Company is subject to certain
restrictive financial and operating covenants, including but not limited to
maximum leverage covenants, minimum interest and fixed charge coverage
covenants, limitations on asset dispositions and the payment of dividends. The
failure to comply with the covenants would result in an event of default, which
in turn would permit acceleration of debt under those instruments. As of August
13, 1999, the Company did not meet certain of these financial covenant
requirements. However, in a letter dated June 30, 1999, the lender waived the
covenant requirements.
The Company's obligations under the Credit Facility are secured by substantially
all of its assets in which a security interest may lawfully be granted
(including FCC licenses held by the Company's subsidiaries). The obligations
under the Credit Facility are also guaranteed by each of the domestic
subsidiaries of the Company and are required to be guaranteed by any additional
subsidiaries acquired by the Company.
Both revolving credit and term loan borrowings under the Credit Facility bear
interest, at the Company's option, at a rate equal to the Base Rate (as defined
under the terms of the Credit Facility) plus a margin ranging between 0.50% to
1.75% or the Eurodollar Rate (as defined under the terms of the credit facility)
plus a margin ranging between 1.50 to 2.75% (in each case dependent upon the
leverage ratio of the Company). As of June 30, 1999, the Company's effective
interest rate on amounts outstanding under the credit facility during the
quarter was 7.75%.
The revolving credit and term loan borrowings are repayable in quarterly
installments beginning in 2000, subject to mandatory prepayment in certain
circumstances. The scheduled annual amortization of the term loans is $2.0
million in each of the years 2000 through 2002, $10.0 million in 2003, $20.0
million in 2004, $69.0 million in 2005, and $20.0 million at maturity. The
scheduled annual reduction in availability under the revolving credit loans is
$7.5 million in each of the years 2003 through 2005, and $2.5 million in 2006.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the
Costs of Start-Up Activities." SOP 98-5, effective for 1999, requires
organization costs to be expensed as incurred. The Company's adoption of SOP
98-5 in the first quarter of 1999 had an immaterial effect on the results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement 133 standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. The Company has not engaged in any derivative or hedging
transactions. As a result, we do not anticipate that the adoption of the this
new Statement will have a significant effect on our earnings or financial
position. Statement 133, as amended, is required to be adopted in years
beginning after June 15, 2000.
- -22-
<PAGE> 23
YEAR 2000 RISK
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the Year
2000. This could cause a system failure or miscalculation in the Company's
broadcast and corporate 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
Year 2000 issue can be mitigated. If such modifications and replacements are not
made, or are not completed in time, the Year 2000 issue could have a material
impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the identification
and assessment of the existing problem, plan of remediation, as well as a
testing and implementation plan. To date, the Company has substantially
completed the identification and assessment process, with the following
significant financial and operational components identified as being affected by
the Year 2000 issue:
Computer hardware running critical financial and operational software
that is not capable of recognizing a four-digit code for the applicable
year.
The Company's advertising inventory management software responsible for
managing, scheduling and billing customer's broadcast advertising
purchases.
Broadcast studio equipment and software necessary to deliver radio
programming.
Corporate financial accounting and information system software.
Significant non-technical systems and equipment that may contain
microcontrollers which are not Year 2000 compliant are being identified
and addressed if deemed critical.
The Company has instituted the following remediation plan to address the Year
2000 issues:
A computer hardware replacement plan for computers running essential
broadcast, operational and financial software applications with Year
2000 compatible computers has been instituted. As of June 30, 1999
approximately 75% of all essential computers related to broadcast or
studio equipment are Year 2000 compliant. Approximately 95% of all
essential financial based computers are Year 2000 compliant. The
Company anticipates this replacement plan to be 100% complete by the
end of the third quarter in 1999.
Software upgrades or replacement of advertising inventory management
software which is Year 2000 compliant have been planned, are in
process, or have been completed as of June 30, 1999. The Company has
received assurances from its software vendors that supply the Company's
advertising inventory management software that this software is Year
2000 compliant with a few minor exceptions. For these non-compliant
vendors, the Company will install inventory management software from a
compliant vendor by the end of the third quarter of 1999. Approximately
80% of the broadcast properties have Year 2000 compliant advertising
inventory management software as of June 30, 1999.
- -23-
<PAGE> 24
The Company has received assurances from its software vendors that
supply broadcasting digital automation systems that the software used
by the Company is currently compliant or has upgrades currently
available that are compliant. Broadcast software and studio equipment
is considered to be 80% compliant as of June 30, 1999 and is
anticipated to be 100% compliant by the third quarter of 1999.
Financial accounting software for the broadcast segment has been
replaced and is year 2000 compliant.
While the Company believes its efforts will provide reasonable assurance that
material disruptions will not occur due to internal failure, the possibility of
interruption still exists. The Company is currently querying other significant
vendors that do not share information systems with the Company (external
agents). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. The inability of external agents
to complete their Year 2000 resolution process is a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
In the ordinary course of business, the Company has acquired or plans to acquire
the necessary Year 2000 compliant hardware and software. These purchases are
part of specific operational and financial system enhancements with completion
dates during 1998 and early 1999 that were planned without specific regard to
the Year 2000 issue. These system enhancements resolve many Year 2000 problems
and have not been delayed or accelerated as a result of any additional efforts
addressing the Year 2000 issue. Accordingly, these costs have not been included
as part of the costs of Year 2000 remediation. However, there are several
hardware and software expenditures that have been or will be incurred to
specifically remediate Year 2000 non-compliance. Incremental hardware and
software costs that the Company has attributed to the Year 2000 issue are
estimated to be less than $1.5 million. Of this cost, approximately 10% will be
expensed as modification or upgrade costs with the remaining costs being
capitalized as new hardware or software. Sources of funds for these expenditures
will be supplied through cash flow generated from operations and/or available
borrowings from our credit facility.
The Company's accounting policy is to expense costs incurred due to maintenance,
modification or upgrade costs and to capitalize the cost of new hardware and
software. The Company believes that they have an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete any additional phases, it could experience
disruptions in its operations, including among other things, a temporary
inability to produce broadcast signals, process financial transactions, or
engage in similar normal business activities. In addition, disruptions in the
economy generally resulting from the Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems failures, equipment shutdowns or failure to properly date
business records. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time. The Company has commenced development of a
contingency plan in the event it does not complete all phases of the Year 2000
program prior to December 31, 1999. The Company expects the contingency plan to
be fully developed and in place by September 30, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 1999, approximately 40% of the Company's long-term debt bears
interest at variable rates. Accordingly, the Company's earnings and after tax
cash flow are affected by changes in interest rates. Assuming the current level
of borrowings at variable rates and assuming a 1% increase in the effective rate
of the loans, it is estimated that the Company's interest expense would have
increased by approximately $0.5 million for the six months ended June 30, 1999.
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.
- -24-
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No items to report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No items to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
(a) Exhibits
27.1 Financial Data Schedule
- -25-
<PAGE> 26
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
- -26-
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