<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, 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)
Registrant's Telephone Number, Including Area Code: (414) 615-2800
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, 1999, the registrant had outstanding 31,022,193
shares of common stock consisting of (i) 21,014,323 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 September 30, 1999 and December 31,
1998
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows for the Nine Months Ended
September 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
<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
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................................ $ 202,149 $ 24,885
Accounts receivable, less allowance for doubtful accounts
of $2,213 and $895, respectively.................................................. 45,790 28,056
Prepaid expenses and other current assets............................................ 8,346 2,808
------------ ------------
Total current assets............................................................ 256,285 55,749
Property and equipment, net............................................................. 58,551 41,438
Intangible assets, net.................................................................. 486,217 404,220
Other assets............................................................................ 20,477 16,224
------------ ------------
Total assets.................................................................... $ 821,530 $ 517,631
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses................................................ $ 14,437 $ 19,028
Current portion of long-term debt.................................................... 20 20
Other current liabilities............................................................ 875 768
------------ ------------
Total current liabilities....................................................... 15,332 19,816
Long-term debt, excluding current portion............................................... 285,232 222,747
Other liabilities....................................................................... 1,934 1,118
Deferred income taxes................................................................... 4,770 9,387
------------ ------------
Total liabilities............................................................... 307,268 253,068
------------ ------------
Series A Cumulative Exchangeable Redeemable Preferred Stock
due 2009, stated value $1,000 per share, 143,038
and 129,286 shares issued and outstanding, respectively.............................. 147,986 133,741
------------ ------------
Commitments and contingencies (Note 7)
Stockholders' equity:
Class A common stock, par value $.01 per share;
50,000,000 shares authorized; 21,013,283 and 8,700,504 shares..................... 210 87
outstanding, respectively
Class B common stock, par value $.01 per share;
20,000,000 shares authorized; 7,856,593 and 8,660,416 shares...................... 79 87
outstanding, respectively
Class C common stock, par value $.01 per share;
30,000,000 shares authorized; 2,151,277 and 2,376,277 shares...................... 22 24
outstanding, respectively
Additional paid-in-capital........................................................... 386,706 142,211
Accumulated other comprehensive income............................................... 5 5
Accumulated deficit.................................................................. (20,746) (11,592)
------------- ------------
Total stockholders' equity...................................................... 366,276 130,822
------------ ------------
Total liabilities and stockholders' equity...................................... $ 821,530 $ 517,631
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
RESTATED RESTATED
-------- --------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- -------------------------
RESTATED RESTATED RESTATED RESTATED
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................ $ 51,293 $ 31,495 $ 134,812 $ 69,432
Less: agency commissions............................ (4,000) (2,752) (10,462) (6,307)
---------- ---------- ---------- ----------
Net revenues................................ 47,293 28,743 124,350 63,125
Operating expenses:
Station operating expenses, excluding
depreciation and amortization................. 30,900 19,961 89,938 47,236
Depreciation and amortization.................... 10,100 6,075 26,484 12,976
Corporate general and administrative................ 1,740 1,664 5,150 3,895
---------- ---------- ---------- ----------
Operating expenses.................................. 42,740 27,700 121,572 64,107
---------- ---------- ---------- ----------
Operating income (loss).......................... 4,553 1,043 2,778 (982)
---------- ---------- ---------- ----------
Nonoperating income (expense):
Interest expense................................. (6,870) (5,500) (19,362) (9,749)
Interest income.................................. 1,833 1,434 2,054 1,789
Other income (expense), net...................... 761 -- 759 (2)
Nonoperating expenses, net.................... (4,276) (4,066) (16,549) (7,962)
---------- ---------- ---------- ----------
Income (loss) before income taxes................... 277 (3,023) (13,771) (8,944)
Income taxes........................................ (93) 3,700 4,617 3,679
Loss before extraordinary item...................... 184 677 (9,154) (5,265)
Extraordinary loss on early
extinguishment of debt........................... -- -- -- (1,104)
---------- ---------- ---------- ----------
Net loss............................................ 184 677 (9,154) (6,369)
Preferred stock dividend and
accretion of discount............................ 4,948 7,220 14,245 9,146
---------- ---------- ---------- ----------
Net loss attributable to common
stockholders..................................... $ (4,764) $ (6,543) $ (23,399) $ (15,515)
========== ========== ========== ==========
Basic and diluted loss per share.................... $ (0.17) $ (0.34) $ (1.05) $ (.80)
---------- ---------- ---------- ----------
Weighted average common shares
outstanding...................................... 27,527 19,467 22,362 19,467
