-----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, Lcgp7r1VQ6Tb0mTvXDDEGDxXNxnem/m2VyljgYIub/U3ELy7AGGqVRVEd+wBgghM uUCE2/PRZgpH6QGcP7PN9A== 0000950124-01-501224.txt : 20010516 0000950124-01-501224.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950124-01-501224 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUMULUS MEDIA INC CENTRAL INDEX KEY: 0001058623 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 364159663 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24525 FILM NUMBER: 1637037 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 1 c62433e10-q.txt QUARTERLY REPORT DATED 3/31/01 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 1O-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 000-24525 CUMULUS MEDIA INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ILLINOIS 36-4159663 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3535 Piedmont Road, Building 14, Fl 14, Atlanta, GA 30305 (Address of Principal Executive Offices) (ZIP CODE) (404) 949-0700 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 April 30, 2001, the registrant had outstanding 35,214,349 shares of common stock consisting of (i) 28,427,729 shares of Class A Common Stock; (ii) 4,479,343 shares of Class B Common Stock; and (iii) 2,307,277 shares of Class C Common Stock. 2 CUMULUS MEDIA INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 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 and per share data)
(UNAUDITED) March 31, December 31, 2001 2000 ---- ---- Assets Current assets: Cash and cash equivalents........................................... $ 31,809 $ 10,979 Accounts receivable, less allowance for doubtful accounts of $9,469 and $17,348 respectively............................... 35,550 43,498 Prepaid expenses and other current assets........................... 4,776 9,536 -------- -------- Total current assets........................................... 72,135 64,013 Property and equipment, net............................................ 81,479 79,829 Intangible assets, net................................................. 757,503 762,996 Other assets........................................................... 35,978 48,097 -------- -------- Total assets.................................................. $947,095 $954,935 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses............................... $ 37,217 $ 45,858 Current portion of long-term debt................................... 208 208 Other current liabilities........................................... 591 679 -------- -------- Total current liabilities...................................... 38,016 46,745 Long-term debt......................................................... 285,019 285,020 Other liabilities...................................................... 1,747 1,924 Deferred income taxes.................................................. 29,970 29,666 -------- -------- Total liabilities.............................................. 354,752 363,355 -------- -------- Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, stated value $1,000 per share, 117,530 and 113,643 shares issued and outstanding, respectively 121,544 117,530 -------- -------- Series B Cumulative Exchangeable Redeemable Preferred Stock due 2009, stated value $10,000 per share, 257 and 250 shares issued and outstanding, respectively 2,253 2,178 -------- -------- Commitments and contingencies (Note 6) Stockholders' equity: Class A common stock, par value $.01 per share; 50,000,000 shares authorized; 28,427,729 and 28,378,976 shares issued and outstanding............................................................ 284 284 Class B common stock, par value $.01 per share; 20,000,000 shares authorized; 4,479,343 and 4,479,343 shares issued and outstanding............................................................ 45 45 Class C common stock, par value $.01 per share; 30,000,000 shares authorized; 2,307,277 and 2,307,277 shares issued and outstanding............................................................ 23 23 Additional paid-in-capital.......................................... 508,344 512,284 Loan to officers................................................... (9,984) (9,984) Accumulated deficit................................................. (30,166) (30,780) -------- --------- Total stockholders' equity..................................... 468,546 471,872 -------- -------- Total liabilities and stockholders' equity..................... $947,095 $954,935 ======== ========
See Accompanying Notes to Consolidated Financial Statements 3 4 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except for share and per share data)
(UNAUDITED) THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 2001 MARCH 31, 2000 Revenues................................................... $ 48,965 $ 51,854 Less: agency commissions................................... (4,377) (4,137) ---------- ---------- Net revenues....................................... 44,588 47,717 Operating expenses: Station operating expenses, excluding depreciation, amortization and LMA fees (including provision for doubtful accounts of $951 and $976 respectively) 35,412 42,303 Depreciation and amortization......................... 12,284 9,897 LMA fees................................................ 1,014 1,179 Corporate general and administrative....................... 3,834 4,684 ---------- ---------- Total operating expenses............................ 52,544 58,063 ---------- ---------- Operating loss...................................... (7,956) (10,346) ---------- ---------- Nonoperating income (expense): Interest expense........................................ (7,967) (7,636) Interest income......................................... 577 2,092 Other income, net....................................... 16,248 1 ---------- ---------- Total nonoperating expenses, net.................... 8,858 (5,543) ---------- ---------- Income (loss) before income taxes................... 902 (15,889) Income tax (expense) benefit (288) 5,769 ---------- ---------- Net income (loss)................................... 614 (10,120) Preferred stock dividends and accretion of discount................................................. 4,089 3,528 ---------- ---------- Net loss attributable to common stockholders...................................... $ (3,475) $ (13,648) ========== ========== Basic and diluted loss per common share.................... $ (0.10) $ (0.39) ---------- ---------- Weighted average common shares outstanding................. 35,205,370 35,057,219 ========== ==========
See Accompanying Notes to Consolidated Financial Statements 4 5 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
