-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ErbgI0SK7HkZDFFzHKRQWKcYBejnArdA7l8vF6X6Q5OfosEIrjkWl6pgh8WylZmy gJafpJ+azZs2Ws+xKplWyw== /in/edgar/work/20000526/0000950124-00-003465/0000950124-00-003465.txt : 20000919 0000950124-00-003465.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950124-00-003465 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 20000526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUMULUS MEDIA INC CENTRAL INDEX KEY: 0001058623 STANDARD INDUSTRIAL CLASSIFICATION: [4832 ] IRS NUMBER: 364159663 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-24525 FILM NUMBER: 644139 BUSINESS ADDRESS: STREET 1: 111 KILBOURNE AVE STREET 2: SUITE 2700 CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4146152800 MAIL ADDRESS: STREET 1: 111 EAST KILBOURN AVE STREET 2: SUITE 2700 CITY: MILWAUKEE STATE: WI ZIP: 53202 10-Q/A 1 FORM 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 1O-Q/A (AMENDMENT NO. 1) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM _____________ TO ____________ COMMISSION FILE NUMBER 000-24525 CUMULUS MEDIA INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ILLINOIS 36-4159663 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 111 E. KILBOURN AVE., SUITE 2700, MILWAUKEE, WI 53202 (Address of Principal Executive Offices) (Zip Code) (414) 615-2800 Registrant's Telephone Number, Including Area Code: Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of July 31, 1999, the registrant had outstanding 29,401,197 shares of common stock consisting of (i) 19,393,327 shares of Class A Common Stock; (ii) 7,856,593 shares of Class B Common Stock; and (iii) 2,151,277 shares of Class C Common Stock. 2 CUMULUS MEDIA INC. INDEX PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS. Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999 and 1998 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 Notes to Consolidated Financial Statements ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS ITEM 3 DEFAULTS UPON SENIOR SECURITIES ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 5 OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K Signatures Exhibit Index 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CUMULUS MEDIA INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED) RESTATED RESTATED -------- -------- JUNE 30, DECEMBER 31, 1999 1998 ASSETS Current assets: Cash and cash equivalents.................................................. $ 9,086 $ 24,885 Accounts receivable, less allowance for doubtful accounts of $1,646 and $895 respectively......................................... 40,289 28,056 Prepaid expenses and other current assets.................................. 5,761 2,808 ---------------- -------------- Total current assets.................................................... 55,136 55,749 Property and equipment, net................................................... 49,591 41,438 Intangible assets, net........................................................ 431,113 404,220 Other assets.................................................................. 16,014 16,224 ---------------- -------------- Total assets............................................................ $ 551,854 $ 517,631 ================ ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses...................................... $ 20,385 $ 19,028 Current portion of long-term debt.......................................... 1,020 20 Other current liabilities.................................................. 768 768 ---------------- -------------- Total current liabilities 22,173 19,816 Long-term debt, excluding current portion..................................... 267,537 222,747 Other liabilities............................................................. 2,243 1,118 Deferred income taxes......................................................... 4,677 9,387 ---------------- -------------- Total liabilities....................................................... 296,630 253,068 ---------------- -------------- Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, stated value $1,000 per share, 138,286 and 129,286 shares issued and outstanding, respectively.................... 143,038 133,741 ---------------- -------------- Commitments and contingencies (Note 7) Stockholders' equity: Class A common stock, par value $.01 per share; 50,000,000 shares authorized; 8,700,504 shares outstanding.............. 87 87 Class B common stock, par value $.01 per share; 20,000,000 shares authorized; 8,660,416 shares outstanding.............. 87 87 Class C common stock, par value $.01 per share; 30,000,000 shares authorized; 2,376,277 shares outstanding.............. 24 24 Additional paid-in-capital................................................. 132,913 142,211 Accumulated other comprehensive income..................................... 5 5 Accumulated deficit........................................................ (20,930) (11,592) ---------------- -------------- Total stockholder' equity............................................... 112,186 130,822 ---------------- -------------- Total liabilities and stockholders' equity.............................. $ 551,854 $ 517,631 ================ ==============
See Accompanying Notes to Consolidated Financial Statements 3 4 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1999 1998 1999 1998 ---- ---- ---- ---- RESTATED RESTATED -------- -------- Revenues.................................. $ 49,775 $ 24,155 $ 83,519 $ 37,937 Less: agency commissions.................. (3,929) (2,268) (6,462) (3,555) -------------- -------------- ---------------- --------------- Net revenues.............................. 45,846 21,887 77,057 34,382 Operating expenses: Station operating expenses, excluding depreciation and amortization........................ 32,262 16,372 59,038 27,275 Depreciation and amortization.......... 8,785 4,154 16,384 6,901 Corporate general and administrative...... 1,736 1,270 3,410 2,231 -------------- -------------- ---------------- --------------- Operating expenses........................ 42,783 21,796 78,832 36,407 -------------- -------------- ---------------- --------------- Operating income (loss)................... 3,063 91 (1,775) (2,025) -------------- -------------- ---------------- --------------- Nonoperating income (expense): Interest expense....................... (6,472) (2,732) (12,492) (4,249) Interest income........................ 82 212 221 355 Other income (expense), net............ (2) 4 (2) (2) -------------- -------------- ---------------- --------------- Nonoperating expenses, net................ (6,392) (2,516) (12,273) (3,896) -------------- -------------- ---------------- --------------- Loss before income taxes.................. (3,329) (2,425) (14,048) (5,921) Income taxes.............................. 1,116 (21) 4,710 (21) -------------- -------------- ---------------- --------------- Loss before extraordinary item............ (2,213) (2,446) (9,338) (5,942) Extraordinary loss on early extinguishment of debt................. -- -- -- (1,837) -------------- -------------- ---------------- --------------- Net loss.................................. (2,213) (2,446) (9,338) (7,779) Preferred stock dividend and accretion of discount.................. 4,752 1,084 9,297 1,926 -------------- -------------- ---------------- --------------- Net loss attributable to common stockholders.................... $ (6,965) $ (3,530) $ (18,635) $ (9,705) ============== ============== ================ =============== Basic and diluted loss per share.......... $ (.35) $ (.28) $ (.94) $ (.78) --------------- -------------- ---------------- --------------- Weighted average common shares outstanding............................ 19,737 12,509 19,737 12,509 ============== ============== ================ ===============
See Accompanying Notes to Consolidated Financial Statements 4 5 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