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
RESTATED RESTATED
-------- --------
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $ (9,154) $ (6,369)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary loss on early extinguishment of debt.................. -- 1,104
Depreciation........................................................ 5,645 2,187
Amortization of goodwill, intangible assets and
other assets...................................................... 18,472 8,645
Deferred taxes ..................................................... (4,777) (3,701)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable................................................. (17,826) (20,921)
Prepaid expenses and other current assets........................... (5,415) (3,505)
Accounts payable and accrued expenses............................... (4,974) 18,002
Other assets........................................................ (526) (152)
Other liabilities................................................... (168) (227)
-------------- -------------
Net cash used in operating activities............................. (18,723) (4,937)
-------------- -------------
Cash flows from investing activities:
Acquisitions........................................................ (109,872) (324,287)
Escrow deposits on pending acquisitions............................. (1,090) (8,063)
Capital expenditures................................................ (10,484) (3,541)
Other............................................................... 234 36
-------------- -------------
Net cash used in investing activities............................. (121,212) (335,855)
-------------- -------------
Cash flows from financial activities:
Proceeds from revolving line of credit.............................. 176,950 175,000
Proceeds from sale of senior subordinated notes..................... -- 160,000
Payments on revolving line of credit................................ (114,450) (155,035)
Payments on promissory notes........................................ (15) (14)
Proceeds from issuance of preferred stock........................... -- 101,875
Proceeds from issuance of common stock, net of equity costs......... 258,853 107,352
Payments for debt issuance costs.................................... (4,139) (9,780)
-------------- -------------
Net cash provided by financing activities......................... 317,199 379,398
-------------- -------------
Increase in cash and cash equivalents..................................... 177,264 38,606
Cash and cash equivalents at beginning of period.......................... $ 24,885 $ 1,573
Cash and cash equivalents at end of period................................ $ 202,149 $ 40,179
Non-cash operating and investing activities:
Trade revenue....................................................... $ 7,260 $ 3,922
Trade expense....................................................... 7,123 3,851
Assets acquired through notes payable............................... 1,490 1,515
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 6
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, 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 nine month periods ended September 30, 1999:
<TABLE>
<CAPTION>
Income
(Loss) Net loss
For the three before attributable
months ended Net Operating Operating income Income to common Loss per
September 30, 1999 Revenues Expenses Income taxes taxes stockholders share
- ------------------ -------- --------- --------- ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As previously reported $48,017 $ 42,591 $ 5,426 $ 1,150 $ (160) $ (3,958) $ (.14)
Restatement associated
with elimination of
deferred tax asset
valuation allowance -- -- -- -- 67 67 --
Restatement for correction
of certain misallocated
revenues and expenses
(724) 149 (873) (873) -- (873) (.03)
------- -------- -------- --------- -------- --------- -------
As restated $47,293 $ 42,740 $ 4,553 $ 277 $ (93) $ (4,764) (.17)
======= ======== ======== ======== ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Income
(Loss) Net loss
For the nine before attributable
months ended Net Operating Operating income Income to common Loss per
September 30, 1999 Revenues Expenses Income taxes taxes stockholders share
- ------------------ -------- --------- --------- ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
As previously reported $125,732 $121,469 $ 4,263 $ (12,286) $ (160) $ (26,691) $ (1.19)
Restatement associated
with elimination of
deferred tax asset
valuation allowance -- -- -- -- 4,777 4,777 .21
Restatement for correction
of certain misallocated
revenues and expenses (1,382) 103 (1,485) (1,485) -- (1,485) (.07)
------- -------- -------- --------- -------- --------- -------
As restated $124,350 $121,572 $ 2,778 $ (13,771) $ 4,617 $ (23,399) $ (1.05)
======= ======== ======== ======== ========= ========= =======
</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") and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and
<PAGE> 7
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 nine months ended September 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. SECONDARY 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. In addition, on August 10,
1999, the U.S. underwriters exercised an option granted by the Company,
purchasing an additional 1,449,600 shares. Exercise of the option resulted in an
additional $33.2 million in net offering proceeds to the Company.
5. CREDIT FACILITY
On August 31, 1999, the Company's existing credit facility was amended and
restated to provide for aggregate principal commitments of $225 million. The
amended facility consists of an 8 year term loan facility of $75 million, an
8 1/2 year term loan facility due February 28, 2008 of $50 million, a 7 year
revolving credit commitment of $50 million and a 7 year revolving credit
facility of $50 million that converts to a 7 year term loan, at the option of
the Company, 364 days from closing. Under the terms of the facility, the Company
drew down $125 million of term facility on August 31, 1999, a portion of which
was used to satisfy the principal amount of indebtedness on its preexisting
credit facility.
