CUMULUS MEDIA INC.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1O-Q/A

(Amendment No. 1)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005.


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For or the transition period from to

Commission file number 000-24525

CUMULUS MEDIA INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		36-4159663
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

14 Piedmont Center, Suite 1400, 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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 31, 2005, the registrant had outstanding 66,821,382 shares of common stock consisting of (i) 54,545,752 shares of Class A Common Stock; (ii) 11,630,759 shares of Class B Common Stock; and (iii) 644,871 shares of Class C Common Stock.

EXPLANATORY STATEMENT

As previously disclosed, in May 2005, we were released from our pre-existing national advertising sales agency contract with Interep National Radio Sales, Inc (“Interep”) and engaged Katz Media Group, Inc. (“Katz”) as our new national advertising sales agent. See Note 10, “Commitments and Contingencies,” to the accompanying financial statements for a more detailed description of the Company’s contract with Katz.

Subsequent to the end of the third quarter of 2005, we reconsidered our accounting for the termination of the Interep contract during the second quarter. As a result of our review, we have determined that we should have recognized a non-cash contract termination charge during the second quarter to account for payments totaling $14.4 million made by Katz to Interep. Accordingly, we have now determined that we should correct and restate our financial statements for the three- and six-month periods ended June 30, 2005. The accompanying financial statements have been restated from amounts previously reported to incorporate the effects of the correction. For a more detailed description of this restatement, see Note 2 “Restatement of Financial Statements,” to the accompanying financial statements.

For convenience, this Form 10-Q/A sets forth the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005, initially filed with the SEC on August 9, 2005, in its entirety. However, this Form 10-Q/A only amends and restates certain information in Items 1, 2 and 4 of Part I of the original filing, in each case solely as a result of and to reflect the restatement, and no other information in the original filing is amended hereby. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the original filing has been amended to contain currently dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the Chief Executive Officer and Chief Financial Officer are attached to this Form 10 Q/A as exhibits 31.1, 31.2 and 32.

Except for the foregoing amended information, this Form 10-Q/A continues to describe conditions as of the date of the original filing, and the disclosures contained in this Form 10-Q/A have not been updated to reflect events, results or developments that occurred at a later date. Among other things, forward-looking statements made in the original filing have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the original filing (other than the restatement), and such forward-looking statements should be read in their historical context.

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)


	RESTATED
	June 30,			December 31,
	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	2,669		$	31,960
Accounts receivable, less allowance for doubtful accounts of $2,346 and $2,650, respectively		62,073			54,834
Prepaid expenses and other current assets		5,544			8,366
Deferred tax assets		308			416

Total current assets		70,594			95,576
Property and equipment, net		92,102			93,206
Intangible assets, net		1,202,896			1,132,736
Goodwill		287,354			276,060
Other assets		16,284			18,819

Total assets	$	1,669,230		$	1,616,397

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable and accrued expenses	$	21,252		$	19,078
Current portion of long-term debt		43,364			40,957

Total current liabilities		64,616			60,035
Long-term debt		463,700			441,145
Other liabilities		19,386			4,642
Deferred income taxes		247,614			234,242

Total liabilities		795,316			740,064

Stockholders’ equity:
Preferred stock, 20,262,000 shares authorized, par value $0.01 per share, including: 250,000 shares designated as 13 3/4% Series A Cumulative Exchangeable Redeemable Stock due 2009, stated value $1,000 per share, and 12,000 shares designated as 12% Series B Cumulative Preferred Stock, stated value $10,000 per share: 0 shares issued and outstanding		—			—
Class A common stock, par value $.01 per share; 200,000,000 shares authorized; 58,264,290 and 57,677,996 shares issued, respectively; 56,864,861 and 56,673,567 shares outstanding, respectively		583			577
Class B common stock, par value $.01 per share; 20,000,000 shares authorized; 11,630,759 shares issued and outstanding		116			116
Class C common stock, par value $.01 per share; 30,000,000 shares authorized; 644,871 shares issued and outstanding		6			6
Treasury stock, at cost, 1,004,429 shares		(14,640	)		(14,640	)
Accumulated other comprehensive income		721			2,867
Additional paid-in-capital		1,014,947			1,011,075
Accumulated deficit		(122,827	)		(118,676	)
Loan to officer		(4,992	)		(4,992	)

Total stockholders’ equity		873,914			876,333

Total liabilities and stockholders’ equity	$	1,669,230		$	1,616,397

See accompanying notes to consolidated financial statements

CUMULUS MEDIA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)
(Unaudited)


	RESTATED						RESTATED
	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
Net revenues	$	87,440		$	86,314		$	159,563		$	151,764
Operating expenses:
Station operating expenses, excluding depreciation, amortization and LMA fees (including non-cash contract termination costs of $13,571, $0, $13,571 and $0, respectively)		68,286			52,620			118,804			98,915
Depreciation and amortization		5,455			5,065			10,812			10,059
LMA fees		198			710			546			1,297
Corporate general and administrative (excluding non-cash stock compensation (income) expense of $1,697, $(125), $1,668 and $(216), respectively)		3,850			3,870			7,595			7,426
Non-cash stock compensation		1,697			(125	)		1,668			(216	)
Restructuring charges (credits)		(215	)		(21	)		(215	)		(21	)

Total operating expenses		79,271			62,119			139,210			117,460

Operating income		8,169			24,195			20,353			34,304

Nonoperating income (expense):
Interest expense		(6,575	)		(4,593	)		(11,796	)		(10,134	)
Interest income		459			188			793			296
Loss on early extinguishment of debt		—			—			—			(462	)
Other income (expense), net		(19	)		(14	)		(21	)		13

Total nonoperating expenses, net		(6,135	)		(4,419	)		(11,024	)		(10,287	)

Income before income taxes		2,034			19,776			9,329			24,017
Income tax expense		(7,008	)		(6,557	)		(13,480	)		(12,782	)

Net income (loss)	$	(4,974	)	$	13,219		$	(4,151	)	$	11,235

Basic and diluted income (loss) per common share:
Basic income (loss) per common share	$	(0.07	)	$	0.19		$	(0.06	)	$	0.16

Diluted income (loss) per common share	$	(0.07	)	$	0.18		$	(0.06	)	$	0.16

Weighted average basic common shares outstanding		69,127,823			69,877,036			69,107,566			68,121,870

Weighted average diluted common shares outstanding		69,127,823			72,860,626			69,107,566			71,263,939

See accompanying notes to consolidated financial statements

CUMULUS MEDIA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)


	RESTATED
	Six Months			Six Months
	Ended			Ended
	June 30, 2005			June 30, 2004
Cash flows from operating activities:
Net income (loss)	$	(4,151	)	$	11,235
Adjustments to reconcile net income to net cash provided by operating activities:
Write-off of debt issue costs		—			462
Depreciation		10,457			9,624
Amortization of intangible assets and other assets		356			434
Amortization of debt issuance costs		129			129
Provision for doubtful accounts		1,638			1,591
Non-cash contract termination costs		13,571			—
Adjustment of the fair value of derivative instruments		703			(391	)
Deferred income taxes		13,480			12,782
Non-cash stock compensation		1,668			(216	)
Net gain on disposition of fixed assets		(480	)		—
Adjustment of restructuring charges		(215	)		(21	)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(8,879	)		(10,136	)
Prepaid expenses and other current assets		2,822			2,170
Accounts payable and accrued expenses		3,178			1,635
Other assets		(3,217	)		(1,040	)
Other liabilities		1,475			(730	)

Net cash provided by operating activities		32,535			27,528

Cash flows from investing activities:
Acquisitions		(47,389	)		(7,221	)
Purchase of Intangible Assets		(34,908	)		—
Escrow deposits on pending acquisitions		(1,500	)		(1,035	)
Capital expenditures		(3,762	)		(4,828	)
Proceeds from sale of fixed assets		750			—
Other		(367	)		(444	)

Net cash used in investing activities		(87,176	)		(13,528	)

Cash flows from financing activities:
Proceeds from bank credit facility		57,000			—
Repayments of borrowings from bank credit facility		(32,038	)		(17,750	)
Payments for debt issuance costs		(73	)		(400	)
Proceeds from issuance of common stock		461			900

Net cash provided by (used in) financing activities		25,350			(17,250	)

Decrease in cash and cash equivalents		(29,291	)		(3,250	)
Cash and cash equivalents at beginning of period	$	31,960		$	6,720
Cash and cash equivalents at end of period	$	2,669		$	3,470
Non—cash operating and financing activities:
Trade revenue	$	8,232		$	9,082
Trade expense		8,001			8,949
Assets acquired through notes payable		—			5,000
Issuance of common stock in exchange for acquired businesses		—			71,344

See accompanying notes to consolidated financial statements

Cumulus Media Inc.

Notes to Consolidated Financial Statements (Unaudited)

1. Interim Financial Data and Basis of Presentation

Interim Financial Data

The accompanying unaudited 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, 2004. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the six months ended June 30, 2005 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2005.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, intangible assets, derivative financial instruments, income taxes, restructuring, contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Accounting for National Advertising Agency Contract

During the three months ended June 30, 2005, the Company was released from its pre-existing national advertising sales agency contract with Interep National Radio Sales, Inc (“Interep”) and engaged Katz Media Group, Inc. (“Katz”) as its new national advertising sales agent. In connection with the Company’s release from the Interep contract, Katz agreed to pay Interep $14.4 million (the “Katz Payment”) in twenty-five consecutive equal monthly installments commencing May 16, 2005. No payments were or will be made by the Company to Interep in connection with the termination of the contract. The Company’s contract with Interep did not contain a voluntary termination or buyout provision, and the terms of the release were primarily negotiated directly between Katz and Interep.

The contract has several economic elements which principally reduce the overall expected commission rate below the stated base rate. The Company estimates the overall expected commission rate over the entire contract period and apply that rate to commissionable revenue throughout the contract period with the goal of estimating and recording a stable commission rate over the life of the contract.

The following are the principal economic elements of the contract that can affect the base commission rate:



	•		A $13.6 million non-cash charge related to the termination of our contract with our former national advertising agent.

	•		Potential commission rebates from Katz should national revenue not meet certain targets for certain periods during the contract term. These amounts are measured annually with settlement to occur shortly thereafter. The amounts currently deemed probable of settlement relate to year one.

