1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 1O-Q

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934.

   FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 2001.

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

                        FOR THE TRANSITION PERIOD FROM TO

                        COMMISSION FILE NUMBER 000-24525

                               CUMULUS MEDIA INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

  3535 Piedmont Road, Building 14, Fl 14, Atlanta, GA        30305
      (Address of Principal Executive Offices)            (ZIP CODE)

                                 (404) 949-0700

               REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:

    Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

    As of JulyOctober 31, 2001, the registrant had outstanding 35,217,79135,219,416 shares of
common stock consisting of (i) 28,431,17129,210,796 shares of Class A Common Stock; (ii)
4,479,343 shares of Class B Common Stock; and (iii) 2,307,2771,529,277 shares of Class C
Common Stock.






                               2
                               CUMULUS MEDIA INC.

                                      INDEX

PART I. FINANCIAL INFORMATION

        Item 1.  Financial Statements.

                 Consolidated Balance Sheets as of June 30, 2001 and December
                 31, 2000

                 Consolidated Statements of Operations for the Three and Six
                 Months Ended June 30, 2001 and 2000

                 Consolidated Statements of Cash Flows for the Six Months Ended
                 June
        PART I. FINANCIAL INFORMATION

        Item 1.        Financial Statements.

                       Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000

                       Consolidated Statements of Operations for the Three and Nine Months Ended
                       September 30, 2001 and 2000

                       Consolidated Statements of Cash Flows for the Nine Months Ended September
                       30, 2001 and 2000

                       Notes to Consolidated Financial Statements

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

        Item 3         Quantitative and Qualitative Disclosures About Market Risk.