Under the terms of the amended and restated 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 of this Quarterly Report on Form 10-Q, no
covenant test forms calculations were required, as specified by the agreement.
<PAGE> 8
6. ACQUISITIONS:
During the nine months ended September 30, 1999, the Company completed 16
acquisitions of radio stations for a total purchase price of $106.0 million plus
various other direct acquisition costs.
On September 15, 1999, the Company acquired all of the assets of Broadcast
Software International Inc. (BSI), a Eugene, Oregon-based developer of digital
audio software, for a total purchase price of $5.4 million in cash and stock.
BSI is a software development company specializing in digital audio applications
for broadcast radio and television as well as for Internet broadcasters. More
than 1500 broadcasters worldwide currently use BSI's core product, the
WaveStation(R) digital studio system. WaveStation software allows a PC to store
music and advertisements and manage all aspects of radio station audio
operations, replacing record, tape and CD players, cart machines and other
analog and electro-mechanical devices. In July 1999 the Company announced that
it would standardize its radio station group on BSI's products. BSI will operate
as a subsidiary of Cumulus with operations remaining in their current Eugene,
Oregon headquarters.
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>
Current assets.............................. $ 161
Property and equipment...................... 12,274
Intangible assets........................... 99,123
Current liabilities......................... (196)
-------------
$ 111,362
=============
</TABLE>
The unaudited consolidated condensed pro forma results of operations data for
the nine months ended September 30, 1999 and 1998, presented as if all
acquisitions completed during 1998 and during the first nine months of 1999
occurred at January 1, 1998, follow:
<TABLE>
<CAPTION>
RESTATED RESTATED
-------- --------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues....................................... $ 49,949 $ 44,280 $ 137,739 $ 121,689
Operating income (loss)............................ 4,238 (185) 1,948 (6,821)
Net loss........................................... (930) (986) (12,379) (21,491)
Net loss attributable to common
stockholders.................................... (5,878) (5,934) (26,624) (35,736)
Basic and diluted loss per common
share (in dollars).............................. (0.21) (0.30) (1.19) (1.84)
</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 1998, nor is it indicative of future
results of operations.
Escrow funds of approximately $4.4 million paid by the Company in connection
with pending acquisitions as of September 30, 1999 have been classified as other
assets at September 30, 1999 in the accompanying consolidated balance sheet.
<PAGE> 9
At September 30, 1999 the Company operated 44 stations under local marketing
agreements ("LMA"). The statement of operations for the quarter ended and nine
months ended September 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 September 30, 1999.
7. GUARANTOR'S FINANCIAL INFORMATION
Certain of the Company's direct and indirect subsidiaries (all such subsidiaries
are directly or indirectly wholly owned by the Company) will provide full and
unconditional 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 consolidated condensed financial information
pertaining to the Company's subsidiary guarantors. The Company has not presented
separate financial statements for the subsidiary guarantors and non-guarantors
because management does not believe that such information is material to
investors.
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Current assets........................................................................... $ 81,248 $ 44,861
Noncurrent assets........................................................................ 549,016 448,245
Current liabilities...................................................................... 8,929 8,370
Noncurrent liabilities................................................................... 47,949 32,396
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER SEPTEMBER
1999 1998
--------- ---------
<S> <C> <C>
Net revenues............................................................................ $ 124,350 $ 63,125
Operating expenses...................................................................... 89,938 59,609
Income before extraordinary item........................................................ 9,284 3,490
Net loss................................................................................ 9,284 3,490
</TABLE>
8. EARNINGS PER SHARE
The following table sets forth the computation of basic loss per share for the
three and nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
RESTATED RESTATED
-------- --------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
NUMERATOR: 1999 1998 1999 1998
- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item................. $ 184 $ 677 $ (9,154) $ (5,265)
Extraordinary loss on early extinguishment of debt......... -- -- -- (1,104)
Preferred stock dividend including
accretion of discount................................... (4,948) (7,220) (14,245) (9,146)
------------ ----------- ------------- ------------
Numerator for basic earnings per share - net
loss attributable to common
stockholders............................................ $ (4,764) $ (6,543) $ (23,399) $ (15,515)
</TABLE>
<PAGE> 10
DENOMINATOR:
<TABLE>
<S> <C> <C> <C> <C>
Denominator for basic earnings per share - weighted-
average shares after giving effect to initial public
offering................................................... 27,527 19,467 22,362 19,467
------------ ----------- ------------- ------------
Net loss per common share - before
extraordinary item...................................... $ (0.17) $ (0.34) $ (1.05) $ (0.74)
Extraordinary item......................................... -- -- -- (0.06)
------------ ----------- ------------- ------------
Net loss per common share.................................. $ (0.17) $ (0.34) $ (1.05) $ (0.80)
============ =========== ============= ============
</TABLE>
During the twelve months ended December 31, 1998 and the nine months
ended September 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 September 30, 1999 there were options issued to purchase the
following classes of common stock:
<TABLE>
<S> <C>
Options to purchase class A common stock...................................... 2,114,309
Options to purchase class C common stock...................................... 3,001,380
</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. This action is currently in discovery.