	•		Potential additional commissions in excess of the base rates if Katz should exceed certain revenue target. No additional commission payments have been assumed.

The potential commission adjustments are estimated and combined in the balance sheet with the contractual termination liability. That liability is accreted to commission expense to effectuate the stable commission rate over the course of the customer contract.

The Company’s accounting for and calculation of commission expense to be realized over the life of the Katz contract requires management to make estimates and judgments that affect reported amounts of commission expense. Actual results may differ from management’s estimates. Over the course of the Company’s contractual relationship with Katz, management will continually update its assessment of the effective commission expense attributable to national sales in an effort to record consistent commission rate over the term of the Katz contract.

2. Restatement of Financial Statements

As the Katz Payment appeared to create no obligation and no cash outlay for the Company, management did not originally believe that it triggered an accounting event for the Company. Accordingly, the Company’s financial statements for the quarterly period ended June 30, 2005, as originally filed on August 9, 2005, did not reflect any effect of the Katz Payment. However, based on the Company’s subsequent reconsideration of the accounting treatment of the transaction, the Company now believes that it should have recognized a second quarter non-cash contract termination cost charge and related liability during the second quarter to account for payments totaling $14.4 million made by Katz to Interep. Further, since the contract termination cost will be paid by a vendor, in this case Katz, the Company believes the payment should be accounted for as consideration received from a vendor and recorded as an adjustment to the cost of sales services provided by Katz over the life of the Katz contract.

Accordingly, the Company has corrected its accounting to recognize a non-cash contract termination charge and liability as of the termination date of the Interep contract.

As a result of the restatement, Station Operating Expenses increased by $13.8 million for the three and six months ended June 30, 2005. Of the increase, $13.6 million was recorded as a contract termination cost and represents the fair value of the Katz Payment as of the contract termination date. A corresponding liability has been recorded to the accompanying Consolidated Balance Sheets to recognize the contract termination liability.

In future periods and over the nine year life of the Katz contract, the Company will recognize a non-cash benefit equal to the original $13.6 million contract termination cost. This benefit will be recorded as a component of station operating expenses and represents an adjustment to the cost of Katz’s sales services. An additional $0.2 million of commission expense was also recorded for the three months ended June 30, 2005 to properly allocate the Katz commission expense. The adjustments recorded had no impact on the Company’s provision for income taxes during the three and six months ended June 30, 2005, as the deductible temporary difference is fully offset by a valuation allowance.

A summary of the effects of this correction on the Company’s Consolidated Balance Sheet at June 30, 2005, the Consolidated Statements of Operations for the three and six months ended June 30, 2005 and the Consolidated Statements of Cash Flows for the six months ended June 30, 2005 is as follows:


	CONSOLIDATED BALANCE SHEETS
	(Dollars in thousands)
	(Unaudited)
	As Previously
June 30, 2005 (Restated)	Reported			Adjustments			As Restated
Current assets:
Cash and cash equivalents	$	2,669		$	—		$	2,669
Accounts receivable		62,073			—			62,073
Prepaid expenses and other current assets		5,544			—			5,544
Deferred tax assets		308			—			308

Total current assets		70,594			—			70,594
Property and equipment, net		92,102			—			92,102
Intangible assets, net		1,202,896			—			1,202,896
Goodwill		287,354			—			287,354
Other assets		16,284			—			16,284

Total assets	$	1,669,230			—		$	1,669,230


Current liabilities:
Accounts payable and accrued expenses	$	19,856		$	1,396		$	21,252
Current portion of long-term debt		43,364			—			43,364

Total current liabilities		63,220			1,396			64,616
Long-term debt		463,700			—			463,700
Other liabilities		7,002			12,384			19,386
Deferred income taxes		247,614			—			247,614

Total liabilities		781,536			13,780			795,316

Stockholders’ equity:
Preferred stock		—			—			—
Class A common stock		583			—			583
Class B common stock		116			—			116
Class C common stock		6			—			6
Treasury stock		(14,640	)		—			(14,640	)
Accumulated other comprehensive income		721			—			721
Additional paid-in-capital		1,014,947			—			1,014,947
Accumulated deficit		(109,047	)		(13,780	)		(122,827	)
Loan to officer		(4,992	)		—			(4,992	)

Total stockholders’ equity		887,694			(13,780	)		873,914

Total liabilities and stockholders’ equity	$	1,669,230			—		$	1,669,230


	CONSOLIDATED STATEMENT
	OF OPERATIONS
	(Dollars in thousands)
	(Unaudited)
	As Previously
Three Months Ended June 30, 2005 (Restated)	Reported			Adjustments			As Restated
Net revenues	$	87,440		$	—		$	87,440
Operating expenses:
Station operating expenses, excluding depreciation, amortization and LMA fees		54,506			13,780			68,286
Depreciation and amortization		5,455			—			5,455
LMA fees		198			—			198
Corporate general and administrative		3,850			—			3,850
Non-cash stock compensation		1,697			—			1,697
Restructuring charges (credits)		(215	)		—			(215	)

Total operating expenses		65,491			13,780			79,271

Operating income		21,949			(13,780	)		8,169

Nonoperating income (expense):
Interest expense		(6,575	)		—			(6,575	)
Interest income		459			—			459
Loss on early extinguishment of debt		—			—			—
Other income (expense), net		(19	)		—			(19	)

Total nonoperating expenses, net		(6,135	)		—			(6,135	)

Income before income taxes		15,814			(13,780	)		2,034
Income tax expense		(7,008	)		—			(7,008	)

Net income (loss)	$	8,806		$	(13,780	)	$	(4,974	)

Basic and diluted income (loss) per common share:
Basic income (loss) per common share	$	0.13			(0.20	)	$	(0.07	)

Diluted income (loss) per common share	$	0.12			(0.19	)	$	(0.07	)

Weighted average basic common shares outstanding		69,127,823						69,127,823

Weighted average diluted common shares outstanding		70,540,542						69,127,823


	CONSOLIDATED STATEMENT
	OF OPERATIONS
	(Dollars in thousands)
	(Unaudited)
	As Previously
Six Months Ended June 30, 2005 (Restated)	Reported			Adjustments			As Restated
Net revenues	$	159,563		$	—		$	159,563
Operating expenses:
Station operating expenses, excluding depreciation, amortization and LMA fees		105,024			13,780			118,804
Depreciation and amortization		10,812			—			10,812
LMA fees		546			—			546
Corporate general and administrative		7,595			—			7,595
Non-cash stock compensation		1,668			—			1,668
Restructuring charges (credits)		(215	)		—			(215	)

Total operating expenses		125,430			13,780			139,210

Operating income		34,133			(13,780	)		20,353

Nonoperating income (expense):
Interest expense		(11,796	)		—			(11,796	)
Interest income		793			—			793
Loss on early extinguishment of debt		—			—			—
Other income (expense), net		(21	)		—			(21	)

Total nonoperating expenses, net		(11,024	)		—			(11,024	)

Income before income taxes		23,109			(13,780	)		9,329
Income tax expense		(13,480	)		—			(13,480	)

Net income (loss)	$	9,629		$	(13,780	)	$	(4,151	)

Basic and diluted income (loss) per common share:
Basic income (loss) per common share	$	0.14		$	(0.20	)	$	(0.06	)

Diluted income (loss) per common share	$	0.14		$	(0.20	)	$	(0.06	)

Weighted average basic common shares outstanding		69,107,566						69,107,566

Weighted average diluted common shares outstanding		70,583,003						69,107,566


	CONSOLIDATED STATEMENT OF
	CASH FLOWS
	(Dollars in thousands)
	(Unaudited)
	As Previously
Six Months Ended June 30, 2005 (Restated)	Reported			Adjustments			As Restated
Cash flows from operating activities:
Net income (loss)	$	9,629		$	(13,780	)	$	(4,151	)
Adjustments to reconcile net income to net cash provided by operating activities:
Write-off of debt issue costs		—			—			—
Depreciation		10,457			—			10,457
Amortization of intangible assets and other assets		356			—			356
Amortization of debt issuance costs		129			—			129
Provision for doubtful accounts		1,638			—			1,638
Non-cash contract termination costs		—			13,571			13,571
Adjustment of the fair value of derivative instruments		703			—			703
Deferred income taxes		13,480			—			13,480
Non-cash stock compensation		1,668			—			1,668
Net gain on disposition of fixed assets		(480	)		—			(480	)
Adjustment of restructuring charges		(215	)		—			(215	)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(8,879	)		—			(8,879	)
Prepaid expenses and other current assets		2,822			—			2,822
Accounts payable and accrued expenses		2,969			209			3,178
Other assets		(3,217	)		—			(3,217	)
Other liabilities		1,475			—			1,475

Net cash provided by operating activities		32,535			—			32,535

Cash flows from investing activities:
Acquisitions		(47,389	)					(47,389	)
Purchase of Intangible Assets		(34,908	)					(34,908	)
Escrow deposits on pending acquisitions		(1,500	)					(1,500	)
Capital expenditures		(3,762	)					(3,762	)
Proceeds from sale of fixed assets		750						750
Other		(367	)					(367	)

Net cash used in investing activities		(87,176	)		—			(87,176	)

Cash flows from financing activities:
Proceeds from bank credit facility		57,000						57,000
Repayments of borrowings from bank credit facility		(32,038	)					(32,038	)
Payments for debt issuance costs		(73	)					(73	)
Proceeds from issuance of common stock		461						461

Net cash provided by (used in) financing activities		25,350			—			25,350

Decrease in cash and cash equivalents		(29,291	)					(29,291	)
Cash and cash equivalents at beginning of period	$	31,960					$	31,960
Cash and cash equivalents at end of period	$	2,669					$	2,669

The restatement also affects amounts disclosed in Notes 3, 7, 8, 9 and 10 to the accompanying consolidated financial statements.

3. Stock Based Compensation

The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the

exercise price. Statement of Financial Accounting Standard (“SFAS”) No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the pro forma effect on net income if the fair value-based method had been applied to all outstanding and unvested awards in each period (dollars in thousands except for per share data).