        PART II. OTHER INFORMATION

        Item 1         Legal Proceedings

        Item 2         Changes in Securities and Use of Proceeds

        Item 3         Defaults Upon Senior Securities

        Item 4         Submission of Matters to a Vote of Security Holders

        Item 5         Other Information

        Item 6         Exhibits and Reports on Form 8-K

        Signatures

        Exhibit Index

2 3 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CUMULUS MEDIA INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except for share and per share data)
(UNAUDITED) JuneSeptember 30, December 31, 2001 2000 ---- ---- Assets Current assets: Cash and cash equivalents.........................................equivalents ................................................................... $ 8,6026,223 $ 10,979 Accounts receivable, less allowance for doubtful accounts of $3,288$3,441 and $17,348 respectively............................. 41,627respectively ....................................................... 38,646 43,498 Prepaid expenses and other current assets......................... 11,313assets ................................................... 11,756 9,536 -------- ----------------- --------- Total current assets......................................... 61,542assets ................................................................... 56,625 64,013 Property and equipment, net.......................................... 87,269net .................................................................... 86,589 79,829 Intangible assets, net............................................... 818,010net ......................................................................... 812,797 762,996 Other assets......................................................... 27,791assets ................................................................................... 23,268 48,097 -------- ----------------- --------- Total assets................................................ $994,612 $954,935 ======== ========assets .......................................................................... $ 979,279 $ 954,935 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses.............................expenses ....................................................... $ 59,00851,650 $ 45,858 Current portion of long-term debt................................. 583debt ........................................................... 770 208 Other current liabilities......................................... 626liabilities ................................................................... 514 679 -------- ----------------- --------- Total current liabilities.................................... 60,217liabilities .............................................................. 52,934 46,745 Long-term debt....................................................... 324,634debt ................................................................................. 324,440 285,020 Other liabilities.................................................... 1,551liabilities .............................................................................. 1,262 1,924 Deferred income taxes................................................ 27,930taxes .......................................................................... 27,322 29,666 -------- ----------------- --------- Total liabilities............................................ 414,332liabilities ...................................................................... 405,958 363,355 -------- ----------------- --------- Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, stated value $1,000 per share, 121,544125,712 and 113,643 shares issued and outstanding, respectively 125,722........................................................ 130,141 117,530 -------- ----------------- --------- Series B Cumulative Exchangeable Redeemable Preferred Stock due 2009, stated value $10,000 per share, 265273 and 250 shares issued and outstanding, respectively 2,363........................................................ 2,445 2,178 -------- ----------------- --------- Commitments and contingencies (Note 8) Stockholders' equity: Class A common stock, par value $.01 per share; 50,000,000100,000,000 shares authorized; 28,429,42129,210,796 and 28,378,976 shares issued and outstanding.................................................... 284outstanding ............... 292 284 Class B common stock, convertible, par value $.01 per share; 20,000,000 ..................... 45 45 shares authorized; 4,479,343 and 4,479,343 shares issued and outstanding......................................... 45 45outstanding Class C common stock, convertible, par value $.01 per share; 30,000,000 ..................... 15 23 shares authorized; 2,307,2771,529,277 and 2,307,277 shares issued and outstanding......................................... 23 23outstanding Additional paid-in-capital........................................ 504,062paid-in-capital .................................................................. 499,583 512,284 Loan to officers.................................................officers ........................................................................... (9,984) (9,984) Accumulated deficit............................................... (42,235)deficit ......................................................................... (49,216) (30,780) ----------------- --------- Total stockholders' equity................................... 452,195equity ............................................................. 440,735 471,872 -------- ----------------- --------- Total liabilities and stockholders' equity................... $994,612 $954,935 ======== ========equity ............................................. $ 979,279 $ 954,935 ========= =========
See Accompanying Notes to Consolidated Financial Statements 3 4 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except for share and per share data)
(UNAUDITED) ----------- THREE MONTHS THREE MONTHS SIXNINE MONTHS SIXNINE MONTHS ENDED ENDED ENDED ENDED JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 Revenues................................Revenues ............................................. $ 60,96656,293 $ 68,095 $109,931 $119,95063,307 $ 166,224 $ 183,257 Less: agency commissions................ (5,894) (5,468) (10,271) (9,606) -------- -------- -------- --------commissions ............................. (5,478) (5,180) (15,749) (14,787) ------------ ------------ ------------ ------------ Net revenues.................... 55,072 62,627 99,660 110,344revenues ................................. 50,815 58,127 150,475 168,470 Operating expenses: Station operating expenses, excluding depreciation, amortization and LMA fees (including provision 35,260 62,649 107,391 151,137 for doubtful accounts of $1,698, $1,190, $2,649$1,488, $20,483, $4,137 and $2,169$22,652 respectively) 36,719 46,186 72,131 88,489 Depreciation and amortization......... 12,081 10,408 24,365 20,304amortization ..................... 12,643 10,173 37,008 30,477 LMA fees.............................. 1,154 1,663 2,168 2,842fees .......................................... 391 897 2,560 3,739 Corporate general and administrative.... 3,669 4,014 7,503 8,698administrative .............. 4,117 3,762 11,620 12,460 Restructuring and other charges.........charges ................... -- -- (33) 9,296 (33) 9,296 --------- -------- --------- -------------------- ------------ ------------ ------------ Total operating expenses......... 53,590 71,567 106,134 129,629 -------- -------- -------- --------expenses ...................... 52,411 77,481 158,546 207,109 ------------ ------------ ------------ ------------ Operating income (loss).......... 1,482 (8,940) (6,474) (19,285) -------- -------- -------- --------loss ................................ (1,596) (19,354) (8,071) (38,639) ------------ ------------ ------------ ------------ Nonoperating income (expense): Interest expense..................... (7,754) (7,779) (15,721) (15,415)expense .................................. (7,949) (8,656) (23,670) (24,071) Interest income...................... 1,121 2,521 1,698 4,613income ................................... 298 1,481 1,997 6,094 Other income, (expense), net.......... (8,850) (13) 7,398 (12) --------- --------- -------- ---------net ................................. 1,672 68,085 9,070 68,073 ------------ ------------ ------------ ------------ Total nonoperating expenses, net. (15,483) (5,271) (6,625) (10,814) --------- --------- --------- --------- Lossincome (expense), net ...... (5,979) 60,910 (12,603) 50,096 ------------ ------------ ------------ ------------ Income (loss) before income taxes......... (14,001) (14,211) (13,099) (30,099)taxes ............. (7,575) 41,556 (20,674) 11,457 Income tax (expense) benefit 1,932 5,128 1,644 10,897 -------- -------- -------- --------......................... 594 (17,258) 2,238 (6,361) ------------ ------------ ------------ ------------ Net loss......................... (12,069) (9,083) (11,455) (19,202)income (loss) ............................. (6,981) 24,298 (18,436) 5,096 Preferred stock dividends, deemed dividends and accretion of discount........................ 4,387 3,642 8,476 7,173 -------- -------- -------- --------discount ......................... 4,501 3,809 12,977 10,982 ------------ ------------ ------------ ------------ Net lossincome (loss) attributable to common stockholders......................... $(16,456) $(12,725) $(19,931) $(26,375) ======== ======== ======== ========stockholders ............................... $ (11,482) $ 20,489 $ (31,413) $ (5,886) ============ ============ ============ ============ Basic and diluted lossincome (loss) per common share.share ..... $ (0.47)(0.33) $ (0.36)0.58 $ (0.57)(0.89) $ (0.75) --------- --------- --------- ---------(0.17) ============ ============ ============ ============ Weighted average common shares outstanding 35,215,048........... 35,218,238 35,165,596 35,210,236 35,111,407 ========== ========== ========== ==========35,212,933 35,129,602 ============ ============ ============ ============
See Accompanying Notes to Consolidated Financial Statements 4 5 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
(UNAUDITED) SIXNINE MONTHS SIXNINE MONTHS ENDED ENDED JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 Cash flows from operating activities: Net loss.......................................................... $(11,455) $(19,202)income (loss) .......................................................................... $ (18,436) $ 5,096 Adjustments to reconcile net lossincome (loss) to net cash provided by (used in) operating activities: Depreciation................................................ 7,274 6,250Depreciation ......................................................................... 11,020 9,460 Amortization of goodwill, intangible assets and other assets 18,145 14,924......................... 27,601 22,301 Provision for doubtful accounts............................. 2,649 2,169accounts ...................................................... 4,137 22,652 Gain on sale of stations.................................... (16,304)stations ............................................................. (16,246) (68,066) Stock issuance portion of litigation settlement ...................................... 1,618 -- Deferred taxes.............................................. (1,644) (10,897)taxes ....................................................................... (2,238) 5,991 Asset write-down for restructuring and other charges........charges ................................. -- 4,530 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable............................................ 633 (9,987)receivable ..................................................................... 3,123 (9,185) Prepaid expenses and other current assets...................... 5,662 203assets ............................................... 5,339 (957) Accounts payable and accrued expenses.......................... 3,741 3,092expenses ................................................... (4,888) 959 Other assets................................................... (1,571) (2,629)assets ............................................................................ (1,572) (3,287) Other liabilities.............................................. (225) (261) -------- --------liabilities ....................................................................... (732) (558) --------- --------- Net cash provided by (used in) operating activities......... 6,905 (11,808) --------activities .................................. 8,726 (11,064) --------- --------- Cash flows from investing activities: Acquisitions................................................... (81,251) (34,561) Dispositions...................................................Acquisitions ............................................................................ (82,001) (97,065) Dispositions ............................................................................ 38,186 -- Escrow deposits on pending acquisitions........................ (827) (86,160)acquisitions ................................................. (1,169) (56,084) Capital expenditures........................................... (4,021) (7,431) Other.......................................................... (673) (2,313) -------- --------expenditures .................................................................... (7,689) (9,132) Other ................................................................................... (3) (166) --------- --------- Net cash (used in)used in investing activities................... (48,586) (130,465)activities .............................................. (52,676) (162,447) --------- --------- Cash flows from financing activities: Proceeds from revolving line of credit......................... 42,500credit .................................................. 46,500 -- Payments on revolving line of credit........................... (2,500)credit .................................................... (6,500) -- Payments for debt issuance costs............................... (686) (58)costs ........................................................ (811) (57) Payments on promissory notes................................... (11) (10)notes ............................................................ (18) (16) Payment of dividend on Series A Preferred Stock................Stock ......................................... -- (3,530) Proceeds from issuance of common stock......................... 1stock .................................................. 23 -- -------- ----------------- --------- Net cash provided by (used in) financing activities......... 39,304 (3,598) --------activities .................................. 39,194 (3,603) --------- --------- Decrease in cash and cash equivalents............................ (2,377) (145,871)equivalents ..................................................... (4,756) (177,114) Cash and cash equivalents at beginning of period.................. $period ........................................... 10,979 $219,581219,581 --------- --------- Cash and cash equivalents at end of period........................period ................................................. $ 8,6026,223 $ 73,71042,467 ========= ========= Non-cash operating and financing activities: Trade revenue..................................................revenue ........................................................................... $ 6,1399,368 $ 6,0689,168 Trade expense.................................................. 5,905 6,058expense ........................................................................... 9,134 9,156 Assets acquired through notes payable..........................payable ................................................... -- 1292,340 Proceeds on sale of stations remitted directly into restricted cash account ............. -- 91,467 Preferred stock dividends paid in kind, deemed dividends and accretion of discount....................................... 8,476 7,173discount ...... 12,977 10,982