The Company was recently served with a complaint filed in county court in
Alabama alleging that in August 1997, an employee of Colonial Broadcasting,
Inc., which the Company acquired in July 1998, was at fault in connection with
an automobile accident. The plaintiff is seeking $8.5 million in damages. The
Company believes they have a right to indemnification from the sellers of
Colonial Broadcasting under the related purchase agreement. The sellers'
insurance company has assumed the defense of the matter.
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 September 30, 1999, the Company has entered into various asset purchase
agreements to acquire 50 radio stations for an aggregate purchase price of
$144.6 million. 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.
10. SUBSEQUENT EVENTS
Subsequent to September 30, 1999 the Company completed acquisitions of 8 radio
stations located in 5 markets for an aggregate purchase price of approximately
$37.6 million. These transactions will be accounted for by the purchase method
of accounting.
On October 1, 1999, the Company redeemed 43,750 shares of its Series A preferred
stock for $51.3 million, including redemption premium of $6.0 million and
accrued but unpaid dividends of $1.5 million.
On October 28, 1999, the Company filed a Registration Statement on Form S-3
under the Securities Act of 1933 with the Securities and Exchange Commission
(SEC). The Registration Statement registers 4,000,000 shares of the Company's
Class A Common Stock, of which 3,000,000 shares are being offered by the Company
and 1,000,000 shares are being offered by
<PAGE> 11
two of the Company's original shareholders. As of the original filing date of
this Quarterly Report on Form 10Q, the Registration Statement on Form S-3 had
not been declared effective by the SEC.
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. Actual
results may differ from those in the forward-looking statements as a result of
various factors. Risks and uncertainties that may effect forward looking
statements in this document include, without limitation, risks and uncertainties
relating to leverage, the need for additional funds, FCC and government approval
of pending acquisitions, the inability of the Company to renew one or more of
its broadcast licenses, changes in interest rates, consummation of the Company's
pending acquisitions, integration of the pending acquisitions, the ability of
the Company to eliminate certain costs, the management of rapid growth, the
popularity of radio as a broadcasting and advertising medium and changing
consumer tastes. Many of these risks and uncertainties are beyond the control of
the Company. This discussion identifies important factors that could cause such
differences. The occurrence of any such factors not currently expected by the
Company would significantly alter the results set forth in these statements.
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
the 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 the media research firm,
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 September 30, 1999, the Company owns and operates, operates, provides
programming to or sells advertising on behalf of 244 radio stations located in
47 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 261 radio stations located in 48 U.S. markets. The Company anticipates
that it will consummate the pending acquisitions, however the closing of each
such acquisition is subject to various conditions, including FCC and other
governmental approvals, which are beyond the Company's control. No assurances
can be given that the regulatory approval will be received or that the Company
will complete the pending acquisitions on a timely basis, if at all.
In the following analysis, management discusses broadcast cash flow and EBITDA.
Broadcast cash flow consists of operating income (loss) before depreciation,
amortization, corporate expenses and noncash compensation expense. EBITDA
consists of operating income (loss) before depreciation, amortization and
noncash compensation expense. Although broadcast cash flow and EBITDA are not
measures of performance calculated in accordance with generally accepted
<PAGE> 12
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. These measures should also not be
compared to similarly titled measures employed by other companies.