	Three Months Ended						Six Months Ended
	June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
	(RESTATED)						(RESTATED)
Net income (loss), as reported	$	(4,974	)	$	13,219		$	(4,151	)	$	11,235
Add: Stock-based compensation expense included in reported net income		1,697			(125	)		1,668			(216	)
Deduct: Total stock based compensation expense determined under fair value-based method		(4,700	)		(2,561	)		(7,933	)		(5,156	)

Pro forma net income	$	(7,977	)	$	10,533		$	(10,416	)	$	5,863

Basic income per common share:
As reported	$	(0.07	)	$	0.19		$	(0.06	)	$	0.16
Pro forma	$	(0.12	)	$	0.15		$	(0.15	)	$	0.09
Diluted income per common share:
As reported	$	(0.07	)	$	0.18		$	(0.06	)	$	0.16
Pro forma	$	(0.12	)	$	0.14		$	(0.15	)	$	0.08

Effective January 1, 2006, the Company expects to adopt the provisions of SFAS No. 123R, “Share-Based Payment,” which will require the Company to recognize all stock-based compensation to employees, including stock options, in the financial statements based on their fair value. Management anticipates that when the new standard is adopted, the standard will have a material impact on the Company’s financial position and results of operations.

4. Restricted Stock

On April 25, 2005, the Compensation Committee of the Board of Directors granted 145,000 restricted shares of its Class A Common Stock to certain officers. The restricted shares were granted pursuant to the Cumulus Media Inc. 2004 Equity Incentive Plan, and are subject to the continued employment of the recipient for a specified period of time. Consistent with the terms of the awards, one-half of the shares granted will vest after two years of continuous employment. An additional one-eighth of the remaining restricted shares will vest each quarter during the third and fourth years following the date of grant. The fair value at the date of grant of these shares was $1.9 million. Stock compensation expense for these fixed awards will be recognized on a straight-line basis over each award’s vesting period. For the three months ended June 30, 2005, the Company recognized $0.1 million of non-cash stock compensation expense related to these restricted shares.

On October 14, 2004, the Company entered into a new employment agreement with its Chairman, President and Chief Executive Officer, Lewis W. Dickey, Jr. This agreement provided that Mr. Dickey would be granted 250,000 restricted shares of Class A Common Stock in each of 2005, 2006 and 2007.

In accordance with his agreement, on April 25, 2005, the Compensation Committee of the Board of Directors granted 250,000 restricted shares to Mr. Dickey. Following the award, management concluded that, in accordance with SFAS No. 123 Accounting for Stock-Based Compensation, Mr. Dickey’s employment agreement created an effective grant date for accounting purposes as of the execution date of the agreement (October 14, 2004), for both the restricted shares issued in April 2005 and the restricted shares the Company is obligated to issue in 2006 and 2007. As a result, management believes the Company should have commenced amortizing non-cash stock compensation expense associated with the restricted shares contemplated by Mr. Dickey’s employment agreement beginning in the fourth quarter of 2004. Management assessed the materiality of the related non-cash stock compensation expense attributable to 2004 and the first and second quarters of 2005 and concluded that due to the immateriality of the charges and the insignificant impact on the financial statements taken as a whole, no restatement of prior periods was necessary. As a result, management recorded the expense attributable to 2004 and the first quarter of 2005, together with amounts attributable to the current period, during the three months ended

June 30, 2005. Non-cash stock compensation attributable to 2004 and the first quarter of 2005 totaled $0.5 million and $0.6 million, respectively. Non-cash stock compensation expense attributable to Mr. Dickey’s shares for the three months ended June 30, 2005 totaled $0.6 million.

Consistent with terms of the awards and Mr. Dickey’s employment agreement, of the restricted shares issued to Mr. Dickey in April 2005, 125,000 shares were granted as time-vested restricted shares and 125,000 were issued as performance restricted shares. The time-vested restricted shares are subject to the continued employment of Mr. Dickey. One-half of the time-vested shares will vest after two years of continuous employment. An additional one-eighth of the remaining time-vested shares will vest each quarter during the third and fourth years following the date of grant.

Vesting of one-half of the performance restricted shares is dependent upon the achievement of certain board-approved financial targets for the first fiscal year following the date of grant and two years of continuous employment. Vesting of the remaining one-half of the performance restricted shares is dependent upon achievement of certain board approved financial targets for the second fiscal year following the date of grant and two years of continuous employment. Any performance restricted shares that do not vest based on the performance measures will vest on the eighth anniversary of the grant date, provided that Mr. Dickey has remained employed with the Company through that date. As of June 30, 2005, management believes it is probable that the performance targets will be met.

The fair value on the effective grant date (October 14, 2004) of the restricted shares to be issued to Mr. Dickey, pursuant to his employment agreement, was $10.2 million.

5. Restructuring Charges

During June 2000 the Company implemented two separate Board-approved restructuring programs. During the second quarter of 2000, the Company recorded a $9.3 million charge to operating expenses related to the 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 and administrative organization and employees in Atlanta, Georgia. 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. As of June 30, 2001, the Company had completed the restructuring programs. The remaining portion of the unpaid balance as of that date represented lease obligations and various contractual obligations for services related to the Internet business and has been paid by the Company through the present day consistent with the contracted terms.

The following table presents the restructuring liability at December 31, 2004 and June 30, 2005 and the related activity applied to the balances for the six months ended June 30, 2005 (dollars in thousands):


	Restructuring
	Liability		Liability			Liability			Restructuring
	December 31,		Utilized			Reversed in			Liability
Expense Category	2004		in 2005			2005			June 30, 2005
Lease termination costs — office relocation	$	59		(42	)		(17	)	$	—
Accrued Internet contractual obligations		183		—			(183	)		—
Internet lease termination costs		47		(32	)		(15	)		—

Restructuring liability totals	$	289		(74	)		(215	)	$	—

As of June 30, 2005, the Company had satisfied all remaining lease and contractual obligations related to the restructuring programs and, accordingly, the Company reversed the remaining unutilized liability. The reversal of liability related to the restructuring has been presented in the Consolidated Statements of Operations as a component of restructuring charges (credits), consistent with the presentation of the original restructuring charge.

6. Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This standard requires the Company to recognize all derivatives on the balance sheet at fair value. Derivative value changes are recorded in income for any contracts not classified as qualifying hedging instruments. For derivatives qualifying as cash flow hedge instruments, the effective portion of the derivative fair value change must be recorded through other comprehensive income, a component of stockholders’ equity.

New Derivative Instruments

In May 2005, Cumulus entered into a forward-starting LIBOR based interest rate swap arrangement (the “May 2005 Swap”) to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rate of LIBOR. The May 2005 Swap, which will be effective from March 2006 through March 2009, will change the variable-rate cash flow exposure on the Company’s long-term bank borrowings to fixed-rate cash flows by entering into a receive-variable, pay-fixed interest rate swap. Under the May 2005 Swap, Cumulus will receive LIBOR based variable interest rate payments and make fixed interest rate payments, thereby creating fixed-rate long-term debt. The May 2005 Swap is accounted for as a qualifying cash flow hedge of the future variable rate interest payments in accordance with SFAS No. 133, whereby changes in the fair market value are reflected as adjustments to the fair value of the derivative instrument as reflected on the accompanying balance sheets.

The fair value of the May 2005 Swap is determined periodically by obtaining quotations from the financial institution that is the counterparty to the Company’s swap arrangement. The fair value represents an estimate of the net amount that Cumulus would receive if the agreement was transferred to another party or cancelled as of the date of the valuation. Changes in the fair value of the May 2005 Swap are reported in accumulated other comprehensive income, or AOCI, which is an element of stockholders’ equity. These amounts subsequently are reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings. The balance sheet as of June 30, 2005 reflects other long-term assets of $1.4 million to reflect the fair value of the May 2005 Swap.

In order to affect the lowest fixed rate under the May 2005 Swap, Cumulus also entered into an interest rate option agreement in May 2005 (the “May 2005 Option”), which provides for the counterparty to the May 2005 Swap, Bank of America, to unilaterally extend the period of the swap for two additional years, from March of 2009 through March of 2011. This option may only be exercised in March of 2009. This instrument is not highly effective in mitigating the risks in cash flows, and therefore is deemed speculative and its changes in value are accounted for as a current element of operating results. Interest expense for the three and six months ended June 30, 2005 includes $0.8 million of net losses and the balance sheet as of June 30, 2005 reflects other long-term liabilities of $4.1 million to reflect the fair value of the May 2005 Option.

Pre-Existing Derivative Instruments

Cumulus previously entered into a LIBOR based interest rate swap arrangement in March of 2003 (the “March 2003 Swap”) to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rate of LIBOR. The March 2003 Swap changed the variable-rate cash flow exposure on the long-term bank borrowings to fixed-rate cash flows by entering into a receive-variable, pay-fixed interest rate swap. Under the interest rate swap, Cumulus receives LIBOR based variable interest rate payments and makes fixed interest rate payments, thereby creating fixed-rate long-term debt. The March 2003 Swap is accounted for as a qualifying cash flow hedge of the future variable rate interest payments in accordance with SFAS No. 133, whereby changes in the fair market value are reflected as adjustments to the fair value of the derivative instrument as reflected on the accompanying balance sheets.

The fair value of the March 2003 Swap has been determined periodically by obtaining quotations from the financial institution that is the counterparty to the March 2003 Swap. The fair value represents an estimate of the net amount that Cumulus would receive if the agreement was transferred to another party or cancelled as of the date of the valuation. Changes in the fair value of the March 2003 Swap are reported in accumulated other comprehensive income, or AOCI, which is an element of stockholders’ equity. These amounts subsequently are reclassified into

interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings. During the three and six months ended June 30, 2005, $0.8 million and $1.2 million of income, respectively, related to the March 2003 Swap was reported as a reduction of interest expense and represents a yield adjustment of the hedged debt obligation. The balance sheet as of June 30, 2005 reflects other long-term assets of $3.7 million to reflect the fair value of the March 2003 Swap.

In order to affect the lowest fixed rate under the March 2003 Swap, Cumulus also entered into an interest rate option agreement in March 2003 (the “March 2003 Option”), which provided for the counterparty to the agreement, Bank of America, to unilaterally extend the period of the March 2003 Swap for two additional years, from March of 2006 through March of 2008. The March 2003 Option could only be exercised in March of 2006. This instrument is not highly effective in mitigating the risks in cash flows, and therefore is deemed speculative and its changes in value are accounted for as a current element of operating results.