See Accompanying Notes to Consolidated Financial Statements 5 6 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTERIM FINANCIAL DATA The consolidated financial statements should be read in conjunction with the consolidated financial statements of Cumulus Media Inc. ("Cumulus" or the "Company") and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notesfootnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the sixnine months ended JuneSeptember 30, 2001 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2001. Certain 2000 balances have been reclassified to conform to the 2001 presentation. 2. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, theStatement of Financial Accounting Standards Board issued Statement("SFAS") No. 141, "Business Combinations", and StatementSFAS No. 142, "Goodwill and Other Intangible Assets". Statement were issued. In October 2001, SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" was issued. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as allbe accounted for using the purchase method business combinations completed after June 30, 2001. Statementof accounting, and prohibits the use of the pooling-of-interests method for such transactions. SFAS No. 141 also specifies criteriarequires identified intangible assets acquired in a purchase method business combination must meet to be recognized and reportedas an asset apart from goodwill noting that any purchase price allocableif they meet certain criteria. SFAS No. 142 applies to an assembled workforce may not be accounted for separately. Statement 142 will require thatall goodwill and identified intangible assets with indefinite useful lives no longeracquired in a business combination. Under the new standard, all goodwill, including that acquired before initial application of the standard, should not be amortized but insteadshould be tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require thatannually. Identified intangible assets with estimable useful livesshould be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FAS StatementSFAS No. 144. Within six months of initial application of the new standard, a transitional impairment test must be performed on all goodwill. Any impairment loss recognized as a result of the transitional impairment test should be reported as a change in accounting principle. In addition to the transitional impairment test, the required annual impairment test should be performed in the year of adoption of SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, (although early adoption would be permitted in certain circumstances) and must be adopted as of the beginning of a fiscal year. Retroactive application is not permitted. The Company is in the process of evaluating the impact that adoption of SFAS No. 142 may have on the financial statements; however, such impact, if any, is not known or reasonably estimable at this time. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". it retains many of the fundamental provisions of that Statement. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of a business. However, it retains the requirement in Opinion 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company is required to adoptin the provisionsprocess of Statement 141 immediately and Statement 142 effective January 1, 2002. Furthermore, goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, but before Statement 142 is adopted in full will not be amortized, but will continue to be evaluated for impairment in accordance withevaluating the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized and tested for impairment in accordance with the appropriate pre-Statement 142 accounting requirements prior to theimpact that adoption of Statement 142. Statement 141 will require upon adoption of Statement 142, thatSFAS No. 144 may have on the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to makefinancial statements; however, such impact, if any, necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with Statement 142's transitional goodwill impairment evaluation, the Statement will require the Company to perform an assessment of whether there is an indication that goodwill (and equity-method goodwill) is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of earnings. Finally, any unamortized negative goodwill (and equity-method negative goodwill) existing at the date Statement 142 is adopted must be written off as the cumulative effect of a change in accounting principle. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable toknown or reasonably estimate the impact of adopting these Statements on the Company's financial statementsestimable at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle.time. 3. ACQUISITIONS:ACQUISITIONS AND DISPOSITIONS During the quarter ended JuneSeptember 30, 2001, the Company completed acquisitions of 193 radio stations for $77.1$5.3 million in purchase price. Of the $77.1$5.3 million required to fund the acquisitions, $1.0 million was provided through the exchange of stations, $66.9$0.8 million was funded in cash and $9.2$4.5 million had beenwas funded with previously funded asdeposited cash escrow deposits onrelating to the pending acquisitions. These aggregate acquisition amounts include the assets acquired pursuant to the asset exchange and sales transaction described below. All of the Company's acquisitions werehave been accounted for by the purchase method of accounting. As such, the accompanying consolidated balance sheet includes the acquired assets and liabilities and the statement of operations includes the results of operations of the acquired entities from their respective dates of acquisition. The accompanying consolidated statements of operations include the results of operations of the divested entities through the date of disposition.6 An allocation of the aggregate purchase prices to the estimated fair values of the assets acquired and liabilities assumed is presented below (dollars in thousands). Property and equipment..... $ 5,592351 Intangible assets.......... 71,504 ------4,904 -------- $ 77,096 ========5,255
6 7 NEXT MEDIA ASSET EXCHANGE On May 2, 2001, the Company completed an asset exchange and sale with Next Media Group and certain of its subsidiaries. Upon the closing, the Company transferred two stations in Jacksonville, North Carolina for one station in Myrtle Beach, South Carolina and approximately $2.0 million in cash. In connection with the transaction, the Company recorded a $0.4 million gain on sale during the three months ended June 30, 2001. PRO FORMA The unaudited consolidated condensed pro forma results of operations data for the three and sixnine months ended JuneSeptember 30, 2001 and 2000, as if all acquisitions and dispositions completed during 2000 and during the first, second and secondthird quarter of 2001 occurred at January 1, 2000, follow (dollars in thousands, except per share data):
THREE MONTHS ENDED SIXNINE MONTHS ENDED JUNESEPTEMBER 30, JUNESEPTEMBER 30, JUNESEPTEMBER 30, JUNESEPTEMBER 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net revenues..................................revenues ............................................... $54,584 $56,885 $98,483 $101,878 50,614 $ 53,533 $ 149,097 $ 155,411 Operating income (loss).........................2,780 (8,902) (5,349) (19,528)loss ............................................. (514) (983) (5,863) (21,707) Net loss.......................................(8,065) (15,191) (17,936) (26,585)loss ................................................... (4,981) (5,267) (12,003) (21,668) Net loss attributable to common stockholders..(12,321) (19,447) (26,280) (34,929) ======= ======= ======= =======stockholders ............... (9,482) (9,768) (24,980) (34,645) ========= ========= ========= ========= Basic and diluted loss per common share......share .................... $ (0.35)(0.27) $ (0.55)(0.28) $ (0.75)(0.71) $ (0.99)(0.98)
During the three months ended September 30, 2001, the Company entered into various asset purchase agreements to sell 8 radio stations (6 FM and 2 AM) in 6 markets for an aggregate sale price of approximately $11.0 million in cash. As of November 9, 2001 the Company had completed the sale of 2 stations for $6.8 million. The Company expects to consummate the pending dispositions in the 4th quarter of 2001 and the 1st quarter of 2002. Proceeds from dispositions will be used to fund pending acquisitions and other general corporate purposes. Escrow funds of approximately $10.5$6.4 million paid by the Company in connection with pending acquisitions have been classified as Other Assets at JuneSeptember 30, 2001 in the accompanying consolidated balance sheet. At JuneSeptember 30, 2001 the Company operated 1614 stations under local marketing agreements ("LMA"). The statement of operations for the three and sixnine months ended JuneSeptember 30, 2001 includes the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMA from the effective date of the LMA through the earlier of the acquisition date or JuneSeptember 30, 2001. 4. RESTRUCTURING CHARGE During June 2000 the Company implemented two separate Board-approved restructuring programs. During the quarter ended June 30, 2000, the Company recorded a $9.3 million charge to operating expenses related to restructuring costs. The June, 2000 restructuring programs were the result of Board-approved mandates to discontinue the operations of Cumulus Internet Services and to centralize the Company's corporate administrative organization and employees in Atlanta. The programs included severance and related costs, and costs for vacated leased facilities, impaired leasehold improvements at vacated leased facilities, and impaired assets related to the Internet businesses. The following table depicts the amounts associated with and activity related to the June 2000 restructuring programs through JuneSeptember 30, 2001: (dollars in thousands)
Restructuring Paid Through Unpaid Balance Liability JuneSeptember 30, as of Expense Category December 31, 2000 2001 JuneSeptember 30, 2001 - ---------------- ----------------- ---- -------------------------------
7 Employee severance and related costs $ 528 $ 347431 $ 18197 Lease termination costs 2,379 284 2,095 ----- --- -----409 1,970 ------ ------ ------ Office relocation subtotal 2,907 631 2,276 ----- --- -----840 2,067 ------ ------ ------ Accrued internet contractual obligations 375 -- 37535 340 Internet lease termination costs 434 39 395 --- -- ---80 354 ------ ------ ------ Internet services subtotal 809 39 770 --- -- ---115 694 ------ ------ ------ Restructure liability totals $3,716 $ 3,716 $ 670 $ 3,046 ======== ======= =======955 $2,761 ====== ====== ======
7 8 As of JuneSeptember 30, 2001, approximately $3.0$2.8 million in accrued restructuring costs remain related to the Company's June, 2000 restructuring programs. This balance is comprised of $0.2$0.1 million in employee severance and related charges, $2.1$2.0 million in lease termination costs, $0.4$0.3 million related to amounts owed for software development and asset acquisitions related to capitalized Internet system and infrastructure assets, and $0.4 in internet lease termination charges. As of June 30, 2001, the Company'sCompany had completed the restructuring programs were completed.programs. The remaining portion of the unpaid balance, representing lease obligations, certain contractual severance obligations and various contractual obligations for services related to the internet business will be paid consistent with the contracted terms. 5. LONG-TERM DEBT The Company's long-term debt consists of the following at JuneSeptember 30, 2001 and December 31, 2000 (dollars in thousands):
JUNESEPTEMBER 30, DECEMBER 31, 2001 2000 ---- ---- Term loan facility at 7.19%6.1% and 10.07%, respectivelyrespectively............................ 125,000 $125,000$ 125,000 Revolving credit facility at 6.63%5.42%............................................. 40,000 -- Senior Subordinated Notes, 10 3/8%, due 20082008................................... 160,000 160,000 Other 217Other.......................................................................... 210 228 -------- -------- 325,217------------ ------------ 325,210 285,228 Less: Current portion of long-term debt (583)debt........................................ (770) (208) -------- -------- $324,634 $285,020 ======== ========------------ ------------ $ 324,440 $ 285,020 ============ ============