RESULTS OF OPERATIONS
The following table presents summary historical consolidated financial
information and other supplementary data of Cumulus for the three and nine
months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
RESTATED RESTATED
-------- --------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING DATA:
Net broadcast revenue............................... $ 47,293 $ 28,743 $ 124,350 $ 63,125
Station operating expenses
excluding depreciation & amortization............... 30,900 19,961 89,938 47,236
Depreciation and amortization....................... 10,100 6,075 26,484 12,976
Corporate expenses.................................. 1,740 1,664 5,150 3,895
Operating income(loss)........................... 4,553 1,043 2,778 (982)
Interest expense (net).............................. 5,037 4,066 17,308 7,960
Net loss attributable to
common stock..................................... (4,764) (6,543) (23,399) (15,515)
OTHER DATA:
Broadcast cash flow................................. 16,393 8,782 34,412 15,889
Broadcast cash flow margin.......................... 34.7% 30.6% 27.7% 25.2%
EBITDA
(before noncash compensation expense)......... 14,653 7,118 29,262 11,994
Cash flows related to:
Operating activities.......................... N/A N/A (18,723) (4,937)
Investing activities.......................... N/A N/A (121,212) (335,855)
Financing activities.......................... N/A N/A 317,199 379,398
Capital expenditures, excluding assets
acquired through station acquisitions......... N/A N/A (10,484) (3,541)
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
Net Broadcast Revenue. Net broadcast revenue increased $18.6 million or 64.7% to
$47.3 million for the three months ended September 30, 1999 from $28.7 million
for the three month period ending September 30, 1998. This increase was
primarily attributable to the acquisition of radio stations and revenue
generated from LMAs entered into through September 30, 1999, as well as the sale
of incremental advertising time, primarily to local and national advertisers for
the stations owned or operated.
For the markets where the Company has operated stations since the third quarter
of 1998 (defined as the 127 stations owned or operated in 22 U.S. markets), net
broadcast revenue increased $5.1 million or 20.5% to $30 million for the three
months ended September 30, 1999, compared to the three months ended September
30, 1998. This increase was primarily attributable to growth in the sale of
commercial time to local and national advertisers.
<PAGE> 13
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
$7.6 million or 22.2% to $41.8 million for the three month period ended
September 30, 1999 from the pro forma $34.2 million for the three month period
ended September 30, 1998.
Station Operating Expenses excluding Depreciation & Amortization. As a result of
station acquisitions and investments made by the Company in its infrastructure,
station operating expenses, excluding depreciation and amortization, increased
$11.0 million or 54.8% to $30.9 million for the three months ended September 30,
1999 from $20.0 million for the three month period ended September 30, 1998. The
increase was attributable to the station operating expenses of the acquired
stations and the LMAs entered into through September 30, 1999.
Corporate Expenses. Consistent with the same period in the prior year, corporate
expenses totaled $1.7 million for the three months ended September 30, 1999.
Depreciation and Amortization Expense. Depreciation and amortization increased
$4.1 million or 67.2% to $10.1 million for the three months ended September 30,
1999 from $6.1 million for the period ended September 30, 1998, primarily due to
the impact of various acquisitions consummated during fiscal 1998 and fees paid
in connection with certain LMA agreements in effect in the quarter ended
September 30, 1999.
Interest Expense (Income). Interest expense, net of interest income, increased
from $4.1 million during the three months ended September 30, 1998 to $5.0
million for the three months ended September 30, 1999, primarily due to
additional borrowings under the Company's term loan facility which were used to
finance acquisitions.
Net Income (Loss) Attributable to Common Stock. As a result of the increased
revenues resulting from improved station performance at the stations owned and
operated and net of the accrual of dividends on the Company's issued and
outstanding preferred stock, the net loss attributable to common stock was $4.8
million for the three months ended September 30, 1999, compared to $6.5 million
for the three month period ended September 30, 1998.
Broadcast Cash Flow. Broadcast cash flow increased $7.6 million or 86.4% to
$16.4 million for the three months ended September 30, 1999 from $8.8 million
for the three month period ended September 30, 1998. The increase was primarily
due to acquisitions of radio stations and cash flow generated from LMAs entered
into subsequent to September 30, 1998, as well as net overall operational
improvements realized by the Company. The broadcast cash flow margin was 34.7%
for the three months ended September 30, 1999 compared with 30.6% during the
same period in 1998.
For the markets where the Company has operated stations since the third quarter
of 1998 (defined as the 127 stations owned or operated in 22 U.S. markets),
broadcast cash flow was $10.3 million, up 39.2% from $7.4 million during the
quarter ended September 30, 1998. Broadcast cash flow margins increased to 34.4%
in 1999 compared to 29.9% for the quarter ended September 30, 1998.
For the markets where the Company has operated stations since January 1, 1999
(defined as 195 stations in 36 U.S. markets), broadcast cash flow was $15.0
million, up 54.5% from $9.7 million for the nine months ended September 30,
1998. Broadcast cash flow margins increased to 35.9% in 1999 compared to 28.4%
in the third quarter 1998.
EBITDA (before noncash compensation expense). As a result of the factors
described above, EBITDA increased $7.6 million to $14.7 million for the three
months ended September 30, 1999 from $7.1 million for the three month period
ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Broadcast Revenue. Net broadcast revenue increased $61.3 million or 97.2% to
$124.4 million for the nine months ended September 30, 1999 from $63.1 million
for the nine month period ending September 30, 1998. This increase was primarily
attributable to the acquisition of radio stations and revenue generated from
LMAs entered into through September 30, 1999, as well as the sale of incremental
advertising time, primarily to local advertisers for the stations owned or
operated.