In May 2005 and in connection with the execution of the May 2005 Option, the Company terminated the March 2003 Option. As of the termination date, the balance sheet reflected a long-term liability of less than $0.1 million, which the Company eliminated and recorded as a component of interest expense as a net gain.

7. Acquisitions and Dispositions

Pending Acquisitions

As of June 30, 2005, the Company was a party to agreements to acquire two stations across two markets. The aggregate purchase price of those pending acquisitions is expected to be approximately $2.3 million, which the Company expects to fund in cash.

As of June 30, 2005, the Company was also a party to two asset exchange agreements, under which the Company has agreed to transfer two stations in its Ft. Walton Beach, Florida market plus $3.0 million in cash in exchange for two different stations in the market.

Also as of June 30, 2005, the Company was a party to an agreement to sell one station in its Blacksburg, Virginia market for $1.9 million in cash.

Completed Acquisitions

The Company had no acquisition activity during the quarter ended June 30, 2005.

During the quarter ended March 31, 2005, the Company completed three acquisitions of ten radio stations in four markets and the acquisition of a studio facility. Of the $47.8 million required to fund these acquisitions, $47.4 million was funded in cash and $0.4 million represented capitalizable acquisition costs. These aggregate acquisition amounts include the assets acquired pursuant to the select transactions highlighted below.

Columbia and Jefferson City, Missouri

On March 4, 2005, the Company completed the acquisition of KFRU-AM, KBXR-FM, KOQL-FM and KPLA-FM serving Columbia, Missouri and KLIK-AM, KBBM-FM and KJMO-FM serving Jefferson City, Missouri from Premier Radio Group. In connection with the acquisition, the Company paid $38.7 million in cash and $0.1 million in capitalizable acquisition costs. The Columbia, Missouri and Jefferson City, Missouri stations were primarily acquired as they complemented the Company’s station portfolio and increased both its state and regional coverage of the United States.

In connection with the acquisition, the Company recorded $9.0 million of goodwill, all of which is expected to be fully deductible for tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in connection with the acquisitions completed during the six months ended June 30, 2005 (dollars in thousands):


Property and equipment	$	5,860
Intangible assets		30,645
Goodwill		11,294

Total assets acquired		47,799

Current liabilities		(14	)

Total liabilities assumed		(14	)

Net assets acquired	$	47,785

All of the Company’s acquisitions have been accounted for by the purchase method of accounting. As such, the accompanying consolidated balance sheets include the acquired assets and liabilities and the accompanying statements of operations include the results of operations of the acquired entities from their respective dates of acquisition.

The unaudited consolidated condensed pro forma results of operations data for the three and six months ended June 30, 2005 and 2004, reflect adjustments as if all acquisitions and dispositions completed during 2004 and during the first and second quarter of 2005 occurred at January 1, 2004 (dollars in thousands, except per share data):


	Three Months Ended					Six Months Ended
	June 30,			June 30,		June 30,			June 30,
	2005			2004		2005			2004
	(RESTATED)					(RESTATED)
Net revenues	$	87,440		$	86,314	$	159,563		$	156,241
Operating income		8,366			24,514		20,721			35,490
Net income (loss)		(4,777	)		11,827		(3,784	)		11,718

Basic income(loss) per common share	$	(0.07	)	$	0.17	$	(0.05	)	$	0.17
Diluted income (loss) per common share	$	(0.07	)	$	0.16	$	(0.05	)	$	0.16

Escrow funds of approximately $4.0 million paid by the Company in connection with pending acquisitions have been classified as Other Assets at June 30, 2005 in the accompanying consolidated balance sheet.

At June 30, 2005 the Company operated two stations under local marketing agreements (“LMAs”), pending FCC approval of our acquisition of those stations. The consolidated statements of operations for the three and six months ended June 30, 2005 includes the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMAs from the effective date of the LMAs through the earlier of the acquisition date or June 30, 2005.

Goodwill and Other Intangible Assets

Purchase of Station Licenses

In November 2004, the FCC held an auction where it made available approximately 290 FM frequencies for acquisition. The Company actively participated in this auction and as of its close was the winning bidder for seven frequencies with an aggregate purchase price of $8.6 million. During the six months ended June 30, 2005, the Company completed the purchase of five of the seven frequencies. Of the $5.0 million required to purchase the four frequencies, $3.7 million was funded in cash and $1.2 million had been previously funded in the form of an escrow deposit in cash. The Company expects to complete the purchase of the remaining two frequencies for $3.6 million in cash during the third quarter of 2005.

On March 31, 2005, the Company purchased the broadcast license for KVST-FM, licensed to LaPorte, Texas and serving Houston, Texas, for $34.8 million. Of the $34.8 million required to purchase the broadcast license, $31.1 million was funded in cash, $1.0 million had been previously funded in the form of a cash escrow deposit and $2.7 million was paid in capitalizable acquisition costs. During the second quarter of 2005, the Company completed the construction of a broadcast tower and transmitter site for this station and commenced broadcasting and operations.

The following tables summarize the June 30, 2005 gross carrying amounts and accumulated amortization of amortized and unamortized intangible assets, amortization expense for the six months ended June 30, 2005 and June 30, 2004 and the estimated amortization expense for the five succeeding fiscal years (dollars in thousands):


	June 30,			December 31,
	2005			2004
Amortized Intangible Assets: Non-Compete Agreements
Gross Carrying Value	$	3,850		$	3,850
Accumulated Amortization		(3,225	)		(2,869	)

Net Value		625			981
Unamortized Intangible Assets:
Licenses for Digital Broadcasting Technology		1,200			1,200
FCC Broadcast Licenses		1,201,071			1,130,555

		1,202,271			1,131,755
Aggregate Amortization Expense for Non-Compete Agreements:
Three months ended June 30, 2005		157
Three months ended June 30, 2004		217
Six months ended June 30, 2005		356
Six months ended June 30, 2004		434
Estimated Amortization Expense:
For the year ending December 31, 2005	$	669
For the year ending December 31, 2006	$	290
For the year ending December 31, 2007	$	10
For the year ending December 31, 2008	$	10
For the year ending December 31, 2009	$	2

A summary of changes in the carrying amount of goodwill for the six months ended June 30, 2005 follows (dollars in thousands):


	Goodwill
Balance as of December 31, 2004	$	276,060
Acquisitions		11,294
Dispositions		—

Balance as of June 30, 2005	$	287,354

8. Earnings Per Share

The following table sets forth the computation of basic and diluted income (loss) per share for the three and six month periods ended June 30, 2005 and 2004 (in thousands, except per share data).


	Three Months			Three Months		Six Months			Six Months
	Ended			Ended		Ended			Ended
	June 30, 2005			June 30, 2004		June 30, 2005			June 30, 2004
	(RESTATED)					(RESTATED)
Numerator:
Net income (loss)	$	(4,974	)	$	13,219	$	(4,151	)	$	11,235
Denominator:
Denominator for basic income per common share:
Weighted average common shares outstanding		69,128			69,877		69,108			68,122
Effect of dilutive securities:
Options		—			2,984		—			3,142
Restricted Shares		—			—		—			—

Shares applicable to diluted income per common share		69,128			72,861		69,108			71,264

Basic income (loss) per common share	$	(0.07	)	$	0.19	$	(0.06	)	$	0.16

Diluted income (loss) per common share	$	(0.07	)	$	0.18	$	(0.06	)	$	0.16

The Company has issued to key executives and employees restricted stock and options to purchase shares of common stock as part of the Company’s stock incentive plans. At June 30, 2005 and 2004 the following restricted stock and options to purchase common stock were issued and outstanding:


	June 30,		June 30,
	2005		2004
Restricted shares of Class A Common Stock		395,000		—
Options to purchase Class A Common Stock		8,746,347		8,444,401
Options to purchase Class C Common Stock		1,500,690		1,500,690

Earnings per share assuming dilution has not been presented for the three and six months ended June 30, 2005 as the effect of the restricted shares and options would be antidilutive. For the three and six months ended June 30, 2004, 2,655,718 and 1,236,813 options, respectively, were not included in the calculation of weighted average diluted common shares outstanding because the exercise price of the options exceeded the average share price for the period.

9. Comprehensive Income

SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting comprehensive income. Comprehensive income includes net income as currently reported under accounting principles generally accepted in the United States of America, and also considers the effect of additional economic events that are not required to be reported in determining net income, but rather are reported as a separate component of stockholders’ equity. The Company reports changes in the fair value of derivatives qualifying as cash flow hedges as components of comprehensive income. The components of comprehensive income (loss) are as follows (dollars in thousands):


	Three Months			Three Months		Six Months			Six Months
	Ended			Ended		Ended			Ended
	June 30, 2005			June 30, 2004		June 30, 2005			June 30, 2004
	(RESTATED)					(RESTATED)
Net income (loss)	$	(4,974	)	$	13,219	$	(4,151	)	$	11,235
Change in the fair value of derivative instruments		(2,974	)		5,455		(2,146	)		2,809

Comprehensive income (loss)	$	(7,948	)	$	18,674	$	(6,297	)	$	14,044

10. Commitments and Contingencies

As of June 30, 2005 the Company had entered into various asset purchase agreements to acquire radio stations in exchange for cash. 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 or debt financing. The Company intends to finance the cash portion of 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 $4.0 million in purchase price.

The Company’s new contract with Katz contains termination provisions which, if exercised by the Company during the term of the contract, would obligate the Company to pay a termination fee to Katz, calculated based upon a formula set forth in the contract.

The radio broadcast industry’s principal ratings service is Arbitron, which publishes periodic ratings surveys for domestic radio markets. The Company has a five-year agreement with Arbitron under which the Company receives programming ratings materials in a majority of its markets. The Company’s remaining obligation under the agreement with Arbitron totals approximately $29.2 million as of June 30, 2005 and will be paid in accordance with the agreement through July 2009.

In May 2005, the Company reached a settlement with certain of its insurance providers related to revenue and property loss claims submitted in late 2004. Accordingly, during the three months ended June 30, 2005, the Company recorded a $0.4 million gain, representing station revenues recouped related to a business interruption claim. The Company also recorded a $0.5 million gain related to certain property loss claims. These gains were recorded as a component of operating income.

