<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the Transition period from to .
-------- ----------
Commission File Number 000-24525
CUMULUS MEDIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-4159663
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3535 Piedmont Road, Building 14, 14th Floor, Atlanta, GA 30305
(Address of Principal Executive Offices) (Zip Code)
(404) 949-0700
(Registrant's Telephone Number, Including Area Code)
3060 Peachtree Road NW, Suite 730 Atlanta, GA 30305
(Former name or former address, if changed since last report)
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, 2000, the registrant had outstanding 35,165,596
shares of common stock consisting of (i) 28,378,976 shares of Class A Common
Stock; (ii) 4,479,343 shares of Class B Common Stock; and (iii) 2,307,277 shares
of Class C Common Stock.
<PAGE> 2
CUMULUS MEDIA INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999
Consolidated Statements of Operations for the Three and Nine Months Ended September 30,
2000 and 1999
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and
1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3 Quantitative and Qualitative Disclosures About Market Risk.
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CUMULUS MEDIA INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 42,467 $ 219,581
Restricted cash .................................................................. 91,467 --
Accounts receivable, less allowance for doubtful accounts
of $ 14,195 and $ 3,118 respectively ......................................... 40,159 53,521
Prepaid expenses and other current assets ........................................ 9,672 8,351
---------- ----------
Total current assets ........................................................ 183,765 281,453
Property and equipment, net ......................................................... 76,535 66,963
Intangible assets, net .............................................................. 569,360 526,784
Other assets ........................................................................ 93,714 39,688
---------- ----------
Total assets ............................................................... $ 923,374 $ 914,888
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................................ $ 25,496 $ 26,540
Current portion of long-term debt ................................................ 20 20
Other current liabilities ........................................................ 848 1,010
---------- ----------
Total current liabilities ................................................... 26,364 27,570
---------- ----------
Long-term debt ...................................................................... 285,211 285,227
Other liabilities ................................................................... 1,635 1,977
Deferred income taxes ............................................................... 11,810 8,940
---------- ----------
Total liabilities ........................................................... 325,020 323,714
---------- ----------
Series A Cumulative Exchangeable Redeemable Preferred Stock
due 2009, stated value $1,000 per share, 109,874 and 102,702 shares
issued and outstanding, respectively ............................................. 113,714 102,732
---------- ----------
Commitments and contingencies (Note 7)
Stockholders' equity:
Class A common stock, par value $.01 per share; 50,000,000
shares authorized; 28,378,976 and 26,052,393 shares issued and outstanding .... 284 261
Class B common stock, par value $.01 per share; 20,000,000
shares authorized; 4,479,343 and 6,629,343 shares issued and outstanding ...... 45 66
Class C common stock, par value $.01 per share; 30,000,000
shares authorized; 2,307,277 and 2,151,277 shares issued and outstanding ...... 23 21
Additional paid-in-capital ....................................................... 518,257 516,576
Loan to officers ................................................................ (10,583) --
Accumulated deficit .............................................................. (23,386) (28,482)
---------- ----------
Total stockholders' equity .................................................. 484,640 488,442
---------- ----------
Total liabilities and stockholders' equity .................................. $ 923,374 $ 914,888
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
CUMULUS MEDIA INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenue ..................................................... $ 63,307 $ 51.293 $ 183,257
Less: agency commissions: ................................... (5,180) (4,000) (14,787)
---------- ---------- ----------
Net revenues ................................................ 58,127 47,293 168,470
Operating expenses:
Station operating expenses, excluding depreciation and
amortization (including provision for doubtful accounts
of $20,483, $580, $22,652 and $1,441 respectively ........ 62,649 30,900 151,137
Depreciation and amortization ............................... 10,173 8,621 30,477
LMA fees .................................................... 897 1,479 3,739
Corporate general and administrative ........................ 3,762 1,740 12,460
Restructuring and other charges ............................. -- -- 9,296
---------- ---------- ----------
Operating expenses .......................................... 77,481 42,740 207,109
---------- ---------- ----------
Operating income (loss) ..................................... (19,354) 4,553 (38,639)
---------- ---------- ----------
Nonoperating income (expense):
Interest expense ....................................... (8,656) (6,870) (24,071)
Interest income ........................................ 1,481 1,833 6,094
Other income, net ...................................... 68,085 761 68,073
---------- ---------- ----------
Nonoperating income (expense), net .......................... 60,910 (4,276) 50,096
---------- ---------- ----------
Income (loss) before income taxes ........................... 41,556 277 11,457
Income tax benefit (expense) ................................ (17,258) (93) (6,361)
---------- ---------- ----------
Net income (loss) ........................................... 24,298 184 5,096
Preferred stock dividend and accretion of discount .......... 3,809 4,948 10,982
---------- ---------- ----------
Net (loss) attributable to common stockholders .............. $ 20,489 $ (4,764) $ (5,886)
========== ========== ==========
Basic and diluted income (loss) per share ................... $ 0.58 $ (0.17) $ (0.17)
---------- ---------- ----------
Weighted average common shares outstanding .................. 35,166 27,527 35,130
========== ========== ==========
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Revenue ..................................................... $ 134,812
Less: agency commissions: ................................... (10462)
----------
Net revenues ................................................ 124,350
Operating expenses:
Station operating expenses, excluding depreciation and
amortization (including provision for doubtful accounts
of $20,483, $580, $22,652 and $1,441 respectively ........ 89,938
Depreciation and amortization ............................... 23,396
LMA fees .................................................... 3,088
Corporate general and administrative ........................ 5,150
Restructuring and other charges ............................. --
----------
Operating expenses .......................................... 121,572
----------
Operating income (loss) ..................................... 2,778
----------
Nonoperating income (expense):
Interest expense ....................................... (19,362)
Interest income ........................................ 2,054
Other income, net ...................................... 759
----------
Nonoperating income (expense), net .......................... (16,549)
----------
Income (loss) before income taxes ........................... (13,771)
Income tax benefit (expense) ................................ 4,617
----------
Net income (loss) ........................................... (9,154)
Preferred stock dividend and accretion of discount .......... 14,245
----------
Net (loss) attributable to common stockholders .............. $ (23,399)
==========
Basic and diluted income (loss) per share ................... $ (1.05)
----------
Weighted average common shares outstanding .................. 22,362
==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
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CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................. $ 5,096 $ (9,154)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation ................................................................ 9,460 5,645
Amortization of goodwill, intangible assets and other assets ................ 22,301 18,472
Provision for doubtful accounts ............................................. 22,652 --
Gain on sale of stations .................................................... (68,066) --
Deferred taxes .............................................................. 5,991 (4,777)
Non-cash restructuring charges .............................................. 9,296 --
Changes in assets and liabilities, net of effects of acquisitions/dispositions:
Accounts receivable ............................................................ (9,185) (17,826)
Prepaid expenses and other current assets ...................................... (957) (5,415)
Accounts payable and accrued expenses .......................................... (3,807) (4,974)
Other assets ................................................................... (3,287) (526)
Other liabilities .............................................................. (558) (168)
---------- ----------
Net cash used in operating activities ....................................... (11,064) (18,723)
---------- ----------
Cash flows from investing activities:
Acquisitions ................................................................... (97,065) (109,872)
Escrow deposits on pending acquisitions ........................................ (56,084) (1,090)
Capital expenditures ........................................................... (9,132) (10,484)
Other .......................................................................... (166) 234
---------- ----------
Net cash used in investing activities ..................................... (162,447) (121,212)
---------- ----------
Cash flows from financing activities:
Proceeds from revolving line of credit ......................................... -- 176,950
Payments on revolving line of credit ........................................... -- (114,450)
Payments on promissory notes ................................................... (16) (15)
Payment of dividend on Series A Preferred Stock ................................ (3,530) --
Proceeds from insurance of common stock, net of equity costs ................... -- 258,853
Payments for debt issuance costs ............................................... (57) (4,139)
---------- ----------
Net cash provided by (used in) financing activities ......................... (3,603) 317,199
---------- ----------
(Decrease) increase in cash and cash equivalents ................................. (177,114) 177,264
Cash and cash equivalents at beginning of period ................................. $ 219,581 $ 24,885
Cash and cash equivalents at end of period ........................................ $ 42,467 $ 202,149
Non-cash operating and financing activities:
Trade revenue .................................................................. $ 9,168 $ 7,260
Trade expense .................................................................. 9,156 7,123
Assets acquired through notes payable .......................................... 2,340 1,490
Proceeds on sale of stations remitted directly into restricted cash account .... 91,467 --
</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
The Company has restated the operating results for the first and second
quarters of 2000 to reflect the reversal of valuation allowances previously
established against deferred taxes during such periods and related recognition
of tax benefit. In connection with this change, the Company plans to file Form
10Q/A for both the quarterly periods ended March 31, 2000 and June 30, 2000.