<PAGE> 14
For the markets where the Company has operated stations since the third quarter
of 1998 (defined as the 127 stations owned or operated in 22 U.S. markets), net
revenue increased $14.1 million or 21.0% to $81.2 million for the nine months
ended September 30, 1999, compared to $67.1 million for the prior year's nine
months ended September 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 revenue increased $20.3
million or 21.6% to $114.2 million for the nine month period ended September 30,
1999 from the pro forma $93.9 million for the nine month period ended September
30, 1998.
Station Operating Expenses excluding Depreciation & Amortization. As a result of
the factors described above, station operating expenses, excluding depreciation
and amortization, increased $42.8 million or 90.6% to $90.0 million for the nine
months ended September 30, 1999 from $47.2 million for the nine month period
ended September 30, 1998. The increase was attributable to the station operating
expenses of the acquired stations and the LMAs entered into through September
30, 1999.
Corporate Expenses. As a result of the continued acquisition activity and
increases in corporate personnel, corporate expenses increased $1.3 million to
$5.2 million for the nine months ended September 30, 1999 from $3.9 million for
the nine months ended September 30, 1998.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $13.5 million to $26.5 million for the nine months ended September 30,
1999 from $13.0 million for the period ended September 30, 1998, primarily due
to the impact of various acquisitions consummated during fiscal 1998 and the
nine months ended September 30, 1999.
Interest Expense (Income). Interest expense, net of interest income, increased
from $7.9 million during the nine months ended September 30, 1998 to $17.3
million for the nine months ended September 30, 1999, primarily due to (i)
additional borrowings under the Company's term loan facility to finance
acquisitions and (ii) interest incurred on the 10 3/8% Senior Subordinated Notes
issued on July 1, 1998 in connection with the Company's initial public offering.
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, net loss attributable to common
stockholders increased $7.9 million to $23.4 million for the nine months ended
September 30, 1999 from $15.5 million for the nine month period ended September
30, 1998.
Broadcast Cash Flow. Broadcast cash flow increased $18.5 million or 116.4% to
$34.4 million for the nine months ended September 30, 1999 from $15.9 million
for the nine month period ended September 30, 1998. The increase was primarily
due to acquisitions of radio stations and cash flow generated from LMAs entered
into before September 30, 1999, as well as net overall operational improvements
realized by the Company. The broadcast cash flow margin was 27.7% for the nine
months ended September 30, 1999 compared with 25.2% during the same period in
1998.
For the markets where the Company has operated stations since the third quarter
of 1998 (defined as the 127 stations owned or operated in 22 U.S. markets),
broadcast cash flow was $23.9 million, up 60.5% from $14.9 million during the
nine months ended September 30, 1998. Broadcast cash flow margins increased to
29.8% in 1999 compared to 22.2% in 1998.
For the markets where the Company has operated stations since January 1, 1999
(defined as 195 stations in 36 U.S. markets), broadcast cash flow was $32.0
million, up 48.15% from $21.6 million for the nine months ended September 30,
1998. Broadcast cash flow margins increased to 29.1% in 1999 compared to 23.0%
in 1998.
EBITDA (before noncash compensation expense). As a result of the factors
described above, EBITDA increased $17.3 million or 144.2% to $29.3 million for
the nine months ended September 30, 1999 from $12.0 million for the nine month
period ended September 30, 1998.
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, net cash used in operations
increased $13.8 million to $18.7 million from net cash used in operations of
$4.9 million for the nine month period ended September 30, 1998, primarily due
to completed acquisitions and LMA agreements entered into during the periods and
their effects on operating income and working capital requirements.
Net cash used in investing activities decreased $214.7 million to $121.2 million
from $335.9 million in the nine month period ended September 30, 1998, primarily
due to decreased acquisition activity during 1999 as compared with the same
period in fiscal 1998.
For the nine months ended September 30, 1999, net cash provided from financing
activities was $317.2 million compared to $379.4 million during the nine month
period ended September 30, 1998. The level of financing activity during the nine
month period ended September 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 Company's reorganization
and consummation of the July 1998 debt and equity offerings. The 1999 financing
activity was the result of additional borrowings under the Company's credit
facility and proceeds from the Company's follow-on public stock offering
completed on July 27, 1999.
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. In addition, on August 10, 1999, the
underwriters 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 resulted in
an additional $33.2 million in net offering proceeds to the Company.