In December 2004, the Company purchased 240 perpetual licenses from iBiquity Digital Corporation, which will enable the Company to convert to and utilize digital broadcasting technology on 240 of the Company’s stations. Under the terms of the agreement, the Company has committed to convert the 240 stations over a seven year period beginning in the second half of 2005. The conversion of stations to the digital technology will require an investment in certain capital equipment over the next four to five years.

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.

11. Subsequent Events

On September 28, 2004, the Board of Directors of the Company authorized the repurchase, from time to time, of up to $100 million of its Class A Common Stock. Subsequent to June 30, 2005 and through August 3, 2005, and consistent with the Board approved repurchase plan, the Company repurchased 2,452,159 shares of its Class A Common Stock in the open market at an average repurchase price per share of $12.21. Cumulatively, the Company has repurchased 3,456,588 shares of its Class A Common Stock since approval of the Board’s repurchase plan.

On July 14, 2005, the Company entered into a new $800 million Credit Agreement, which provides for a seven-year $400.0 million revolving credit facility and a seven-year $400.0 million term loan facility. The proceeds of the term loan facility, fully funded on July 14, 2005, and drawings on that date of $123.0 million on the revolving credit facility, were used by the Company primarily to repay all amounts owed under its prior credit facility.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Restatement

The following discussion and analysis gives effect to the restatement discussed in Note 2 to the consolidated financial statements.

General

The following discussion of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this quarterly report. This discussion, as well as various other sections of this quarterly report, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to the intent, belief or current expectations of our officers primarily with respect to our future operating performance. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. Risks and uncertainties that may effect forward-looking statements in this document include, without limitation, risks and uncertainties relating to leverage, the need for additional funds, FCC and government approval of pending acquisitions, our inability to renew one or more of our broadcast licenses, changes in interest rates, consummation of our pending acquisitions, integration of acquisitions, our ability to eliminate certain costs, the management of rapid growth, the popularity of radio as a broadcasting and advertising medium, changing consumer tastes, the impact of general economic conditions in the United States or in specific markets in which we currently do business, industry conditions, including existing competition and future competitive technologies and cancellation, disruptions or postponements of advertising schedules in response to national or world events. Many of these risks and uncertainties are beyond our control. This discussion identifies important factors that could cause such differences. The unexpected occurrence of any such factors 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 unaudited consolidated financial statements and related notes thereto included elsewhere in this report.

The following discussion of our financial condition and results of operations includes the results of acquisitions and local marketing, management and consulting agreements. As of June 30, 2005, we owned and operated 307 stations in 61 U.S. markets and provided sales and marketing services under local marketing, management and consulting agreements (pending FCC approval of acquisitions) to 2 stations in 2 U.S. markets. We are the second largest radio broadcasting company in the United States based on number of stations. We believe we are the eighth largest radio broadcasting company in the United States based on 2004 pro forma net revenues. We will own and operate a total of 310 radio stations (228 FM and 82 AM) in 61 U.S. markets upon consummation of all our pending acquisitions and divestitures.

Advertising Revenue and Station Operating Income

Our primary source of revenue 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 one, two 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 that 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 six months ended June 30, 2005 and 2004. We continually 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 six months ended June 30, 2005 and 2004, 88% and 86% of our revenues, respectively, were from local advertising. We generate national advertising revenue with the

assistance of an outside national representation firm. During the second quarter of 2005, we terminated our existing contract with Interep National Radio Sales, Inc. and engaged Katz Media Group, Inc. (“Katz”) to represent the Company as its national advertising sales agent. Our decision to change national representation firms was primarily driven by a developing downward trend in national advertising revenue growth. While we believe that national advertising revenue has softened throughout much of the radio industry in recent periods, thus contributing to the downturn, we believe that Katz has the experience and resources to improve the performance of this particular source of revenue for the 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 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 Station Operating Income. See the definition of this non-GAAP measure, including a description of the reasons for its presentation, as well as a quantitative reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, below.

Results of Operations

Analysis of Consolidated Statements of Operations. The following analysis of selected data from the Company’s consolidated statements of operations and other supplementary data should be referred to while reading the results of operations discussion that follows:


	For the Three			For the Three
	Months Ended			Months Ended			Percent Change
	June 30, 2005			June 30, 2004			2005 vs. 2004
	AS RESTATED
STATEMENT OF OPERATIONS DATA:
Net revenues	$	87,440		$	86,314			1.3	%
Station operating expenses excluding depreciation, amortization and LMA fees (including non-cash contract termination costs of $13,571 and $0, respectively)		68,286			52,620			29.8	%
Depreciation and amortization		5,455			5,065			7.7	%
LMA fees		198			710			(72.1	)%
Corporate general and administrative (excluding non-cash stock compensation expense)		3,850			3,870			(0.5	)%
Non-cash stock compensation		1,697			(125	)		**
Restructuring charges (credits)		(215	)		(21	)		**
Operating income		8,169			24,195			(66.2	)%
Interest expense, net		(6,116	)		(4,405	)		38.8	%
Other expense, net		(19	)		(14	)		35.7	%
Income tax expense		(7,008	)		(6,557	)		6.9	%
Net income (loss)	$	(4,974	)	$	13,219			**

OTHER DATA:
Station Operating Income (1)		32,725			33,694			(2.9	)%
Station Operating Income Margin (2)		37.4	%		39.0	%


	For the Six			For the Six
	Months Ended			Months Ended			Percent Change
	June 30, 2005			June 30, 2004			2005 vs. 2004
	AS RESTATED
STATEMENT OF OPERATIONS DATA:
Net revenues	$	159,563		$	151,764			5.1	%
Station operating expenses excluding depreciation, amortization and LMA fees (including non-cash contract termination costs of $13,571 and $0, respectively)		118,804			98,915			20.1	%
Depreciation and amortization		10,812			10,059			7.5	%
LMA fees		546			1,297			(57.9	)%
Corporate general and administrative (excluding non-cash stock compensation expense)		7,595			7,426			2.3	%
Non-cash stock compensation		1,668			(216	)		**
Restructuring charges (credits)		(215	)		(21	)		**
Operating income		20,353			34,304			(40.7	)%
Interest expense, net		(11,003	)		(9,838	)		11.8	%
Loss on early extinguishment of debt		—			(462	)		(100.0	)%
Other income (expense), net		(21	)		13			**
Income tax expense		(13,480	)		(12,782	)		5.5	%
Net income:	$	(4,151	)	$	11,235			**

OTHER DATA:
Station Operating Income (1)		54,330			52,849			2.8	%
Station Operating Income Margin (2)		34.0	%		34.8	%
Cash flows related to:
Operating activities		32,535			27,528			18.2	%
Investing activities		(87,176	)		(13,528	)		**
Financing activities		25,350			(17,250	)		**
Capital expenditures	$	3,762		$	4,828			(22.1	)%


**		Calculation is not meaningful.

(1)		Station Operating Income consists of operating income (loss) before non cash contract termination costs, depreciation, amortization, LMA fees, corporate general and administrative expenses, non cash stock compensation expense and restructuring and impairment charges (credits). Station Operating Income 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 our operating performance or liquidity that is calculated in accordance with GAAP. See management’s explanation of this measure and the reasons for its use and presentation, along with a quantitative reconciliation of Station Operating Income to its most directly comparable financial measure calculated and presented in accordance with GAAP, below.

(2)		Station Operating Income Margin is defined as Station Operating Income as a percentage of net revenues.

Three Months Ended June 30, 2005 Versus the Three Months Ended June 30, 2004.

Net Revenues. Net revenues increased $1.1 million, or 1.3%, to $87.4 million for the three months ended June 30, 2005 from $86.3 million for the three months ended June 30, 2004. This increase was primarily attributable to a 5.2% increase in local advertising revenue versus the prior year, offset by a 17.7% decrease in national advertising revenue.

In addition, on a same station basis, net revenue for the 275 stations in 56 markets operated for at least a full year increased $1.1 million or 1.3% to $80.4 million for the three months ended June 30, 2005, compared to same station net revenues of $79.3 million for the three months ended June 30, 2004. The increase in same station net revenue was primarily attributable to a 5.0% increase in local advertising revenue offset by a 14.9% decrease in same station national advertising revenue.

Station Operating Expenses, Excluding Depreciation, Amortization and LMA Fees. Station operating expenses excluding depreciation, amortization and LMA fees increased $15.7 million, or 29.8%, to $68.3 million for the three months ended June 30, 2005 from $52.6 million for the three months ended June 30, 2004. This increase was primarily attributable to (1) a $13.6 million non-cash charge to record certain contract termination costs

incurred during the period, (2) increased programming and selling expenses associated with operating our station platform (approximately $1.1 million of increase) and (3) expenses incurred in our Houston, Texas market associated with the launch of our new news/talk station in the second quarter, coupled with promotional expenses incurred associated with the first quarter launch of our rock station in Houston (approximately $0.8 million of increase). The provision for doubtful accounts was $1.0 million for the three months ended June 30, 2005 as compared to $0.8 million during the three months ended June 30, 2004. As a percentage of net revenues, the provision for doubtful accounts was 1% for the three months ended June 30, 2005 and was consistent with the prior year.

On a same station basis, for the 275 stations in 56 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees increased $1.8 million, or 3.7%, to $49.8 million for the three months ended June 30, 2005 compared to $48.1 million for the three months ended June 30, 2004. The increase in same station operating expenses excluding depreciation, amortization and LMA fees is primarily attributable to (1) increased programming and selling expenses associated with operating our station platform (approximately $1.0 million of increase) and (2) expenses incurred in our Houston, Texas market associated with the launch of our new news/talk station in the second quarter, coupled with continuing promotional expenses incurred associated with the first quarter launch of our rock station in Houston (approximately $0.8 million of increase).

Depreciation and Amortization. Depreciation and amortization increased $0.4 million, or 7.7%, to $5.5 million for the three months ended June 30, 2005 compared to $5.1 million for the three months ended June 30, 2004. This increase was primarily attributable to depreciation and amortization associated with radio station acquisitions consummated subsequent to June 30, 2004.

LMA Fees. LMA fees totaled $0.2 million for the three months ended June 30, 2005, from $0.7 million for the three months ended June 30, 2004. LMA fees in the current year were comprised primarily of fees associated with stations operated under LMAs in Beaumont, Texas and a station operated under a joint services agreement in Nashville, Tennessee.

