-----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, PzSOGUwZKHz0bcWX0SbjUlpk6ZsAx6ak7mIPgH43cu7+kJPmATh6e9g/YWdhE/f/ AWpMwh9+CIqMWt2FLRH4CQ== /in/edgar/work/20000526/0000950124-00-003467/0000950124-00-003467.txt : 20000919 0000950124-00-003467.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950124-00-003467 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 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: 644174 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 SEPTEMBER 30, 1998. OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM _____________ TO ____________ COMMISSION FILE NUMBER 000-24525 CUMULUS MEDIA INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ILLINOIS 36-4159663 (STATE OR OTHER JURISDICTION (I.R.S. I.D. NO.) OF INCORPORATION OR ORGANIZATION)
111 E. KILBOURN AVE., SUITE 2700, MILWAUKEE, WI 53202 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (414) 615-2800 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of October 31, 1998, the registrant had outstanding 19,737,197 shares of common stock consisting of (i) 8,575,504 shares of Class A Common Stock; (ii) 8,785,416 shares of Class B Common Stock; and (iii) 2,376,277 shares of Class C Common Stock. 2 CUMULUS MEDIA INC. INDEX PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements. Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 Consolidated Statements of Operations for the three and nine months ended September 30, 1998; for the three month period ending September 30, 1997, and the period from inception on May 22, 1997 to September 30, 1997 Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and the period from inception on May 22, 1997 to September 30, 1997 Notes to Consolidated Financial Statements ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 3 Quantitative and Qualitative Disclosures About Market Risk. PART II. OTHER INFORMATION ITEM 1 Legal Proceedings ITEM 2 Changes in Securities and Use of Proceeds ITEM 3 Defaults Upon Senior Securities ITEM 4 Submission of Matters to a Vote of Security Holders ITEM 5 Other Information ITEM 6 Exhibits and Reports on Form 8-K Signatures Exhibit Index 3 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CUMULUS MEDIA INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
RESTATED --------- SEPTEMBER 30, DECEMBER 31, 1998 1997 --------- --------- (UNAUDITED) (UNAUDITED) Assets Current assets: Cash and cash equivalents ............................................................. $ 40,179 $ 1,573 Accounts receivable, less allowance for doubtful accounts of $725 and $125 respectively 27,592 5,241 Prepaid expenses and other current assets ............................................. 3,793 288 Total current assets ............................................................... 71,564 7,102 Property and equipment, net .............................................................. 38,432 8,120 Intangible assets, net ................................................................... 391,036 90,217 Other assets ............................................................................. 22,107 5,002 --------- --------- Total assets ....................................................................... $ 523,139 $ 110,441 Liabilities and Stockholder's Equity Current liabilities: Accounts payable and accrued expenses ................................................. $ 21,982 $ 3,643 Current portion of long-term debt ..................................................... 32 12 Other current liabilities ............................................................. -- 195 --------- --------- Total current liabilities .......................................................... 22,014 3,850 Long-term debt Credit Facility and other long term debt, excluding current portion ................... 62,999 42,789 Notes ................................................................................. 160,000 -- Other liabilities ........................................................................ 1,406 400 Deferred income taxes .................................................................... 10,460 -- --------- --------- Total liabilities .................................................................. 256,879 47,039 Preferred stock subject to mandatory redemption, stated value $10,000 per share,12,000 shares authorized, 1,625 shares outstanding .......................... -- 13,426 Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, Stated value $1,000 per share, 129,296 shares outstanding ............................. 129,296 -- Commitments and contingencies (Note 10) Stockholders' equity: Class A common stock, par value $.01 per share; 50,000,000 shares authorized; 8,575,505 shares outstanding .............................................. 86 -- Class B common stock, par value $.01 per share; 20,000,000 shares authorized; 8,785,416 shares outstanding .............................................. 88 -- Class C common stock, par value $.01 per share; 30,000,000 shares authorized; 2,376,277 shares outstanding .............................................. 24 -- Common stock, $.01 par value; authorized 10,000 shares; issued 1,000 shares .............. -- -- Additional paid-in-capital ............................................................... 146,708 53,549 Accumulated other comprehensive income ................................................... 5 5 Accumulated deficit ...................................................................... (9,947) (3,578) Total stockholder's equity ............................................................... 136,964 49,976 --------- --------- Total liabilities and stockholder's equity ............................................... $ 523,139 $ 110,441
See Notes to Consolidated Financial Statements 1 4 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED) RESTATED RESTATED -------- -------- THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 ------------------ ------------------ Revenues ............................................... $ 31,495 $ 69,432 Less: agency commissions ............................... (2,752) (6,307) -------- -------- Net revenues ................................... 28,743 63,125 Operating expenses: Station operating expenses, excluding depreciation and amortization .................... 19,961 47,236 Depreciation and amortization ....................... 6,075 12,976 Corporate general and administrative expenses ....... 1,664 3,895 Operating expenses .................................. 27,700 64,107 -------- -------- Operating income (loss) .......................... 1,043 (982) Nonoperating income (expense): Interest expense .................................... (5,500) (9,749) Interest income ..................................... 1,434 1,789 Other expense, net .................................. -- (2) Nonoperating expenses, net ....................... (4,066) (7,962) -------- -------- Loss before income taxes ......................... (3,023) (8,944) Income taxes ..................................... 3,700 3,679 -------- -------- Loss before extraordinary item ......................... 677 (5,265) Extraordinary loss of early extinguishment of debt -- (1,104) -------- -------- Net loss ......................................... 677 (6,369) Preferred stock dividend and accretion of discount ...................................... 7,220 9,146 Net loss attributable to common stockholders ..... $ (6,543) $(15,515) Basic and diluted loss per share ....................... $ (.34) $ (.80) Weighted average shares outstanding .................... 19,467 19,467
