UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): December 20, 2011
CUMULUS MEDIA INC.
(Exact name of registrant as specified in its charter)
Delaware | 000-24525 | 36-4159663 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS employer Identification No.) |
3280 Peachtree Road, N.W., Suite 2300, Atlanta GA |
30305 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (404) 949-0700
n/a
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01 Other Events.
Cumulus Media Inc. (the Company), Cumulus Media Holdings Inc., a wholly-owned subsidiary of the Company (Cumulus Holdings), and certain other of the Companys subsidiaries that have guaranteed Cumulus Holdings outstanding 7.75% Senior Notes due 2019 (the Original Notes) (collectively, the Subsidiary Guarantors) intend to file a registration statement (the Exchange Registration Statement) to register the offer and sale of certain debt securities (the Exchange Notes) of Cumulus Holdings and guarantees of the Exchange Notes (the Exchange Guarantees) by the Company and the Subsidiary Guarantors. The Exchange Notes and the Exchange Guarantees will be issued in exchange for the Original Notes and the related outstanding guarantees thereof by the Company and the Subsidiary Guarantors, respectively.
In connection with the Exchange Registration Statement, the Company is filing herewith updated historical financial statements solely to include the supplemental guarantor disclosures required by Rule 3-10(d) of Regulation S-X. Specifically, the Company is including the following supplemental financial information in its historical financial statements:
| a new Note 22 to the Notes to the Companys Audited Consolidated Financial Statements included in Part II, Item 8 of the Companys Annual Report on Form 10-K for the year ended December 31, 2010; and |
| a new Note 15 to the Notes to the Companys Unaudited Consolidated Financial Statements included in Part I, Item 1 of the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2011. |
The Company qualifies as a smaller reporting company (as defined in Rule 405 of the Securities Act of 1933) and has elected to report the accompanying supplemental financial information in accordance with the provisions of Article 8 of Regulation S-X applicable thereto.
As previously disclosed, on September 16, 2011, the Company completed the acquisition (the Acquisition) of Citadel Broadcasting Corporation (Citadel) and its subsidiaries. In connection with the Acquisition, Citadel and certain of its subsidiaries provided guarantees of the Original Notes and became Subsidiary Guarantors. The Company is also filing herewith updated historical financial statements of Citadel solely to include certain recently acquired subsidiary guarantor disclosure required by Rule 3-10(g) of Regulation S-X. Specifically, the Company is including the following supplemental financial information in Citadels historical financial statements:
| a new Note 24 to the Notes to Citadels Audited Consolidated Financial Statements which were originally included in Part II, Item 8 of Citadels Annual Report on Form 10-K for the year ended December 31, 2010; and |
| a new Note 16 to the Notes to Citadels Unaudited Consolidated Financial Statements which were originally included in Part I, Item 1 of Citadels Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (Citadels last full fiscal quarter before the completion of the Acquisition). |
The historical financial statements, including the related supplemental disclosures described above in respect of the Audited Consolidated Financial Statements included in Part II, Item 8 of the Companys Annual Report on Form 10-K for the year ended December 31, 2010, are filed as Exhibit 99.1 to this Current Report on Form 8-K (this Report) and are incorporated herein by reference. The historical financial statements, including the related supplemental disclosures described above in respect of the Unaudited Consolidated Financial Statements included in Part I, Item 1 of the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, are filed as Exhibit 99.2 to this Report and are incorporated herein by reference. The historical financial statements of Citadel, including the related supplemental disclosures described above in respect of the Audited Consolidated Financial Statements which were originally included in Part II, Item 8 of Citadels Annual Report on Form 10-K for the year ended December 31, 2010, are filed as Exhibit 99.3 to this Report and are incorporated herein by reference. The historical financial statements of Citadel, including the related supplemental disclosures in respect of the Unaudited Consolidated Financial Statements which were originally included in Part I, Item 1 of Citadels Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, are filed as Exhibit 99.4 to this Report and are incorporated herein by reference.
The information included in and with this Report is presented for informational purposes only, and there has been no change to either of the Companys or Citadels previously reported consolidated net operating results, financial condition or cash flows. This Report does not reflect events occurring after the original filing of the Companys previously reported results.
- 2 -
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are filed with this report:
Exhibit No. |
Description | |
23.1 | Consent of PricewaterhouseCoopers LLP. | |
23.2 | Consent of Deloitte & Touche LLP. | |
99.1 | Updated Part II, Item 8 Financial Statements and Supplementary Data of the Companys Annual Report on Form 10-K for the year ended December 31, 2010. | |
99.2 | Updated Part I, Item 1 Financial Statements of the Companys Quarterly Report on Form 10-Q for the period ended September 30, 2011. | |
99.3 | Updated Part II, Item 8 Financial Statements and Supplementary Data of Citadels Annual Report on Form 10-K for the year ended December 31, 2010. | |
99.4 | Updated Part I, Item 1 Financial Statements of Citadels Quarterly Report on Form 10-Q for the period ended June 30, 2011. | |
101 | The materials included within Item 1 of Exhibit 99.2 and Item 1 of Exhibit 99.4 formatted in eXtensible Business Reporting Language. |
- 3 -
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 hereunto duly authorized.
CUMULUS MEDIA INC. | ||
By: | /s/ J.P. Hannan | |
Name: | J.P. Hannan | |
Title: | Senior Vice President, Treasurer and Chief Financial Officer |
Date: December 20, 2011
- 4 -
EXHIBIT INDEX
Exhibit No. |
Description | |
23.1 | Consent of PricewaterhouseCoopers LLP. | |
23.2 | Consent of Deloitte & Touche LLP. | |
99.1 | Updated Part II, Item 8 Financial Statements and Supplementary Data of the Companys Annual Report on Form 10-K for the year ended December 31, 2010. | |
99.2 | Updated Part I, Item 1 Financial Statements of the Companys Quarterly Report on Form 10-Q for the period ended September 30, 2011. | |
99.3 | Updated Part II, Item 8 Financial Statements and Supplementary Data of Citadels Annual Report on Form 10-K for the year ended December 31, 2010. | |
99.4 | Updated Part I, Item 1 Financial Statements of Citadels Quarterly Report on Form 10-Q for the period ended June 30, 2011. | |
101 | The materials included within Item 1 of Exhibit 99.2 and Item 1 of Exhibit 99.4 formatted in eXtensible Business Reporting Language. |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-62538, 333-104542, 333-118047, and 333-156436), Form S-4 (Nos. 333-90990 and 333-113337) and Form S-3 (No. 333-176294) of our report dated March 14, 2011 except with respect to Note 22, as to which the date is December 19, 2011, relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting of Cumulus Media Inc., which appears in Cumulus Media Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2011.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 19, 2011
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-62538, 333-104542, 333-118047 and 333-156436 on Form S-8, in Registration Statement Nos. 333-90990 and 333-113337 on Form S-4 and in Registration Statement No. 333-176294 on Form S-3 of Cumulus Media Inc. of our report dated March 30, 2011 (December 15, 2011 as to Note 24) related to the financial statements of Citadel Broadcasting Corporation appearing in this Current Report on Form 8-K of Cumulus Media Inc. dated December 20, 2011.
/s/ Deloitte & Touche LLP
Los Angeles, California
December 19, 2011
Exhibit 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||
(1) Financial Statements |
||
Report of Independent Registered Public Accounting Firm |
F-2 | |
Consolidated Balance Sheets at December 31, 2010 and 2009 |
F-3 | |
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 |
F-4 | |
Consolidated Statements of Stockholders Deficit and Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008 |
F-5 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 |
F-6 | |
Notes to Consolidated Financial Statements |
F-7 | |
(2) Financial Statement Schedule |
||
Schedule II: Valuation and Qualifying Accounts |
S-1 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Cumulus Media Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders deficit and comprehensive income (loss), and cash flows present fairly, in all material respects, the financial position of Cumulus Media Inc. and its subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements and the financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
March 14, 2011, except for the inclusion of Note 22 as to which the date is December 19, 2011
F-2
CUMULUS MEDIA INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(Dollars in thousands, except for share data)
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 12,814 | $ | 16,224 | ||||
Restricted cash |
604 | 789 | ||||||
Accounts receivable, less allowance for doubtful accounts of $1,115 and $1,166 in 2010 and 2009, respectively |
38,267 | 37,504 | ||||||
Trade receivable |
3,605 | 5,488 | ||||||
Prepaid expenses and other current assets |
4,403 | 4,709 | ||||||
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Total current assets |
59,693 | 64,714 | ||||||
Property and equipment, net |
39,684 | 46,981 | ||||||
Intangible assets, net |
160,970 | 161,380 | ||||||
Goodwill |
56,079 | 56,121 | ||||||
Other assets |
3,210 | 4,868 | ||||||
|
|
|
|
|||||
Total assets |
$ | 319,636 | $ | 334,064 | ||||
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Liabilities and Stockholders Deficit |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 20,365 | $ | 13,635 | ||||
Trade payable |
3,569 | 5,534 | ||||||
Derivative instrument |
3,683 | | ||||||
Current portion of long-term debt |
15,165 | 49,026 | ||||||
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Total current liabilities |
42,782 | 68,195 | ||||||
Long-term debt |
575,843 | 584,482 | ||||||
Other liabilities |
17,590 | 32,598 | ||||||
Deferred income taxes |
24,730 | 21,301 | ||||||
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Total liabilities |
660,945 | 706,576 | ||||||
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Stockholders Deficit: |
||||||||
Preferred stock, 20,262,000 shares authorized, par value $0.01 per share, including: 250,000 shares designated as 133/4% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2010, shares designated as stated value $1,000 per share; 0 shares issued and outstanding in both 2010 and 2009 and 12,000 12% Series B Cumulative Preferred Stock, stated value $10,000 per share; 0 shares issued and outstanding in both 2010 and 2009 |
| | ||||||
Class A common stock, par value $0.01 per share; 200,000,000 shares authorized; 59,599,857 shares issued, 35,538,530 and 35,162,511 shares outstanding in 2010 and 2009, respectively |
596 | 596 | ||||||
Class B common stock, par value $0.01 per share; 20,000,000 shares authorized; 5,809,191 shares issued and outstanding in both 2010 and 2009 |
58 | 58 | ||||||
Class C common stock, par value $0.01 per share; 30,000,000 shares authorized; 644,871 shares issued and outstanding in both 2010 and 2009 |
6 | 6 | ||||||
Treasury stock, at cost, 24,061,327 and 24,410,081 shares in 2010 and 2009, respectively |
(256,792 | ) | (261,382 | ) | ||||
Additional paid-in-capital |
964,156 | 966,945 | ||||||
Accumulated deficit |
(1,049,333 | ) | (1,078,735 | ) | ||||
|
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Total stockholders deficit |
(341,309 | ) | (372,512 | ) | ||||
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Total liabilities and stockholders deficit |
$ | 319,636 | $ | 334,064 | ||||
|
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See accompanying notes to the consolidated financial statements.
F-3
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2010, 2009 and 2008
(Dollars in thousands, except for share and per share data)
2010 | 2009 | 2008 | ||||||||||
Broadcast revenues |
$ | 259,187 | $ | 252,048 | $ | 307,538 | ||||||
Management fee from affiliate |
4,146 | 4,000 | 4,000 | |||||||||
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Net revenues |
263,333 | 256,048 | 311,538 | |||||||||
Operating expenses: |
||||||||||||
Station operating expenses (excluding depreciation, amortization and LMA fees) |
159,807 | 165,676 | 203,222 | |||||||||
Depreciation and amortization |
9,098 | 11,136 | 12,512 | |||||||||
LMA fees |
2,054 | 2,332 | 631 | |||||||||
Corporate general and administrative (including non-cash stock compensation expense of $2,451, $2,879, and $4,663, respectively) |
18,519 | 20,699 | 19,325 | |||||||||
Gain on exchange of assets or stations |
| (7,204 | ) | | ||||||||
Realized loss on derivative instrument |
1,957 | 3,640 | | |||||||||
Impairment of intangible assets and goodwill |
671 | 174,950 | 498,897 | |||||||||
Other operating expenses |
| | 2,041 | |||||||||
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Total operating expenses |
192,106 | 371,229 | 736,628 | |||||||||
Operating income (loss) |
71,227 | (115,181 | ) | (425,090 | ) | |||||||
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Non-operating income (expense): |
||||||||||||
Interest expense |
(30,315 | ) | (34,050 | ) | (48,250 | ) | ||||||
Interest income |
8 | 61 | 988 | |||||||||
Terminated transaction (expense) income |
(7,847 | ) | | 15,000 | ||||||||
Other income (expense), net |
108 | (136 | ) | (10 | ) | |||||||
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Total non-operating expense, net |
(38,046 | ) | (34,125 | ) | (32,272 | ) | ||||||
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Income (loss) before income taxes and equity in net losses of affiliate |
33,181 | (149,306 | ) | (457,362 | ) | |||||||
Income tax (expense) benefit |
(3,779 | ) | 22,604 | 117,945 | ||||||||
Equity losses in affiliate |
| | (22,252 | ) | ||||||||
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Net income (loss) |
$ | 29,402 | $ | (126,702 | ) | $ | (361,669 | ) | ||||
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Basic and diluted income (loss) per common share: |
||||||||||||
Basic income (loss) per common share (See Note 13, Earnings Per Share) |
$ | 0.70 | $ | (3.13 | ) | $ | (8.55 | ) | ||||
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Diluted income (loss) per common share (See Note 13, Earnings Per Share) |
$ | 0.69 | $ | (3.13 | ) | $ | (8.55 | ) | ||||
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Weighted average basic common shares outstanding (See Note 13, Earnings Per Share) |
40,341,011 | 40,426,014 | 42,314,578 | |||||||||
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Weighted average diluted common shares outstanding (See Note 13, Earnings Per Share) |
41,189,161 | 40,426,014 | 42,314,578 | |||||||||
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See accompanying notes to the consolidated financial statements.
F-4
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT AND
COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 2010, 2009 and 2008
(Dollars in thousands, except for share data)
Class A Common Stock |
Class B Common Stock |
Class C Common Stock |
Treasury Stock |
Accumulated Other Comprehensive Income |
Additional Paid-In Capital |
Accumulated Deficit |
Total | |||||||||||||||||||||||||||||||||||||
Number of Shares |
Par Value |
Number of Shares |
Par Value |
Number of Shares |
Par Value |
|||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2008 |
59,468,086 | $ | 595 | 5,809,191 | $ | 58 | 644,871 | $ | 6 | $ | (267,084 | ) | $ | 4,800 | $ | 971,267 | $ | (590,364 | ) | $ | 119,278 | |||||||||||||||||||||||
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Net loss |
(361,669 | ) | (361,669 | ) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivative instrument |
| | | | | | | (3,972 | ) | | | (3,972 | ) | |||||||||||||||||||||||||||||||
Total comprehensive loss |
(365,641 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock |
104,506 | 1 | | | | | | | 707 | | 708 | |||||||||||||||||||||||||||||||||
Restricted shares issued from treasury |
| | | | | | 5,409 | | (5,409 | ) | | | ||||||||||||||||||||||||||||||||
Dutch offer fees |
| | | | | | (33 | ) | | | | (33 | ) | |||||||||||||||||||||||||||||||
Share repurchase program |
| | | | | | (6,522 | ) | | | | (6,522 | ) | |||||||||||||||||||||||||||||||
Shares returned in lieu of tax payments |
| | | | | | (168 | ) | | | | (168 | ) | |||||||||||||||||||||||||||||||
Non cash stock compensation expense |
| | | | | | | | 4,231 | | 4,231 | |||||||||||||||||||||||||||||||||
Restricted shares issued in connection with exchange offer |
| | | | | | 3,120 | | (3,120 | ) | | | ||||||||||||||||||||||||||||||||
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Balance at December 31, 2008 |
59,572,592 | $ | 596 | 5,809,191 | $ | 58 | 644,871 | $ | 6 | $ | (265,278 | ) | $ | 828 | $ | 967,676 | $ | (952,033 | ) | $ | (248,147 | ) | ||||||||||||||||||||||
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Net loss |
(126,702 | ) | (126,702 | ) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivative instrument |
| | | | | | | (828 | ) | | | (828 | ) | |||||||||||||||||||||||||||||||
Total comprehensive loss |
(127,530 | ) | ||||||||||||||||||||||||||||||||||||||||||
Warrants issued in conjunction with 2009 debt amendment |
| | | | | | | | 812 | | 812 | |||||||||||||||||||||||||||||||||
Restricted shares issued from treasury |
| | | | | | 5,185 | | (5,185 | ) | | | ||||||||||||||||||||||||||||||||
Share repurchase program |
| | | | | | (193 | ) | | | | (193 | ) | |||||||||||||||||||||||||||||||
Shares returned in lieu of tax payments |
| | | | | | (107 | ) | | | | (107 | ) | |||||||||||||||||||||||||||||||
Non cash stock compensation expense |
| | | | | | | | 2,653 | | 2,653 | |||||||||||||||||||||||||||||||||
Restricted share forfeitures |
| | | | | | (989 | ) | | 989 | | | ||||||||||||||||||||||||||||||||
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Balance at December 31, 2009 |
59,572,592 | $ | 596 | 5,809,191 | $ | 58 | 644,871 | $ | 6 | $ | (261,382 | ) | $ | | $ | 966,945 | $ | (1,078,735 | ) | $ | (372,512 | ) | ||||||||||||||||||||||
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Net income |
29,402 | 29,402 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): |
|
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Total comprehensive income |
29,402 | |||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock |
27,265 | | | | | | | | | | | |||||||||||||||||||||||||||||||||
Restricted shares issued from treasury |
| | | | | | 4,898 | | (4,898 | ) | | | ||||||||||||||||||||||||||||||||
Transfer of restricted shares to equity |
| | | | | | 165 | | 378 | | 543 | |||||||||||||||||||||||||||||||||
Shares returned in lieu of tax payments |
| | | | | | (343 | ) | | | | (343 | ) | |||||||||||||||||||||||||||||||
Non cash stock compensation expense |
| | | | | | | | 1,601 | | 1,601 | |||||||||||||||||||||||||||||||||
Restricted share forfeitures |
| | | | | | (130 | ) | | 130 | | | ||||||||||||||||||||||||||||||||
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Balance at December 31, 2010 |
59,599,857 | $ | 596 | 5,809,191 | $ | 58 | 644,871 | $ | 6 | $ | (256,792 | ) | $ | | $ | 964,156 | $ | (1,049,333 | ) | $ | (341,309 | ) | ||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2010, 2009 and 2008
(Dollars in thousands)
2010 | 2009 | 2008 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | 29,402 | $ | (126,702 | ) | $ | (361,669 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
9,098 | 11,136 | 12,512 | |||||||||
Amortization of debt issuance costs/discount |
1,248 | 1,079 | 434 | |||||||||
Amortization of derivative gain |
| (828 | ) | (3,972 | ) | |||||||
Provision for doubtful accounts |
1,271 | 2,386 | 3,754 | |||||||||
Loss on sale of assets or stations |
(116 | ) | (29 | ) | (21 | ) | ||||||
Gain on exchange of assets or stations |
| (7,204 | ) | | ||||||||
Fair value adjustment of derivative instruments |
(9,999 | ) | 771 | 13,640 | ||||||||
Equity loss on investment in unconsolidated affiliate |
| | 22,252 | |||||||||
Impairment of intangible assets and goodwill |
671 | 174,950 | 498,897 | |||||||||
Deferred income taxes |
3,429 | (23,178 | ) | (118,411 | ) | |||||||
Non-cash stock compensation |
2,451 | 2,879 | 4,663 | |||||||||
Changes in assets and liabilities, net of effects of acquisitions/dispositions: |
||||||||||||
Restricted cash |
185 | (789 | ) | | ||||||||
Accounts receivable |
(2,034 | ) | 2,685 | 4,833 | ||||||||
Trade receivable |
1,882 | (3,864 | ) | (290 | ) | |||||||
Prepaid expenses and other current assets |
306 | (1,422 | ) | 2,548 | ||||||||
Accounts payable and accrued expenses |
5,879 | (5,060 | ) | 14 | ||||||||
Trade payable |
(1,964 | ) | 3,584 | (537 | ) | |||||||
Other assets |
2,087 | (328 | ) | (315 | ) | |||||||
Other liabilities |
(1,058 | ) | (1,375 | ) | (1,678 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
42,738 | 28,691 | 76,654 | |||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from sale of assets or radio stations |
296 | 102 | 323 | |||||||||
Purchases of intangible assets |
(246 | ) | | (1,008 | ) | |||||||
Acquisition costs |
| (52 | ) | | ||||||||
Capital expenditures |
(2,475 | ) | (3,110 | ) | (6,069 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(2,425 | ) | (3,060 | ) | (6,754 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from bank credit facility |
| | 75,000 | |||||||||
Repayments of borrowings from bank credit facility |
(43,136 | ) | (59,110 | ) | (115,300 | ) | ||||||
Tax withholding paid on behalf of employees |
(343 | ) | (107 | ) | (2,413 | ) | ||||||
Debt discount fees |
(244 | ) | (3,000 | ) | | |||||||
Payments for repurchases of common stock |
| (193 | ) | (6,522 | ) | |||||||
Proceeds from issuance of common stock |
| | 52 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in financing activities |
(43,723 | ) | (62,410 | ) | (49,183 | ) | ||||||
(Decrease) increase in cash and cash equivalents |
(3,410 | ) | (36,779 | ) | 20,717 | |||||||
Cash and cash equivalents at beginning of period |
16,224 | 53,003 | 32,286 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of period |
$ | 12,814 | $ | 16,224 | $ | 53,003 | ||||||
|
|
|
|
|
|
|||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Interest paid |
$ | 41,416 | $ | 39,381 | $ | 36,789 | ||||||
Income taxes paid |
324 | 895 | 618 | |||||||||
Trade revenue |
16,748 | 16,612 | 14,821 | |||||||||
Trade expense |
16,546 | 16,285 | 14,499 |
See accompanying notes to the consolidated financial statements.
F-6
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business, Basis of Presentation and Summary of Significant Accounting Policies:
Description of Business
Cumulus Media Inc., (Cumulus or the Company) is a radio broadcasting corporation incorporated in the state of Delaware, focused on acquiring, operating and developing commercial radio stations in mid-size radio markets in the United States.
Liquidity Considerations
On June 29, 2009, the Company entered into an amendment to the credit agreement governing its senior secured credit facility (Credit Agreement). The Credit Agreement maintains the preexisting term loan facility of $750.0 million, which, as of December 31, 2010, the Company had an outstanding balance of approximately $593.8 million, and reduces the preexisting revolving credit facility from $100.0 million to $20.0 million. Additional facilities are no longer permitted under the Credit Agreement. See Note 9, Long-Term Debt for further discussion of the Credit Agreement.
As discussed further in Note 9, Long-Term Debt, the Company entered into a third amendment to the Credit Agreement in June 2009 (the June 2009 Amendment), whereby the total leverage ratio and fixed charge coverage ratio covenants for the fiscal quarters ending June 30, 2009 through and including December 31, 2010 (the Covenant Suspension Period) were suspended. During the Covenant Suspension Period, the Companys loan covenants required the Company to: (1) maintain a minimum trailing twelve month consolidated EBITDA (as defined in the Credit Agreement) of $60.0 million for fiscal quarters through March 31, 2010, increasing incrementally to $66.0 million for fiscal quarter ended December 31, 2010, subject to certain adjustments; and (2) maintain minimum cash on hand (defined as unencumbered consolidated cash and cash equivalents in the Credit Agreement) of at least $7.5 million. For the fiscal quarter ending March 31, 2011 (the first quarter after the Covenant Suspension Period), the total leverage ratio covenant will be 6.5:1 and the fixed charge coverage ratio covenant will be 1.2:1. At December 31, 2010, the Company was in compliance with all of its covenants. Additionally, the Companys Total Leverage Ratio was 6.8:1 and the Fixed Charge Coverage Ratio was 2.2:1. The Company expects to be in compliance with its debt covenants in 2011, however no assurance can be provided.
However, if the Company is unable to comply with its debt covenants, the Company would need to seek a waiver or amendment to the Credit Agreement and no assurances can be given that the Company will be able to do so. If the Company were unable to obtain a waiver or an amendment to the Credit Agreement in the event of a debt covenant violation, the Company would be in default under the Credit Agreement, which could have a material adverse impact on the Companys financial position.
If the Company were unable to repay its debts when due, the lenders under the credit facilities could proceed against the collateral granted to them to secure that indebtedness. The Company has pledged substantially all of its assets as collateral under the Credit Agreement. If the lenders accelerate the maturity of outstanding debt, the Company may be forced to liquidate certain assets to repay all or part of the senior secured credit facilities, and the Company cannot be assured that sufficient assets will remain after it has paid all of its debt. The ability to liquidate assets is affected by the regulatory restrictions associated with radio stations, including FCC licensing, which may make the market for these assets less liquid and increase the chances that these assets will be liquidated at a significant loss
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
F-7
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reportable Segment
The Company operates under one reportable business segment, radio broadcasting, for which segment disclosure is consistent with the management decision-making process that determines the allocation of resources and the measuring of performance.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, intangible assets, derivative financial instruments, income taxes, stock-based compensation, restructuring and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Accounts Receivable and Concentration of Credit Risks
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Companys best estimate of the amount of probable credit losses in the Companys existing accounts receivable. The Company determines the allowance based on several factors including the length of time receivables are past due, trends and current economic factors. All balances are reviewed and evaluated on a consolidated basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
In the opinion of management, credit risk with respect to accounts receivable is limited due to the large number of diversified customers and the geographic diversification of the Companys customer base. The Company performs ongoing credit evaluations of its customers and believes that adequate allowances for any uncollectible accounts receivable are maintained.
Property and Equipment
Property and equipment are stated at cost. Property and equipment acquired in business combinations are recorded at their estimated fair values on the date of acquisition under the purchase method of accounting. Equipment under capital leases is stated at the present value of minimum lease payments.
Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease. Depreciation of construction in progress is not recorded until the assets are placed into service. Routine maintenance and repairs are expensed as incurred. Depreciation of construction in progress is not recorded until the assets are placed into service.
F-8
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intangible Assets and Goodwill
The Companys intangible assets are comprised of broadcast licenses, certain other intangible assets and goodwill. Goodwill represents the excess of costs over fair value of assets of businesses acquired. Intangible assets and goodwill acquired in a purchase business combination and determined to have an indefinite useful life, which include the Companys broadcast licenses, are not amortized, but instead tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.
In determining that the Companys broadcast licenses qualified as indefinite lived intangibles, management considered a variety of factors including the Federal Communications Commissions historical track record of renewing broadcast licenses, the very low cost to the Company of renewing the applications, the relative stability and predictability of the radio industry and the relatively low level of capital investment required to maintain the physical plant of a radio station. The Company evaluates the recoverability of its indefinite-lived assets, which include broadcasting licenses, goodwill, deferred charges, and other assets, using judgments and estimates. Future events may impact these judgments and estimates. If events or changes in circumstances were to indicate that an assets carrying value is not recoverable, a write-down of the asset would be recorded through a charge to operations.
Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized using the effective interest method to interest expense over the life of the related debt. The Company recognized amortization expense of $0.4 million for each of the years ended December 31, 2010, 2009 and 2008.
Derivative Financial Instruments
The Company recognizes all derivatives on the balance sheet at fair value. Fair value changes are recorded in income for any contracts not classified as qualifying hedging instruments. For derivatives qualifying as cash flow hedge instruments, the effective portion of the derivative fair value change must be recorded through other comprehensive income, a component of stockholders deficit.
Revenue Recognition
Revenue is derived primarily from the sale of commercial airtime to local and national advertisers. Revenue is recognized as commercials are broadcast. Revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees by the advertising agencies, usually at a rate of 15.0%.
Trade Agreements
The Company provides commercial airtime in exchange for goods and services used principally for promotional, sales and other business activities. An asset and liability is recorded at the fair market value of the goods or services received. Trade revenue is recorded and the liability is relieved when commercials are broadcast and trade expense is recorded and the asset relieved when goods or services are consumed.
Local Marketing Agreements
In certain circumstances, the Company enters into a local marketing agreement (LMA) or time brokerage agreement with a Federal Communications Commission (FCC) licensee of a radio station. In a typical LMA, the licensee of the station makes available, for a fee, airtime on its station to a party, which supplies programming to be broadcast on that airtime, and collects revenues from advertising aired during such programming. Revenues earned and LMA fees incurred pursuant to local marketing agreements or time brokerage agreements are recognized at their gross amounts in the accompanying consolidated statements of operations.
F-9
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2010 and 2009, the Company operated 12 radio stations, respectively, under LMAs. As of December 31, 2008, the Company operated seven radio stations under LMAs. The stations operated under LMAs contributed $10.6 million, $9.2 million, and $6.4 million, in years 2010, 2009, and 2008, respectively, to the consolidated net revenues of the Company.
Investment in Affiliate
As of December 31, 2010 the Company had a 25.0% economic interest in Cumulus Media Partners (CMP), acquired in May 2006. The investment is accounted for under the equity method (see Note 8, Investment in Affiliate). The Companys consolidated operating results include its proportionate share of CMPs net losses for the years ended December 31, 2010, 2009, and 2008. As of December 31, 2010, the Companys proportionate share of its affiliate losses exceeded its investment in CMP.
Stock-based Compensation
The Company currently uses the Black-Scholes option pricing model to determine the fair value of its stock options. The determination of the fair value of the awards on the date of grant using an option-pricing model is affected by the Companys stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the historical stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates and estimated expected dividends.
Trade Transactions
The Company provides advertising time in exchange for certain products, supplies and services. The Company includes the value of such exchanges in both station revenues and station operating expenses. Trade valuation is based upon managements estimate of the fair value of the products, supplies and services received. For the years ended December 31, 2010, 2009 and 2008, amounts reflected under trade transactions were: (1) trade revenues of $16.7 million, $16.6 million and $14.8 million, respectively; and (2) trade expenses of $16.5 million, $16.3 million and $14.5 million, respectively.
Income Taxes
The Company uses the liability method of accounting for deferred income taxes. Deferred income taxes are recognized for all temporary differences between the tax and financial reporting bases of the Companys assets and liabilities based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded for a net deferred tax asset balance when it is more likely than not that the benefits of the tax asset will not be realized. The Company continues to assess the need for its deferred tax asset valuation allowance in the jurisdictions in which it operates. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement of the period that the adjustment is determined to be required. See Note 12, Income Taxes for further discussion.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.
F-10
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Earnings per Share
Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted income (loss) per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options and restricted stock using the treasury stock method.
Fair Values of Financial Instruments
The carrying values of cash equivalents, accounts receivables, accounts payable, and accrued expenses approximate fair value due to the short maturity of these instruments. As of December 31, 2010, the fair value of the Companys term loan was $547.8 million which was based on a risk adjusted rate.
Accounting for National Advertising Agency Contract
The Company engages Katz Media Group, Inc. (Katz) as its national advertising sales agent. The contract has several economic elements that principally reduce the overall expected commission rate below the stated base rate. The Company estimates the overall expected commission rate over the entire contract period and applies that rate to commissionable revenue throughout the contract period with the goal of estimating and recording a stable commission rate over the life of the contract.
The potential commission adjustments are estimated and combined in the balance sheet with the contractual termination liability. That liability is accreted to commission expense to effectuate the stable commission rate over the course of the Katz contract.
The Companys accounting for and calculation of commission expense to be realized over the life of the Katz contract requires management to make estimates and judgments that affect reported amounts of commission expense. Actual results may differ from managements estimates. Over the course of the Companys contractual relationship with Katz, management will continually update its assessment of the effective commission expense attributable to national sales in an effort to record a consistent commission rate over the term of the Katz contract.
Variable Interest Entities
The Company accounts for entities qualifying as variable interest entities (VIEs) in accordance with ASC 810, Consolidation. VIEs are required to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the variable interest entity. A VIE is an entity for which the primary beneficiarys interest in the entity can change with changes in factors other than the amount of investment in the entity. From time to time, the Company enters into local marketing agreements in connection with pending acquisitions or dispositions of radio stations and the requirements of ASC 810 may apply, depending on the facts and circumstances related to each transaction. As of December 31, 2010, ASC 810 has not applied to any local marketing agreements.
Recent Accounting Pronouncements
ASU 2009-17. In December 2009, the Financial Accounting Standards Board (FASB) issued ASU No. 2009-17, Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU No. 2009-17) which amends the FASB ASC for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R), issued by the FASB in June 2009. The amendments in this ASU replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity (VIE) with an approach primarily focused on identifying which reporting entity has the power to direct the activities of a VIE that most significantly impact the entitys economic performance and (1) the obligation to absorb the losses of the entity or (2) the right to receive the benefits from the entity. ASU No. 2009-17 also requires additional disclosure about a reporting entitys involvement in a VIE, as well as any significant changes in risk exposure due to that involvement. ASU No. 2009-17 is
F-11
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
effective for annual and interim periods beginning after November 15, 2009. The adoption of ASU No. 2009-07 required the Company to make additional disclosures but did not have a material impact on the Companys financial position, results of operations and cash flows. See Note 19, Variable Interest Entity, for further discussion.
ASU 2010-06. The FASB issued ASU No. 2010-06 which provides improvements to disclosure requirements related to fair value measurements. New disclosures are required for significant transfers in and out of Level 1 and Level 2 fair value measurements, disaggregation regarding classes of assets and liabilities, valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 or Level 3. These disclosures are effective for the interim and annual reporting periods beginning after December 15, 2009. Additional new disclosures regarding the purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010 beginning with the first interim period. The Company adopted the portions of this update which became effective January 1, 2010, for its financial statements as of that date. See Note 7, Fair Value Measurements.
ASU 2010-28. In December 2010, the FASB provided additional guidance for performing Step 1 of the test for goodwill impairment when an entity has reporting units with zero or negative carrying values. This ASU updates ASC 350, Intangibles Goodwill and Other, to amend the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The guidance will be effective for the Company on January 1, 2011. The amended guidance is not expected to have a material impact on the Companys consolidated financial statements.
ASU 2010-29. In December 2010, the FASB issued clarification of the accounting guidance around disclosure of pro forma information for business combinations that occur in the current reporting period. The guidance requires the Company to present pro forma information in its comparative financial statements as if the acquisition date for any business combinations taking place in the current reporting period had occurred at the beginning of the prior year reporting period. The Company will adopt this guidance effective January 1, 2011, and include any required pro forma information for the proposed acquisition of CMP, which is expected to be completed in the first half of 2011.
2. Acquisitions and Dispositions
2010 Acquisitions
The Company did not complete any material acquisitions or dispositions during the year ended December 31, 2010.
2009 Acquisitions
Green Bay and Cincinnati Asset Exchange
On April 10, 2009, the Company completed an asset exchange with Clear Channel Communications, Inc. (Clear Channel). As part of the asset exchange, the Company acquired two of Clear Channels radio stations located in Cincinnati, Ohio in exchange for five of the Companys radio stations in the Green Bay, Wisconsin market. The exchange transaction provided the Company with direct entry into the Cincinnati market (notwithstanding the Companys current presence through its investment in CMP (see Note 8, Investment in Affiliate)), which was ranked #28 at that time by Arbitron. The transaction was accounted for as a business combination. The fair value of the assets acquired in the exchange was $17.6 million (refer to the table below for the purchase price allocation). The Company incurred approximately $0.2 million of acquisition costs related to this transaction and expensed them as incurred through earnings within corporate general and administrative expense. The $0.9 million of goodwill identified in the purchase price allocation below is deductible for tax purposes. During the fourth quarter of 2009 the Company adjusted the purchase price allocation to record an intangible asset of approximately $0.7 million related to certain tower leases which will be amortized over the next four years in accordance with the
F-12
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
terms of the leases. The results of operations for the Cincinnati stations acquired have been included in the statements of operations since the acquisition date. The results of the Cincinnati stations were not material to the Companys results of operations. Prior to the asset exchange, the Company and Clear Channel did not have any preexisting relationship with regard to the Green Bay market.
In conjunction with the exchange on April 10, 2009, Clear Channel and the Company entered into an LMA whereby the Company is responsible for operating (i.e. programming, advertising, etc.) the five Green Bay radio stations that were sold to Clear Channel and must pay Clear Channel a monthly fee of approximately $0.2 million over a five year term (expiring December 31, 2013), in exchange for the Company retaining the operating profits for managing the radio stations. In conjunction with the LMA, the Company included the net revenues and station operating expenses associated with operating the Green Bay stations in the Companys consolidated financial statements from the effective date of the LMA (April 10, 2009) through December 31, 2009. Additionally, Clear Channel negotiated a written put option that allows them to require the Company to repurchase the five Green Bay radio stations at any time during the two-month period commencing July 1, 2013 (or earlier if the LMA is terminated prior to that date) for $17.6 million (the fair value of the radio stations as of April 10, 2009). The Company accounted for the put option as a derivative contract and accordingly, the fair value of the put was recorded as a liability at the acquisition date and offset against the gain associated with the asset exchange. Subsequent changes to the fair value of the derivative are recorded through earnings. See Note 6, Derivative Instruments.
In conjunction with the transactions, the Company recorded a net gain of $7.2 million, which is included in the gain on exchange of assets in the statements of operations. This amount represents a gain of approximately $9.6 million recorded on the Green Bay stations sold, net of a loss of approximately $2.4 million representing the fair value of the put option at acquisition date.
The table below summarizes the final purchase price allocation (dollars in thousands):
Allocation |
Amount | |||
Fixed assets |
$ | 458 | ||
Broadcast licenses |
15,353 | |||
Goodwill |
874 | |||
Other intangibles |
951 | |||
|
|
|||
Total purchase price |
$ | 17,636 | ||
Less: Carrying value of Green Bay stations |
(7,999 | ) | ||
|
|
|||
Gain on asset exchange |
$ | 9,637 | ||
Less: Fair value of Green Bay Option April 10, 2009 |
(2,433 | ) | ||
|
|
|||
Net gain |
$ | 7,204 | ||
|
|
WZBN-FM Swap
During the first quarter ended March 31, 2009, the Company completed a swap transaction pursuant to which it exchanged WZBN-FM, Camilla, Georgia, for W250BC, a translator licensed for use in Atlanta, Georgia, owned by Extreme Media Group. The fair value of the assets acquired in exchange for the assets disposed was accounted for in accordance with the guidance for business combinations. This transaction was not material to the results of the Company.