(UNAUDITED) THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 2001 MARCH 31, 2000 Cash flows from operating activities: Net income (loss)...................................................... $ 614 $(10,120) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation..................................................... 3,780 2,884 Amortization of goodwill, intangible assets and other assets 8,685 7,446 Provision for doubtful accounts.................................. 951 976 Gain on sale of stations......................................... (16,028) -- Deferred taxes................................................... 288 (5,769) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable................................................. 8,408 (133) Prepaid expenses and other current assets........................... 3,899 1,115 Accounts payable and accrued expenses............................... (9,085) (3,532) Other assets........................................................ (171) (2,324) Other liabilities................................................... (151) (312) -------- -------- Net cash provided by (used in) operating activities.............. 1,190 (9,769) -------- -------- Cash flows from investing activities: Acquisitions........................................................ (14,748) (28,610) Dispositions........................................................ 36,213 -- Escrow deposits on pending acquisitions............................. (462) (27,491) Capital expenditures................................................ (1,282) (4,799) Other............................................................... (76) (1,695) -------- -------- Net cash provided by (used in) investing activities............ 19,645 (62,595) -------- -------- Cash flows from financing activities: Proceeds from revolving line of credit.............................. 2,500 -- Payments on revolving line of credit................................ (2,500) -- Payments on promissory notes........................................ (5) (5) Payment of dividend on Series A Preferred Stock..................... -- (3,530) Payments for debt issuance costs.................................... -- (1) -------- -------- Net cash (used in) financing activities.......................... (5) (3,536) -------- -------- (Decrease) increase in cash and cash equivalents....................... 20,830 (75,900) Cash and cash equivalents at beginning of period....................... $ 10,979 $219,581 Cash and cash equivalents at end of period............................. $ 31,809 $143,681 Non-cash operating, investing and financing activities: Trade revenue....................................................... $ 2,780 $ 2,666 Trade expense....................................................... 2,905 2,682 Assets acquired through notes payable............................... -- 3,387 Preferred stock dividends paid in kind and accretion of discount.... 4,089 3,528
See Accompanying Notes to Consolidated Financial Statements 5 6 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTERIM FINANCIAL DATA The consolidated financial statements should be read in conjunction with the consolidated financial statements of Cumulus Media Inc. ("Cumulus" or the "Company") and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 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 three months ended March 31, 2001 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2001. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement 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. Statement 133 is amended by Statement 137 "Accounting for Derivative Financial Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and is effective for years beginning after June 15, 2000. Management has adopted this statement as of January 1, 2001. Adoption of this statement did not have a material impact on the Company's financial position or results of operations. 3. ACQUISITIONS: During the quarter ended March 31, 2001, the Company completed acquisitions of 7 radio stations for $105.7 million in purchase price. Of the $105.7 million required to fund the acquisitions, $78.0 million was provided through the exchange of stations (as described below), $14.7 million was funded in cash and $13.0 million had been previously funded as escrow deposits on the pending acquisitions. These aggregate acquisition amounts include the assets acquired pursuant to the asset exchange and sales transaction described below. All of the Company's acquisitions were accounted for by the purchase method of accounting, including stations acquired in the asset exchange and sale transaction with Clear Channel Communications. As such, the accompanying consolidated balance sheet includes the acquired assets and liabilities and the statement of operations includes the results of operations of the acquired entities from their respective dates of acquisition. The accompanying consolidated statements of operations include the results of operations of the divested entities through the date of disposition. An allocation of the aggregate purchase prices to the estimated fair values of the assets acquired and liabilities assumed is presented below (dollars in thousands). Property and equipment..... $ 4,141 Intangible assets.......... 101,607 $105,748 ========
CLEAR CHANNEL ASSET SALE AND EXCHANGE On January 18, 2001, the Company completed substantially all of the third and final phase of an asset exchange and sale transaction with certain subsidiaries of Clear Channel Communications. Upon the closing, the Company transferred 44 stations in 8 markets in exchange for 4 stations in 1 market and approximately $36.2 million in cash. As of the close date, the Company also received approximately $2.7 million in proceeds previously withheld from the second phase of the Clear Channel transactions. The Company recorded a $16.0 million gain on this asset and exchange transaction during the three months ended March 31, 2001, which has been presented in other income in the accompanying statement of operations. PRO FORMA The unaudited consolidated condensed pro forma results of operations data for the three months ended March 31, 2001 and 2000, as if all acquisitions and dispositions completed during 2000 and during the first quarter of 2001 occurred at January 1, 2000, follow 6 7 (dollars in thousands, except per share data):
THREE MONTHS ENDED MARCH 31, MARCH 31, 2001 2000 ---- ---- Net revenues.................................... $ 44,407 $ 46,168 Operating loss.................................. (6,894) (9,698) Net loss........................................ (8,713) (10,424) Net loss attributable to common stockholders.... (12,802) (14,513) ======== ======== Basic and diluted loss per common share......... $ (0.36) $ (0.41)
Escrow funds of approximately $19.4 million paid by the Company in connection with pending acquisitions have been classified as Other Assets at March 31, 2001 in the accompanying consolidated balance sheet. At March 31, 2001 the Company operated 31 stations under local marketing agreements ("LMA"). The statement of operations for the quarter ended March 31, 2001 includes the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMA from the effective date of the LMA through the earlier of the acquisition date or March 31, 2001. 4. RESTRUCTURING CHARGE During June 2000 the Company implemented two separate Board-approved restructuring programs. During the quarter ended June 30, 2000, the Company recorded a $9.3 million charge to operating expenses related to restructuring costs. The June, 2000 restructuring programs were the result of Board-approved mandates to discontinue the operations of Cumulus Internet Services and to centralize the Company's corporate administrative organization and employees in Atlanta. The programs included severance and related costs, and costs for vacated leased facilities, impaired leasehold improvements at vacated leased facilities, and impaired assets related to the Internet businesses. The following table depicts the amounts associated with and activity related to the June 2000 restructuring programs through March 31, 2001: (dollars in thousands)