See Notes to Consolidated Financial Statements 2 5 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED) FOR THE PERIOD THREE MONTHS FROM INCEPTION ON ENDED MAY 22, 1997 TO SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 ------------------ ------------------ Revenues ...................................... $ 1,700 $ 1,784 Less: agency commissions ...................... (148) (150) ------- ------- Net revenues .......................... 1,552 1,634 Operating expenses: Station operating expenses, excluding depreciation and amortization ........... 1,143 1,439 Depreciation and amortization .............. 365 443 Corporate general and administrative ....... 274 411 Operating expenses ......................... 1,782 2,293 ------- ------- Operating loss .......................... (230) (659) Nonoperating income (expense): Interest expense ........................... (108) (108) Interest income ............................ 42 50 Other income (expense), net ................ 40 16 ------- ------- Nonoperating expenses, net .............. (26) (42) ------- ------- Loss before income taxes ................ (256) (701) Income tax expense ...................... -- -- ------- ------- Net loss ...................................... (256) (701) Net loss attributable to common stockholders $ (256) $ (701) Basic and diluted loss per share .............. $ (256) $ (701) Weighted average shares outstanding ........... 1,000 1,000
See Notes to Consolidated Financial Statements 3 6 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
RESTATED FOR THE PERIOD NINE MONTHS FROM INCEPTION ON ENDED MAY 22, 1997 TO SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ------------------ Cash flows from operating activities: Net loss .......................................................... $ (6,369) $ (701) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt ........... 1,104 Depreciation ................................................. 2,187 157 Amortization of goodwill, intangible assets and other assets . 8,645 285 Deferred Taxes ............................................... (3,701) -- Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable .......................................... (20,921) (1,084) Prepaid expenses and other current assets .................... (3,505) (178) Accounts payable and accrued expenses ........................ 18,002 700 Other assets ................................................. (152) (558) Other liabilities ............................................ (227) 37 Net cash used in operating activities .......................... (4,937) (1,342) Cash flows from investing activities: Acquisitions ................................................... (324,287) (35,315) Escrow deposits on pending acquisitions ........................ (8,063) (4,838) Capital expenditures ........................................... (3,541) (250) Other .......................................................... 36 -- Net cash used by investing activities ........................ (335,855) (40,403) Cash flows from financing activities: Net proceeds from revolving line of credit ........................ 175,000 16,630 Proceeds from sale of senior subordinated notes ................... 160,000 -- Payments on revolving line of credit .............................. (155,035) Payments on promissory notes ...................................... (14) -- Proceeds from issuance of common stock, net of equity costs ....... 107,352 26,743 Net proceeds from issuance of preferred stock ..................... 101,875 -- Payments for debt issuance costs .................................. (9,780) (760) Net cash provided by financing activities ...................... $ 379,398 $ 42,613 Increase in cash and cash equivalents ................................ 38,606 868 Cash and cash equivalents at beginning of period ..................... 1,573 -- Cash and cash equivalents at end of period ........................... $ 40,179 $ 868 Supplemental disclosures of cash information: Interest paid ..................................................... $ 4,718 $ 108 Non-cash operating and investing activities: Trade revenue ..................................................... 3,922 54 Trade expense ..................................................... 3,851 50 Assets acquired through notes payable ................................ $ 1,515 $ --
See Notes to Consolidated Financial Statements 4 7 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS Operating results for the three and nine month periods ended September 30, 1998 have been restated to reflect the effect of the reversal of the valuation allowance established against deferred taxes during such periods and related recognition of tax benefit. The following table reconciles the amounts previously reported to the amounts currently reported in the consolidated statement of operations for the three and nine month periods ended September 30, 1998:
Net loss attributable to For the three months ended common Basic and diluted September 30, 1998 Income taxes stockholders Loss per share -------------------------- -------- -------- ----- As previously reported $ (1) $(10,244) $(.53) Restatement associated with elimination of deferred tax asset valuation allowance 3,701 3,701 .19 -------- -------- ----- As restated $ 3,700 $ (6,543) $(.34) ======== ======== =====
Net loss attributable to For the nine months ended common Basic and diluted September 30, 1998 Income taxes stockholders Loss per share ------------------------- -------- -------- ----- As previously reported $ (22) $(19,949) $ (1.02) Restatement associated with elimination of deferred tax asset valuation allowance 3,701 4,434 .22 -------- -------- -------- As restated $ 3,679 $(15,515) $ (.80) ======== ======== ========
2. INTERIM FINANCIAL DATA The consolidated financial statements should be read in conjunction with the consolidated financial statements of Cumulus Media Inc. ("Cumulus" or the "Company") for the period from inception on May 22, 1997 to December 31, 1997, including the notes thereto, included in the Company's Registration Statement on Form S-1 declared effective on June 26, 1998 (No. 333-48849). The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods 5 8 have been made and such adjustments were of a normal and recurring nature. The results of operations for the three months and nine months ended September 30, 1998 and cash flows for the nine months ended September 30, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 3. INITIAL PUBLIC OFFERING On July 1, 1998, the Company completed its initial public offering of common and preferred stock and debt totaling $391.0 million. The common stock offering was for 7,598,572 shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), including 6,428,572 shares sold by the Company and 1,170,000 shares sold by State of Wisconsin Investment Board. Of the 7,598,572 shares of Class A Common Stock sold, 1,519,714 shares were sold in an common stock offering outside the U.S. and Canada and 6,078,858 shares