On August 31, 1999, the Company's existing credit facility (the "Credit
Facility") was amended and restated to provide for aggregate principal
commitments of $225 million. The amended facility consists of an 8 year term
loan facility of $75 million, an 8 1/2 year term loan facility due February 28,
2008 of $50 million, a 7 year revolving credit commitment of $50 million and a 7
year revolving credit facility of $50 million that converts to a 7 year term
loan, at the option of the Company, 364 days from closing. Under the terms of
the facility, the Company drew down $125 million of term facility, a portion of
which was used to satisfy the principal amount of indebtedness on its existing
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. We intend to finance the pending acquisitions
with cash on hand, the proceeds of borrowings under our Credit Facility or
future credit facilities, and other sources to be identified. The ability of the
Company to complete the pending acquisitions is dependent upon on the Company's
ability to obtain additional equity and/or debt financing on favorable terms, if
at all. There can be no assurance that the Company will be able to obtain such
financing on favorable terms, if at all.
Subsequent to September 30, 1999, the Company completed acquisitions of 8 radio
stations in 5 markets for an aggregate purchase price of approximately $37.6
million. These transactions will be accounted for by the purchase method of
accounting.
On October 1, 1999, the Company used $51.3 million of the proceeds of the July
27, 1999 offering to redeem 43,750 shares of its Series A preferred stock plus
accrued and unpaid dividends, in addition to satisfying a redemption premium.
The Company intends to fund the completion of its pending acquisitions with the
remaining proceeds of the offering and, as necessary, borrowings under its
credit facility.
The Company has also entered into various agreements to acquire 50 stations in
22 markets for an aggregate purchase price of approximately $144.6 million.
Under the terms of the amended and restated 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
<PAGE> 16
covenants would result in an event of default, which in turn would permit
acceleration of debt under those instruments. As of November 12, 1999 this
Quarterly Report on Form 10-Q, the Company was in compliance with all financial
covenant requirements.
The Company's obligations under the Credit Facility are collateralized 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 2.0% to
2.125% or the Eurodollar Rate (as defined under the terms of the credit
facility) plus a margin ranging between 3.0 to 3.125% (in each case dependent
upon the leverage ratio of the Company). As of September 30, 1999, the Company's
effective interest rate on amounts outstanding under the credit facility during
the quarter was 8.4%.
The 8 year term loan borrowing is repayable in quarterly installments beginning
in December 2001. The scheduled annual principal repayment of the 8 year term
loan is $0.2 million in year 2001, $0.8 million in each of the years 2002
through 2005, $18.4 million in 2006 and $53.4 million in 2007. The 8 1/2 year
term loan borrowing is repayable in two consecutive quarterly installments of
$25 million in November 2007 and February 2008. The scheduled annual reduction
in availability under the 7 year revolving credit loans is 1.25% in 2001, 5.0%
in 2002, 6.25% in 2003, 12.5% in 2004, 30.0% in 2005 and 45% in 2006. For any 7
year revolving credit loans converted to term loans, borrowings are repayable in
quarterly installments beginning in December 2001. The scheduled annual
amortization of the converted term loans is 2.5% of the outstanding principal
during 2001, 10.0% in 2002, 11.25% in 2003, 15% in 2004, 23.75% in 2005 and
37.5% 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.
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 three separate system evaluations, the most recent of which was
completed in early October 1999, as well as ongoing, on-site inventories, the
Company has 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 business, results of operations or financial condition.
<PAGE> 17
The Company's plan to resolve the Year 2000 issue has involved the
identification and assessment of the existing problem, developing a plan of
remediation, as well as a testing and implementation plan. To date, the Company
has completed the identification and assessment process, and is substantially
completed with its implementation plan, 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 September 30, 1999 approximately 100% of
all essential computers related to broadcast or studio equipment are Year 2000
compliant. Also, 100% of all essential financial based computers are Year 2000
compliant.
Software upgrades or replacement of advertising inventory management software
which is Year 2000 compliant have been completed as of September 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. As of September 30, 1999 all of the
broadcast properties operated have year 2000 compliant inventory management
software with the exception of the Caribbean, which is scheduled to have a
compliant inventory management system selected, installed and tested by November
15, 1999.
The Company has received assurances from its software vendors that supply
broadcasting digital automation systems that the software used by the Company is
currently compliant or has upgrades currently available that are compliant.
Broadcast software and studio equipment are considered to be 100% compliant as
of September 30, 1999, with the exception of eight of our markets discussed
below. Financial accounting software for the broadcast segment has been replaced
and is year 2000 compliant.