Restructuring Paid Through Unpaid Balance Liability March 31, as of Expense Category December 31, 2000 2001 March 31, 2001 - ---------------- ----------------- ---- -------------- Employee severance and related costs $ 528 $ 131 $ 397 Lease termination costs 2,379 161 2,218 ----- --- ----- Office relocation subtotal 2,907 292 2,615 ----- --- ----- Accrued internet contractual obligations 375 -- 375 Internet lease termination costs 434 25 409 --- -- --- Internet services subtotal 809 25 784 --- ------- --- Restructuring liability totals $ 3,716 $ 317 $3,399 ======== ======= ======
As of March 31, 2001, approximately $3.4 million in accrued restructuring costs remain related to the Company's June, 2000 restructuring programs. This balance is comprised of $0.4 million in employee severance and related charges, $2.2 million in lease termination costs, $0.4 million related to amounts owed for software development and asset acquisitions related to capitalized Internet system and infrastructure assets, and $0.4 in internet lease termination charges. The remaining portion of the unpaid balance is expected to be paid by the end of June 2001, except for the Company's lease obligations at the vacated facilities in Milwaukee and Chicago and certain contractual severance obligations. Lease obligations will be paid by the end of 2003. The contractual severance obligations will be paid by December 2001. 5. GUARANTOR'S FINANCIAL INFORMATION Certain of the Company's direct and indirect subsidiaries (all such subsidiaries are directly or indirectly wholly owned by the Company) will provide full and unconditional guarantees for the Company's senior subordinated notes on a joint and several basis. 7 8 There are no significant restrictions on the ability of the guarantor subsidiaries to pay dividends or make loans to the Company. The following tables provide consolidated condensed financial information pertaining to the Company's subsidiary guarantors. The Company has not presented separate financial statements for the subsidiary guarantors and non-guarantors because management does not believe that such information is material to investors.
MARCH 31, 2001 DECEMBER 31, 2000 -------------- ----------------- Current assets.......... $ 133,951 $127,959 Noncurrent assets....... 821,575 821,455 Current liabilities..... 13,397 14,885 Noncurrent liabilities.. 22,845 20,032
THREE MONTHS ENDED ------------------ MARCH 31, 2001 MARCH 31, 2000 -------------- -------------- Net revenue........... $ 43,967 $ 44,565 Operating expenses.... 34,870 49,668 Net loss.............. (2,785) (5,145)
6. EARNINGS PER SHARE The following table sets forth the computation of basic loss per share for the three month periods ended March 31, 2001 and 2000 (dollars in thousands, except per share data).
THREE MONTHS ENDED ------------------ March 31, 2001 March 31, 2000 -------------- -------------- Numerator: Net income (loss) $ 614 $ (10,120) Preferred stock dividends and accretion of discount (4,089) (3,528) -------- --------- Numerator for basic earnings per share - income available for common stockholders $(3,475) $ (13,648) Denominator: Denominator for basic earnings per share - weighted average shares 35,205 35,057 -------- --------- Basic and diluted loss per common share $ (0.10) $ (0.39) ======== =========
During fiscal 1998, 1999 and 2000 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 March 31, 2001 and 2000 there were options issued to purchase the following classes of common stock:
March 31, March 31, 2001 2000 Options to purchase class A common stock..... 3,331,711 2,114,309 Options to purchase class C common stock..... 3,001,380 3,001,380
The Series B Preferred Stock was convertible into 472,884 Shares of Class B Common Stock at March 31, 2001. Earnings per share assuming dilution has not been presented as the effect of the options and the Series B Preferred Stock would be antidilutive for the three month periods ended March 31, 2001 and 2000. 7. COMMITMENTS AND CONTINGENCIES As of March 31, 2001 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 a percentage of the purchase price, as defined by the agreements. The ability of the Company to complete the pending acquisitions is dependent upon the Company's ability to obtain additional equity and/or debt financing. We intend to finance the pending acquisitions with cash on hand, the proceeds of borrowings under our credit facility or future credit facilities, and other sources to be identified. There can be no assurance the Company will be able to obtain such financing. In the event that the Company is unable to obtain financing necessary to consummate the remaining pending acquisitions, the Company could be liable for approximately $19.4 million in purchase price. 8 9 The Company had been named as a defendant in the following eleven class action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc., et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v. Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus Media Inc., et al.; (7) Kincer v. Weening, et al.; (8) Krim v. Cumulus Media Inc., et al.; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening, et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former directors and officers of the Company, and certain underwriters of the Company's stock, have also been named as defendants. The complaints have all been filed in the United States District Court for the Eastern District of Wisconsin. They were filed as class actions on behalf of persons who purchased or acquired Cumulus Media common stock during various time periods between May 11, 1999 and April 24, 2000. On August 4, 2000, the eleven actions were consolidated into a single action, also pending in the United States District Court for the Eastern District of Wisconsin. On December 8, 2000, plaintiffs served a Second Amended Consolidated Class Action Complaint, which alleges, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and Sections 11 and 12(a) of the Securities Act of 1933, and seeks unspecified damages. The plaintiffs allege that the defendants issued false and misleading statements and failed to disclose material facts concerning, among other things, the Company's financial condition as a result of the restatement on May 26, 2000 of the Company's results for the first three quarters of 1999. The plaintiffs further allege that because of the issuance of false and misleading statements and/or failure to disclose material facts, the price of Cumulus Media stock was artificially inflated. On February 8, 2001, the Company served its motion to dismiss the second amended complaint. Although the Company has certain defenses it intends to vigorously assert in these proceedings, the Company cannot predict how the plaintiffs' claims will ultimately be resolved. In the event there were a decision adverse to the Company, or pursuant to a settlement agreement, the Company could ultimately be obligated to make payments including payments which may not be covered by insurance. Such payments could have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company is also a defendant from time to time in various other 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. 