were sold in a concurrent offering in the United States and Canada. In addition, on July 31, 1998 the underwriters exercised a portion of the over-allotment options and the Company sold an additional 800,000 shares of Class A Common Stock for net proceeds to the Company of $10.4 million. These offerings are collectively referred to as the "Stock Offering." Concurrently with the Stock Offering, the Company sold in a preferred stock offering (the "Preferred Stock Offering") $125.0 million of 13 3/4% Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009 (the "Series A Preferred Stock") approximately $34.5 million of which was sold directly by the Company to The Northwestern Mutual Life Insurance Company at a purchase price equal to the price to the public (as described below) and $160.0 million of 10 3/8 % Senior Subordinated Notes Due 2008 (the "Notes") (the "Debt Offering" and, together with the Stock Offering and the Preferred Stock Offering, the "Offerings"). Immediately prior to the completion of the Offerings, (i) all shares of the Company's 12% Class A Cumulative Preferred Stock, which were held by The Northwestern Mutual Life Insurance Company (the "NML Preferred Stock"), plus all accrued and unpaid dividends thereon as of the exchange date were exchanged for shares of Series A Preferred Stock having an equivalent aggregate liquidation value; and (ii) Cumulus Media LLC, the Company's parent prior to the consummation of the Offerings ("Media LLC"), was liquidated and the shares of Class A Common Stock, Class B Common Stock and Class C Common Stock of the Company held by Media LLC was distributed by Media LLC to its members in liquidation (the "Reorganization"). Prior to the completion of the Offerings, the Company financed its acquisitions primarily through private equity financing and borrowings under a credit agreement (the "Old Credit Agreement"). In March 1998, the Company entered into a $190.0 million senior credit facility (the "Credit Facility"). The Credit Facility was amended as of May 1, 1998, as of June 24, 1998, and most recently as of June 26, 1998, to provide for a revolving credit line of $25.0 million until March 2,2006 and an eight-year term loan facility of $125.0 million. Under the terms of the Credit Facility, the Company drew down $62.5 million of the term facility upon the closing of the Offerings. 6 9 4. ACQUISITIONS AND DISPOSITION: The Company completed the following acquisitions of radio stations for cash during the nine months ended September 30, 1998:
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1) - -------------------- ---------------- ------------------ Columbus, Georgia M & M Partners (WVRK-FM, WGSY-FM, WPNX-AM and WMLF-AM) January 6, 1998 $13,184 Minority Radio Associates (WAGH-FM) March 17, 1998 $2,054 Tallahassee, Florida Tally Radio, L.C. QMNLD-FM) January 16, 1998 $1,200 HVS Partners (WBZE-FM, WHBT-AM and WHBX-FM) January 16, 1998 $15,610 Toledo, Ohio Venice Broadcasting Corp. (WXKR-FM) January 27, 1998 $5,009 Salisbury, Maryland Connor Broadcasting Corporation (WSBY-FM and WJDY-AM) February 11, 1998 $1,361 WWFG-FM and WOSC-FM (WOSC-FM, WWFG-FM) July 7, 1998 $7,564 Ann Arbor, Michigan Arbor Radio LP (WIQB-FM, WQKL-FM, WTKA-AM and WDEO-AM) March 2, 1998 $15,317 Myrtle Beach, South Carolina Carolina Broadcasting, Inc. (WJXY-AM and WJXY-FM) March 16, 1998 $2,307 Seacoast Radio Company, LLC WDAI -FM Sunny Broadcasters, Inc. (WSNY-FM) March 25, 1998 $8,229
7 10
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1) - -------------------- ---------------- ------------------ WSEA Inc. (WSEA-FM) July 31, 1998 $1,346 Florence, South Carolina Forjay Broadcasting Corporation (WYNN-FM and WYNN-AM) March 23, 1998 $4,393 GHB Broadcasting (WHSC-AM and WHSC-FM) May 1, 1998 $705 Amarillo, Texas Heritage Communications (KZRK-AM and KZRK-FM) April 1,1998 $1,032 West Jewel (KARX-FM) April 8, 1998 $888 Wiskes -Abaris (KQIZ-FM) April 30, 1998 $3,207 Westwind (KPUR-FM and KPUR-AM) June 9, 1998 $829 Augusta, Georgia Savannah Valley Broadcasting Radio Properties (WBBQ-AM AND WBBQ-FM) April 1, 1998 $10,206 WLOV P&T Broadcasting (WLOV-FM AND WLOV-AM) August 14, 1998 $533 Abilene, Texas IQ Radio, Inc. (KHXS-FM) April 7, 1998 $385 Big Country Broadcasting (KBCY-FM and KCDD-FM) April 15, 1998 $2,004 Esprit Communications Co. (KFQX-FM) August 14, 1998 $1,695 Beaumont, Texas Beaumont Skywave, Inc. (KTCX-FM) May 15, 1998 $3,804
8 11
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1) - -------------------- ---------------- ------------------ Ninety-Four Point One, Inc. (KAYD-FM, KAYD-AM, KQXY-FM, KQHN-AM) May 15, 1998 $11,654 Dubuque, Iowa KIKR, Inc. (KIKR-FM) June 3, 1998 $1,350 Communications Properties, Inc. (KLYV-FM, KXGE-FM, WJOD-FM, WDBQ-AM) September 15, 1998 $6,045 Odessa-Midland, Texas New Frontier Communications, Inc. (KBAT-FM, KODM-FM, KNFM-FM, KGEE-FM, KMND-AM) July 2, 1998 $14,534 Chattanooga, Tennessee Republic Corporation (WUSY-FM) July 2, 1998 $20,931 Chattanooga Broadcasting Group (WLMX-FM, WLMX-AM, WZST-FM) July 31, 1998 $6,000 Montgomery, Alabama Republic Corporation (WMSP-AM, WNZZ-AM, WMXS-FM and WLWI-FM) July 2, 1998 $21,016 Marion - Carbondale, Illinois Clearly Superior Radio Properties, LLC (WDDD-FM, WDDD-AM, WFRX-AM, WTAO-FM, WVZA-FM, WQUL-FM) July 2, 1998 $12,753 Savannah, Georgia Lewis Broadcasting (WJCL) July 6, 1998 $7,421 Savannah Communications, L.P. (WIXV-FM, WSGF-FM, WBMQ-AM) July 31, 1998 $5,268 Ocmulgee Broadcasting Co., Inc. (WEAS-FM, WEAS-AM) September 24, 1998 $5,206
9 12
MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1) - -------------------- ---------------- ------------------ Phoenix Broadcast Partners (WZAT-FM) September 30, 1998 $3,518 Grand Junction, Colorado Jan-Di Broadcasting, Inc. (KBKL-FM, KEKB-FM, KMXY-FM) July 8, 1998 $6,300 Bangor, Maine Castle Broadcasting, L.P. (WQCB-FM AND WBZN-FM) July 10, 1998 $6,604 Monroe, Michigan Lesnick Communications, Inc. (WTWR-FM) July 23, 1998 $3,353 Lake Charles, Louisiana Louisiana Media Interests, Inc. (KKGB-FM, KBIU-FM, KYKZ-FM, KXZZ-AM) July 24, 1998 $16,346 Kalamazoo, Michigan Crystal Radio Group, Inc. (WKFR-FM, WRKR-FM, WKMI-AM) July 31, 1998 $14,138 Bismarck, North Dakota JKJ Broadcasting, Inc. Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstand Broadcasting, Inc., And Hometown Wireless, Inc. (KBYZ-FM, KACL-FM, KKCT-FM, KLXX-AM) August 14, 1998 $7,030 New Ulm - Springfield - Marshall, Minnesota JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc., and Hometown Wireless, Inc. (KNUJ-FM, KNUJ-AM, KNSG-FM) August 14, 1998 $5,351 Waseca, Minnesota JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting,Inc., and Hometown Wireless, Inc. (KOWO-AM, KRUE-FM) August 14, 1998 $2,380
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MARKETS AND STATIONS ACQUISITION DATE PURCHASE PRICE (1) - -------------------- ---------------- ------------------ Owatonna, Minnesota JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc., and Hometown Wireless, Inc. (KRFO-FM, KRFO-AM) August 14, 1998 $2,380 Mankato, Minnesota JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc., and Hometown Wireless, Inc. (KXLP-FM, KYSM-AM, KYSM-FM) August 14, 1998 $11,044 Mason City, Iowa JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc., And Hometown Wireless, Inc. (KCHA-FM, KGLO-AM, KIAI-FM, KLKK-FM) August 14, 1998 $11,295 Faribault, Minnesota Radio Ingstad Minnesota, Inc., Radio Albert Lea, Inc., and KRCH of Minnesota (KRCH-FM, KWEB-AM, KMFX-FM, KMFX-AM) August 14, 1998 $4,088 Rochester, Minnesota Radio Ingstad Minnesota, Inc., Radio Albert Lea, Inc., and KRCH of Minnesota (KRCH-FM, KWEB-AM, KMFX-FM, KMFX-AM) August 14, 1998 $6,133 Topeka, Kansas Midland Broadcasters, Inc. (KMAJ-FM, KMAJ-AM, KDVV-FM, KTOP-AM) September 30, 1998 $10,781 -------- TOTAL $325,781