F-13
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Property and Equipment
Property and equipment consists of the following as of December 31, 2010 and 2009 (dollars in thousands):
Estimated Useful Life |
2010 | 2009 | ||||||||||
Land |
$ | 10,069 | $ | 10,088 | ||||||||
Broadcasting and other equipment |
3 to 7 years | 126,521 | 125,462 | |||||||||
Computer and capitalized software costs |
1 to 3 years | 13,238 | 12,527 | |||||||||
Furniture and fixtures |
5 years | 11,447 | 11,824 | |||||||||
Leasehold improvements |
5 years | 10,348 | 10,300 | |||||||||
Buildings |
20 years | 26,752 | 27,138 | |||||||||
Construction in progress |
2,062 | 1,658 | ||||||||||
|
|
|
|
|||||||||
200,437 | 198,997 | |||||||||||
Less: accumulated depreciation |
(160,753 | ) | (152,016 | ) | ||||||||
|
|
|
|
|||||||||
$ | 39,684 | $ | 46,981 | |||||||||
|
|
|
|
4. Intangible Assets and Goodwill
The following tables present the changes in intangible assets and goodwill for the year ended December 31, 2010 and 2009 (dollars in thousands):
Indefinite Lived | Definite Lived | Total | ||||||||||
Intangible Assets: |
||||||||||||
Balance as of December 31, 2008 |
$ | 325,131 | $ | 3 | $ | 325,134 | ||||||
|
|
|
|
|
|
|||||||
Acquisition |
15,353 | 841 | 16,194 | |||||||||
Disposition |
(7,471 | ) | | (7,471 | ) | |||||||
Amortization |
| (265 | ) | (265 | ) | |||||||
Impairment |
(172,212 | ) | | (172,212 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2009 |
$ | 160,801 | $ | 579 | $ | 161,380 | ||||||
|
|
|
|
|
|
|||||||
Acquisition |
230 | | 230 | |||||||||
Amortization |
| (201 | ) | (201 | ) | |||||||
Impairment |
(629 | ) | | (629 | ) | |||||||
Reclassifications |
16 | 174 | 190 | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2010 |
$ | 160,418 | $ | 552 | $ | 160,970 | ||||||
|
|
|
|
|
|
2010 | 2009 | |||||||
Balance as of January 1: Goodwill |
$ | 285,820 | $ | 285,852 | ||||
Accumulated impairment losses |
(229,699 | ) | (226,962 | ) | ||||
|
|
|
|
|||||
Subtotal |
56,121 | 58,890 | ||||||
Goodwill acquired during the year |
| 874 | ||||||
Impairment losses |
(42 | ) | (2,737 | ) | ||||
Goodwill related to sale of business unit |
| (906 | ) | |||||
|
|
|
|
|||||
Balance as of December 31: |
||||||||
Goodwill |
285,820 | 285,820 | ||||||
Accumulated impairment losses |
(229,741 | ) | (229,699 | ) | ||||
|
|
|
|
|||||
Total |
$ | 56,079 | $ | 56,121 | ||||
|
|
|
|
F-14
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has significant intangible assets recorded and these intangible assets are comprised primarily of broadcast licenses and goodwill acquired through the acquisition of radio stations. The Company reviews the carrying value of its indefinite lived intangible assets and goodwill, at least annually for impairment. If the carrying value exceeds the estimate of fair value, the Company calculates the impairment as the excess of the carrying value of goodwill over its implied fair value and charges it to results of operations.
Goodwill
2010 Impairment Testing
The Company performs its annual impairment testing of goodwill during the fourth quarter and on an interim basis if events or circumstances indicate that goodwill may be impaired. The calculation of the fair value of each reporting unit is prepared using an income approach and discounted cash flow methodology. As part of its overall planning associated with the testing of goodwill, the Company determined that its geographic markets are the appropriate reporting unit.
During the fourth quarter the Company performed its annual impairment test. The assumptions used in estimating the fair values of reporting units are based on currently available data at the time the test is conducted and managements best estimates and accordingly, a change in market conditions or other factors could have a material effect on the estimated values.
Step 1 Goodwill Test
The Company performed its annual impairment testing of goodwill using a discounted cash flow analysis to calculate the fair value of each market, an income approach. The discounted cash flow approach requires the projection of future cash flows and the calculation of these cash flows into their present value equivalent via a discount rate. The Company used an approximate eight-year projection period to derive operating cash flow projections from a market participant level. The Company made certain assumptions regarding future audience shares and revenue shares in reference to actual historical performance. The Company then projected future operating expenses in order to derive operating profits, which the Company combined with working capital additions and capital expenditures to determine operating cash flows.
The Company performed the Step 1 test for its annual impairment test and it compared the fair value of each market to the carrying value of its net assets as of December 31, 2010. The Step 1 test was used to determine if any of the Companys markets have an indicator of impairment (i.e. the market net asset carrying value was greater than the calculated fair value of the market). For instances where this was the case, the Company performed the Step 2 test to determine if goodwill in those markets was impaired.
The Companys analysis determined that, based on its Step 1 goodwill test, the fair value of 1 of its 16 markets containing goodwill balances was below its carrying value. For the remaining markets, since no impairment indicator existed in Step 1, the Company determined goodwill was appropriately stated as of December 31, 2010.
Step 2 Goodwill Test
As required by the Step 2 test, the Company prepared an allocation of the fair value of the markets identified in the Step 1 test as if each market was acquired in a business combination. The presumed purchase price utilized in the calculation is the fair value of the market determined in the Step 1 test. The results of the Step 2 test and the calculated impairment charge follows (dollars in thousands):
Reporting
Unit Fair Value |
Implied
Goodwill Value |
December 31, 2010 | ||||||||||||||
Market ID |
Carrying Value | Impairment | ||||||||||||||
Market 27 |
$ | 1,017 | $ | | $ | 42 | $ | 42 |
F-15
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a breakdown of the goodwill balances as of December 31, 2010, by market:
Market ID |
Goodwill Balance |
|||
Market 7 |
$ | 3,827 | ||
Market 8 |
3,726 | |||
Market 11 |
13,847 | |||
Market 59 |
875 | |||
Market 17 |
2,450 | |||
Market 19 |
1,672 | |||
Market 26 |
2,068 | |||
Market 30 |
5,684 | |||
Market 35 |
1,150 | |||
Market 36 |
712 | |||
Market 37 |
9,754 | |||
Market 48 |
1,478 | |||
Market 51 |
4,284 | |||
Market 56 |
2,585 | |||
Market 57 |
1,967 | |||
|
|
|||
$ | 56,079 |
To validate the Companys conclusions and determine the reasonableness of the impairment charge related to goodwill the Company:
| conducted an overall reasonableness check of the Companys fair value calculations by comparing the aggregate, calculated fair value of the Companys markets to its market capitalization as of December 31, 2010; |
| prepared a market fair value calculation using a multiple of Adjusted EBITDA as a comparative data point to validate the fair values calculated using the discounted cash-flow approach; and |
| reviewed the historical operating performance of each market with impairment. |
The discount rate employed in the market fair value calculation ranged between 11.8% and 12.1% for the annual test. The Company believes that the discount rate range was appropriate and reasonable for goodwill purposes due to the resulting implied exit multiple of approximately 8.7.
For periods after 2010, the Company projected a median annual revenue growth of 2.8% and median annual operating expense to increase at a growth rate of 2.5% 3.0% for its annual test. The Company derived projected expense growth based primarily on the stations historical financial performance and expected future revenue growth. The Companys projections were based on then-current market and economic conditions and the Companys historical knowledge of the markets.
After completing our annual test, as compared with the market capitalization value of $727.7 million as of December 31, 2010, the aggregate fair value of all markets of approximately $767.8 million was approximately $40.1 million, or 5.5%, higher than market capitalization.
Key data points included in the market capitalization calculation were as follows:
| shares outstanding of 42.0 million as of December 31, 2010; |
| average closing price of the Companys Class A Common Stock over 30 days for December 31, 2010 of $4.28 per share; and |
| debt discounted by 7.3% (gross $593.7 million and $547.8 million, net), on December 31, 2010. |
F-16
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Utilizing the above analysis and data points, the Company concluded the fair values of its markets, as calculated, are appropriate and reasonable.
Indefinite Lived Intangibles (FCC Licenses)
The Company performs its annual impairment testing of indefinite lived intangibles (the Companys FCC licenses) during the fourth quarter and on an interim basis if events or circumstances indicate that the asset may be impaired. The Company has combined all of its broadcast licenses within a single geographic market cluster into a single unit of accounting for impairment testing purposes. As part of the overall planning associated with the indefinite lived intangibles test, the Company determined that its geographic markets are the appropriate unit of accounting for the broadcast license impairment testing.
As a result of the annual impairment test, the Company determined that the carrying value of certain reporting units FCC licenses exceeded their fair values. The Company recorded impairment charges of $0.6 million as a result of the annual impairment test to reduce the carrying value of these assets.
The Company notes that the following considerations continue to apply to the FCC licenses:
| in each market, the broadcast licenses were purchased to be used as one combined asset; |
| the combined group of licenses in a market represents the highest and best use of the assets; and |
| each markets strategy provides evidence that the licenses are complementary. |
For the annual impairment test the Company utilized the three most widely accepted approaches in conducting its appraisals: (1) the cost approach, (2) the market approach, and (3) the income approach. For the appraisals the Company conducted a thorough review of all aspects of the assets being valued.
The cost approach measures value by determining the current cost of an asset and deducting for all elements of depreciation (i.e., physical deterioration as well as functional and economic obsolescence). In its simplest form, the cost approach is calculated by subtracting all depreciation from current replacement cost. The market approach measures value based on recent sales and offering prices of similar properties and analyzes the data to arrive at an indication of the most probable sales price of the subject property. The income approach measures value based on income generated by the subject property, which is then analyzed and projected over a specified time and capitalized at an appropriate market rate to arrive at the estimated value.
The Company relied on both the income and market approaches for the valuation of the FCC licenses, with the exception of certain AM and FM stations that have been valued using the cost approach. The Company estimated this replacement value based on estimated legal, consulting, engineering, and internal charges to be $25,000 for each FM station. For each AM station the replacement cost was estimated at $25,000 for a station licensed to operate with a one-tower array and an additional charge of $10,000 for each additional tower in the stations tower array.
The estimated fair values of the FCC licenses represent the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties (i.e. other than in a forced or liquidation sale).
A basic assumption in the Companys valuation of these FCC licenses was that these radio stations were new radio stations, signing on-the-air as of the date of the valuation. The Company assumed the competitive situation that existed in those markets as of that date, except that these stations were just beginning operations. In doing so, the Company bifurcated the value of going concern and any other assets acquired, and strictly valued the FCC licenses.
F-17
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company estimated the values of the AM and FM licenses, combined, through a discounted cash flow analysis, which is an income valuation approach. In addition to the income approach, the Company also reviewed recent similar radio station sales in similarly sized markets.
In estimating the value of the AM and FM licenses using a discounted cash flow analysis, in order to make the net free cash flow (to invested capital) projections, the Company began with market revenue projections. The Company made assumptions about the stations future audience shares and revenue shares in order to project the stations future revenues. The Company then projected future operating expenses and operating profits derived. By combining these operating profits with depreciation, taxes, additions to working capital, and capital expenditures, the Company projected net free cash flows.
The Company discounted the net free cash flows using an appropriate after-tax average weighted cost of capital ranging between approximately 12.1% and 12.4% for the annual test, and then calculated the total discounted net free cash flows. For net free cash flows beyond the projection period, the Company estimated a perpetuity value, and then discounted to present values, as of the valuation date.
The Company performed discounted cash flow analyses for each market. For each market valued the Company analyzed the competing stations, including revenue and listening shares for the past several years. In addition, for each market the Company analyzed the discounted cash flow valuations of its assets within the market. Finally, the Company prepared a detailed analysis of sales of comparable stations.
The first discounted cash flow analysis examined historical and projected gross radio revenues for each market.
In order to estimate what listening audience share and revenue share would be expected for each station by market, the Company analyzed the Arbitron audience estimates over the past two years to determine the average local commercial share garnered by similar AM and FM stations competing in those radio markets. Often the Company made adjustments to the listening share and revenue share based on its stations signal coverage of the market and the surrounding areas population as compared to the other stations in the market. Based on managements knowledge of the industry and familiarity with similar markets, the Company determined that approximately three years would be required for the stations to reach maturity. The Company also incorporated the following additional assumptions into the discounted cash flow valuation model:
| the stations gross revenues through 2018; |
| the projected operating expenses and profits over the same period of time (the Company considered operating expenses, except for sales expenses, to be fixed, and assumed sales expenses to be a fixed percentage of revenues); |
| the calculations of yearly net free cash flows to invested capital; |
| depreciation on start-up construction costs and capital expenditures (the Company calculated depreciation using accelerated double declining balance guidelines over five years for the value of the tangible assets necessary for a radio station to go on-the-air); and |
| amortization of the intangible asset the FCC License (the Company calculated amortization on a straight line basis over 15 years). |
F-18
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following as of December 31, 2010 and 2009 (dollars in thousands):
2010 | 2009 | |||||||
Accrued terminated deal costs |
$ | 7,847 | $ | | ||||
Non-cash contract termination liability |
2,385 | 2,082 | ||||||
Accrued compensation |
2,188 | 1,314 | ||||||
Accrued commissions |
2,004 | 1,888 | ||||||
Deferred revenue |
1,406 | | ||||||
Accrued employee benefits |
969 | 816 | ||||||
Accrued professional fees |
951 | 732 | ||||||
Accrued real estate taxes |
875 | 1,295 | ||||||
Accrued other |
597 | 1,589 | ||||||
Accrued transaction costs |
427 | 1,005 | ||||||
Accounts payable |
399 | 819 | ||||||
Accrued interest |
218 | 843 | ||||||
Accrued federal and state taxes |
99 | 1,252 | ||||||
|
|
|
|
|||||
Total accounts payable and accrued expenses |
$ | 20,365 | $ | 13,635 | ||||
|
|
|
|
6. Derivative Financial Instruments
The Companys derivative financial instruments consist of the following:
May 2005 Swap
In May 2005, the Company entered into a forward-starting LIBOR-based interest rate swap arrangement (the May 2005 Swap) to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rate of LIBOR. The May 2005 Swap became effective as of March 13, 2006, the end of the term of the Companys prior swap. The May 2005 Swap expired on March 13, 2009, in accordance with the terms of the original agreement. Accordingly, for the twelve months ended December 31, 2010, the Company did not record any interest expense related to the May 2005 Swap. For the years ended December 31, 2009 and 2008, interest expense included income of $3.0 million and expense of $3.8 million, respectively.
The May 2005 Swap changed the variable-rate cash flow exposure on $400.0 million of the Companys long-term bank borrowings to fixed-rate cash flows. Under the May 2005 Swap the Company received LIBOR-based variable interest rate payments and made fixed interest rate payments, thereby creating fixed-rate long-term debt. The May 2005 Swap was previously accounted for as a qualifying cash flow hedge of the future variable rate interest payments. Starting in June 2006, the May 2005 Swap no longer qualified as a cash flow hedging instrument. Accordingly, the changes in its fair value have since been reflected in the statement of operations instead of accumulated other comprehensive income.
May 2005 Option
In May 2005, the Company also entered into an interest rate option agreement (the May 2005 Option), which provides for Bank of America, N.A. to unilaterally extend the period of the May 2005 Swap for two additional years, from March 13, 2009 through March 13, 2011. This option was exercised on March 11, 2009 by Bank of America, N.A. This instrument was not highly effective in mitigating the risks in cash flows, and therefore it was
F-19
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
deemed speculative and its changes in value were accounted for as a current element of interest expense. The balance sheets as of December 31, 2010 and December 31, 2009 reflect current liabilities of $3.7 million and other long-term liabilities of $15.6 million, respectively, to include the fair value of the May 2005 Option. The Company reported interest income of $12.0 million during the year ended December 31, 2010 and interest expense of $0.2 million and $11.0 million, inclusive of the fair value adjustment during the years ended December 31, 2009 and 2008, respectively.
In the event of a default under the Credit Agreement as defined in Note 9, Long-Term Debt, or a default under any derivative contract, the derivative counterparties would have the right, although not the obligation, to require immediate settlement of some or all open derivative contracts at their then-current fair value. The Company does not utilize financial instruments for trading or other speculative purposes.
The Companys financial instrument counterparties are high-quality investments or commercial banks with significant experience with such instruments. The Company manages exposure to counterparty credit risk by requiring specific minimum credit standards and diversification of counterparties. The Company has procedures to monitor the credit exposure amounts. The maximum credit exposure at December 31, 2010 was not significant to the Company.
Green Bay Option
On April 10, 2009, Clear Channel and the Company entered into an LMA whereby the Company is responsible for operating (i.e., programming, advertising, etc.) five Green Bay radio stations and must pay Clear Channel a monthly fee of approximately $0.2 million over a five year term (expiring December 31, 2013), in exchange for the Company retaining the operating profits for managing the radio stations. Clear Channel also has a put option (the Green Bay Option) that allows it to require the Company to repurchase the five Green Bay radio stations at any time during the two-month period commencing July 1, 2013 (or earlier if the LMA is terminated before this date) for $17.6 million (the fair value of the radio stations as of April 10, 2009). The Company accounted for the Green Bay Option as a derivative contract. Accordingly, the fair value of the put was recorded as a liability offsetting the gain at the acquisition date with subsequent changes in the fair value recorded through earnings. The fair value of the Green Bay Option was determined using inputs that are supported by little or no market activity (a Level 3 measurement). The fair value represents an estimate of the net amount that the Company would pay if the option was transferred to another party as of the date of the valuation.
The balance sheets as of December 31, 2010 and December 31, 2009 reflect other long-term liabilities of $8.0 million and $6.1 million, respectively to include the fair value of the Green Bay Option. Accordingly, the Company recorded $2.0 million and $3.6 million of expense in realized loss on derivative instruments associated with marking to market the Green Bay Option to reflect the fair value of the option during the years ended December 31, 2010 and 2009, respectively.
F-20
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The location and fair value amounts of derivatives in the consolidated balance sheets are shown in the following table:
Information on the Location and Amounts of Derivatives Fair Values in the
Consolidated Balance Sheets (dollars in thousands)
Fair Value | ||||||||||
Balance Sheet Location |
December 31, 2010 |
December 31, 2009 |
||||||||
Derivative not designated as hedging instruments: |
||||||||||
Green Bay Option |
Other long-term liabilities | $ | 8,030 | $ | 6,073 | |||||
Interest rate swap option |
Other current liabilities | 3,683 | | |||||||
Interest rate swap option |
Other long-term liabilities | | 15,639 | |||||||
|
|
|
|
|||||||
Total | $ | 11,713 | $ | 21,712 | ||||||
|
|
|
|
The location and effect of derivatives in the statements of operations are shown in the following table (dollars in thousands):
Amount of Income (Expense) Recognized on Derivatives for the Year Ended |
||||||||||
Derivative Instruments |
Statement of Operations Location |
December 31, 2010 |
December 31, 2009 |
|||||||
Green Bay Option |
Realized loss on derivative instrument | $ | (1,957 | ) | $ | (3,640 | ) | |||
Interest rate swap option |
Interest income (expense) | 11,956 | (174 | ) | ||||||
Interest rate swap |
Interest income | | 3,043 | |||||||
|
|
|
|
|||||||
Total | $ | 9,999 | $ | (771 | ) | |||||
|
|
|
|
7. Fair Value Measurements
The three levels of the fair value hierarchy to be applied to financial instruments when determining fair value are described below:
Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access;
Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and
Level 3 Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
F-21
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Companys financial assets and liabilities are measured at fair value on a recurring basis. Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 were as follows (dollars in thousands):
Fair Value Measurements at Reporting Date Using |
||||||||||||||||
Total Fair Value |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Financial liabilities: |
||||||||||||||||
Other current liabilities |
||||||||||||||||
Green Bay option(1) |
$ | (8,030 | ) | $ | | $ | | $ | (8,030 | ) | ||||||
Interest rate swap option(2) |
(3,683 | ) | | (3,683 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | (11,713 | ) | $ | | $ | (3,683 | ) | $ | (8,030 | ) | |||||
|
|
|
|
|
|
|
|
(1) | The Companys derivative financial instruments consist solely of an interest rate swap in which the Company pays a fixed rate and receives a variable interest rate. The fair value of the Companys interest rate swap is determined based on the present value of future cash flows using observable inputs, including interest rates and yield curves. Derivative valuations incorporate adjustments that are necessary to reflect the Companys own credit risk. |
(2) | The fair value of the Green Bay Option was determined using inputs that are supported by little or no market activity (a Level 3 measurement). The fair value represents an estimate of the net amount that the Company would pay if the option was transferred to another party as of the date of the valuation. The option valuation incorporates a credit risk adjustment to reflect the probability of default by the Company. |
To estimate the fair value of the interest rate swap, the Company used an industry standard cash valuation model, which utilizes a discounted cash flow approach. The significant inputs for the valuation model include the following:
Fixed |
Floating | |
discount cash flow range of 0.99% - 1.00%; |
discount cash flow range of 0.99% - 1.00%; | |
interest rate of 3.93%; and |
interest rate range of 0.26% - 0.28%; and | |
credit spread of 4.39%. |
credit spread of 4.39%. |
The Company reported $2.0 million and $3.6 million for the years ended December 31, 2010 and 2009, respectively, in realized loss on derivative instruments within the income statement related to the fair value adjustment, representing the change in the fair value of the Green Bay Option.
The reconciliation below contains the components of the change in fair value associated with the Green Bay Option for the year ended December 31, 2010 (dollars in thousands):
Description |
Green Bay Option | |||
Fair value balance at December 31, 2009 |
$ | 6,073 | ||
Add: Mark to market fair value adjustment |
1,957 | |||
|
|
|||
Fair value balance as of December 31, 2010 |
$ | 8,030 | ||
|
|
F-22
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
To estimate the fair value of the Green Bay Option, the Company used a Black-Scholes valuation model. The significant inputs for the valuation model include the following:
| total term of 2.7 years; |
| volatility rate of 31.7%; |
| dividend annual rate of 0.0%; |
| discount rate of 0.9%; and |
| market value of Green Bay of $8.4 million. |
The carrying values of receivables, payables, and accrued expenses approximate fair value due to the short maturity of these instruments.
The following table shows the gross amount and fair value of the Companys term loan:
2010 | 2009 | |||||||
Carrying value of term loan |
$ | 593,755 | $ | 636,890 | ||||
Fair value of term loan |
$ | 547,850 | $ | 538,604 |
The fair value of the Companys term loan is estimated using a discounted cash flow analysis, based on the Companys marginal borrowing rates.
To estimate the fair value of the term loan, the Company used an industry standard cash valuation model, which utilizes a discounted cash flow approach. The significant inputs for the valuation model include the following:
| discount cash flow rate of 7.3%; |
| interest rate of 0.3%; and |
| credit spread of 4.4%. |
8. Investment in Affiliate
On October 31, 2005, the Company announced that, together with Bain Capital Partners, LLC (Bain), The Blackstone Group L.P. (Blackstone) and Thomas H. Lee Partners (THL), the Company had formed a new private partnership, CMP. CMP was created by the Company and the equity partners to acquire the radio broadcasting business of Susquehanna Pfaltzgraff Co. The Company and the other three equity partners each hold a 25.0% economic interest in CMP.
On May 5, 2006, the Company announced the consummation of the acquisition of the radio broadcasting business of Susquehanna Pfaltzgraff Co. by CMP for a purchase price of approximately $1.2 billion. Susquehannas radio broadcasting business consisted of 33 radio stations in eight markets: San Francisco, Dallas, Houston, Atlanta, Cincinnati, Kansas City, Indianapolis and York, Pennsylvania.
In connection with the formation of CMP, Cumulus contributed four radio stations (including related licenses and assets) in the Houston, Texas and Kansas City, Missouri markets with a book value of approximately $71.6 million and approximately $6.2 million in cash in exchange for its membership interests. Cumulus recognized a gain of $2.5 million from the transfer of assets to CMP. In addition, upon consummation of the acquisition, the Company received a payment of approximately $3.5 million as consideration for advisory services provided in connection with the acquisition. The Company recorded the payment as a reduction in its investment in CMP. The table below presents summarized financial statement data related to CMP (dollars in thousands):
F-23
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2010 | 2009 | 2008 | ||||||||||
Income Statement Data: |
||||||||||||
Revenues |
$ | 188,718 | $ | 175,818 | $ | 212,429 | ||||||
Operating expenses |
103,113 | 100,882 | 128,096 | |||||||||
Equity in losses in affiliate |
| | 22,252 | |||||||||
Net income |
19,285 | (73,257 | ) | (545,853 | ) | |||||||
Balance Sheet Data: |
||||||||||||
Assets |
424,793 | 495,165 | 722,788 | |||||||||
Liabilities |
841,834 | 955,497 | 1,178,104 | |||||||||
Shareholders deficit |
(417,041 | ) | (460,332 | ) | (455,316 | ) |
As of December 31, 2010, the Companys proportionate share of its affiliate losses exceeded its investment in CMP. In addition, the Company has no contractual obligation to fund the losses of CMP. As a result, the Company had no exposure to loss from its investment in CMP. The Company has not provided and does not intend to provide any financial support, guarantees or commitments for or on behalf of CMP. The Companys balance sheet at December 31, 2010 and 2009 does not include any assets or liabilities related to its investment in CMP. For the years ended December 31, 2010 and 2009, the Companys statement of operations does not include any equity losses in CMP. For the year ended December 31, 2008, the Company recognized equity losses of $22.3 million in CMP.
Concurrent with the consummation of the acquisition, the Company entered into a management agreement with a subsidiary of CMP, pursuant to which the Companys personnel will manage the operations of CMPs subsidiaries. The agreement provides for the Company to receive, on a quarterly basis, a management fee that is expected to be approximately 1.0% of the CMP subsidiaries annual EBITDA or $4.0 million, whichever is greater. The Company recorded as net revenues approximately $4.0 million in management fees from CMP for each of the years ended December 31, 2010, 2009 and 2008.
Two indirect subsidiaries of CMP, CMP Susquehanna Radio Holdings Corp. (Radio Holdings) and CMP Susquehanna Corporation (CMPSC), commenced an exchange offer (the 2009 Exchange Offer) on March 9, 2009, pursuant to which they offered to exchange all of CMPSCs 97/8% senior subordinated notes due 2014 (the Existing Notes) (1) for up to $15.0 million aggregate principal amount of Variable Rate Senior Subordinated Secured Second Lien Notes due 2014 of CMPSC (the New Notes), (2) up to $35 million in shares of Series A preferred stock of Radio Holdings (the New Preferred Stock), and (3) warrants exercisable for shares of Radio Holdings common stock representing, in the aggregate, up to 40.0% of the outstanding common stock on a fully diluted basis (the New Warrants). On March 26, 2009, Radio Holdings and CMPSC completed the exchange of $175,464,000 aggregate principal amount of Existing Notes, which represented 93.5% of the total principal amount outstanding prior to the commencement of the 2009 Exchange Offer, for $14,031,000 aggregate principal amount of New Notes, 3,273,633 shares of New Preferred Stock and New Warrants exercisable for 3,740,893 shares of Radio Holdings common stock. Although neither the Company nor its equity partners equity stakes in CMP were directly affected by the exchange, each of their pro rata claims to CMPs assets (on a consolidated basis) as an equity holder has been diluted as a result of the exchange.
On January 31, 2011, the Company entered into an agreement to purchase the remaining outstanding equity interests of CMP not currently owned by the Company, see Note 21, Subsequent Event for additional discussion related to the Companys acquisition of CMP.
F-24
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-Term Debt
The Companys long-term debt consists of the following at December 31, 2010 and 2009 (dollars in thousands):
2010 | 2009 | |||||||
Term loan |
$ | 593,754 | $ | 636,890 | ||||
Less: Debt discount |
(2,746 | ) | (3,382 | ) | ||||
Less: Current portion of long-term debt |
(15,165 | ) | (49,026 | ) | ||||
|
|
|
|
|||||
Long-term debt, net of debt discount |
$ | 575,843 | $ | 584,482 | ||||
|
|
|
|
A summary of the future maturities of long-term debt follows, exclusive of the discount on debt (dollars in thousands):
2011 |
$ | 15,165 | ||
2012 |
6,153 | |||
2013 |
292,263 | |||
2014 |
280,174 | |||
2015 |
| |||
|
|
|||
$ | 593,755 | |||
|
|
Senior Secured Credit Facilities
June 2009 Amendment
On June 29, 2009, the Company entered into the June 2009 Amendment, with Bank of America, N.A., as administrative agent, and the lenders party thereto, governing the Companys senior secured credit facilities.
The Credit Agreement maintains the preexisting term loan facility of $750.0 million, which had an outstanding balance of approximately $647.9 million immediately after closing the June 2009 amendment, and reduced the preexisting revolving credit facility from $100.0 million to $20.0 million. Incremental facilities are no longer permitted as of June 30, 2009 under the Credit Agreement.
The Companys obligations under the Credit Agreement 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 and all of the capital stock of the Companys direct and indirect subsidiaries, including Broadcast Software International, Inc., which prior to the amendment, was an excluded subsidiary. The Companys obligations under the Credit Agreement continue to be guaranteed by all of its subsidiaries.
The Credit Agreement contains terms and conditions customary for financing arrangements of this nature. The term loan facility will mature on June 11, 2014. The revolving credit facility will mature on June 7, 2012.
Borrowings under the term loan facility and revolving credit facility bore interest, at the Companys option, at a rate equal to LIBOR plus 4.0% or the Alternate Base Rate (currently defined as the higher of the Wall Street Journals Prime Rate and the Federal Funds rate plus 0.5%) plus 3.0%. In July 2010, the Companys aggregate principal payments which were made in accordance with the Companys obligation to make mandatory prepayments of Excess Cash Flow (as defined in the Credit Agreement), as described below, exceeded $25.0 million which triggered a reduction in the Companys interest rate equal to LIBOR plus 3.8% or the Alternate Base Rate plus 2.8%. Once the Company reduces the term loan facility by an aggregate of $50.0 million through further mandatory prepayments of Excess Cash Flow, the revolving credit facility will bear interest, at the Companys option, at a rate equal to LIBOR plus 3.3% or the Alternate Base Rate plus 2.3%.
F-25
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the June 2009 Amendment the Company made a voluntary prepayment in the amount of $32.5 million. The Company was also required to make quarterly mandatory prepayments of 100% of Excess Cash Flow through December 31, 2010 (while maintaining a minimum balance of $7.5 million of cash on hand), before reverting to annual prepayments of a percentage of Excess Cash Flow, depending on the Companys leverage, beginning in 2011. The Company has included approximately $9.3 million of long-term debt, as current, which represents the estimated Excess Cash Flow payments over the next 12 months in accordance with the terms of the Credit Agreement. Certain other mandatory prepayments of the term loan facility would be required upon the occurrence of specified events, including upon the incurrence of certain additional indebtedness and upon the sale of certain assets.
Covenants
The representations, covenants and events of default in the Credit Agreement are customary for financing transactions of this nature and are substantially the same as those in existence prior to the June 2009 Amendment, except as follows:
| the total leverage ratio and fixed charge coverage ratio covenants were suspended during the Covenant Suspension Period; |
| during the Covenant Suspension Period, the Company was required to: (1) maintain minimum trailing twelve month consolidated EBITDA (as defined in the Credit Agreement) of $60.0 million for fiscal quarters through March 31, 2010, increasing incrementally to $66.0 million for the fiscal quarter ended December 31, 2010, subject to certain adjustments; and (2) maintain minimum cash on hand (defined as unencumbered consolidated cash and cash equivalents) of at least $7.5 million; |
| the Company is restricted from incurring additional intercompany debt or making any intercompany investments other than to the parties to the Credit Agreement; |
| the Company may not incur additional indebtedness or liens, or make permitted acquisitions or restricted payments (except under certain circumstances, pursuant to the fourth amendment to the Credit Agreement (the July 2010 Amendment), as described below, during the Covenant Suspension Period (after the Covenant Suspension Period, the Credit Agreement will permit indebtedness, liens, permitted acquisitions and restricted payments, subject to certain leverage ratio and liquidity measurements); and |
| the Company must provide monthly unaudited financial statements to the lenders within 30 days after each calendar-month end. |
Events of default in the Credit Agreement include, among others, (a) the failure to pay when due the obligations owing under the credit facilities; (b) the failure to perform (and not timely remedy, if applicable) certain covenants; (c) cross default and cross acceleration; (d) the occurrence of bankruptcy or insolvency events; (e) certain judgments against the Company or any of the Companys subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use of or more of, any of the Companys material FCC licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the Credit Agreement). Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Credit Agreement and the ancillary loan documents as a secured property.
As discussed above, the Companys covenants for the year ended December 31, 2010 were as follows:
| a minimum trailing twelve month consolidated EBITDA of $66.0 million; |
| a $7.5 million minimum cash on hand; and |
| a limit on annual capital expenditures of $10.0 million annually. |
F-26
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The trailing twelve month consolidated EBITDA and cash on hand at December 31, 2010 were $87.8 million and $12.8 million, respectively.
If the Company had been unable to secure the June 2009 Amendment to the Credit Agreement, so that the total leverage ratio and the fixed charge coverage ratio covenants were still operative, those covenants for the year ended December 31, 2010 would have been as follows:
| a maximum total leverage ratio of 6.5:1; and |
| a minimum fixed charge coverage ratio of 1.2:1. |
At December 31, 2010, the total leverage ratio was 6.8:1 and the fixed charge coverage ratio was 2.2:1. For the fiscal quarter ending March 31, 2011 (the first quarter after the Covenant Suspension Period), the total leverage ratio covenant will be 6.5:1 and the fixed charge coverage ratio covenant will be 1.2:1.
Warrants
Additionally, the Company issued warrants to the lenders with the execution of the June 2009 Amendment to the Credit Agreement that allow them to acquire up to 1.3 million shares of the Companys Class A Common Stock. Each warrant is immediately exercisable to purchase the Companys underlying Class A Common Stock at an exercise price of $1.17 per share and has an expiration date of June 29, 2019.
Accounting for the Modification of the Credit Agreement
The June 2009 Amendment to the Credit Agreement was accounted for as a loan modification and accordingly, the Company did not record a gain or a loss on the transaction. For the revolving credit facility, the Company wrote off approximately $0.2 million of unamortized deferred financing costs, based on the reduction of capacity. With respect to both debt instruments, the Company recorded $3.0 million of fees paid directly to the creditors as a debt discount which are amortized as an adjustment to interest expense over the remaining term of the debt.
At inception, the Company classified $0.8 million of warrants as equity at fair value. The fair value of the warrants was recorded as a debt discount and is amortized as an adjustment to interest expense over the remaining term of the debt using the effective interest method.
July 2010 Amendment
On July 23, 2010, the Company entered into the July 2010 Amendment. In connection with the July 2010 Amendment, Bank of America, N.A. resigned as administrative agent and the lenders appointed General Electric Capital Corporation as successor administrative agent under the Credit Agreement for all purposes.
In addition, the July 2010 Amendment grants the Company additional flexibility under the Credit Agreement to, among other things, (i) consummate an asset swap of the Companys radio stations in Canton, Ohio for radio stations in the Ann Arbor, Michigan and Battle Creek, Michigan markets owned by Capstar Radio Broadcasting Partners, Inc. (Capstar) but currently operated by the Company pursuant to LMAs; (ii) subject to certain conditions, acquire up to 100% of the equity interests of CMP or two of its subsidiaries, CMPSC or Radio Holdings; (iii) subject to certain conditions and if necessary in order that certain of CMPs subsidiaries maintain compliance with applicable debt covenants, make further equity investments in CMP, in an aggregate amount not to exceed $1.0 million; and (iv) enter into sale-leaseback transactions with respect to communications towers that have an aggregate fair market value of no more than $20.0 million, so long as the net proceeds of such transaction are used to repay indebtedness under the Companys term loan facility.
In conjunction with the July 2010 Amendment the Company capitalized approximately $0.2 million in fees paid directly to the lenders.
F-27
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2010, prior to the effect of the May 2005 Swap, the effective interest rate of the outstanding borrowings pursuant to the senior secured credit facilities was approximately 4.0%. As of December 31, 2010, the effective interest rate inclusive of the May 2005 Swap was approximately 6.5%.
10. Stockholders Deficit
(a) | Common Stock |
Each share of Class A Common Stock entitles its holder to one vote.
Except upon the occurrence of certain events, holders of the Class B Common Stock are not entitled to vote. The Class B Common Stock is convertible at any time, or from time to time, at the option of the holder of such Class B Common Stock (provided that the prior consent of any governmental authority required to make such conversion lawful shall have been obtained) without cost to such holder (except any transfer taxes that may be payable if certificates are to be issued in a name other than that in which the certificate surrendered is registered), into Class A Common Stock on a share-for-share basis; provided that the Board of Directors has determined that the holder of Class A Common Stock at the time of conversion would not disqualify the Company under, or violate, any rules and regulations of the FCC.
Subject to certain exceptions, each share of Class C Common Stock entitles its holders to ten votes. The Class C Common Stock is convertible at any time, or from time to time, at the option of the holder of such Class C Common Stock (provided that the prior consent of any governmental authority required to make such conversion lawful shall have been obtained) without cost to such holder (except any transfer taxes that may be payable if certificates are to be issued in a name other than that in which the certificate surrendered is registered), into Class A Common Stock on a share-for-share basis; provided that the Board of Directors has determined that the holder of Class A Common Stock at the time of conversion would not disqualify the Company under, or violate, any rules and regulations of the FCC.