8. SUBSEQUENT EVENTS Subsequent to March 31, 2001 the Company completed the acquisition of 1 radio station for an aggregate purchase price of approximately $5.0 million. This transaction 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 discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. This quarterly report contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this quarterly report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers primarily with respect to the future operating performance of the Company. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. Risks and uncertainties that may effect forward looking statements in this document include, without limitation, risks and uncertainties relating to leverage, the need for additional funds, FCC and government approval pending acquisitions, the inability of the Company to renew one or more of its broadcast licenses, changes in interest rates, consummation of the Company's pending acquisitions, integration of the pending acquisitions, the ability of the Company to eliminate certain costs, the management of rapid growth, the popularity of radio as a broadcasting and advertising medium and changing consumer tastes. Many of these risks and uncertainties are beyond the control of the Company. This discussion identifies important factors that could cause such differences. The occurrence of any such factors not currently expected by the Company would significantly alter the results set forth in these statements. OVERVIEW The following is a discussion of the key factors that have affected our business since its inception on May 22, 1997. The following information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this report. 9 10 The following discussion of our financial condition and results of operations includes the results of acquisitions and local marketing, management and consulting agreements. We currently own and operate 225 stations in 44 U.S. markets and provide sales and marketing services under local marketing, management and consulting agreements (pending FCC approval of acquisition) to 31 stations in 14 U.S. markets. We are the second largest radio broadcasting company in the U.S. based on number of stations. We believe we are the seventh largest radio broadcasting company in the U.S. based on 2000 pro forma net revenues. We will own and operate a total of 226 radio stations (165 FM and 61 AM) in 46 U.S. markets upon consummation of our pending acquisitions. ADVERTISING REVENUE AND BROADCAST CASH FLOW Our primary source of revenues is the sale of advertising time on our radio stations. Our sales of advertising time are primarily affected by the demand for advertising time from local, regional and national advertisers and the advertising rates charged by our radio stations. Advertising demand and rates are based primarily on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron on a periodic basis, generally once, twice or four times per year. Because audience ratings in local markets are crucial to a station's financial success, we endeavor to develop strong listener loyalty. We believe that the diversification of formats on our stations helps to insulate them from the effects of changes in the musical tastes of the public with respect to any particular format. The number of advertisements that can be broadcast without jeopardizing listening levels and the resulting rating is limited in part by the format of a particular station. Our stations strive to maximize revenue by continually managing the number of commercials available for sale and adjusting prices based upon local market conditions. In the broadcasting industry, radio stations sometimes utilize trade or barter agreements which exchange advertising time for goods or services such as travel or lodging, instead of for cash. Our use of trade agreements was not significant during the three months ended March 31, 2001 and 2000. We will seek to continue to minimize our use of trade agreements. Our advertising contracts are generally short-term. We generate most of our revenue from local advertising, which is sold primarily by a station's sales staff. During the three months ended March 31, 2001 and 2000 approximately 87% and 89%, respectively, of our revenues were from local advertising. To generate national advertising sales, we engage Interep National Radio Sales, Inc., a national representative company. Our revenues vary throughout the year. As is typical in the radio broadcasting industry, we expect our first calendar quarter will produce the lowest revenues for the year, and the fourth calendar quarter will generally produce the highest revenues for the year, with the exception of certain of our stations such as those in Salisbury-Ocean City, Maryland and Myrtle Beach, South Carolina, where the stations generally earn higher revenues in the second and third quarters of the year because of the higher seasonal population in those communities. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods, if at all. Our most significant station operating expenses are employee salaries and commissions, programming expenses, advertising and promotional expenditures, technical expenses, and general and administrative expenses. We strive to control these expenses by working closely with local station management. The performance of radio station groups, such as ours, is customarily measured by the ability to generate broadcast cash flow and EBITDA. Broadcast cash flow consists of operating income (loss) before depreciation and amortization, LMA fees, corporate general and administrative expenses and non-cash stock compensation expense. EBITDA consists of operating income (loss) before depreciation and amortization, LMA fees and non-cash stock compensation expense. Broadcast cash flow and EBITDA, as defined by us, may not be comparable to similarly titled measures used by other companies. Although broadcast cash flow and EBITDA are not measures of performance calculated in accordance with GAAP, management believes that they are useful to an investor in evaluating us because they are measures widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow and EBITDA should not be considered in isolation or as substitutes for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as measures of liquidity or profitability. The Company's results from operations from period to period are not historically comparable due to the impact of the various acquisitions and dispositions that the Company has completed. 10 11 RESULTS OF OPERATIONS The following table presents summary historical consolidated financial information and other supplementary data of Cumulus for the three months ended March 31, 2001 and 2000.
FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED MARCH 31, 2001 MARCH 31, 2000 -------------- -------------- STATEMENT OF OPERATIONS DATA: Net broadcast revenue................................................. $ 44,588 $ 47,717 Stations operating expenses excluding depreciation & amortization............................ 35,412 42,303 Depreciation and amortization......................................... 12,284 9,897 LMA fees.............................................................. 1,014 1,179 Corporate expenses.................................................... 3,834 4,684 Operating (loss).................................................. (7,956) (10,346) Interest expense (net)................................................ (7,390) (5,544) Other income, net 16,248 1 Net income (loss) 614 (10,120) Net loss attributable to common stockholders.......................... (3,475) (13,648) OTHER DATA: Broadcast cash flow (1)............................................... 9,176 5,414 Broadcast cash flow margin............................................ 20.6% 11.3% EBITDA (2)............................................................ 5,342 730 Cash flows related to: Operating activities............................................ 1,190 (9,769) Investing activities............................................ 19,645 (62,595) Financing activities............................................ (5) (3,536) Capital expenditures.................................................. $ 1,282 $ 4,799
(1) Broadcast cash flow consists of operating loss before depreciation, amortization, corporate expenses, and noncash stock compensation expense. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio Company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As broadcast cash flow is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. (2) EBITDA consists of operating loss before depreciation, amortization, LMA fees 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 MARCH 31, 2001 VERSUS THE THREE MONTHS ENDED MARCH 31, 2000. NET REVENUES. Net revenues decreased $3.1 million, or 6.6%, to $44.6 million for the three months ended March 31, 2001 from $47.7 million for the three months ended March 31, 2000. This decrease was primarily attributable to the disposition of radio stations during fiscal 2000 and the first quarter of 2001 and lower sales volume associated with the Company's implementation of stringent credit and collections policies and the current economic slowdown and tightening corporate advertising budgets. In addition, on a same station basis, net revenue for the 167 stations in 32 markets operated for at least a full year decreased $0.6 million or 2.0% to $29.1 million for the three months ending March 31, 2001, compared to same station net revenues of $29.7 million for the three month period ending March 31, 2000. The decrease in same station net revenue was primarily attributable to lower market rates and sales volume associated with the current economic slowdown and tightening corporate advertising budgets. STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND LMA FEES. Station operating expenses excluding depreciation, amortization and LMA fees decreased $6.9 million, or 16.3%, to $35.4 million for the three months 11 12 ending March 31, 2001 from $42.3 million for the three months ending March 31, 2000. This decrease was primarily attributable to 1) a decrease in the station portfolio as a result of the disposition of radio stations during fiscal 2000 and 2001 and 2) expense reductions achieved as a result of improved management control of cost of sales and other operating expense saving initiatives. The provision for doubtful accounts was $1.0 million for the three months ended March 31, 2001 and was approximately the same during the three months ended March 31, 2000. As a percentage of net revenues, the provision for doubtful accounts increased by 0.1% to 2.1% for the three months ended March 31, 2001, as compared with 2.0% for the comparable period in the prior year. The nominal increase in the provision for doubtful accounts as a percentage of revenue was the result of management's review of the adequacy of its reserves based on historical write-off experience. On a same station basis, for the 167 stations in 32 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees decreased $3.2 million, or 11.9%, to $24.0 million for the three months ending March 31, 2001 compared to $27.3 million for the three months ending March 31, 2000. The decrease in same station operating expenses excluding depreciation, amortization and LMA fees is attributable to improved management control of costs of sales and other expense saving initiatives. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $2.4 million, or 24.1%, to $12.3 million for the three month period ending March 31, 2001 compared to $9.9 million for the three month period ending March 31, 2000. This increase was primarily attributable to depreciation and amortization relating to radio station acquisitions consummated subsequent to the three months ended March 31, 2000 and a full quarter of depreciation and amortization on radio station acquisitions consummated during the three month period ended March 31, 2000, offset by a decrease in depreciation and amortization associated with station dispositions. LMA FEES. LMA fees decreased $0.2 million, or 14.0%, to $1.0 million for the three months ending March 31, 2001 from $1.2 million for the three months ending March 31, 2000. This decrease was primarily attributable to the purchase of stations subsequent to March 31, 2000 which were formerly operated under local marketing, management and consulting agreements and the related discontinuance of fees associated with such agreements. CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and administrative expenses decreased $0.9 million, or 18.1%, to $3.8 million for the three months ending March 31, 2001 compared to $4.7 million for the three months ended March 31, 2000. Certain non-recurring reorganization, severance, travel and professional fee expenses incurred during the quarter ended March 31, 2000 primarily contributed to the increased corporate expenses in the prior year. The decrease in corporate general and administrative expense was also attributable to the successful consolidation of the Company's corporate offices, formerly located in Chicago, Illinois and Milwaukee, Wisconsin, to Atlanta, Georgia and the related cost savings associated with the elimination of duplicative corporate resources. OTHER EXPENSE (INCOME). Interest expense, net of interest income, increased by $1.8 million, or 33.3%, to $7.4 million for the three months ending March 31, 2001 compared to $5.5 million for the three months ended March 31, 2000. This increase was primarily attributable to lower cash reserves and related decreases in interest income earned. Other Income, net, increased to $16.2 million for the three months ended March 31, 2001 compared to $0.0 million in the prior year. This increase was primarily attributable to gains realized on the sale of assets as a result of the successful completion of the third and final phase of asset sales with Clear Channel Communications. INCOME TAXES. Income tax