(1.) The aforementioned acquisitions were accounted for by the purchase method of accounting. As such, the accompanying consolidated balance sheet as of September 30, 1998 includes the acquired assets and liabilities and the consolidated statements of operations for the three and nine months ended September 30, 1998 include the results of operations of the acquired entities from their respective dates of acquisition. 11 14 An allocation of the purchase prices to the estimated fair values of the assets acquired and liabilities assumed is presented below. Current assets, other than cash...................................................... $ 1,429 Property and equipment............................................................... 29,023 Intangible assets.................................................................... 310,360 Current liabilities.................................................................. (137) Other liabilities.................................................................... (14,894) --------------- $ 325,781
The unaudited consolidated condensed pro forma results of operations data for the nine months ended September 30, 1998, presented as if the acquisitions had occurred on January 1, 1998, follows: Net revenues......................................................................... $ 84,410 Operating loss....................................................................... $ (1,644) Net loss............................................................................. $ (15,569) Net loss attributable to common stockholders................................................................ $ (28,459) Basic and diluted loss per common share (in dollars)................................. $ (1.44)
The pro forma information above is presented in response to applicable accounting rules relating to business acquisitions and is not necessarily indicative of the actual results that would have been achieved had the acquisitions occurred at the beginning of 1999, nor is it indicative of future results of operations. Escrow funds of approximately $10.1 million paid by the Company in connection with transactions completed subsequent to September 30, 1998 and for transactions which the Company has signed an agreement for the purchase of an entity have been classified as other assets at September 30, 1998 in the accompanying consolidated balance sheet. During the nine months ended September 30, 1998, the Company operated the following stations under local marketing agreements ("LMA"):
MARKET AND STATIONS LMA EFFECTIVE DATE - ------------------- ------------------ Green Bay, Wisconsin American Communications Co. (WJLW-FM) February 15, 1998 Brillion Radio Company (WEZR-FM) February 15, 1998 Augusta, Georgia Savannah Valley Broadcasting Radio Properties (WBBQ-AM and WBBQ-FM) September 4, 1997 Salisbury, Maryland WWFG-FM and WOSC-FM (WWFG-FM and WOSC-FM) February 1, 1998
12 15
MARKET AND STATIONS LMA EFFECTIVE DATE - ------------------- ------------------ Tallahassee, Florida HVS Partners (WHBX-FM, WBZE-FM and WHBT-AM) August 18, 1997 Tally Radio, L.C. (WWLD-FM) August 18, 1997 Tallahassee Broadcasting, Inc. (WGLF-FM) August 18, 1997 Abilene, Texas Big Country Broadcasting (KBCY-FM and KCDD-FM) November 1, 1997 10 Radio, Inc. (KHXS-FM) November 1, 1997 I-Q Radio, Inc. (KFOX-FM) April 1, 1998 Amarillo, Texas Westwind (KPUR-FM and KPUR-AM) January 1, 1998 Heritage Communications (KZRK-FM and KZRK-AM) January 1, 1998 West Jewel (KARX-FM) January 1, 1998 Wiskes -Abaris (KQIZ-FM) February 15, 1998 Odessa-Midland, Texas New Frontier Communications, Inc. (KGEE-FM, KODM-FM, KNFM-FM, KMND-AM and KBAT-FM) January 1, 1998 Marion Carbondale, Illinois Clearly Superior Radio Properties (WDDD-FM, WDDD-AM, WTAO-FM, WVZA-FM, WQUL-FM and WFRX-AM) January 1, 1998 Columbus, Georgia Minority Associates (WAGH-FM) January 1, 1998
13 16
MARKET AND STATIONS LMA EFFECTIVE DATE - ------------------- ------------------ Savannah, Georgia Savannah Communications, L.P. (WBMQ-AM, WIXV-FM and WSGF-FM) January 1, 1998 WJCL-FM (WJCL-FM) January 1, 1998 Phoenix Broadcast Partners, Inc. (WZAT-FM) March 16, 1998 Beaumont, Texas Beaumont Skywave, Inc. (KTCX-FM) February 15, 1998 Myrtle Beach, South Carolina Carolina Broadcasting, Inc. (WXJY-FM) March 16, 1998 Florence, South Carolina Clarendon County Broadcasting (WHLZ-FM, WYMB-AM) March 18, 1998 Pamplico Broadcasting, L.P. (WBZF-FM, WMXT-FM, (WWFN-FM) March 16, 1998 Montgomery, Alabama Republic Corporation (WMSP-AM, WNZZ-AM, WMXS-FM and WLWI-FM) February 11, 1998 McDonald Media Group, Inc. (WHHY-AM, WJCC-FM, WXFX-FM) August 17, 1998 Chattanooga, Tennessee Republic Corporation (WUSY-FM) February 11, 1998 Marson Broadcasting, Inc. (WKXJ-FM) July 1, 1998 Augusta, Georgia P&T Broadcasting, Inc. (WLOV-AM, WLOV-FM) April 1, 1998 Dubuque, Iowa KIKR, INC. (KIKR-FM) April 1, 1998
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MARKET AND STATIONS LMA EFFECTIVE DATE - ------------------- ------------------ Albany, Georgia Brooks Broadcasting Co. (WKAK-FM, WEGC-FM, WALG-AM, WJAD-FM) April 1, 1998 Albany Broadcasting Co. (WGPC-FM and WGPC-AM) June 1, 1998 Williams Communications Systems, Inc. (WQVE-FM) July 2, 1998 Monroe, Michigan Lesnick Communications, Inc. (WTWR-FM) April 1, 1998 Florence, South Carolina Nautical Broadcasting (WCMG-FM) April 1, 1998 Myrtle Beach, South Carolina Blue Dolphin of South Carolina, Inc. (WSEA-FM) April 1, 1998 Columbus - Starksville, Mississippi Charisma Communications (WSSO-AM, WMXU-FM, WSMS-FM, WKOR-FM, WKOR-AM, WMSU-FM) September 30, 1998 Tupelo, Mississippi Charisma Communications (WESE-FM, WTUP-AM, WNRX-AM, WWZD-FM) September 30, 1998
The consolidated statements of operations for the three and nine months ended September 30, 1998 include the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMA from the effective date of the LMA through the earlier of the acquisition date or September 30, 1998. 5. GUARANTOR'S FINANCIAL INFORMATION The Company has registered and issued the Notes under the Securities Act of 1933, as amended (the Act). Pursuant to the terms of the indenture governing the Notes, all of the direct and indirect subsidiaries (all such subsidiaries are directly or indirectly wholly- owned by the Company) of the Company (the "Guarantor Subsidiaries") provided full and unconditional senior subordinated guarantees of the Notes on a joint and several basis. There are no significant restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make loans to the Company. 15 18 The following tables include consolidating condensed financial information pertaining to the Company and the Guarantor Subsidiaries. The Company has not presented separate financial statements for the Guarantor Subsidiaries because management has determined that such information is not material to investors.