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, as amended, for the year ended December 31, 1999. The accompanying
unaudited financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of results of the
interim periods have been made and such adjustments were of a normal and
recurring nature. The results of operations and cash flows for the nine months
ended September 30, 2000 are not necessarily indicative of the results that can
be expected for the entire fiscal year ending December 31, 2000.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies certain existing accounting principles for the
recognition and classification of revenue in financial statements. The new rules
are expected to result in some changes as to how the broadcast industry reports
revenues earned under barter agreements, but is not expected to result in any
changes to the net income. In June 2000, the SEC issued SAB No. 101B to defer
the effective date of implementation of SAB No. 101 until the fourth quarter of
2000 with earlier application encouraged. As the Company will be required to
adopt SAB 101 by the end of 2000, it is in the process of evaluating the overall
impact of SAB 101 on its consolidated financial statements.
4. ACQUISITIONS AND DISPOSITIONS:
On August 25, 2000, the Company completed the first phase of a previously
announced asset exchange and sale agreement with Clear Channel Communications.
As part of this first phase, the Company exchanged 25 stations in 5 markets for
7 stations in 3 markets plus $91.5 million in cash. The cash proceeds were
remitted directly to restricted cash account and were used to fund the
acquisition of stations from Connoisseur Communications on October 2, 2000
described in Note 9.
During the quarter ended September 30, 2000, the Company also completed an
additional 4 acquisitions of 6 radio stations for a total purchase price of
$10.1 million plus various other direct acquisition costs.
Acquisitions were accounted for by the purchase method of accounting. As such,
the accompanying consolidated balance sheet includes the acquired assets and
liabilities and the statement of operations includes the results of operations
of the acquired entities from their respective dates of acquisition.
An allocation of the aggregate purchase prices to the estimated fair values of
the assets acquired and liabilities assumed during the
6
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quarter is presented below.
<TABLE>
<S> <C>
Property and equipment $ 7,296
Intangible assets 76,370
$ 83,666
========
</TABLE>
The unaudited consolidated condensed pro forma results of operations
data for the nine months ended September 30, 2000 and 1999, as if all
acquisitions and dispositions completed during 1999 and during the first,
second, and third quarter of 2000 occurred at January 1, 1999, follow:
<TABLE>
<CAPTION>
THREE MONTH THREE MONTH NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues ........................................... $ 63,307 $ 64,964 $ 182,331 $ 181,554
Operating income (loss) ................................ $ 1,925 $ 7,577 $ (4,875) $ 7,015
Net loss ............................................... $ (5,848) $ (196) $ (23,451) $ (11,561)
Net loss attributable to common stockholders ........... $ (9,657) $ (4,005) $ (34,433) $ (22,543)
========= ========= ========= =========
Basic and diluted loss per common share (in dollars) ... $ (0.27) $ (0.21) $ (0.98) $ (0.64)
========= ========= ========= =========
</TABLE>
Escrow funds of approximately $76.9 million paid by the Company in
connection with pending acquisitions as of September 30, 2000 have been
classified as other assets at September 30, 2000 in the accompanying
consolidated balance sheet.
At September 30, 2000 the Company operated 44 stations under local
marketing agreements ("LMA"). The statement of operations for the quarter and
the nine months ended September 30, 2000 includes the revenue and broadcast
operating expenses of these radio stations and any related fees associated with
the LMA from the effective date of the LMA through September 30, 2000.
5. RESTRUCTURING CHARGE
During June 2000 the Company implemented two separate Board-approved
restructuring programs. During the quarter ended June 30, 2000, the Company
recorded a $9.3 million charge to operating expenses related to restructuring
costs.
The June, 2000 restructuring programs were the result of Board-approved
mandates to discontinue the operations of Cumulus Internet Services and to
centralize the Company's corporate administrative organization and employees in
Atlanta. The programs included severance and related costs, and costs for
vacated leased facilities, impaired leasehold improvements at vacated leased
facilities, and impaired assets related to the Internet businesses.
The following table depicts the amounts associated with and activity related to
the June 2000 restructuring programs through September 30, 2000:
<TABLE>
<CAPTION>
Asset Write-Off's Paid Through Unpaid Balance
Restructure Through September 30, as of
Expense Category Charge September 30, 2000 2000 September 30, 2000
---------------- ----------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C>
Employee severance and related costs ...... $ 978,365 $ -- $ 157,378 $ 820,987
Lease termination costs ................... 2,557,041 -- -- 2,557,041
Impaired leasehold improvements at
Vacated facilities ..................... 429,654 429,654 -- --
---------- ---------- ---------- ----------
Office relocation subtotal ................ 3,965,060 429,654 157,378 3,378,028
Internet asset write-off .................. 4,849,023 4,099,988 183,510 565,525
Internet lease termination costs .......... 481,521 -- 23,338 458,183
---------- ---------- ---------- ----------
Internet services subtotal ................ 5,330,544 4,099,988 206,848 1,023,708
Restructure charge totals ................. $9,295,604 $4,529,642 $ 364,226 $4,401,736
---------- ---------- ---------- ----------
</TABLE>
7
<PAGE> 8
As of September 30, 2000, approximately $4.4 million in accrued
restructuring costs remain related to the Company's June, 2000 restructuring
programs. This balance is comprised of $0.8 million in employee severance and
related charges, $2.6 million in lease termination costs, $0.6 million related
to amounts owed for software development and asset acquisitions related to
capitalized Internet system and infrastructure assets, and $0.5 in Internet
lease termination charges. The remaining portion of the unpaid balance is
expected to be paid by the end of 2000, except for the Company's lease
obligations at the vacated facilities in Milwaukee and Chicago. Lease
obligations will be paid by the end of 2003.