Our senior credit facility provides for aggregate principal borrowings of $175.0 million and consists of a seven-year revolving credit facility of $50.0 million, an eight-year term loan facility of $75.0 million and an eight and one-half year term loan facility of $50.0 million. The amount available under the seven-year revolving credit facility will be automatically reduced by 5% of the initial aggregate principal amount in each of the third and fourth years following closing (August 31, 1999), 10% of the initial aggregate principal amount in the fifth year following the closing, 20% of the initial aggregate principal amount in the sixth year following the closing and the remaining 60% of the initial aggregate principal amount in the seventh year following the closing. As of JuneSeptember 30, 2001 and JulyOctober 31, 2001 $165.0 million and $169.0$160.0 million was outstanding, respectively, under our senior credit facility. On October 29, 2001, the Company repaid $5.0 million of principal towards its revolving credit facility. On May 11, 2001, the Company and its lenders under the Credit Facilitycredit facility entered into the Fourth Amendment to the Amended and Restated Credit Agreement dated as of August 31, 1999 (the "Fourth Amendment"). The Fourth Amendment modified certain financial covenant requirements, including the consolidated leverage ratio, the consolidated senior debt ratio and the consolidated interest coverage ratio. In consideration for entering into the Fourth Amendment, the Company agreed to pay the administrative agent a fee in the amount of $0.5 million, 50% of which was paid as of the effective date of the amendment. TheOf the remaining portion of the administrative agent fee, 25% was paid in September 2001 and the final 25% will be paid prior to December 31, 2001. The Company also paid the lenders a fee in the amount of $0.4 million. On May 21, 2001, the Company borrowed $40.0 million under its seven-year $50$50.0 million revolving credit facility. Proceeds from this borrowing were used to purchase stations during the quarter and to satisfy operating cash needs. The Company's obligations under its current credit facility are collateralized by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries), including, without limitation, intellectual property; real 8 property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries, except the capital stock of Broadcast Software International, Inc., Cumulus Internet Services Inc. and Cumulus Telecommunications, Inc., and 65% of the capital stock of any first-tier foreign subsidiary. The obligations under the credit facility are also guaranteed by each of the direct and indirect domestic subsidiaries, except Broadcast Software, Cumulus Internet Services and Cumulus Telecommunications, and are required to be guaranteed by any additional subsidiaries acquired by Cumulus. Both the revolving credit and term loan borrowings under the credit facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of our credit facility, 6.75%6.0% as of JuneSeptember 30, 2001), plus a margin ranging between 0.75% to 2.50%, or the Eurodollar Rate (as defined under the terms of the credit facility, 3.76%2.67% as of JuneSeptember 30, 2001) plus a margin ranging between 1.75% to 3.50% (in each case dependent upon the leverage ratio of the Company). At JuneSeptember 30, 2001 the Company's effective interest rate on term loan and revolving loan amounts outstanding under the credit facility was 7.05%5.93%. A commitment fee calculated at a rate ranging from 0.375% to 0.75% per annum (depending upon the Company's utilization 8 9 rate) of the average daily amount available under the revolving lines of credit is payable quarterly in arrears, and fees in respect of letters of credit issued under the Credit Facilitycredit facility equal to the interest rate margin then applicable to Eurodollar Rate loans under the seven-year revolving credit facility also will be payable quarterly in arrears. In addition, a fronting fee of 0.125% per annum is payable quarterly in arrears to the issuing bank. The eight-year term loan borrowings are repayable in quarterly installments beginning in December 2001. The scheduled annual amortization is $0.75 million for each of the third, fourth, fifth, sixth and seventh years following closing and $71.25 million in the eighth year following closing. The eight and a half year term loan is repayable in two equal installments on November 30, 2007 and February 28, 2008. The amount available under the 7-year revolving credit facility will be automatically reduced in quarterly installments as described in the first paragraph above. Certain mandatory prepayments of the term loan facility and the revolving credit line and reductions in the availability of the revolving credit line are required to be made including: (i) 100% of the net proceeds from any issuance of capital stock or incurrence of indebtedness; (ii) 100% of the net proceeds from certain asset sales; and (iii) between 50% and 75% (dependent on our leverage ratio) of our excess cash flow. Under the terms of the amended and restated credit facility, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. At JuneSeptember 30, 2001, the Company was in compliance with such financial and operating covenants. The terms of the facility contain events of default after expiration of applicable grace periods, including failure to make payments on the credit facility, breach of covenants, breach of representations and warranties, invalidity of the agreement governing the credit facility and related documents, cross default under other agreements or conditions relating to indebtedness of Cumulus or the Company's restricted subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the credit facility, the majority of the lenders are able to declare all amounts under our credit facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under each term loan facility and the majority of the banks under each revolving credit facility may terminate such term loan facility and such revolving credit facility, respectively. As defined by the indenture and the certificates of designation governing the Senior Subordinated Notes and Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, respectively, the amount we may borrow under the senior credit facility is limited to $175.0 million as of JuneSeptember 30, 2001. As of JuneSeptember 30, 2001, we would be permitted to incur approximately $10.0 million of additional indebtedness under our credit facility without regard to the debt ratios included in our indenture. We have issued $160.0 million in aggregate principal amount of our 10 3/8% Senior Subordinated Notes which have a maturity date of July 1, 2008. The notes are our general unsecured obligations and are subordinated in right of payment to all our existing and future senior debt (including obligations under our credit facility). Interest on the notes is payable semi-annually in arrears. 6. GUARANTOR'S FINANCIAL INFORMATION Certain of the Company's direct and indirect subsidiaries (all such subsidiaries are directly or indirectly wholly owned by the Company) will provide full and unconditional guarantees for the Company's senior subordinated notes on a joint and several basis. 9 There are no significant restrictions on the ability of the guarantor subsidiaries to pay dividends or make loans to the Company. The following tables provide consolidated condensed financial information pertaining to the Company's subsidiary guarantors. The Company has not presented separate financial statements for the subsidiary guarantors and non-guarantors because management does not believe that such information is material to investors (dollars in thousands).
JUNESEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------ ----------------- Current assets..........assets.................. $ 154,296 $127,95945,628 $ 58,770 Noncurrent assets....... 883,942 821,455assets............... 876,058 821,074 Current liabilities..... 15,288liabilities............. 14,276 14,885 Noncurrent liabilities.. 19,874liabilities ......... 19,910 20,032
9 10
THREE MONTHS THREE MONTHS SIXNINE MONTHS SIXNINE MONTHS ENDED ENDED ENDED ENDED JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 JUNESEPTEMBER 30, 2001 JUNE2000 SEPTEMBER 30, 2000 ------------------ ------------------ ------------------ ------------------ Net revenue........ $ 54,83050,618 $ 62,05157,518 $ 98,797149,414 $ 109,282166,801 Operating expenses. 36,356 44,602 71,226 86,16534,909 61,824 106,135 147,989 Net income (loss).. 4,750 3,432 1,129 3452,819 (8,928) 3,874 (6,550)
7. EARNINGS PER SHARE The following table sets forth the computation of basic loss per share for the three and sixnine month periods ended JuneSeptember 30, 2001 and 2000 (dollars in thousands, except per share data).2000.
THREE MONTHS ENDED THREE MONTHS SIXENDED NINE MONTHS SIXNINE MONTHS ENDED ENDED ENDED ENDED JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 ------------- ------------- ------------- ------------------------------- ------------------ ------------------ ------------------ Numerator: Net loss $(12,069) $(9,083) $(11,455) $(19,202)income (loss) $ (6,981) $ 24,298 $(18,436) $ 5,096 Preferred stock dividends and accretion of discount (4,387) (3,642) (8,476) (7,173)(4,501) (3,809) (12,977) (10,982) -------- -------- -------- -------- Numerator for basic earnings per share- net loss attributable toshare - income available for common stockholders $(16,456) $(12,725) $(19,931) $(26,375)$(11,482) $ 20,489 $(31,413) $ (5,886) Denominator: Denominator for basic earnings per share - weighted average common shares 35,21535,218 35,166 35,210 35,11135,213 35,130 -------- -------- -------- -------- Basic and diluted loss per common share $ (0.47)(0.33) $ (0.36)0.58 $ (0.57)(0.89) $ (0..75) ========= ========= ========= ==========(0.17) ======== ======== ======== ========
During fiscal 1998, 1999 2000 and 20012000 the Company issued options to key executives and employees to purchase shares of common stock as part of the Company's stock option plans. At JuneSeptember 30, 2001 and 2000 there were options issued to purchase the following classes of common stock:
JuneSeptember 30, JuneSeptember 30, 2001 2000 Options to purchase class A common stock 4,947,711stock..... 4,595,562 2,114,309 Options to purchase class C common stock 3,001,380stock..... 2,657,352 3,001,380
The Series B Preferred Stock was convertible into 217,928392,806 Shares of Class B Common Stock at JuneSeptember 30, 2001. Earnings per share assuming dilution has not been presented as the effect of the options and the Series B Preferred Stock would be antidilutive for the three and sixnine month periods ended JuneSeptember 30, 2001 and the nine month period ended September, 30, 2000. The exercise prices of all stock options exceeded the market price of the underlying common stock for the three month period ended September 30, 2000. 8. COMMITMENTS AND CONTINGENCIES As of JuneSeptember 30, 2001 the Company has entered into various asset purchase agreements to acquire radio stations. In general, 10 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. We intend to finance the pending acquisitions with cash on hand, the proceeds from pending asset divestitures, cash flow from operations, 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 beyond cash reserves. In the event that the Company cannot consummate these acquisitions because of breach of contract, the Company may be liable for approximately $10.5$6.4 million in purchase price. The Company had been named as a defendant in the following eleven class action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc., et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v. Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus Media Inc., et al.; (7) Kincer v. Weening, et al.; (8) Krim v. Cumulus Media Inc., et al.; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening, et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former directors and officers of the Company, and certain underwriters of the Company's stock, had also been named as defendants. On December 8, 2000, plaintiffs served a Second Amended Consolidated Class Action Complaint, which alleges, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and Sections 11 and 12(a) of the Securities Act of 1933, and seeks unspecified damages. In June 2001, the 10 11 Company reached an agreement in principle to settle the lawsuits. Pursuant to the terms of the agreement, which is subject to negotiation of a final Stipulation of Settlement and court approval, the lawsuits will be dismissed in exchange for $13.0 million in cash and 240,000 shares of common stock. Of the cash portion of the settlement, $7.3 million will be provided by the Company's preexisting insurance. The balance of the cash portion is expected to be paid from cash from operations and proceeds from borrowings under the Company's senior credit facility. A settlement liability of $16.3$14.7 million and related insurance claim receivable of $7.3 million have been included in accrued expenses and other current assets, respectively, in the accompanying consolidated balance sheet as of JuneSeptember 30, 2001. During the quarter ended June 30, 2001, the Company has recorded aan initial settlement charge of $9.0 million settlement charge which iswas recorded and included as a component of Other Income(Expense)Income (Expense) in the accompanying statementsconsolidated statement of operations. As the settlement is contingent upon document negotiation and court approval, the Company has initially measured the stock issuance portion of the settlement, based on the closing stock price as of June 30, 2001 to be $3.3 million. During the quarter ended September 30, 2001, the Company recorded a remeasurement adjustment to the settlement charge of $1.5 million to reflect the decrease in the Company's liability as a result of the decrease in the Company's stock price from June 30, 2001 to September 30, 2001. The remeasurement adjustment is included as a component of Other Income(Expense) in the accompanying consolidated statements of operations. In future periods, the Company will continue to remeasure the stock issuance portion of the liability and adjust the expense until such time as the liability becomes fixed. 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. 9. SUBSEQUENT EVENTS Subsequent to June 30,RELATED PARTY TRANSACTIONS Effective July 1, 2001 the Company completedentered into an Amended and Restated Employment Agreement (the "New Agreement") with its Executive Vice Chairman and CEO, Lewis W. Dickey, Jr. The New Agreement supercedes a previous employment agreement dated May 1998. As set forth in the acquisitionNew Agreement, terms of 2 radio stations forMr. Dickey's revised compensation, including salary, bonus and fringe benefits along with equity incentives are defined. In addition, the New Agreement amended certain terms and conditions related to a promissory note with an aggregate purchase priceoriginal principal amount of approximately $3.0 million. This transaction will be accounted for by the purchase method of accounting. In July 2001, the Company borrowed $4.0$5.0 million, under its seven-year revolving credit facility. Proceeds from this borrowing were usedissued to satisfy operating cash needs.Mr. Dickey in February 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the consolidated financial condition and results of operations of Cumulus Media Inc. ("Cumulus" or the "Company") should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this quarterly report. This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. This quarterly report contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this quarterly report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers primarily with respect to the future operating performance of the Company. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. Risks and uncertainties that may effect forward looking statements in this document include, without limitation, risks and uncertainties relating to leverage, the need for additional funds, FCC and government approval of pending acquisitions, the inability of the Company to renew one or more of its broadcast licenses, changes in interest rates, consummation of the Company's pending acquisitions, integration of the pending acquisitions, the ability of the 11 Company to eliminate certain costs, the management of rapid growth, the popularity of radio as a broadcasting and advertising medium and changing consumer tastes. Many of these risks and uncertainties are beyond the control of the Company. This discussion identifies important factors that could cause such differences. The occurrence of any such factors not currently expected by the Company would significantly alter the results set forth in these statements. OVERVIEW The following is a discussion of the key factors that have affectedaffect our business since its inception on May 22, 1997.business. The following information should be read in conjunction with the 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. We currently own and operate 210212 stations in 4544 U.S. markets and provide sales and marketing services under local marketing, management and consulting agreements (pending FCC approval of the respective acquisition) to 1614 stations in 76 U.S. markets. We are the second largest radio broadcasting company in the U.S. based on number of stations. We believe we are the eleventh largest radio broadcasting company in the U.S. based on 2000 pro forma net revenues. We will own and operate a total of 226224 radio stations (165(163 FM and 61 AM) in 45 U.S. markets upon consummation of our pending acquisitions and dispositions.acquisitions. ADVERTISING REVENUE AND BROADCAST CASH FLOW 11 12 Our primary source of revenues is the sale of advertising time on our radio stations. Our sales of advertising time are primarily affected by the demand for advertising time from local, regional and national advertisers and the advertising rates charged by our radio stations. Advertising demand and rates are based primarily on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron on a periodic basis, generally once, twice or four times per year. Because audience ratings in local markets are crucial to a station's financial success, we endeavor to develop strong listener loyalty. We believe that the diversification of formats on our stations helps to insulate them from the effects of changes in the musical tastes of the public with respect to any particular format. The number of advertisements that can be broadcast without jeopardizing listening levels and the resulting rating is limited in part by the format of a particular station. Our stations strive to maximize revenue by continually managing the number of commercials available for sale and adjusting prices based upon local market conditions. In the broadcasting industry, radio stations sometimes utilize trade or barter agreements whichthat exchange advertising time for goods or services such as travel or lodging, instead of for cash. During the sixnine months ended JuneSeptember 30, 2001 and 2000, our use of trade agreements accounted for 6.2% and 5.5%5.4% of net revenues, respectively. We will seek to continue to minimize our use of trade agreements. Our advertising contracts are generally short-term. We generate most of our revenue from local advertising, which is sold primarily by a station's sales staff. During the sixnine months ended JuneSeptember 30, 2001 and 2000 approximately 87% and 89%, respectively, of our revenues were from local advertising. To generate national advertising sales, we engage Interep National Radio Sales, Inc., a national representative company. Our revenues vary throughout the year. As is typical in the radio broadcasting industry, we expect our first calendar quarter will produce the lowest revenues for the year, and the second and 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. StationOur most significant station operating expenses are comprised of employee salaries and commissions, programming expenses, advertising and promotional expenditures, technical expenses, and general and administrative expenses. We strive to control these expenses by working closely with local station management. The performance of radio station groups, such as ours, is customarily measured by the ability to generate broadcast cash flow and EBITDA. Broadcast cash flow consists of operating income (loss) before depreciation and amortization, LMA fees, corporate general and administrative expenses and restructuring and other charges. EBITDA consists of operating income (loss) before depreciation and amortization, LMA fees and restructuring and other charges. Broadcast cash flow and EBITDA, as defined by us, may not be comparable to similarly titled measures used by other companies. Although broadcast cash flow and EBITDA are not measures of performance calculated in accordance with GAAP, management believes that they are useful to an investor in evaluating us because they are measures widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow and EBITDA should not be considered in isolation or as substitutes for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as measures of liquidity or profitability. The Company's 12 results from operations from period to period are not historically comparable due to the impact of the various acquisitions and dispositions that the Company has completed. RESULTS OF OPERATIONS The following table presents summary historical consolidated financial information and other supplementary data of Cumulus for the three and sixnine months ended JuneSeptember 30, 2001 and 2000.
FOR THE THREE FOR THE THREE FOR THE SIXNINE FOR THE SIXNINE MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 JUNESEPTEMBER 30, 2001 JUNESEPTEMBER 30, 2000 ------------------ ------------------ ------------------ ---------------------------------- STATEMENT OF OPERATIONS DATA: Net broadcast revenue................... $ 55,07250,815 $ 62,627 $ 99,660 $110,344 Stations58,127 $150,475 $168,470 Station operating expenses excluding depreciation, & amortization. 36,719 46,186 72,131 88,489amortization and.... 35,260 62,649 107,391 151,137 LMA fees.......................... Depreciation and amortization........... 12,081 10,408 24,365 20,30412,643 10,173 37,008 30,477 LMA fees................................ 1,154 1,663 2,168 2,842391 897 2,560 3,739 Corporate expenses...................... 3,669 4,014 7,503 8,698general and administrative.... 4,117 3,762 11,620 12,460 Restructuring and other charges......... (33) 9,296-- -- (33) 9,296 Operating (loss).................. 1,482 (8,940) (6,474) (19,285)loss.................... (1,596) (19,354) (8,071) (38,639) Interest expense, (net).................. (6,633) (5,258) (14,023) (10,802)net................... (7,651) (7,175) (21,673) (17,977) Other income, (expense), net (8,850) (13) 7,398 (12)1,672 68,085 9,070 68,073 Net income (loss) (12,069) (9,083) (11,455) (19,202)(6,981) 24,298 (18,436) 5,096 Net lossincome (loss) attributable to common (16,456) (12,725) (19,931) (26,375) stockholders..........................Stockholders...................... (11,482) 20,489 (31,413) (5,886) OTHER DATA: Broadcast cash flow(1).................. 18,353 16,441 27,529 21,855flow (1)................. 15,555 (4,522) 43,084 17,333 Broadcast cash flow margin.............. 33.3% 26.3% 27.6% 19.8% EBITDA(2)............................... 14,684 12,427 20,026 13,15730.6% (7.8)% 28.6% 10.3% EBITDA (2).............................. 11,438 (8,284) 31,464 4,873 Cash flows related to: Operating activities............ 6,905 (11,808)8,726 (11,064) Investing activities............ (48,586) (130,465)(52,676) (162,447) Financing activities............ 39,304 (3,598)39,194 (3,603) Capital expenditures.................... $ 4,0217,689 $ 7,4319,132
12 13 (1) Broadcast cash flow consists of operating loss before depreciation, amortization, LMA fees, corporate expenses, LMA fees and restructuring and other charges. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio Company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As broadcast cash flow is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. (2) EBITDA consists of operating loss before depreciation, amortization, LMA fees and restructuring and other charges. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As EBITDA, is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. THREE MONTHS ENDED JUNESEPTEMBER 30, 2001 VERSUS THE THREE MONTHS ENDED JUNESEPTEMBER 30, 2000. NET REVENUES. Net revenues decreased $7.6$7.3 million, or 12.1%12.6%, to $55.1$50.8 million for the three months ended JuneSeptember 30, 2001 from $62.6$58.1 million for the three months ended JuneSeptember 30, 2000. This decrease was primarily attributable to the disposition of radio stations during fiscal 2000 and the first quarter of 2001 ($5.74.9 million), lower sales volume associated with the Company's implementation of stringent credit and collections policies and the current economic slowdown and tightening corporate advertising budgets ($1.92.4 million), which has impacted the entire broadcast industry. In addition, on a same station basis, net revenue for the 167 stations in 32 markets operated for at least a full year decreased $1.7$1.5 million or 4.4%4.3% to $35.9$33.9 million for the three months ended JuneSeptember 30, 2001, compared to same station net revenues of $37.5$35.4 13 million for the three month period ended JuneSeptember 30, 2000. The decrease in same station net revenue was primarily attributable to lower sales volume associated with the Company's implementation of stringent credit and collectioncollections policies and the current economic slowdown and tightening corporate advertising budgets, which has impacted the entire broadcast industry. STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND LMA FEES. Station operating expenses excluding depreciation, amortization and LMA fees decreased $9.5$27.4 million, or 20.5%43.7%, to $36.7$35.3 million for the three months ended JuneSeptember 30, 2001 from $46.2$62.6 million for the three months ended JuneSeptember 30, 2000. This decrease was primarily attributable to 1) a decrease in the station portfolio as a result of the disposition of radio stations during fiscal 2000 and 2001 ($4.13.3 million) and, 2) expense reductions achieved as a result of improved management control of cost of sales and other operating expense saving initiatives ($5.45.1 million). and 3) a $19.0 million decrease in the amount of bad debt expense recognized in the current period versus the prior year. The provision for doubtful accounts was $1.7$1.5 million for the three months ended JuneSeptember 30, 2001 as compared to $1.2with $20.5 million duringfor the three months ended JuneSeptember 30, 2000. As a percentage of net revenues, the provision for doubtful accounts increased by 1.1%decreased to 3.0%2.9% for the three months ended JuneSeptember 30, 2001, as compared with 1.9%35.2% for the comparable period in the prior year. The nominal increasedecrease in the provision for doubtful accounts as a percentage of revenue was the direct result of management's reviewimplementation of stringent credit and collection policies that have yielded significantly lower levels of bad debt expense and accounts receivable write-off experience. The unusually high bad debt expense recorded in the prior year was primarily the result of the adequacyfollowing factors: (1) the completion of its reserves based on historical write-off experience.the first and second phases of the asset exchange and sales transactions with Clear Channel Communications, and the coincidental loss of local employee incentive to enforce the collection of receivables in divested markets, (2) the detrimental effects of certain pre-existing credit and collection policies and sale employee compensation policies, (3) significant turnover of management and sales force, including representatives who maintained relationships with trade debtors and had responsibility for ensuring collection of outstanding invoices, and (4) overall declines in the U.S. economy. On a same station basis, for the 167 stations in 32 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees decreased $4.1$2.9 million, or 14.3%11.0%, to $24.4$23.8 million for the three months ended JuneSeptember 30, 2001 compared to $28.5$26.8 million for the three months ended JuneSeptember 30, 2000. For comparative purposes, the unusually high bad debt charge ($20.2 million) has been excluded from same station operating expenses for the three months ended September 30, 2000. The decrease in same station operating expenses excluding depreciation, amortization and LMA fees is attributable to improved management control of costs of sales and other expense saving initiatives. 