(UNAUDITED) RESTATED -------- SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1999 1998 Cash flows from operating activities: Net loss...................................................................... $ (9,338) $ (7,779) Adjustments to reconcile net loss to net cash Provided by operating activities: Extraordinary loss on early extinguishment of debt......................... -- 1,837 Depreciation............................................................... 3,475 1,075 Amortization of goodwill, intangible assets and other assets............... 11,817 4,030 Deferred taxes........................................................... (4,710) -- Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable........................................................ (12,275) (14,214) Prepaid expenses and other current assets.................................. (2,953) (2,523) Accounts payable and accrued expenses...................................... 965 7,247 Other assets............................................................... (733) (3,058) Other liabilities.......................................................... (174) (382) ---------------- -------------- Net cash used in operating activities................................... (13,926) (13,767) ---------------- -------------- Cash flows from investing activities: Acquisitions............................................................... (41,933) (103,741) Escrow deposits on pending acquisitions.................................... 180 (7,735) Capital expenditures....................................................... (5,907) (1,752) Other...................................................................... (2) (348) ---------------- -------------- Net cash used in investing activities................................... (47,662) (113,576) ---------------- -------------- Cash flows from financial activities: Proceeds from revolving line of credit..................................... 45,800 175,000 Payments on revolving line of credit....................................... -- (75,535) Payments on promissory notes............................................... (11) (5) Proceeds from issuance of preferred stock.................................. -- 16,250 Proceeds from issuance of common stock..................................... -- 15,135 Payments for debt issuance costs........................................... -- (3,208) ---------------- -------------- Net cash provided by financing activities............................... 45,789 127,637 ---------------- -------------- (Decrease) increase in cash and cash equivalents.............................. (15,799) 294 Cash and cash equivalents at beginning of period.............................. $ 24,885 $ 1,573 Cash and cash equivalents at end of period.................................... $ 9,086 $ 1 ,867 Non-cash operating and financing activities: Trade revenue.............................................................. $ 4,717 $ 2,472 Trade expense.............................................................. 4,724 2,449 Assets acquired through notes payable...................................... 1,490 1,051
See Accompanying Notes to Consolidated Financial Statements 5 6 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS Operating results for the three and six month periods ended June 30, 1999 have been restated to reflect the effect of (a) the correction of certain misallocated revenues and expenses and (b) the reversal of the valuation allowance established against deferred taxes during such periods and related recognition of tax benefit. The following table reconciles the amounts previously reported to the amounts currently being reported in the consolidated statement of operations for the three and six month periods ended June 30, 1999:
Net loss Loss before attributable For the three months Net Operating Operating income Income to common Loss per ended June 30, 1999 Revenues Expenses Income taxes taxes stockholders share - -------------------- -------- --------- --------- ----------- ------ ------------ -------- As previously reported $45,800 $42,750 $3,050 $(3,342) $ -- $(8,094) $(.41) Restatement associated with elimination of deferred tax asset valuation allowance -- -- -- -- 1,116 1,116 .06 Restatement for correction of certain misallocated revenues and expenses 46 33 13 13 -- 13 -- ------- ------- ------ ------- ------ ------- ----- As restated $45,846 $42,783 $3,063 $(3,329) $1,116 $(6,965) $(.35) ======= ======= ====== ======= ====== ======= =====
Net loss Loss before attributable For the three months Net Operating Operating income Income to common Loss per ended June 30, 1999 Revenues Expenses Income taxes taxes stockholders share - -------------------- -------- --------- --------- ----------- ------ ------------ -------- As previously reported $77,715 $78,877 $(1,162) $(13,436) $ -- $(22,733) $(1.15) Restatement associated with elimination of deferred tax asset valuation allowance -- -- -- -- 4,710 4,710 .23 Restatement for correction of certain misallocated revenues and expenses (658) (45) (613) (612) -- (612) (.02) ------- ------- ------- --------- ------ -------- ----- As restated $77,057 $78,832 $(1,775) $(14,048) $4,710 $(18,635) $(.94) ======= ======= ======= ========= ====== ======== ======
6 7 2. INTERIM FINANCIAL DATA The consolidated financial statements should be read in conjunction with the consolidated financial statements of Cumulus Media Inc. ("Cumulus" or the "Company") and the notes thereto included in the Company's Annual Report on Form 10-K / A for the year ended December 31, 1998. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the six months ended June 30, 1999 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1999. 3. RECENT ACCOUNTING PRONOUNCEMENTS In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the Costs of Start-Up Activities." SOP 98-5, effective for 1999, requires organization costs to be expensed as incurred. The Company's adoption of SOP 98-5 in the first quarter of 1999 had an immaterial effect on the results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". Statement 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The Company has not engaged in any derivative or hedging transactions. As a result, we do not anticipate that the adoption of this new Statement will have a significant effect on our earnings or financial position. Statement 133, as amended, is required to be adopted in years beginning after June 15, 2000. 4. SUBSEQUENT OFFERING On July 27, 1999, the Company completed a follow-on public stock offering selling 9,664,000 shares of its Class A Common Stock for $22.919 per share, net of underwriter's discounts and commissions of $1.206 per share. The net proceeds of the offering were approximately $221.5 million. The Company also granted the underwriters an option, exercisable for 30 days from the completion date of the offering, to purchase up to an additional 1,449,600 shares to cover over-allotments. On August 4, 1999, the Company was informed that the underwriters had exercised this option in full. Exercise of the option will result in an additional $33.2 million in net offering proceeds to the Company. With the net proceeds from the offering, the Company will redeem a portion of its Series A preferred stock, including redemption premium. In addition, the Company plans to repay the principal amount outstanding under the Credit Facility (as defined below) and fund a portion of its pending acquisitions. 5. CREDIT FACILITY The Company's senior credit facility, as amended most recently as of April 14, 1999 and May 5, 1999 (the "Credit Facility"), provides for a revolving credit line of $25.0 million until March 2, 2006, and 2 eight-year term loan facilities of $62.5 million. Under the terms of the Credit Facility, the Company drew down $62.5 million of term loan facility upon the closing of its initial public offerings on July 1, 1998. In addition, during the first six months of 1999, the Company drew down an additional $45.8 million in term facility. The proceeds of the borrowings under the Credit Facility have been used to finance acquisitions and repay the Company's outstanding indebtedness under its previous credit facility, and to secure outstanding letters of credit issued under its previous credit facility. 