expense increased by $6.1 million, to $0.3 million for the three months ending March 31, 2001 compared to an income tax benefit of $5.8 million for the three months ended March 31, 2000. This increase was primarily attributable to deferred tax expense recognized on the gain on sale of stations incurred as a result of the completion of the third and final phase of asset sales with Clear Channel Communications. PREFERRED STOCK DIVIDENDS AND ACCRETION OF DISCOUNT. Preferred stock dividends and accretion of discount of preferred stock increased $0.6 million, or 15.9%, to $4.1 million for the three months ended March 31, 2001 compared to $3.5 million for the three months ended March 31, 2000. This increase was attributable to increased dividends resulting from increasing levels of the Company's Series A Preferred Stock and dividends associated with the Company's issuance of Series B Preferred Stock. NET LOSS ATTRIBUTABLE TO COMMON STOCK. As a result of the factors described above, net loss attributable to common stock decreased $10.2 million, or 74.5%, to $3.5 million for the three months ended March 31, 2001 compared to $13.6 million for the three months ended March 31, 2000. 12 13 BROADCAST CASH FLOW. As a result of the factors described above, Broadcast Cash Flow increased $3.8 million, or 69.5%, to $9.2 million for the three months ended March 31, 2001 compared to $5.4 million for the three months ended March 31, 2000. EBITDA. As a result of the increase in broadcast cash flow and decrease in corporate, general and administrative expenses described above, EBITDA increased $4.6 million, or 631.8%, to $5.3 million for the three months ended March 31, 2001 compared to $0.7 million for the three months ended March 31, 2000. INTANGIBLE ASSETS. Intangible assets, net of amortization, were $757.5 million and $763.0 million as of March 31, 2001 and December 31, 2000, respectively. These intangible asset balances primarily consist of broadcast licenses and goodwill, although the Company possesses certain other intangible assets obtained in connection with our acquisitions, such as non-compete agreements. The decrease in intangible assets, net during the three months ended March 31, 2001 is attributable to dispositions during the quarter, less the net acquisitions in the asset exchange and sale transaction with Clear Channel. Specifically identified intangible assets, including broadcasting licenses, are recorded at their estimated fair value on the date of the related acquisition. Goodwill represents the excess of purchase price over the fair value of tangible assets and specifically identified intangible assets. Although intangible assets are recorded in the Company's financial statements at amortized cost, we believe that such assets, especially broadcast licenses, can significantly appreciate in value by successfully executing the Company's operating strategies. During the three months ended March 31, 2001, the Company recognized an accounting gain of approximately $16.0 million as a result of the asset exchange and sale transaction with Clear Channel Communications. The Company also recognized similar gains in fiscal 2000. We believe these gains indicate that certain internally generated intangible assets, which are not recorded for accounting purposes, can significantly increase the value of our portfolio of stations over time. The Company's strategic initiative to focus on its core radio business is designed to enhance the overall value of our stations and maximize the value of the related broadcast licenses. LIQUIDITY AND CAPITAL RESOURCES Our principal need for funds has been to fund the acquisition of radio stations and to a lesser extent, working capital needs, capital expenditures and interest and debt service payments. Our principal sources of funds for these requirements have been cash flows from financing activities, such as the proceeds from the offering of our debt and equity securities and borrowings under credit agreements. Our principal need for funds in the future are expected to include the need to fund pending and future acquisitions, interest and debt service payments, working capital needs and capital expenditures. We believe the Company's present cash positions will be sufficient to meet our ordinary operating requirements for the foreseeable future. In order to fund the aggregate purchase price for all currently pending acquisitions, the Company expects that it will need to raise approximately $40.0 million prior to the end of the third quarter of 2001. The Company intends to raise this capital through additional debt financing or asset sales. The ability of the Company to complete the pending acquisitions is dependent upon on the Company's ability to obtain additional equity and/or debt financing. There can be no assurance that the Company will be able to obtain such financing on favorable terms, if at all. For the three months ended March 31, 2001, net cash provided by operating activities increased $11.0 million, or 112.2%, to $1.2 million from net cash used in operating activities of $9.8 million for the three months ended March 31, 2000. This increase was due primarily to a reduction in net cash utilized for working capital when compared to the three months ended March 31, 2000. For the three months ended March 31, 2001, net cash provided by investing activities increased $82.2 million, or 131.4%, to $19.6 million from net cash used in investing activities of $62.6 million for the three months ended March 31, 2000. This increase was due primarily to the completion of the third and final phase of the asset sales to Clear Channel Communications which generated approximately $36.2 million in proceeds to the Company during the three months ended March 31, 2001. For the three months ended March 31, 2001, net cash used in financing activities decreased $3.5 million, to $0.0 million compared to $3.5 million during the three months ended March 31, 2000. The net cash used during the prior year was primarily the result of the payment of cash dividends on the Company's Series A Preferred Stock. During the three months ended March 31, 2001, such dividends were paid in kind to holders of the stock. Historical Acquisitions. During the three months ended March 31, 2001, the Company completed 2 acquisitions across 2 markets having an aggregate purchase price of $105.7 million. Of the $105.7 million required to fund the acquisitions, $78.0 million was provided through the exchange of stations, $14.7 million was funded in cash and $13.0 million had been previously funded as escrow deposits on the pending acquisitions. An additional acquisition has been subsequently completed in May 2001 in 1 market for an aggregate purchase price of $5.0 million. The sources of funds for these acquisitions were primarily the proceeds from the completion of the third and final phase of asset sales to Clear Channel Communications. 