(b) | Share Repurchases |
On May 21, 2008, the Board of Directors of Cumulus terminated all pre-existing repurchase programs, and authorized the purchase, from time to time, of up to $75.0 million of its shares of Class A Common Stock. Repurchases may be made in the open market or through block trades, in compliance with Securities and Exchange Commission guidelines, subject to market conditions, applicable legal requirements and various other factors, including the requirements of the Companys credit facility. Cumulus has no obligation to repurchase shares under the repurchase program, and the timing, actual number and value of shares to be purchased will depend on the performance of the Companys stock price, general market conditions, and various other factors within the discretion of management.
During the year ended December 31, 2010, the Company did not purchase any shares of its Class A Common Stock. During the year ended December 31, 2009, the Company repurchased in the aggregate approximately 0.1 million shares of Class A Common Stock for approximately $0.2 million, in cash in open market transactions under the purchase plan approved by the Board of Directors.
As of December 31, 2010, the Company had authority to repurchase an additional $68.3 million of its Class A Common Stock.
11. Stock Options and Restricted Stock
Effective January 1, 2006, the Company uses the modified prospective method to account for compensation costs related to stock options and restricted stock. The Company uses the Black-Scholes option pricing model to determine the fair value of its stock options. The determination of the fair value of the awards on the date of grant, using an option-pricing model, is affected by the Companys stock price, as well as assumptions regarding a number
F-28
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of complex and subjective variables and is based principally on the historical volatility. These variables include its expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates and expected dividends.
There were no grants of stock options in 2010 and 2009. Stock options of 956,869 were granted during 2008. Stock options vest over four years and have a maximum contractual term of ten years. The Company estimates the volatility of its common stock by using a weighted average of historical stock price volatility over the expected term of the options. Management believes historical volatility is a better measure than implied volatility. The Company bases the risk-free interest rate that it uses in its option pricing model on United States Treasury Zero Coupon strip issues with remaining terms similar to the expected term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option pricing model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from estimates. Similar to the expected-term assumption used in the valuation of awards, the Company splits its population into two categories, (1) executives and directors and (2) non-executive employees. Stock-based compensation expense is recorded only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.
The assumptions used for valuation of the 2008 option awards are set forth in the table below:
2008 | ||||
Expected term |
10.0 years | |||
Volatility |
40.9 | % | ||
Risk-free rate |
0.0 | % | ||
Expected dividend rate |
0.0 | % |
For the year ended December 31, 2010, the Company recognized approximately $1.6 million in non-cash stock-based compensation expense relating to stock options and restricted shares. There is no tax benefit associated with this expense due to the Companys net operating loss position. As of December 31, 2010, there was no unrecognized compensation costs related to non-vested stock options.
The Company has issued restricted stock awards to certain key employees and its Board of Directors. Generally, the restricted stock vests over a four-year period, thus the Company recognizes compensation expense over the four-year period equal to the grant date value of the shares awarded to the employees. To the extent the non-vested stock awards include performance or market conditions management examines the appropriate requisite service period to recognize the cost associated with the award on a case-by-case basis.
The Company has different plans under which stock options or restricted stock awards have been or may be granted.
The Compensation Committee of the Board of Directors granted 138,000, 157,000, and 133,000 restricted shares of its Class A Common Stock in 2010, 2009, and 2008, respectively, to certain officers and its Board of Directors, primarily pursuant to the 2008 Equity Incentive Plan and the 2004 Equity Incentive Plan. Consistent with the terms of the awards, one-half of the shares granted will vest after two years of continuous employment. For certain of the awards, an additional one-eighth of the remaining restricted shares will vest each quarter during the third and fourth years following the date of grant. For the other awards, an additional one-fourth of the remaining restricted shares will vest annually during the third and fourth years following the date of grant. The fair value at the date of grant of these shares was $0.5 million for the 2010 grant, $0.3 million for the 2009 grant and $0.7 million for the 2008 grant. Stock compensation expense for these awards will be recognized on a straight-line basis over each awards vesting period. For the years ended December 31, 2010, 2009 and 2008, the Company recognized $0.2 million, $0.2 million, and $0.1 million, respectively, of non-cash stock compensation expense related to these restricted shares.
F-29
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2010 and 2009, there were unrecognized compensation costs of approximately $0.6 million and $0.5 million, respectively, related to these restricted stock grants that will be recognized over 3.5 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
On December 20, 2006, the Company entered into a Third Amended and Restated Employment agreement with the Companys Chairman, President and Chief Executive Officer, Lewis W. Dickey, Jr. The agreement has an initial term through May 31, 2013 and is subject to automatic extensions of one-year terms thereafter unless terminated by advance notice by either party in accordance with the terms of the agreement.
The agreement provides among other matters that Mr. L. Dickey shall be granted 160,000 shares of time-vested restricted Class A Common Stock and 160,000 shares of performance vested restricted Class A Common Stock in each fiscal year during his employment term. The time-vested restricted shares shall vest in three installments, with one-half vesting on the second anniversary of the date of grant, and one-quarter vesting on each of the third and fourth anniversaries of the date of grant, in each case contingent upon Mr. L. Dickeys continued employment with the Company. Vesting of performance restricted shares is dependent upon achievement of Compensation Committee approved criteria for the three-year period beginning on January 1 of the fiscal year of the date of grant, in each case contingent upon Mr. L. Dickeys continued employment with the Company. During the year ended December 31, 2010, the Company recognized $0.2 million of expense related to the performance restricted awards issued in 2010 and 2009 whose vesting is subject to the achievement of the Compensation Committee approved criteria.
In the event that there is a change in control, as defined in the agreement, then any issued but unvested portion of the restricted stock grants held by Mr. L. Dickey shall become immediately and fully vested. In addition, upon such a change in control, the Company shall issue Mr. L. Dickey an award of 360,000 shares of Class A Common Stock, such number of shares decreasing by 70,000 shares upon each of the first four anniversaries of the date of the agreement.
As an inducement to entering into the agreement, the agreement provided for a signing bonus grant of 685,000 deferred shares of Class A Common Stock. Of the 685,000 deferred bonus shares, 94,875 were treated as replacement shares pertaining to the old employment agreement. The remaining 590,125 shares valued at $6.2 million were charged to non-cash stock compensation in 2006.
The agreement also provides that, should Mr. L. Dickey resign his employment or the Company terminate his employment, in each case other than under certain permissible circumstances, Mr. Dickey shall pay to the Company, in cash, $5.5 million (such amount decreasing by $1.0 million on each of the first five anniversaries of the date of the agreement). This potential payment would only be accounted for if and when it occurs similar to a clawback feature. This payment is automatically waived upon a change in control. As further inducement, the agreement provided for the repurchase, as of the effective date of the agreement, by the Company of all of Mr. L. Dickeys rights and interests in and to (a) options to purchase 500,000 shares of Class A Common Stock, previously granted to Mr. L. Dickey at an exercise price per share of $6.44, options to purchase 500,000 shares of Class A Common Stock, previously granted to Mr. L. Dickey at an exercise price per share of $5.92 and options to purchase 150,000 shares of Class A common stock, previously granted to Mr. L. Dickey at an exercise price per share of $14.03, for an aggregate purchase price of $6,849,950 and (b) 500,000 shares of Class A Common Stock, previously awarded to Mr. L. Dickey as restricted stock, for an aggregate purchase price of $5,275,000. Each purchase price was paid in a lump-sum cash payment at the time of purchase. The purchase was completed on December 20, 2006.
As of the date of the agreement, Mr. L. Dickey had 250,000 partially vested, restricted shares that were being amortized under ASC 718. At December 20, 2006 there was an unamortized balance, under ASC 718, of $2.0 million associated with these shares. The Company replaced these shares with 94,875 deferred shares of Class A Common Stock and 155,125 time-vested restricted shares of Class A Common Stock. The Company recognized non-cash stock compensation expense of $0.8 million in 2006, related to the 94,875 replacement deferred shares. The Company will recognize future non-cash stock compensation of $1.3 million associated with the time-vested restricted shares, ratably over the employment contract through May 31, 2013.
F-30
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Mr. L. Dickey was granted 160,000 time-vested, restricted shares of Class A Common Stock in each of 2007, 2008, 2009 and 2010 and will be granted 160,000 time-vested, restricted shares each year for the remaining two years of his employment agreement or 1,120,000 shares in the aggregate. Of the 1,120,000 shares to be issued, non-cash stock compensation expense of $6.8 million related to 524,875 of the shares is being amortized ratably to non-cash stock compensation expense over the period of the employment agreement ending May 31, 2013. These shares represent the number of shares that will legally vest during the employment agreement reduced by the 155,125 shares which were treated as replacement shares for the pre-existing 250,000 partially vested restricted shares discussed above.
As previously mentioned, in 2006, the Company repurchased 1,150,000 outstanding shares of Mr. L. Dickeys fully vested Class A Common Stock options and recorded a charge to equity for $6.8 million. In addition the Company purchased 500,000 partially vested restricted shares for $5.3 million which was charged to treasury stock in shareholders equity. The unamortized grant date fair value of $3.2 million was recorded to non-cash stock compensation within the 2006 consolidated statement of operations. The number of signing bonus restricted deferred shares and time-vested restricted shares committed for grant to Mr. L. Dickey and the restricted shares previously granted exceeded the number of restricted or deferred shares approved for grant at December 31, 2006. Accordingly, 15,000 of the signing bonus shares and all of the time-vested restricted shares were accounted for as liability classified awards which required revaluation at the end of each accounting period as of December 31, 2006. Following the modification of the 2004 Equity Incentive Plan in May 2007, all stock based compensation awards are equity classified as of December 31, 2009.
The Company recognized approximately $10.4 million of non-cash compensation expense in the fourth quarter of 2006 in conjunction with amending Mr. L. Dickeys employment agreement as described below:
2006 | ||||
Compensation cost related to the original repurchased grant |
$ | 3,378 | ||
Deferred bonus shares expensed |
6,986 | |||
Amortization of time vested restricted shares during the year ended December 31, 2006 |
30 | |||
|
|
|||
Total non-cash compensation costs |
$ | 10,394 | ||
|
|
On December 20, 2007, the Company issued the 685,000 signing bonus restricted shares of Class A Common Stock to Mr. L. Dickey in accordance with his current employment agreement, as described above. As previously stated, these shares, valued at $7.0 million, were expensed in 2006 to non-cash stock compensation. In 2007, the Company recorded $1.0 million to the non-cash stock compensation associated with the time vested awards under Mr. L. Dickeys Third Amended and Restated Employment Agreement. Included in the Treasury Stock buyback for 2007 is $2.6 million for shares withheld representing the minimum statutory tax liability of which $0.3 million was paid during 2007. At December 31, 2009, there was $2.7 million of unrecognized compensation costs for the time vested restricted shares to be amortized ratably through May 31, 2013 associated with Mr. L. Dickeys December 2006 amended employment agreement.
2008 Equity Incentive Plan
The Board of Directors adopted the 2008 Equity Incentive Plan (the 2008 Plan) on September 26, 2008. The 2008 Equity Incentive Plan was subsequently approved by the Companys stockholders on November 19, 2008. The purpose of the 2008 Equity Incentive Plan is to attract and retain non-employee directors, officers, key employees and consultants for the Company and the Companys subsidiaries by providing such persons with incentives and rewards for superior performance. The aggregate number of shares of Class A Common Stock subject to the 2008 Equity Incentive Plan is 4,000,000. Of the aggregate number of shares of Class A Common Stock available, up to 3,000,000 shares may be granted as incentive stock options (ISOs). In addition, no one person may receive options exercisable for more than 400,000 shares of Class A Common Stock in any one calendar year.
F-31
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 2008 Plan permits the Board of Directors to grant nonqualified stock options and ISOs, or combinations thereof. The exercise price of an option awarded under the 2008 Plan may not be less than the closing price of the Class A Common Stock on the date of grant. Options will be exercisable during the period specified in each award agreement and will be exercisable in installments pursuant to a vesting schedule designated by the Board of Directors, provided that awards may not vest sooner than one-third per year over three years. The Board of Directors may also provide for acceleration of options awarded in the event of retirement, death or disability of the grantee, or a change of control, as defined by the 2008 Plan.
The 2008 Plan also permits the Board of Directors to grant stock appreciation rights (SARs), to receive an amount equal to 100%, or such lesser percentage as the Board of Directors may determine, of the spread between the base price (or option price if a tandem SAR) and the value of the Companys Class A Common Stock on the date of exercise. SARs may not vest by the passage of time sooner than one-third per year over three years, provided that any grant may specify that such SAR may be exercised only in the event of, or earlier in the event of, the retirement, death or disability of the grantee, or a change of control. Any grant of SARs may specify performance objectives that must be achieved as a condition to exercise such rights. If the SARs provide that performance objectives must be achieved prior to exercise, such SARs may not become exercisable sooner than one year from the date of grant except in the event of the retirement, death or disability of the grantee, or a change of control.
The Board of Directors may also authorize the grant or sale of restricted stock to participants. Each such grant will constitute an immediate transfer of the ownership of the restricted shares to the participant, entitling the participant to voting, dividend and other ownership rights, but subject to substantial risk of forfeiture for a period of not less than two years (to be determined by the Board of Directors at the time of the grant) and restrictions on transfer (to be determined by the Board of Directors at the time of the grant). Any grant of restricted stock may specify performance objectives that, if achieved, will result in termination or early termination of the restrictions applicable to such shares. If the grant of restricted stock provides that performance objectives must be achieved to result in a lapse of restrictions, the restrictions cannot lapse sooner than one year from the date of grant, but may be subject to earlier lapse or modification by virtue of the retirement, death or disability of the grantee or a change of control. The Board of Directors may also provide for the elimination of restrictions in the event of retirement, death or disability of the grantee, or a change of control.
Additionally, the 2008 Plan permits the Board of Directors to grant restricted stock units (RSUs). A grant of RSUs constitutes an agreement by the Company to deliver shares of Class A Common Stock to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the restriction period as the Board of Directors may specify. During the restriction period, the participant has no right to transfer any rights under his or her award and no right to vote such RSUs. RSUs must be subject to a restriction period of at least three years, except that the restriction period may expire ratably during the three-year period, on an annual basis, as determined by the Board of Directors at the date of grant. Additionally, the Board of Directors may provide for a shorter restriction period in the event of the retirement, death or disability of the grantee, or a change of control. Any grant of RSUs may specify performance objectives that, if achieved, will result in termination or early termination of the restriction period applicable to such shares. If the grant of RSUs provides that performance objectives must be achieved to result in a lapse of the restriction period, the restriction period cannot lapse sooner than one year from the date of grant, but may be subject to earlier lapse or modification by virtue of the retirement, death or disability of the grantee or a change of control.
Finally, the 2008 Plan permits the Board of Directors to issue performance shares and performance units. A performance share is the equivalent of one share of Class A Common Stock and a performance unit is the equivalent of $1.00 or such other value as determined by the Board of Directors. A participant may be granted any number of performance shares or performance units, subject to the limitations set forth in the 2008 Plan. The participant will be given one or more performance objectives to meet within a specified period. The specified period will be a period
F-32
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of time not less than one year, except in the case of the retirement, death or disability of the grantee, or a change of control, if the Board of Directors shall so determine. Each grant of performance shares or performance units may specify in respect of the relevant performance objective(s) a level or levels of achievement and will set forth a formula for determining the number of performance shares or performance units that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified performance objective(s).
No grant, of any type, may be awarded under the 2008 Equity Incentive Plan after November 19, 2018.
The Board of Directors administers the 2008 Plan. The Board of Directors may from time to time delegate all or any part of its authority under the 2008 Plan to the Compensation Committee. The Board of Directors has full and exclusive power to interpret the 2008 Plan and to adopt rules, regulations and guidelines.
Under the 2008 Plan, current and prospective employees, non-employee directors, consultants or other persons who provide the Company services are eligible to participate.
On December 30, 2008, the Company consummated an exchange offer to its employees and non-employee directors (or a designated affiliate of one of the foregoing) to exchange their outstanding options to purchase the Companys Class A Common Stock that were granted on or after October 2, 2000 (Eligible Options) for a combination of restricted shares of the Companys Class A Common Stock (Restricted Shares) and replacement options to purchase Class A Common Stock (New Options). Options to purchase 5,647,650 shares of Class A Common Stock, or approximately 95.1% of all Eligible Options, were tendered for exchange and, in accordance with the terms of the Offer, 289,683 Restricted Shares and New Options to purchase 956,869 shares of Class A Common Stock were issued at exercise prices ranging from $2.54 to $3.30 per share under the 2008 Plan. These options vest as follows: 50.0% of the options vest on the second anniversary of the date of issue and the remaining 50.0% vest in 25.0% increments on each of the next two anniversaries with the possible acceleration of vesting for some options if certain criteria are met. The incremental non-cash charge to compensation expense of $1.3 million as well as the non-cash charge to compensation expense of $0.8 million for the non-vested awards exchanged will be recognized over the new vesting period.
As of December 31, 2010, there were outstanding options to purchase a total of 702,138 shares of Class A Common Stock at exercise prices ranging from $2.54 to $3.30 per share under the 2008 Equity Incentive Plan. These options vest quarterly over four years, with the possible acceleration of vesting for some options if certain performance criteria are met. In addition, all options vest upon a change of control as more fully described in the 2008 Equity Incentive Plan.
2004 Equity Incentive Plan
As of December 31, 2010, there were outstanding options to purchase a total of 49,300 shares of Class A Common Stock at exercise prices ranging from $9.40 to $14.04 per share under the 2004 Equity Incentive Plan. These options vest quarterly over four years, with the possible acceleration of vesting for some options if certain performance criteria are met. In addition, all options vest upon a change of control as more fully described in the 2004 Equity Incentive Plan.
2002 Stock Incentive Plan
As of December 31, 2010, there were outstanding options to purchase a total of 31,813 shares of Class A Common Stock at exercise prices ranging from $14.62 to $19.25 per share under the 2002 Stock Incentive Plan. These options vest quarterly over four years, with the possible acceleration of vesting for some options if certain performance criteria are met. In addition, all options vest upon a change of control as more fully described in the 2002 Stock Incentive Plan.
F-33
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2000 Stock Incentive Plan
As of December 31, 2010, there were outstanding options to purchase a total of 3,979 shares of Class A Common Stock at an exercise price of $5.92 per share under the 2000 Stock Incentive Plan. These options vest, in general, quarterly over four years, with the possible acceleration of vesting for some options if certain performance criteria are met. In addition, all options vest upon a change of control as more fully described in the 2000 Stock Incentive Plan.
The following tables represent a summary of options outstanding and exercisable at and activity during the years ended December 31, 2010, 2009 and 2008:
Shares | Weighted Average Exercise Price |
|||||||
Outstanding at December 31, 2007 |
8,680,160 | $ | 15.16 | |||||
|
|
|
|
|||||
Granted |
956,869 | 2.27 | ||||||
Exercised |
(4,500 | ) | 1.94 | |||||
Canceled or repurchased |
(7,579,204 | ) | 14.75 | |||||
|
|
|
|
|||||
Outstanding at December 31, 2008 |
2,053,325 | $ | 14.43 | |||||
|
|
|
|
|||||
Canceled or repurchased |
(1,166,952 | ) | 22.03 | |||||
|
|
|
|
|||||
Outstanding at December 31, 2009 |
886,373 | $ | 4.42 | |||||
|
|
|
|
|||||
Canceled or repurchased |
(99,143 | ) | 6.85 | |||||
|
|
|
|
|||||
Outstanding at December 31, 2010 |
787,230 | $ | 4.11 | |||||
|
|
|
|
The following table summarizes information about stock options outstanding at December 31, 2010:
Range of Exercise Prices |
Outstanding as
of December 31, 2010 |
Weighted
Average Remaining Contractual Life |
Weighted Average Exercise Price |
Exercisable as
of December 31, 2010 |
Weighted Average Exercise Price |
|||||||||||||||
$ 0.00-2.79 |
104,319 | 8.00 years | $ | 2.54 | 52,184 | $ | 2.54 | |||||||||||||
$ 2.79-5.58 |
597,819 | 8.00 years | $ | 3.04 | 298,958 | $ | 3.04 | |||||||||||||
$ 5.58-8.36 |
3,979 | 0.28 years | $ | 5.92 | 3,979 | $ | 5.92 | |||||||||||||
$ 8.36-11.15 |
24,550 | 5.37 years | $ | 9.40 | 24,550 | $ | 9.40 | |||||||||||||
$13.94-16.73 |
38,313 | 3.27 years | $ | 14.25 | 38,313 | $ | 14.25 | |||||||||||||
$16.73-19.51 |
18,250 | 2.84 years | $ | 19.25 | 18,250 | $ | 19.25 | |||||||||||||
|
|
|
|
|||||||||||||||||
787,230 | 7.53 years | $ | 4.11 | 436,234 | $ | 5.03 | ||||||||||||||
|
|
|
|
The weighted average grant date fair value of options granted during the years ended December 31, 2010, 2009 and 2008 was $0.0 million. The total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was $0.0 million. There were no awards exercised in the years ended December 31, 2010, 2009 and 2008.
F-34
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Income Taxes
Income tax expense (benefit) for the years ended December 31, 2010, 2009, and 2008 consisted of the following (dollars in thousands):
2010 | 2009 | 2008 | ||||||||||
Current income tax expense (benefit): |
||||||||||||
State and local |
$ | 350 | $ | 574 | $ | 466 | ||||||
|
|
|
|
|
|
|||||||
Total current income tax expense |
$ | 350 | $ | 574 | $ | 466 | ||||||
|
|
|
|
|
|
|||||||
Deferred tax expense (benefit): |
||||||||||||
Federal |
$ | 2,516 | $ | (17,608 | ) | $ | (98,524 | ) | ||||
State and local |
913 | (5,570 | ) | (19,887 | ) | |||||||
|
|
|
|
|
|
|||||||
Total deferred nontax expense (benefit) |
3,429 | (23,178 | ) | (118,411 | ) | |||||||
|
|
|
|
|
|
|||||||
Total income tax expense (benefit) |
$ | 3,779 | $ | (22,604 | ) | $ | (117,945 | ) | ||||
|
|
|
|
|
|
Total income tax expense (benefit) differed from the amount computed by applying the federal statutory tax rate of 35.0% for the years ended December 31, 2010, 2009 and 2008 due to the following (dollars in thousands):
2010 | 2009 | 2008 | ||||||||||
Pretax income (loss) at federal statutory rate |
$ | 11,613 | $ | (52,289 | ) | $ | (167,875 | ) | ||||
State income tax expense (benefit), net of federal expense (benefit) |
1,602 | (5,499 | ) | (18,245 | ) | |||||||
Change in state tax rates |
1,353 | 223 | (69 | ) | ||||||||
Non cash stock compensation & Section 162 Disallowance |
344 | 379 | 1,071 | |||||||||
Impairment charges on goodwill with no tax basis |
| 615 | 3,405 | |||||||||
(Decrease) increase in valuation allowance |
(10,959 | ) | 34,696 | 63,406 | ||||||||
Other |
(174 | ) | (729 | ) | 362 | |||||||
|
|
|
|
|
|
|||||||
Net income tax expense (benefit) |
$ | 3,779 | $ | (22,604 | ) | $ | (117,945 | ) | ||||
|
|
|
|
|
|
F-35
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2010 and 2009 are presented below (dollars in thousands):
2010 | 2009 | |||||||
Current deferred tax assets: |
||||||||
Accounts receivable |
$ | 758 | $ | 454 | ||||
Accrued expenses and other current liabilities |
3,781 | 991 | ||||||
|
|
|
|
|||||
Current deferred tax assets |
4,539 | 1,445 | ||||||
Less: valuation allowance |
(4,539 | ) | (1,445 | ) | ||||
|
|
|
|
|||||
Net current deferred tax assets |
| | ||||||
|
|
|
|
|||||
Noncurrent deferred tax assets: |
||||||||
Intangible and other assets |
172,038 | 209,057 | ||||||
Property and equipment |
4,382 | 2,624 | ||||||
Other liabilities |
14,645 | 19,546 | ||||||
Net operating loss |
62,663 | 36,720 | ||||||
|
|
|
|
|||||
Noncurrent deferred tax assets |
253,728 | 267,947 | ||||||
Less: valuation allowance |
(252,306 | ) | (266,358 | ) | ||||
|
|
|
|
|||||
Net noncurrent deferred tax assets |
1,422 | 1,589 | ||||||
Noncurrent deferred tax liabilities: |
||||||||
Intangible assets |
24,730 | 21,301 | ||||||
Other |
1,422 | 1,589 | ||||||
|
|
|
|
|||||
Noncurrent deferred tax liabilities |
26,152 | 22,890 | ||||||
|
|
|
|
|||||
Net noncurrent deferred tax liabilities |
24,730 | 21,301 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 24,730 | $ | 21,301 | ||||
|
|
|
|
Deferred tax assets and liabilities are computed by applying the Federal income and estimated state tax rate in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these temporary differences become deductible.
During the year ended December 31, 2010, the Company recorded deferred tax expense of $3.6 million generated during the current year, resulting from amortization of broadcast licenses and goodwill that is deductible for tax purposes, but is not amortized in the financial statements.
During the year ended December 31, 2009, the Company recorded deferred tax expense of $7.0 million resulting from amortization of broadcast licenses and goodwill that is deductible for tax purposes, but is not amortized in the financial statements. This charge was offset by a $33.0 million deferred tax benefit resulting from the reversal of deferred tax liabilities in connection with the impairment of certain broadcast licenses and goodwill and investment in affiliates. Also during the year ended December 31, 2009, the Company recorded deferred tax expense of $3.2 million resulting from the exchange of stations with Clear Channel.
During the year ended December 31, 2008, the Company recorded deferred tax expense of $18.0 million generated during the current year, resulting from amortization of broadcast licenses and goodwill that is deductible for tax purposes, but is not amortized in the financial statements. This charge was offset by a $136.7 million deferred tax benefit resulting from the reversal of deferred tax liabilities in connection with the impairment of certain broadcast licenses and goodwill and investment in affiliates.
F-36
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2010, the Company has federal net operating loss carry forwards available to offset future income of approximately $164.1 million which will expire in the years 2020 through 2030. A portion of these losses are subject to limitations due to ownership changes.
At December 31, 2010, the Company has state net operating loss carry forwards available to offset future income of approximately $169.9 million which will expire in the years 2011 through 2030. A portion of these losses are subject to limitations due to ownership changes.
The Company continues to record interest and penalties related to unrecognized tax benefits in current income tax expense. The total amount of interest accrued at December 31, 2010 was $0.6 million. The total amount of unrecognized tax benefits and accrued interest and penalties at December 31, 2010 was $2.7 million. Of this total, $1.2 million represents the amount of unrecognized tax benefits and accrued interest and penalties that, if recognized, would favorably affect the effective income tax rate in future periods. The entire amount of $2.7 million relates to items which are not expected to change significantly within the next twelve months. Substantially all federal, state, local and foreign income tax years have been closed for the tax years through 2006; however, the various tax jurisdictions may adjust the Companys net operating loss carry forwards.
(In thousands) | Unrecognized Tax Benefits |
|||
Balance at January 1, 2008 |
$ | 681 | ||
Increases due to tax positions taken during 2008 |
9,166 | |||
|
|
|||
Balance at December 31, 2008 |
$ | 9,847 | ||
|
|
|||
Decreases due to tax positions taken during 2009 |
(1,440 | ) | ||
Decreases due to tax positions taken in previous years |
(1,631 | ) | ||
|
|
|||
Balance at December 31, 2009 |
$ | 6,776 | ||
|
|
|||
Decreases due to tax positions taken during 2010 |
$ | (4,670 | ) | |
|
|
|||
Balance at December 31, 2010 |
$ | 2,106 | ||
|
|
The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and various states.
13. Earnings per Share
For all periods presented, the Company has disclosed basic and diluted earnings per common share utilizing the two-class method. Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. The Company determined that it is appropriate to allocate undistributed net income between Class A, Class B and Class C Common Stock on an equal basis as the Companys charter provides that the holders of Class A, Class B, and Class C Common Stock have equal rights and privileges except with respect to voting on certain matters.
Non-vested restricted stock carries non-forfeitable dividend rights and is therefore a participating security. The two-class method of computing earnings per share is required for companies with participating securities. Under this method, net income is allocated to common stock and participating securities to the extent that each security may share in earnings, as if all of the earnings for the period had been distributed. The Company has accounted for non-vested restricted stock as a participating security and used the two-class method of computing earnings per share as of January 1, 2009, with retroactive application to all prior periods presented. Because the Company does not pay dividends, earnings allocated to each participating security and the common stock, are equal. The following table sets forth the computation of basic and diluted income per share for the year ended December 31, 2010, 2009 and 2008 (dollars in thousands, except per share data).
F-37
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2010 | 2009 | 2008 | ||||||||||
Basic Earnings Per Share |
||||||||||||
Numerator: |
||||||||||||
Undistributed net income (loss) |
$ | 29,402 | $ | (126,702 | ) | $ | (361,669 | ) | ||||
Participation rights of unvested restricted stock in undistributed earnings |
1,112 | | | |||||||||
|
|
|
|
|
|
|||||||
Basic undistributed net income (loss) attributable to common shares |
$ | 28,290 | $ | (126,702 | ) | $ | (361,669 | ) | ||||
|
|
|
|
|
|
|||||||
Denominator: |
||||||||||||
Denominator for basic income per common share: |
||||||||||||
Basic weighted average common shares outstanding |
40,341 | 40,426 | 42,315 | |||||||||
|
|
|
|
|
|
|||||||
Basic EPS attributable to common shares |
$ | 0.70 | $ | (3.13 | ) | $ | (8.55 | ) | ||||
|
|
|
|
|
|
|||||||
Diluted Earnings Per Share |
||||||||||||
Numerator: |
||||||||||||
Undistributed net income (loss) |
$ | 29,402 | $ | (126,702 | ) | $ | (361,669 | ) | ||||
Participation rights of unvested restricted stock in undistributed earnings |
1,090 | | | |||||||||
|
|
|
|
|
|
|||||||
Basic undistributed net income (loss) attributable to common shares |
$ | 28,312 | $ | (126,702 | ) | $ | (361,669 | ) | ||||
|
|
|
|
|
|
|||||||
Denominator: |
||||||||||||
Basic weighted average shares outstanding |
40,341 | 40,426 | 42,315 | |||||||||
Effect of dilutive option warrants |
848 | | | |||||||||
|
|
|
|
|
|
|||||||
Diluted weighted average shares outstanding |
41,189 | 40,426 | 42,315 | |||||||||
|
|
|
|
|
|
|||||||
Diluted EPS attributable to common shares |
$ | 0.69 | $ | (3.13 | ) | $ | (8.55 | ) | ||||
|
|
|
|
|
|
For the years ended December 31, 2010, 2009 and 2008, options to purchase 319,126, 886,373 and 2,053,325 shares of common stock, respectively, were outstanding but excluded from the EPS calculations because the exercise price of the options were equal to or exceeded the average share price for the period. Additionally, for the years ended December 31, 2009 and 2008, the Company excluded warrants from the EPS calculations because including the warrants would be antidilutive.
The Company has issued to key executives, employees, and the Board of Directors shares of restricted stock and options to purchase shares of common stock as part of the Companys stock incentive plans. At December 31, 2010, the following restricted stock and stock options to purchase the following classes of common stock were issued and outstanding:
2010 | ||||
Restricted shares of Class A Common Stock |
1,528,721 | |||
Options to purchase Class A Common Stock |
787,230 | |||
Options to purchase Class C Common Stock |
|
F-38
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Leases
The Company has non-cancelable operating leases, primarily for land, tower space, office-space, certain office equipment and vehicles. The operating leases generally contain renewal options for periods ranging from one to ten years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases was approximately $9.8 million, $10.0 million, and $9.1 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2010 are as follows:
Year Ending December 31: |
||||
2011 |
$ | 8,684 | ||
2012 |
8,319 | |||
2013 |
7,184 | |||
2014 |
6,385 | |||
2015 |
5,191 | |||
Thereafter |
12,028 | |||
|
|
|||
$ | 47,791 | |||
|
|
15. Commitments and Contingencies
The Company engages Katz Media Group, Inc. (Katz) as its national advertising sales agent. The national advertising agency contract with Katz contains termination provisions that, if exercised by the Company during the term of the contract, would obligate the Company to pay a termination fee to Katz, calculated based upon a formula set forth in the contract.
In December 2004, the Company purchased 240 perpetual licenses from iBiquity Digital Corporation, which enable it to convert to and utilize digital broadcasting technology on 240 of its stations. Under the terms of the agreement, the Company committed to convert the 240 stations over a seven year period. The Company negotiated an amendment to the Companys agreement with iBiquity to reduce the number of planned conversions commissions, extend the build-out schedule, and increase the license fees for each converted station. The conversion of original stations to the digital technology will require an investment in certain capital equipment over the next six years. Management estimates its investment will be between $0.1 million and $0.2 million per station converted.
In August 2005, the Company was subpoenaed by the Office of the Attorney General of the State of New York, as were other radio broadcasting companies, in connection with the New York Attorney Generals investigation of promotional practices related to record companies dealings with radio stations broadcasting in New York. The Company is cooperating with the Attorney General in this investigation.
On December 11, 2008, Qantum (Qantum) filed a counterclaim in a foreclosure action the Company initiated in the Okaloosa County, Florida Circuit Court. The Companys action was designed to collect a debt owed to the Company by Star Broadcasting, Inc. (Star), which then owned radio station WTKE-FM in Holt, Florida. In its counterclaim, Qantum alleged that the Company tortiously interfered with Qantums contract to acquire radio station WTKE from Star by entering into an agreement to buy WTKE after Star had represented to the Company that its contract with Qantum had been terminated (and that Star was therefore free to enter into the new agreement with the Company). On February 27, 2011, the Company entered into a settlement agreement with Qantum and, in so doing, resolved all claims against each other that were directly or indirectly related to the litigation. In connection with the settlement regarding the since-terminated attempt to purchase WTKE, the Company recorded $7.8 million in costs associated with a terminated transaction in the consolidated statement of operations for the year ended December 31, 2010, which costs are payable in 2011.
F-39
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In April 2009, the Company was named in a patent infringement suit brought against the Company as well as twelve other radio companies, including Clear Channel, Citadel Broadcasting Corporation, CBS Radio, Entercom Communications, Saga Communications, Cox Radio, Univision Communications, Regent Communications, Gap Broadcasting, and Radio One. The case, captioned Aldav, LLC v. Clear Channel Communications, Inc., et al, Civil Action No. 6:09-cv-170, U.S. District Court for the Eastern District of Texas, Tyler Division (filed April 16, 2009), alleged that the defendants have infringed and continue to infringe plaintiffs patented content replacement technology in the context of radio station streaming over the Internet, and sought a permanent injunction and unspecified damages. The Company settled this suit in March 2010.
On January 21, 2010, Brian Mas, a former employee of Radio Holdings, filed a purported class action lawsuit against the Company claiming (i) unlawful failure to pay required overtime wages, (ii) late pay and waiting time penalties, (iii) failure to provide accurate itemized wage statements, (iv) failure to indemnity for necessary expenses and losses, and (v) unfair trade practices under Californias Unfair Competition Act. The plaintiff is requesting restitution, penalties and injunctive relief, and seeks to represent other California employees fulfilling the same job during the immediately preceding four year period. The Company is vigorously defending this lawsuit and has not yet determined what effect the lawsuit will have, if any, on its financial position, results of operations or cash flows.
In March 2011, the Company was named in a patent infringement suit brought against it as well as other radio companies, including Beasley Broadcast Group, Inc., CBS Radio, Inc., Entercom Communications, Greater Media, Inc. and Townsquare Media, LLC. The case, Mission Abstract Data L.L.C, d/b/a Digimedia v. Beasley Broadcast Group, Inc., et. al., Civil Action Case No: 1:99-mc-09999, U.S. District Court for the District of Delaware (filed March 1, 2011), alleges that the defendants are infringing or have infringed plaintiffs patents entitled Selection and Retrieval of Music from a Digital Database. Plaintiff is seeking injunctive relief and unspecified damages. The Company intends to vigorously defend this lawsuit and has not yet determined what effect the lawsuit will have, if any, on its financial position, results of operations or cash flows.
The Company is also a defendant from time to time in various other lawsuits, which are generally incidental to its business. The Company is vigorously contesting such lawsuits and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
16. Termination of Merger Agreement
On May 11, 2008, the Company, Cloud Acquisition Corporation, a Delaware corporation (Parent), and Cloud Merger Corporation, a Delaware corporation and wholly owned subsidiary of Parent (Merger Sub), entered into a Termination Agreement and Release (the Termination Agreement) to terminate the Agreement and Plan of Merger, dated July 23, 2007, among the Company, Parent and Merger Sub (the Merger Agreement), pursuant to which Merger Sub would have been merged with and into the Company, and as a result the Company would have continued as the surviving corporation and a wholly owned subsidiary of Parent.
Parent is owned by an investor group consisting of Lewis W. Dickey, Jr., the Companys Chairman, President and Chief Executive Officer, his brother John W. Dickey, the Companys Executive Vice President and Co-Chief Operating Officer, other members of their family, and an affiliate of Merrill Lynch Global Private Equity. The members of the investor group informed the Company that, after exploring possible alternatives, they were unable to agree on terms on which they could proceed with the transaction.
As a result of the termination of the Merger Agreement, and in accordance with its terms, in May 2008 the Company received a termination fee in the amount of $15.0 million in cash from the investor group, and the terms of the previously announced amendment to the Companys existing Credit Agreement will not take effect.
Under the terms of the Termination Agreement, the parties also acknowledged and agreed that all related equity and debt financing commitments, equity rollover commitments and voting agreements shall be terminated, and further agreed to release any and all claims they may have against each other and their respective affiliates.