6. GUARANTORS' FINANCIAL INFORMATION
Certain of the Company's direct and indirect subsidiaries (all such
subsidiaries are directly or indirectly wholly owned by the Company) provide
full and unconditional guarantees for the Company's senior subordinated notes on
a joint and several basis. There are no significant restrictions on the ability
of the guarantor subsidiaries to pay dividends or make loans to the Company.
The following tables provide consolidated condensed financial
information pertaining to the Company's subsidiary guarantors. The Company has
not presented separate financial statements for the subsidiary guarantors and
non-guarantors because management does not believe that such information is
material to investors.
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Current assets $ 104,499 $ 91,509
Noncurrent assets 778,651 597,938
Current liabilities 13,906 12,135
Noncurrent liabilities 188,985 61,048
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Net revenue 54,419 44,639 157,633 116,979
Operating Expenses 58,726 28,411 138,833 82,725
Net income (loss) (15,132) 6,302 (14,557) 8,187
</TABLE>
8
<PAGE> 9
7. EARNINGS PER SHARE
The following table sets forth the computation of basic loss per share
for the three and nine month periods ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) .................................. $ 24,498 $ 184 $ 5,076 $ (9,154)
Preferred stock dividend ........................... (3,809) (4,948) (10,982) (14,245)
-------- -------- -------- --------
Numerator for basic earnings per share - income
Available to common stockholders ................. $ 20,489 $ (4,764) $ (5,886) $(23,399)
Denominator:
Denominator for basic earnings per share -
weighted average shares .......................... 35,166 27,527 35,130 22,362
-------- -------- -------- --------
Net loss per common share .......................... $ 0.58 $ (0.17) $ (0.17) $ (1.05)
======== ======== ======== ========
</TABLE>
During fiscal 1998 and 1999 the Company issued options to key
executives and employees to purchase shares of common stock as part of the
Company's stock option plans. At September 30, 2000 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 for the nine months ended September 30, 2000
and three and nine months ended September 30, 1999 and, for the three months
ended September 30, 2000, the average market price of the Company's Class Common
Stock was below the exercise price of the options.
8. COMMITMENTS AND CONTINGENCIES
As of September 30, 2000 the Company had entered into various asset purchase
agreements to acquire radio stations. In general, the transactions are
structured such that if the Company can not consummate these acquisitions
because of a breach of contract, the Company may be liable for a percentage of
the purchase price, as defined by the agreements. The ability of the Company to
complete the pending acquisitions is dependent upon the Company's ability to
obtain additional equity and/or debt financing. We intend to finance the pending
acquisitions with cash on hand, the proceeds of our credit facility or future
credit facilities, and other sources to be identified. There can be no assurance
the Company will be able to obtain such financing. In the event that the Company
can not consummate these acquisitions because of breach of contract, the Company
may be liable for approximately $76.9 million in purchase price.
In the first and second quarter of 2000, eleven separate civil actions were
filed in United States District Court for the Eastern District of Wisconsin,
alleging that the Company and certain present and former directors and officers
violated various provisions of the Securities and Exchange Act of 1934 and the
Securities Act of 1933. The actions are principally based on the Company's
decision to restate its financial statements for the first three quarters of
fiscal year 1999. The plaintiffs seek damages on their own behalf and on behalf
of certain classes of shareholders of the Company.
9
<PAGE> 10
In August 2000, the eleven actions were consolidated, and in October 2000,
plaintiffs served an amended consolidated complaint. Defendants response to the
complaint is required to be served shortly. Although the Company has certain
defenses it will assert in these proceedings, we cannot predict how the
plaintiffs' claims will ultimately be resolved. The Company ultimately may be
required to pay significant damages either as a result of a judgement or a
negotiated settlement, including damages which would be covered by insurance.
Such damages could have a material effect on the Company's financial position,
results of operations or cash flows.
The Company is also a defendant from time to time in various lawsuits, which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
9. SUBSEQUENT EVENTS
On October 2, 2000, the Company completed the acquisition of 35 radio stations
across 9 markets from Connoisseur Communications for $257.8 million in cash.
This transaction will be accounted for by the purchase method of accounting.
To facilitate the closing of the Connoisseur Communications transaction, on
October 2, 2000 the Company completed the second phase of an asset exchange and
sale agreement with Clear Channel Communications. Under the second phase of the
agreement, the Company received $68.9 million in initial proceeds associated
with the transfer of 30 stations in Columbus, GA, Mason City, IA, Mankato-New
Ulm-St. Peter, MN, Rochester, MN and Evansville, IN to Clear Channel
Communications. As of October 2, 2000, FCC approval had not yet been received on
the 8 stations to be transferred in Columbus, GA. Upon receipt of the regulatory
approval, the Company will receive an additional $6.0 million in proceeds
associated with the Columbus stations.
Additionally, on October 2, 2000, the Company announced that it would also
transfer 45 stations in 8 markets to Clear Channel Communications in exchange
for 4 stations and approximately $52 million in cash as part of a third phase of
the asset and exchange agreement. Initial proceeds of $15.0 million were funded
to the Company as part of the transaction on October 2, 2000.
Subsequent to September 30, 2000 the Company completed an additional acquisition
of 1 radio station for an aggregate purchase price of approximately $0.2
million. These transactions will be accounted for by the purchase method of
accounting. The Company intends to execute a supplemental indenture pursuant to
which any subsidiaries acquired in these transactions would become guarantor
subsidiaries under the Company's 10 3/8% Senior Subordinated Notes due 2008.
Subsequent to September 30, 2000, we issued and sold 250 shares of our Series B
Preferred Stock at a purchase price of $10,000 per share, or an aggregate
purchase price of $2,500,000. The proceeds were applied for working capital and
other general corporate purposes. The Series B Preferred Stock ranks on parity
with the Series A Preferred Stock, and the holders thereof are entitled to
receive cumulative dividends at an annual rate equal to 12% of the liquidation
preference per share, payable quarterly, in arrears. We may, at our option, pay
dividends in cash or in additional fully paid and non-assessable shares of
Series B Preferred Stock. The shares of Series B Preferred Stock are subject to
mandatory redemption on October 3, 2009 at a price equal to 100% of the
liquidation preference plus any and all accrued and unpaid cumulative dividends.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the consolidated financial condition and results of
operations of Cumulus Media Inc. ("Cumulus" or the "Company") should be read in
conjunction with the consolidated financial statements and related notes thereto
of the Company included elsewhere in this quarterly report. This discussion
contains certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
herein.
OVERVIEW
The following is a discussion of the key factors that have effected our
business since its inception on May 22, 1997. The following information should
be read in conjunction with the consolidated financial statements and related
notes thereto included elsewhere in this report. Unless otherwise indicated,
amounts set forth herein are expressed in thousands. We commenced operations in
May 1997. For the period from our inception through September 30, 2000 and
giving effect to the stations sold on August 25, 2000 to Clear Channel
Communications, we purchased or entered into local marketing, management and
consulting agreements with a total of 301 stations in 58 U.S. markets and
obtained a license to commence operations on one station in the Caribbean
market.