13 14 Pending Acquisitions. As of March 31, 2001, the Company was a party to various agreements to acquire stations across 15 markets. The aggregate purchase price of the Company's pending acquisitions is expected to be approximately $86.5 million. We intend to finance the pending acquisitions with cash on hand, the proceeds of borrowings under our Credit Facility or future credit facilities, and other sources to be identified. The ability of the Company to complete the pending acquisitions is dependent upon on the Company's ability to obtain additional equity and/or debt financing on favorable terms, if at all. There can be no assurance that the Company will be able to obtain such financing on favorable terms, if at all. We expect to consummate most of our pending acquisitions during the second quarter of 2001, although there can be no assurance that the transactions will be consummated within that time frame, or at all. In two of the markets in which there are pending acquisitions (Columbus-Starkville, MS; and Columbus, GA), petitions to deny have been filed against the Company's FCC assignment applications. All such petitions and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. There can be no assurance that the pending acquisitions will be consummated. In addition, from time to time the Company completes acquisitions following the initial grant of an assignment application by the FCC staff but before such grant becomes a final order, and a petition to review such a grant may be filed. There can be no assurance that such grants may not ultimately be reversed by the FCC or an appellate court as a result of such petitions, which could result in the Company being required to divest the assets it has acquired. Dispositions. On January 18, 2001, the Company completed substantially all of the third and final phase of an asset exchange and sale transaction with certain subsidiaries of Clear Channel Communications. Upon the closing, the Company transferred 44 stations in 8 markets in exchange for 4 stations in 1 market and approximately $36.2 million in cash. As of the close date, the Company also received approximately $2.7 million in proceeds previously withheld from the second phase of Clear Channel transactions. Sources of Liquidity. We financed our 2001 cash acquisitions primarily with the proceeds of asset sales and borrowings under our credit facility. Our senior credit facility provides for aggregate principal borrowings of $175.0 million and consists of a seven-year revolving credit facility of $50.0 million, an eight-year term loan facility of $75.0 million and an eight and one-half year term loan facility of $50.0 million. The amount available under the seven-year revolving credit facility will be automatically reduced by 5% of the initial aggregate principal amount in each of the third and fourth years following closing (August 31, 1999), 10% of the initial aggregate principal amount in the fifth year following the closing, 20% of the initial aggregate principal amount in the sixth year following the closing and the remaining 60% of the initial aggregate principal amount in the seventh year following the closing. As of March 31, 2001 and April 30, 2001 $125.0 million was outstanding under the term loan facilities. The Company's obligations under its current credit facility are collateralized by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries), including, without limitation, intellectual property; real property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries, except the capital stock of Broadcast Software International, Inc., Cumulus Internet Services Inc. and Cumulus Telecommunications, Inc., and 65% of the capital stock of any first-tier foreign subsidiary. The obligations under the credit facility are also guaranteed by each of the direct and indirect domestic subsidiaries, except Broadcast Software, Cumulus Internet Services and Cumulus Telecommunications, and are required to be guaranteed by any additional subsidiaries acquired by Cumulus. Both the 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 our credit facility, 8.0% as of March 31, 2001), plus a margin ranging between 0.50% to 2.125%, or the Eurodollar Rate (as defined under the terms of the credit facility, 5.09% as of March 31, 2001) plus a margin ranging between 1.50% to 3.125% (in each case dependent upon the leverage ratio of the Company). At March 31, 2001 the Company's effective interest rate on term loan amounts outstanding under the credit facility was 8.52%. A commitment fee calculated at a rate ranging from 0.375% to 0.75% per annum (depending upon the Company's utilization rate) of the average daily amount available under the revolving lines of credit is payable quarterly in arrears, and fees in respect of letters of credit issued under the Credit Facility equal to the interest rate margin then applicable to Eurodollar Rate loans under the seven-year revolving credit facility also will be payable quarterly in arrears. In addition, a fronting fee of 0.125% is payable quarterly to the issuing bank. The eight-year term loan borrowings are repayable in quarterly installments beginning in 2001. The scheduled annual amortization is $0.75 million for each of the third, fourth, fifth, sixth and seventh years following closing and $71.25 million in the eighth year following closing. The eight and a half year term loan is repayable in two equal installments on November 30, 2007 and February 28, 2008. The amount available under the 7-year revolving credit facility will be automatically reduced in quarterly installments as described in the first paragraph above. Certain mandatory prepayments of the term loan facility and the revolving 14 15 credit line and reductions in the availability of the revolving credit line are required to be made including: (i) 100% of the net proceeds from any issuance of capital stock or incurrence of indebtedness; (ii) 100% of the net proceeds from certain asset sales; and (iii) between 50% and 75% (dependent on our leverage ratio) of our excess cash flow. Under the terms of the amended and restated credit facility, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. At March 31, 2001, the Company was in compliance with such financial and operating covenants. The terms of the facility contain events of default after expiration of applicable grace periods, including failure to make payments on the credit facility, breach of covenants, breach of representations and warranties, invalidity of the agreement governing the credit facility and related documents, cross default under other agreements or conditions relating to indebtedness of Cumulus or the Company's restricted subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the credit facility, the majority of the lenders are able to declare all amounts under our credit facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under each term loan facility and the majority of the banks under each revolving credit facility may terminate such term loan facility and such revolving credit facility, respectively. The Company's indenture and the certificates of designation for its preferred stock limit the amount we may borrow without regard to the other limitations on incurrence of indebtedness contained therein under credit facilities to $150.0 million. As of March 31, 2001, we would be permitted, by the terms of the indenture and the certificate of designation, to incur approximately $25.0 million of additional indebtedness under our credit facility without regard to the debt ratios included in our indenture. We