13 14 DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $1.7$2.5 million, or 16.1%24.3%, to $12.1$12.6 million for the three months ended JuneSeptember 30, 2001 compared to $10.4$10.2 million for the three months ended JuneSeptember 30, 2000. This increase was primarily attributable to depreciation and amortization relating to radio station acquisitions consummated subsequent to the three months ended JuneSeptember 30, 2000 and a full quarter of depreciation and amortization on radio station acquisitions consummated during the three month periodmonths ended JuneSeptember 30, 2000, offset by a decrease in depreciation and amortization associated with station dispositions. LMA FEES. LMA fees decreased $0.5 million, or 30.6%56.3%, to $1.2$0.4 million for the three months ended JuneSeptember 30, 2001 from $1.7$0.9 million for the three months ended JuneSeptember 30, 2000. This decrease was primarily attributable to the purchase of stations subsequent to JuneSeptember 30, 2000 whichthat were formerly operated under local marketing, management and consulting agreements and the related discontinuance of fees associated with such agreements. CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and administrative expenses decreased $0.3increased $0.4 million, or 8.6%9.4%, to $3.7$4.1 million for the three months ended JuneSeptember 30, 2001 compared to $4.0$3.8 million for the three months ended JuneSeptember 30, 2000. Certain reorganization, severance, travellegal and professional fee expenses incurred during the quarterthree months ended JuneSeptember 30, 20002001 primarily contributed to the increased corporate expenses in the priorcurrent year. The decrease in corporate general and administrative expense was also attributable to the successful consolidation of the Company's corporate offices, formerly located in Chicago, Illinois and Milwaukee, Wisconsin, to Atlanta, Georgia and the related cost savings associated with the elimination of duplicative corporate resources. OTHER EXPENSE (INCOME). Interest expense, net of interest income, increased by $1.4$0.5 million, or 26.2%6.6%, to $6.6$7.7 million for the three months ended JuneSeptember 30, 2001 compared to $5.3$7.2 million for the three months ended JuneSeptember 30, 2000. This increase was primarily attributable to lower cash reserves and related decreases in interest income earned. The increase in the Company's debt levels under its senior credit facility ($165.0 million as of JuneSeptember 30, 2001 versus $125.0 million as of JuneSeptember 30, 2000) did not materially increase interest expense during the comparable periods due to decreasing interest rates on the respective outstanding debt amounts (7.19%(5.93% effective interest rate as of JuneSeptember 30, 2001 versus 9.77%9.71% as of JuneSeptember 30, 2000). Other Expense,Income, net, increaseddecreased to $8.9$1.7 million for the three months ended JuneSeptember 30, 2001 compared to $0.0$68.1 million in the prior year. This increaseThe Other Income, net, realized in the prior year, was primarily attributable to a $9.0 million charge recorded by the Company in connection with a proposed settlement of certain class action lawsuits, offset by gains realized on the sale of assets duringassets. Other Income, net realized in the quarter ($0.1 million).current year is primarily the result of the remeasurement of the stock issuance portion of the Company's 14 liability under a proposed agreement to settle certain class action lawsuits. INCOME TAXES. Income tax benefitexpense decreased by $3.2$17.9 million, to $1.9a current income tax benefit of $0.6 million for the three months ended JuneSeptember 30, 2001 compared to an income tax benefitexpense of $5.1$17.3 million for the three months ended JuneSeptember 30, 2000. This decreaseIncome tax expense recognized in the prior year was primarily attributable to deferred tax expense recognized on the gain on sale of stations incurred as a result of the completion of certain asset sales. In the current year, the projected effective tax rate was significantly lower than in the prior year due primarily to a $15.0 million book versus tax gain difference related to the sale of certain assets in January of 2001. This difference yielded a lower projected effective tax rate in the current year versus the prior year. PREFERRED STOCK DIVIDENDS, DEEMED DIVIDENDS AND ACCRETION OF DISCOUNT. Preferred stock dividends, deemed dividends and accretion of discount of preferred stock increased $0.7 million, or 20.5%18.2%, to $4.4$4.5 million for the three months ended JuneSeptember 30, 2001 compared to $3.6$3.8 million for the three months ended JuneSeptember 30, 2000. This increase was primarily attributable to increased dividends resulting from increasing levels of the Company's Series A Preferred Stock and dividends associated with the Company's issuance of Series B Preferred Stock. The fair value of common stock purchase warrants was also recognized during the quarter ended June 30, 2001 as a deemed dividend on the Series B Preferred Stock increasing the net loss attributable to commons stockholders' by $0.1 million.in October 2000. NET LOSS ATTRIBUTABLE TO COMMON STOCK.STOCKHOLDERS. As a result of the factors described above, net loss attributable to common stockstockholders increased $3.7$32.0 million, or 29.3%156.0%, to $16.5$11.5 million for the three months ended JuneSeptember 30, 2001 compared to $12.7net income attributable to common stockholders of $20.5 million for the three months ended JuneSeptember 30, 2000. BROADCAST CASH FLOW. As a result of the factors described above, Broadcast Cash Flow,broadcast cash flow, consisting of operating income (loss) before depreciation, amortization, LMA fees, corporate general and administrative expense and restructuring and other charges, increased $1.9$20.1 million or 11.6%, to $18.4$15.6 million for the three months ended JuneSeptember 30, 2001 compared to $16.4a broadcast cash flow loss of $4.5 million for the three months ended JuneSeptember 30, 2000. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio Company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As broadcast cash flow is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. EBITDA. As a result primarily of the increase in broadcast cash flow and decrease in corporate, general and administrative expenses 14 15 described above, EBITDA, consisting of operating income (loss) before depreciation, amortization, LMA fees and restructuring and other charges, increased $2.3$19.7 million or 18.2%, to $14.7$11.4 million for the three months ended JuneSeptember 30, 2001 compared to $12.4a EBITDA loss of $8.3 million for the three months ended JuneSeptember 30, 2000. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As EBITDA, is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2001 VERSUS THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2000. NET REVENUES. Net revenues decreased $10.7$18.0 million, or 9.7%10.7%, to $99.7$150.5 million for the sixnine months ended JuneSeptember 30, 2001 from $110.3$168.5 million for the sixnine months ended JuneSeptember 30, 2000. This decrease was primarily attributable to the disposition of radio stations during fiscal 2000 and the first quarter of 2001 ($8.013.1 million), lower sales volume associated with the Company's implementation of stringent credit and collections policies and the current economic slowdown and tightening corporate advertising budgets ($2.74.9 million), which has impacted the entire broadcast industry. In addition, on a same station basis, net revenue for the 167 stations in 32 markets operated for at least a full year decreased $2.3$3.8 million or 3.3%3.7% to $64.9$98.8 million for the sixnine months ended JuneSeptember 30, 2001, compared to same station net revenues of $67.2$102.6 million for the six monthsnine month period ended JuneSeptember 30, 2000. The decrease in same station net revenue was primarily attributable to lower sales volume associated with the Company's implementation of stringent credit and collections policies and the current economic slowdown and tightening corporate advertising budgets, which has impacted the entire broadcast industry. STATION OPERATING EXPENSES, EXCLUDING DEPRECIATION, AMORTIZATION AND LMA FEES. Station operating expenses excluding depreciation, amortization and LMA fees decreased $16.4$43.7 million, or 18.5%28.9%, to $72.1$107.4 million for the sixnine 15 months ended JuneSeptember 30, 2001 from $88.5$151.1 million for the sixnine months ended JuneSeptember 30, 2000. This decrease was primarily attributable to 1) a decrease in the station portfolio as a result of the disposition of radio stations during fiscal 2000 and 2001 ($7.811.0 million) and, 2) expense reductions achieved as a result of improved management control of cost of sales and other operating expense saving initiatives ($8.614.2 million). and 3) a $18.6 million decrease in the amount of bad debt expense recognized in the current year versus the same nine month period in the prior year. The provision for doubtful accounts was $2.6$4.1 million for the sixnine months ended JuneSeptember 30, 2001 compared to $2.2$22.7 million during the sixnine months ended JuneSeptember 30, 2000. As a percentage of net revenues, the provision for doubtful accounts increased by 0.7%decreased to 2.7% for the sixnine months ended JuneSeptember 30, 2001, as compared with 2.0%13.4% for the comparable period in the prior year. The nominal increasedecrease in the provision for doubtful accounts as a percentage of revenue was the direct result of management's reviewimplementation of stringent credit and collection policies that have yielded significantly lower levels of bad debt expense and accounts receivable write-off experience. The unusually high bad debt expense recorded in the prior year was primarily the result of the adequacyfollowing factors: (1) the completion of its reserves based on historical write-off experience.the first and second phases of the asset exchange and sales transactions with Clear Channel Communications, and the coincidental loss of local employee incentive to enforce the collection of receivables in divested markets, (2) the detrimental effects of certain pre-existing credit and collection policies and sale employee compensation policies, (3) significant turnover of management and sales force, including representatives who maintained relationships with trade debtors and had responsibility for ensuring collection of outstanding invoices, and (4) overall declines in the U.S. economy. On a same station basis, for the 167 stations in 32 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees decreased $7.3$10.2 million, or 13.1%12.4%, to $48.5$72.3 million for the sixnine months ended JuneSeptember 30, 2001 compared to $55.8$82.6 million for the sixnine months ended JuneSeptember 30, 2000. For comparative purposes, the unusually high bad debt charge taken in third quarter of 2000 ($20.2 million) has been excluded from same station operating expenses for the nine months ended September 30, 2000. The decrease in same station operating expenses excluding depreciation, amortization and LMA fees is attributable to improved management control of costs of sales and other expense saving initiatives. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $4.1$6.5 million, or 20.0%21.4%, to $24.4$37.0 million for the sixnine months ended JuneSeptember 30, 2001 compared to $20.3$30.5 million for the sixnine months ended JuneSeptember 30, 2000. This increase was primarily attributable to depreciation and amortization relating to radio station acquisitions consummated subsequent to the sixnine months ended JuneSeptember 30, 2000 and a full quarternine months of depreciation and amortization on radio station acquisitions consummated during the sixnine months ended JuneSeptember 30, 2000, offset by a decrease in depreciation and amortization associated with station dispositions. LMA FEES. LMA fees decreased $0.7$1.2 million, or 23.7%31.5%, to $2.2$2.6 million for the sixnine months ended JuneSeptember 30, 2001 from $2.8$3.7 million for the sixnine months ended JuneSeptember 30, 2000. This decrease was primarily attributable to the purchase of stations subsequent to JuneSeptember 30, 2000 thatwhich were formerly operated under local marketing, management and consulting agreements and the related discontinuance of fees associated with such agreements. CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and administrative expenses decreased $1.2$0.8 million, or 13.7%6.7%, to $7.5$11.6 million for the sixnine months ended JuneSeptember 30, 2001 compared to $8.7$12.5 million for the sixnine months ended JuneSeptember 30, 2000. Certain unusually high reorganization, severance, travel and professional fee expenses incurred during the sixnine months ended JuneSeptember 30, 2000 primarily contributed to the increased corporate expenses in the priorthat year. The decrease in corporate general and administrative expense for 2001 was also attributable to the successful consolidation of the Company's corporate offices, formerly located in 15 16 Chicago, Illinois and Milwaukee, Wisconsin, to Atlanta, Georgia and the related cost savings associated with the elimination of duplicative corporate resources. OTHER EXPENSE (INCOME). Interest expense, net of interest income, increased by $3.2$3.7 million, or 29.8%20.6%, to $14.0$21.7 million for the sixnine months ended JuneSeptember 30, 2001 compared to $10.8$18.0 million for the sixnine months ended JuneSeptember 30, 2000. This increase was primarily attributable to lower cash reserves and related decreases in interest income earned. The increase in the Company's debt levels under its senior credit facility ($165.0 million as of JuneSeptember 30, 2001 versus $125.0 million as of JuneSeptember 30, 2000) did not materially increase interest expense during the comparable periods due to decreasing interest rates on the respective outstanding debt amounts (7.19%(5.93% effective interest rate as of JuneSeptember 30, 2001 versus 9.77%9.71% as of JuneSeptember 30, 2000). Other Income, net, increaseddecreased to $7.4$9.1 million for the sixnine months ended JuneSeptember 30, 2001 compared to $0.0$68.1 million in the prior year. This increaseThe Other Income, net, realized in the prior year, was primarily attributable to gains realized on the sale of assets ($16.4 million), includingassets. Other Income, net realized in the current year is primarily the result of gains realized as a result of the successful completion of the third and final phase ofon asset sales with Clear Channel Communications,completed in the first quarter of 2001, offset by a charge recorded by the Company in connection with the settlement of certain class action lawsuits ($9.0 million).lawsuits. INCOME TAXES. Income tax benefitexpense decreased by $9.3$8.6 million, to $1.6 million for the six months ended June 30, 2001 compared to an income tax benefit of $10.9$2.2 million for the sixnine months 16 ended September 30, 2001 compared to income tax expense of $6.4 million for the nine months ended JuneSeptember 30, 2000. This decrease was primarily attributable to a lower lossincome (loss) before income taxes along with a $15.0 million book versus tax gain difference realized on assetassets sold in January 2001. The book versus tax gain difference yieldedcontributes to a significantly lower projected effective tax rate for the current year. PREFERRED STOCK DIVIDENDS, DEEMED DIVIDENDS AND ACCRETION OF DISCOUNT. Preferred stock dividends, deemed dividends and accretion of discount of preferred