10
<PAGE> 11
The following discussion of our financial condition and results of
operations includes the results of these acquisitions and local marketing,
management and consulting agreements. As of September 30, 2000, we currently own
and operate 301 stations in 58 U.S. markets and provide sales and marketing
services under local marketing, management and consulting agreements (pending
FCC approval of acquisition) to 74 stations in 23 U.S. markets. We are the
second largest radio broadcasting company in the U.S. based on number of
stations. We believe we are the tenth largest radio broadcasting company in the
U.S. based on 1999 pro forma net revenues. We will own and operate a total of
227 radio stations (164 FM and 63 AM) in 46 U.S. markets upon consummation of
our pending acquisitions and dispositions.
ADVERTISING REVENUE AND BROADCAST CASH FLOW
Our primary source of revenues is the sale of advertising time on our
radio stations. Our sales of advertising time are primarily effected by the
demand for advertising time from local, regional and national advertisers and
the advertising rates charged by our radio stations. Advertising demand and
rates are based primarily on a station's ability to attract audiences in the
demographic groups targeted by its advertisers, as measured principally by
Arbitron on a periodic basis, generally once, twice or four times per year.
Because audience ratings in local markets are crucial to a station's financial
success, we endeavor to develop strong listener loyalty. We believe that the
diversification of formats on our stations helps to insulate them from the
effects of changes in the musical tastes of the public with respect to any
particular format. The number of advertisements that can be broadcast without
jeopardizing listening levels and the resulting rating is limited in part by the
format of a particular station. Our stations strive to maximize revenue by
constantly managing the number of commercials available for sale and adjusting
prices based upon local market conditions. In the broadcasting industry, radio
stations sometimes utilize trade or barter agreements which exchange advertising
time for goods or services such as travel or lodging, instead of for cash. Our
use of trade agreements was immaterial during the nine months ended September
30, 2000 and 1999. We will seek to continue to minimize our use of trade
agreements.
Our advertising contracts are generally short-term. We generate most of
our revenue from local advertising, which is sold primarily by a station's sales
staff. To generate national advertising sales, we engage Interep National Radio
Sales, Inc., a national representative company. Our revenues vary throughout the
year. As is typical in the radio broadcasting industry, we expect our first
calendar quarter will produce the lowest revenues for the year, and the fourth
calendar quarter will generally produce the highest revenues for the year, with
the exception of certain of our stations such as those in Pensacola, Florida and
Myrtle Beach, South Carolina, where the stations generally earn higher revenues
in the second and third quarters of the year because of the higher seasonal
population in those communities.
Our operating results in any period may be effected by the incurrence of
advertising and promotion expenses that typically do not have an effect on
revenue generation until future periods, if at all. Our most significant station
operating expenses are employee salaries and commissions, programming expenses,
advertising and promotional expenditures, technical expenses, and general and
administrative expenses. We strive to control these expenses by working closely
with local station management. The performance of radio station groups, such as
ours, is customarily measured by the ability to generate broadcast cash flow.
Broadcast cash flow consists of operating income (loss) before depreciation and
amortization, LMA fees, corporate general and administrative expenses and
non-cash stock compensation expense. EBITDA consists of operating income (loss)
before depreciation and amortization, LMA fees and non-cash stock compensation
expense. Broadcast Cash Flow and EBITDA, as defined by us, may not be comparable
to similarly titled measures used by other companies. Although broadcast cash
flow and EBITDA are not measures of performance calculated in accordance with
GAAP, management believes that they are useful to an investor in evaluating us
because they are measures widely used in the broadcast industry to evaluate a
radio company's operating performance. However, broadcast cash flow and EBITDA
should not be considered in isolation or as substitutes for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as measures of liquidity or profitability.
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<PAGE> 12
RESULTS OF OPERATIONS
The following table presents summary historical consolidated financial
information and other supplementary data of Cumulus for the three and nine month
periods ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Net broadcast revenue $ 58,127 $ 47,293 $ 168,470 $ 124,350
Stations operating expenses
excluding depreciation & amortization 62,649 30,900 151,137 89,938
Depreciation and amortization 10,173 8,621 30,477 23,396
LMA fees 897 1,479 3,739 3,088
Corporate expenses 3,762 1,740 12,460 5,150
Restructuring and other charges -- -- 9,296 --
Operating income (loss) (19,354) 4,553 (38,639) 2,778
Interest expense, net 7,175 5,037 17,977 17,308
Net income (loss) attributable to common stock 20,489 (4,764) (5,886) (23,399)
OTHER DATA:
Broadcast cash flow (1) (4,522) 16,393 17,332 34,412
Broadcast cash flow margin (7.8%) 34.7% 10.3% 27.7%
EBITDA (2) (8,284) 14,653 4,872 29,262
Cash flows related to:
Operating activities ....................... N/A N/A (11,064) (18,723)
Investing activities ....................... N/A N/A (162,477) (121,212)
Financing activities ....................... N/A N/A (3,603) 317,199
Capital expenditures ............................ N/A N/A $ (9,132) $ (10,484)
</TABLE>
(1) Broadcast cash flow consists of operating income (loss) before depreciation,
amortization, corporate expenses, and noncash stock compensation expense.
Although broadcast cash flow is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcasting
industry to evaluate a radio Company's operating performance. Nevertheless, it
should not be considered in isolation or as a substitute for net income,
operating income (loss), cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity that is
calculated in accordance with GAAP. As broadcast cash flow is not a measure
calculated in accordance with GAAP, this measure may not be compared to
similarly titled measures employed by other companies.
(2) EBITDA 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
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<PAGE> 13
as a substitute for net income, operating income (loss), cash flows from
operating activities or any other measure for determining the Company's
operating performance or liquidity that is calculated in accordance with GAAP.
As EBITDA (before noncash stock compensation expense), is not a measure
calculated in accordance with GAAP, this measure may not be compared to
similarly titled measures employed by other companies.
THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THE THREE MONTHS ENDED SEPTEMBER
30, 1999.
NET REVENUES. Net revenues increased $10.8 million, or 22.9%, to $58.1
million for the three months ended September 30, 2000, from $47.3 million for
the three months ended September 30, 1999. This increase was primarily
attributable to the acquisition of radio stations and revenues generated from
local marketing, management and consulting agreements entered into during the
period from October 1, 1999 through September 30, 2000.
In addition, on a same station basis, net revenue for the 150 stations
in 28 markets operated for at least a full year decreased $1.4 million or 4.7%
to $28.8 million for the three months ending September 30, 2000, compared to net
revenues of $30.2 million for the three month period ending September 30, 1999.
The nominal increase is same station net revenue was primarily the result of the
Company's renewed commitment to improve the spot pricing structure across all of
its market clusters. In the short-term these improvement activities will result
in minimal revenue growth and some moderate declines in the same station
performance.
STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND
LMA FEES. Station operating expenses excluding depreciation, amortization and
LMA fees increased $31.7 million, or 102.7%, to $62.6 million for the three
months ending September 30, 2000, from $30.9 million for the three months ending
September 30, 1999. This increase was primarily attributable to 1) the
acquisition of radio stations and operating expenses incurred from local
marketing, management and consulting agreements entered into during the period
from October 1, 1999 through September 30, 2000; and to 2) the recognition of
non-recurring bad debt expense of approximately $20.2 million. The provision for
doubtful accounts increased by $19.8 million to $20.4 million for the three
months ending September 30, 2000, from $0.6 million for the three months ending
September 30, 1999. As a percentage of net revenues, the provision for doubtful
accounts increased 34.0%, to 35.2% for the three months ending September 30,
2000, as compared with 1.2% for the comparable period in the previous year. This
increase resulted from certain activities of management which yielded i)
specific write-offs of $4.6 million related to markets divested in August and
October 2000, ii) $8.3 million of specific write-offs in markets being retained;
and iii) the creation of $7.3 million of additional general allowance for
doubtful accounts as of September 30, 2000. Several factors contributed to the
creation of this provision, including significant turnover of sales employees at
the market level and a collection policy that did not stringently enforce timely
cash collections.