have issued $160.0 million in aggregate principal amount of our 10 3/8% senior subordinated notes which have a maturity date of July 1, 2008. The notes are our general unsecured obligations and are subordinated in right of payment to all our existing and future senior debt (including obligations under our credit facility). Interest on the notes is payable semi-annually in arrears. We issued $125.0 million of our Series A Preferred Stock in our initial public offerings on July 1, 1998. The holders of the Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to 13 3/4% of the liquidation preference per share of Series A Preferred Stock, payable quarterly, in arrears. On or before July 1, 2003, we may, at our option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock. From July 1, 1998 until March 31, 2001, we issued an additional $41.9 million of shares of Series A Preferred Stock as dividends on the Series A Preferred Stock. After July 1, 2003, dividends may only be paid in cash. To date, all of the dividends on the Series A Preferred Stock have been paid in shares, except for a $3.5 million cash dividend paid on January 1, 2000 to holders of record on December 15, 1999 for the period commencing October 1, 1999 and ending December 31, 1999. The shares of Series A Preferred Stock are subject to mandatory redemption on July 1, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends. On October 1, 1999 we used $51.3 million of the proceeds of our July 1999 offering of our Class A Common Stock to redeem a portion of our Series A Preferred Stock, including a $ 6.0 million redemption premium and $ 1.5 million in accrued and unpaid dividends as of the redemption date. We issued 250 shares of our Series B Preferred Stock on October 2, 2000 for $2.5 million. The holders of the Series B Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to 12% of the liquidation preference per share of Series B Preferred Stock, payable quarterly, in arrears commencing on January 1, 2001. The Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series B Preferred Stock. To date, all of the dividends on the Series B Preferred Stock have been paid in shares. The shares of Series B Preferred Stock may be converted, at the holder's discretion, on or after March 30, 2002 into Class B Common Stock at the then effective conversion rate. The number of shares of Class B Common Stock that will be issued upon conversion can be calculated by dividing the liquidation preference of one share of Series B Preferred Stock by the lower of the closing sales price of the Company's Class A Common Stock as reported by the NASDAQ Stock Market on the conversion date or the average of the closing sales prices of the Company's Class A Common Stock as reported by the NASDAQ Stock Market for the 15 16 twenty (20) day trading period prior to the conversion date. The shares of Series B Preferred Stock are subject to mandatory redemption on October 3, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends. The shares of Series B Preferred Stock can be redeemed at any time at the Company's discretion with notice of not less than 30 days nor more than 60 days prior to the date of redemption. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk At March 31, 2001 approximately 43.8% of the Company's long-term debt bore interest at variable rates. Accordingly, the Company's earnings and cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a 1% increase in the effective rate of the loans, it is estimated that the Company's interest expense would have increased by $0.3 million for the three months ending March 31, 2001. In the event of an adverse change in interest rates, management would likely take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, additional analysis is not possible at this time. Further, such analysis would not consider the effects of the change in the level of overall economic activity that could exist in such an environment. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company had been named as a defendant in the following eleven class action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc., et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v. Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus Media Inc., et al.; (7) Kincer v. Weening, et al.; (8) Krim v. Cumulus Media Inc., et al.; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening, et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former directors and officers of the Company, and certain underwriters of the Company's stock, have also been named as defendants. The complaints have all been filed in the United States District Court for the Eastern District of Wisconsin. They were filed as class actions on behalf of persons who purchased or acquired Cumulus Media common stock during various time periods between May 11, 1999 and April 24, 2000. On August 4, 2000, the eleven actions were consolidated into a single action, also pending in the United States District Court for the Eastern District of Wisconsin. On December 8, 2000, plaintiffs served a Second Amended Consolidated Class Action Complaint, which alleges, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and Sections 11 and 12(a) of the Securities Act of 1933, and seeks unspecified damages. The plaintiffs allege that the defendants issued false and misleading statements and failed to disclose material facts concerning, among other things, the Company's financial condition as a result of the restatement on May 26, 2000 of the Company's results for the first three quarters of 1999. The plaintiffs further allege that because of the issuance of false and misleading statements and/or failure to disclose material facts, the price of Cumulus Media stock was artificially inflated. On February 8, 2001, the Company served its motion to dismiss the second amended complaint. Although the Company has certain defenses it intends to vigorously assert in these proceedings, the Company cannot predict how the plaintiffs' claims will ultimately be resolved. In the event there were a decision adverse to the Company, or pursuant to a settlement agreement, the Company could ultimately be obligated to make payments including payments which may not be covered by insurance. Such payments could have a material adverse effect on the Company's financial position, results of operations or cash flows. In addition, we currently and from time to time are involved in litigation incidental to the conduct of our business. Other than as discussed above, the Company is not a party to any lawsuit or proceeding which, in our opinion, is likely to have a material adverse effect on the Company. Item 2. Changes in Securities and Use of Proceeds No items to report. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information 16 17 Not applicable. Item 6. Exhibits (a) Not applicable (b) Reports on Form 8-K On February 2, 2001 the Company filed a Current Report on Form 8-K disclosing certain financial information regarding certain of its acquisitions and dispositions. 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 15, 2001 By: /s/ Martin R. Gausvik -------------------- Executive Vice President, Treasurer and Chief Financial Officer 17 -----END PRIVACY-ENHANCED MESSAGE-----