Corporate, General and Administrative Expenses. Corporate, general and administrative expenses totaled $3.9 million for the three months ended June 30, 2005 as compared to $3.9 million for the three months ended June 30, 2004.

Non-Cash Stock Compensation. Non-cash stock compensation expense increased to $1.7 million for the three months ended March 31, 2005, as compared with a $0.1 million non-cash stock compensation credit in the prior year. Non-cash stock compensation recorded in the current period is primarily comprised of (1) expense associated with 250,000 restricted shares of Class A Common Stock awarded to Lewis W. Dickey, Chairman and CEO, in April 2005, pursuant to his employment agreement dated October 14, 2004; (2) expense associated with the additional 250,000 restricted shares of Class A Common Stock to be awarded to Mr. Dickey in each of 2006 and 2007, again pursuant to his employment agreement dated October 14, 2004; and (3) expense associated with 145,000 restricted shares of Class A Common Stock issued to certain of our other officers during the second quarter of 2005.

With regard to the non-cash stock compensation expense attributable to Mr. Dickey, following the award of shares in April 2005 management concluded that, in accordance with SFAS No. 123 Accounting for Stock-Based Compensation, Mr. Dickey’s employment agreement created an effective grant date for accounting purposes as of the execution date of the agreement, for both the restricted shares issued in April 2005 and the restricted shares to be issued in 2006 and 2007. As a result, management believes it should have commenced amortizing non-cash stock compensation expense associated with the restricted shares contemplated by Mr. Dickey’s employment agreement beginning in the fourth quarter of 2004. Management assessed the materiality of non-cash stock compensation expense attributable to 2004 and the first and second quarter of 2005 and concluded that due to the immateriality of the charges and the insignificant impact on the financial statements taken as a whole, no restatement of prior periods was necessary. As a result, management recorded the expense attributable to Mr. Dickey’s restricted shares for 2004 and the first quarter of 2005, together with amounts attributable to the current period, during the three months ended June 30, 2005. Non-cash stock compensation attributable to 2004 and the first quarter of 2005 totaled $0.5 million and $0.6 million, respectively. Non-cash stock compensation expense attributable to Mr. Dickey’s restricted shares for the current period totaled $0.6 million.

Nonoperating Income (Expense). Interest Expense, Net. Interest expense, net of interest income, increased by $1.7 million, or 38.8%, to $6.1 million for the three months ended June 30, 2005 compared to $4.4 million for the three months ended June 30, 2004. The following summary details the components of the Company’s interest expense, net of interest income (dollars in thousands):


	Three Months			Three Months
	Ended			Ended			Increase/
	June 30, 2005			June 30, 2004			(Decrease)
Bank Borrowings — term loan and revolving credit facilities	$	6,204		$	3,977		$	2,227
Bank Borrowings yield adjustment — interest rate swap arrangement		(764	)		685			(1,449	)
Change in fair value of interest rate option agreement		809			(758	)		1,567
Other interest expense		326			689			(363	)
Interest income		(459	)		(188	)		271

Interest expense, net	$	6,116		$	4,405		$	1,711

Income Taxes. Income tax expense increased by $0.5 million, to $7.0 million for the three months ended June 30, 2005 compared to income tax expense of $6.6 million for the three months ended June 30, 2004. Tax expense in the current and prior year is comprised entirely of deferred tax expense and relates primarily to the establishment of valuation allowances against net operating loss carry-forwards generated during the periods.

Station Operating Income. As a result of the factors described above, Station Operating Income decreased $1.0 million, or 2.9%, to $32.7 million for the three months ended June 30, 2005 compared to $33.7 million for the three months ended June 30, 2004. Station Operating Income consists of operating income (loss) before non cash contract termination costs, depreciation, amortization, LMA fees, corporate general and administrative expenses, non-cash stock compensation and restructuring charges (credits). Station Operating Income serves as a starting point for our management to analyze the cash flow generated by our business by measuring the profitability of our station portfolio and its contribution to the funding of our other operating expenses and to the funding of debt service and acquisitions. Station Operating Income isolates the amount of income generated solely by our stations and assists our management in evaluating the earnings potential of our station portfolio. In deriving this measure, we exclude non cash contract termination costs as the charge will never represent a cash obligation to our station operations. We exclude depreciation and amortization due to the insignificant investment in tangible assets required to operate our stations and the relatively insignificant amount of intangible assets subject to amortization. We exclude LMA fees from this measure, even though it requires a cash commitment, due to the insignificance and temporary nature of such fees. Corporate expenses, despite representing an additional significant cash commitment, are excluded in an effort to present the operating performance of our stations exclusive of the corporate resources employed. We believe this is important to our investors because it highlights the gross margin generated by our station portfolio. Finally, we exclude non cash stock compensation and restructuring and impairment charges (credits) from the measure as they do not represent cash payments related to the operation of the stations. We believe that Station Operating Income, although not a measure that is calculated in accordance with GAAP, nevertheless is the most frequently used financial measure in determining the market value of a radio station or group of stations. We have observed that Station Operating Income is commonly employed by firms that provide appraisal services to the broadcast industry in valuing radio stations. Further, in each of the more than 140 radio station acquisitions we have completed since our inception, we have used Station Operating Income as our primary metric to evaluate and negotiate the purchase price to be paid. Given its relevance to the estimated value of a radio station, we believe, and our experience indicates, that investors consider the metric to be extremely useful in order to determine the value of our portfolio of stations. We believe that Station Operating Income is the most commonly used financial measure employed by the investment community to compare the performance of radio station operators. Finally, Station Operating Income is the primary metric that our management uses to evaluate the performance and results of our stations. Our management uses the measure to assess the performance of our station managers and our Board of Directors uses it to determine the relative performance of our executive management. As a result, in disclosing Station Operating Income, we are providing our stockholders, and the public, with an analysis of our performance that is consistent with that utilized by our management. 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

Station Operating Income is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies.

Reconciliation of Non-GAAP Financial Measure. Net cash provided by operating activities as presented in the accompanying consolidated statements of cash flows is the most directly comparable financial measure calculated in accordance with GAAP to Station Operating Income. The following table reconciles net cash provided by operating activities to Station Operating Income (dollars in thousands):


	RESTATED
	Three Months Ended
	June 30,
	2005			2004
Net cash provided by operating activities	$	15,686		$	12,528
Cash payments for LMA fees		197			710
Excess of accrual based station operating expenses to cash payments		8,191			10,814
Cash payments for Corporate general and administrative expenses		95			4,914
Cash payments for interest expense		8,784			4,230
Cash interest income		(459	)		(188	)
Other cash payments/adjustments		231			686

Station Operating Income	$	32,725		$	33,694

Six Months Ended June 30, 2005 versus the Six Months Ended June 30, 2004.

Net Revenues. Net revenues increased $7.8 million, or 5.1%, to $159.6 million for the six months ended June 30, 2005 from $151.8 million for the six months ended June 30, 2004, primarily as a result of revenues associated with station acquisitions completed in March 2004.

In addition, on a same station basis, net revenue for the 275 stations in 56 markets operated for at least a full year increased $3.6 million or 2.5% to $146.8 million for the six months ended June 30, 2005, compared to same station net revenues of $143.2 million for the six months ended June 30, 2004. The increase in same station net revenue was primarily attributable to a 5.7% increase in same station local advertising revenue, offset by a 9.5% decrease in same station national advertising revenue.

Station Operating Expenses, excluding Depreciation, Amortization and LMA Fees. Station operating expenses excluding depreciation, amortization and LMA fees increased $19.9 million, or 20.1%, to $118.8 million for the six months ended June 30, 2005, from $98.9 million for the six months ended June 30, 2004. This increase was primarily a result of 1) a $13.6 million non-cash charge to record certain contract termination costs during the second quarter and 2) expenses associated with station acquisitions completed in March 2004. The provision for doubtful accounts was $1.6 million for the six months ended June 30, 2005, compared to $1.6 million during the six months ended June 30, 2004. As a percentage of net revenues, the provision for doubtful accounts was 1% for the six months ended June 30, 2005 and was consistent with the prior year.

On a same station basis, for the 275 stations in 56 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees increased $3.2 million, or 3.4%, to $96.2 million for the six months ended June 30, 2005, compared to $93.0 million for the six months ended June 30, 2004. The increase in same station operating expenses excluding depreciation, amortization and LMA fees is primarily attributable to (1) increased programming and selling expenses associated with operating our station platform (approximately $2.5 million of increase) and (2) expenses incurred in our Houston, Texas market associated with the launch of our new news/talk station in the second quarter, coupled with promotional expenses incurred associated with the first quarter launch of our rock station in Houston (approximately $0.7 million of increase).

Depreciation and Amortization. Depreciation and amortization increased $0.8 million, or 7.5%, to $10.8 million for the six months ended June 30, 2005, compared to $10.1 million for the six months ended June 30, 2004. This increase is the result of station assets acquired and related depreciation expense incurred related to station acquisitions completed during the six months ended June 30, 2004 and subsequent to June 30, 2004.

LMA Fees. LMA fees decreased $0.8 million, or 57.9%, to $0.5 million for the six months ended June 30, 2005, from $1.3 million for the six months ended June 30, 2004. LMA fees in the current year were comprised primarily of fees associated with stations operated under LMAs in Beaumont, Texas and a station operated under a joint services agreement in Nashville, Tennessee.

Corporate, General and Administrative Expenses. Corporate, general and administrative expenses increased $0.2 million, or 2.3%, to $7.6 million for the six months ended June 30, 2005, compared to $7.4 million for the six months ended June 30, 2004. This increase was primarily attributable to increased employee costs associated with managing our growing portfolio of stations.

Non-Cash Stock Compensation. Non-cash stock compensation expense increased to $1.7 million for the six months ended June 30, 2005, as compared with a $0.2 million non-cash stock compensation credit in the prior year. Non-cash stock compensation recorded in the current period is primarily comprised of (1) expense associated with 250,000 restricted shares of Class A Common Stock awarded to Lewis W. Dickey, Chairman and CEO, in April 2005, pursuant to his employment agreement dated October 14, 2004; (2) expense associated with the additional 250,000 restricted shares of Class A Common Stock to be awarded to Mr. Dickey in each of 2006 and 2007, again pursuant to his employment agreement dated October 14, 2004; and (3) expense associated with 145,000 restricted shares of Class A Common Stock issued to certain of our other officers during the second quarter of 2005. As described above, management recorded the non-cash stock compensation expense attributable to Mr. Dickey’s restricted shares for 2004 and the first quarter of 2005, together with amounts attributable to the current period, during the three months ended June 30, 2005. Non-cash stock compensation attributable to 2004 and the first quarter of 2005 totaled $0.5 million and $0.6 million, respectively. Non-cash stock compensation expense attributable to Mr. Dickey’s restricted shares for the three months ended June 30, 2005 totaled $0.6 million.