stock increased $1.3$2.0 million, or 18.2%, to $8.5$13.0 million for the sixnine months ended JuneSeptember 30, 2001 compared to $7.2$11.0 million for the sixnine months ended JuneSeptember 30, 2000. This increase was attributable to increased dividends resulting from increasing levels of the Company's Series A Preferred Stock and dividends associated with the Company's issuance of Series B Preferred Stock. The fair value of common stock purchase warrants was also recognizedStock in the second quarter of 2001 as a deemed dividend on the Series B Preferred Stock, increasing the net loss attributable to common stockholders' by $0.1 million.October 2000. NET LOSS ATTRIBUTABLE TO COMMON STOCK.STOCKHOLDERS. As a result of the factors described above, net loss attributable to common stock decreased $6.4stockholders increased $25.5 million or 24.4%, to $19.9$31.4 million for the sixnine months ended JuneSeptember 30, 2001 compared to $26.4$5.9 million for the sixnine months ended JuneSeptember 30, 2000. BROADCAST CASH FLOW. As a result of the factors described above, Broadcast Cash Flow,broadcast cash flow, consisting of operating income (loss) before depreciation, amortization, LMA fees, corporate general and administrative expense and restructuring and other charges, increased $5.7$25.8 million, or 26.0%148.6%, to $27.5$43.1 million for the sixnine months ended JuneSeptember 30, 2001 compared to $21.9$17.3 million for the sixnine months ended JuneSeptember 30, 2000. Although broadcast cash flow is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio Company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As broadcast cash flow is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. EBITDA. As a result of the increase in broadcast cash flow and decrease in corporate, general and administrative expenses described above, EBITDA, consisting of operating income (loss) before depreciation, amortization, LMA fees and restructuring and other charges, increased $6.9$26.6 million, or 52.2%545.7%, to $20.0$31.5 million for the sixnine months ended JuneSeptember 30, 2001 compared to $13.2$4.9 million for the sixnine months ended JuneSeptember 30, 2000. Although EBITDA is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company's operating performance. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. As EBITDA, is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. INTANGIBLE ASSETS. Intangible assets, net of amortization, were $818.0$812.8 million and $763.0 million as of JuneSeptember 30, 2001 and December 31, 2000, respectively. These intangible asset balances primarily consist of broadcast licenses and goodwill, although the Company possesses certain other intangible assets obtained in connection with our acquisitions, such as non-compete agreements. The increase in intangible assets, net during the sixnine months ended JuneSeptember 30, 2001 is attributable to acquisitions during the six month period, less the net dispositions in the asset exchange and sale transaction with Clear Channel. Specifically identified intangible assets, including broadcasting licenses, are recorded at their estimated fair value on the date of the related acquisition. Goodwill represents the excess of purchase price over the fair value of tangible assets and specifically identified intangible assets. Although 16 17 intangible assets are recorded in the Company's financial statements at amortized cost, we believe that such assets, especially broadcast licenses, can significantly appreciate in value by successfully executing the Company's operating strategies. During the sixnine months ended JuneSeptember 30, 2001, the Company recognized an accounting gain of approximately $16.0 million as a result of the asset exchange and sale transaction with Clear Channel Communications. The Company also recognized similar gains in fiscal 2000. We believe these gains indicate that certain internally generated intangible assets, which are not recorded for accounting purposes, can significantly increase the value of our portfolio of stations over time. The Company's strategic initiative to focus on its core radio business is designed to enhance the overall value of our stations and maximize the value of the related broadcast licenses. LIQUIDITY AND CAPITAL RESOURCES Our principal need for funds has been to fund the acquisition of radio stations and to a lesser extent, working capital needs, capital expenditures and interest and debt service payments. Our principal sources of funds for these requirements have been cash flows from financing activities, such as the proceeds from the offering of our debt and equity securities and borrowings under credit agreements, and cash flowsflow from operations. Our principal need for funds in the future are expected to include the need to fund pending and future 17 acquisitions, interest and debt service payments, working capital needs and capital expenditures. We believe the Company's present cash positions will be sufficient to meet our future capital needs includingthrough March 31, 2002. Beyond March 31, 2002, the fundingCompany will need to raise approximately $11.5 million through additional equity and/or debt financing, asset sales or other to be identified sources, to fund its pending acquisitions. We believe that availability under our credit facility, cash generated from operations and proceeds from future debt or equity financing will be sufficient to meet our capital needs. The ability of the Company to complete the pending acquisitions is dependent on the Company's ability to obtain additional equity and/or debt service and operations.financing. There can be no assurance that the Company will be able to obtain such financing. For the sixnine months ended JuneSeptember 30, 2001, net cash provided by operating activities increased $18.7$19.8 million, or 158.5%178.7%, to $6.9$8.7 million from net cash used in operating activities of $11.8$11.1 million for the sixnine months ended JuneSeptember 30, 2000. This increase was due primarily to a reduction in net cash utilized for working capital when compared to the sixnine months ended JuneSeptember 30, 2000. For the sixnine months ended JuneSeptember 30, 2001, net cash used in investing activities decreased $81.9$109.8 million, or 62.8%67.6%, to $48.6$52.7 million from net cash used in investing activities of $130.5$162.4 million for the sixnine months ended JuneSeptember 30, 2000. This decrease was due primarily to a reduction inlower level of acquisition activity duringin the current year alongas compared with the completion ofprior year. For the third and final phase of the asset sales to Clear Channel Communications which generated approximately $36.2 million in proceeds to the Company during the sixnine months ended June 30, 2001. For the six months ended JuneSeptember 30, 2001, net cash provided by financing activities increased $42.7$42.8 million, to $39.1$39.2 million compared to net cash used in financing activities of $3.6 million during the sixnine months ended JuneSeptember 30, 2000. Net cash provided by financing activities in the current year was primarily the result of borrowings under the Company's credit facility. Net cash used during the prior year was the result of the payment of cash dividends on the Company's Series A Preferred Stock. During the sixnine months ended JuneSeptember 30, 2001, such dividends were paid in kind to holders of the stock. Historical Acquisitions. During the sixnine months ended JuneSeptember 30, 2001, the Company completed 1012 acquisitions across 1012 markets having an aggregate purchase price of $182.4$187.7 million. Of the $182.4$187.7 million required to fund the acquisitions, $79.0 million was provided through the exchange of stations, $81.2$82.0 million was funded in cash and $22.2$26.7 million had been previously funded as escrow deposits on the pending acquisitions. An additional acquisition has been subsequently completed in July 2001 in 1 market for an aggregate purchase price of $3.0 million. Pending Acquisitions.Acquisitions and Dispositions. As of JuneSeptember 30, 2001, the Company was a party to various agreements to acquire stations across 68 markets. The aggregate purchase price of the Company's pending acquisitions is expected to be approximately $16.2$18.6 million. We intend to finance the pending acquisitions with cash on hand, cash received from possible asset divestitures, future cash flows from operations, the proceeds of borrowings under our Credit Facility or future credit facilities, and other sources to be identified. We expect to consummate most of ourthe pending acquisitions during the 3rd4th quarter of 2001 and 4ththe 1st and 2nd quarters of 2001,2002, although there can be no assurance that the transactions will be consummated within that time frame, or at all. The ability of the Company to complete the pending acquisitions is dependent upon the Company's ability to obtain additional equity and/or debt financing on favorable terms. There can be no assurance that the Company will be able to obtain such financing on favorable terms, if at all. In two of the markets in which there are pending acquisitions or dispositions (Columbus-Starkville, MS; and Columbus, GA), petitions to deny have been filed against the Company's FCC assignment applications. All such petitions and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. There can be no assurance that the pending acquisitions will be consummated. In addition, from time to time the Company completes acquisitions following the initial grant of an assignment application by the FCC staff but before such grant becomes a final order, and a petition to review such a grant may be filed. There can be no assurance that such grants may not ultimately be reversed by the FCC or an appellate court as a result of such petitions, which could result in the Company being required to divest the assets it has acquired. Dispositions. On January 18, 2001, the Company completed substantially all of the third and final phase of an asset exchange and sale transaction with certain subsidiaries of Clear Channel Communications. Upon the closing, the Company transferred 44 stations in 17 18 8 markets in exchange for 4 stations in 1 market and approximately $36.2 million in cash. As of the close date, the Company also received approximately $2.7 million in proceeds previously withheld from the second phase of Clear Channel transactions. On May 2, 2001, the Company completed an asset exchange with Next Media Group and certain of its subsidiaries. Upon the closing, the Company transferred 2 stations in Jacksonville, North Carolina for 1 station in Myrtle Beach, South Carolina and approximately $2.0 million in cash. In connection with the transaction, the Company recorded a $0.4 million gain during the 32nd quarter of 2001. During the three months ended JuneSeptember 30, 2001.2001, the Company entered into various asset purchase agreements to sell 8 radio stations (6 FM and 2 AM) in 6 markets for an aggregate sale price of approximately $11.0 million in cash. As of November 9, 2001 the Company had completed the sale of 2 stations for $6.8 million. The Company expects to consummate the pending dispositions in 18 the 4th quarter of 2001 and the 1st quarter of 2002. Proceeds from dispositions will be used to fund pending acquisitions and other general corporate purposes. Sources of Liquidity. We financed our 2001 cash acquisitions primarily with cash on hand, the proceeds of asset sales and borrowings under our credit facility. Our senior credit facility provides for aggregate principal borrowings of $175.0 million and consists of a seven-year revolving credit facility of $50.0 million, an eight-year term loan facility of $75.0 million and an eight and one-half year term loan facility of $50.0 million. The amount available under the seven-year revolving credit facility will be automatically reduced by 5% of the initial aggregate principal amount in each of the third and fourth years following closing (August 31, 1999), 10% of the initial aggregate principal amount in the fifth year following the closing, 20% of the initial aggregate principal amount in the sixth year following the closing and the remaining 60% of the initial aggregate principal amount in the seventh year following the closing. As of JuneSeptember 30, 2001 and JulyOctober 31, 2001 $165.0 million and $169.0$160.0 million was outstanding, respectively, under the term loan facilities. On October 29, 2001, the Company repaid $5.0 million of principal towards its revolving credit facility. On May 11, 2001, the Company and its lenders under the Credit Facility entered into the Fourth Amendment to the Amended and Restated Credit Agreement dated as of August 31, 1999 (the "Fourth Amendment"). The Fourth Amendment modified certain financial covenant requirements, including the consolidated leverage ratio, the consolidated senior debt ratio and the consolidated interest coverage ratio. In consideration for entering into the Fourth Amendment, the Company agreed to pay the administrative agent a fee in the amount of $0.5 million, 50% of which was paid as of the effective date of the amendment. TheOf the remaining portion of the administrative agent fee, 25% was paid in September 2001 and the final 25% will be paid prior to December 31, 2001. The Company also paid the lenders a fee in the amount of $0.4 million.million as of the effective date of the amendment. On May 21, 2001, the Company borrowed $40.0 million under its seven-year $50$50.0 million revolving credit facility. Proceeds from this borrowing were used to purchase stations during the quarter and to satisfy operating cash needs. The Company's obligations under its current credit facility are collateralized by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries), including, without limitation, intellectual property; real property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries, except the capital stock of Broadcast Software International, Inc., Cumulus Internet Services Inc. and Cumulus Telecommunications, Inc., and 65% of the capital stock of any first-tier foreign subsidiary. The obligations under the credit facility are also guaranteed by each of the direct and indirect domestic subsidiaries, except Broadcast Software, Cumulus Internet Services and Cumulus Telecommunications, and are required to be guaranteed by any additional subsidiaries acquired by Cumulus. Both the revolving credit and term loan borrowings under the credit facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of our credit facility, 6.75%6.0% as of JuneSeptember 30, 