F-40
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Restricted Cash
The Company is required to secure the maximum exposure generated by automated clearing house transactions in its operating bank accounts as dictated by the Companys banks internal policies with cash. This action was triggered by an adverse rating as determined by the Companys banks rating system. These funds were moved to a segregated bank account that does not zero balance daily. As of December 31, 2010, the Companys balance sheet included approximately $0.6 million in restricted cash related to the automated clearing house transactions.
18. Quarterly Results (Unaudited)
The following table presents the Companys selected unaudited quarterly results for the eight quarters ended December 31, 2010 and 2009 (dollars in thousands, except per share data):
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2010 |
||||||||||||||||
Net revenues |
$ | 56,358 | $ | 69,739 | $ | 67,455 | $ | 69,781 | ||||||||
Operating income |
8,736 | 21,009 | 18,714 | 22,768 | ||||||||||||
Net (loss) income |
(144 | ) | 12,304 | 9,731 | 7,511 | |||||||||||
Basic income per common share |
$ | 0.01 | $ | 0.29 | $ | 0.23 | $ | 0.18 | ||||||||
Diluted income per common share |
$ | 0.01 | $ | 0.29 | $ | 0.23 | $ | 0.17 | ||||||||
FOR THE YEAR ENDED DECEMBER 31, 2009 |
||||||||||||||||
Net revenues |
$ | 55,353 | $ | 65,962 | $ | 65,127 | $ | 69,606 | ||||||||
Operating income (loss)(1) |
3,580 | 26,431 | (160,054 | ) | 14,862 | |||||||||||
Net (loss) income(1) |
(3,296 | ) | 14,074 | (143,991 | ) | 6,511 | ||||||||||
Basic and diluted (loss) income per common share |
$ | (0.08 | ) | $ | 0.34 | $ | (3.56 | ) | $ | 0.16 |
(1) | During the third and fourth quarters of 2009 the Company recorded impairment charges of $173.1 million and $1.9 million, respectively, related to its interim and annual impairment testing. |
19. Variable Interest Entities
The Company has an investment in CMP, which the Company accounts for using the equity method and which the Company has determined to be a VIE that is not subject to consolidation because the Company is not deemed to be the primary beneficiary. The Company cannot make unilateral management decisions affecting the long-term operational results of CMP, as all such decisions require approval by the CMP Board of Director. One of the other equity holders has the unilateral right to remove the Company as manager of CMP with 30 days notice. The Company concluded that this ability to unilaterally terminate CMPs management agreement with the Company resulted in a substantive kick out right, thereby precluding the Company from being designated as the primary beneficiary with respect to its variable interest in CMP.
As of December 31, 2010, the Companys proportionate share of its affiliate losses exceeded its investment in CMP. In addition, the Company has no contractual obligation to fund the losses of CMP. As a result, the Company had no exposure to loss from its investment in CMP. The Company has not provided and does not intend to provide any financial support, guarantees or commitments for or on behalf of CMP. Additionally, the Companys balance sheet at December 31, 2010 does not include any assets or liabilities related to its variable interest in CMP. See Note 8, Investment in Affiliate for further discussion.
On January 31, 2011, the Company entered into an agreement to purchase CMP, see Note 21, Subsequent Event for additional discussion related to the Companys acquisition of CMP.
F-41
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Related Party
During the third quarter of 2010, the Company entered into a management agreement with DM Luxury, LLC the countrys largest city magazine publisher which publishes 26 titles in twelve major U.S. markets. The Company will provide back office shared services, such as finance, accounting, treasury, internal audit, use of corporate headquarters, legal, human resources, risk management and information technology for an annual management fee of $0.5 million. The Company determined that DM Luxury, LLC was a related party as a result of the ownership interest of Lewis W. Dickey, Jr., an executive officer of the Company, in Dickey Publishing, Inc. and Dickey Media Investments, LLC, which together own 50.0% of DM Luxury, LLC, with Macquarie Capital (USA), Inc. owning the remaining 50.0% of DM Luxury, LLC. The Company does not have an equity interest in DM Luxury, LLC and recorded $0.1 million of revenues during the twelve months ended December 31, 2010.
During the fourth quarter the Company completed the sale of a translator to Dickey Broadcasting which resulted in a gain of approximately $0.2 million. Mr. Lewis W. Dickey, Jr., and Mr. John W. Dickey, each executive officers of the Company, are part owners of Dickey Broadcasting.
21. Subsequent Event
On January 31, 2011, the Company signed a definitive agreement to acquire the remaining equity interests of CMP that it does not currently own.
In connection with the acquisition, the Company expects to issue 9,945,714 shares of its common stock to affiliates of the three private equity firms that collectively own 75.0% of CMP Bain, Blackstone and THL. Blackstone will receive shares of the Companys Class A common stock and, in accordance with FCC broadcast ownership rules, Bain and THL will receive shares of a new class of the Companys non-voting common stock. The Company currently owns the remaining 25.0% of CMPs equity interests. In connection with the acquisition, the Company also intends to acquire all of the outstanding warrants to purchase common stock of a subsidiary of CMP, in exchange for an additional 8,267,968 shares of the Companys common stock.
This transaction will not trigger any change of control provisions in the Companys Credit Agreements or in CMPs credit agreement or bond indentures.
The transaction is expected to be completed in the second quarter of 2011, and is subject to shareholder and regulatory approvals and other customary conditions. The Companys holders of shares, representing approximately 54.0% of its voting power, have agreed to vote to approve the share issuances and to approve an amendment to its certificate of incorporation, which are required to complete the transaction. In addition, on February 23, 2011, the Company received an initial order from the FCC approving the transaction. The Company is currently waiting for the approval to become final. Also, in conjunction with the acquisition, Mr. David M. Tolley, a Senior Managing Director of Blackstone, has joined the Board of Directors of Cumulus, as of January 31, 2011.
In addition, on March 9, 2011, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Citadel Broadcasting Corporation (Citadel), Cadet Holding Corporation, a direct wholly owned subsidiary of the Company (Holdco), and Cadet Merger Corporation, an indirect, wholly owned subsidiary of the Company (Merger Sub).
Pursuant to the Merger Agreement, at the closing, Merger Sub will merge with and into Citadel, with Citadel surviving the merger as an indirect, wholly owned subsidiary of the Company (the Merger). At the effective time of the Merger, each outstanding share of common stock and warrant of Citadel will be canceled and converted automatically into the right to receive, at the election of the stockholder (subject to certain limitations set forth in the Merger Agreement), (i) $37.00 in cash, (ii) 8.525 shares of the Companys common stock, or (iii) a combination thereof. Additionally, prior to the Merger, each outstanding unvested option to acquire shares of Citadel common stock issued under Citadels equity incentive plan will automatically vest, and all outstanding options will be deemed exercised pursuant to a cashless exercise, with the resulting net Citadel shares eligible to receive the Merger
F-42
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
consideration. Holders of unvested restricted shares of Citadel common stock will be eligible to receive the Merger consideration for their shares pursuant to the original vesting schedule of such shares. Elections by Citadel stockholders are subject to adjustment so that the maximum amount of shares of the Companys common stock that may be issuable in the Merger is 151,485,282 and the maximum amount of cash payable by the Company in the Merger is $1,408,728,600.
The Company has obtained commitments for up to $500 million in equity financing and commitments for up to $2.525 billion in senior secured credit facilities and $500 million in senior note bridge financing, the proceeds of which shall pay the cash portion of the Merger consideration, and effect a refinancing of the combined entity (the Company, CMP and Citadel). Final terms of the debt financing will be set forth in definitive agreements relating to such indebtedness.
The Merger Agreement contains customary representations and warranties made by Citadel, the Company, Holdco and Merger Sub. Citadel and the Company also agreed to various covenants in the Merger Agreement, including, among other things, covenants (i) to conduct their respective material operations in the ordinary course of business consistent with past practice and (ii) not to take certain actions prior to the closing of the Merger without prior consent of the other.
The consummation of the Merger is subject to various customary closing conditions, including (i) approval by Citadels stockholders, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (HSR approval), (iii) regulatory approval by the Federal Communications Commission, and (iv) the absence of a material adverse effect on Citadel or the Company.
The Merger Agreement may be terminated by either Citadel or the Company in certain circumstances, and if the Merger Agreement is terminated, then Citadel may be required under certain circumstances specified in the Merger Agreement to pay the Company a termination fee of up to $80 million. In other circumstances, the Company may be required to pay to Citadel a reverse termination fee of up to $80 million.
Completion of the Merger is anticipated to occur by the end of 2011, although there can be no assurance the Merger will occur within the expected timeframe or at all.
F-43
22. Supplemental Condensed Consolidating Financial Information
On May 13, 2011, Cumulus Media Inc. issued $610.0 million aggregate principal amount of 7.75% senior notes due 2019 (the 7.75% Senior Notes). In connection with the completion of the Merger on September 16, 2011, we completed an internal restructuring into a holding company structure, which included (i) Cumulus Media Inc. transferring its remaining assets and liabilities held directly or indirectly (other than the equity interests in its wholly owned subsidiary Cumulus Media Holdings Inc. (f/k/a Cadet Holding Corporation, the Subsidiary Issuer)) to the Subsidiary Issuer and (ii) our entry into a supplemental indenture, dated as of September 16, 2011, to the indenture, dated as of May 13, 2011, pursuant to which the 7.75% Senior Notes were issued (Indenture), which supplemental indenture provided for: (a) the assumption by the Subsidiary Issuer of all obligations of Cumulus Media Inc.; (b) the substitution of the Subsidiary Issuer for Cumulus Media Inc. as issuer; (c) the release of Cumulus Media Inc. from all obligations as original issuer; and (d) Cumulus Media Inc.s guarantee of all of the Subsidiary Issuers obligations, in each case under the 7.75% Senior Notes and the Indenture.
As a result thereof, Cumulus Media Inc. (the Parent Guarantor) and certain of its wholly owned subsidiaries (such subsidiaries, the Subsidiary Guarantors) provide guarantees of the obligations of the Subsidiary Issuer under the 7.75% Senior Notes. These guarantees are full and unconditional as well as joint and several. Certain of the Subsidiary Guarantors may be subject to restrictions on their respective ability to distribute earnings to the Subsidiary Issuer or the Parent Guarantor. Not all of the subsidiaries of the Parent Guarantor and the Subsidiary Issuer guarantee the 7.75% Senior Notes (such non-guaranteeing subsidiaries, collectively, the Subsidiary Non-guarantors).
The following tables present (i) condensed consolidating statements of income for the years ended December 31, 2010 and 2009, respectively, (ii) condensed consolidating balance sheets as of December 31, 2010 and 2009, respectively, and (iii) condensed consolidating statements of cash flows for the years ended December 31, 2010 and 2009, respectively, of each of the Parent Guarantor, the Subsidiary Issuer, the Subsidiary Guarantors, and the Subsidiary Non-guarantors.
Investments in consolidated subsidiaries are held primarily by the Parent Guarantor in the net assets of its subsidiaries and have been presented using the equity method of accounting. The Eliminations entries in the following tables primarily eliminate investments in subsidiaries and intercompany balances and transactions. The columnar presentations in the following tables are not consistent with the Companys business groups; accordingly, this basis of presentation is not intended to present the Companys financial condition, results of operations or cash flows on a consolidated basis.
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2010
(Dollars in thousands, except for share and per share data)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 12,638 | $ | | $ | 176 | $ | | $ | | $ | 12,814 | ||||||||||||
Restricted cash |
604 | | | | | 604 | ||||||||||||||||||
Accounts receivable, less subsidiary guarantors allowance for doubtful accounts of $1,115 |
| | 38,267 | | | 38,267 | ||||||||||||||||||
Trade receivable |
| | 3,605 | | | 3,605 | ||||||||||||||||||
Prepaid expenses and other current assets |
1,528 | | 2,272 | 603 | | 4,403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
14,770 | | 44,320 | 603 | | 59,693 | ||||||||||||||||||
Property and equipment, net |
2,446 | | 37,238 | | | 39,684 | ||||||||||||||||||
Broadcast licenses |
| | | 160,418 | | 160,418 | ||||||||||||||||||
Other intangible assets, net |
| | 552 | | | 552 | ||||||||||||||||||
Goodwill |
| | 56,079 | | | 56,079 | ||||||||||||||||||
Investment in consolidated subsidiaries |
248,198 | | 142,690 | | (390,888 | ) | | |||||||||||||||||
Other assets |
2,159 | | 1,051 | | | 3,210 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 267,573 | $ | | $ | 281,930 | $ | 161,021 | $ | (390,888 | ) | $ | 319,636 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders Equity (Deficit) |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 11,805 | $ | | $ | 8,560 | $ | | $ | | $ | 20,365 | ||||||||||||
Trade payable |
| | 3,569 | | | 3,569 | ||||||||||||||||||
Derivative instrument |
3,683 | | | | | 3,683 | ||||||||||||||||||
Current portion of long-term debt |
15,165 | | | | | 15,165 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
30,653 | | 12,129 | | | 42,782 | ||||||||||||||||||
Long-term debt |
575,843 | | | | | 575,843 | ||||||||||||||||||
Other liabilities |
2,386 | | 15,204 | | | 17,590 | ||||||||||||||||||
Deferred income taxes |
| | 6,399 | 18,331 | | 24,730 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
608,882 | | 33,732 | 18,331 | | 660,945 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity (deficit): |
||||||||||||||||||||||||
Class A common stock, par value $0.01 per share; 200,000,000 shares authorized; 59,599,857 shares issued and 35,538,530 shares outstanding |
596 | | | | | 596 | ||||||||||||||||||
Class B common stock, par value $0.01 per share; 20,000,000 shares authorized; 5,809,191 shares issued and outstanding |
58 | | | | | 58 | ||||||||||||||||||
Class C common stock, par value $0.01 per share; 30,000,000 shares authorized; 644,871 shares issued and outstanding |
6 | | | | | 6 | ||||||||||||||||||
Treasury stock, at cost, 24,061,327 shares at Parent Guarantor |
(256,792 | ) | | | | | (256,792 | ) | ||||||||||||||||
Additional paid-in-capital |
964,156 | | 1,205,497 | 1,097,911 | (2,303,408 | ) | 964,156 | |||||||||||||||||
Accumulated (deficit) equity |
(1,049,333 | ) | | (957,299 | ) | (955,221 | ) | 1,912,520 | (1,049,333 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders (deficit) equity |
(341,309 | ) | | 248,198 | 142,690 | (390,888 | ) | (341,309 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 267,573 | $ | | $ | 281,930 | $ | 161,021 | $ | (390,888 | ) | $ | 319,636 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-44
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2009
(Dollars in thousands, except for share and per share data)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 11,674 | $ | | $ | 4,550 | $ | | $ | | $ | 16,224 | ||||||||||||
Restricted cash |
789 | | | | | 789 | ||||||||||||||||||
Accounts receivable, less subsidiary guarantors allowance for doubtful accounts of $1,166 |
| | 37,504 | | | 37,504 | ||||||||||||||||||
Trade receivable |
| | 5,488 | | | 5,488 | ||||||||||||||||||
Prepaid expenses and other current assets |
1,238 | | 2,873 | 598 | | 4,709 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
13,701 | | 50,415 | 598 | | 64,714 | ||||||||||||||||||
Property and equipment, net |
3,555 | | 43,426 | | | 46,981 | ||||||||||||||||||
Broadcast licenses |
| | | 160,801 | | 160,801 | ||||||||||||||||||
Other intangible assets, net |
| | 579 | | | 579 | ||||||||||||||||||
Goodwill |
| | 56,121 | | | 56,121 | ||||||||||||||||||
Investment in consolidated subsidiaries |
260,157 | | 147,224 | | (407,381 | ) | | |||||||||||||||||
Other assets |
4,868 | | | | | 4,868 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 282,281 | $ | | $ | 297,765 | $ | 161,399 | $ | (407,381 | ) | $ | 334,064 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders Equity (Deficit) |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 3,914 | $ | | $ | 9,721 | $ | | $ | | $ | 13,635 | ||||||||||||
Trade payable |
| | 5,534 | | | 5,534 | ||||||||||||||||||
Current portion of long-term debt |
49,026 | | | | | 49,026 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
52,940 | | 15,255 | | | 68,195 | ||||||||||||||||||
Long-term debt |
584,482 | | | | | 584,482 | ||||||||||||||||||
Other liabilities |
17,371 | | 15,227 | | | 32,598 | ||||||||||||||||||
Deferred income taxes |
| | 7,126 | 14,175 | | 21,301 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
654,793 | | 37,608 | 14,175 | | 706,576 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity (deficit): |
||||||||||||||||||||||||
Class A common stock, par value $0.01 per share; 200,000,000 shares authorized; 59,572,592 shares issued and 35,162,511 shares outstanding |
596 | | | | | 596 | ||||||||||||||||||
Class B common stock, par value $0.01 per share; 20,000,000 shares authorized; 5,809,191 shares issued and outstanding |
58 | | | | | 58 | ||||||||||||||||||
Class C common stock, par value $0.01 per share; 30,000,000 shares authorized; 644,871 shares issued and outstanding |
6 | | | | | 6 | ||||||||||||||||||
Treasury stock, at cost, 24,410,081 shares at Parent Guarantor |
(261,382 | ) | | | | | (261,382 | ) | ||||||||||||||||
Additional paid-in-capital |
966,945 | | 1,205,497 | 1,097,911 | (2,303,408 | ) | 966,945 | |||||||||||||||||
Accumulated (deficit) equity |
(1,078,735 | ) | | (945,340 | ) | (950,687 | ) | 1,896,027 | (1,078,735 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders (deficit) equity |
(372,512 | ) | | 260,157 | 147,224 | (407,381 | ) | (372,512 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 282,281 | $ | | $ | 297,765 | $ | 161,399 | $ | (407,381 | ) | $ | 334,064 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-45
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2010
(Dollars in thousands)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Broadcast revenues |
$ | | $ | | $ | 259,187 | $ | | $ | | $ | 259,187 | ||||||||||||
Management fees |
4,146 | | | | | 4,146 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net revenues |
4,146 | | 259,187 | | | 263,333 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Station operating expenses (excluding depreciation, amortization and LMA fees) |
| | 158,998 | 809 | | 159,807 | ||||||||||||||||||
Depreciation and amortization |
1,614 | | 7,484 | | | 9,098 | ||||||||||||||||||
LMA fees |
| | 2,054 | | | 2,054 | ||||||||||||||||||
Corporate general and administrative expenses (including subsidiary guarantors non-cash stock-based compensation expense of $2,451) |
18,519 | | | | | 18,519 | ||||||||||||||||||
Realized loss on derivative instrument |
| | 1,957 | | | 1,957 | ||||||||||||||||||
Impairment of intangible assets and goodwill |
| | | 671 | | 671 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
20,133 | | 170,493 | 1,480 | | 192,106 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating (loss) income |
(15,987 | ) | | 88,694 | (1,480 | ) | | 71,227 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-operating (expense) income: |
||||||||||||||||||||||||
Interest expense |
(30,306 | ) | | (9 | ) | | | (30,315 | ) | |||||||||||||||
Interest income |
| | 8 | | | 8 | ||||||||||||||||||
Terminated transaction expense |
(7,847 | ) | | | | | (7,847 | ) | ||||||||||||||||
Other (expense) income, net |
(6 | ) | | 114 | | | 108 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-operating (expense) income, net |
(38,159 | ) | | 113 | | | (38,046 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
(54,146 | ) | | 88,807 | (1,480 | ) | | 33,181 | ||||||||||||||||
Income tax expense |
| | (1,531 | ) | (2,248 | ) | | (3,779 | ) | |||||||||||||||
Earnings (loss) from consolidated subsidiaries |
83,548 | | (3,728 | ) | | (79,820 | ) | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | 29,402 | $ | | $ | 83,548 | $ | (3,728 | ) | $ | (79,820 | ) | $ | 29,402 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-46
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2009
(Dollars in thousands)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Broadcast revenues |
$ | | $ | | $ | 252,048 | $ | | $ | | $ | 252,048 | ||||||||||||
Management fees |
4,000 | | | | | 4,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net revenues |
4,000 | | 252,048 | | | 256,048 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Station operating expenses (excluding depreciation, amortization and LMA fees) |
| | 164,872 | 804 | | 165,676 | ||||||||||||||||||
Depreciation and amortization |
1,697 | | 9,439 | | | 11,136 | ||||||||||||||||||
LMA fees |
| | 2,332 | | | 2,332 | ||||||||||||||||||
Corporate general and administrative expenses (including subsidiary guarantors non-cash stock-based compensation expense of $2,879) |
20,699 | | | | | 20,699 | ||||||||||||||||||
Gain on exchange of assets or stations |
| | (7,204 | ) | | | (7,204 | ) | ||||||||||||||||
Realized loss on derivative instrument |
| | 3,640 | | | 3,640 | ||||||||||||||||||
Impairment of intangible assets and goodwill |
| | 2,738 | 172,212 | | 174,950 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
22,396 | | 175,817 | 173,016 | | 371,229 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating (loss) income |
(18,396 | ) | | 76,231 | (173,016 | ) | | (115,181 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-operating (expense) income : |
||||||||||||||||||||||||
Interest expense |
(34,032 | ) | | (18 | ) | | | (34,050 | ) | |||||||||||||||
Interest income |
| | 61 | | | 61 | ||||||||||||||||||
Other expense, net |
| | (136 | ) | | | (136 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-operating expense, net |
(34,032 | ) | | (93 | ) | | | (34,125 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
(52,428 | ) | | 76,138 | (173,016 | ) | | (149,306 | ) | |||||||||||||||
Income tax benefit |
| | 3,655 | 18,949 | | 22,604 | ||||||||||||||||||
Loss from consolidated subsidiaries |
(74,274 | ) | | (154,067 | ) | | 228,341 | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (loss) income |
$ | (126,702 | ) | $ | | $ | (74,274 | ) | $ | (154,067 | ) | $ | 228,341 | $ | (126,702 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-47
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2010
(Dollars in thousands)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net (loss) income |
$ | 29,402 | $ | | $ | 83,548 | $ | (3,728 | ) | $ | (79,820 | ) | $ | 29,402 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||||||||||||||
Depreciation and amortization |
1,614 | | 7,484 | | | 9,098 | ||||||||||||||||||
Amortization of debt issuance costs/discount |
1,248 | | | | | 1,248 | ||||||||||||||||||
Provision for doubtful accounts |
| | 1,271 | | | 1,271 | ||||||||||||||||||
Loss on sale of assets or stations |
| | (116 | ) | | | (116 | ) | ||||||||||||||||
Fair value adjustment of derivative instruments |
(11,956 | ) | | 1,957 | | | (9,999 | ) | ||||||||||||||||
Impairment of intangible assets and goodwill |
| | | 671 | | 671 | ||||||||||||||||||
Deferred income taxes |
| | (727 | ) | 4,156 | | 3,429 | |||||||||||||||||
Non-cash stock compensation |
2,451 | | | | | 2,451 | ||||||||||||||||||
(Loss) earnings from consolidated subsidiaries |
(83,548 | ) | | 3,728 | | 79,820 | | |||||||||||||||||
Changes in assets and liabilities, net of effects of acquisitions/dispositions |
106,401 | | (100,019 | ) | (1,099 | ) | | 5,283 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by operating activities |
45,612 | | (2,874 | ) | | | 42,738 | |||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Proceeds from sale of assets or radio stations |
| | 296 | | | 296 | ||||||||||||||||||
Purchases of intangible assets |
| | (246 | ) | | | (246 | ) | ||||||||||||||||
Capital expenditures |
(925 | ) | | (1,550 | ) | | | (2,475 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(925 | ) | | (1,500 | ) | | | (2,425 | ) | |||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Repayments of borrowings from bank credit facility |
(43,136 | ) | | | | | (43,136 | ) | ||||||||||||||||
Tax withholding paid on behalf of employees |
(343 | ) | | | | | (343 | ) | ||||||||||||||||
Debt discount fees |
(244 | ) | | | | | (244 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
(43,723 | ) | | | | | (43,723 | ) | ||||||||||||||||
Increase (decrease) in cash and cash equivalents |
964 | | (4,374 | ) | | | (3,410 | ) | ||||||||||||||||
Cash and cash equivalents at beginning of period |
11,674 | | 4,550 | | | 16,224 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at end of period |
$ | 12,638 | $ | | $ | 176 | $ | | $ | | $ | 12,814 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-48
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31. 2009
(Dollars in thousands)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net (loss) income |
$ | (126,702 | ) | $ | | $ | (74,274 | ) | $ | (154,067 | ) | $ | 228,341 | $ | (126,702 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||||||||||||||
Depreciation and amortization |
1,697 | | 9,439 | | | 11,136 | ||||||||||||||||||
Amortization of debt issuance costs/discount |
1,079 | | | | | 1,079 | ||||||||||||||||||
Amortization of derivative gain |
(828 | ) | | | | | (828 | ) | ||||||||||||||||
Provision for doubtful accounts |
| | 2,386 | | | 2,386 | ||||||||||||||||||
Loss on sale of assets or stations |
| | (29 | ) | | | (29 | ) | ||||||||||||||||
Gain on exchange of assets or stations |
| | (7,204 | ) | | | (7,204 | ) | ||||||||||||||||
Fair value adjustment of derivative instruments |
(2,868 | ) | | 3,639 | | | 771 | |||||||||||||||||
Impairment of intangible assets and goodwill |
| | 2,738 | 172,212 | | 174,950 | ||||||||||||||||||
Deferred income taxes |
| | (4,177 | ) | (19,001 | ) | | (23,178 | ) | |||||||||||||||
Non-cash stock compensation |
2,879 | | | | | 2,879 | ||||||||||||||||||
Earnings (loss) from consolidated subsidiaries |
74,274 | | 154,067 | | (228,341 | ) | | |||||||||||||||||
Changes in assets and liabilities |
118,502 | | (125,927 | ) | 856 | | (6,569 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
68,033 | | (39,342 | ) | | | 28,691 | |||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Proceeds from sale of assets or radio stations |
| | 102 | | | 102 | ||||||||||||||||||
Acquisition costs |
| | (52 | ) | | | (52 | ) | ||||||||||||||||
Capital expenditures |
(529 | ) | | (2,581 | ) | | | (3,110 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(529 | ) | | (2,531 | ) | | | (3,060 | ) | |||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Repayments of borrowings from bank credit facility |
(59,110 | ) | | | | | (59,110 | ) | ||||||||||||||||
Tax withholding paid on behalf of employees |
(107 | ) | | | | | (107 | ) | ||||||||||||||||
Debt discount fees |
(3,000 | ) | | | | | (3,000 | ) | ||||||||||||||||
Payments for repurchases of common stock |
(193 | ) | | | | | (193 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
(62,410 | ) | | | | | (62,410 | ) | ||||||||||||||||
Increase (decrease) in cash and cash equivalents |
5,094 | | (41,873 | ) | | | (36,779 | ) | ||||||||||||||||
Cash and cash equivalents at beginning of period |
6,580 | | 46,423 | | | 53,003 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at end of period |
$ | 11,674 | $ | | $ | 4,550 | $ | | $ | | $ | 16,224 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-49
SCHEDULE II
CUMULUS MEDIA INC.
FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
Fiscal Year |
Balance at Beginning of Year |
Provision for Doubtful Accounts |
Applications | Balance at End of Year |
||||||||||||
Allowance for doubtful accounts |
||||||||||||||||
2010 |
$ | 1,166 | $ | 1,271 | $ | (1,322 | ) | $ | 1,115 | |||||||
2009 |
1,771 | 2,386 | (2,991 | ) | 1,166 | |||||||||||
2008 |
1,839 | 3,754 | (3,822 | ) | 1,771 | |||||||||||
Valuation allowance on deferred taxes |
||||||||||||||||
2010 |
$ | 267,804 | $ | | $ | (11,004 | ) | $ | 256,800 | |||||||
2009 |
233,108 | 34,696 | | 267,804 | ||||||||||||
2008 |
169,702 | 63,406 | | 233,108 |
S-1
Exhibit 99.2
CUMULUS MEDIA INC.
INDEX
PART I. FINANCIAL INFORMATION |
||||
Item 1. Financial Statements (Unaudited) |
1 | |||
Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 |
1 | |||
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 |
2 | |||
Consolidated Statements of Stockholders Equity (Deficit) for the Nine Months Ended September 30, 2011 and the Year Ended December 31, 2010 |
3 | |||
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 |
4 | |||
Notes to Unaudited Consolidated Financial Statements |
5 |
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)
September 30, 2011 |
December 31, 2010 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 47,076 | $ | 12,814 | ||||
Restricted cash |
3,477 | 604 | ||||||
Accounts receivable, less allowance for doubtful accounts of $1,502 and $1,115 at 2011 and 2010, respectively |
233,422 | 38,267 | ||||||
Trade receivable |
7,348 | 3,605 | ||||||
Prepaid expenses and other current assets |
53,233 | 4,403 | ||||||
|
|
|
|
|||||
Total current assets |
344,556 | 59,693 | ||||||
Property and equipment, net |
260,787 | 39,684 | ||||||
Broadcast licenses |
1,624,809 | 160,418 | ||||||
Other intangible assets, net |
442,563 | 552 | ||||||
Goodwill |
1,313,197 | 56,079 | ||||||
Other assets |
86,168 | 3,210 | ||||||
|
|
|
|
|||||
Total assets |
$ | 4,072,080 | $ | 319,636 | ||||
|
|
|
|
|||||
Liabilities, Redeemable Preferred Stock and Stockholders Equity (Deficit) |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 151,546 | $ | 20,365 | ||||
Trade payable |
5,845 | 3,569 | ||||||
Derivative instrument |
| 3,683 | ||||||
Current portion of long-term debt |
9,938 | 15,165 | ||||||
|
|
|
|
|||||
Total current liabilities |
167,329 | 42,782 | ||||||
Long-term debt |
2,280,103 | 575,843 | ||||||
Senior notes |
610,000 | | ||||||
Other liabilities |
68,961 | 17,590 | ||||||
Deferred income taxes |
528,357 | 24,730 | ||||||
|
|
|
|
|||||
Total liabilities |
3,654,750 | 660,945 | ||||||
|
|
|
|
|||||
Redeemable preferred stock: |
||||||||
Series A cumulative redeemable preferred stock, par value $0.01 per share; stated value of $1,000 per share; 100,000,000 shares authorized; 125,000 shares issued and outstanding at September 30, 2011 and none at December 31, 2010 |
110,937 | | ||||||
|
|
|
|
|||||
Total redeemable preferred stock |
110,937 | | ||||||
|
|
|
|
|||||
Stockholders equity (deficit): |
||||||||
Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 142,984,733 and 59,599,857 shares issued, and 119,460,855 and 35,538,530 shares outstanding at 2011 and 2010, respectively |
1,430 | 596 | ||||||
Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 12,439,667 and 5,809,191 shares issued and outstanding at 2011 and 2010, respectively |
124 | 58 | ||||||
Class C common stock, par value $0.01 per share; 644,871 shares authorized; 644,871 shares issued and outstanding at both 2011 and 2010 |
6 | 6 | ||||||
Treasury stock, at cost, 23,523,878 and 24,061,327 shares at 2011 and 2010, respectively |
(251,148 | ) | (256,792 | ) | ||||
Additional paid-in-capital |
1,528,316 | 964,156 | ||||||
Accumulated deficit |
(972,335 | ) | (1,049,333 | ) | ||||
|
|
|
|
|||||
Total stockholders equity (deficit) |
306,393 | (341,309 | ) | |||||
|
|
|
|
|||||
Total liabilities, redeemable preferred stock and stockholders equity (deficit) |
$ | 4,072,080 | $ | 319,636 | ||||
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
1
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)
(Unaudited)
Three Months
Ended September 30, |
Nine Months
Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Broadcast revenues |
$ | 131,845 | $ | 66,434 | $ | 256,632 | $ | 190,531 | ||||||||
Management fees |
458 | 1,021 | 2,708 | 3,021 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net revenues |
132,303 | 67,455 | 259,340 | 193,552 | ||||||||||||
Operating expenses: |
||||||||||||||||
Direct operating expenses (excluding depreciation, amortization and LMA fees) |
77,873 | 40,486 | 154,586 | 120,829 | ||||||||||||
Depreciation and amortization |
11,219 | 2,222 | 15,231 | 7,130 | ||||||||||||
LMA fees |
530 | 607 | 1,670 | 1,500 | ||||||||||||
Corporate, general and administrative expenses (including non-cash stock-based compensation of $956, $556, $2,142 and $1,016, respectively) |
44,654 | 4,680 | 61,924 | 13,824 | ||||||||||||
Gain on exchange of assets or stations |
| | (15,278 | ) | | |||||||||||
Realized loss on derivative instrument |
1,436 | 746 | 2,681 | 1,810 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
135,712 | 48,741 | 220,814 | 145,093 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating (loss) income |
(3,409 | ) | 18,714 | 38,526 | 48,459 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-operating (expense) income: |
||||||||||||||||
Interest expense, net |
(19,503 | ) | (7,586 | ) | (34,999 | ) | (23,728 | ) | ||||||||
Loss on early extinguishment of debt |
| | (4,366 | ) | | |||||||||||
Other income (expense), net |
181 | (6 | ) | 87 | (87 | ) | ||||||||||
Gain on equity investment in Cumulus Media Partners, LLC |
11,636 | | 11,636 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-operating expense, net |
(7,686 | ) | (7,592 | ) | (27,642 | ) | (23,815 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(Loss) income before income taxes |
(11,095 | ) | 11,122 | 10,884 | 24,644 | |||||||||||
Income tax benefit (expense) |
70,633 | (1,391 | ) | 66,114 | (2,753 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 59,538 | $ | 9,731 | $ | 76,998 | $ | 21,891 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic and diluted income per common share (see Note 9, Earnings Per Share): |
||||||||||||||||
Basic income per common share |
$ | 0.64 | $ | 0.23 | $ | 1.27 | $ | 0.52 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted income per common share |
$ | 0.60 | $ | 0.23 | $ | 1.21 | $ | 0.51 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average basic common shares outstanding |
73,918,849 | 40,371,659 | 53,006,530 | 40,322,079 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average diluted common shares outstanding |
80,364,347 | 41,466,480 | 55,741,773 | 41,241,895 | ||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
2
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
Nine Months Ended September 30, 2011 and Year Ended December 31, 2010
(Dollars in thousands, except for share data)
(Unaudited)
Class A Common Stock |
Class
B Common Stock |
Class C Common Stock |
Class D Common Stock |
|||||||||||||||||||||||||||||||||||||||||||||
Number | Number | Number | Number | Additional | ||||||||||||||||||||||||||||||||||||||||||||
of Shares |
Par Value |
of Shares |
Par Value |
of Shares |
Par Value |
of Shares |
Par Value |
Treasury Stock |
Paid-In Capital |
Accumulated Deficit |
Total | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance at January 1, 2010 |
59,572,592 | $ | 596 | 5,809,191 | $ | 58 | 644,871 | $ | 6 | | $ | | $ | (261,382 | ) | $ | 966,945 | $ | (1,078,735 | ) | $ | (372,512 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Net income |
29,402 | 29,402 | ||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock |
27,265 | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Restricted shares issued from treasury |
| | | | | | | | 4,898 | (4,898 | ) | | | |||||||||||||||||||||||||||||||||||
Transfer of restricted shares to equity |
| | | | | | | | 165 | 378 | | 543 | ||||||||||||||||||||||||||||||||||||
Shares returned in lieu of tax payments |
| | | | | | | | (343 | ) | | | (343 | ) | ||||||||||||||||||||||||||||||||||
Non-cash stock-based compensation expense |
| | | | | | | | | 1,601 | | 1,601 | ||||||||||||||||||||||||||||||||||||
Restricted share forfeitures |
| | | | | | | | (130 | ) | 130 | | | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance at December 31, 2010 |
59,599,857 | $ | 596 | 5,809,191 | $ | 58 | 644,871 | $ | 6 | | $ | | $ | (256,792 | ) | $ | 964,156 | $ | (1,049,333 | ) | $ | (341,309 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Net income |
76,998 | 76,998 | ||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock CMP Acquisition |
3,315,238 | 33 | | | | | 6,630,476 | 66 | | 34,810 | | 34,909 | ||||||||||||||||||||||||||||||||||||
Issuance of warrants CMP Acquisition |
| | | | | | | | | 29,021 | | 29,021 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock Citadel Acquisition |
79,129,243 | 791 | | | | | | | | 270,688 | | 271,479 | ||||||||||||||||||||||||||||||||||||
Issuance of warrants Citadel Acquisition |
| | | | | | | | | 250,670 | | 250,670 | ||||||||||||||||||||||||||||||||||||
Conversion of equity upon effectiveness of amended and restated certificate of incorporation |
| | 6,630,476 | 66 | | | (6,630,476 | ) | (66 | ) | | | | | ||||||||||||||||||||||||||||||||||
Conversion of restricted shares upon closing of Citadel Acquisition |
883,386 | 9 | | | | | | | | 2,155 | | 2,164 | ||||||||||||||||||||||||||||||||||||
Equity held in reserve |
| | | | | | | | | 5,972 | | 5,972 | ||||||||||||||||||||||||||||||||||||
Restricted shares issued from treasury |
| | | | | | | | 6,320 | (5,488 | ) | | 832 | |||||||||||||||||||||||||||||||||||
Costs associated with the issuance of equity |
| | | | | | | | | (26,243 | ) | | (26,243 | ) | ||||||||||||||||||||||||||||||||||
Conversion of equity upon exercise of warrants |
57,009 | 1 | | | | | | | | 19 | | 20 | ||||||||||||||||||||||||||||||||||||
Dividends declared on preferred stock |
| | | | | | | | | (1,017 | ) | | (1,017 | ) | ||||||||||||||||||||||||||||||||||
Accretion of redeemable preferred stock |
| | | | | | | | | (190 | ) | | (190 | ) | ||||||||||||||||||||||||||||||||||
Shares returned in lieu of tax payments |
| | | | | | | | (666 | ) | | | (666 | ) | ||||||||||||||||||||||||||||||||||
Non-cash stock-based compensation expense |
| | | | | | | | | 3,753 | | 3,753 | ||||||||||||||||||||||||||||||||||||
Restricted share forfeitures |
| | | | | | | | (10 | ) | 10 | | | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance at September 30, 2011 |
142,984,733 | $ | 1,430 | 12,439,667 | $ | 124 | 644,871 | $ | 6 | | $ | | $ | (251,148 | ) | $ | 1,528,316 | $ | (972,335 | ) | $ | 306,393 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
3
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 76,998 | $ | 21,891 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
15,231 | 7,130 | ||||||
Amortization of debt issuance costs/discounts |
1,699 | 919 | ||||||
Loss on early extinguishment of debt |
4,366 | | ||||||
Provision for doubtful accounts |
920 | 922 | ||||||
Loss on sale of assets or stations |
33 | 82 | ||||||
Gain on exchange of assets or stations |
(15,278 | ) | | |||||
Fair value adjustment of derivative instruments |
(1,002 | ) | (6,536 | ) | ||||
Deferred income taxes |
(68,443 | ) | 2,488 | |||||
Non-cash stock-based compensation |
2,142 | 1,016 | ||||||
Other |
(1,318 | ) | | |||||
Gain on equity investment in Cumulus Media Partners, LLC |
(11,636 | ) | | |||||
Changes in assets and liabilities: |
||||||||
Restricted cash |
(17 | ) | 185 | |||||
Accounts receivable |
(1,259 | ) | (1,449 | ) | ||||
Trade receivable |
(555 | ) | 1,442 | |||||
Prepaid expenses and other current assets |
2,118 | (903 | ) | |||||
Other assets |
(441 | ) | 818 | |||||
Accounts payable and accrued expenses |
24,860 | 3,023 | ||||||
Trade payable |
345 | (1,528 | ) | |||||
Other liabilities |
3,571 | (216 | ) | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
32,334 | 29,284 | ||||||
Cash flows from investing activities: |
||||||||
Acquisitions less cash acquired |
(2,024,153 | ) | | |||||
Capital expenditures |
(2,885 | ) | (2,127 | ) | ||||
Purchase of intangible assets |
| (230 | ) | |||||
Proceeds from sale of assets or stations |
| 196 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(2,027,038 | ) | (2,161 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of 7.75% Senior Notes due 2019 |
610,000 | | ||||||
Proceeds from borrowings under term loans and revolving credit facilities, net of $25.1 million debt discount |
2,289,900 | | ||||||
Repayments of borrowings under bank credit facilities |
(1,214,676 | ) | (30,353 | ) | ||||
Proceeds from sale of equity securities |
444,513 | | ||||||
Redemption of CMP preferred stock |
(41,565 | ) | | |||||
Deferred financing costs |
(58,540 | ) | | |||||
Tax withholding payments on behalf of employees |
(666 | ) | (184 | ) | ||||
Payments made to creditors pursuant to credit facility amendment |
| (245 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
2,028,966 | (30,782 | ) | |||||
Increase (decrease) in cash and cash equivalents |
34,262 | (3,659 | ) | |||||
Cash and cash equivalents at beginning of period |
12,814 | 16,224 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 47,076 | $ | 12,565 | ||||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
||||||||
Interest paid |
$ | 16,365 | $ | 20,420 | ||||
Income taxes paid |
5,141 | 259 | ||||||
Trade revenue |
12,752 | 12,435 | ||||||
Trade expense |
12,184 | 12,259 |
The Company completed its previously announced acquisitions of Cumulus Media Partners, LLC (CMP) and Citadel Broadcasting
Corporation (Citadel) in the nine months ended September 30, 2011. The CMP acquisition was an all stock transaction and, as such, it is not reflected in the above statement of cash flows for the nine months ended September 30, 2011. In conjunction with the Citadel acquisition, the Company also issued Class A common stock and warrants to purchase common stock to Citadel shareholders, as well as non-cash share-based compensation awards to certain Citadel employees, none of which are reflected in the above statements of cash flows for either period presented. See Note 2, Acquisitions and Dispositions for additional discussion related to these acquisitions.