On a same station basis, for the 150 stations in 28 markets operated
for at least a full year, station operating expenses excluding depreciation,
amortization and LMA fees increased $3.0 million, or 16.3%, to $21.7 million for
the three months ending September 30, 2000, compared to $18.7 million for the
three months ending September 30, 1999. The increase in same station operating
expenses excluding depreciation, amortization and LMA fees is attributable to
the additional sales and programming personnel added subsequent to September 30,
1999 in substantially all of the markets we operated during the three months
ended September 30, 1999, in addition to increased selling costs, and
promotional and event costs associated with the same station net revenue
discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$1.6 million, or 18.0%, to $10.2 million for the three-month period ending
September 30, 2000, compared to $8.6 million for the three-month period ending
September 30, 1999. This increase was primarily attributable to depreciation and
amortization relating to radio station acquisitions consummated subsequent to
September 30, 1999 and a full quarter of depreciation and amortization on radio
station acquisitions consummated during the three month period ended September
30, 1999.
LMA FEES. LMA fees decreased $0.6 million, or 39.3%, to $0.9 million
for the three months ending September 30, 2000, from $1.5 million for the three
months ending September 30, 1999. This decrease was primarily attributable to
fewer local marketing, management and consulting fees paid to sellers in
connection with the commencement of operations, management of or consulting
services provided to radio stations during the third quarter of 2000 as compared
with the prior year.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses increased $2.0 million, or 116.2%, to $3.8 million for
the three months ending September 30, 2000, compared to $1.7 million for the
three months ended September 30, 1999. The increase in corporate general and
administrative expense was primarily attributable to corporate resources added
subsequent to September 30, 1999 to effectively manage the Company's growing
radio station portfolio.
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OTHER EXPENSE (INCOME). Interest expense, net of interest income,
increased by $2.1 million, or 42.4%, to $7.2 million for the three months ending
September 30, 2000, compared to $5.0 million for the three months ended
September 30, 1999. This increase was primarily attributable to higher variable
rates on the Company's credit facility, as compared with the prior year, along
with lower interest income earned during the three months ended September 30,
2000 on cash balances.
Other non-operating income (expense), net, increased by $67.3 million
to $68.1 million for the three months ending September 30, 2000, compared to
$0.8 million for the three months ended September 30, 1999. This increase was
primarily attributable to the completion of the first phase of the asset
exchange and sale agreement with Clear Channel Communications on August 25, 2000
and the related recognition of a non-recurring gain on the sale of assets of
$68.1 million.
INCOME TAX EXPENSE (BENEFIT). Income tax expense increased by $17.2
million to $17.3 million for the three months ending September 30, 2000,
compared to $0.1 million for the three months ended September 30, 1999. This
increase was primarily attributable to the Company's third quarter gain on sales
of stations incurred as a result of the completion of the first phase of the
asset and exchange agreement with Clear Channel Communications.
PREFERRED STOCK DIVIDENDS, ACCRETION OF DISCOUNT AND PREMIUM ON
REDEMPTION OF PREFERRED STOCK. Preferred stock dividends and accretion of
discount decreased $1.1 million, or 23.0%, to $3.8 million for the three months
ending September 30, 2000, compared to $4.9 million for the three months ended
September 30, 1999. This decrease was attributable to the redemption of 43,750
shares of the Company's Series A Preferred Stock on October 1, 1999, resulting
in a lower aggregate liquidation preference on the Company's Series A Preferred
Stock subsequent to the redemption.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK. As a result of the
factors described above, net income attributable to common stock increased $25.3
million to $20.5 million for the three months ending September 30, 2000, as
compared with a net loss attributable to common stock of $(4.8) million for the
three months ending September 30, 1999.
BROADCAST CASH FLOW. As a result of the factors described above,
Broadcast Cash Flow decreased $20.9 million, or 127.6%, to $(4.5) million for
the three months ending September 30, 2000, compared to $16.4 million for the
three months ended September 30, 1999.
EBITDA. As a result of the decrease in broadcast cash flow and the
increase in corporate, general and administrative expenses described above,
EBITDA decreased $22.9 million, or 156.5%, to $(8.2) million for the three
months ending September 30, 2000, compared to $14.7 million for the three months
ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THE NINE MONTHS ENDED SEPTEMBER 30,
1999.
NET REVENUES. Net revenues increased $44.1 million, or 35.5%, to $168.5
million for the nine months ended September 30, 2000, from $124.4 million for
the nine months ended September 30, 1999. This increase was primarily
attributable to the acquisition of radio stations and revenues generated from
local marketing, management and consulting agreements entered into during the
period from October 1, 1999 through September 30, 2000.
In addition, on a same station basis, net revenue for the 150 stations
in 28 markets operated for at least a full year increased $1.2 million or 1.5%
to $83.6 million for the nine months ended September 30, 2000, compared to net
revenues of $82.4 million for the nine month period ending September 30, 1999.
The nominal increase in same station net revenue was primarily the result of the
Company's renewed commitment to improve the spot pricing structure across all of
its market clusters. In the short term, these improvement activities will result
in minimal revenue growth and some moderate declines in same station
performance.
STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND
LMA FEES. Station operating expenses excluding depreciation, amortization and
LMA fees increased $61.2 million, or 68.0%, to $151.1 million for the nine
months ending September 30, 2000, from $89.9 million for the nine months ending
September 30, 1999. This increase was primarily attributable to 1) the
acquisition of radio stations and operating expenses incurred from local
marketing, management and consulting agreements entered into during the period
from October 1, 1999 through September 30, 2000; and to 2) the recognition of
$20.2 million in non-recurring bad debt expense during the third quarter of
2000. The provision for doubtful accounts increased by $21.2 million to $22.7
million for the nine months ending September 30, 2000, from $1.4 million for the
nine months ending
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<PAGE> 15
September 30, 1999. As a percentage of net revenues, the provision for doubtful
accounts increased 12.3%, to 13.4% for the nine months ending September 30,
2000, as compared with 1.1% for the comparable period in the previous year. This
increase resulted from certain activities of management which yielded i)
specific write-offs of $4.6 million related to markets divested in August and
October of 2000, ii) $8.3 million of specific write-offs in markets being
retained, and iii) the creation of $7.3 million of additional general allowance
for doubtful accounts as of September 30, 2000. Several factors contributed to
the creation of this provision including significant turnover of sales employees
at the market level and a collection policy that did not stringently enforce
timely cash collections.