Nonoperating Income (Expense). Interest Expense, Net. Interest expense, net of interest income, increased by $1.2 million, or 11.8%, to $11.0 million for the six months ended June 30, 2005, compared to $9.8 million for the six months ended June 30, 2004. The following summary details the components of our interest expense, net of interest income (dollars in thousands):


	Six Months Ended			Six Months Ended			Increase/
	June 30, 2005			June 30, 2004			(Decrease)
Bank Borrowings — term loan and revolving credit facilities	$	11,446		$	8,076		$	3,370
Bank Borrowings yield adjustment — interest rate swap arrangement		(1,181	)		1,363			(2,544	)
Change in fair value of interest rate option agreement		703			(390	)		1,093
Other interest expense		828			1,085			(257	)
Interest income		(793	)		(296	)		497

Interest expense, net	$	11,003		$	9,838		$	1,165

Loss on Early Extinguishment of Debt. We recognized losses on the early extinguishment of debt of $0.5 million during the six months ended June 30, 2004. Losses in the prior year relate to the completion of an amendment and restatement of our prior credit agreement and the related retirement and replacement of our then existing eight year term loan facility of $325.0 million.

Income Taxes. Income tax expense totaled $13.5 million for the six months ended June 30, 2005, compared to $12.8 million for the six months ended June 30, 2004. Tax expense incurred in the current and prior year, comprised entirely of deferred tax expense, was recorded to establish valuation allowances against net operating loss carry-forwards generated during the periods.

Station Operating Income. As a result of the factors described above, Station Operating Income increased $1.5 million, or 2.8%, to $54.3 million for the six months ended June 30, 2005 compared to $52.8 million for the six months ended June 30, 2004.

Reconciliation of Non-GAAP Financial Measures. Net cash provided by operating activities as presented in the accompanying consolidated statements of cash flows is the most directly comparable financial measure calculated in accordance with GAAP to Station Operating Income. The following table reconciles net cash provided by operating activities to Station Operating Income (dollars in thousands):


	RESTATED
	Six Months Ended
	June 30,
	2005			2004
Net cash provided by operating activities	$	32,535		$	27,528
Cash payments for LMA fees		545			1,297
Excess of accrual based station operating expenses to cash payments		4,059			1,964
Cash payments for Corporate general and administrative expenses		5,141			11,045
Cash payments for interest expense		12,581			11,081
Cash interest income		(793	)		(296	)
Other cash payments/adjustments		262			230

Station Operating Income	$	54,330		$	52,849

Intangible Assets. Intangible assets, net of amortization, were $1.5 billion and $1.4 billion as of June 30, 2005 and December 31, 2004, respectively. These intangible asset balances primarily consist of broadcast licenses and goodwill, although we possess certain other intangible assets obtained in connection with our acquisitions, such as non-compete agreements. The increase in intangible assets, net during the six months ended June 30, 2005 is attributable to acquisitions completed during the first quarter. 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 our financial statements at amortized cost, we believe that such assets, especially broadcast licenses, can significantly appreciate in value by successfully executing our operating strategies. During 2002, 2001 and 2000, we recognized gains from the sale of stations. 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. Our strategic initiative to focus on our 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 needs 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 facilities, and cash flows from operations. Our principal needs 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 that our presently projected cash flow from operations and present financing arrangements, including availability under our existing credit facilities, or borrowings that would be available from future financing arrangements, will be sufficient to meet our future capital needs for the next 12 months, including the funding of pending acquisitions, operations and debt service. However, our cash flow from operations is subject to such factors as shifts in population, station listenership, demographics, audience tastes and fluctuations in preferred advertising media and borrowings under financing arrangements are subject to financial covenants that can restrict our financial flexibility. Further, our ability to obtain additional equity or debt financing is also subject to market conditions and operating performance. As such, there can be no assurance that we will be able to obtain such financing at terms, and on the timetable, that may be necessary to meet our future capital needs.

For the six months ended June 30, 2005, net cash provided by operating activities increased $5.0 million to $32.5 million from net cash provided by operating activities of $27.5 million for the six months ended June 30, 2004.

For the six months ended June 30, 2005, net cash used in investing activities increased $73.6 million to $87.2 million from net cash used in investing activities of $13.5 million for the six months ended June 30, 2004. This

increase was primarily attributable to the timing and funding of acquisitions and the purchase of certain intangible assets. We completed several acquisitions of radio stations during both the current and prior year six-month periods (see Historical Acquisitions section). However, acquisitions completed during the prior year period were funded primarily with shares of our Class A Common Stock and required only a nominal cash outlay. Acquisitions and the purchase of certain intangible assets completed during the current year period were funded entirely in cash.

For the six months ended June 30, 2005, net cash provided by financing activities totaled $25.4 million compared to net cash used in financing activities of $17.3 million during the six months ended June 30, 2004. Net cash provided during the current year period was primarily due to borrowings under our prior credit facility. Net cash used during the prior year period was primarily utilized to repay outstanding borrowings.

Historical Acquisitions. During the six months ended June 30, 2005, we completed three acquisitions of ten radio stations across four markets and the acquisition of a studio facility, with an aggregate purchase price of $47.8 million. Of the $47.8 million required to fund the acquisitions, $47.4 million was funded in cash and $0.4 million represented capitalizable acquisition costs.

On March 31, 2005, we purchased the broadcast license for KVST-FM, licensed to LaPorte, Texas and serving Houston, Texas, for $34.8 million. Of the $34.8 million required to purchase the broadcast license, $31.1 million was funded in cash, $1.0 million had been previously funded in the form of a cash escrow deposit and $2.7 million was paid in capitalizable acquisition costs. During the second quarter of 2005, we completed the construction of a broadcast tower and transmitter site for this station and commenced broadcasting and operation. The addition of KVST-FM represents our second FM station in the Houston market.

Pending Acquisitions. As of June 30, 2005, we were a party to agreements to acquire two stations across two markets. The aggregate purchase price of those pending acquisitions is expected to be approximately $2.3 million, all of which we expect to fund in cash. We were also a party to two asset exchange agreements, under which we have agreed to transfer two stations in our Ft. Walton Beach, Florida market plus $3.0 million in cash in exchange for two different stations in the market. We intend to finance the pending acquisitions and the asset exchange transactions with cash on hand, cash flows from operations, the proceeds of borrowings under our current credit facility or future credit facilities and other sources to be identified. Our ability to complete future acquisitions may be dependent on our ability to obtain additional equity or debt financing on favorable terms. There can be no assurance that, if needed, we would be able to obtain such financing on favorable terms, if at all. As of June 30, 2005, approximately $4.0 million of escrow deposits were outstanding related to pending transactions. In the event that we are unable to obtain any financing necessary to consummate those remaining pending acquisitions, we could be liable for the approximately $4.0 million.

We expect to consummate most of our pending acquisitions during 2005, although there can be no assurance that the transactions will be consummated within that time frame, or at all. In addition, from time to time we complete 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 requirement that we divest the assets we have acquired.

Pending Dispositions. As of June 30, 2005 we are a party to an agreement to sell one station in our Blacksburg, Virginia market for $1.9 million in cash.

Acquisition Shelf Registration Statement. We have registered an aggregate of 20,000,000 shares of our Class A Common Stock, pursuant to registration statements on Form S-4, for issuance from time to time in connection with our acquisition of other businesses, properties or securities in business combination transactions utilizing a “shelf” registration process. As of June 30, 2005, we had issued 5,666,553 of the 20,000,000 shares registered in connection with various completed acquisitions.

Sources of Liquidity. We financed the cash components of our 2005 acquisitions primarily with borrowings under our Credit Facility and cash flows from operations.

As of June 30, 2005, we had $507.1 million outstanding under our credit facility, comprised of $462.1 million of term loan facility borrowings and $45.0 million of revolving credit facility borrowings. During the three and six months ended June 30, 2005, we made scheduled principal payments of $10.8 million and $19.2 million, respectively, on the term loan facilities. During the three and six months ended June 30, 2005, we drew down $8.0 million and $57.0 million, respectively, under our revolving credit facility and made repayments of $11.0 million. As of June 30, 2005, we had $136.9 million of availability under our revolving credit facility.

Subsequent to the end of the quarter, on July 14, 2005 we entered into a new credit agreement (the “Credit Agreement”). The Credit Agreement provides for a seven-year revolving credit facility of $400.0 million and a seven-year term loan facility in the aggregate principal amount of $400.0 million. We used the proceeds of the term loan facility, fully funded on July 14, 2005, and drawings on that date of $123.0 million under the revolving credit facility, to repay amounts owed under our prior credit facility ($514.1 million as of July 14, 2005). We intend to use the remaining proceeds from the credit facilities for working capital and general corporate purposes.

As of July 30, 2005, $132.0 million was outstanding under the seven-year revolving credit facility and $400.0 million was outstanding under the seven-year term loan facility.

Our obligations under the Credit Agreement are collateralized by substantially all of our assets in which a security interest may lawfully be granted (including FCC licenses held by our subsidiaries), including, without limitation, intellectual property, real property, and all of the capital stock of our direct and indirect domestic subsidiaries (except the capital stock of Broadcast Software International, Inc., referred to as BSI) and 65% of the capital stock of any first-tier foreign subsidiary. The obligations under the Credit Agreement are also guaranteed by each of the direct and indirect domestic subsidiaries, except BSI, and are required to be guaranteed by any additional subsidiaries we acquire.

The term-loan facility will mature on July 14, 2012 and will amortize in equal quarterly installments beginning on March 31, 2007, in quarterly amounts as follows: for each quarter in 2007 and 2008, 1.25%; for each quarter in 2009 and 2010, 3.75%; and, for each quarter beginning on March 31, 2011 and through July 14, 2012, 10.0%. The revolving credit facility will also mature on July 14, 2012 and the commitment will remain unchanged up to that date.