See accompanying notes to the unaudited consolidated financial statements.
4
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Description of the Company
Cumulus Media Inc. (and its consolidated subsidiaries, except as the context may otherwise require, Cumulus, Cumulus Media, we, us, our, or the Company) is a Delaware corporation, organized in 2002, and successor by merger to an Illinois corporation with the same name that had been organized in 1997.
On August 1, 2011, Cumulus completed its previously announced acquisition of the remaining 75.0% of the equity interests of CMP that it did not already own (the CMP Acquisition). As a result of the CMP Acquisition, CMP became an indirect wholly-owned subsidiary of the Company. CMPs operating results have been included in the accompanying unaudited consolidated financial statements since the date of the completion of the CMP Acquisition. Prior to the completion of the CMP Acquisition, Cumulus had operated CMPs business pursuant to a management agreement since 2006. In connection with the CMP Acquisition, Cumulus issued 9.9 million shares of its common stock to affiliates of the three private equity firms that collectively owned the 75.0% of CMP not then-owned by Cumulus. Also in connection with the CMP Acquisition, 3.7 million outstanding warrants to purchase shares of common stock of a subsidiary of CMP were amended to instead become exercisable for up to 8.3 million shares of Class B common stock of Cumulus (see Note 7, Stockholders Equity).
On September 16, 2011, Cumulus completed its previously announced acquisition of Citadel (the Citadel Acquisition) for an aggregate purchase price of approximately $2.3 billion, consisting of approximately $1.4 billion in cash, the issuance of 23.4 million shares of the Companys Class A common stock, par value $0.01 per share (the Class A common stock), including 0.9 million restricted shares, warrants to purchase 47.7 million shares of Class A common stock, 2.4 million warrants held in reserve for potential future issuance related to the pending final settlement of certain outstanding unsecured claims arising from Citadels emergence from bankruptcy, and the consideration to settle the debt of Citadel. As a result of the Citadel Acquisition, Citadel became an indirect wholly-owned subsidiary of the Company. Citadels operating results have been included in the accompanying unaudited consolidated financial statements since the date of the completion of the Citadel Acquisition (see Note 2, Acquisitions and Dispositions).
Also on September 16, 2011 and in connection with the Citadel Acquisition, the Company issued and sold 51.8 million shares of Class A common stock and warrants to purchase 7.8 million shares of Class A common stock to Crestview, 125,000 shares of Series A preferred stock to Macquarie, and 4.7 million shares of Class A common stock and immediately exercisable warrants to purchase 24.1 million shares of Class A common stock to UBS and certain other entities.
In connection with the closing of the Citadel Acquisition and the completion of the Companys previously announced related global refinancing (the Global Refinancing), on September 16, 2011, the Company repaid approximately $1.4 billion in outstanding senior or subordinated indebtedness and other obligations of (a) the Company, (b) certain of the Companys other wholly-owned subsidiaries, and (c) Citadel. This Global Refinancing, and the cash portion of the purchase price paid in the Citadel Acquisition, were funded with (i) $1.325 billion in borrowings under a new first lien term loan, $200.0 million in borrowings under a new first lien revolving credit facility and $790.0 million in borrowings under a new second lien term loan, all as described in more detail in Note 4, Long-Term Debt, and (ii) proceeds from the sale of $475.0 million of Cumulus Medias common stock, preferred stock and warrants to purchase common stock to certain investors (the Equity Investment) in a private placement exempt from the registration requirements under the Securities Act of 1933 (the Securities Act). The $610.0 million of 7.75% Senior Notes due 2019 (the 7.75% Senior Notes) issued by the Company in May 2011 remain outstanding (see Note 2, Acquisitions and Dispositions).
Also in connection with the Citadel Acquisition and as part of the transactions contemplated by the Global Refinancing, during the three months ended September 30, 2011, the Company completed an internal restructuring into a holding company structure, which included transferring the remaining assets and operations held directly or indirectly by the Company, other than the equity interests of its direct wholly-owned subsidiary Cumulus Media Holdings Inc. (Cumulus Holdings), to Cumulus Holdings (the Internal Restructuring). In connection with the Internal Restructuring, all obligations under the 7.75% Senior Notes were assigned to and assumed by Cumulus Holdings, which was substituted for the Company as the issuer and primary obligor thereunder, and the Company provided a guarantee of all such obligations of Cumulus Holdings.
Each of the CMP Acquisition and the Citadel Acquisition has been accounted for under the acquisition method of accounting for business combinations. Under the acquisition method of accounting, the respective purchase prices were allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the respective acquisition dates. Each purchase price allocation is preliminary and is subject to, among other things, the final valuation of assets acquired and liabilities assumed, and may be adjusted for up to twelve months following the closing date of each respective acquisition. For additional information on the preliminary allocation of the purchase price related to each such acquisition (see Note 2, Acquisitions and Dispositions). As a result of the foregoing, the accompanying unaudited consolidated financial statements as of and for the period ended September 30, 2011 are not necessarily comparable to the unaudited consolidated financial statements for any prior period.
5
Nature of Business
Cumulus Media believes it is the largest pure-play radio broadcaster in the United States based on number of stations. At September 30, 2011, Cumulus Media owned or operated more than 570 radio stations (including under local marketing agreements, or LMAs) in 120 United States media markets and a nationwide radio network serving over 4,000 stations.
Interim Financial Data
The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and the notes related thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. The accompanying unaudited interim consolidated financial statements include the consolidated accounts of Cumulus and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations for and financial condition as of the end of, the interim periods have been made. The results of operations and cash flows for the nine months ended September 30, 2011 and the Companys financial condition as of such date, are not necessarily indicative of the results of operations or cash flows that can be expected for, or the Companys financial condition as of, any other interim period or for the fiscal year ending December 31, 2011.
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, intangible assets, derivative financial instruments, income taxes, stock-based compensation, contingencies, litigation and purchase price allocations. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts and results may differ materially from these estimates under different assumptions or conditions.
Recent Accounting Pronouncements
ASU 2010-28. In December 2010, the Financial Accounting Standards Board (FASB) provided additional guidance for performing Step 1 of the test for goodwill impairment when an entity has reporting units with zero or negative carrying values. This Accounting Standards Update (ASU) updates Accounting Standards Codification (ASC) topic 350, Intangibles Goodwill and Other, to amend the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The Company adopted this guidance effective on January 1, 2011. The update did not have a material impact on the Companys consolidated financial statements.
ASU 2010-29. In December 2010, the FASB issued clarification of the accounting guidance related to disclosure of pro forma information for business combinations that occur in the current reporting period. The guidance requires companies to present pro forma information in their comparative financial statements as if the acquisition date for any business combination that occurred in the current reporting period had occurred at the beginning of the prior year reporting period. The Company adopted this guidance effective January 1, 2011. ASU 2010-29 is a disclosure only clarification and its adoption had no impact on the Companys financial condition or results of operation. The Company has included the disclosures required pursuant to this guidance in this report.
ASU 2011-04. In May 2011, the FASB issued ASU 2011-04, which amends ASC topic 820, Fair Value Measurements and Disclosures, to achieve common fair value measurement and disclosure requirements under GAAP and International Financial Reporting Standards (IFRS). This standard gives clarification for the highest and best use valuation concepts. The ASU also provides guidance on fair value measurements relating to instruments classified in stockholders equity and instruments managed within a portfolio. Further, ASU 2011-04 clarifies disclosures for financial instruments categorized within level 3 of the fair value hierarchy that require companies to provide quantitative information about unobservable inputs used, the sensitivity of the measurement to changes in those inputs, and the valuation processes used by the reporting entity. Early adoption is not permitted. Implementation of this standard will be effective in the first fiscal year beginning after December 15, 2011. The Company is currently evaluating the newly prescribed disclosures but does not expect they will have a material impact on the consolidated financial statements.
6
ASU 2011-8. In September 2011, the FASB issued ASU 2011-8, which amends ASC topic 350, Intangibles-Goodwill and Other. The amendments in this ASU give companies the option to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50.0%) that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step goodwill impairment test. Otherwise, a company is not required to perform this two-step test. Under the amendments in this ASU, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. Early adoption is permitted. Implementation of this standard will be required for fiscal years beginning after December 15, 2011. The adoption of this guidance is not expected to have an impact on the Companys consolidated financial statements.
2. Acquisitions and Dispositions
2011 Acquisitions
Ann Arbor, Battle Creek and Canton Asset Exchange
On February 18, 2011, the Company completed an asset exchange with Clear Channel Communications, Inc. (Clear Channel). As part of the asset exchange, the Company acquired eight of Clear Channels radio stations located in Ann Arbor and Battle Creek, Michigan in exchange for the Companys radio station in Canton, Ohio. The Company disposed of two of the Battle Creek stations simultaneously with the closing of the transaction to comply with the Federal Communications Commissions (FCC) broadcast ownership limits. The asset exchange was accounted for as a business combination in accordance with FASBs guidance. The fair value of the assets acquired in the asset exchange was $17.4 million. The Company incurred approximately $0.3 million in acquisition costs related to this transaction and expensed them as incurred through earnings within corporate, general and administrative expense. The $4.3 million allocated to goodwill is deductible for tax purposes. The results of operations for the Ann Arbor and Battle Creek stations acquired, which were not material, have been included in the Companys statements of operations since 2007 when the Company entered into an LMA with Clear Channel to manage the stations. Prior to the asset exchange, the Company did not have any preexisting relationship with Clear Channel with regard to the Canton, Ohio market.
In conjunction with the transactions, the Company recorded a net gain of $15.3 million, which is included in gain on exchange of assets or stations in the accompanying unaudited consolidated statements of operations.
The table below summarizes the final purchase price allocation (dollars in thousands):
Allocation |
Amount | |||
Property and equipment |
$ | 1,790 | ||
Broadcast licenses |
11,190 | |||
Goodwill |
4,342 | |||
Other intangibles |
72 | |||
|
|
|||
Total purchase price |
17,394 | |||
Less: Carrying value of Canton station |
(2,116 | ) | ||
|
|
|||
Gain on asset exchange |
$ | 15,278 | ||
|
|
CMP Acquisition
On August 1, 2011, the Company completed its previously announced acquisition of the remaining 75.0% of the equity interests of CMP that it did not already own. The Company had owned 25.0% of CMPs equity interests since it, together with Bain Capital Partners, LLC (Bain), The Blackstone Group L.P. (Blackstone) and Thomas H. Lee Partners, L.P. (THL, and together with Bain and Blackstone, the CMP Sellers), formed CMP in 2005. Pursuant to a management agreement, the Company had been operating CMPs business since 2006. This management agreement was terminated in connection with the completion of the CMP Acquisition. In connection with the CMP Acquisition, the Company issued 9.9 million shares of its common stock to affiliates of the CMP Sellers. Blackstone received 3.3 million shares of Cumulus Class A common stock and, in accordance with FCC broadcast ownership rules, Bain and THL each received 3.3 million shares of a newly authorized Class D non-voting common stock, par value $0.01 per share (the Class D common stock). This Class D common stock
7
was subsequently converted into an equivalent number of shares of the Companys Class B common stock, par value $0.01 per share (the Class B common stock), with substantially identical terms, pursuant to the terms of the Companys Third Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware and effective upon the effectiveness of the Citadel Acquisition (discussed below). Also in connection with the CMP Acquisition, outstanding warrants to purchase 3.7 million shares of common stock of a subsidiary of CMP (the CMP Restated Warrants) were amended to instead become exercisable for up to 8.3 million shares of common stock of the Company.
In conjunction with the CMP Acquisition, the Company acquired CMP KC, LLC (KC LLC), an indirectly wholly-owned subsidiary of CMP. On February 2, 2011, the direct parent company of KC LLC entered into a restructuring support agreement (the Restructuring Agreement) regarding the restructuring of KC LLCs debt with the lenders under KC LLC credit facilities (the Restructuring). The Restructuring is expected to be conducted and implemented through a pre-packaged plan of reorganization filed with the United States Bankruptcy Court for the District of Delaware (the Pre-packaged Bankruptcy Proceeding). The Company expects the Pre-packaged Bankruptcy Proceeding will occur, and the Restructuring will be completed, by early 2012. Upon completion of the Restructuring, the Company will no longer have an ownership interest in KC LLC. The Company has determined that it is not the primary beneficiary of KC LLC and does not consolidate KC LLC in accordance with the guidance for variable interest entities.
Under the acquisition method of accounting for business combinations, a preliminary purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration over the net acquisition date fair value of the assets acquired and the liabilities assumed. The fair value of the assets acquired and liabilities assumed represent managements estimates based on information available as of the date of acquisition. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible and intangible assets and residual goodwill. Management expects to continue to obtain information to assist in finalizing these preliminary valuations during the measurement period (up to one year from the acquisition date). The Company fair valued its historical 25.0% equity interest in CMP and recorded a gain of $11.6 million, the difference between the fair value at acquisition and the carrying value which was zero given CMPs historical losses. With respect to certain outstanding preferred stock of CMP, the Company recorded $0.5 million in dividends for the period from August 1, 2011, the acquisition date, to September 16, 2011. This preferred stock was redeemed on September 16, 2011 for approximately $41.6 million.
Revenues of $32.0 million attributable to CMP since August 1, 2011 are included in the Companys accompanying unaudited consolidated financial statements for both the three and nine month periods ended September 30, 2011.
The preliminary allocation of the purchase price in the CMP Acquisition is as follows (dollars in thousands):
Fair Value of Consideration Transferred |
Amount | |||
Fair value of equity consideration to CMP Sellers (1) |
$ | 34,909 | ||
Fair value of equity consideration to holders of CMP Restated Warrants (2) |
29,021 | |||
Preferred stock of CMP (3) |
41,069 | |||
Fair value of assumed debt |
619,234 | |||
|
|
|||
Total purchase price |
$ | 724,233 | ||
|
|
|||
Existing equity interest in CMP (4) |
11,636 | |||
|
|
|||
Total fair value for allocation |
$ | 735,869 | ||
|
|
(1) | Estimated fair value of the 9.9 million shares of the Companys common stock issued to the CMP Sellers, based on the closing price of the Companys Class A common stock on August 1, 2011. |
(2) | Estimated fair value of the 3.7 million outstanding CMP Restated Warrants, which are exercisable for 8.3 million shares of the Companys common stock, based on the closing price of the Companys Class A common stock. |
(3) | Estimated fair value of preferred stock at the par value of $32.8 million plus cumulative undeclared dividends of $8.3 million. |
(4) | Gain on equity investment in CMP, equal to the estimated fair value of the Companys then existing 25.0% ownership interest in CMP, and based on the closing price of the Companys Class A common stock on August 1, 2011. |
Acquisition related costs attributable to the CMP Acquisition included in corporate, general and administrative expenses for the three and nine months ended September 30, 2011 totaled $1.2 million and $1.9 million, respectively.
The purchase price in the CMP Acquisition has preliminarily been allocated to the tangible and intangible assets acquired, and the liabilities assumed, based on managements best estimates of their fair values as of the date of the CMP Acquisition as follows (dollars in thousands):
8
Allocation |
Amount | |||
Current assets |
$ | 61,302 | ||
Property and equipment |
29,091 | |||
Broadcast licenses |
317,917 | |||
Other intangibles |
94,422 | |||
Goodwill |
408,250 | |||
Other assets |
6,647 | |||
Current liabilities |
(13,672 | ) | ||
Other long-term liabilities |
(6,335 | ) | ||
Deferred income taxes |
(161,753 | ) | ||
|
|
|||
Total purchase price |
$ | 735,869 | ||
|
|
The material assumptions utilized in the valuation of intangible assets included overall future market revenue growth rates for the residual year of approximately 2.0% and weighted average cost of capital of 10.5%. Goodwill was equal to the difference between the purchase price and the value assigned to tangible and intangible assets and liabilities. $407.7 million of the acquired goodwill balance is non-deductible for tax purposes. Among the factors considered by management that contributed to the purchase price allocation resulting in the recognition of goodwill were CMPs high operating margins, strong sales force and employee base, and its overall market presence.
The indefinite-lived intangible assets acquired in the CMP Acquisition consist of broadcast licenses and goodwill. The definite-lived intangible assets acquired in the CMP Acquisition are being amortized in relation to the economic benefits of such assets over their useful lives and consist of the following (dollars in thousands):
Description |
Useful Life in Years |
Fair Value | ||||||
Advertising relationships |
6 | $ | 94,422 |
As required by ASU 2010-29, the following unaudited pro forma financial information assumes the CMP Acquisition occurred as of the beginning of the prior years reporting period. The pro forma financial information for all periods presented also includes the business combination accounting effects from the CMP Acquisition, including the Companys amortization expense resulting from acquired intangible assets, the elimination of certain intangible asset amortization expense incurred by CMP, adjustments to interest expense for certain borrowings, adjustments for transaction-related expenses and the related tax effects as though Cumulus had acquired CMP at January 1, 2010. This unaudited pro forma financial information has been prepared based on estimates and assumptions, which management believes are reasonable, and is not necessarily indicative of the consolidated financial position or results of operations that Cumulus would have achieved had the CMP Acquisition actually occurred at January 1, 2010 or at any other historical date, nor is it reflective of Cumulus expected actual financial position or results of operations for any future period (dollars in thousands):
Supplemental Pro Forma Data | ||||||||||||||||
Three Months
Ended September 30, |
Nine Months
Ended September 30, |
|||||||||||||||
Description |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Total revenue |
$ | 112,682 | $ | 114,103 | $ | 321,969 | $ | 325,168 | ||||||||
Net (loss) income |
$ | (26 | ) | $ | 11,690 | $ | 23,971 | $ | 25,518 |
The unaudited pro forma financial information set forth above for the three and nine months ended September 30, 2011 and 2010, includes adjustments to reflect depreciation and amortization expense based on the fair value of long-lived assets acquired in the CMP Acquisition and interest expense based on the issuance of the Companys 7.75% Senior Notes replacing the historical Companys debt as well as other pro forma adjustments that would be made to prepare pro forma financial information under ASC topic 805, Business Combinations.
9
Citadel Acquisition
As described in Note 1, Basis of Presentation above, on September 16, 2011, the Company completed the Citadel Acquisition.
Based on the results of the elections by Citadel stockholders and warrant holders, and the application of the proration procedures provided for in the agreement governing the Citadel Acquisition (the Citadel Acquisition Agreement), the Company paid a total of approximately $1.4 billion in cash and issued approximately 22.5 million shares of its Class A common stock and warrants to purchase approximately 47.7 million shares of its common stock to Citadel securityholders in connection with the Citadel Acquisition. Up to an additional 0.9 million shares of the Companys common stock (which may include warrants to purchase common stock) may be issuable in the future to certain employees of Citadel in connection with the vesting, from time to time, of certain restricted stock awards that, in accordance with the terms of the Citadel Acquisition Agreement, have become payable in shares of Cumulus common stock (or warrants therefor). Additionally, 2.4 million warrants to purchase shares of the Companys common stock related to the pending final settlement of certain outstanding unsecured claims arising from Citadels emergence from bankruptcy effective June 3, 2010 are held in reserve for potential future issuance by the Company.
In connection with the closing of, and in order to fund a portion of the purchase price payable in the Citadel Acquisition, the Company entered into and completed the transactions contemplated by the Equity Investment (see Note 7, Stockholders Equity). Also in connection therewith, the Company completed its previously announced Internal Restructuring (see Note 1, Basis of Presentation).
In connection the Citadel Acquisition, the Company agreed that it would divest certain stations to comply with FCC ownership limits. Therefore, these stations were assigned to a trustee under divestiture trusts that comply with FCC rules as of the closing date of the Citadel Acquisition. The trust agreements stipulate that the Company must fund any operating shortfalls of the activities of the stations in the trusts, and any excess cash flow generated by such stations will be distributed to the Company. The Company has determined that it is the primary beneficiary of the trusts and consolidates the trusts accordingly.
Under the acquisition method of accounting for business combinations, a preliminary purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. The fair value of the assets acquired and liabilities assumed represent managements estimates based on information available as of the date of acquisition. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible and intangible assets and residual goodwill. Management expects to continue to obtain information to assist in finalizing these preliminary valuations during the measurement period (up to one year from the acquisition date).
Revenues of $33.3 million attributable to Citadel since September 16, 2011 are included in the Companys accompanying unaudited consolidated financial statements for the three and nine month periods ended September 30, 2011.
The preliminary allocation of the purchase price in the Citadel Acquisition is as follows (dollars in thousands):
10
Fair Value of Consideration Transferred |
Amount | |||
Cash consideration to Citadel stockholders |
$ | 1,405,471 | ||
Common stock issued to Citadel stockholders (1) |
178,122 | |||
Non-cash share-based compensation value |
595 | |||
Cash consideration to Citadel to settle Citadel obligations |
736,072 | |||
|
|
|||
Total purchase price |
$ | 2,320,260 | ||
|
|
(1) | Estimated fair value of the 22.5 million shares of the Companys common stock and warrants to purchase 47.7 million shares of the Companys common stock issued in conjunction with the Citadel Acquisition and 2.4 million warrants held in reserve for potential future issuance related to the pending the final settlement of certain outstanding unsecured claims arising from Citadels emergence from bankruptcy, based on the closing price of the Companys Class A common stock on September 16, 2011. |
Acquisition related costs attributable to the Citadel Acquisition included in corporate, general and administrative expenses for the three and nine months ended September 30, 2011 totaled $37.2 million and $41.8 million, respectively.
The purchase price in the Citadel Acquisition has preliminarily been allocated to the tangible and intangible assets acquired, and the liabilities assumed, therein based on managements best estimates of their fair values as of the acquisition date as follows (dollars in thousands):
Allocation |
Amount | |||
Current assets |
$ | 323,230 | ||
Property and equipment |
194,933 | |||
Broadcast licenses |
1,136,650 | |||
Other intangibles |
356,200 | |||
Goodwill |
844,526 | |||
Other assets |
19,362 | |||
Current liabilities |
(105,540 | ) | ||
Other long-term liabilities |
(38,784 | ) | ||
Deferred income taxes |
(410,317 | ) | ||
|
|
|||
Total purchase price |
$ | 2,320,260 | ||
|
|
The material assumptions utilized in the valuation of intangible assets included overall future market revenue growth rates for the residual year of approximately 2.0% and weighted average cost of capital of 10.0%. Goodwill was equal to the difference between the purchase price and the value assigned to tangible and intangible assets and liabilities. $740.5 million of the acquired goodwill balance is non-deductible for income tax purposes. Among the factors considered by management that contributed to the purchase price allocation resulting in the recognition of goodwill were Citadels station platform throughout prominent national markets and its overall employee base, including its experienced sales force.
The indefinite-lived intangible assets acquired in the Citadel Acquisition consist of broadcast licenses and goodwill.
The definite-lived intangible assets acquired in the Citadel Acquisition are being amortized in relation to the economic benefits of such assets over their useful lives and consist of the following (dollars in thousands):
Description |
Useful Life in Years |
Fair Value | ||||
Broadcast advertising relationships |
6 | $ | 258,500 | |||
Affiliate relationships |
5 | $ | 41,300 | |||
Network advertising relationships |
5 | $ | 18,600 | |||
Other contracts and agreements |
2-4 | $ | 37,800 |
The following unaudited pro forma information assumes the Citadel Acquisition occurred as of the beginning of the prior years reporting period. The pro forma financial information for all periods presented also includes the business combination accounting effects from the Citadel Acquisition, including the Companys amortization expense resulting from acquired intangible assets, the elimination of certain intangible asset amortization expense incurred by Citadel, adjustments to interest expense for certain borrowings, adjustments for transaction-related expenses and the related tax effects as though Cumulus had acquired Citadel at
11
January 1, 2010. This unaudited pro forma financial information has been prepared based on estimates and assumptions, which management believes are reasonable, and is not necessarily indicative of the consolidated financial position or results of operations that Cumulus would have achieved had the Citadel Acquisition actually occurred at January 1, 2010 or at any other historical date, nor is it reflective of Cumulus expected actual financial position or results of operations for any future period (dollars in thousands):
Supplemental Pro Forma Data | ||||||||||||||||
Three Months
Ended September 30, |
Nine Months
Ended September 30, |
|||||||||||||||
Description |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Total revenue |
$ | 297,005 | $ | 302,707 | $ | 851,310 | $ | 873,223 | ||||||||
Net (loss) income |
$ | (14,669 | ) | $ | 6,521 | $ | (10,187 | ) | $ | (8,846 | ) |
The unaudited pro forma financial information set forth above for the three and nine months ended September 30, 2011 and 2010 includes adjustments to reflect depreciation and amortization expense based on the fair value of long-lived assets acquired in the Citadel Acquisition and interest expense based on the completion of the Global Refinancing under taken in connection with the completion of the Citadel Acquisition as well as other pro forma adjustments that would be made to prepare pro forma financial information under ASC topic 805, Business Combinations.
2010 Acquisitions
The Company did not complete any material acquisitions or dispositions during the three or nine months ended September 30, 2010.
3. Derivative Financial Instruments
The Companys derivative financial instruments are as follows:
May 2005 Option
In May 2005, the Company entered into an interest rate option agreement (the May 2005 Option), that provided Bank of America, N.A. the right to enter into an underlying swap agreement with the Company for two years, from March 13, 2009 through March 13, 2011.
The May 2005 Option was exercised effective March 13, 2009. This instrument was not highly effective in mitigating the risks in the Companys cash flows, and therefore the Company deemed it speculative, and accounted for changes in the May 2005 Options value as interest expense. The Companys balance sheets as of September 30, 2011 and December 31, 2010 reflect current liabilities of zero and $3.7 million, respectively, to include the fair value of the May 2005 Option. The Company reported interest income of $3.7 million, inclusive of the fair value adjustment, during the nine months ended September 30, 2011. There was no income statement impact during the three month period in 2011. Additionally for the three and nine months ended September 30, 2010, the Company reported $0.0 million and $1.2 million in interest income, respectively, related thereto.
The Company does not utilize financial instruments for trading or other speculative purposes.
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Green Bay Option
On April 10, 2009 (the Acquisition Date), Clear Channel and the Company entered into an LMA pursuant to which the Company is responsible for operating (i.e., programming, advertising, etc.) five Green Bay radio stations and must pay Clear Channel a monthly fee of approximately $0.2 million for a five year term (expiring December 31, 2013), in exchange for the Company retaining the operating profits from managing the radio stations. Clear Channel also has a put option (the Green Bay Option) that would allow it to require the Company to purchase the five Green Bay radio stations at any time during the two-month period commencing July 1, 2013 (or earlier if the LMA is terminated before this date) for $17.6 million (the fair value of the radio stations as of April 10, 2009). The Company accounts for the Green Bay Option as a derivative contract. Accordingly, the fair value of the put was recorded as a liability offsetting the gain at the Acquisition Date with subsequent changes in the fair value recorded through earnings. The fair value of the Green Bay Option was determined using inputs that are supported by little or no market activity (a Level 3 fair value measurement). The fair value represents an estimate of the net amount that the Company would be required to pay if the Green Bay Option was transferred to another party as of the date of the valuation (see Note 5, Fair Value Measurements).
The following table sets forth the location and fair values of derivatives in the unaudited consolidated balance sheets (dollars in thousands):
Information on the Location and Amounts of Derivatives Fair Values in the
Unaudited Consolidated Balance Sheets
Fair Value | ||||||||||
Balance Sheet Location |
September 30, 2011 | December 31, 2010 | ||||||||
Derivatives not designated as hedging instruments: |
||||||||||
Green Bay Option |
Other long-term liabilities | $ | 10,711 | $ | 8,030 | |||||
May 2005 Option |
Other current liabilities | | 3,683 | |||||||
|
|
|
|
|
||||||
Total | $ | 10,711 | $ | 11,713 | ||||||
|
|
|
|
|
The location and fair values of derivatives in the unaudited consolidated statements of operations are shown in the following table (dollars in thousands):
Information on the Location and Amounts of Derivatives Fair Values in the
Unaudited Consolidated Statements of Operations
Amount of (Expense) Income Recognized on Derivatives |
||||||||||
Derivative Instrument |
Statement of Operations |
For the Three Months Ended September 30, 2011 |
For the Nine Months Ended September 30, 2011 |
|||||||
Green Bay Option |
Realized loss on derivative instrument | $ | (1,436 | ) | $ | (2,681 | ) | |||
May 2005 Option |
Interest expense | | 3,683 | |||||||
|
|
|
|
|
||||||
Total | $ | (1,436 | ) | $ | 1,002 | |||||
|
|
|
|
|
4. Long-Term Debt
The Companys long-term debt consisted of the following as of September 30, 2011 and December 31, 2010 (dollars in thousands):
September 30, 2011 |
December 31, 2010 |
|||||||
7.75% Senior Notes |
$ | 610,000 | $ | | ||||
Term loan and revolving credit facilities: |
||||||||
First Lien Term Loan |
1,325,000 | | ||||||
Second Lien Term Loan |
790,000 | | ||||||
Revolving Credit Facility |
200,000 | | ||||||
Term loan |
| 593,754 | ||||||
Less: Term loan discount |
(24,959 | ) | (2,746 | ) | ||||
|
|
|
|
|||||
Total term loan and revolving credit facilities |
2,290,041 | 591,008 | ||||||
Less: Current portion of long-term debt |
(9,938 | ) | (15,165 | ) | ||||
|
|
|
|
|||||
Long-term debt, net |
$ | 2,890,103 | $ | 575,843 | ||||
|
|
|
|
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First Lien and Second Lien Credit Facilities
On September 16, 2011 and in order to complete the Global Refinancing, the Company entered into a (i) First Lien Credit Agreement (the First Lien Facility), dated as of September 16, 2011, among the Company, Cumulus Holdings, as Borrower, certain lenders, JPMorgan Chase Bank, N.A., as Administrative Agent (JPMorgan), UBS Securities LLC (UBS), MIHI LLC (Macquarie), Royal Bank of Canada and ING Capital LLC, as Co-Syndication Agents, and U.S. Bank National Association and Fifth Third Bank, as Co-Documentation Agents; and (ii) Second Lien Credit Agreement (the Second Lien Facility), dated as of September 16, 2011, among the Company, Cumulus Holdings, as Borrower, certain lenders, JPMorgan, as Administrative Agent, and UBS, Macquarie, Royal Bank of Canada and ING Capital LLC, as Co-Syndication Agents.
The First Lien Facility consists of a $1.325 billion first lien term loan facility, net of an original issue discount of $13.3 million, maturing in September 2018 (the First Lien Term Loan), and a $300.0 million revolving credit facility, maturing in September 2016 (the Revolving Credit Facility). Under the Revolving Credit Facility, up to $30.0 million of availability may be drawn in the form of letters of credit and up to $30.0 million is available for swingline borrowings. The Second Lien Facility consists of a $790.0 million second lien term loan facility, net of an original issue discount of $11.9 million, maturing in September 2019 (the Second Lien Term Loan).
At September 30, 2011, there was $1.325 billion outstanding under the First Lien Term Loan, $200.0 million outstanding under the Revolving Credit Facility and $790.0 million outstanding under the Second Lien Term Loan.
Proceeds from borrowings under the First Lien Facility and Second Lien Facility were used, together with certain other funds, to (i) fund the cash portion of the purchase price paid in the Citadel Acquisition; (ii) repay in full amounts outstanding under the revolving credit facility under the Companys pre-existing credit agreement (the 2006 Credit Agreement); (iii) repay all amounts outstanding under the credit facilities of CMP Susquehanna Corporation (CMPSC), an indirect wholly-owned subsidiary of CMP; (iv) redeem CMPSCs outstanding 9.875% senior subordinated notes due 2014 and variable rate senior secured notes due 2014; (v) redeem in accordance with their terms all outstanding shares of preferred stock of CMP Susquehanna Radio Holdings Corp., an indirect wholly-owned subsidiary of CMP (Radio Holdings) and the direct parent of CMPSC; and (vi) repay all amounts outstanding, including any accrued interest and the premiums thereon, under Citadels pre-existing credit agreement and to redeem Citadels 7.75% Senior Notes due 2018.
Borrowings under the First Lien Facility bear interest, at the option of Cumulus Holdings, based on the Base Rate (as defined below) or the London Interbank Offered Rate (LIBOR), in each case plus 4.5% on LIBOR-based borrowings and 3.5% on Base Rate-based borrowings. LIBOR-based borrowings are subject to a LIBOR floor of 1.25% for the First Lien Term Loan and 1.0% for the Revolving Credit Facility. Base Rate-based borrowings are subject to a Base Rate Floor of 2.25% for the First Lien Term Loan and 2.0% for the Revolving Credit Facility. Base Rate is defined, for any day, as the fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1.0%, (ii) the prime commercial lending rate of JPMorgan, as established from time to time, and (iii) 30 day LIBOR plus 1.0%. The First Lien Term Loan amortizes at a per annum rate of 1.0% of the original principal amount of the First Lien Term Loan, payable quarterly, commencing March 31, 2012, with the balance payable on the maturity date. Amounts outstanding under the Revolving Credit Facility are due and payable at maturity on September 16, 2016.
Borrowings under the Second Lien Facility bear interest, at the option of Cumulus Holdings, at either the Base Rate plus 5.0%, subject to a Base Rate floor of 2.5%, or LIBOR plus 6.0%, subject to a LIBOR floor of 1.5%. The Second Lien Term Loan original principal amount is due on the maturity date, September 16, 2019.
Interest on Base Rate-based borrowings is due on the last day of each calendar quarter, except with respect to swingline loans, for which interest is due on the day that such swingline loan is required to be repaid. Interest payments on loans whose interest rate is based upon LIBOR are due at maturity if the term is three months or less or every three months and at maturity if the term exceeds three months.
For the period from September 16, 2011 through September 30, 2011, borrowings under the First Lien Term Loan bore interest at 5.75% per annum, borrowings under the Revolving Credit Facility bore interest at 5.50% per annum and borrowings under the Second Lien Term Loan bore interest at 7.50% per annum.