7 8 Under the terms of the Credit Facility, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. As of the filing date, the Company did not meet certain of these financial covenant requirements. However, in a letter dated June 30, 1999, the lender waived these covenant requirements. In connection with the July 27, 1999 public offering discussed above, the Company signed a commitment letter with its existing lenders providing for a new credit facility in an aggregate principal amount of $225.0 million. As of August 6, 1999 the Company was negotiating the final terms of the agreement with its lenders. 6. ACQUISITIONS: During the six months ended June 30, 1999, the Company completed 13 acquisitions of radio stations for a total purchase price of $43.4 million plus various other direct acquisition costs. Acquisitions were accounted for by the purchase method of accounting. As such, the accompanying consolidated balance sheet includes the acquired assets and liabilities and the consolidated statement of operations includes the results of operations of the acquired entities from their respective dates of acquisition. An allocation of the aggregate purchase prices to the estimated fair values of the assets acquired and liabilities assumed is presented below. Property and equipment................................................................. $ 5,722 Intangible assets...................................................................... 37,702 --------------- 43,424
The unaudited consolidated condensed pro forma results of operations data for the six months ended June 30, 1999 and 1998, presented as if all acquisitions completed during 1998 and during the first six months of 1999 occurred at January 1, 1998, follow:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 ---- ---- ---- ---- RESTATED RESTATED -------- -------- Net revenues $ 46,005 $ 39,704 $ 80,297 $ 71,047 Operating income (loss) $ 2,855 $ (360) $ (1,813) $(10,143) Net loss $ (2,666) $ (6,997) $ (9,865) $(22,906) Net loss attributable to common stockholders $ (7,418) $(11,749) $(19,162) $(32,203) ======== ======== ======== ======== Basic and diluted loss per common share (in dollars) $ (0.38) $ (0.94) $ (.97) $ (2.57) ======== ======== ======== ========
The pro forma information above is presented in response to applicable accounting rules relating to business acquisitions and is not necessarily indicative of the actual results that would have been achieved had the acquisitions occurred at the beginning of 1999, nor is it indicative of future results of operations. Escrow funds of approximately $3.2 million paid by the Company in connection with pending acquisitions as of June 30, 1999 have been classified as other assets at June 30, 1999 in the accompanying consolidated balance sheet. 8 9 At June 30, 1999 the Company operated 38 stations under local marketing agreements ("LMA"). The consolidated statements of operations for the three months ended and six months ended June 30, 1999 include the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMA from the effective date of the LMA through June 30, 1999. 7. GUARANTOR'S FINANCIAL INFORMATION All of the Company's direct and indirect subsidiaries (all such subsidiaries are directly or indirectly wholly owned by the Company) will provide full and unconditional senior subordinated guarantees for the senior subordinated notes on a joint and several basis. There are no significant restrictions on the ability of the guarantor subsidiaries to pay dividends or make loans to the Company. The following tables provide consolidating condensed financial information pertaining to the Company and the Guarantor Subsidiaries. The Company has not presented separate financial statements for the Guarantor Subsidiaries because management does not believe that such information is material to investors.
RESTATED AS OF JUNE 30, 1999 ------------------- (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ Cash and cash equivalents................. $ (12,503) $ 21,589 $ -- $ 9,086 Accounts receivable, net.................. -- 40,289 -- 40,289 Prepaid expenses and other currents assets........................ 2,838 2,923 -- 5,761 -------------- -------------- ---------------- --------------- Total current assets................... (9,665) 64,801 -- 55,136 Property and equipment, net............... 1,461 48,130 -- 49,591 Investment in subsidiaries................ 487,500 -- (487,500) -- Intangible assets, net.................... -- 431,113 -- 431,113 Other assets.............................. 40,782 5,910 (30,678) 16,014 -------------- -------------- ---------------- --------------- Total assets.............................. $ 520,078 $ 549,954 $ (518,178) $ 551,854 ============== ============== ================ =============== Accounts payable.......................... $ 9,972 $ 10,413 $ -- $ 20,385 Current portion of LTD.................... 1,020 -- -- 1,020 Other current liabilities................. 768 -- -- 768 -------------- -------------- ---------------- --------------- Total current liabilities.............. 11,760 10,413 -- 22,173 Long-term debt, excluding current portion........................... 267,537 -- -- 267,537 Other liabilities......................... 6,103 26,816 (30,676) 2,243 Deferred income taxes..................... -- 4,677 -- 4,677 -------------- -------------- ---------------- --------------- Total liabilities......................... 285,400 41,906 (30,676) 296,630 -------------- -------------- ---------------- --------------- Preferred stock........................... 143,038 -- -- 143,038 -------------- -------------- ---------------- --------------- Stockholders' equity...................... 91,640 508,048 (487,502) 112,186 -------------- -------------- ---------------- --------------- Total liabilities and stockholders' equity................................. $ 520,078 $ 549,954 $ (518,178) $ 551,854 ============== ============== ================ ===============
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RESTATED FOR THE SIX MONTHS ENDED JUNE 30, 1999 ------------------------------------------------------- (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ Revenues ............................ $ -- $ 83,519 $ -- $ 83,519 Less: agency commissions ............ -- (6,462) -- (6,462) -------- -------- -------- -------- Net revenues ..................... -- 77,057 -- 77,057 Operating expenses: Station operating expenses, excluding depreciation and amortization .... -- 59,038 -- 59,038 Depreciation and amortization ....... 284 16,100 -- 16,384 Corporate G&A expenses .............. 3,410 -- -- 3,410 -------- -------- -------- -------- Operating expenses .................. 3,694 75,138 -- 78,832 -------- -------- -------- -------- Operating income (loss) ............. (3,694) 1,919 -- (1,775) -------- -------- -------- -------- Interest (expense) .................. (12,459) (33) -- (12,492) Interest income ..................... 220 1 -- 221 Other income (expense) .............. -- (2) -- (2) -------- -------- -------- -------- Non operating expenses, net ......... (12,239) (34) -- (12,273) -------- -------- -------- -------- Income (loss) before income taxes ... (15,933) 1,885 -- (14,048) Income tax benefit .................. -- 4,710 -- 4,710 -------- -------- -------- -------- Income (loss) before extraordinary item ............... (15,933) 6,595 -- (9,338) Extraordinary (loss) ................ -- -- -- -- -------- -------- -------- -------- Net loss before equity adjustment ... (15,933) 6,595 -- (9,338) Equity income (loss) in subsidiaries 6,595 -- (6,595) -- -------- -------- -------- -------- Net loss ............................ (9,338) 6,595 (6,595) (9,338) Preferred stock dividend ............ 9,297 -- -- 9,297 -------- -------- -------- -------- Net income (loss) attributable to common stockholders .............. $(18,635) $ 6,595 $ (6,595) $(18,635) ======== ======== ======== ========