RESTATED AS OF SEPTEMBER 30, 1998 (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- Current assets .......................... $ 34,224 $ 37,340 $ -- $ 71,564 Property and equipment, net ............. 678 37,754 -- 38,432 Investment in subsidiaries .............. 436,326 554 (436,880) -- Intangible assets, net .................. -- 391,036 -- 391,036 Other assets ............................ 20,606 1,501 -- 22,107 Total assets ...................... 491,834 468,185 (436,880) 523,139 Current liabilities ..................... 8,901 13,098 15 22,014 Long-term debt, excluding current portion 222,999 -- -- 222,999 Other liabilities ....................... 2,051 11,272 (11,917) 1,406 Deferred income taxes ................... -- 10,460 -- 10,460 Total liabilities ....................... 233,951 34,830 (11,902) 256,879 Preferred stock ......................... 129,296 -- -- 129,296 Stockholder's equity .................... 128,587 433,355 (424,978) 136,964 Total liabilities and stockholder's equity .............. $ 491,834 $ 468,185 $(436,880) $ 523,139
16 19
RESTATED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- -------- -------- -------- Net revenues ........................... $ -- $ 63,125 $ -- $ 63,125 Operating expenses ..................... 4,498 59,609 -- 64,107 Operating income (loss) ................ (4,498) 3,516 -- (982) Net interest, income (expense) and other (7,937) (25) -- (7,962) Income (Loss) before income taxes ...... (12,435) 3,491 -- (8,944) Income tax benefit/(expense) ........... (21) 3,700 -- 3,679 Income (Loss) before extraordinary item (12,456) 7,191 -- (5,265) Extraordinary loss ..................... (1,837) 733 -- (1,104) Net loss before equity adjustment ...... (14,293) 7,924 -- (6,369) Equity Income (loss) in subsidiaries ... 7,924 -- (7,924) -- Net loss ............................... (6,369) 7,924 (7,924) (6,369) Preferred stock dividend ............... 9,146 -- -- 9,146 Net loss attributable to common stockholders ................. $(15,515) $ 7,924 $ (7,924) $(15,515)
17 20 RESTATED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- Cash flows from operating activities: Net cash (used in) provided by operating activities ..... $ (16,072) $ 11,135 $ -- $ (4,937) Cash flows from investing activities: Acquisitions ......................................... -- (324,287) -- (324,287) Investment in subsidiaries .............................. (324,287) -- 324,287 -- Escrow deposits on pending acquisitions ................. (8,063) -- -- (8,063) Other ................................................... (373) (3,132) -- (3,505) Net cash (used in) provided by investing activities .. (332,723) (327,419) 324,287 (335,855) Cash flows from financing activities: Net proceeds from revolving line of credit and other debt 10,171 -- -- 10,171 Proceeds from Senior notes .............................. 160,000 -- -- 160,000 Contribution from parent ................................ -- 324,287 (324,287) -- Proceeds from issuance of preferred stock ............... 101,875 -- -- 101,875 Proceeds from issuance of common stock .................. 107,352 -- -- 107,352 Net cash (used in) provided by financing activities ..... 379,398 324,287 (324,287) 379,398 Increase in cash ..................................... 30,603 8,003 -- 38,606 Cash beginning of period ............................. 1,080 493 -- 1,573 Cash end of period ................................... 31,683 8,496 -- 40,179
18 21
AS OF DECEMBER 31, 1997 GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- Current assets ........................... $ 3,588 $ 3,514 $ -- $ 7,102 Property and equipment, net .............. 317 7,803 -- 8,120 Investment in subsidiaries ............... 101,732 40 (101,772) -- Intangible assets, net ................... -- 90,217 -- 90,217 Other assets ............................. 2,706 2,296 -- 5,002 Total assets .......................... $ 108,343 $ 103,870 $(101,772) $ 110,441 Current liabilities ...................... $ 1,869 $ 1,981 $ -- $ 3,850 Long-term debt, excluding current portion 42,789 -- -- 42,789 Other liabilities ........................ 286 2,269 (2,155) 400 Total liabilities ..................... 44,944 4,250 (2,155) 47,039 Preferred stock .......................... 13,426 -- -- 13,426 Stockholder's equity ..................... 49,973 99,620 (99,617) 49,976 Total liabilities and stockholders' equity $ 108,343 $ 103,870 $(101,772) $ 110,441
19 22
FOR THE PERIOD FROM INCEPTION ON MAY 22, 1997 TO SEPTEMBER 30, 1997 GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------- ------- ------- Net revenues ........................................ $ -- $ 1,634 $ -- $ 1,634 Operating expenses .................................. 429 1,864 -- 2,293 Operating income (loss) ............................. (429) (230) -- (659) Net interest income (expense) and other ............. (101) 59 -- (42) Income (loss) before income taxes ................... (530) (171) -- (701) Income tax expense .................................. -- -- -- -- Income (loss) before extra .......................... (530) (171) -- (701) Extraordinary loss .................................. -- -- -- -- Net loss before equity adjustment ................... (530) (171) -- (701) Equity income (loss) in subsidiaries ................ (171) -- 171 -- Net loss ............................................ (701) (171) 171 (701) Net income (loss) attributable to common stockholders $ (701) $ (171) $ 171 $ (701)
20 23
FOR THE PERIOD FROM INCEPTION ON MAY 22, 1997 TO SEPTEMBER 30, 1997 GUARANTOR TOTAL PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- -------- -------- -------- Cash flows from operating activities: Net cash used in provided by operating activities $ (979) $ (363) $ -- $ (1,342) Cash flows from investing activities: Acquisitions ....................................... -- (35,315) -- (35,315) Investment in subsidiaries ......................... (35,315) -- 35,315 -- Escrow deposits on pending acquisitions ............ (4,838) -- -- (4,838) Other .............................................. (111) (139) -- (250) Net cash used by investing activities .............. (40,264) (35,454) 35,315 (40,403) Cash flows from financing activities: Net proceeds from revolver ......................... 15,870 -- -- 15,870 Contribution from Parent ........................... -- 35,315 (35,315) -- Proceeds from issuance of common stock ............. 26,743 -- -- 26,743 Net cash provided by financing activities ....... 42,613 35,315 (35,315) 42,613 Increase in cash and cash equivalents ........... 1,370 (502) -- 868 Cash and cash equivalents at beginning of period -- -- -- -- Cash and cash equivalents at end of period ............................. $ 1,370 $ (502) $ -- $ 868
21 24 6. SUBSEQUENT EVENTS Subsequent to September 30, 1998 the Company completed acquisitions of 9 radio stations in 3 separate markets for an aggregate purchase price of approximately $10.4 million. These transactions will be accounted for by the purchase method of accounting. The Company intends to execute a supplemental indenture pursuant to which any subsidiaries acquired in these transactions would become Guarantor Subsidiaries. The Company's pending acquisitions include various agreements to acquire 39 stations in 11 markets for an aggregate purchase price of approximately $53.6 million. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion of the consolidated financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this Quarterly Report. This Quarterly Report contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Quarterly Report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers primarily with respect to the future operating performance of the Company. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties and actual results may differ from those in the forward-looking statements as a result of various factors (including, without limitation, risks and uncertainties relating to leverage, the need for additional funds, the inability of the Company to renew one or more of its broadcast licenses, changes in interest rates, consummation of the Company's pending acquisitions, integration of the pending acquisitions, the ability of the Company to eliminate certain costs, the management of rapid growth, the popularity of radio as a broadcasting and advertising medium and changing consumer tastes), many of which are beyond the control of the Company. This discussion identifies important factors that could cause such differences. The occurrence of any such factors not currently expected by the Company would significantly alter the results set forth in these statements. A radio broadcast company's revenues are derived primarily from the sale of advertising time to local and national advertisers. Those revenues are affected by the advertising rates that a radio station is able to charge and the number of advertisements that can be broadcast without jeopardizing listener levels (and resulting ratings). Advertising rates tend to be based upon demand for a station's advertising inventory and its ability to attract audiences in targeted demographic groups, as measured principally by Arbitron. Radio stations attempt to maximize revenues by adjusting rates based upon local market conditions, controlling advertising inventory and creating demand and audience ratings. Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers, with revenues typically being lowest in the first calendar quarter and higher in the second, third and fourth calendar quarters of each year. A radio station's operating results in any period may be affected by the occurrence of advertising and promotion expenses that do not produce commensurate revenues in the period in which the expenditures are made. Because Arbitron reports audience ratings on a semi-annual basis in most of the Company's markets, a radio station's ability to realize revenues as a result of increased advertising and promotional expenses and any resulting audience ratings improvements may be delayed for several months. The Company's results of operations from period to period are not historically comparable because the Company began operations on May 22, 1997 and also due to the impact of the various acquisitions and dispositions that the Company has since completed. As of the filing date, the Company owns and operates, provides programming to or sells advertising on behalf of 185 radio stations located in 36 U.S. markets. Following completion of all of its pending acquisitions, the Company will own and operate, provide programming to or sell advertising on behalf of 204 radio stations located in 39 U.S. markets. The 22 25 Company anticipates that it will consummate the pending acquisitions, however the closing of each such acquisition is subject to various conditions, including FCC and other governmental approvals, which are beyond the Company's control. No assurances can be given that the regulatory approval will be received or that the Company will complete the pending acquisitions on a timely basis, if at all. In the following analysis, management discusses broadcast cash flow and EBITDA (before noncash stock compensation expense). Broadcast cash flow consists of operating income (loss) before depreciation, amortization, corporate general and administrative expenses and noncash stock compensation expense. EBITDA (before noncash stock compensation expense) consists of operating income (loss) before depreciation, amortization and noncash stock compensation expense. Although broadcast cash flow and EBITDA (before noncash stock compensation expense) are not measures of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that they are useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. Nevertheless, they should not be considered in isolation, or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. 23 26 CUMULUS MEDIA INC. (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) (UNAUDITED) RESULTS OF OPERATIONS The following table presents summary historical consolidated financial information and other supplementary data of Cumulus for the three and nine month periods ended September 30, 1998 and from the period from the Company's inception, May 22, 1997, through September 30, 1997.