During September 1999 the Company completed its most recent survey regarding Y2K
compliance specifications to address Y2K compliance exceptions in each market
(e.g. systems that were not Y2K compliant as of September 30, 1999).
This most recent compliance survey segmented Y2K compliance assessment by
1)-station automation systems and 2) business computers.
AUTOMATION SYSTEMS:
The Company's survey determined that as of September 30, 1999 eight markets were
non-compliant and were awaiting hardware and software upgrades from the
manufacturers. Of the eight non-compliant markets, three markets' automation
systems cannot be modified or upgraded sufficiently to ensure Y2K compliance.
Rather than await the necessary hardware or software upgrades/modifications from
third party vendors, the Company made the decision to migrate all eight markets
to BSI Waavstation automation systems by mid-November. BSI's automation software
is Y2K compliant and has been adopted as the Cumulus station automation system
standard across all of its markets. Installation of these BSI systems across the
eight markets has commenced and will be installed, tested and fully operational
by mid-November. As a secondary plan for the eight non-compliant markets, the
Company will continue to pursue the old station automation system
<PAGE> 18
manufacturers and obtain any Y2K related upgrades/modifications they recommend
for these systems when available and as determined to be cost beneficial.
AUTOMATION SYSTEM CONTINGENCY PLAN:
As a contingency plan all stations will be supplied with a mini-disk player
capable of recording several hours of continuous music and station liners. These
mini-disk players can be used to keep the station on the air in the event of an
unanticipated breakdown in the automation system on January 1, 2000. BSI and
Stratford Research have collaborated to create more extensive pre-recorded music
libraries (by format) that can be shipped on a hard disk with short notice. The
Company is in the process of pre-ordering personal computer hardware to handle 2
additional markets and hold it in storage in Milwaukee in case it is required
urgently at a new market location. All stations are required to create, save and
store station play list backups onto a floppy disk, so the Company can replicate
their music libraries easily and on short notice.
STATION BUSINESS SYSTEMS:
Due to recent LAN installations across each of our 48 markets, the Company
believes all of their critical business systems (e.g. traffic, general ledger,
receivables and payables) are already Y2K compliant. The Company is in the
process of installing a new traffic system in the Caribbean in order to ensure
Y2K compliance, and this installation will be installed, tested and fully
operational by mid-November.
Each market may have exceptions; across all of our markets the Company has 486
personal computers that are in use in non-critical, administrative roles. These
personal computers will be replaced as part of our long-term capital planning
and budgeting processes.
CORPORATE BUSINESS SYSTEMS:
All Cumulus' information systems including the general ledgers, daily sales
reporting and cash management systems are Y2K compliant as of September 30,
1999.
BUSINESS SYSTEMS CONTINGENCY PLAN:
The Company has created a website available to all of its markets with all the
necessary business system Y2K modifications and instructions in the event of an
unanticipated problem on January 1, 2000. The Company is also ordering four
additional network servers and 10 additional desktop personal computers to store
in Milwaukee in the event an urgent need is identified.
EMERGENCY ALERT SYSTEMS:
The Company believes all of its EAS systems are Y2K compliant as of September
30, 1999.
PERSONNEL:
The Company has identified a person in each market who will be on site or on
call on December 31, 1999 through the night to ensure any issues associated with
station signal transmission or operations are identified immediately and
addressed with the assistance of corporate engineering and information
technology departments.
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 business,
<PAGE> 19
results of operations or financial condition of 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 completed 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 $2.0
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 it has 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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
At September 30, 1999, approximately 44% 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 1.0% increase in the effective
rate of the loans, it is estimated that the Company's interest expense would
have increased by approximately $0.9 million for the nine months ended September
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.
<PAGE> 20
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
(b) Reports on Form 8-K
None
<PAGE> 21
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 202,149,000
<SECURITIES> 0
<RECEIVABLES> 48,003,000
<ALLOWANCES> 2,213,000
<INVENTORY> 0
<CURRENT-ASSETS> 256,285,000
<PP&E> 68,179,000
<DEPRECIATION> 9,628,000
<TOTAL-ASSETS> 821,530,000
<CURRENT-LIABILITIES> 15,332,000
<BONDS> 285,232,000
147,986,000
0
<COMMON> 0
<OTHER-SE> 366,276,000
<TOTAL-LIABILITY-AND-EQUITY> 821,530,000
<SALES> 51,293,000
<TOTAL-REVENUES> 51,293,000
<CGS> 4,000,000
<TOTAL-COSTS> 4,000,000
<OTHER-EXPENSES> 42,740,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,870,000
<INCOME-PRETAX> 277,000
<INCOME-TAX> 93,000
<INCOME-CONTINUING> 184,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,764,000)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