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RESTATED FOR THE SIX MONTHS ENDED JUNE 30, 1999 ------------------------------------------------------- (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ Cash flows from operating activities: Net loss ............................ $(15,933) $ 6,595 $ -- $ (9,338) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation ..................... 104 3,371 -- 3,475 Amortization ..................... 741 11,076 -- 11,817 Deferred taxes ................... -- (4,710) -- (4,710) Changes in assets and liabilities, net of effect of acquisitions: Accounts receivable .............. -- (12,275) -- (12,275) Prepaid expenses and other current assets ........................ (2,090) (863) -- (2,953) Accounts payable and accrued expenses ...................... (877) 1,844 (2) 965 Other assets ........................ (9,533) (2,161) 10,961 (733) Other liabilities ................... 1,289 9,496 (10,959) (174) -------- -------- -------- -------- Net cash (used in) provided by operating activities .......... (26,299) 12,373 -- (13,926) -------- -------- -------- -------- Cash flows from investing activities: Acquisitions ..................... -- (41,933) -- (41,933) Investment in subsidiaries ....... (41,933) -- 41,933 -- Escrow deposits on pending acquisitions .................. 180 -- -- 180 Capital expenditures ............. (377) (5,530) -- (5,907) Other ............................ (2) -- -- (2) -------- -------- -------- -------- Net cash used by investing activities ....................... (42,132) (47,463) 41,933 (47,662) -------- -------- -------- -------- Cash flows from financing activities: Contribution from parent ......... -- 41,933 (41,933) -- Proceeds from revolving line of credit ..................... 45,800 -- -- 45,800 Payments on promissory notes ........ (11) -- -- (11) -------- -------- -------- -------- Net cash provided by financing activities ....................... 45,789 41,933 (41,933) 45,789 -------- -------- -------- -------- (Decrease)increase in cash and cash equivalents .......... (22,642) 6,843 -- (15,799) Cash and cash equivalents at beginning of period ........... $ 10,139 $ 14,746 $ -- $ 24,885 Cash and cash equivalents at end of period ................. $(12,503) $ 21,589 $ -- $ 9,086
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RESTATED AS OF DECEMBER 31, 1998 -------------------------------------------------------- (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ Cash and cash equivalents ......... $ 10,139 $ 14,746 $ -- $ 24,885 Accounts receivable, net .......... -- 28,056 -- 28,056 Prepaid expenses and other currents assets ................ 749 2,059 -- 2,808 --------- --------- --------- --------- Total current assets .............. 10,888 44,861 -- 55,749 Property and equipment, net ....... 1,188 40,250 -- 41,438 Investment in subsidiaries ........ 444,078 -- (444,078) -- Intangible assets, net ............ -- 404,220 -- 404,220 Other assets ...................... 32,166 3,775 (19,717) 16,224 --------- --------- --------- --------- Total assets ...................... $ 488,320 $ 493,106 $(463,795) $ 517,631 ========= ========= ========= ========= Accounts payable .................. $ 10,659 $ 8,370 $ (1) $ 19,028 Current portion of LTD ............ 20 -- -- 20 Other current liabilities ......... 768 -- -- 768 --------- --------- --------- --------- Total current liabilities ...... 11,447 8,370 (1) 19,816 Long-term debt, excluding current portion ........................ 222,747 -- -- 222,747 Other liabilities ................. 3,513 17,322 (19,717) 1,118 Deferred income taxes ............. -- 9,387 -- 9,387 --------- --------- --------- --------- Total liabilities ................. 237,707 35,079 (19,718) 253,068 --------- --------- --------- --------- Preferred stock ................... 133,741 -- -- 133,741 --------- --------- --------- --------- Stockholders' equity .............. 116,872 458,027 (444,077) 130,822 --------- --------- --------- --------- Total liabilities and stockholders' equity ......................... $ 488,320 $ 493,106 $(463,795) $ 517,631 ========= ========= ========= =========
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FOR THE SIX MONTHS ENDED JUNE 30, 1998 ------------------------------------------------------- (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ Revenues ............................ $ -- $ 37,937 $ -- $ 37,937 Less: agency commissions ............ -- (3,555) -- (3,555) -------- -------- -------- -------- Net revenues ........................ -- 34,382 -- 34,382 Operating expenses: Station operating expenses, excluding depreciation and amortization .... -- 27,275 -- 27,275 Depreciation and amortization ....... 241 6,660 -- 6,901 Corporate general and administrative expenses .......... 2,231 -- -- 2,231 -------- -------- -------- -------- Operating expenses .................. 2,472 33,935 -- 36,407 -------- -------- -------- -------- Operating income (loss) ............. (2,472) 447 -- (2,025) -------- -------- -------- -------- Interest (expense) .................. (4,234) (15) -- (4,249) Interest income ..................... 355 -- -- 355 Other income (expense) .............. (2) -- -- (2) -------- -------- -------- -------- Non operating expenses, net ......... (3,881) (15) -- (3,896) -------- -------- -------- -------- Income (loss) before income taxes ... (6,353) 432 -- (5,921) Income tax benefit/(expense) ........ (21) -- -- (21) -------- -------- -------- -------- Income (loss) before extraordinary item ............... (6,374) 432 -- (5,942) Extraordinary (loss) ................ (1,837) -- -- (1,837) -------- -------- -------- -------- Net loss before equity adjustment ... (8,211) 432 -- (7,779) Equity income (loss) in subsidiaries 432 -- (432) -- -------- -------- -------- -------- Net loss ............................ (7,779) 432 (432) (7,779) Preferred stock dividend ............ 1,926 -- -- 1,926 -------- -------- -------- -------- Net income (loss) attributable to common stockholders ........... $ (9,705) $ 432 $ (432) $ (9,705) ======== ======== ======== ========
13 14
FOR THE SIX MONTHS ENDED JUNE 30, 1998 ----------------------------------------------------------- (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ Cash flows from operating activities: Net loss ............................ $ (8,211) $ 432 $ -- $ (7,779) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt ........ 1,837 -- -- 1,837 Depreciation ..................... 36 1,039 -- 1,075 Amortization ..................... 165 3,865 -- 4,030 Changes in assets and liabilities, net of effect of acquisitions: Accounts receivable .............. -- (14,214) -- (14,214) Prepaid expenses and other current assets ................ (1,736) (787) -- (2,523) Accounts payable and accrued expenses.......................... 172 7,075 -- 7,247 Other assets ........................ (8,953) 5,895 -- (3,058) Other liabilities ................... 323 (705) -- (382) --------- --------- --------- --------- Net cash (used in) provided by operating activities ............. (16,367) 2,600 -- (13,767) --------- --------- --------- --------- Cash flows from investing activities: Acquisitions ..................... -- (103,741) -- (103,741) Investment in subsidiaries ....... (103,741) -- 103,741 -- Escrow deposits on pending acquisitions .................. (7,735) -- -- (7,735) Capital expenditures ............. (5) (1,747) -- (1,752) Other ............................ (348) -- -- (348) --------- --------- --------- --------- Net cash used by investing activities ....................... (111,829) (105,488) 103,741 (113,576) Cash flows from financing activities: Contribution from parent ......... -- 103,741 (103,741) -- Proceeds from revolving line of credit ..................... 175,000 -- -- 175,000 Payments on revolving line of credit ........................ (75,535) -- -- (75,535) Payments on promissory notes ..... (5) -- -- (5) Proceeds from issuance of preferred stock ............... 16,250 -- -- 16,250 Proceeds from issuance of common stock ......................... 15,135 -- -- 15,135 Payments for debt issuance costs . (3,208) -- -- (3,208) --------- --------- --------- ---------