On a same station basis, for the 150 stations in 28 markets operated
for at least a full year, station operating expenses excluding depreciation,
amortization and LMA fees increased $9.1 million, or 15.6%, to $67.7 million for
the nine months ending September 30, 2000, compared to $58.5 million for the
nine months ending September 30, 1999. The increase in same station operating
expenses excluding depreciation, amortization and LMA fees is attributable to
the additional sales and programming personnel added subsequent to September 30,
1999 in substantially all of the markets we operated at September 30, 1999, in
addition to increased selling costs, and promotional and event costs associated
with the net revenue of the same station group.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$7.1 million, or 30.2%, to $30.5 million for the nine month period ending
September 30, 2000, compared to $23.4 million for the nine month period ending
September 30, 1999. This increase was primarily attributable to depreciation and
amortization relating to radio station acquisitions consummated subsequent to
September 30, 1999 and nine months of depreciation and amortization on radio
station acquisitions consummated subsequent to September 30, 1999.
LMA FEES. LMA fees increased $0.6 million, or 21.4%, to $3.7 million
for the nine months ending September 30, 2000, from $3.1 million for the nine
months ending September 30, 1999. This increase was primarily attributable to
local marketing, management and consulting fees paid to sellers in connection
with the commencement of operations, management of or consulting services
provided to radio stations subsequent to September 30, 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses increased $7.3 million, or 141.9%, to $12.5 million for
the nine months ending September 30, 2000, compared to $5.2 million for the nine
months ended September 30, 1999. The increase in corporate general and
administrative expense was primarily attributable to $2.4 million of
non-recurring expense recorded in the first nine months of 2000 related to
severance costs, professional fees and other miscellaneous charges and the
addition of corporate resources subsequent to September 30, 1999 to effectively
manage the Company's growing radio station portfolio.
RESTRUCTURING CHARGE. During June 2000 the Company implemented two
separate Board-approved restructuring programs. These restructuring programs
were designed to improve the Company's competitive position as well as to
enhance the Company's allocation of resources.
These June 2000 restructuring programs were implemented to (i) focus
the Company's operations on its core business, radio broadcasting, by
terminating several Internet service pilot projects and Internet infrastructure
development projects, and (ii) make the Company's corporate infrastructure more
efficient and responsive to our markets by relocating, effective October 1,
2000, all corporate services currently conducted in Milwaukee, WI and Chicago,
IL to Atlanta, GA.
The June, 2000 restructuring programs were the result of Board-approved
mandates to discontinue the operations of Cumulus Internet Services and to
centralize the Company's corporate administrative organization and employees in
Atlanta. The program included severance and related costs, costs for vacated
leased facilities, impaired leasehold improvements at vacated leased facilities,
and impaired assets related to the Internet businesses.
Total costs incurred as a result of the restructuring were $9.3
million, which include severance and related charges associated with the
reduction in force, charges related to vacating leased facilities, impaired
leasehold improvements at vacated leased facilities, and impaired assets related
to the Internet businesses. As of September 30, 2000, $4.4 million remains
accrued and is expected to be paid by the end of fiscal 2003.
OTHER EXPENSE (INCOME). Interest expense, net of interest income,
increased by $0.7 million, or 3.8%, to $18.0 million for the nine months ending
September 30, 2000, compared to $17.3 million for the nine months ended
September 30, 1999. This increase was primarily attributable to higher debt
levels incurred to finance the Company's acquisitions, offset by higher interest
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income earned during the nine months ended September 30, 2000 on cash balances
held as a result of capital raising activities subsequent to September 30, 1999.
Other non-operating income (expense), net, increased by $67.3 million
to $68.1 million for the nine months ending September 30, 2000, compared to $0.8
million for the nine months ending September 30, 1999. This increase was
primarily attributable to the completion of the first phase of the asset
exchange and sale agreement with Clear Channel Communications on August 25, 2000
and the related recognition of a non-recurring gain on the sale of assets of
$68.1 million.
INCOME TAX EXPENSE (BENEFIT). Income tax expense was $6.4 million for
the nine months ending September 30, 2000, compared to an income tax benefit of
$4.6 million for the nine months ended September 30, 1999. Current year income
tax expense was primarily attributable to the income before taxes generated by a
gain on sale of assets mentioned above, offset by the realization of net
operating loss carryforwards in Q1 and Q2 of 2000.
PREFERRED STOCK DIVIDENDS, ACCRETION OF DISCOUNT AND PREMIUM ON
REDEMPTION OF PREFERRED STOCK. Preferred stock dividends, accretion of discount
and premium on redemption of preferred stock decreased $3.3 million, or 22.8%,
to $11.0 million for the nine months ending September 30, 2000, compared to
$14.2 million for the nine months ended September 30, 1999. This decrease was
attributable to the redemption of 43,750 shares of the Company's Series A
Preferred Stock on October 1, 1999, resulting in a lower aggregate liquidation
preference on the Company's Series A Preferred Stock subsequent to the
redemption.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK. As a result of the
factors described above, net loss attributable to common stock decreased $17.5
million to $5.9 million for the nine months ending September 30, 2000, compared
to $23.4 million for the nine months ended September 30, 1999.
BROADCAST CASH FLOW. As a result of the factors described above,
Broadcast Cash Flow decreased $17.1 million, or 49.6%, to $17.3 million for the
nine months ending September 30, 2000, compared to $34.4 million for the nine
months ended September 30, 1999.
EBITDA. As a result of the decrease in broadcast cash flow and the
increase in corporate, general and administrative expenses described above,
EBITDA decreased $24.4 million, or 83.4%, to $4.9 million for the nine months
ending September 30, 2000, compared to $29.3 million for the nine months ended
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our principal need for funds has been to fund the acquisition of radio
stations and to a lesser extent, working capital needs, capital expenditures and
interest and debt service payments. Our principal sources of funds for these
requirements have been cash flow from financing activities, such as the proceeds
from the offering of our debt and equity securities and borrowings under credit
agreements. Our principal needs for funds in the future are expected to include
the need to fund future acquisitions, interest and debt service payments,
working capital needs and capital expenditures. We believe that availability
under our credit facility, cash generated from operations and proceeds from
future debt or equity financing will be sufficient to meet our capital needs.
The ability of the Company to complete the pending acquisitions is dependent on
the Company's ability to obtain additional equity and/or debt financing. There
can be no assurance that the Company will be able to obtain such financing.
For the nine months ended September 30, 2000, net cash used in
operations decreased $7.7 million, or 40.9%, to $11.1 million from net cash used
in operations of $18.7 million for the nine months ended September 30, 1999.
This decrease was the combined result of a reduction in net cash utilized for
working capital and the change in deferred income taxes when compared to the
nine months ended September 30, 1999 and the timing of payments associated with
a one-time restructuring charge recorded in June 2000.
For the nine months ended September 30, 2000, net cash used in
investing activities increased $41.2 million, or 34.0%, to $162.4 million from
$121.2 million for the nine months ended September 30, 1999. This increase is
primarily due to current year acquisition activity and cash escrows posted on
pending acquisitions.
For the nine months ended September 30, 2000, net cash used from
financing activities was $3.6 million compared to net
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cash provided of $317.2 million during the nine months ended September 30, 1999.