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The representations, covenants and events of default in the First Lien Facility and the Second Lien Facility are customary for financing transactions of this nature. Events of default in the First Lien Facility and the Second Lien Facility include, among others, (a) the failure to pay when due the obligations owing under the credit facilities; (b) the failure to perform (and not timely remedy, if applicable) certain covenants; (c) certain cross defaults and cross accelerations; (d) the occurrence of bankruptcy or insolvency events; (e) certain judgments against the Company or any of its restricted subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use of or more of, any material FCC licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the First Lien Facility and the Second Lien Facility, as applicable). Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the First Lien Facility and the Second Lien Facility, as applicable, and the ancillary loan documents as a secured party.
As a result of amounts being outstanding under the Revolving Credit Facility on September 30, 2011 the Revolving Credit Facility required compliance with a consolidated total net leverage ratio of 7.75 to 1.0 as of such date (with stepdowns beginning with the quarter ending June 30, 2012 if amounts are then outstanding thereunder).
The First Lien Facility also contains customary restrictive non-financial covenants, which, among other things, and with certain exceptions, limit the Companys ability to incur or guarantee additional indebtedness; consummate asset sales, acquisitions or mergers; make investments; enter into transactions with affiliates; and pay dividends or repurchase stock.
At September 30, 2011, the Company was in compliance with all of the required covenants under the First Lien Facility and the Revolving Credit Facility. The Second Lien Facility does not contain any financial covenants.
Certain mandatory prepayments on the First Lien Term Loan and the Second Lien Term Loan are required upon the occurrence of specified events, including upon the incurrence of certain additional indebtedness, upon the sale of certain assets and upon the occurrence of certain condemnation or casualty events, and from excess cash flow.
The Companys, Cumulus Holdings and their respective restricted subsidiaries obligations under the First Lien Facility and the Second Lien Facility are collateralized by a first priority lien and second priority lien, respectively, on substantially all of the Companys, Cumulus Holdings and their respective restricted subsidiaries assets in which a security interest may lawfully be granted, including, without limitation, intellectual property and substantially all of the capital stock of the Companys direct and indirect domestic subsidiaries and 66.0% of the capital stock of any future first-tier foreign subsidiaries. In addition, Cumulus Holdings obligations under the First Lien Facility and the Second Lien Facility are guaranteed by the Company and substantially all of its restricted subsidiaries, other than Cumulus Holdings.
7.75% Senior Notes
On May 13, 2011, the Company issued $610.0 million aggregate principal amount of the 7.75% Senior Notes. Proceeds from the sale of the 7.75% Senior Notes were used to, among other things, repay the $575.8 million outstanding under the term loan facility under the 2006 Credit Agreement.
In connection with the Internal Restructuring, on September 16, 2011, the Company and Cumulus Holdings entered into a supplemental indenture with the trustee under the indenture governing the 7.75% Senior Notes which provided for, among other things, the (i) assumption by Cumulus Holdings of all obligations of the Company; (ii) substitution of Cumulus Holdings for the Company as issuer; (iii) release of the Company from all obligations as original issuer; and (iv) Companys guarantee of all of Cumulus Holdings obligations, in each case under the indenture and the 7.75% Senior Notes.
Interest on the 7.75% Senior Notes is payable on each May 1 and November 1, commencing November 1, 2011. The 7.75% Senior Notes mature on May 1, 2019.
Cumulus Holdings, as issuer of the 7.75% Senior Notes, may redeem all or part of the 7.75% Senior Notes at any time on or after May 1, 2015. At any time prior to May 1, 2014, Cumulus Holdings may also redeem up to 35.0% of the 7.75% Senior Notes using the proceeds from certain equity offerings. At any time prior to May 1, 2015, Cumulus Holdings may redeem some or all of the 7.75% Senior Notes at a price equal to 100% of the principal amount, plus a make-whole premium. If Cumulus Holdings sells certain assets or experiences specific kinds of changes in control, it will be required to make an offer to purchase the 7.75% Senior Notes.
In connection with the substitution of Cumulus Holdings as the issuer of the 7.75% Senior Notes, the Company has also guaranteed the 7.75% Senior Notes. In addition, each existing and future domestic restricted subsidiary that guarantees the Companys indebtedness, Cumulus Holdings indebtedness or indebtedness of the Companys subsidiary guarantors (other than the Companys subsidiaries that hold the licenses for the Companys radio stations) guarantees, and will guarantee, the 7.75% Senior Notes. The
15
7.75% Senior Notes are senior unsecured obligations of Cumulus Holdings and rank equally in right of payment to all existing and future senior unsecured debt of Cumulus Holdings and senior in right of payment to all future subordinated debt of Cumulus Holdings. The 7.75% Senior Notes guarantees are the Companys and the other guarantors senior unsecured obligations and rank equally in right of payment to all of the Companys and the other guarantors existing and future senior debt and senior in right of payment to all of the Companys and the other guarantors future subordinated debt. The 7.75% Senior Notes and the guarantees are effectively subordinated to any of Cumulus Holdings, the Companys or the guarantors existing and future secured debt to the extent of the value of the assets securing such debt. In addition, the 7.75% Senior Notes and the guarantees are structurally subordinated to all indebtedness and other liabilities, including preferred stock, of the Companys non-guarantor subsidiaries, including all of the liabilities of the Companys and the guarantors foreign subsidiaries and the Companys subsidiaries that hold the licenses for the Companys radio stations.
During the three months ended September 30, 2011, the Company capitalized $41.7 million in deferred financing costs and recorded $25.1 million related to debt discount on the issuance of such debt.
For the three and nine months ended September 30, 2011, the Company recorded $1.0 million and $1.7 million of amortization costs, respectively, related to its credit facilities and 7.75% Senior Notes.
2006 Credit Agreement
In connection with the completion of the offering of the 7.75% Senior Notes and effective May 13, 2011, the Company entered into the Fifth Amendment to the 2006 Credit Agreement, dated as of June 7, 2006. The Fifth Amendment provided the Company the ability to complete the offering of the 7.75% Senior Notes, provided that proceeds therefrom were used to repay in full the term loans outstanding under the 2006 Credit Agreement. In addition, the Fifth Amendment, among other things, (i) provided for an incremental term loan facility of up to $200.0 million, which may only be accessed to repurchase the 7.75% Senior Notes under certain circumstances, (ii) replaced the total leverage ratio in the 2006 Credit Agreement with a secured leverage ratio, and (iii) amended certain definitions in the 2006 Credit Agreement to facilitate the Companys ability to complete the offering of the 7.75% Senior Notes.
The 2006 Credit Agreement provided for a revolving credit facility of $20.0 million, of which no amounts were outstanding at the time of the Global Refinancing. In the third quarter of 2011, in connection with the Global Refinancing, the 2006 Credit Agreement and the related $20.0 million revolving credit facility were terminated.
5. Fair Value Measurements
The three levels of the fair value hierarchy to be applied to financial instruments when determining fair value are described below:
Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access;
Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and
Level 3 Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Companys financial assets and liabilities are measured at fair value on a recurring basis.
Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 were as follows (dollars in thousands):
16
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
`Total Fair Value |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Financial Liabilities: |
||||||||||||||||
Other current liabilities |
||||||||||||||||
Green Bay Option (1) |
$ | 10,711 | $ | | $ | | $ | 10,711 | ||||||||
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|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 10,711 | $ | | $ | | $ | 10,711 | ||||||||
|
|
|
|
|
|
|
|
(1) | The fair value of the Green Bay Option was determined using inputs that are supported by little or no market activity (a Level 3 fair value measurement). The fair value represents an estimate of the net amount that the Company would pay if the option were transferred to another party as of the date of the valuation. The option valuation incorporates a credit risk adjustment to reflect the probability of default by the Company. |
The reconciliation below contains the components of the change in fair value associated with the Green Bay Option from December 31, 2010 to September 30, 2011 (dollars in thousands):
Description |
Green Bay Option | |||
Fair value balance at December 31, 2010 |
$ | 8,030 | ||
Add: Mark to market fair value adjustment |
2,681 | |||
|
|
|||
Fair value balance at September 30, 2011 |
$ | 10,711 | ||
|
|
To estimate the fair value of the Green Bay Option, the Company used a Black-Scholes valuation model. The significant inputs for the valuation model include the following:
| total term of 1.9 years; |
| volatility rate of 27.6%; |
| annual dividend rate of 0.0%; |
| discount rate of 0.2%; and |
| market value of Green Bay stations of $5.2 million. |
The use of a different valuation model, or of different inputs or assumptions, could result in a materially different valuation.
The carrying values of receivables, payables, and accrued expenses approximate their respective fair values due to the short maturity of these instruments.
The following table shows the gross amounts and fair value of the Companys First Lien Term Loan, Second Lien Term Loan, Revolving Credit Facility, 7.75% Senior Notes and term loan under the 2006 Credit Agreement (dollars in thousands):
17
September 30, 2011 | December 31, 2010 | |||||||
First Lien Term Loan: |
||||||||
Carrying value |
$ | 1,325,000 | $ | | ||||
Fair value value |
$ | 1,225,625 | $ | | ||||
Second Lien Term Loan: |
||||||||
Carrying value |
$ | 790,000 | $ | | ||||
Fair value |
$ | 718,900 | $ | | ||||
Revolving Credit Facility: |
||||||||
Carrying value |
$ | 200,000 | $ | | ||||
Fair value |
$ | 200,000 | $ | | ||||
7.75% Senior Notes: |
||||||||
Carrying value |
$ | 610,000 | $ | | ||||
Fair value |
$ | 495,625 | $ | | ||||
Term loan: |
||||||||
Carrying value |
$ | | $ | 593,755 | ||||
Fair value |
$ | | $ | 547,850 |
As of September 30, 2011, the Company used the trading prices of 92.5% and 91.0% to calculate the fair value of the First Lien Term Loan and Second Lien Term Loan, respectively, and 81.3% to calculate the fair value of the 7.75% Senior Notes.
6. Stock Based Compensation
On September 16, 2011, the Company issued stock options to certain of its officers under the Cumulus Media Inc. 2011 Equity Incentive Plan for 17,748,000 shares of Class A common stock with an aggregate grant date fair value of $23.4 million. The options have an exercise price of $4.34 per share, and provide for vesting on each of the first four anniversaries of the date of grant, with 30.0% of each award vesting on each of the first two anniversaries thereof, and 20.0% of each award vesting on each of the next two anniversaries thereof.
In accordance with the terms of the Citadel Acquisition Agreement, each restricted stock award that was outstanding under Citadels 2010 Equity Incentive Plan immediately prior to the effective time of the Citadel Acquisition was deemed to constitute, on the same terms and conditions as were applicable under the original award, an award of (i) cash consideration, (ii) stock consideration, or (iii) mixed consideration, as determined in accordance with the Citadel Acquisition Agreement. This conversion resulted in the issuance of 883,386 restricted shares of the Companys Class A common stock with an aggregate fair value of $2.2 million and payment of $17.6 million of cash consideration, of which $5.4 million was recognized in conjunction with the preliminary purchase price allocation for the portion of stock-based compensation expense related to the period prior to the Citadel Acquisition. The adjusted restricted shares will vest in full on June 3, 2012 or upon a termination without cause by the Company or for good reason by the employee, as defined under Citadels 2010 Equity Incentive Plan.
During the second quarter of 2011, the Company granted 23,000 shares of time-vesting restricted Class A common stock, with an aggregate fair value on the date of grant of $0.1 million, or $4.43 per share, to the non-employee directors of the Company.
During the first quarter of 2011, the Company granted Mr. L. Dickey, the Companys chairman, president and chief executive officer, 160,000 shares of performance-vesting restricted Class A common stock and 160,000 shares of time-vesting restricted Class A common stock. The fair value on the date of grant of both of these awards was $1.6 million, or $4.87 per share. In addition, during the first quarter of 2011, the Company granted 170,000 shares of time-vesting Class A common stock, with an aggregate fair value on the date of grant of $0.8 million, or $4.87 per share, to certain other officers of the Company.
For the three and nine months ended September 30, 2011, the Company recognized approximately $1.6 million and $2.8 million, respectively, in stock-based compensation expense, including $1.0 million and $2.1 million, respectively, of non-cash stock-based compensation expense.
18
7. Stockholders Equity
The Company is authorized to issue an aggregate of 1,450,644,871 shares divided into four classes consisting of: (i) 750,000,000 shares designated as Class A common stock, (ii) 600,000,000 shares designated as Class B common stock, (iii) 644,871 shares designated as Class C common stock and (iv) 100,000,000 shares of preferred stock, each with a par value of $.01 per share (see Note 8, Redeemable Preferred Stock). Effective September 16, 2011, upon the filing with the Secretary of State of the State of Delaware of the Companys Third Amended and Restated Certificate of Incorporation (the Third Amended and Restated Charter), each then-outstanding share of Class D common stock was converted to one share of Class B common stock.
As discussed in Note 1, Basis of Presentation, and Note 2, Acquisitions and Dispositions, the Company completed the CMP Acquisition on August 1, 2011. In connection with the CMP Acquisition, the Company issued approximately 3.3 million shares of Class A common stock and 6.6 million shares of Class B common stock to affiliates of the three private equity firms that had collectively owned the 75.0% of CMP not then-owned by the Company. Also in connection with the CMP Acquisition, the 3.7 million outstanding CMP Restated Warrants were amended to become exercisable for up to 8.3 million shares of Class B common stock.
As also discussed in Note 1, Basis of Presentation, and Note 2, Acquisitions and Dispositions, the Company completed the Citadel Acquisition on September 16, 2011. In connection with the Citadel Acquisition, the Company issued 23.4 million shares of Class A common stock, including 0.9 million restricted shares, and warrants to purchase 47.7 million shares of Class A common stock (the Citadel Warrants) to holders of Citadels common stock and warrants. Additionally, 2.4 million warrants to purchase shares of the Companys common stock related to the pending final settlement of certain outstanding unsecured claims arising from Citadels emergence from bankruptcy effective June 3, 2010 are held in reserve for potential future issuance by the Company.
On September 16, 2011, pursuant to the Equity Investment, the Company issued and sold (i) 51.8 million shares of Class A common stock and warrants to purchase 7.8 million shares of Class A common stock with an exercise price of $4.34 per share (the Crestview Warrants) to an affiliate of Crestview Partners II, L.P.; (ii) 125,000 shares of its newly created series of preferred stock to an affiliate of Macquarie (see Note 8, Redeemable Preferred Stock); and (iii) 4.7 million shares of Class A common stock and warrants to purchase 24.1 million shares of Class A common stock (the UBS Warrants, and, together with the Citadel Warrants, the Company Warrants) to UBS and certain other investors to whom UBS syndicated a portion of its investment commitment.
Gross proceeds from the September 16, 2011 issuances of equity securities described above was $350.0 million. Direct issuance costs related to the issuances of the equity securities described above was $26.2 million, of which $16.2 million was paid as of September 30, 2011.
Common Stock
Except with regard to voting and conversion rights, shares of Class A, Class B and Class C common stock are identical in all respects. The preferences, qualifications, limitations, restrictions, and the special or relative rights in respect of the common stock and the various classes of common stock are as follows:
| Voting Rights. The holders of shares of Class A common stock are entitled to one vote per share on any matter submitted to a vote of the stockholders of the Company, and the holders of shares of Class C common stock are entitled to ten votes for each share of Class C common stock held. Generally, the holders of shares of Class B common stock are not entitled to vote on any matter. However, holders of Class B common stock and Class C common stock are entitled to a separate class vote on any amendment or modification of any specific rights or obligations of the holders of Class B common stock or Class C common stock, respectively, that does not similarly affect the rights or obligations of the holders of Class A common stock. The holders of Class A common stock and of Class C common stock vote together, as a single class, on all matters submitted for a vote to the stockholders of the Company. |
| Conversion. Each holder of Class B common stock and Class C common stock is entitled to convert at any time all or any part of such holders shares into an equal number of shares of Class A common stock; provided, however, that to the extent that such conversion would result in the holder holding more than 4.99% of Class A common stock following such conversion, the holder shall first deliver to the Company an ownership certification to enable the Company (a) to determine that such holder does not have an attributable interest in another entity that would cause the Company to violate applicable FCC rules and regulations and (b) to obtain any necessary approvals from the FCC or the United States Department of Justice. |
After payment of dividends to the holders of Series A Preferred Stock, the holders of the Companys common stock share ratably in any dividends that may be declared by the board of directors of the Company.
2009 Warrants
In June 2009, in connection with the execution of an amendment to its then-existing credit agreement, the Company issued warrants to purchase 1.3 million shares of Class A common stock to the lenders under that credit agreement (the 2009 Warrants). The 2009 Warrants expire on June
19
29, 2019. Each 2009 Warrant is immediately exercisable to purchase Class A common stock at an exercise price of $1.17 per share. The number of shares of Class A common stock issuable upon exercise of the 2009 Warrants is subject to adjustment in certain circumstances, including upon the payment of a dividend in shares of Class A common stock. As of September 30, 2011, 1.2 million 2009 Warrants remain outstanding.
CMP Restated Warrants
Also in connection with the completion of the CMP Acquisition, Radio Holdings entered into an amended and restated warrant agreement, dated as of August 1, 2011 (the Restated Warrant Agreement), with the holders of outstanding warrants to purchase shares of common stock of Radio Holdings. Pursuant to the Restated Warrant Agreement, and subject to the terms and conditions thereof, the previously outstanding 3.7 million Radio Holdings warrants were amended and restated to no longer be exercisable for shares of common stock of Radio Holdings but instead be exercisable, commencing on May 2, 2012 (the Exercise Date) at an exercise price of $.01 per share, for an aggregate of 8.3 million shares of Class B common stock (subject to adjustments for rounding for fractional shares) (the CMP Restated Warrants). The CMP Restated Warrants expire upon the earlier to occur of (i) March 26, 2019 and (ii) the later of (A) the 30th day succeeding the redemption in full of all of Radio Holdings outstanding Series A preferred stock, and (b) the 90th day succeeding the Exercise Date. The fair value of the CMP Restated Warrants is based upon the fair value of the underlying stock.
Equity Held in Reserve
Citadel emerged from bankruptcy effective June 3, 2010 and, as of September 16, 2011, certain bankruptcy-related claims remained open for final resolution. As part of the Citadel Acquisition and as of September 30, 2011, 2.4 million of warrants to purchase the companys common stock were reserved for potential future issuance in connection with the settlement of these remaining allowed, disputed or unreconciled unsecured claims. Equity held in reserve is included in additional paid - in capital on the consolidated balance sheet at September 30, 2011.
Company Warrants
At the effective time of the Citadel Acquisition, the Company issued the Company Warrants. The Company Warrants were issued under a warrant agreement (the Warrant Agreement), dated September 16, 2011, and the Company Warrants entitle the holders thereof to purchase, on a one-for-one basis, shares of Class A common stock and are exercisable at any time prior to June 3, 2030 at an exercise price of $0.01 per share. The exercise price of the Company Warrants is not subject to any anti-dilution protection, other than standard adjustments in the case of stock splits, dividends and the like. Pursuant to the terms and conditions of the Warrant Agreement, upon the request of a holder, the Company has the discretion to issue, upon exercise of the Company Warrants, shares of Class B in lieu of an equal number of shares of Class A common stock and, upon request of a holder and at the Companys discretion, the Company has the right to exchange warrants to purchase an equivalent number of shares of Class B common stock for outstanding warrants to purchase shares of Class A common stock.
Conversion of the Company Warrants is subject to the Companys compliance with applicable FCC regulations, and the Company Warrants are exercisable provided that ownership of the Company by the holder does not cause the Company to violate applicable FCC rules and regulations surrounding foreign ownership of broadcasting licenses.
Holders of Company Warrants will participate ratably in any distributions on the Companys common stock on an as-exercised basis. No distribution shall be made to holders of Company Warrants or common stock if (i) an FCC ruling, regulation or policy prohibits such distribution to holders of Company Warrants or (ii) the Companys FCC counsel opines that such distribution is reasonably likely to cause (a) the Company to violate any applicable FCC rules or regulations or (b) any holder of Company Warrants to be deemed to hold an attributable interest in the Company.
Crestview Warrants
Pursuant to the Equity Investment, but pursuant to a separate warrant agreement, the Company issued 7.8 million Crestview Warrants to purchase shares of Class A common stock at an exercise price of $4.34 per share. The Crestview Warrants are exercisable until the tenth anniversary of the closing of the Equity Investment, and the exercise price is subject to standard weighted average adjustments in the event that the Company subsequently issues additional shares of common stock or common stock derivatives for less than the fair market value per share as of the date of such issuance or sale. In addition, the number of shares of Class A common stock issuable upon exercise of the Crestview Warrants, and the exercise price of the Crestview Warrants, are subject to adjustment in the case of stock splits, dividends and the like.
8. Redeemable Preferred Stock
The Company designated 2,000,000 shares of its authorized preferred stock as Series A, par value $0.01 per share, with a liquidation preference of $1,000 per share (Series A Preferred Stock). In connection with the Equity Investment, the Company issued 125,000 shares of Series A Preferred Stock for an aggregate amount of $125.0 million. Net proceeds to the Company were $110.7 million, after deducting $14.3 million in fees. No other shares of Series A Preferred Stock are issuable in the future, except for such shares as may be issued as dividends in lieu of any cash dividends in accordance with the terms thereof, and the Series A Preferred Stock ranks senior to all common stock and each series of stock the Company may subsequently designate with respect to dividends, redemption and distributions upon liquidation, winding-up and dissolution of the Company.
20
The Series A Preferred Stock has a perpetual term, a liquidation value equal to the amount invested therein plus any accrued but unpaid dividends, and dividend rights as described below. The Series A Preferred Stock generally does not have voting rights, except with respect to any amendment to the Companys Third Amended and Restated Charter that would adversely affect the rights, privileges or preferences of the Series A Preferred Stock. Although the shares of Series A Preferred Stock include a mandatory redemption feature, there is no stated or probable date of redemption.
Holders of the Series A Preferred Stock are entitled to receive mandatory and cumulative dividends in an amount per annum equal to the dividend rate (described below) multiplied by the liquidation value, calculated on the basis of a 360-day year, from the date of issuance, whether or not declared and whether or not the Company reports net income. The dividends are payable in arrears in cash, except that, at the option of the Company, up to 50.0% of the dividends for any period may be paid through the issuance of additional shares of Series A Preferred Stock. Payment of dividends on the Series A Preferred Stock is in preference and prior to any dividends payable on any class of the Companys common stock.
Dividends on the Series A Preferred Stock accrue at an annual rate as follows:
| 10.0% through March 15, 2012; |
| 14.0% for the period commencing on March 16, 2012 and ending on September 15, 2013; |
| 17.0% plus the increase in the 90-day LIBOR from September 16, 2011 to September 16, 2013 for the period commencing on September 16, 2013 and ending on September 15, 2015; and |
| 20.0% plus the increase in the 90-day LIBOR from September 16, 2011 to September 16, 2015 for all periods commencing on or after September 16, 2015, with an adjustment to the rate every two years thereafter. |
The Company accrued $0.5 million in dividends, and accreted $0.2 million, on the Series A Preferred Stock during the three and nine months ended September 30, 2011. The Company will pay approximately $0.5 million in dividends in the fourth quarter of 2011 in accordance with the terms described above.
In the event of the liquidation, dissolution or winding-up of the affairs of the Company (as defined in the certificate of designations relating to the Series A preferred stock agreement), whether voluntary or involuntary, the holders thereof at the time shall be entitled to receive liquidating distributions with respect to each share of Series A preferred stock in an amount equal to the amount invested therein plus any accrued but unpaid dividends, and dividend rights to the fullest extent permitted by law, before any distribution of assets is made to the holders of our common stock.
Additionally, upon receipt by the Company of net cash proceeds from (i) the issuance by the Company or any of its subsidiaries of debt for borrowed money or (ii) the issuance by the Company or any of its subsidiaries of equity, the Company shall redeem, for cash, to the fullest extent permitted by law, that number of shares of Series A preferred stock with an aggregate redemption price equal to the lesser of (1) an amount equal to 100% of such net cash proceeds and (2) the $125.0 million aggregate par value of the Series A preferred stock plus any accrued but unpaid dividends.
Gross proceeds from the September 16, 2011 issuance of the preferred stock referred to above was $125.0 million. Direct issuance costs related thereto were $14.3 million.
In conjunction with the CMP Acquisition, we assumed preferred stock of CMP with a fair value of $41.1 million as of August 1, 2011, which was the par value of $32.7 million plus cumulative undeclared dividends of $8.3 million as of the acquisition date. The Company recorded $0.5 million in dividends for the period from the date of the CMP Acquisition, August 1, 2011, to September 16, 2011. This preferred stock was redeemed on September 16, 2011 for $41.6 million.
9. Earnings Per Share (EPS)
For all periods presented, the Company has disclosed basic and diluted earnings per common share utilizing the two-class method. Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. The Company allocates undistributed net income between each class of common stock on an equal basis as the Third Amended and Restated Charter provides that the holders of each class of common stock have equal rights and privileges, except with respect to voting on certain matters.
Nonvested restricted shares of Class A common stock and the Company Warrants are considered participating securities for purposes of calculating basic weighted average common shares outstanding in periods in which the Company records net income. Diluted earnings per share is computed in the same manner as basic earnings per share after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes stock options and certain warrants to purchase common stock. Antidilutive instruments are not considered in this calculation. Under the two-class method, net income is allocated to common stock and participating securities to the extent that each security may share in earnings, as if all of the earnings for the period had been distributed. Earnings are allocated to each participating security and common share equally, after deducting dividends declared or accreted on preferred stock. The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2011 and 2010 (amounts in thousands, except per share data).
21
Three Months
Ended September 30, |
Nine Months
Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic Earnings Per Share |
||||||||||||||||
Numerator: |
||||||||||||||||
Undistributed net income |
$ | 59,538 | $ | 9,731 | $ | 76,998 | $ | 21,891 | ||||||||
Less: |
||||||||||||||||
Dividends declared |
1,017 | | 1,017 | | ||||||||||||
Accretion of redeemable preferred stock and increased dividend adjustment |
526 | | 526 | | ||||||||||||
Participation rights of the Company Warrants in undistributed earnings |
9,181 | | 5,614 | | ||||||||||||
Participation rights of unvested restricted stock in undistributed earnings |
1,507 | 385 | 2,534 | 822 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic undistributed net income attributable to common shares |
$ | 47,307 | $ | 9,346 | $ | 67,307 | $ | 21,069 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Basic weighted average shares outstanding |
73,919 | 40,372 | 53,007 | 40,322 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic Earnings Per Share attributable to common shares |
$ | 0.64 | $ | 0.23 | $ | 1.27 | $ | 0.52 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted Earnings Per Share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Undistributed net income |
$ | 59,538 | $ | 9,731 | $ | 76,998 | $ | 21,891 | ||||||||
Less: |
||||||||||||||||
Dividends declared |
1,017 | | 1,017 | | ||||||||||||
Accretion of redeemable preferred stock |
526 | | 526 | | ||||||||||||
Participation rights of the Company Warrants in undistributed net income |
8,446 | | 5,339 | | ||||||||||||
Participation rights of unvested restricted stock in undistributed earnings |
1,386 | 378 | 2,410 | 806 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic undistributed net income attributable to common shares |
$ | 48,163 | $ | 9,353 | $ | 67,706 | $ | 21,085 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Basic weighted average shares outstanding |
73,919 | 40,372 | 53,007 | 40,322 | ||||||||||||
Effect of dilutive options and warrants |
6,445 | 658 | 2,734 | 824 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted weighted average shares outstanding |
80,364 | 41,030 | 55,741 | 41,146 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted Earnings Per Share attributable to common shares |
$ | 0.60 | $ | 0.23 | $ | 1.21 | $ | 0.51 | ||||||||
|
|
|
|
|
|
|
|
The Company has issued to key executives and employees shares of restricted stock and stock options to purchase shares of common stock as part of the Companys equity incentive plans. At September 30, 2011, restricted stock and stock options to purchase the following amounts of common stock were issued and outstanding:
September 30, 2011 | ||||
Restricted shares of Class A common stock |
2,659,613 | |||
Options to purchase Class A common stock |
18,533,009 |
10. Income Taxes
The Company accounts for income taxes in accordance with authoritative accounting guidance which establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Companys financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns.
22
In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact the Companys consolidated financial statements. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. In accordance with authoritative accounting guidance, the Company recognizes liabilities for anticipated tax audit issues based on managements estimates of whether, and the extent to which, additional taxes may be required. If the Company ultimately determines that payment of these amounts is unnecessary, then the Company reverses the liability and recognizes a tax benefit during the period in which the Company determines that the liability is no longer necessary. The Company also recognizes tax benefits to the extent that it is more likely than not that its positions will be sustained if challenged by the taxing authorities. To the extent the Company prevails in matters for which liabilities have been established, or are required to pay amounts in excess of its liabilities, the Companys effective tax rate in a given period may be materially affected. An unfavorable tax settlement would require cash payments and may result in an increase in the Companys effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in the Companys effective tax rate in the year of resolution. The Company reports interest and penalties related to uncertain income tax positions as income taxes.
In connection with the Citadel Acquisition, the Company acquired federal net operating losses totaling approximately $247.0 million. Due to the change in control in Citadel, these net operating losses are subject to annual limitations on their usage that the Company currently estimates will be between $70.0 and $80.0 million per year. In addition, the Citadel Acquisition triggered a change in control for the Company that will result in the Companys net operating losses also being subject to annual limitation on their usage. The Company is currently evaluating the extent of these annual limitations.
Additionally, during the three months ended September 30, 2011, the Company established unrecognized tax benefit liabilities related to the Citadel Acquisition and the CMP Acquisition. The following table reconciles unrecognized tax benefits during the period (dollars in thousands):
Beginning balance at December 31, 2010 |
$ | 2,128 | ||
Increases for tax positions related to the current year CMP Acquisition |
311 | |||
Increases for tax positions related to the current year Citadel Acquisition |
12,025 | |||
Reductions due to lapsed statute of limitations |
| |||
|
|
|||
Ending balance at September 30, 2011 |
$ | 14,464 | ||
|
|
The provision for income taxes reflects the Companys estimate of the effective tax rate expected to be applicable for the full current year. To the extent that actual pre-tax results for the year differ from the forecasted estimates applied at the end of the most recent interim period, the actual tax rate recognized during calendar 2011 could be different from the forecast rate. The Companys effective tax rate was 636.6% and 12.5% for the three months ended September 30, 2011 and September 30, 2010, respectively. The effective tax rate was -607.4% and 11.2% for the nine months ended September 30, 2011 and September 30, 2010, respectively. The effective tax rate increased significantly for the three months ended September 30, 2011 compared to the prior year period due to the impact of the CMP Acquisition and Citadel Acquisition providing future sources of taxable income sufficient to allow for a partial release of the valuation allowance previously recorded against the Companys deferred tax assets.
The Company regularly reviews its deferred tax assets for recoverability taking into consideration such factors as historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. Current authoritative tax guidance requires the Company to record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. It further stipulates that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Since inception through September 30, 2011, the Company maintained a 100% valuation allowance equal to the deferred U.S. tax assets after considering the U.S. deferred tax assets that can be realized through offsets to existing taxable temporary differences. The Company does not consider the indefinite-lived intangible assets as future sources of taxable income when determining the amount of valuation allowance needed.
As a result of the CMP Acquisition and the Citadel Acquisition, the Company released $71.2 million of its valuation allowance. Because a business combination is a transaction that cannot be anticipated in the effective rate calculation prior to the acquisition date, the Company considered the valuation allowance as an unusual or infrequent item. The Company treated the release of the entire valuation allowance as a result of the business combinations as a discrete item as of the respective acquisition dates. The treatment of the release of the valuation allowance is an accounting policy election that the Company will apply consistently.
11. Commitments and Contingencies
Future Commitments
Effective December 31, 2009, the Companys radio music license agreements with the two largest performance rights organizations, American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), expired. Radio Music License Committee (RMLC), which negotiates music licensing fees for most of the radio industry with ASCAP and BMI, had reached an agreement with these organizations on a temporary fee schedule that reflects a provisional discount of 7.0% against 2009 fee levels. The temporary fee reductions became effective in January 2010. Absent an agreement on longer-term fees between the RMLC and ASCAP and BMI, the U.S. District Court in New York has the authority to make an interim and permanent fee ruling for the new contract period. In May 2010 and June 2010, the U.S. District Courts judges charged with determining the license fees ruled to further reduce interim fees paid to ASCAP and BMI, respectively, down approximately another 11.0% from the previous temporary fees negotiated with the RMLC. When the final license fees are set (either by negotiation or by court order), the rates will be retroactive to January 1, 2010, and the amounts could be greater or less than the temporary fees and could be material to the Companys financial results and cash flows.
23
The radio broadcast industrys principal ratings service is Arbitron, which publishes surveys for domestic radio markets. Certain of the Companys subsidiaries have agreements with Arbitron under which they receive programming ratings materials in a majority of their respective markets. The remaining aggregate obligation under the agreements with Arbitron was $4.4 million as of September 30, 2011 and is expected to be paid in accordance with the agreements through June 2013.
The Company engages Katz Media Group, Inc. (Katz) as its national advertising sales agent. The national advertising agency contract with Katz contains termination provisions that, if exercised by the Company during the term of the contract, would obligate the Company to pay a termination fee to Katz, calculated based upon a formula set forth in the contract.
Legal Proceedings
In August 2005, the Company and certain other radio broadcasting companies were subpoenaed by the Office of the Attorney General of the State of New York in connection with the New York Attorney Generals investigation of promotional practices related to record companies dealings with radio stations broadcasting in New York. The Company is cooperating with the Attorney General in this investigation. It is not possible to reasonably estimate what the Companys loss exposure, if any, could be related to this investigation, but the Company does not currently anticipate that any exposure would materially adversely affect the Companys financial condition or results of operations.
On December 11, 2008, Qantum Communications (Qantum) filed a counterclaim in a foreclosure action the Company initiated in the Okaloosa County, Florida Circuit Court. The Companys action was designed to collect a debt owed to the Company by Star Broadcasting, Inc. (Star), which then owned radio station WTKE-FM in Holt, Florida. In its counterclaim, Qantum alleged that the Company tortiously interfered with Qantums contract to acquire radio station WTKE from Star by entering into an agreement to buy WTKE after Star had represented to the Company that its contract with Qantum had been terminated (and that Star was therefore free to enter into the new agreement with the Company). On February 27, 2011, the Company entered into a settlement agreement with Star. In connection with the settlement regarding the since-terminated attempt to purchase WTKE, the Company recorded $7.8 million in costs associated with the terminated transaction in the consolidated statement of operations for the year ended December 31, 2010, that are payable in 2011. As of September 30, 2011, the Company has made $5.8 million of such payments.
On January 21, 2010, a former employee of CMP Susquehanna Corp. (CMPSC) (which became a subsidiary of Cumulus Media upon completion of the CMP Acquisition on August 1, 2011) filed a purported class action lawsuit, pending in the United States District Court, Northern District of California, San Francisco Division (the Court), against CMPSC claiming (i) unlawful failure to pay required overtime wages; (ii) late pay and waiting time penalties; (iii) failure to provide accurate itemized wage statements; (iv) failure to indemnify for necessary expenses and losses; and (v) unfair trade practices under Californias Unfair Competition Act.
On September 2, 2011, CMPSC and this former employee entered into a Joint Stipulation re: Settlement and Release of Class Action Claims (the Settlement) with respect to such lawsuit. The Settlement, which remains subject to the approval of the Court, provides for the payment by CMPSC of a maximum of $0.9 million in full and final settlement of all of the claims made in the lawsuit.
In March 2011, the Company and certain of its subsidiaries were named as defendants along with other radio companies, including Beasley Broadcast Group, Inc., CBS Radio, Inc., Entercom Communications, Greater Media, Inc. and Townsquare Media, LLC in a patent infringement suit. The case, Mission Abstract Data L.L.C, d/b/a Digimedia v. Beasley Broadcast Group, Inc., et. al., Civil Action Case No: 1:99-mc-09999, U.S. District Court for the District of Delaware (filed March 1, 2011), alleges that the defendants are infringing or have infringed plaintiffs patents entitled Selection and Retrieval of Music from a Digital Database. Plaintiff is seeking injunctive relief and unspecified damages. The Company is vigorously defending this lawsuit and is not yet able to determine what effect the lawsuit will have, if any, on its financial position, results of operations or cash flows.
On March 14, 2011, Citadel, its board of directors and Cumulus Media were named in a putative stockholder class action complaint filed in the District Court of Clark County, Nevada, by a purported Citadel stockholder. On March 23, 2011, these same defendants, as well as Cumulus Holdings and Cadet Merger Corporation, an indirect wholly-owned subsidiary of the Company (Merger Sub), were named in a second putative stockholder class action complaint filed in the same court by another purported Citadel stockholder. The complaints alleged that Citadels directors breached their fiduciary duties by approving the merger for allegedly inadequate consideration and following an allegedly unfair sale process. The complaint in the first action also alleged that Citadels directors breached their fiduciary duties by allegedly withholding material information relating to the merger. The two complaints further alleged that Citadel and Cumulus Media aided and abetted the Citadel directors alleged breaches of fiduciary duties, and the complaint filed in the second action alleged, additionally, that Cumulus Holdings and Merger Sub aided and abetted these alleged breaches of fiduciary duties. The complaints sought, among other things, a declaration that the action could proceed as a
24
class action, an order enjoining the completion of the merger, rescission of the merger, attorneys fees, and such other relief as the court deemed just and proper. The complaint filed in the second action also sought rescissory damages. On June 23, 2011, the court consolidated the two Nevada actions and appointed lead counsel. On July 29, 2011 and August 16, 2011, respectively, lead counsel filed separate Notices of Voluntary Dismissal dismissing the plaintiffs claims against all defendants without prejudice, because the plaintiffs no longer had standing to pursue claims on their own behalf or on behalf of the putative class.