RESTATED RESTATED FOR THE PERIOD FOR THE THREE FROM MAY 22, 1997 FOR THE THREE FOR THE NINE MONTHS ENDED THROUGH MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1997 1998 1998 --------- --------- --------- --------- OPERATING DATA: Net broadcast revenue ........................ $ 1,552 $ 1,634 $ 28,743 $ 63,125 Station operating expenses excluding depreciation & amortization ........ 1,143 1,439 19,961 47,236 Depreciation and amortization ................ 365 443 6,075 12,976 Corporate general and administrative expenses 274 411 1,664 3,895 Operating income (loss) ...................... (230) (659) 1,043 (982) Interest expense (net) ....................... (66) 58 (4,066) (7,960) Net income (loss) attributable to common stock $ (256) $ (701) $ (6,543) $ (15,515) OTHER DATA: Broadcast cash flow (1) ...................... $ 409 $ 195 $ 8,782 $ 15,889 Broadcast cash flow margin ................... 26.4% 11.9% 30.6% 25.2% EBITDA (before noncash stock compensation expense)(2) $ 135 $ (216) $ 7,118 $ 11,994 Cash flows related to: Operating activities ......................... N/A $ (1,342) N/A $ (4,937) Investing activities ......................... N/A $ (40,403) N/A $(335,855) Financing activities ......................... N/A $ 42,613 N/A $ 379,398 Capital expenditures ......................... N/A -- N/A $ 3,541
(1) Broadcast cash flow consists of operating income (loss) before depreciation, amortization, corporate expenses, and noncash stock compensation expense. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio Company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As broadcast cash flow is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. (2) EBITDA (before noncash stock compensation expense) consists of operating income (loss) before depreciation, amortization, and noncash stock compensation expense. Although EBITDA (before noncash stock compensation expense) is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating 24 27 performance or liquidity that is calculated in accordance with GAAP. As EBITDA (before noncash stock compensation expense), is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997 Net Broadcast Revenue. As a result of the stations acquired since the Company's inception and the other factors described above, net broadcast revenue increased $27.1 million to $28.7 million for the three months ended September 30, 1998 from $1.6 million for the three month period ending September 30, 1997. This increase was attributable to the acquisition of radio stations and revenue generated from LMA's entered into since the Company's inception on May 22, 1997. On a same station basis, (defined as the 59 stations owned or operated from January 1, 1998 through September 30, 1998), net revenue increased $2.8 million or 25.5% to $13.6 million for the three months ended September 30, 1998, compared to the prior owner's three months ended September 30, 1997. This increase was primarily attributable to growth in the sale of commercial time to local and national advertisers. Station Operating Expenses excluding Depreciation & Amortization. As a result of the factors described above, station operating expenses, excluding depreciation and amortization, increased $18.8 million to $20.0 million for the three months ended September 30, 1998 from $1.2 million for the three month period ended September 30, 1997. The increase was attributable to the station operating expenses of the acquired stations and the LMA's entered into since the Company's inception. Corporate General and Administrative Expenses. As a result of the Company's inception on May 22, 1997, the factors described above, and due to certain personnel additions and recruiting expenses and certain franchise tax expenses which were incurred during the quarter, corporate general and administrative expenses increased $1.4 million to $1.7 million for the three months ended September 30, 1998 from $.3 million for the three months ended September 30, 1997. Other Operating Expenses. Depreciation and amortization increased $5.7 million to $6.1 million for the three months ended September 30, 1998 from $.4 million for the period ended September 30, 1997, primarily due to the impact of various acquisitions consummated since the Company's inception. Other Expense (Income). Interest expense, net of income, increased from $.1 million during the three months ended September 30, 1997 to $4.0 million for the three months ended September 30, 1998 primarily due to indebtedness incurred in connection with the Company's acquisitions. An extraordinary loss of approximately $1.9 million was recorded in the first quarter of 1998, related to the write-off of deferred financing fees in connection with the refinancing of the Company's Old Credit Agreement during the first quarter. Net Income (Loss) Attributable to Common Stock. As a result of the factors described above and the accrual of dividends on the Company's issued and outstanding preferred stock and the accretion of any related discount; net loss attributable to common stock increased $ 6.2 million to $ 6.5 million for the three months ended September 30, 1998 from $0.3 million for the three month period ended September 30, 1997. For the three months ended September 30, 1998, preferred stock dividends includes $2.9 million of accelerated accretion of discount relating to the exchange of the Company's previously issued preferred shares into 13.75% Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009 (see Liquidity and Capital Resources). Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased $8.4 million to $8.8 million for the three months ended September 30, 1998 from $.4 million for the three month period ended September 30, 1997. The broadcast cash flow margin was 30.6% for the three months ended September 30, 1998. 25 28 EBITDA (before noncash stock compensation expense). As a result of the factors described above, EBITDA (before noncash stock compensation expense) increased $7.0 million to $7.1 million for the three months ended September 30, 1998 from $.1 million for the three month period ended September 30, 1997. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 1998, net cash used in operations increased $3.6 million to $4.9 million from net cash used in operations of $1.3 million for the period from inception May 22, 1997 to September 30, 1997, primarily due to the investment in working capital and other current assets made in connection with acquisitions completed since the Company's inception. For the nine months ended September 30, 1998, net cash used in investing activities, primarily for acquisitions, increased $295.5 million to $335.9 million from $40.4 million for the period from inception on May 22, 1997 to September 30, 1997. For the nine months ended September 30, 1998, net cash provided from financing activities was $379.4 million compared to $42.6 million for the period from the inception on May 22, 1997 to September 30, 1997. This increase is the result of the completion of the Offerings as well as increased borrowings under the Credit Facility. In addition to acquisitions and debt service, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures. Management believes that cash from operating activities, proceeds from the Offerings, and revolving loans under the Company's Credit Facility should be sufficient to permit the Company to meet its financial obligations and to fund its operations for at least the next 12 months, although additional capital resources may be required in connection with the further implementation of the Company's acquisition strategy. On July 1, 1998, the Company completed its initial public offering of common and preferred stock and debt totaling $391.0 million. The common stock offering was for 7,598,572 shares of Class A Common Stock (the "Class A Common Stock"), including 6,428,572 shares sold by the Company and 1,170,000 sold by State of Wisconsin Investment Board. Of the 7,598,572 shares of Class A Common Stock sold, 1,519,714 shares were sold in an offering outside the U.S. and Canada and 6,078,858 shares were sold in a concurrent offering in the United States and Canada. In addition, on July 31, 1998, the underwriters exercised a portion of the over- allotment options and the Company sold an additional 800,000 shares of Class A Common Stock for net proceeds to the Company of $10.4 million. These common stock offerings are collectively referred to as the "Stock Offering." Concurrently with the Stock Offering, the Company sold in a preferred stock offering (the "Preferred Stock Offering") $125.0 million of 13 3/4% Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009 (the "Series A Preferred Stock"), approximately $34.5 million of which was sold directly by the Company to The Northwestern Mutual Life Insurance Company at a purchase price equal to the price to the public (as described below); and $160.0 million of 10 3/8% Senior Subordinated Notes Due 2008 (the "Notes") (the "Debt Offering" and, together with the Stock Offering and the Preferred Stock Offering, the ("Offerings"). Immediately prior to the completion of the Offerings: (i) all shares of the Company's 12% Class A Cumulative Preferred Stock which were held by The Northwestern Mutual Life Insurance Company (the "NML Preferred Stock") plus all accrued and unpaid dividends thereon as of the exchange date were exchanged for shares of Series A Preferred Stock having an equivalent aggregate liquidation value pursuant to the Preferred Stock Offering; and (ii) Cumulus Media LLC, the Company's parent prior to the consummation of the Offerings ("Media LLC"), was liquidated and the shares of Class A Common Stock, Class B Common Stock and Class C Common Stock of the Company held by Media LLC was distributed by Media LLC to its members in liquidation (the "Reorganization"). Prior to the completion of the Offerings, the Company financed its acquisitions primarily through private equity financing and borrowings under a credit agreement (the "Old Credit Agreement"). In March 1998, the Company entered into a $190.0 million senior credit facility (the "Credit Facility"). The Credit Facility was amended most recently as of June 26, 1998, to provide for a revolving credit line of $25.0 million until March 2, 2006 and an eight-year term loan facility of $125.0 million. Under the terms of the Credit Facility, the Company drew down $62.5 million of the term facility upon the closings of the Offerings. 26 29 Subsequent to September 30, 1998, the Company completed acquisitions of 9 radio stations in 3 separate markets for an aggregate purchase price of approximately $10.4 million. These transactions will be accounted for by the purchase method of accounting. The Company has also entered into various agreements to acquire 39 stations in 11 markets for an aggregate purchase price of approximately $53.6 million. The Credit Facility, provides for a revolving credit line of $25.0 million until March 2, 2006, and an eight-year loan facility of $125.0 million. Under the terms of the Credit Facility, the Company drew down $62.5 million of term loan facility upon the closing of the Offerings. The remaining $62.5 million of term loan facility is available through January 15, 1999. The proceeds of the borrowings under the Credit Facility have been used to finance acquisitions and repay the Company's outstanding indebtedness under the Old Credit Agreement, and to secure outstanding letters of credit issued under its previous credit facility in an aggregated amount equal to approximately $6.2 million. The Company's obligations under the Credit Facility are secured by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by the Company's subsidiaries). The obligations under the Credit Facility are also guaranteed by each of the domestic subsidiaries of the Company and are required to be guaranteed by any additional subsidiaries acquired by the Company. Both revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 0.50% to 1.75% or the Eurodollar Rate (as defined under the terms of the credit Facility) plus a margin ranging between 1.50 to 2.75% (in each case dependent upon the leverage ratio of the Company). The revolving credit and term loan borrowings are repayable in quarterly installments beginning in 2000, subject to mandatory prepayment in certain circumstances. The scheduled annual amortization of the term loans is $2.0 million in each of the years 2000 through 2002, $10.0 million in 2003, $20.0 million in 2004, $69.0 million in 2005, and $20.0 million at maturity. The scheduled annual reduction in availability under the revolving credit loans is $7.5 million in each of the years 2004 through 2005, and $2.5 million in 2006. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Restated Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Post retirement Benefits," which significantly changes current financial statement disclosure requirements from those that were required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Post retirement Benefits Other Than Pensions." SFAS No. 132 does not change the existing measurement or recognition provision of SFAS Nos. 87, 88, or 106. These pronouncements are effective for financial statements issued for periods beginning after December 15, 1997. Management does not believe the implementation of these accounting pronouncements will have a material effect on its consolidated financial statements. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the Costs of Start-Up Activities." SOP 98-5, effective for 1999, requires organization costs to be expensed as incurred. Management believes that adoption of SOP 98-5 in the first quarter of 1999 will result in a non-cash charge of approximately $200. 27 30 INFLATION The Company does not believe that inflation has a material effect on its operations. YEAR 2000 RISK The Year 2000 Issue ("Y2K") is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date- sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculation in the Company's broadcast and corporate locations which could cause disruptions of operations, including, among other things, a temporary inability to produce broadcast signals, process financial transactions, or engage in similar normal business activities. Based on recent system evaluations, surveys, and ongoing, on-site inventories, the Company determined that it will be required to modify or replace portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of existing software and certain hardware, the Y2K issue can be mitigated. If such modifications and replacements are not made, or are not completed in time, the Y2K issue could have a material impact on the operations of the Company. The Company's plan to resolve the Y2K issue involves the identification and assessment of the existing problem, the development of a plan of remediation, as well as a testing and implementation plan. To date, the Company has substantially completed the identification and assessment process, with the following significant financial and operational components identified as being affected by the Y2K issue: 28 31 BROADCAST LOCATIONS: Broadcast studio equipment and software necessary to deliver audio and video programming; this includes but is not limited to: Hardware: Transmission control systems, digital workstations, personal computers, encoders, decoders, etc. Software: Studio automation systems, advertising inventory management systems responsible for managing, scheduling and billing customer's broadcast advertising purchases; data interchange systems, production software, promotion software and sales system software; Office Systems: Telephone and voice mail, photocopying equipment, facsimile equipment, postage meters; etc. CORPORATE OFFICES: Hardware: Computer hardware running critical financial and operational software that is not capable of recognizing a four-digit code for the applicable year; business data interchange and storage equipment; personal computers; Software: Corporate financial accounting and information system software; Office Systems: Telephone and voice mail, photocopying equipment, facsimile equipment, postage meters; etc. Significant non-technical systems and equipment that may contain microcontrollers which are not Y2K compliant are being identified and addressed if deemed critical. Cumulus Media Inc. YEAR 2000 RISK The Company has instituted the following remediation plan to address the Y2K issues: A computer hardware replacement plan for computers running essential broadcast, operational and financial software applications with Y2K compatible computers has been instituted. As of September 30, 1998 approximately 20 % of all essential system hardware and software related to broadcast locations have been verified as Y2K compatible. Approximately 90% of all essential corporate office systems have been verified as Y2K compliant. The Company anticipates the verification of systems as Y2K compliant to be 100% complete by the end of 1999. Software upgrades or replacement of advertising inventory management software which is Y2K compliant have been planned, are in process, or have been completed as of September 30, 1998. The company has received assurances from its software vendors that supply the Company's advertising