This decrease in net cash provided from financing activities was the result of
the equity offering in July of 1999 discussed below and the change in net
proceeds from the credit facility for the nine months ending September 30, 1999
when compared to the nine months ending September 30, 2000
On July 27, 1999, we completed a follow-on public stock offering of
9,664,000 shares of our Class A Common Stock for $22.919 per share, after
underwriter's discounts and commissions. The net proceeds of the offering were
approximately $221.5 million. We used the net proceeds from the offering to
redeem a portion of our Series A Preferred Stock, repay the principal amount of
indebtedness outstanding under our old credit facility and fund the completion
of a portion of our pending acquisitions. We sold an additional 1,449,600 shares
of our Class A common stock as a result of the exercise of underwriters'
overallotment option, for $22.919 per share, resulting in $33.2 million
additional net proceeds to Cumulus.
On November 18, 1999, the Company completed a follow-on, secondary
public stock offering selling 4,700,000 (3,700,000 primary and 1,000,000
secondary) shares of its Class A Common Stock for $37.05 per share, after
underwriter's discounts and commissions. The net proceeds of the offering were
approximately $137.1 million. In addition, on November 24, 1999, the
underwriters exercised their option to purchase an additional 204,000 shares of
Class A Common Stock (102,000 primary shares and 102,000 secondary shares) at
37.05 per share. Exercise of the option resulted in an additional $3.8 million
in net offering proceeds to the Company.
Historical Acquisitions. During the nine months ended September 30,
2000, the Company completed 36 acquisitions across 18 markets having an
aggregate purchase price of $172.0 million. In addition, the Company made escrow
deposits totaling $56.1 million, and received proceeds of $166.2 million from
the sale of radio station assets for the nine months ending September 30, 2000.
On October 2, 2000 the Company completed the acquisition of 35 radio
station across 9 markets from Connoisseur Communications for $ 257.8 million in
cash. This transaction, which has been under contract since November 29, 1999
transfers ownership of the Connoisseur assets in Rockford, IL, Quad Cities, IL
and IA, Waterloo-Cedar Falls, IA, Evansville, IN, Flint, MI, Muskegon, MI,
Saginaw-Bay City-Midland, MI, Canton, OH, Youngstown-Warren, OH, to Cumulus.
Four stations in the Evansville, IN market were immediately sold, and an
agreement to sell the five stations in the Muskegon, MI market was reached as
described below.
To facilitate the Connoisseur closing, on October 2, 2000 the Company
received $68.9 million in initial proceeds from the second phase of its
previously announced asset exchange and sale to Clear Channel Communications
(NYSE: CCU). As previously announced, this transaction transfers 30 stations
from Columbus, GA, Mason City, IA, Mankato-New Ulm-St. Peter, MN, Rochester, MN,
and Evansville, IN (acquired from Connoisseur) to Clear Channel. The transfer of
the radio stations in Columbus, GA has not yet received FCC approval, and
accordingly will be completed upon receipt of all applicable regulatory
approvals. The parties have entered into an agreement pursuant to which Clear
Channel will commence providing programming and marketing services to the
Columbus stations.
Additionally, the Company announced that it would also transfer to
Clear Channel Communications 45 stations in 8 markets in exchange for 4 stations
and cash in a transaction that will generate approximately $52.0 million in cash
to Cumulus.
Additional acquisitions have been subsequently completed in 2000 in 4
markets for an aggregate purchase price of $10.1 million. The sources of funds
for these acquisitions were primarily the proceeds from the offering of the
Company's equity securities.
Cumulus will acquire the 4 former AMFM stations being divested by Clear
Channel in Harrisburg, PA and approximately $52.0 million in cash, $15.0 million
of which was received on October 2nd in an initial closing. Harrisburg becomes
Cumulus' largest market. In return, Clear Channel will acquire 44 stations in
Jonesboro, AR, Muskegon, MI (previously acquired from Connoisseur), Augusta, GA,
Augusta-Waterville, ME, Florence/Muscle Shoals, AL, Tupelo, MS,
Marion-Carbondale, IL, and Laurel-Hattiesburg, MS. This transaction is expected
to close in the fourth quarter of 2000, subject to the approval of the Federal
Communications Commission and the satisfaction of various closing conditions.
The parties have entered into agreements pursuant to which Clear Channel will
provide programming and marketing services to those Cumulus stations, and
Cumulus will provide similar services to the former AMFM stations in Harrisburg,
PA.
Pending Acquisitions. The aggregate purchase price of the pending
acquisitions other than the Connoisseur and Clear Channel transactions discussed
above, is expected to be approximately $115.6 million, consisting of primarily
cash, except in the case
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of the asset swap agreement with Clear Channel Communications which the Company
originally announced on May 4, 2000 and amended and announced on July 25, 2000.
We intend to finance the remaining pending acquisitions with cash on hand, the
proceeds of the asset sales to Clear Channel described above, the proceeds of
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. There can be no assurance that the Company will be able to obtain
such financing. We expect to consummate most of our pending acquisitions during
the fourth quarter of 2000 and the first six months in 2001, although there can
be no assurance that the transactions will be consummated within that time
frame. In three of the markets in which there are pending acquisitions
(Columbus-Starkville, MS; Wilmington, NC; and Topeka, KS;), petitions to deny
have been filed against the Company's FCC assignment applications. All such
petitions and FCC staff inquiries must be resolved before FCC approval can be
obtained and the acquisitions consummated. There can be no assurance that the
pending acquisitions will be consummated. In addition, from time to time the
Company completes acquisitions following the initial grant of an assignment
application by the FCC staff but before such grant becomes a final order, and a
petition to review such a grant may be filed. There can be no assurance that
such grants may not ultimately be reversed by the FCC or an appellate court as a
result of such petitions, which could result in the Company being required to
divest the assets it has acquired. The ability of the Company to make future
acquisitions in addition to the pending acquisitions is dependent upon on the
Company's ability to obtain additional equity and/or debt financing. There can
be no assurance that the Company will be able to obtain such financing.
Sources of Liquidity. We financed our acquisitions primarily through
the July 1999 and November 1999 equity financings described above and borrowings
under our credit facilities. Our credit facility, with Lehman Brothers Inc. as
arranger, Barclays Capital, as syndication agent, and Lehman Brothers Commercial
Paper Inc., as administrative agent, consists of a seven-year revolving credit
facility of $50.0 million, an eight-year term loan facility of $75.0 million and
an eight and one-half year term loan facility of $50.0 million.
On July 25, 2000 the Company received a waiver from its Lenders under
its credit facility in order to allow the Company to complete the first phase of
the asset exchange and sale with Clear Channel Communications. In this phase,
the Company received radio station assets in Cedar Rapids, IA, Shreveport, LA
and Melbourne, FL and $91.6 million in cash from Clear Channel in exchange for
Company radio stations in Ann Arbor, MI, Chattanooga, TN, Eau Claire, WI,
McAllen-Brownsville, TX and Salisbury-Ocean City, MD. This transaction
subsequently closed on August 25, 2000.
On August 29, 2000 the Company's ability to borrow under a $50 million
revolving credit facility that would convert to a seven-year term loan expired
in accordance with the terms of the Credit Agreement. The Company did not seek
reinstatement of this facility.
On September 27, 2000 the Company and its Lenders under the Credit
Facility entered into the Third Amendment, Consent and Waiver to the Amended and
Restated Credit Agreement dated as of August 31, 1999 (the "Third Amendment").