On May 6, 2011, two purported common stockholders of Citadel filed a putative class action complaint against Citadel, its board of directors, Cumulus Media, Cumulus Holdings, and Merger Sub in the Court of Chancery of the State of Delaware. On July 19, 2011, the plaintiffs in the Delaware action filed an amended complaint alleging that Citadels directors breached their fiduciary duties to Citadels stockholders by approving the merger for allegedly inadequate consideration, following an allegedly unfair sale process, and by failing to disclose material information related to the merger. The amended complaint further alleged that Citadel, Cumulus Media, Cumulus Holdings, and Merger Sub aided and abetted these alleged fiduciary breaches. The complaint sought, among other things, an order enjoining the merger, a declaration that the action is properly maintainable as a class action, and rescission of the merger agreement, as well as attorneys fees and costs. On August 1, 2011, the plaintiffs in the Delaware action filed a Notice of Dismissal pursuant to Court of Chancery Rule 41(a)(1)(i) dismissing their claims against all the defendants without prejudice. On August 3, 2011, the plaintiffs in the Delaware action filed a revised notice and proposed Order of Dismissal pursuant to Rule 41(a)(1)(i) seeking dismissal of their claims against all defendants without prejudice. This Order of Dismissal was granted on August 5, 2011, dismissing all claims.
The Company is currently, and expects that from time to time in the future it will be, party to, or a defendant in, various claims or lawsuits that are generally incidental to its business. The Company expects that it will vigorously contest any such claims or lawsuits and believes that the ultimate resolution of any known claim or lawsuit will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
12. Restricted Cash
As of September 30, 2011, the Companys balance sheet included approximately $3.5 million in restricted cash, of which $2.3 million relates to a cash reserve from the Citadel Acquisition which will be used to satisfy the remaining allowed, disputed or unreconciled unsecured claims related to Citadels prior bankruptcy proceedings. The remaining $1.2 million relates to securing the maximum exposure generated by automated clearing house transactions in its operating bank accounts and is dictated by the Companys banks internal policies with respect to cash.
13. Intangible Assets and Goodwill
The following tables present the changes in intangible assets and goodwill during the periods ended December 31, 2010 and September 30, 2011 and balances as of such dates (dollars in thousands):
Indefinite-Lived | Definite-Lived | Total | ||||||||||
Intangible Assets: |
||||||||||||
Balance as of December 31, 2009 |
$ | 160,801 | $ | 579 | $ | 161,380 | ||||||
|
|
|
|
|
|
|||||||
Acquisition |
230 | | 230 | |||||||||
Amortization |
| (201 | ) | (201 | ) | |||||||
Impairment |
(629 | ) | | (629 | ) | |||||||
Reclassifications |
16 | 174 | 190 | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2010 |
$ | 160,418 | $ | 552 | $ | 160,970 | ||||||
|
|
|
|
|
|
|||||||
Acquisition |
1,465,924 | 450,707 | 1,916,631 | |||||||||
Disposition |
(1,533 | ) | (83 | ) | (1,616 | ) | ||||||
Amortization |
| (8,613 | ) | (8,613 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance as of September 30, 2011 |
$ | 1,624,809 | $ | 442,563 | $ | 2,067,372 | ||||||
|
|
|
|
|
|
25
2011 | 2010 | |||||||
Balance as of January 1: |
||||||||
Goodwill |
$ | 285,820 | $ | 285,820 | ||||
Accumulated impairment losses |
(229,741 | ) | (229,699 | ) | ||||
|
|
|
|
|||||
Subtotal |
56,079 | 56,121 | ||||||
Acquisitions |
1,257,118 | | ||||||
Balance as of September 30: |
||||||||
Goodwill |
1,542,938 | 285,820 | ||||||
Accumulated impairment losses |
(229,741 | ) | (229,741 | ) | ||||
|
|
|
|
|||||
Total |
$ | 1,313,197 | $ | 56,079 | ||||
|
|
|
|
The Company has significant intangible assets recorded comprised primarily of indefinite-lived broadcast licenses, definite-lived advertiser relationships and goodwill acquired through the acquisition of radio stations. Applicable accounting guidance related to goodwill and other intangible assets requires that the carrying value of the Companys goodwill and certain intangible assets be reviewed at least annually, and more often if certain circumstances are present, for impairment, with any changes charged to results of operations in the periods in which the recorded value of those assets is more than their respective fair market value.
In connection with each of the CMP Acquisition and the Citadel Acquisition, the Company has made certain preliminary allocations of the purchase price paid therein to each of the tangible and intangible assets and liabilities acquired, including goodwill. Such amounts are reflected as changes during the period ended September 30, 2011, and in the balances as of such date. Such purchase price allocations are preliminary and subject to change during the respective measurement periods. Any such changes could be material, and could result in significantly different allocations from those contained in the tables above.
14. Related Party
During the third quarter of 2010, the Company entered into a management agreement with DM Luxury, LLC (DM Luxury). DM Luxury is 50.0% owned by Dickey Publishing, Inc. and Dickey Media Investments, LLC, each of which is partially owned by Mr. L. Dickey Jr. and other members of his family. Pursuant to the agreement with DM Luxury, the Company provides back office shared services, such as finance, accounting, treasury, internal audit, use of corporate headquarters, legal, human resources, risk management and information technology for an annual management fee equal to the greater of $0.5 million and 5.0% of DM Luxurys adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) on an annual basis. The Company recorded $0.1 million and $0.4 million of revenues from this agreement during the three and nine months ended September 30, 2011, respectively.
Concurrent with the October 31, 2005 formation of CMP, the Company entered into a management agreement with a subsidiary of CMP, pursuant to which the Companys personnel managed the operations of CMPs subsidiaries. The agreement provided for the Company to receive, on a quarterly basis, a management fee that was approximately 4.0% of the subsidiary of CMPs annual EBITDA or $4.0 million, whichever was greater. The Company recorded as net revenues from CMP approximately $0.3 million and $2.3 million for the three and nine months ended September 30, 2011, respectively, and $1.0 million and $3.0 million for the three and nine months ended September 30, 2010, respectively. This management agreement was terminated as of the date of the CMP Acquisition and no revenues have been recorded related to the agreement since August 1, 2011.
26
15. Supplemental Condensed Consolidating Financial Information
Cumulus Media Inc. (the Parent Guarantor) and certain of its wholly owned subsidiaries (such subsidiaries, the Subsidiary Guarantors) provide guarantees of the obligations of Cumulus Media Holdings Inc. (the Subsidiary Issuer) under the 7.75% Senior Notes. These guarantees are full and unconditional as well as joint and several. Certain of the Subsidiary Guarantors may be subject to restrictions on their respective ability to distribute earnings to the Subsidiary Issuer or the Parent Guarantor. Not all of the subsidiaries of the Parent Guarantor and the Subsidiary Issuer guarantee the 7.75% Senior Notes (such non-guaranteeing subsidiaries, collectively, the Subsidiary Non-guarantors).
The following tables present (i) condensed consolidating statements of income for the three and nine month periods ended September 30, 2011 and 2010, respectively, (ii) condensed consolidating balance sheets as of September 30, 2011 and December 31, 2010, respectively, and (iii) condensed consolidating statements of cash flows for the nine months ended September 30, 2011 and 2010, respectively, of each of the Parent Guarantor, the Subsidiary Issuer, the Subsidiary Guarantors, and the Subsidiary Non-guarantors.
Investments in consolidated subsidiaries have been presented using the equity method of accounting. The Eliminations entries in the following tables primarily eliminate investments in subsidiaries and intercompany balances and transactions. The columnar presentations in the following tables are not consistent with the Companys business groups; accordingly, this basis of presentation is not intended to present the Companys financial condition, results of operations or cash flows on a consolidated basis.
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2011
(Dollars in thousands, except for share and per share data)
(Unaudited)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 29,875 | $ | | $ | 17,201 | $ | | $ | | $ | 47,076 | ||||||||||||
Restricted cash |
3,477 | | | | | 3,477 | ||||||||||||||||||
Accounts receivable, less subsidiary guarantors allowance for doubtful accounts of $1,452 |
| | 233,422 | | | 233,422 | ||||||||||||||||||
Trade receivable |
| | 7,348 | | | 7,348 | ||||||||||||||||||
Prepaid expenses and other current assets |
34,277 | | 17,945 | 1,011 | | 53,233 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
67,629 | | 275,916 | 1,011 | | 344,556 | ||||||||||||||||||
Property and equipment, net |
6,195 | | 254,592 | | | 260,787 | ||||||||||||||||||
Broadcast licenses |
| | | 1,624,809 | | 1,624,809 | ||||||||||||||||||
Other intangible assets, net |
| | 442,563 | | | 442,563 | ||||||||||||||||||
Goodwill |
| | 1,313,197 | | | 1,313,197 | ||||||||||||||||||
Investment in consolidated subsidiaries |
314,082 | 3,288,650 | 1,179,074 | | (4,781,806 | ) | | |||||||||||||||||
Other assets |
14,440 | 58,209 | 13,519 | | | 86,168 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 402,346 | $ | 3,346,859 | $ | 3,478,861 | $ | 1,625,820 | $ | (4,781,806 | ) | $ | 4,072,080 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities, Redeemable Preferred Stock and Stockholders Equity (Deficit) |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 49,278 | $ | 21,799 | $ | 80,442 | $ | 27 | $ | | $ | 151,546 | ||||||||||||
Trade payable |
| | 5,845 | | | 5,845 | ||||||||||||||||||
Current portion of long-term debt |
| 9,938 | | | | 9,938 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
49,278 | 31,737 | 86,287 | 27 | | 167,329 | ||||||||||||||||||
Long-term debt |
| 2,280,103 | | | | 2,280,103 | ||||||||||||||||||
Senior notes |
| 610,000 | | | | 610,000 | ||||||||||||||||||
Other liabilities |
46,675 | | 22,286 | | | 68,961 | ||||||||||||||||||
Deferred income taxes |
| | 81,638 | 446,719 | | 528,357 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
95,953 | 2,921,840 | 190,211 | 446,746 | | 3,654,750 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Redeemable preferred stock: |
||||||||||||||||||||||||
Series A cumulative redeemable preferred stock, par value $0.01 per share; stated value of $1,000 per share; 100,000,000 shares authorized; 125,000 shares issued and outstanding |
| 110,937 | | | | 110,937 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total redeemable preferred stock |
| 110,937 | | | | 110,937 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity (deficit): |
||||||||||||||||||||||||
Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 142,984,733 shares issued and 119,460,855 shares outstanding |
1,430 | | | | | 1,430 | ||||||||||||||||||
Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 12,439,667 shares issued and outstanding |
124 | | | | | 124 | ||||||||||||||||||
Class C common stock, par value $0.01 per share; 644,871 shares authorized; 644,871 shares issued and outstanding |
6 | | | | | 6 | ||||||||||||||||||
Treasury stock, at cost, 23,523,878 shares at Parent Guarantor |
(251,148 | ) | | | | | (251,148 | ) | ||||||||||||||||
Additional paid-in-capital |
1,528,316 | 175,413 | 3,944,497 | 2,135,686 | (6,255,596 | ) | 1,528,316 | |||||||||||||||||
Accumulated (deficit) equity |
(972,335 | ) | |
138,669 |
|
(655,847 | ) | (956,612 | ) | 1,473,790 | (972,335 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity (deficit) |
306,393 | 314,082 | 3,288,650 | 1,179,074 | (4,781,806 | ) | 306,393 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities, redeemable preferred stock and stockholders equity (deficit) |
$ | 402,346 | $ | 3,346,859 | $ | 3,478,861 | $ | 1,625,820 | $ | (4,781,806 | ) | $ | 4,072,080 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
27
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2010
(Dollars in thousands, except for share and per share data)
(Unaudited)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 12,638 | $ | | $ | 176 | $ | | $ | | $ | 12,814 | ||||||||||||
Restricted cash |
604 | | | | | 604 | ||||||||||||||||||
Accounts receivable, less subsidiary guarantors allowance for doubtful accounts of $1,115 |
| | 38,267 | | | 38,267 | ||||||||||||||||||
Trade receivable |
| | 3,605 | | | 3,605 | ||||||||||||||||||
Prepaid expenses and other current assets |
1,528 | | 2,272 | 603 | | 4,403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
14,770 | | 44,320 | 603 | | 59,693 | ||||||||||||||||||
Property and equipment, net |
2,446 | | 37,238 | | | 39,684 | ||||||||||||||||||
Broadcast licenses |
| | | 160,418 | | 160,418 | ||||||||||||||||||
Other intangible assets, net |
| | 552 | | | 552 | ||||||||||||||||||
Goodwill |
| | 56,079 | | | 56,079 | ||||||||||||||||||
Investment in consolidated subsidiaries |
248,198 | | 142,690 | | (390,888 | ) | | |||||||||||||||||
Other assets |
2,159 | | 1,051 | | | 3,210 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 267,573 | $ | | $ | 281,930 | $ | 161,021 | $ | (390,888 | ) | $ | 319,636 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities, Redeemable Preferred Stock and Stockholders Equity (Deficit) |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 11,805 | $ | | $ | 8,560 | $ | | $ | | $ | 20,365 | ||||||||||||
Trade payable |
| | 3,569 | | | 3,569 | ||||||||||||||||||
Derivative instrument |
3,683 | | | | | 3,683 | ||||||||||||||||||
Current portion of long-term debt |
15,165 | | | | | 15,165 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
30,653 | | 12,129 | | | 42,782 | ||||||||||||||||||
Long-term debt |
575,843 | | | | | 575,843 | ||||||||||||||||||
Other liabilities |
2,386 | | 15,204 | | | 17,590 | ||||||||||||||||||
Deferred income taxes |
| | 6,399 | 18,331 | | 24,730 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
608,882 | | 33,732 | 18,331 | | 660,945 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity (deficit): |
||||||||||||||||||||||||
Class A common stock, par value $0.01 per share; 200,000,000 shares authorized; 59,599,857 shares issued and 35,538,530 shares outstanding |
596 | | | | | 596 | ||||||||||||||||||
Class B common stock, par value $0.01 per share; 20,000,000 shares authorized; 5,809,191 shares issued and outstanding |
58 | | | | | 58 | ||||||||||||||||||
Class C common stock, par value $0.01 per share; 30,000,000 shares authorized; 644,871 shares issued and outstanding |
6 | | | | | 6 | ||||||||||||||||||
Treasury stock, at cost, 24,061,327 shares at Parent Guarantor |
(256,792 | ) | | | | | (256,792 | ) | ||||||||||||||||
Additional paid-in-capital |
964,156 | | 1,205,497 | 1,097,911 | (2,303,408 | ) | 964,156 | |||||||||||||||||
Accumulated deficit |
(1,049,333 | ) | | (957,299 | ) | (955,221 | ) | 1,912,520 | (1,049,333 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders (deficit) equity |
(341,309 | ) | | 248,198 | 142,690 | (390,888 | ) | (341,309 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities, redeemable preferred stock and stockholders equity (deficit) |
$ | 267,573 | $ | | $ | 281,930 | $ | 161,021 | $ | (390,888 | ) | $ | 319,636 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
28
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2011
(Dollars in thousands)
(Unaudited)
Cumulus Media Inc. | Cumulus Media Holdings Inc. | Subsidiary Guarantors |
Subsidiary Non-guarantors |
Total | ||||||||||||||||||||
(Parent Guarantor) | (Subsidiary Issuer) | Eliminations | Consolidated | |||||||||||||||||||||
Broadcast revenues |
$ | | $ | | $ | 131,845 | $ | | $ | | $ | 131,845 | ||||||||||||
Management fees |
458 | | | | | 458 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net revenues |
458 | | 131,845 | | | 132,303 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Direct operating expenses (excluding depreciation, amortization and LMA fees) |
| | 77,567 | 306 | | 77,873 | ||||||||||||||||||
Depreciation and amortization |
360 | | 10,859 | | | 11,219 | ||||||||||||||||||
LMA fees |
| | 530 | | | 530 | ||||||||||||||||||
Corporate, general and administrative expenses (including subsidiary guarantors non-cash stock-based compensation expense of $956) |
44,024 | | 630 | | | 44,654 | ||||||||||||||||||
Realized loss on derivative instrument |
| | 1,436 | | | 1,436 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
44,384 | | 91,022 | 306 | | 135,712 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating (loss) income |
(43,926 | ) | | 40,823 | (306 | ) | | (3,409 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-operating (expense) income: |
||||||||||||||||||||||||
Interest (expense) income, net |
(555 | ) | (19,045 | ) | 97 | | | (19,503 | ) | |||||||||||||||
Other income, net |
| | 181 | | | 181 | ||||||||||||||||||
Gain on equity investment in Cumulus Media Partners, LLC |
11,636 | | | | | 11,636 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-operating income (expense), net |
11,081 | (19,045 | ) | 278 | | | (7,686 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
(32,845 | ) | (19,045 | ) | 41,101 | (306 | ) | | (11,095 | ) | ||||||||||||||
Income tax benefit |
| | 68,781 | 1,852 | | 70,633 | ||||||||||||||||||
Earnings (loss) from consolidated subsidiaries |
92,383 | 111,428 | 1,546 | | (205,357 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | 59,538 | $ | 92,383 | $ | 111,428 | $ | 1,546 | $ | (205,357 | ) | $ | 59,538 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
29
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2010
(Dollars in thousands)
(Unaudited)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Broadcast revenues |
$ | | $ | | $ | 66,434 | $ | | $ | | $ | 66,434 | ||||||||||||
Management fees |
1,021 | | | | | 1,021 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net revenues |
1,021 | | 66,434 | | | 67,455 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Direct operating expenses (excluding depreciation, amortization and LMA fees) |
| | 40,287 | 199 | | 40,486 | ||||||||||||||||||
Depreciation and amortization |
412 | | 1,810 | | | 2,222 | ||||||||||||||||||
LMA fees |
| | 607 | | | 607 | ||||||||||||||||||
Corporate, general and administrative expenses (including subsidiary guarantors non-cash stock-based compensation expense of $556) |
4,680 | | | | | 4,680 | ||||||||||||||||||
Realized loss on derivative instrument |
| | 746 | | | 746 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
5,092 | | 43,450 | 199 | | 48,741 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating (loss) income |
(4,071 | ) | | 22,984 | (199 | ) | | 18,714 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-operating expense (income): |
||||||||||||||||||||||||
Interest expense, net |
(7,586 | ) | | | | | (7,586 | ) | ||||||||||||||||
Other expense, net |
(6 | ) | | | | | (6 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-operating expense, net |
(7,592 | ) | | | | | (7,592 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
(11,663 | ) | | 22,984 | (199 | ) | | 11,122 | ||||||||||||||||
Income tax expense |
| | (602 | ) | (789 | ) | | (1,391 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings (loss) from consolidated subsidiaries |
21,394 | | (988 | ) | | 20,406 | | |||||||||||||||||
Net income (loss) |
$ | 9,731 | $ | | $ | 21,394 | $ | (988 | ) | $ | (20,406 | ) | $ | 9,731 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
30
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2011
(Dollars in thousands)
(Unaudited)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Total Consolidated |
||||||||||||||||||||||
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | ||||||||||||||||||||||
Broadcast revenues |
$ | | $ | | $ | 256,632 | $ | | $ | | $ | 256,632 | ||||||||||||
Management fees |
2,708 | | | | | 2,708 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net revenues |
2,708 | | 256,632 | | | 259,340 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Direct operating expenses (excluding depreciation, amortization and LMA fees) |
| | 153,755 | 831 | | 154,586 | ||||||||||||||||||
Depreciation and amortization |
1,079 | | 14,152 | | | 15,231 | ||||||||||||||||||
LMA fees |
| | 1,670 | | | 1,670 | ||||||||||||||||||
Corporate, general and administrative expense (including subsidiary guarantors non-cash stock-based compensation expense of $2,143) |
61,294 | | 630 | | | 61,924 | ||||||||||||||||||
Gain on exchange of assets or stations |
| | (15,278 | ) | | | (15,278 | ) | ||||||||||||||||
Realized loss on derivative instrument |
| | 2,681 | | | 2,681 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
62,373 | | 157,610 | 831 | | 220,814 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income (loss) |
(59,665 | ) | | 99,022 | (831 | ) | | 38,526 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-operating (expense) income: |
||||||||||||||||||||||||
Interest (expense) income, net |
(9,276 | ) | (25,826 | ) | 103 | | | (34,999 | ) | |||||||||||||||
Loss on early extinguishment of debt |
(4,366 | ) | | | | | (4,366 | ) | ||||||||||||||||
Other income, net |
| | 87 | | | 87 | ||||||||||||||||||
Gain on equity investment in Cumulus Media Partners, LLC |
11,636 | | | | 11,636 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-operating (expense) income, net |
(2,006 | ) | (25,826 | ) | 190 | | | (27,642 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
(61,671 | ) | (25,826 | ) | 99,212 | (831 | ) | | 10,884 | |||||||||||||||
Income tax benefit (expense) |
| | 67,480 | (1,366 | ) | | 66,114 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings from consolidated subsidiaries |
138,669 | 164,495 | (2,197 | ) | | (300,967 | ) | | ||||||||||||||||
Net income (loss) |
$ | 76,998 | $ | 138,669 | $ | 164,495 | $ | (2,197 | ) | $ | (300,967 | ) | $ | 76,998 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
31
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2010
(Dollars in thousands)
(Unaudited)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings, Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Broadcast revenues |
$ | | $ | | $ | 190,531 | $ | | $ | | $ | 190,531 | ||||||||||||
Management fees |
3,021 | | | | | 3,021 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net revenues |
3,021 | | 190,531 | | | 193,552 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Direct operating expenses (excluding depreciation, amortization and LMA fees) |
| | 120,232 | 597 | | 120,829 | ||||||||||||||||||
Depreciation and amortization |
1,266 | | 5,864 | | | 7,130 | ||||||||||||||||||
LMA fees |
| | 1,500 | | | 1,500 | ||||||||||||||||||
Corporate, general and administrative expenses (including subsidiary guarantors non-cash stock-based compensation expense of $1,015) |
13,824 | | | | | 13,824 | ||||||||||||||||||
Realized loss on derivative instrument |
| | 1,810 | | | 1,810 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
15,090 | | 129,406 | 597 | | 145,093 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating (loss) income |
(12,069 | ) | | 61,125 | (597 | ) | | 48,459 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-operating expense: |
||||||||||||||||||||||||
Interest expense, net |
(23,726 | ) | | (2 | ) | | | (23,728 | ) | |||||||||||||||
Other expense, net |
(6 | ) | | (81 | ) | | | (87 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-operating expense, net |
(23,732 | ) | | (83 | ) | | | (23,815 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
(35,801 | ) | | 61,042 | (597 | ) | | 24,644 | ||||||||||||||||
Income tax expense |
| | (1,199 | ) | (1,554 | ) | | (2,753 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earning (loss) from consolidated subsidiaries |
57,692 | | (2,151 | ) | | (55,541 | ) | | ||||||||||||||||
Net income (loss) |
$ | 21,891 | $ | | $ | 57,692 | $ | (2,151 | ) | $ | (55,541 | ) | $ | 21,891 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
32
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2011
(Dollars in thousands)
(Unaudited)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net income (loss) |
$ | 76,998 | $ | 138,669 | $ | 164,495 | $ | (2,197 | ) | $ | (300,967 | ) | $ | 76,998 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||
Depreciation and amortization (loss) |
1079 | | 14,152 | | | 15,231 | ||||||||||||||||||
Amortization of debt issuance costs/discounts |
435 | 1,264 | | | | 1,699 | ||||||||||||||||||
Loss on early extinguishment of debt |
4,366 | | | | | 4,366 | ||||||||||||||||||
Provision for doubtful accounts |
| | 920 | | | 920 | ||||||||||||||||||
Loss on sale of assets or stations |
| | 33 | | | 33 | ||||||||||||||||||
Gain on exchange of assets or stations |
| | (15,278 | ) | | | (15,278 | ) | ||||||||||||||||
Fair value adjustment of derivative instruments |
(3,683 | ) | | 2,681 | | | (1,002 | ) | ||||||||||||||||
Deferred income taxes |
| | (69,809 | ) | 1,366 | | (68,443 | ) | ||||||||||||||||
Non-cash stock-based compensation |
2,142 | | | | | 2,142 | ||||||||||||||||||
Earnings from consolidated subsidiaries |
(138,669 | ) | (164,495 | ) | 2,197 | | 300,967 | | ||||||||||||||||
Other |
(1,318 | ) | | | | | (1,318 | ) | ||||||||||||||||
Gain on equity investment in Cumulus Media Partners, LLC |
(11,636 | ) | | | | | (11,636 | ) | ||||||||||||||||
Changes in assets and liabilities |
2,924,988 | (2,816,798 | ) | (80,399 | ) | 831 | | 28,622 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
2,854,702 | (2,841,360 | ) | 18,992 | | | 32,334 | |||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Consideration to complete Citadel Acquisition less cash acquired |
(2,024,153 | ) | | | | | (2,024,153 | ) | ||||||||||||||||
Capital expenditures |
(918 | ) | | (1,967 | ) | | | (2,885 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(2,025,071 | ) | | (1,967 | ) | | | (2,027,038 | ) | |||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Proceeds from issuance of 7.75% Senior Notes due 2019 |
| 610,000 | | | | 610,000 | ||||||||||||||||||
Proceeds from borrowings under term loans and revolving credit facilities, net of $25.1 million debt discount |
| 2,289,900 | | | | 2,289,900 | ||||||||||||||||||
Repayments of borrowings under bank credit facilities |
(1,214,676 | ) | | | | | (1,214,676 | ) | ||||||||||||||||
Proceeds from sale of equity securities |
444,513 | | | | | 444,513 | ||||||||||||||||||
Redemption of CMP preferred stock |
(41,565 | ) | | | | | (41,565 | ) | ||||||||||||||||
Deferred financing costs |
| (58,540 | ) | | | | (58,540 | ) | ||||||||||||||||
Tax withholding payments on behalf of employees |
(666 | ) | | | | | (666 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash (used in) provided by financing activities |
(812,394 | ) | 2,841,360 | | | | 2,028,966 | |||||||||||||||||
Increase in cash and cash equivalents |
17,237 | | 17,025 | | | 34,262 | ||||||||||||||||||
Cash and cash equivalents at beginning of period |
12,638 | | 176 | | | 12,814 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at end of period |
$ | 29,875 | $ | | $ | 17,201 | $ | | $ | | $ | 47,076 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
33
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2010
(Dollars in thousands)
(Unaudited)
Cumulus Media Inc. (Parent Guarantor) |
Cumulus Media Holdings Inc. (Subsidiary Issuer) |
Subsidiary Guarantors |
Subsidiary Non-guarantors |
Eliminations | Total Consolidated |
|||||||||||||||||||
Cash income (loss) flows from operating activities: |
||||||||||||||||||||||||
Net income (loss) |
$ | 21,891 | $ | | $ | 57,692 | $ | (2,151 | ) | $ | (55,541 | ) | $ | 21,891 | ||||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||||||||||||||||||
Depreciation and amortization |
1,266 | | 5,864 | | | 7,130 | ||||||||||||||||||
Amortization of debt issuance costs/discounts |
919 | | | | | 919 | ||||||||||||||||||
Provision for doubtful accounts |
| | 922 | | | 922 | ||||||||||||||||||
Loss on sale of assets or stations |
| | 82 | | | 82 | ||||||||||||||||||
Fair value adjustment of derivative instruments |
(8,345 | ) | | 1,809 | | | (6,536 | ) | ||||||||||||||||
Deferred income taxes |
| | 832 | 1,656 | | 2,488 | ||||||||||||||||||
Non-cash stock-based compensation |
1,016 | | | | | 1,016 | ||||||||||||||||||
Earnings from consolidated subsidiaries |
(57,692 | ) | | 2,151 | | 55,541 | | |||||||||||||||||
Changes in assets and liabilities: |
72,250 | | 71,373 | 495 | | 1,372 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
31,305 | | (2,021 | ) | | | 29,284 | |||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
(397 | ) | | (1,730 | ) | | | (2,127 | ) | |||||||||||||||
Purchase of intangible assets |
| | (230 | ) | | | (230 | ) | ||||||||||||||||
Proceeds from sale of assets or stations |
| | 196 | | | 196 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(397 | ) | | (1,764 | ) | | | (2,161 | ) | |||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Repayments of borrowings under bank credit facilities |
(30,353 | ) | | | | | (30,353 | ) | ||||||||||||||||
Tax withholding payments on behalf of employees |
(184 | ) | | | | | (184 | ) | ||||||||||||||||
Payments made to creditors pursuant to credit facility amendment |
(245 | ) | | | | | (245 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
(30,782 | ) | | | | | (30,782 | ) | ||||||||||||||||
Increase in cash and cash equivalents |
126 | | (3,785 | ) | | | (3,659 | ) | ||||||||||||||||
Cash and cash equivalents at beginning of period |
11,674 | | 4,550 | | | 16,224 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at end of period |
$ | 11,800 | $ | | $ | 765 | $ | | $ | | $ | 12,565 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
34
Exhibit 99.3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
||
Report of Independent Registered Public Accounting Firm |
1 | |
Consolidated Balance Sheets at December 31, 2010 and 2009 |
2 | |
Consolidated Statements of Operations for the periods from June 1, 2010 through December 31, 2010 (Successor) and January 1, 2010 through May 31, 2010 (Predecessor) and the years ended December 31, 2009 and 2008 |
3 | |
Consolidated Statements of Stockholders Equity for the periods from June 1, 2010 through December 31, 2010 (Successor) and January 1, 2010 through May 31, 2010 (Predecessor) and the years ended December 31, 2009 and 2008 |
4 | |
Consolidated Statements of Cash Flows for the periods from June 1, 2010 through December 31, 2010 (Successor) and January 1, 2010 through May 31, 2010 (Predecessor) and the years ended December 31, 2009 and 2008 |
6 | |
Supplemental disclosure of cash flow information for the periods from June 1, 2010 through December 31, 2010 (Successor) and January 1, 2010 through May 31, 2010 (Predecessor) and the years ended December 31, 2009 and 2008 |
7 | |
Notes to Consolidated Financial Statements |
8 |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Citadel Broadcasting Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Citadel Broadcasting Corporation and subsidiaries (the Company) as of December 31, 2010 (successor) and 2009 (predecessor), and the related consolidated statements of operations, stockholders equity, and cash flows for the period from June 1, 2010 to December 31, 2010 (successor), the period from January 1, 2010 to May 31, 2010 (predecessor) and for each of the two years in the period ended December 31, 2009 (predecessor). These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Citadel Broadcasting Corporation and subsidiaries as of December 31, 2010 (successor) and 2009 (predecessor), and the results of their operations and their cash flows for the period from June 1, 2010 to December 31, 2010 (successor), the period from January 1, 2010 to May 31, 2010 (predecessor) and for each of the two years in the period ended December 31, 2009 (predecessor), in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 30, 2011 (December 15, 2011 as to Note 24)
1
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Successor | Predecessor | |||||||||
December 31, 2010 | December 31, 2009 | |||||||||
ASSETS | ||||||||||
Current assets |
||||||||||
Cash and cash equivalents |
$ | 111,624 | $ | 57,441 | ||||||
Accounts receivable, net |
138,751 | 159,201 | ||||||||
Prepaid expenses and other current assets (including deferred income tax assets of $23,023 and $566 as of December 31, 2010 and December 31, 2009, respectively) |
37,418 | 21,177 | ||||||||
|
|
|
|
|||||||
Total current assets |
287,793 | 237,819 | ||||||||
Long-term assets |
||||||||||
Property and equipment, net |
200,121 | 201,542 | ||||||||
FCC licenses |
893,610 | 600,603 | ||||||||
Goodwill |
763,849 | 321,976 | ||||||||
Customer and affiliate relationships, net |
195,080 | 36,284 | ||||||||
Other assets, net |
67,661 | 19,765 | ||||||||
|
|
|
|
|||||||
Total assets |
$ | 2,408,114 | $ | 1,417,989 | ||||||
|
|
|
|
|||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | ||||||||||
Liabilities not subject to compromise |
||||||||||
Current liabilities |
||||||||||
Accounts payable, accrued liabilities and other liabilities |
$ | 56,661 | $ | 36,376 | ||||||
Senior debt, current |
3,500 | | ||||||||
|
|
|
|
|||||||
Total current liabilities not subject to compromise |
60,161 | 36,376 | ||||||||
Long-term liabilities |
||||||||||
Senior debt, less current portion |
346,500 | | ||||||||
Senior notes |
400,000 | | ||||||||
Other long-term liabilities, less current portion |
58,342 | 2,631 | ||||||||
Deferred income tax liabilities |
268,454 | 180,422 | ||||||||
|
|
|
|
|||||||
Total liabilities not subject to compromise |
1,133,457 | 219,429 | ||||||||
Liabilities subject to compromise |
| 2,270,418 | ||||||||
|
|
|
|
|||||||
Total liabilities |
1,133,457 | 2,489,847 | ||||||||
|
|
|
|
|||||||
Commitments and contingencies |
||||||||||
Stockholders equity (deficit) |
||||||||||
Successor preferred stock, $.001 par value authorized, 50,000,000 shares at December 31, 2010; no shares issued or outstanding at December 31, 2010 |
| | ||||||||
Successor class A common stock, $.001 par value authorized, 100,000,000 shares at December 31, 2010; issued and outstanding, 4,539,601 shares at December 31, 2010 |
5 | | ||||||||
Successor class B common stock, $.001 par value authorized, 100,000,000 shares at December 31, 2010; issued and outstanding, 18,131,638 shares at December 31, 2010 |
18 | | ||||||||
Successor equity held in reserve |
13,182 | | ||||||||
Additional paid-in capital (including 23,682,484 Successor special warrants at December 31, 2010) |
1,263,235 | 2,447,084 | ||||||||
Predecessor preferred stock, $.01 par value authorized, 200,000,000 shares at December 31, 2009; no shares issued or outstanding at December 31, 2009 |
| | ||||||||
Predecessor common stock, $.01 par value authorized, 500,000,000 shares at December 31, 2009; issued and outstanding, 294,035,525 and 265,623,369, respectively at December 31, 2009 |
| 2,940 | ||||||||
Predecessor treasury stock, at cost, 28,412,156 shares at December 31, 2009 |
| (344,371 | ) | |||||||
Accumulated deficit |
(1,783 | ) | (3,177,511 | ) | ||||||
|
|
|
|
|||||||
Total stockholders equity (deficit) |
1,274,657 | (1,071,858 | ) | |||||||
|
|
|
|
|||||||
Total liabilities and stockholders equity (deficit) |
$ | 2,408,114 | $ | 1,417,989 | ||||||
|
|
|
|
See accompanying notes to consolidated financial statements.