inventory management software that this software is Y2K or will become Y2K complaint with a few minor exceptions. For these non-compliant vendors, the Company will install inventory management software from a compliant vendor by the end of 1999. The Company is dependent upon the vendors and manufacturers of its software and hardware for compliance information. There can be no assurance regarding the completeness and accuracy of their representations regarding the Y2K compliance of their software or hardware. Financial accounting software for the broadcast locations is currently being replaced by Y2K compliant software. This conversion will be completed in the second quarter of 1999. While the Company believes its efforts will adequately address the Y2K issue, there can be no assurance that the Company will not experience material disruptions to its business as a result of the Y2K issue. The Company is currently querying other significant vendors that do not share information systems with the company (external agents). To date, the Company is not aware of any external agent with a Y2K issue that would materially impact the company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Y2K compliant. The inability of external agents to complete their Y2K resolution process is a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. 29 32 In the ordinary course of business, the Company has acquired or plans to acquire the necessary Y2K compliant hardware and software. These purchases are part of specific operational and financial system enhancements with completion dates during 1998 and early 1999 that were initially planned without specific regard to the Y2K issue. These system enhancements resolve many Y2K problems and have not been delayed as a result of any additional efforts addressing the Y2K issue. However, there are several hardware and software expenditures that have been, or will be incurred, to specifically remediate Y2K non-compliance. Incremental hardware and software costs that the company has attributed to the Y2K issue could be as much as $600,000 for each of the company's 39 markets. The Company is in the process of completing a market by market analysis of specific Y2K compliance costs. This analysis will be completed by December 31, 1998. The majority of these costs will be incurred over the next 12 months. Of this cost, the Company believes 90% of the costs will be capitalized as new hardware or software. Sources of funds for these expenditures will be supplied through cash flow generated from operations and/or available borrowings from the Credit Facility. The Company's accounting policy is to expense costs incurred due to maintenance, minor modification or upgrade costs and to capitalize the cost of new hardware and software. Management believes it has an effective program in place to resolve the Y2K issue in a timely manner. As noted above, the company has not yet completed all necessary phases of the Y2K program. In the event that the Company does not complete any additional phases, it could experience disruptions in its operations, including among other things, a temporary inability to produce broadcast signals, process financial transactions, or engage in similar normal business activities. In addition, disruptions in the economy generally resulting from the Y2K issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company currently has no contingency plans in place in the event it does not complete all phases of the Y2K program. The Company plans to evaluate the status of completion of its Y2K program in March 1999 and determine whether such contingency plans are necessary. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 30 33 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No items to report. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Pursuant to a Registration Statement on Form S-1 (Commission File No. 333-48849) declared effective by the Securities and Exchange Commission on June 26, 1998 (the "Registration Statement"), the Company sold 7,228,572 shares (including 800,000 shares pursuant to the exercise of an over allotment option) of its Class A Common Stock, par value $.01 per share (the "Class A Common Stock") in an initial public offering (the "Common Stock Offering"). An additional 1,170,000 shares of the Class A Common Stock were sold by a selling stockholder in the Common Stock Offering. Of the 7,598,572 shares of Class A Common Stock sold, 1,519,714 shares were sold in an offerings outside the U.S. and Canada (the "International Common Stock Offering", and together with the Common Stock Offering, the "Common Stock Offerings"). The offering price of the Class A Common Stock was $14.00 per share, resulting in an aggregate offering price of $101.2 million for the account of the Company and $16.4 million for the selling stockholder. After underwriting discounts, the proceeds to the Company from the Common Stock Offerings were $94.2 million and the proceeds to the selling stockholder were $15.2 million. All of the shares registered in the Common Stock Offerings were sold. Concurrently with the Common Stock Offerings, the Company sold in a preferred stock offering $125.0 million of its 13 3/4% Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009 (the "Preferred Stock Offering"). Concurrently with the Common Stock Offering and the Preferred Stock Offering, the Company sold in a debt offering $160.0 million of its 10 3/8% Senior Subordinated Notes due 2008 (the "Debt Offering"). The net proceeds of the Preferred Stock Offering and the Debt Offering were $87.3 million and $156.0 million, respectively. The Common Stock Offering closed on July 1,1998 and the managing underwriters for the Common Stock Offering were Lehman Brothers Inc., Bear, Stearns & Co. Inc., and BT Alex. Brown. The International Common Stock Offering also closed on July 1, 1998 and the managing underwriters for the Common Stock Offering were Lehman Brothers International, Bear, Stearns International Limited, BT Alex. Brown International, and Credit Lyonnais Securities. The Preferred Stock Offering closed on July 1, 1998 and the managing underwriters for the Preferred Stock Offering were Bear, Stearns & Co. Inc. and Lehman Brothers Inc. The Debt Offering closed on July 1,1998 and the managing underwriters for the Debt Offering were Bear, Stearns & Co. Inc. and Lehman Brothers Inc. 31 34 The amount of expenses incurred for the Company's account in connection with the Offering were as follows: Underwriters' discounts............................ 15,459,000 Other expenses (approximate)....................... 9,541,000 Total ........................................... 25,000,000
Of these amounts, 0 were direct or indirect payments to officers, directors or their associates, or persons owning 10% or more of any class of equity securities of the Company and $25.0 million were direct or indirect payments to others. The net offering proceeds to the Company were used for repayment of bank debt (approximately $80.0 million); to complete the Company's pending acquisitions (approximately $325.0 million of which have closed to date, and the balance of which will close over the next three to six months, subject to all applicable regulatory approvals), and finally to fund working capital, capital expenditures, and other general corporate purposes. Of these amounts none were direct or indirect payments to officers, directors or their associates, or persons owning 10% or more of any class of equity securities of the Company. All material use of proceeds were direct or indirect payments to others. ITEM 3. Defaults upon Senior Securities No items to report. ITEM 4. Submission of Matters to a Vote of Security Holders No items to report. ITEM 5. Other Information No items to report. 32 35 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K Form 8-K filed on July 17, 1998 and Amendment No.1 to such report filed on August 13, 1998. This report disclosed the acquisition by the Company of all outstanding stock of Republic Corporation. 33 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CUMULUS MEDIA INC. Date: May 25, 2000 By: /s/ Daniel O'Donnell Daniel O'Donnell Vice President, Finance Principal Financial and Accounting Officer 34 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 SEP-30-1998 40,179,000 0 28,317,000 725,000 0 71,564,000 41,012,000 2,580,000 523,139,000 22,014,000 222,999,000 129,296,000 0 198,000 136,766,000 523,139,000 0 69,432,000 0 6,307,000 64,107,000 0 9,749,000 (8,944,000) (3,679,000) (5,265,000) 0 (1,104,000) 0 (6,369,000) (.80) (.80)
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