Both the revolving credit facility and the term loan facility bear interest, at our option, at a rate equal to the Alternate Base Rate (as defined under the terms of our Credit Agreement, 6.25% as of June 30, 2005) plus a margin ranging between 0.0% to 0.25%, or the Adjusted LIBO Rate (as defined under the terms of the Credit Agreement, 3.25% as of June 30, 2005) plus a margin ranging between 0.675% to 1.25% (in each case dependent upon our leverage ratio). At June 30, 2005 our effective interest rate, excluding the interest rate swap agreement discussed below, on loan amounts outstanding under our prior credit agreement was 5.1%. As of July 31, 2005 our effective interest rate, again excluding the interest rate swap agreement discussed below, loan amounts outstanding under our new credit facility was 4.7%.

In March 2003, we entered into an interest rate swap agreement that effectively fixed the interest rate, based on LIBOR, on $300.0 million of our current floating rate bank borrowings for a three-year period. As a result and including the fixed component of the swap, at June 30, 2005, our effective interest rate on loan amounts outstanding under our prior credit facility was 4.3%. As of July 31, 2005, our effective interest rate on loan amounts outstanding under our new credit facility, including the fixed component of the swap, was 3.9%.

In May 2005, we entered into a forward-starting interest rate swap agreement that will become effective as of the termination date of our pre-existing swap agreement (March 2006). When effective, this swap agreement will effectively fix the interest rate, based on LIBOR, on $400.0 million of our floating rate bank borrowings through March 2009.

A commitment fee calculated at a rate ranging from 0.25% to 0.375% per year (depending upon our leverage levels) of the average daily amount available under the revolving credit facility is payable quarterly in arrears, and fees in respect of letters of credit issued in accordance with the Credit Agreement equal to the interest rate margin then applicable to Eurodollar Rate loans under the revolving credit facility are payable quarterly in arrears. In addition, a “fronting fee” of 0.25% is payable quarterly to the issuing bank.

We are required to make certain mandatory prepayments of the term loan facility and there will be automatic reductions in the availability of the revolving credit facility under certain circumstances, including the incurrence of certain indebtedness and upon consummation of certain asset sales. In these instances, we are required to apply 100% of the net proceeds to the outstanding balance on the credit facilities.

Under the terms of the Credit Agreement, we are subject to certain restrictive financial and operating covenants, including, but not limited to maximum leverage covenants, minimum interest coverage covenants, limitations on capital expenditures, 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 the Credit Agreement. At June 30, 2005, we were in compliance with such financial and operating covenants.

The terms of the Credit Agreement 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 Credit Agreement and related documents, cross default under other agreements or conditions relating to indebtedness of the Company or our 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 Agreement, 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, upon an event of default.

On September 28, 2004, our Board authorized the purchase, from time to time, of up to $100 million of our Class A Common Stock. Subsequent to June 30, 2005 and through August 3, 2005, and consistent with the Board approved plan, we repurchased 2,452,159 shares of our Class A Common Stock in the open market for $30.0 million and at an average price of $12.21 per share. Cumulatively, we have repurchased a total of 3,456,588 shares of our Class A Common Stock for $44.6 million under the Board authorized program.

Summary Disclosures About Contractual Obligations and Commercial Commitments

The following tables reflect a summary of our contractual cash obligations and other commercial commitments as of June 30, 2005 (dollars in thousands):

Payments Due By Period


			Less Than		1 to 3		4 to 5		After 5
Contractual Cash Obligations:	Total		1 Year		Years		Years		Years
Long-term debt(1)	$	507,064	$	43,491	$	86,980	$	376,593	$	—
Acquisition obligations (2)		2,200		2,200		—		—		—
FCC auctions (3)		2,726		2,726		—		—		—
Operating leases		37,337		7,361		11,601		7,338		11,037
Digital radio capital obligations (4)		23,300		1,000		5,000		6,500		10,800
Other operating contracts(5)		33,010		8,834		18,914		5,262		—

Total Contractual Cash Obligations	$	605,637	$	65,612	$	122,495	$	395,693	$	21,837


(1)		Reflects obligations existing as of June 30, 2005 with regard to our prior credit facilities. As of July 14, 2005, we had no further contractual obligation pursuant to our prior credit agreement. As of that date, giving effect to our new credit facility, our long term debt obligation was as follows:


			Less Than		1 to 3		4 to 5		After 5
	Total		1 Year		Years		Years		Years
Long-term debt	$	523,000	$	—	$	30,000	$	100,000	$	393,000


		Based on long-term debt amounts outstanding at July 14, 2005, scheduled annual principal amortization and the current effective interest rate on such long-term debt amounts outstanding, we would be obligated to pay approximately $141.1 million of interest on borrowings through March 2010 ($24.2 million due in less than 1 year, $47.5 million due in years 2 and 3 and $42.2 million due in years 4 and 5 and $27.2 million thereafter).

(2)		Amount is reflective of the unfunded obligation under agreements to purchase radio stations.

(3)		Amount is reflective of the unfunded obligation relative to seven FM frequencies we won in an auction sponsored by the FCC.

(4)		Amount represents the estimated capital requirements to convert 240 of our stations to a digital broadcasting format.

(5)		Consists of contractual obligations for goods or services that are enforceable and legally binding obligations which include all significant terms. In addition, amounts include $3.8 million of station acquisition purchase price which was deferred beyond the closing of the transaction and which is being paid monthly over a 5 year period.

Amount of Commitment Expiration Per Period


	Total Amounts		Less Than		1 to 3		4 to 5		After 5
Other Commercial Commitments:	Committed		1 Year		Years		Years		Years
Letter of Credit(1)	$	105	$	105	$	—	$	—	$	—


(1)		In connection with certain acquisitions, we are obligated to provide an escrow deposit in the form of a letter of credit during the period prior to closing.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2005, 100% of our long-term debt bears interest at variable rates. Accordingly, our earnings and after-tax cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a one percentage point change in the average interest rate under these borrowings, it is estimated that our interest expense and net income would have changed by $1.3 million and $2.5 million for the three and six months ended June 30, 2005, respectively. As part of our efforts to mitigate interest rate risk, in March 2003, we entered into an interest rate swap agreement that effectively fixed the interest rate, based on LIBOR, on $300.0 million of our current floating rate bank borrowings for a three-year period. This agreement is intended to reduce our exposure to interest rate fluctuations and was not entered into for speculative purposes. Segregating the $207.1 million of borrowings outstanding at June 30, 2005 which are not subject to the interest rate swap and assuming a one percentage point change in the average interest rate under these borrowings, it is estimated that our interest expense and net income would have changed by $0.5 million and $1.0 million for the three and six months ended June 30, 2005.

In the event of an adverse change in interest rates, management would likely take actions, in addition to the interest rate swap agreement discussed above, 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 could not take into account the effects of any change in the level of overall economic activity that could exist in such an environment.

Item 4. Controls and Procedures

Subsequent to the end of the third quarter of 2005, we reconsidered our accounting for the termination of a particular contract during the period covered by this report. On November 7, 2005, the audit committee of the board of directors of the Company determined that the interim financial statements included in the Company’s quarterly report on Form 10-Q for the period ended June 30, 2005 should be restated. The restatement is further discussed in the “Explanatory Note” in the forepart of this Form 10-Q/A and in Note 2, “Restatement of Financial Statements,” to the accompanying financial statements. Public Company Accounting Oversight Board’s Auditing Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, provides that a restatement of previously issued financial statements is a strong indicator of the existence of a “material weakness” in the design or operation of internal control over financial reporting. Based upon that standard, subsequent to the period covered by this report, management has concluded that the control deficiency that resulted in the incorrect accounting of the non-cash contract termination charge represented a material weakness in internal control over financial reporting.

In connection with the restatement referred to above, our management, including our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as a result of the aforementioned material weakness related to accounting for non-cash contract termination charges, our disclosure controls and procedures were not effective, as of the end of the period covered by this report, in ensuring that material information relating to us, including our consolidated subsidiaries, that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

By December 31, 2005, we plan to fully remediate the material weakness described above, by implementing additional review and validation procedures over the selection and monitoring of appropriate assumptions and factors affecting conclusions reached in accounting for unusual, significant or non-routine transactions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect future misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time involved in various legal proceedings that are handled and defended in the ordinary course of business. While we are unable to predict the outcome of these matters, management does not believe, based upon currently available facts, that the ultimate resolution of any such proceedings would have a material adverse effect on its overall financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Our 2005 annual meeting of stockholders was held on April 29, 2005. Lewis W. Dickey, Jr. was re-elected as a Class III director of the Company by the holders of our Class A Common Stock and our Class C Common Stock, voting together as a single class.

The results of voting on the proposals submitted for approval at the annual meeting of the stockholders were as follows:

Proposal No. 1 (Election of Directors)

Nominee

Class

For

Abstain/Withheld

Lewis W. Dickey, Jr.

Class III

39,839,202

14,803,316

Proposal No. 2 (Approve the amendment of our Amended and Restated Certificate of Incorporation to increase the aggregate number of shares that are authorized to be issued from 170,262,000 to 270,262,000 and to increase the number of shares designated as Class A Common Stock from 100,000,000 to 200,000,000)


For	Against	Broker Non-Votes	Abstain/Withheld
51,859,374	2,767,770	—	15,374

Proposal No. 3 (Approve the Appointment of KPMG LLP as independent auditors for the year ending December 31, 2005)


For	Against	Broker Non-Votes	Abstain/Withheld
54,433,293	196,493	—	12,732


Explanatory Statement			3

PART I. FINANCIAL INFORMATION			4
Item 1. Unaudited Financial Statements (Restated)			4
Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004			4
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2005 and 2004			5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION			32
Item 1. Legal Proceedings			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3. Defaults Upon Senior Securities			32
Item 4. Submission of Matters to a Vote of Security Holders			32
Item 5. Other Information			33
Item 6. Exhibits			33
Signatures			34
Exhibit Index			35
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO

CUMULUS MEDIA INC.

Date: November 9, 2005

/s/ Martin R. Gausvik

Executive Vice President, Treasurer and Chief Financial Officer


31.1	—	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	—	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	—	Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.