14 15
FOR THE SIX MONTHS ENDED JUNE 30, 1998 --------------------------------------------------------- (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ Net cash provided by financing activities ................... 127,637 103,741 (103,741) 127,637 --------- --------- --------- --------- Increase(decrease) in cash and cash equivalents .......... (559) 853 -- 294 Cash and cash equivalents at beginning of period ....... $ 1,080 $ 493 $ -- $ 1,573 Cash and cash equivalents at end of period ............. $ 521 $ 1,346 $ -- $ 1,867
15 16 8. EARNINGS PER SHARE The following table sets forth the computation of basic loss per share for the three and six months ended June 30, 1999 and 1998. In order to reflect the initial public offerings on July 1, 1998, the weighted average number of shares outstanding for the three month and six month periods ended June 30, 1998 were determined after giving effect to the exchange of the Company's shares by Cumulus Media, LLC in the initial public offerings.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1999 1998 1999 1998 ---- ---- ---- ---- RESTATED RESTATED Numerator: Net loss before extraordinary item .... $ (2,213) $ (2,446) $ (9,338) $ (5,942) Preferred stock dividend .............. (4,752) (1,084) (9,297) (1,926) Accretion of preferred stock discount . -- -- -- -- Numerator for basic earnings per share - income available for common stockholders ................ $ (6,965) $ (3,530) $(18,635) $ (7,868) -------- -------- -------- -------- Denominator: Denominator for basic earnings per share - weighted-average shares after giving effect to initial public offering ............ 19,737 12,509 19,737 12,509 -------- -------- -------- -------- Net loss per common share - before extraordinary item .......... $ (0.35) $ (0.28) $ (.94) $ (0.63) Extraordinary item ....................... -- -- -- (0.15) -------- -------- -------- -------- Net loss per common share ................ $ (0.35) $ (0.28) $ (.94) $ (0.78) ======== ======== ======== ========
During the twelve months ended December 31, 1998 and the six months ended June 30, 1999, the Company issued options to key executives and employees to purchase shares of common stock as part of the Company's stock option plans. At June 30, 1999, there were options issued to purchase the following classes of common stock: Options to purchase Class A common stock 1,285,284 Options to purchase Class C common stock 2,001,380
Earnings per share assuming dilution has not been presented as the effect of the options above would be antidilutive. 9. COMMITMENTS AND CONTINGENCIES On April 29, 1999, Cumulus was served with a complaint filed in state court in New York, seeking approximately $1.9 million in damages arising from our alleged breach of national representation agreements. The Company believes they have a variety of defenses to this claim and, as such, do not foresee the claim having a material adverse effect on the business, results of operations or financial condition. The Company is a defendant from time to time in various lawsuits, which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. As of June 30, 1999, the Company has entered into various asset purchase agreements to acquire radio stations. In general, the transactions are structured such that if the Company cannot consummate these acquisitions because of a breach of contract, the Company may be liable for five percent of the purchase price, as defined by the agreements. 16 17 10. SUBSEQUENT EVENTS Subsequent to June 30, 1999 the Company completed acquisitions of 2 radio stations located in 1 market for an aggregate purchase price of approximately $2.1 million. These transactions will be accounted for by the purchase method of accounting. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of the consolidated financial condition and results of operations of Cumulus Media Inc. ("Cumulus" or the "Company") should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this Quarterly Report. This Quarterly Report contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Quarterly Report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers primarily with respect to the future operating performance of the Company. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties and actual results may differ from those in the forward-looking statements as a result of various factors (including, without limitation, risks and uncertainties relating to leverage, the need for additional funds, the inability of the Company to renew one or more of its broadcast licenses, changes in interest rates, consummation of the Company's pending acquisitions, integration of the pending acquisitions, the ability of the Company to eliminate certain costs, the management of rapid growth, the popularity of radio as a broadcasting and advertising medium and changing consumer tastes), many of which are beyond the control of the Company. This discussion identifies important factors that could cause such differences. The occurrence of any such factors not currently expected by the Company would significantly alter the results set forth in these statements. A radio broadcast company's revenues are derived primarily from the sale of advertising time to local and national advertisers. Those revenues are affected by the advertising rates that a radio station is able to charge and the number of advertisements that can be broadcast without jeopardizing listener levels (and resulting ratings). Advertising rates tend to be based upon demand for a station's advertising inventory and its ability to attract audiences in targeted demographic groups, as measured principally by Arbitron. Radio stations attempt to maximize revenues by adjusting rates based upon local market conditions, controlling advertising inventory and creating demand and audience ratings. Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers, with revenues typically being lowest in the first calendar quarter and higher in the second, third and fourth calendar quarters of each year. A radio station's operating results in any period may be affected by the occurrence of advertising and promotion expenses that do not produce commensurate revenues in the period in which the expenditures are made. Because Arbitron reports audience ratings on a semi-annual basis in most of the Company's markets, a radio station's ability to realize revenues as a result of increased advertising and promotional expenses and any resulting audience ratings improvements may be delayed for several months. The Company's results of operations from period to period are not historically comparable due to the impact of the various acquisitions and dispositions that the Company has completed. As of June 30, 1999, the Company owns and operates, operates, provides programming to or sells advertising on behalf of 228 radio stations located in 41 U.S. markets. Following completion of all of its pending acquisitions, the Company will own and operate, provide programming to or sell advertising on behalf of 246 radio stations located in 45 U.S. markets. The Company anticipates that it will consummate the pending acquisitions, however the closing of each such acquisition is subject to various conditions, including FCC and other governmental approvals, which are beyond the Company's control. No assurances can be given that the regulatory approval will be received or that the Company will complete the pending acquisitions on a timely basis, if at all. - -17- 18 In the following analysis, management discusses broadcast cash flow and EBITDA. Broadcast cash flow consists of operating income (loss) before depreciation, amortization, corporate expenses and noncash compensation expense. EBITDA consists of operating income (loss) before depreciation, amortization and noncash compensation expense. Although broadcast cash flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that they are useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. Nevertheless, they should not be considered in isolation, or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. RESULTS OF OPERATIONS The following table presents summary historical consolidated financial information and other supplementary data of Cumulus for the three and six months ended June 30, 1999 and 1998.