The Third Amendment allows the Company to complete the second and third phases
of the asset exchange and sale with Clear Channel Communications, the
acquisitions of radio station assets from Connoisseur Communications Partners,
L.P., Cape Fear Broadcasting and McDonald Media Inc. subject to the satisfaction
of renegotiated financial covenants. The Third Amendment also modified the
financial covenant requirements, including the consolidated leverage ratio, the
consolidated senior debt ratio, the consolidated interest coverage ratio, and
the consolidated fixed charge coverage ratio commencing with the trailing four
quarterly periods ending September 30, 2000. In addition to modifying certain
financial covenants, the methodology for the calculation of these covenants was
also modified. In consideration for entering into the Third Amendment, the
Company paid the administrative agent a fee in the amount of $875,000 and the
lenders a fee of $815,000. In addition, the applicable maximum Eurodollar Loan
margin on Revolving Credit Loans was increased from 3.00% to 3.25%; the
applicable maximum Eurodollar Loan margin on Term Loan B Loans was increased
from 3.000% to 3.375%; and the applicable maximum Eurodollar Loan margin on Term
Loan C Loans was increased from 3.125% to 3.50%. A copy of the Third Amendment
is being filed with the Securities and Exchange Commission as an exhibit to this
Quarterly Report on Form 10-Q.
We have issued $160.0 million in aggregate principal amount of Senior
Subordinated Notes which have a maturity date of July 1, 2008. The Notes are our
general unsecured obligations and are subordinated in right of payment to all
our existing and future senior debt (including obligations under our credit
facility). Interest on the Notes is payable semi-annually in arrears.
We issued $125.0 million of our Series A Preferred Stock in our initial
public offering on July 1, 1998. The holders of the Series A Preferred Stock are
entitled to receive cumulative dividends at an annual rate equal to 13 3/4% of
the liquidation preference
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per share of Series A Preferred Stock, payable quarterly, in arrears. On or
before July 1, 2003, we may, at our option, pay dividends in cash or in
additional fully paid and non-assessable shares of Series A Preferred Stock.
From July 1, 1998 until December 31, 1999, we issued an additional $23.1 million
of shares of Series A Preferred Stock as dividends on the Series A Preferred
Stock. After July 1, 2003, dividends may only be paid in cash. To date, all of
the dividends on the Series A Preferred Stock have been paid in shares, except
for a $3.5 million cash dividend paid on January 1, 2000 to holders of record on
December 15, 1999 for the period commencing October 1, 1999 and ending December
31, 1999. The shares of Series A Preferred Stock are subject to mandatory
redemption on July 1, 2009 at a price equal to 100% of the liquidation
preference plus any and all accrued and unpaid cumulative dividends. On October
1, 1999 we used $51.3 million of the proceeds of our July 1999 offering of our
Class A Common Stock to redeem a portion of our Series A Preferred Stock,
including a $ 6.0 million redemption premium and $ 1.5 million in accrued and
unpaid dividends as of the redemption date.
The Indenture governing the Notes and the Certificate of Designation
governing the Series A Preferred Stock limit the amount we may borrow without
regard to the other limitations on incurrence of indebtedness contained therein
under credit facilities to $150.0 million. As of June 30, 2000, we would be
permitted, by the terms of the indenture and the certificate of designation, to
incur approximately $35 million of additional indebtedness under our credit
facility without regard to the debt ratios included in our indenture.
Subsequent to September 30, 2000, we issued and sold 250 shares of our
Series B Preferred Stock at a purchase price of $10,000 per share, or an
aggregate purchase price of $2,500,000. The proceeds were applied for working
capital and other general corporate purposes. The Series B Preferred Stock ranks
on parity with the Series A Preferred Stock, and the holders thereof are
entitled to receive cumulative dividends at an annual rate equal to 12% of the
liquidation preference per share, payable quarterly, in arrears. We may, at our
option, pay dividends in cash or in additional fully paid and non-assessable
shares of Series B Preferred Stock. The shares of Series B Preferred Stock are
subject to mandatory redemption on October 3, 2009 at a price equal to 100% of
the liquidation preference plus any and all accrued and unpaid cumulative
dividends.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
At September 30, 2000 approximately 43.8% 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 $0.9 million for the nine months ending September 30, 2000. In the
event of an adverse change in interest rates, management would likely take
actions to further mitigate its exposure. However, due to the uncertainty of the
actions that would be taken and their possible effects, additional analysis is
not possible at this time. Further, such analysis would not consider the effects
of the change in the level of overall economic activity that could exist in such
an environment.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company had been named as a defendant in the following eleven class
action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc.,
et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v.
Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus
Media Inc., et al.; (7) Kincer v. Weening, et al; and (8) Krim v. Cumulus Media
Inc., et al; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening,
et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former
directors and officers of the Company, and certain underwriters of the Company's
stock, have also been named as defendants. The complaints have all been filed in
the United States District Court for the Eastern District of Wisconsin. They
were filed as class actions on behalf of persons who purchased or acquired
Cumulus Media common stock during various time periods between May 11, 1999 and
April 24, 2000. In August 2000, the eleven actions were consolidated, and in
October 2000, plaintiffs served an amended, consolidated complaint. The
consolidated complaint alleges, among other things, violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, and Sections 11 and 12(a) of the Securities Act of 1933, and seeks
unspecified damages. The plaintiffs allege that the defendants issued false and
misleading statements and failed to disclose material facts concerning, among
other things, the Company's financial condition as a result of the restatement
on March 16, 2000 of the Company's results for the first three quarters of 1999.
The plaintiffs further allege that because of the issuance of false and
misleading statements and/or failure to disclose material facts, the price of
Cumulus Media stock was artificially inflated. Defendants response to the
complaint is required to be served shortly.
In 1999, the Company was served with a complaint filed in state court
in New York, seeking approximately $1.9 million in
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damages arising from the Company's alleged breach of national representation
agreements. The action is currently in discovery.
In 1999, the Company was served with a complaint filed in county court
in Alabama alleging that in August 1997, an employee of Colonial Broadcasting,
Inc., which we acquired in July 1998, was at fault in connection with an
automobile accident. The plaintiff is seeking $8.5 million damages. We believe
we have a right to indemnification from the sellers of Colonial Broadcasting
under the related purchase agreement. The sellers' insurance company has assumed
the defense of the matter.
In addition, we currently and from time to time are involved in
litigation incidental to the conduct of our business. Other than as discussed
above, the Company is not a party to any lawsuit or proceeding which, in our
opinion, is likely to have a material adverse effect on the Company.
Item 2. Changes in Securities and Use of Proceeds
No items to report.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
We currently anticipate that our next annual meeting of
shareholders will be held in May 2001, and that the proxy
statement relating to that annual meeting will be sent to
shareholders on or about April 1, 2001. Accordingly, subject
to the provisions of our Amended and Restated By-Laws and
applicable laws, in order to be considered for inclusion in
the proxy statement solicited by the Board of Directors,
shareholder proposals for consideration at that annual meeting
of shareholders must be received by us at our principal
executive offices on or before December 2, 2000.
Item 6. Exhibits
(a) Exhibits
10.1 Third Amendment, Consent and Waiver, dated September 27, 2000, to
the Amended and Restated Credit Facility dated as of August 31,
1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 16, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CUMULUS MEDIA INC.
Date: November 14, 2000 By: /s/ Martin R. Gausvik
------------------------------------
Martin Gausvik
Executive Vice President, Treasurer and Chief
Financial Officer
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