2001), plus a margin ranging between 0.75% to 2.50%, or the Eurodollar Rate (as defined under the terms of the credit facility, 3.76%2.67% as of JuneSeptember 30, 2001) plus a margin ranging between 1.75% to 3.50% (in each case dependent upon the leverage ratio of the Company). At JuneSeptember 30, 2001 the Company's effective interest rate on term loan and revolving loan amounts outstanding under the credit facility was 7.05%5.93%. A commitment fee calculated at a rate ranging from 0.375% to 0.75% per annum (depending upon the Company's utilization rate) of the average daily amount available under the revolving lines of credit is payable quarterly in arrears, and fees in respect of letters of credit issued under the Credit Facility equal to the interest rate margin then applicable to Eurodollar Rate loans under the seven-year revolving credit facility also will be payable quarterly in arrears. In addition, a fronting fee of 0.125% per annum is payable quarterly in arrears to the issuing bank. The eight-year term loan borrowings are repayable in quarterly installments beginning in December 2001. The scheduled annual amortization is $0.75 million for each of the third, fourth, fifth, sixth and seventh years following closing and $71.25 million in the eighth year following closing. The eight and a half year term loan is repayable in two equal installments on November 30, 2007 and February 28, 2008. The amount available under the 7-year revolving credit facility will be automatically reduced in quarterly installments as described in the first paragraph above. Certain mandatory prepayments of the term loan facility and the revolving credit line and reductions in the availability of the revolving credit line are required to be made including: (i) 100% of the net proceeds 18 19 from any issuance of capital stock or incurrence of indebtedness; (ii) 100% of the net proceeds from certain asset sales; and (iii) between 50% and 75% (dependent on our leverage ratio) of our excess cash flow. 19 Under the terms of the amended and restated credit facility, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. At JuneSeptember 30, 2001, the Company was in compliance with such financial and operating covenants. The terms of the facility contain events of default after expiration of applicable grace periods, including failure to make payments on the credit facility, breach of covenants, breach of representations and warranties, invalidity of the agreement governing the credit facility and related documents, cross default under other agreements or conditions relating to indebtedness of Cumulus or the Company's restricted subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the credit facility, the majority of the lenders are able to declare all amounts under our credit facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under each term loan facility and the majority of the banks under each revolving credit facility may terminate such term loan facility and such revolving credit facility, respectively. As defined by the indenture and the certificates of designation, governing the Senior Subordinated Notes and Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, respectively, the amount we may borrow under the senior credit facility is limited to $175.0 million as of JuneSeptember 30, 2001. As of JuneSeptember 30, 2001, we would be permitted to incur approximately $10.0 million of additional indebtedness under our credit facility without regard to the debt ratios included in our indenture. We have issued $160.0 million in aggregate principal amount of our 10 3/8% senior subordinated notes, which have a maturity date of July 1, 2008. The notes are our general unsecured obligations and are subordinated in right of payment to all our existing and future senior debt (including obligations under our credit facility). Interest on the notes is payable semi-annually in arrears. We issued $125.0 million of our Series A Preferred Stock in our initial public offerings on July 1, 1998. The holders of the Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to 13 3/4% of the liquidation preference per share of Series A Preferred Stock, payable quarterly, in arrears. On or before July 1, 2003, we may, at our option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock. From July 1, 1998 until JuneSeptember 30, 2001, we issued an additional $46.1$50.5 million of shares of Series A Preferred Stock as dividends on the Series A Preferred Stock. After July 1, 2003, dividends may only be paid in cash. To date, all of the dividends on the Series A Preferred Stock have been paid in shares, except for a $3.5 million cash dividend paid on January 1, 2000 to holders of record on December 15, 1999 for the period commencing October 1, 1999 and ending December 31, 1999. The shares of Series A Preferred Stock are subject to mandatory redemption on July 1, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends. On October 1, 1999 we used $51.3 million of the proceeds of our July 1999 offering of our Class A Common Stock to redeem a portion of our Series A Preferred Stock, including a $ 6.0 million redemption premium and $ 1.5 million in accrued and unpaid dividends as of the redemption date. The shares of Series A Preferred Stock are subject to mandatory redemption on July 1, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends. We issued 250 shares of our Series B Preferred Stock on October 2, 2000 for $2.5 million. The holders of the Series B Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to 12% of the liquidation preference per share of Series B Preferred Stock, payable quarterly, in arrears commencing on January 1, 2001. The Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series B Preferred Stock. To date, all of the dividends on the Series B Preferred Stock have been paid in shares. The shares of Series B Preferred Stock may be converted, at the holder's discretion, on or after March 30, 2002 into Class B Common Stock at the then effective conversion rate. The number of shares of Class B Common Stock that will be issued upon conversion can be calculated by dividing the liquidation preference of one share of Series B Preferred Stock by the lower of the closing sales price of the Company's Class A Common Stock as reported by the NASDAQ Stock Market on the conversion date or the average of the closing sales prices of the Company's Class A Common Stock as reported by the NASDAQ Stock Market for the twenty (20) day trading period prior to the conversion date. The shares of Series B Preferred Stock are subject to mandatory 19 20 redemption on October 3, 2009 at a price equal to 100% of the liquidation preference plus any and all accrued and unpaid cumulative dividends. The shares of Series B Preferred Stock can be redeemed at any time at the Company's discretion with notice of not less than 30 days nor more than 60 days prior to the date of redemption. 20 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk At JuneSeptember 30, 2001 approximately 50.8% of the Company's long-term debt bore interest at variable rates. Accordingly, the Company's earnings and cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a 1% increase in the effective rate of the loans, it is estimated that the Company's interest expense would have increased by $0.8$1.2 million for the sixnine months ended Juneending September 30, 2001. In the event of an adverse change in interest rates, management would likely take actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, additional analysis is not possible at this time. Further, such analysis would not consider the effects of the change in the level of overall economic activity that could exist in such an environment. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company had been named as a defendant in the following eleven class action complaints: (1) Wolfe v. Weening, et al.; (2) Klar v. Cumulus Media Inc., et al.; (3) Atlas v. Cumulus Media Inc., et al.; (4) Steinberg and Steinberg v. Cumulus Media Inc., et al.; (5) Wong v. Weening, et al.; (6) Pleatman v. Cumulus Media Inc., et al.; (7) Kincer v. Weening, et al.; (8) Krim v. Cumulus Media Inc., et al.; (9) Baldwin v. Cumulus Media, Inc., et al.; (10) Pabian v. Weening, et al.; and (11) Demers v. Cumulus Media Inc., et al. Certain present and former directors and officers of the Company, and certain underwriters of the Company's stock, havehad also been named as defendants. The complaints have all been filed in the United States District Court for the Eastern District of Wisconsin. They were filed as class actions on behalf of persons who purchased or acquired Cumulus Media common stock during various time periods between May 11, 1999 and April 24, 2000. On August 4, 2000, the eleven actions were consolidated into a single action, also pending in the United States District Court for the Eastern District of Wisconsin. On December 8, 2000, plaintiffs served a Second Amended Consolidated Class Action Complaint, which alleges, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and Sections 11 and 12(a) of the Securities Act of 1933, and seeks unspecified damages. In June 2001, the Company reached an agreement in principle to settle the lawsuits. Pursuant to the terms of the agreement, which is subject to negotiation of a final Stipulation of Settlement and court approval, the lawsuits will be dismissed in exchange for $13.0 million in cash and 240,000 shares of common stock. Of the cash portion of the settlement, $7.3 million will be provided by the Company's preexisting insurance. The balance of the cash portion is expected to be paid from cash from operations and proceeds from borrowings under the Company's senior credit facility. A settlement liability of $14.7 million and related insurance claim receivable of $7.3 million have been included in accrued expenses and other current assets, respectively, in the accompanying consolidated balance sheet as of September 30, 2001. During the quarter ended June 30, 2001, the Company has recorded aan initial settlement charge of $9.0 million settlement charge which iswas recorded and included as a component of Other Income(Expense)Income (Expense) in the accompanying statementsconsolidated statement of operations. As the settlement is contingent upon document negotiation and court approval, the Company has initially measured the stock issuance portion of the settlement, based on the closing stock price as of June 30, 2001 to be $3.3 million. During the quarter ended September 30, 2001, the Company recorded a remeasurement adjustment to the settlement charge of $1.5 million to reflect the decrease in the Company's liability as a result of the decrease in the Company's stock price from June 30, 2001 to September 30, 2001. The remeasurement adjustment is included as a component of Other Income(Expense) in the accompanying consolidated statements of operations. In future periods, the Company will continue to remeasure the stock issuance portion of the liability and adjust the expense until such time as the liability becomes fixed. In addition, we currently and from time to time are involved in litigation incidental to the conduct of our business. Other than as discussed above, the Company is not a party to any lawsuit or precedingproceeding which, in our opinion, is likely to have a material adverse effect on the Company. Item 2. Changes in Securities and Use of Proceeds No items to report. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders 20 21 An annual meeting of shareholders of the Company was held on May 4, 2001. Holcombe T. Green, Jr. and Ralph B. Everett were elected as Class I Directors of the Company. Each elected Class I director will serve until the 2003 annual meeting of shareholders or until he is succeeded by another qualified director who has been elected. Robert H. Sheridan, III and Eric P. Robison were elected as Class II Directors of the Company. Each elected Class II director will serve until the 2004 annual meeting of shareholders or until he is succeeded by another qualified director who has been elected. The shareholders also approved the selection of KPMG LLP as independent auditors for the year ending December 31, 2001. Finally, the shareholders approved the Company's 2000 Stock Incentive Plan. The results of voting at the annual meeting of the shareholders were as follows: Proposal No. 1 (Election of Directors)
NOMINEE CLASS FOR AGAINST ABSTAIN/WITHHELD Ralph B. Everett Class I 42,840,959 0 3,567,821 Holcombe T. Green, Jr. Class I 43,600,522 0 2,808,228 Eric P. Robison Class II 42,841,759 0 3,567,021 Robert H. Sheridan, III Class II 43,485,302 0 2,923,478
Proposal No. 2 (Approve the ratification of KPMG LLP as Independent Auditors for the year ending December 31, 2001) FOR AGAINST ABSTAIN/WITHHELD 46,171,948 229,871 6,961
Proposal No. 3 (Approve the Company's 2000 Stock Incentive Plan) FOR AGAINST ABSTAIN/WITHHELD 31,366,829 8,346,597 19,654
Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits (a) Exhibits 10.1 Fourth Amendment, dated May 11, 2001, to the21 3.1 Amended and Restated CreditArticles of Incorporation of Cumulus Media Inc., as amended. 3.2 Certificate of Designation with respect to Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009 (incorporated by reference to Exhibit 3.5 of the Form S-1 Registration Statement, declared effective on June 26, 1998 (Commission File No. 333-48849)). 3.3 Amended and Restated Certificate of Designation with respect to Series B Cumulative Preferred Stock. 3.4 Amended and Restated Bylaws of Cumulus Media Inc., as amended. 4.1 Registration Rights Agreement, dated as of August 31, 1999June 30, 1998, by and among Cumulus Media Inc., NationsBanc Capital Corp., Heller Equity Capital Corporation, The State of Wisconsin Investment Board and The Northwestern Mutual Life Insurance company. 4.2 Voting Agreement, dated as of June 30, 1998, by and between NationsBanc Capital Corp., Cumulus Media Inc. and the Shareholders named therein. 10.1 Amended and Restated Employment Agreement between Cumulus Media Inc. and Lewis W. Dickey, Jr. 10.2 Employment Agreement between Cumulus Media Inc. and Jon Pinch 10.3 Employment Agreement between Cumulus Media Inc. and Martin Gausvik 10.4 Employment Agreement between Cumulus Media Inc. and John W. Dickey (b) Reports on Form 8-K None. 21 22None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CUMULUS MEDIA INC. Date: August 15, 2001November 14, By: /s/ Martin R. Gausvik _____________________________________________2001 --------------------------------- Executive Vice President, Treasurer and Chief Financial Officer 22