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1999 1998 1999 1998 -------- -------- -------- --------- RESTATED RESTATED -------- -------- OPERATING DATA: Net broadcast revenue $ 45,846 $ 21,887 $ 77,057 $ 34,382 Stations operating expenses excluding depreciation & amortization 32,262 16,372 59,038 27,275 Depreciation and amortization 8,785 4,154 16,384 6,901 Corporate expenses 1,736 1,270 3,410 2,231 Operating income(loss) 3,063 91 (1,775) (2,025) Interest expense (net) 6,390 2,520 12,271 3,894 Net income (loss) attributable to common stock (6,965) (3,530) (18,635) (9,705) OTHER DATA: Broadcast cash flow (1) 13,584 5,515 18,019 7,107 Broadcast cash flow margin 29.6% 25.2% 23.4% 20.7% EBITDA (before noncash compensation expense)(2) 11,848 4,245 14,609 4,876 Cash flows related to: Operating activities N/A N/A (13,926) (13,767) Investing activities N/A N/A (47,662) (113,576) Financing activities N/A N/A 45,789 127,637 Capital expenditures N/A N/A $ 5,907 $ 1,752
(1) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses, and noncash stock compensation expense. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio Company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As broadcast cash flow is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. - -18- 19 (2) EBITDA consists of operating income (loss) before depreciation, amortization, and noncash stock compensation expense. Although EBITDA (before noncash stock compensation expense) is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As EBITDA (before noncash stock compensation expense), is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 Net Broadcast Revenue. Net broadcast revenue increased $23.9 million to $45.8 million for the three months ended June 30, 1999 from $21.9 million for the three month period ending June 30, 1998. This increase was primarily attributable to the acquisition of radio stations and revenue generated from LMAs entered into through June 30, 1999, as well as the sale of incremental advertising time, primarily to local advertisers for the stations owned or operated. For the markets where the Company has operated stations since the second quarter of 1998 (defined as the 119 stations owned or operated in 20 U.S. markets), net broadcast revenue increased $5.6 million or 25.3% to $27.7 million for the three months ended June 30, 1999, compared to the three months ended June 30, 1998. This increase was primarily attributable to growth in the sale of commercial time to local and national advertisers. For the markets where the Company has operated stations since January 1, 1999 (defined as 195 stations in 36 U.S. markets), net broadcast revenue increased $8.2 million to $41.7 million for the three month period ended June 30, 1999 from the pro forma $33.5 million for the three month period ended June 30, 1998. Station Operating Expenses excluding Depreciation & Amortization. As a result of the factors described above, station operating expenses, excluding depreciation and amortization, increased $15.9 million to $32.3 million for the three months ended June 30, 1999 from $16.4 million for the three month period ended June 30, 1998. The increase was attributable to the station operating expenses of the acquired stations and the LMAs entered into through June 30, 1999. Corporate Expenses. As a result of the factors described above, and due to certain personnel additions incurred during the second half of 1998, corporate expenses increased $0.4 million to $1.7 million for the three months ended June 30, 1999 from 1.3 million for the three months ended June 30, 1998. Depreciation and Amortization Expense. Depreciation and amortization expense increased $4.6 million to $8.8 million for the three months ended June 30, 1999 from $4.2 million for the period ended June 30, 1998, primarily due to the impact of various acquisitions consummated during fiscal 1998. Interest Expense (Income). Interest expense, net of interest income, increased from $2.5 million during the three months ended June 30, 1998 to $6.4 million for the three months ended June 30, 1999, primarily due to (i) additional borrowings under the Company's term loan facility to finance acquisitions and (ii) the issuance of the 10 3/8% Senior Subordinated Notes on July 1, 1998 in connection with the Company's initial public offerings. Net Income (Loss) Attributable to Common Stockholders. As a result of the factors described above and the accrual of stock dividends on the Company's issued and outstanding preferred stock; the net loss attributable to common stockholders increased $3.5 million to $7.0 million for the three months ended June 30, 1999 from $3.5 million for the three month period ended June 30, 1998. - -19- 20 Broadcast Cash Flow. Broadcast cash flow increased $8.1 million to $13.6 million for the three months ended June 30, 1999 from $5.5 million for the three month period ended June 30, 1998. The increase was primarily due to acquisitions of radio stations and cash flow generated from LMAs entered into before June 30, 1999, as well as net overall operational improvements realized by the Company. The broadcast cash flow margin was 29.6% for the three months ended June 30, 1999 compared with 25.2% during the same period in 1998. EBITDA (before noncash compensation expense). As a result of the factors described above, EBITDA increased $7.7 million to $11.9 million for the three months ended June 30, 1999 from $4.2 million for the three month period ended June 30, 1998. SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 Net Broadcast Revenue. Net broadcast revenue increased $42.8 million to $77.1 million for the six months ended June 30, 1999 from $34.4 million for the six month period ending June 30, 1998. This increase was primarily attributable to the acquisition of radio stations and revenue generated from LMAs entered into through June 30, 1999, as well as the sale of incremental advertising time, primarily to local advertisers for the stations owned or operated. For the markets where the Company has operated stations since the second quarter of 1998 (defined as the 119 stations owned or operated in 20 U.S. markets), net broadcast revenue increased $8.5 million or 21.9% to $47.4 million for the six months ended June 30, 1999, compared to $38.9 million for the six months ended June 30, 1998. This increase was primarily attributable to growth in the sale of commercial time to local and national advertisers. For the markets where the Company has operated stations since January 1, 1999 (defined as 195 stations in 36 U.S. markets), net broadcast revenue increased $12.7 million to $72.4 million for the six month period ended June 30, 1999 from the pro forma $59.7 million for the six month period ended June 30, 1998. Station Operating Expenses excluding Depreciation & Amortization. As a result of the factors described above, station operating expenses, excluding depreciation and amortization, increased $31.8 million to $59.0 million for the six months ended June 30, 1999 from $27.3 million for the six month period ended June 30, 1998. The increase was attributable to the station operating expenses of the acquired stations and the LMAs entered into through June 30, 1999. Corporate Expenses. As a result of the factors described above, and due to certain personnel additions incurred during the second half of 1998, corporate expenses increased $1.2 million to $3.4 million for the six months ended June 30, 1999 from $2.2 million for the six months ended June 30, 1998. Depreciation and Amortization Expense. Depreciation and amortization expense increased $9.5 million to $16.4 million for the six months ended June 30, 1999 from $6.9 million for the period ended June 30, 1998, primarily due to the impact of various acquisitions consummated during fiscal 1998 and the six months ended June 30, 1999. Interest Expense (Income). Interest expense, net of interest income, increased from $3.9 million during the six months ended June 30, 1998 to $12.3 million for the six months ended June 30, 1999, primarily due to (i) additional borrowings under the Company's term loan facility to finance acquisitions and (ii) the issuance of the 10 3/8% Senior Subordinated Notes on July 1, 1998 in connection with the Company's initial public offerings. Net Income (Loss) Attributable to Common Stockholders. As a result of the factors described above and the accrual of dividends on the Company's issued and outstanding preferred stock; net loss attributable to common stockholders increased $8.9 million to $18.6 million for the six months ended June 30, 1999 from $9.7 million for the six month period ended June 30, 1998. - -20- 21 Broadcast Cash Flow. Broadcast cash flow increased $10.9 million to $18.0 million for the six months ended June 30, 1999 from $7.1 million for the six month period ended June 30, 1998. The increase was primarily due to acquisitions of radio stations and cash flow generated from LMAs entered into before June 30, 1999, as well as net overall operational improvements realized by the Company. The broadcast cash flow margin was 23.4% for the six months ended June 30, 1999 compared with 20.7% during the same period in 1998. EBITDA (before noncash compensation expense). As a result of the factors described above, EBITDA increased $9.7 million to $14.6 million for the six months ended June 30, 1999 from $4.9 million for the six month period ended June 30, 1998. LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 1999, net cash used in operations increased $0.1 million to $13.9 million from net cash used in operations of $13.8 million for the six month period ended June 30, 1998, primarily due to the investment in working capital and other current assets made in connection with acquisitions completed during fiscal 1998. Net cash used in investing activities decreased $65.9 million to $47.7 million from $113.6 million in the six month period ended June 30, 1998, primarily due to less acquisition activity during the first half of 1999 as compared with the same period in fiscal 1998. For the six months ended June 30, 1999, net cash provided from financing activities was $45.8 million compared to $127.6 million during the six month period ended June 30, 1998. The level of financing activity during the six month period ended June 30, 1998 was the result of initial borrowings under the Company's credit facility as well as capital contributions from Cumulus Media, LLC, the Company's immediate parent prior to the consummation of the initial public debt and equity offerings. The 1999 financing activity was the result of additional borrowings under the Credit Facility (as defined below). On July 27, 1999, the Company completed a follow-on public stock offering selling 9,664,000 shares of its Class A Common Stock for $22.919 per share, after underwriter's discounts and commissions. The net proceeds of the offering were approximately $221.5 million. The Company intends to redeem a portion of its Series A preferred stock, repay the principal amount of indebtedness outstanding under the Credit Facility and fund the completion of a portion of the Company's pending acquisitions. In addition, on August 4, 1999, the Company was informed that the underwriters had exercised their option to purchase an additional 1,449,600 shares of Class A Common Stock at $22.919 per share. Exercise of the option will result in an additional $33.2 million in net offering proceeds to the Company. In connection with the July 1999 public offering, the Company signed a commitment letter with its existing lenders providing for a new credit facility in an aggregate principal amount of $225.0 million. It is anticipated by the Company that the new agreement will consist of an eight-year term loan facility in the amount of $75.0 million, an eight and one-half year term loan facility in the amount of $50.0 million, a revolving credit facility in the amount of $50.0 million that converts to a seven-year term loan 364 days after closing and a seven-year revolving credit facility in the amount of $50.0 million. In addition to acquisitions and debt service, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures. Management believes that cash from operating activities and revolving loans under the Company's Credit Facility should be sufficient to permit the Company to fund its operations and satisfy its debt service requirements for at least the next 12 months. The Company regularly reviews potential acquisitions. Future acquisitions are expected to be made from available cash balances and additional borrowings under the Credit Facility. Subsequent to June 30, 1999, the Company completed acquisitions of 2 radio stations in 1 market for an aggregate purchase price of approximately $2.1 million. These transactions will be accounted for by the purchase method of accounting. - -21- 22 The Company has also entered into various agreements to acquire 54 stations in 19 markets for an aggregate purchase price of approximately $162.3 million. The Company's senior credit facility, as amended most recently as of April 14, 1999 and May 5, 1999 (the "Credit Facility"), provides for a revolving credit line of $25.0 million until March 2, 2006, and 2 eight-year term loan facilities of $62.5 million. Under the terms of the Credit Facility, the Company drew down $62.5 million of term loan facility upon the closing of the offerings on July 2, 1998. In addition, during the first six months of 1999, the Company drew down an additional $45.8 million in term facility. The proceeds of the borrowings under the Credit Facility have been used to finance acquisitions and repay the Company's outstanding indebtedness under its previous credit facility, and to secure outstanding letters of credit issued under its previous credit facility. Under the terms of the Credit Facility, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. As of August 13, 1999, the Company did not meet certain of these financial covenant requirements. However, in a letter dated June 30, 1999, the lender waived the covenant requirements. The Company's obligations under the Credit Facility are secured by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by the Company's subsidiaries). The obligations under the Credit Facility are also guaranteed by each of the domestic subsidiaries of the Company and are required to be guaranteed by any additional subsidiaries acquired by the Company. Both revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 0.50% to 1.75% or the Eurodollar Rate (as defined under the terms of the credit facility) plus a margin ranging between 1.50 to 2.75% (in each case dependent upon the leverage ratio of the Company). As of June 30, 1999, the Company's effective interest rate on amounts outstanding under the credit facility during the quarter was 7.75%. The revolving credit and term loan borrowings are repayable in quarterly installments beginning in 2000, subject to mandatory prepayment in certain circumstances. The scheduled annual amortization of the term loans is $2.0 million in each of the years 2000 through 2002, $10.0 million in 2003, $20.0 million in 2004, $69.0 million in 2005, and $20.0 million at maturity. The scheduled annual reduction in availability under the revolving credit loans is $7.5 million in each of the years 2003 through 2005, and $2.5 million in 2006. RECENT ACCOUNTING PRONOUNCEMENTS In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the Costs of Start-Up Activities." SOP 98-5, effective for 1999, requires organization costs to be expensed as incurred. The Company's adoption of SOP 98-5 in the first quarter of 1999 had an immaterial effect on the results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". Statement 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The Company has not engaged in any derivative or hedging transactions. As a result, we do not anticipate that the adoption of the this new Statement will have a significant effect on our earnings or financial position. Statement 133, as amended, is required to be adopted in years beginning after June 15, 2000. - -22- 23 YEAR 2000 RISK The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the Year 2000. This could cause a system failure or miscalculation in the Company's broadcast and corporate locations which could cause disruptions of operations, including, among other things, a temporary inability to produce broadcast signals, process financial transactions, or engage in similar normal business activities. Based on recent system evaluations, surveys, and ongoing, on-site inventories, the Company determined that it will be required to modify or replace portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. If such modifications and replacements are not made, or are not completed in time, the Year 2000 issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 issue involves the identification and assessment of the existing problem, plan of remediation, as well as a testing and implementation plan. To date, the Company has substantially completed the identification and assessment process, with the following significant financial and operational components identified as being affected by the Year 2000 issue: Computer hardware running critical financial and operational software that is not capable of recognizing a four-digit code for the applicable year. The Company's advertising inventory management software responsible for managing, scheduling and billing customer's broadcast advertising purchases. Broadcast studio equipment and software necessary to deliver radio programming. Corporate financial accounting and information system software. Significant non-technical systems and equipment that may contain microcontrollers which are not Year 2000 compliant are being identified and addressed if deemed critical. The Company has instituted the following remediation plan to address the Year 2000 issues: A computer hardware replacement plan for computers running essential broadcast, operational and financial software applications with Year 2000 compatible computers has been instituted. As of June 30, 1999 approximately 75% of all essential computers related to broadcast or studio equipment are Year 2000 compliant. Approximately 95% of all essential financial based computers are Year 2000 compliant. The Company anticipates this replacement plan to be 100% complete by the end of the third quarter in 1999. Software upgrades or replacement of advertising inventory management software which is Year 2000 compliant have been planned, are in process, or have been completed as of June 30, 1999. The Company has received assurances from its software vendors that supply the Company's advertising inventory management software that this software is Year 2000 compliant with a few minor exceptions. For these non-compliant vendors, the Company will install inventory management software from a compliant vendor by the end of the third quarter of 1999. Approximately 80% of the broadcast properties have Year 2000 compliant advertising inventory management software as of June 30, 1999. - -23- 24 The Company has received assurances from its software vendors that supply broadcasting digital automation systems that the software used by the Company is currently compliant or has upgrades currently available that are compliant. Broadcast software and studio equipment is considered to be 80% compliant as of June 30, 1999 and is anticipated to be 100% compliant by the third quarter of 1999. Financial accounting software for the broadcast segment has been replaced and is year 2000 compliant. While the Company believes its efforts will provide reasonable assurance that material disruptions will not occur due to internal failure, the possibility of interruption still exists. The Company is currently querying other significant vendors that do not share information systems with the Company (external agents). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution process is a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. In the ordinary course of business, the Company has acquired or plans to acquire the necessary Year 2000 compliant hardware and software. These purchases are part of specific operational and financial system enhancements with completion dates during 1998 and early 1999 that were planned without specific regard to the Year 2000 issue. These system enhancements resolve many Year 2000 problems and have not been delayed or accelerated as a result of any additional efforts addressing the Year 2000 issue. Accordingly, these costs have not been included as part of the costs of Year 2000 remediation. However, there are several hardware and software expenditures that have been or will be incurred to specifically remediate Year 2000 non-compliance. Incremental hardware and software costs that the Company has attributed to the Year 2000 issue are estimated to be less than $1.5 million. Of this cost, approximately 10% will be expensed as modification or upgrade costs with the remaining costs being capitalized as new hardware or software. Sources of funds for these expenditures will be supplied through cash flow generated from operations and/or available borrowings from our credit facility. The Company's accounting policy is to expense costs incurred due to maintenance, modification or upgrade costs and to capitalize the cost of new hardware and software. The Company believes that they have an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company does not complete any additional phases, it could experience disruptions in its operations, including among other things, a temporary inability to produce broadcast signals, process financial transactions, or engage in similar normal business activities. In addition, disruptions in the economy generally resulting from the Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company has commenced development of a contingency plan in the event it does not complete all phases of the Year 2000 program prior to December 31, 1999. The Company expects the contingency plan to be fully developed and in place by September 30, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At June 30, 1999, approximately 40% of the Company's long-term debt bears interest at variable rates. Accordingly, the Company's earnings and after tax cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a 1% increase in the effective rate of the loans, it is estimated that the Company's interest expense would have increased by approximately $0.5 million for the six months ended June 30, 1999. In the event of an adverse change in interest rates, management would likely take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, additional analysis is not possible at this time. Further , such analysis would not consider the effects of the change in the level of overall economic activity that could exist in such an environment. - -24- 25 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No items to report. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS No items to report. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS (a) Exhibits 27.1 Financial Data Schedule - -25- 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CUMULUS MEDIA INC. Date: May 25, 2000 By: /s/ DANIEL O'DONNELL ---------------------------------- Daniel O' Donnell Vice President, Finance Principal Financial and Accounting Officer - -26- EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 9,086,000 0 41,935,000 1,646,000 0 55,136,000 57,050,000 7,459,000 551,854,000 22,173,000 267,537,000 143,038,000 0 0 112,186,000 551,854,000 49,775,000 49,775,000 0 3,946,000 42,783,000 0 6,472,000 (2,213,000) 0 (2,213,000) 0 0 0 (6,965,000) (.35) (.35)
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