2
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Year Ended December 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||||
Net revenue |
$ | 444,142 | $ | 295,424 | $ | 723,620 | $ | 863,121 | ||||||||||
Operating expenses: |
||||||||||||||||||
Cost of revenue, exclusive of depreciation and amortization shown separately below, and including non-cash compensation expense of $954, $526, $1,516 and $2,370, respectively |
164,594 | 116,103 | 306,648 | 353,014 | ||||||||||||||
Selling, general and administrative, including non-cash compensation expense of $3,244, $785, $3,884 and $4,984, respectively |
113,637 | 78,582 | 203,871 | 227,517 | ||||||||||||||
Corporate general and administrative, including non-cash compensation expense of $14,587, $570 and $5,135 and $6,652, respectively |
26,394 | 8,929 | 26,320 | 32,049 | ||||||||||||||
Local marketing agreement fees |
379 | 455 | 1,027 | 1,334 | ||||||||||||||
Asset impairment and disposal charges |
| | 985,653 | 1,208,208 | ||||||||||||||
Depreciation and amortization |
58,564 | 11,365 | 35,599 | 45,264 | ||||||||||||||
Non-cash amounts related to contractual obligations |
| | | 21,440 | ||||||||||||||
Other, net |
7,486 | 854 | 6,841 | (1,688 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses |
371,054 | 216,288 | 1,565,959 | 1,887,138 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
73,088 | 79,136 | (842,339 | ) | (1,024,017 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Reorganization items, net |
| (1,014,077 | ) | 4,556 | | |||||||||||||
Interest expense, net |
45,365 | 17,771 | 190,175 | 211,818 | ||||||||||||||
Extinguishment of debt |
20,969 | | (428 | ) | (114,736 | ) | ||||||||||||
Write-off of deferred financing costs and debt discount upon extinguishment of debt and other debt-related fees |
984 | | 814 | 11,399 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
5,770 | 1,075,442 | (1,037,456 | ) | (1,132,498 | ) | ||||||||||||
Income tax expense (benefit) |
7,553 | 5,737 | (254,097 | ) | (162,679 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income |
$ | (1,783 | ) | $ | 1,069,705 | $ | (783,359 | ) | $ | (969,819 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income per sharebasic |
$ | (0.04 | ) | $ | 4.02 | $ | (2.97 | ) | $ | (3.69 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income per sharediluted |
$ | (0.04 | ) | $ | 3.99 | $ | (2.97 | ) | $ | (3.69 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||||
Weighted average common shares outstandingbasic |
45,625 | 266,041 | 263,989 | 262,812 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Weighted average common shares outstandingdiluted |
45,625 | 267,961 | 263,989 | 262,812 | ||||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
(in thousands, except share amounts)
Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Common Stock | Reserve | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares Held in Reserve |
Amount | Shares | Amount | Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders Equity (Deficit) |
|||||||||||||||||||||||||||||||||||||||||||
Predecessor: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2008 |
| $ | | | $ | | 290,726,502 | $ | 2,907 | | $ | | (26,835,340 | ) | $ | (343,042 | ) | $ | 2,422,076 | $ | (1,424,333 | ) | $ | (30,369 | ) | $ | 627,239 | |||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (969,819 | ) | | (969,819 | ) | ||||||||||||||||||||||||||||||||||||||||
Unrealized loss on derivative and hedging activities, net of tax |
| | | | | | | | | | | | 980 | 980 | ||||||||||||||||||||||||||||||||||||||||||
Reclassification of unrealized loss on derivative and hedging activities |
| | | | | | | | | | | | 29,389 | 29,389 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss |
(939,450 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | | | | | 13,449 | | | 13,449 | ||||||||||||||||||||||||||||||||||||||||||
Interest on shareholder notes |
| | | | | | | | | | (15 | ) | | | (15 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares, net |
| | | | 6,847,570 | 69 | | | | | (68 | ) | | | 1 | |||||||||||||||||||||||||||||||||||||||||
Treasury stock associated with stock-based transactions |
| | | | | | | | (1,015,833 | ) | (1,255 | ) | | | | (1,255 | ) | |||||||||||||||||||||||||||||||||||||||
Dividend adjustment related to stock-based transactions |
| | | | | | | | | | 557 | | | 557 | ||||||||||||||||||||||||||||||||||||||||||
Adjustment to the conversion of equity awards in connection with the ABC Merger |
| | | | | | | | | | 526 | | | 526 | ||||||||||||||||||||||||||||||||||||||||||
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Balances at December 31, 2008 |
| $ | | | $ | | 297,574,072 | $ | 2,976 | | $ | | (27,851,173 | ) | $ | (344,297 | ) | $ | 2,436,525 | $ | (2,394,152 | ) | $ | | $ | (298,948 | ) | |||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (783,359 | ) | | (783,359 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | | | | | 10,555 | | | 10,555 | ||||||||||||||||||||||||||||||||||||||||||
Interest on shareholder notes |
| | | | | | | | | | (11 | ) | | | (11 | ) | ||||||||||||||||||||||||||||||||||||||||
Cancellation of restricted shares, net of issuances |
| | | | (3,538,547 | ) | (36 | ) | | | | | 35 | | | (1 | ) | |||||||||||||||||||||||||||||||||||||||
Treasury stock associated with stock-based transactions |
| | | | | | | | (560,983 | ) | (74 | ) | | | | (74 | ) | |||||||||||||||||||||||||||||||||||||||
Dividend adjustment related to stock-based transactions |
| | | | | | | | | | (20 | ) | | | (20 | ) | ||||||||||||||||||||||||||||||||||||||||
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Balances at December 31, 2009 |
| $ | | | $ | | 294,035,525 | $ | 2,940 | | $ | | (28,412,156 | ) | $ | (344,371 | ) | $ | 2,447,084 | $ | (3,177,511 | ) | $ | | $ | (1,071,858 | ) | |||||||||||||||||||||||||||||
Net income |
| | | | | | | | | | | 19,415 | | 19,415 | ||||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | | | | | 1,107 | | | 1,107 | ||||||||||||||||||||||||||||||||||||||||||
Interest on shareholder notes |
| | | | | | | | | | (6 | ) | | | (6 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares, net |
| | | | 201,103 | 2 | | | | | (2 | ) | | | | |||||||||||||||||||||||||||||||||||||||||
Treasury stock associated with stock-based transactions |
| | | | | | | | (159,570 | ) | (5 | ) | | | | (5 | ) | |||||||||||||||||||||||||||||||||||||||
Dividend adjustment related to stock-based transactions |
| | | | | | | | | | 4 | | | 4 | ||||||||||||||||||||||||||||||||||||||||||
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Balances at May 31, 2010 |
| $ | | | $ | | 294,236,628 | $ | 2,942 | | $ | | (28,571,726 | ) | $ | (344,376 | ) | $ | 2,448,187 | $ | (3,158,096 | ) | $ | | $ | (1,051,343 | ) |
4
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity (Continued)
(in thousands, except share amounts)
Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Common Stock | Reserve | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares Held in Reserve |
Amount | Shares | Amount | Additional Paid-in Capital |
Accumulated Deficitm |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders Equity (Deficit) |
|||||||||||||||||||||||||||||||||||||||||||
Plan of reorganization adjustments: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income before reorganization items |
| | | | | | | | | | | 128,490 | | 128,490 | ||||||||||||||||||||||||||||||||||||||||||
Cancellation of Predecessors common and treasury stock |
| | | | (294,236,628 | ) | (2,942 | ) | | | 28,571,726 | 344,376 | (341,434 | ) | | | | |||||||||||||||||||||||||||||||||||||||
Issuance of new equity interests in connection with emergence from Chapter 11 |
3,031,311 | 3 | 16,699,015 | 17 | | | 518,614 | 14,305 | | | 1,244,113 | | | 1,258,438 | ||||||||||||||||||||||||||||||||||||||||||
Reorganization adjustments |
| | | | | | | | | | 1,051 | | | 1,051 | ||||||||||||||||||||||||||||||||||||||||||
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Subtotal (Predecessor) |
3,031,311 | $ | 3 | 16,699,015 | $ | 17 | | $ | | 518,614 | $ | 14,305 | | $ | | $ | 3,351,917 | $ | (3,029,606 | ) | $ | | $ | 336,636 | ||||||||||||||||||||||||||||||||
Fresh-start valuation adjustments: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain on revaluation of assets and liabilities |
| | | | | | | | | | | 921,801 | 921,801 | |||||||||||||||||||||||||||||||||||||||||||
Elimination of Predecessor accumulated deficit |
| | | | | | | | | | (2,107,805 | ) | 2,107,805 | | | |||||||||||||||||||||||||||||||||||||||||
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Subtotal (Successor) |
3,031,311 | $ | 3 | 16,699,015 | $ | 17 | | $ | | 518,614 | $ | 14,305 | | $ | | $ | 1,244,112 | $ | | $ | | $ | 1,258,437 | |||||||||||||||||||||||||||||||||
Successor: |
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Net loss from June 1, 2010 to December 31, 2010 |
| | | | | | | | | | | (1,783 | ) | | (1,783 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | | | | | 18,042 | | | 18,042 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares, net |
1,206,625 | 1 | | | | | | | | | (1 | ) | | | | |||||||||||||||||||||||||||||||||||||||||
Equity conversions and distributions |
301,665 | 1 | 1,432,623 | 1 | | | (40,717 | ) | (1,123 | ) | | | 1,121 | | | | ||||||||||||||||||||||||||||||||||||||||
Other |
| | | | | | | | | | (39 | ) | | | (39 | ) | ||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2010 |
4,539,601 | $ | 5 | 18,131,638 | $ | 18 | | $ | | 477,897 | $ | 13,182 | | $ | | $ | 1,263,235 | $ | (1,783 | ) | $ | | $ | 1,274,657 | ||||||||||||||||||||||||||||||||
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See accompanying notes to consolidated financial statements.
5
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Year Ended December 31, |
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2009 | 2008 | |||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||
Net (loss) income |
$ | (1,783 | ) | $ | 1,069,705 | $ | (783,359 | ) | $ | (969,819 | ) | |||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||||||||||||
Depreciation and amortization |
58,564 | 11,365 | 35,599 | 45,264 | ||||||||||||||
Non-cash amounts related to contract obligations |
| | | 21,440 | ||||||||||||||
Extinguishment of debt |
20,969 | | (428 | ) | (114,736 | ) | ||||||||||||
Write-off of deferred financing costs and debt discount upon extinguishment of debt and other debt-related fees |
984 | | 160 | 11,399 | ||||||||||||||
Asset impairment and disposal charges |
| | 985,653 | 1,208,208 | ||||||||||||||
Non-cash debt-related amounts and facility fees |
(1,693 | ) | | 105,141 | 3,414 | |||||||||||||
Reorganization items, net |
| (1,063,639 | ) | 4,087 | | |||||||||||||
Fair value of swap liability |
| | (9,578 | ) | 82,355 | |||||||||||||
Provision for bad debts |
2,385 | 578 | 6,231 | 6,574 | ||||||||||||||
Loss (gain) on sale of assets |
271 | 708 | 271 | (625 | ) | |||||||||||||
Deferred income taxes |
6,057 | 5,150 | (245,517 | ) | (176,168 | ) | ||||||||||||
Non-cash compensation expense |
18,785 | 1,881 | 10,535 | 14,006 | ||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||
Accounts receivable |
3,795 | 13,884 | 5,586 | 14,168 | ||||||||||||||
Prepaid expenses and other current assets |
2,861 | (900 | ) | (2,502 | ) | (1,199 | ) | |||||||||||
Accounts payable, accrued liabilities and other obligations |
(17,559 | ) | 5,855 | (46,226 | ) | (13,429 | ) | |||||||||||
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Net cash provided by operating activities |
93,636 | 44,587 | 65,653 | 130,852 | ||||||||||||||
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Cash flows from investing activities: |
||||||||||||||||||
Capital expenditures |
(6,671 | ) | (3,409 | ) | (7,761 | ) | (8,920 | ) | ||||||||||
Proceeds from sale of assets |
13 | 5 | 23 | 1,494 | ||||||||||||||
Restricted cash |
6,302 | (7,773 | ) | (2,460 | ) | | ||||||||||||
Other assets, net |
78 | 25 | 50 | 90 | ||||||||||||||
FCC license upgrades |
| | | (2,114 | ) | |||||||||||||
Cash paid to acquire stations |
| | | (388 | ) | |||||||||||||
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Net cash used in investing activities |
(278 | ) | (11,152 | ) | (10,148 | ) | (9,838 | ) | ||||||||||
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Cash flows from financing activities: |
||||||||||||||||||
Principal payments on Emergence Term Loan |
(762,500 | ) | | | | |||||||||||||
Proceeds from Term Loan |
350,000 | | | | ||||||||||||||
Proceeds from Senior Notes |
400,000 | | | | ||||||||||||||
Debt issuance costs |
(21,878 | ) | | (11,477 | ) | (10,836 | ) | |||||||||||
Prepayment penalty on extinguishment of debt |
(38,030 | ) | | | | |||||||||||||
Principal payments on other long-term obligations |
(72 | ) | (125 | ) | (192 | ) | (56 | ) | ||||||||||
Payments for early extinguishment of debt, including related fees |
| | (292 | ) | (426,553 | ) | ||||||||||||
Other debt-related expenses |
| | (654 | ) | | |||||||||||||
Purchase of shares held in treasury |
| (5 | ) | (73 | ) | (1,256 | ) | |||||||||||
Principal payments on Senior Credit Facility |
| | (4,010 | ) | | |||||||||||||
Proceeds from Predecessor Senior Credit and Term Facility |
| | | 136,000 | ||||||||||||||
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Net cash used in financing activities |
(72,480 | ) | (130 | ) | (16,698 | ) | (302,701 | ) | ||||||||||
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Net increase (decrease) in cash and cash equivalents |
20,878 | 33,305 | 38,807 | (181,687 | ) | |||||||||||||
Cash and cash equivalents, beginning of period |
90,746 | 57,441 | 18,634 | 200,321 | ||||||||||||||
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Cash and cash equivalents, end of period |
$ | 111,624 | $ | 90,746 | $ | 57,441 | $ | 18,634 | ||||||||||
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See accompanying notes to consolidated financial statements.
6
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(in thousands)
Supplemental disclosure of cash flow information
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Year Ended December 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||||
Cash Payments: |
||||||||||||||||||
Interest |
$ | 45,932 | $ | 24,478 | $ | 91,190 | $ | 127,538 | ||||||||||
Income taxes |
387 | 481 | 1,804 | 5,665 | ||||||||||||||
Reorganization itemscash paid for professional fees |
| 17,651 | | | ||||||||||||||
Reorganization itemscash paid to unsecured creditors |
319 | 31,913 | | | ||||||||||||||
Barter Transactions: |
||||||||||||||||||
Barter revenueincluded in net revenue |
11,088 | 7,574 | 19,830 | 19,107 | ||||||||||||||
Barter expensesincluded in cost of revenue and selling, general and administrative expense |
10,809 | 7,278 | 20,332 | 18,784 | ||||||||||||||
Write-off of valuation adjustment |
17,061 | | | |
See accompanying notes to consolidated financial statements.
7
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of the Company
Description of Business
Subsidiaries of Citadel Broadcasting Corporation own and operate radio stations and hold FCC licenses in 27 states and the District of Columbia. Radio stations serving the same geographic area (i.e., principally a city or combination of cities) are referred to as a market. Citadel Broadcasting Corporation (together with its consolidated subsidiaries, the Company) aggregates the geographic markets in which it operates into one reportable segment (Radio Markets). In addition to owning and operating radio stations, the Company also owns and operates Citadel Media (the Radio Network), which produces and distributes a variety of radio programming and formats that are syndicated across approximately 4,000 station affiliates and 9,000 program affiliations, and is a separate reportable segment.
Company History
In January 2001, the Company was formed by affiliates of Forstmann Little & Co. (FL&Co.) in connection with a leveraged buyout transaction of our predecessor, Citadel Broadcasting Company (Citadel Broadcasting).
On February 6, 2006, the Company and Alphabet Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company (ABC Merger Sub), entered into an agreement and plan of merger with The Walt Disney Company (TWDC), a Delaware corporation, and ABC Radio Holdings, Inc., formerly known as ABC Chicago FM Radio, Inc. (ABC Radio), a Delaware corporation and wholly-owned subsidiary of TWDC.
The Company, ABC Merger Sub, TWDC and ABC Radio consummated the (i) separation of the ABC Radio Network business and 22 ABC radio stations (collectively, the ABC Radio Business) from TWDC and its subsidiaries, (ii) spin-off of ABC Radio, which holds the ABC Radio Business, and (iii) merger of ABC Merger Sub with and into ABC Radio, with ABC Radio surviving as a wholly-owned subsidiary of the Company (the ABC Merger). In connection with those transactions, TWDC or one of its affiliates retained cash from the proceeds of debt incurred by ABC Radio on June 5, 2007 in the amount of $1.35 billion (the ABC Radio Debt). Immediately thereafter, the separate corporate existence of ABC Merger Sub ceased, and ABC Radio was renamed Alphabet Acquisition Corp. The ABC Merger became effective on June 12, 2007.
Also, on June 12, 2007, to effectuate the ABC Merger, the Company entered into a credit agreement to provide debt financing to the Company in connection with the payment of a special distribution on June 12, 2007 immediately prior to the closing of the ABC Merger in the amount of $2.4631 per share to all pre-merger holders of record of Company common stock as of June 8, 2007 (the Special Distribution), the refinancing of Citadel Broadcastings existing senior credit facility, the refinancing of the ABC Radio Debt and the completion of the ABC Merger. This senior credit and term agreement provided for $200 million in revolving loans through June 2013, $600 million term loans maturing in June 2013 (Tranche A Term Loans), and $1,535 million term loans maturing in June 2014 (Tranche B Term Loans) (collectively, the Predecessor Senior Credit and Term Facility).
Plan of Reorganization
On December 20, 2009 (Petition Date), Citadel Broadcasting Corporation and certain of its subsidiaries (collectively, the Debtors) filed voluntary petitions in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of title 11 of the United States Code (the Bankruptcy Code) (collectively, the Chapter 11 Proceedings). On May 10, 2010, the Debtors filed the second modified joint plan of reorganization of Citadel Broadcasting Corporation and Its
8
Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (including all modifications, the Emergence Plan), and on May 19, 2010 (the Confirmation Date), the Bankruptcy Court entered an order (the Confirmation Order), confirming the Emergence Plan. On June 3, 2010 (the Emergence Date), the Debtors consummated their reorganization and the Emergence Plan became effective. As a result, the Company is considered a successor registrant and, pursuant to Rule 12g-3 under the Securities Exchange Act of 1934 (the Exchange Act), the Companys class A common stock is deemed to be registered pursuant to Section 12(g) of the Exchange Act.
Under the Emergence Plan, the Debtors distributed three forms of equity: class A common stock (currently traded over-the-counter under the symbol CDELA); class B common stock (currently traded over-the-counter under the symbol CDELB); and special warrants to purchase class B common stock (currently traded over-the- counter under the symbol CDDGW). See Note 14.
The Refinancing Transactions
In accordance with the Emergence Plan, approximately $2.1 billion of the debt outstanding under the Predecessor Senior Credit and Term Facility was converted into a term loan dated as of June 3, 2010 among the Company, the several lenders party thereto (the Lenders) and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders (the Emergence Term Loan Facility) in the initial principal amount of $762.5 million with a 5-year term. See Notes 3 and 10 for additional discussion of the Emergence Plan and the Emergence Term Loan Facility.
The Company entered into a new credit agreement dated as of December 10, 2010 (the Credit Agreement) by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders. The Credit Agreement consists of a term loan credit facility of $350.0 million with a term of six years (the Term Loan) and a revolving credit facility in the amount of $150.0 million under which a swing line sub-facility of up to $30.0 million may be borrowed and letters of credit may be issued (the Revolving Loan, together with the Term Loan, the Credit Facilities). The Revolving Loan was undrawn at closing and remained undrawn as of December 31, 2010; however, the Company had $147.1 million of availability under the Revolving Loan due to outstanding letters of credit of $2.9 million. The Company used the proceeds of the Term Loan, along with the net proceeds from the concurrent issuance of the $400.0 million aggregate principal amount of senior notes (the Senior Notes), and cash on hand to repay the amounts outstanding under its Emergence Term Loan Facility. See additional discussion at Notes 10 and 11.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements of the Company include Citadel Broadcasting Corporation, Citadel Broadcasting, ABC Radio and their consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company was required to adopt fresh-start reporting as of the Confirmation Date or such later date when all material conditions precedent to the effectiveness of the Emergence Plan had been satisfied, but no later than the Emergence Date. All material conditions were satisfied on the Emergence Date, and in light of the proximity of this date to the Companys May 31, 2010 accounting period end, the effects of fresh-start reporting and the Emergence Plan were reported for accounting purposes as if they occurred on May 31, 2010 (the Fresh-Start Date). The Company adopted fresh-start reporting provisions in accordance with accounting guidance on reorganizations (see Note 3). The Company applied the provisions of fresh-start reporting as of May 31, 2010 instead of the June 3, 2010 Emergence Date, which did not result in a material difference to the Companys results of operations or financial condition.
References in this report to Successor refer to the Company on or after the Fresh-Start Date. References to Predecessor refer to the Company prior to the Fresh-Start Date. Consolidated financial statements as of December 31, 2010 and for the period from June 1, 2010 through December 31, 2010 represent the Successors
9
financial position and results of operations (the Successor Period). The consolidated financial statements as of December 31, 2009, for the period from January 1, 2010 through May 31, 2010 and for each of the years ended December 31, 2009 and 2008 represent the Predecessors financial position and results of operations (the Predecessor Periods). References in this report to the Company refer to Citadel Broadcasting Corporation and its consolidated subsidiaries, whether Predecessor and/or Successor, as appropriate. The Predecessor Periods reflect the historical accounting basis of the Predecessors assets and liabilities, while the Successor Period reflects assets and liabilities at fair value, based on an allocation of the Companys enterprise value to its assets and liabilities pursuant to accounting guidance related to business combinations (see Note 3). The Companys emergence from bankruptcy resulted in a new reporting entity that had no retained earnings or accumulated deficit as of the Fresh-Start Date. Accordingly, the Companys consolidated financial statements for the Predecessor Periods are not comparable to its consolidated financial statements for the Successor Period. Operating results for the Successor and Predecessor Periods are not necessarily indicative of the results to be expected for a full fiscal year.
For the period between the Petition Date and the Fresh-Start Date, the consolidated financial statements of the Predecessor were prepared in accordance with accounting guidance for financial reporting by entities in reorganization under the Bankruptcy Code. Accordingly, all pre-petition liabilities subject to compromise were segregated in the Predecessors consolidated balance sheet as of December 31, 2009 and classified as liabilities subject to compromise at the estimated amounts of allowable claims as of that date. Liabilities not subject to compromise are separately classified as current and non-current. Reorganization items include the expenses, realized gains and losses, and provisions for losses resulting from the reorganization under the Bankruptcy Code, and are reported separately as reorganization items in the Predecessors consolidated statements of operations.
In connection with the ABC Merger, the Company is required to divest certain stations to comply with FCC ownership limits. Therefore, these stations, the carrying value of which is immaterial, were assigned to The Last Bastion Station Trust, LLC (Last Bastion) as trustee under a divestiture trust that complies with FCC rules as of the closing date of the ABC Merger. The trustee agreement stipulates that the Company must fund any operating shortfalls of the trustees activities, and any excess cash flow generated by the trustee is distributed to the Company. Also, the Company has transferred one other station to a separate divestiture trust to comply with FCC ownership limits in connection with a station acquisition (together with Last Bastion, the Divestiture Trusts). The Company has determined that it is the primary beneficiary of the Divestiture Trusts and consolidates the Divestiture Trusts accordingly.
2. Summary of Significant Accounting Policies
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions relate in particular to allocations of enterprise value made in connection with fresh-start reporting, fair values of assets and liabilities as of the Fresh-Start Date, the evaluation of goodwill and intangible assets for potential impairment, including changes in market conditions that could affect the estimated fair values, the analysis of the measurement of deferred tax assets, including the calculation of a valuation allowance to reduce the amount of deferred tax asset to the amount that is more likely than not to be realized, the identification and quantification of income tax liabilities due to uncertain tax positions, and the determination of the allowance for estimated uncollectible accounts and notes receivable. The Company also uses assumptions when estimating the value of its supplemental executive retirement plan (the SERP) and when employing the Black-Scholes valuation model to estimate the fair value of stock options. The Predecessor used estimates to calculate the value of certain fully vested stock units and equity awards containing market conditions and in determining the estimated fair values of its interest rate swap, credit risk adjustments and certain derivative financial instruments. These estimates were based on the information that was available to management at the time of the estimate. Actual results could differ materially from those estimates.
10
Business Combinations and the Application of Fresh-Start Reporting
The adoption of fresh-start reporting results in a new reporting entity. Under fresh-start reporting, all assets and liabilities are recorded at their estimated fair values and the predecessors accumulated deficit is eliminated. In adopting fresh-start reporting, the Company was required to determine its enterprise value, which represents the fair value of the entity. See Note 3.
The Company employs various estimates when determining the fair market value of assets acquired and liabilities assumed in connection with the allocation of purchase price consideration in business combinations. In addition, the allocation of enterprise value made in connection with Fresh-Start Reporting, as well as the evaluation of the fair values of assets and liabilities as of the date of the application of Fresh-Start Reporting required the Company to employ various estimates. Intangible assets generally account for a significant portion of total assets acquired, and intangible assets consist primarily of FCC broadcast licenses and goodwill, but also include certain other identifiable intangible assets.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less, at the time of purchase, to be cash equivalents.
Restricted Cash
As of December 31, 2010, the Company had $3.9 million of restricted cash, which is included in prepaid expenses and other current assets in the accompanying balance sheet, primarily comprised of $3.8 million of cash held in reserve to satisfy remaining allowed, disputed or unreconciled unsecured claims (see Note 3). The $2.5 million of restricted cash as of December 31, 2009 primarily represents amounts held on deposit as security in case of default by the Debtors under their credit card processing agreement.
Allowance for Doubtful Accounts
The Company recognizes an allowance for estimated uncollectible accounts based on historical experience of bad debts as a percentage of its aged outstanding receivables, adjusted for improvements or deteriorations in current economic conditions. Accounts receivable, net on the accompanying consolidated balance sheets consisted of the following:
Successor | Predecessor | |||||||
December 31, 2010 |
December 31, 2009 |
|||||||
(in thousands) | ||||||||
Receivables |
$ | 143,112 | $ | 167,803 | ||||
Allowance for estimated uncollectible accounts |
(4,361 | )(a) | (8,602 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net |
$ | 138,751 | $ | 159,201 | ||||
|
|
|
|
a. | Since the Companys accounts receivable balance reflected its estimated fair as of the Fresh-Start Date, the allowance for estimated uncollectible accounts was zero as of that date. The balance of the allowance for estimated uncollectible accounts as of December 31, 2010 is lower than the balance as of December 31, 2009 since the current period amount relates only to accounts receivable generated since the Fresh-Start Date. |
Property and Equipment, Net
Property and equipment under fresh-start reporting and business combination guidance is stated at fair value as of the Fresh-Start Date and acquisition date, respectively. Property and equipment acquired subsequent to the Fresh-Start Date and the acquisition date are stated at cost. Depreciation of property and equipment is determined
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using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements and capital leases are capitalized and amortized using the straight-line method over the shorter of the related lease term or the estimated useful lives of the assets. Gains or losses on disposals of assets are recognized as incurred. Costs of normal repairs and maintenance are expensed as incurred.
Intangible Assets
In accordance with fresh-start reporting, the reorganization value of the Successor was allocated to assets and liabilities in conformity with relevant accounting guidance, with any portion that could not be attributed to specific tangible or identified intangible assets of the Successor reported as goodwill. Certain of these values differed materially from the values recorded on the Predecessors consolidated balance sheet as of December 31, 2009.
The Companys intangible assets include FCC broadcast licenses and goodwill. The Company evaluates its goodwill and FCC licenses for possible impairment annually or more frequently if events or changes in circumstances indicate that such assets might be impaired.
The Company evaluates the fair value of its FCC licenses at the unit of account level and has determined the unit of account to be the geographic market level, which is the lowest level for which the Company has identifiable cash flows. The Company evaluates goodwill for impairment at the reporting unit level, which the Company has determined to be a geographic market for its radio stations and the Radio Network for its network operations.
The Company evaluates its FCC licenses for impairment as of October 1, its annual impairment testing date, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company determines the fair value of its FCC licenses using an income approach generally referred to as the Jefferson Pilot Method or Greenfield Approach. This income approach attempts to isolate the income that is attributable to the FCC licenses at the unit of account level. The fair value is calculated by estimating and discounting the cash flows that a typical market participant would assume could be available from similar stations operated as part of a group of commonly owned stations in a similar sized geographic radio market. It is assumed that rather than acquiring such stations or operation as a going concern, the buyer would hypothetically obtain the licenses (at nominal cost) and build the new stations or operation with similar attributes from scratch. The Company believes this direct method of valuation to estimate the fair value of FCC licenses provides the best estimate of the fair value of the FCC licenses. The Company does not utilize a market approach as transactions involving FCC licenses in a specific geographic market do not frequently occur and therefore the information is limited, if available at all. The cost approach is not applicable as FCC licenses are not able to be re-created or duplicated.
For purposes of testing the carrying value of the Companys FCC licenses for impairment, the fair value of FCC licenses for each geographic market contains significant assumptions incorporating variables that are based on past experiences and judgments about future performance using industry normalized information for an average station within a market. These variables would include, but are not limited to: (1) forecasted revenue growth rates for each radio geographic market; (2) market share and profit margin of an average station within a market; (3) estimated capital start-up costs and losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; and (6) expected growth rates in perpetuity to estimate terminal values. These variables on a geographic market basis are susceptible to changes in estimates, which could result in significant changes to the fair value of the FCC licenses on a geographic market basis. If the carrying amount of the FCC license is greater than its estimated fair value in a given geographic market, the carrying amount of the FCC license in that geographic market is reduced to its estimated fair value, and this reduction may have a material impact on the Companys consolidated financial condition and results of operations.
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The Company evaluates its goodwill for impairment as of October 1, its annual impairment testing date, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company determines the fair value of goodwill using primarily a market approach for each reporting unit. The market approach compares recent sales and offering prices of similar properties or businesses. The Company believes a market approach reflects the best estimate of the fair value of an entire reporting unit as radio markets are generally sold within the industry based on a multiple of EBITDA (earnings before interest, taxes and depreciation and amortization). Therefore, the Company utilizes EBITDA specific to the geographic market and applies a multiple based on recent transactions or a multiple derived from public radio company information to estimate the value of the reporting unit. The Company generally considers the cost approach to be inapplicable as this approach does not capture going concern value of the business (see Note 5). If the carrying amount of the goodwill is greater than the estimated fair value of the goodwill of the respective reporting unit, the carrying amount of goodwill of that reporting unit is reduced to its estimated fair value, and this reduction may have a material impact on the Companys consolidated financial condition and results of operations.
See discussion of the Companys impairment testing for the years ended December 31, 2010 and 2009 at Note 5.
FCC Licenses and Renewal
Radio stations operate under renewable broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years. Licenses are renewed through an application to the FCC. A station may continue to operate beyond the expiration date of its license if a timely filed license application is pending. Petitions to deny license renewals can be filed by interested parties, including members of the public. These petitions may raise various issues before the FCC. The FCC is required to hold hearings on renewal applications if the FCC is unable to determine that the renewal of a license would serve the public interest, convenience and necessity, or if a petition to deny raises a substantial and material question of fact as to whether the grant of the renewal application would be inconsistent with the public interest, convenience and necessity. If, as a result of an evidentiary hearing, the FCC determines that the licensee has failed to meet various requirements and that no mitigating factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Historically, the Companys FCC licenses have generally been renewed, and in the last renewal cycle, all of the Companys licenses were renewed; however, the Company cannot be assured that all of its licenses will be renewed. The non-renewal, or renewal with substantial conditions or modifications, of one or more of the Companys FCC radio station licenses could have a material adverse effect on the Companys business, liquidity, financial position, and results of operations.
Debt Issuance Costs and Valuation Adjustment/Discount on Debt
The costs related to the issuance of debt are capitalized as other assets, as appropriate, and amortized to interest expense on a straight-line basis, which approximates the effective interest rate method, over the term of the related debt. A valuation adjustment recorded on the Emergence Term Loan Facility to record the Successors senior debt at its estimated fair value upon issuance was being amortized as a partial offset to interest expense using the effective interest rate method over the term of the Emergence Term Loan Facility. The discounts recorded as reductions to the Predecessors convertible subordinated notes were also amortized to interest expense generally over the contractual term of the notes. The balances of the Predecessors debt issuance costs and discounts were amortized to interest expense in relation to the pay down or repurchase of the underlying debt. However, the Predecessor ceased amortization of these assets as of December 19, 2009 since between the Petition Date and the Emergence Date, interest expense was only recognized to the extent it would be paid. Additionally, the Predecessor wrote off the remaining balance of deferred financing costs related to its debt and debt discount on its convertible subordinated notes since the amount of the allowed claim for the related debt instruments was known as of December 31, 2009.
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Hedging Activities and Derivative Instruments
The Company is exposed to fluctuations in interest rates, primarily attributable to borrowings under any floating rate debt, including its Credit Facilities (see Note 10). The Company actively monitors these fluctuations and from time to time may enter into derivative instruments to mitigate the variability of interest payments in accordance with its risk management strategy. The accounting for changes in the fair values of such derivative instruments at each new measurement date is dependent upon their intended use. The effective portion of changes in the fair values of derivative instruments designated as hedges of forecasted transactions, referred to as cash flow hedges, are deferred and recorded as a component of accumulated other comprehensive income (loss) until the hedged forecasted transactions occur and are recognized in earnings. The ineffective portion of changes in the fair values of derivative instruments designated as cash flow hedges are immediately reclassified to earnings. If it is determined that a derivative ceases to be a highly effective hedge or if the hedged transaction becomes probable of not occurring, hedge accounting is discontinued and some or all of the amounts recorded in other comprehensive income (loss) is immediately reclassified into net income (loss). The Companys interest rate swap arrangement had qualified for hedge accounting until the fourth quarter of 2008. During the fourth quarter of 2008, it became probable that the hedged transaction would not occur. Therefore, the hedging relationship was dedesignated and hedge accounting was discontinued. Accordingly, losses that had been previously deferred were recorded as interest expense. The Company measured the fair value of the interest rate swap using a discounted cash flow analysis as well as considering the Companys nonperformance risk. The differential paid or received on the interest rate swap agreement was also recognized as an adjustment to interest expense. The liability related to the interest rate swap agreement was converted to a component of senior debt as of the Petition Date, and the interest rate swap arrangement was terminated.
The Predecessors previously outstanding convertible subordinated notes, after being tendered and exchanged for new notes with amended terms, contained contingent interest rate features that were accounted for as a derivative. At each reporting date subsequent to the initial establishment of these derivative liabilities, the Predecessor measured the estimated fair value of this derivative financial instrument, and any increase or decrease in fair value of the derivative liability was recognized immediately in earnings as adjustments to interest expense. These derivative liabilities had no value as of December 31, 2009, and the Company has no other derivative instruments as of December 31, 2010.
Stock-Based Compensation
The Company recognizes the cost of all stock-based payments to employees in the financial statements based on the fair values of such awards measured at the grant date, or the value determined based on subsequent modification. That cost is recognized over the vesting period during which an employee is required to provide service in exchange for the award, which is based on the Companys determination of the appropriate service period underlying the award.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for a net deferred tax asset balance when it is more likely than not that the benefits of the tax asset will not be realized.
The Company adjusts its estimated liability for uncertain positions when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties,
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the ultimate resolution may result in a payment that is materially different from the Companys current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.
Earnings Per Share
The Company presents basic and diluted earnings per share in its consolidated statement of operations. Basic earnings per share excludes dilution and is computed for all periods presented by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Special warrants to purchase shares of class B common stock, whether outstanding or held in reserve to be issued, are included in basic earnings in the Successor Period. Nonvested shares of common stock are considered participating securities for purposes of calculating basic weighted average common shares in periods of net income for both the Predecessor and Successor. Diluted earnings per share is computed in the same manner as basic earnings per share after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes stock options, nonvested shares of common stock in periods of net loss and the effect of the Predecessors convertible subordinated notes in the Predecessor periods. Antidilutive instruments are not considered in this calculation. See further discussion at Note 17.
Revenue Recognition
The Radio Markets derive revenue primarily from the sale of program time and commercial announcements to local, regional and national advertisers. Broadcasting revenue is recorded net of agency commissions and is recognized when the programs and commercial announcements are broadcast. Agency commissions are calculated based on a stated percentage applied to gross broadcasting revenue.
Historically, the Company has managed its portfolio of radio stations through selected acquisitions, dispositions and exchanges, as well as through the use of local marketing agreements (LMAs) and joint sales agreements (JSAs). Under an LMA or a JSA, the company operating a station provides programming or sales and marketing or a combination of such services on behalf of the owner of a station. The broadcast revenue and operating expenses of stations operated by the Company under LMAs and JSAs have been included in the Companys results of operations since the respective effective dates of such agreements.
The Radio Network generates substantially all of its revenue from the sale of advertising time accumulated from its affiliate stations. The Radio Network also generates advertising revenue by embedding a defined number of advertising units in its syndicated programs, which it sells to advertisers at premium prices. Revenue at the Radio Network is recognized when the commercials are aired by the affiliate and the Company has no further obligation to the national advertiser. In addition, the Company assesses the creditworthiness of the national advertisers to assess collectibility of its receivables. The Radio Network is also the exclusive sales representative for the ESPN Radio Network content, providing both sales and distribution services. ESPN produces the networks programming, which includes ESPN SportsCenter, Mike and Mike In The Morning, hosted by Mike Greenberg and former NFL player Mike Golic, as well as national broadcasts of Major League Baseball, the National Basketball Association and the Bowl Championship Series. The Radio Network provides a sales staff to solicit and negotiate the sale of advertising on behalf of the ESPN Radio Network and to manage the advertising trafficking, billing and collection functions in exchange for a portion of all net sales generated on behalf of the ESPN Radio Network.
Barter Transactions
Barter contracts are agreements entered into under which the Company provides commercial air-time in exchange for goods and services used principally for promotions, sales and other business activities. The Company determines the amount of revenue for barter transactions based on fair value received for similar commercial air-time from cash customers.
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Advertising Expenses
Advertising expenses are expensed as incurred.
Business and Credit Concentrations
In the opinion of management, credit risk with respect to receivables is mitigated in part by the large number of customers and the geographic diversification of the Companys customer base. The Company performs credit evaluations of its customers and believes that adequate allowances for any uncollectible receivables are maintained. As of December 31, 2010, and 2009, no receivable from any customer exceeded 5% of accounts receivable. For the periods from January to May 2010 and from June 1 to December 31, 2010, as well as for the years ended December 31, 2009 and 2008, no single customer accounted for more than 10% of net broadcasting revenue.
Recent Accounting Standards
In June 2009, the Financial Accounting Standards Board (the FASB) issued guidance regarding the consolidation of variable interest entities to require an enterprise to perform an analysis to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to revise previous guidance for determining whether an entity is a variable interest entity; and to require enhanced disclosures that will provide more transparent information about an enterprises involvement with a variable interest entity. The provisions of this guidance were effective for the Company beginning January 1, 2010, and the adoption of this guidance did not have an impact on the Companys consolidated financial statements.
In January 2010, the FASB issued guidance which provides improvements to disclosures related to fair value measurements. New disclosures are required for significant transfers in and out of Level 1 and Level 2 fair value measurements, disaggregation regarding classes of assets and liabilities, valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 or Level 3 (see further discussion at Note 19). These disclosures were effective for the Company beginning in the first quarter of 2010; however the adoption of this guidance did not impact the Companys consolidated financial statements. Additional new disclosures regarding the purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements are effective beginning with the first interim period in 2011.
In December 2010, the FASB issued guidance that modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity will be required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. This guidance will be effective beginning with the first interim period in 2011, and the Company does not expect the adoption to have a material impact on the Companys consolidated financial statements.
3. Emergence from Chapter 11 Proceedings and Fresh-Start Reporting
Plan of Reorganization, Claims Resolution and Plan Distributions
In accordance with the Emergence Plan, approximately $2.1 billion of the debt outstanding under the Predecessor Senior Credit and Term Facility was converted into the Emergence Term Loan Facility in the initial principal amount of $762.5 million, with a 5-year term (see Note 10).
The pre-petition claims of the Debtors are evidenced in the schedules of liabilities filed by the Debtors and by proofs of claim filed by creditors with the Bankruptcy Court. The Bankruptcy Code requires the Bankruptcy Court to set the time within which proofs of claim must be filed in a Chapter 11 case. The Bankruptcy Court
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established April 21, 2010 as the last date for each person or entity to file a proof of claim (except for governmental units and administrative and priority claims whereby the bar dates were August 17, 2010 and August 2, 2010, respectively). Claims that were objected to are allowed or disallowed through a claims resolution process established by the Bankruptcy Court. Pursuant to objections filed by the Debtors, the Bankruptcy Court has reduced, reclassified and/or disallowed a significant number of claims for varying reasons, including claims that were duplicative, amended, without merit, misclassified or overstated. The claims resolution process is ongoing and will continue until all claims are resolved.
Secured Claims
Holders of senior secured claims were entitled to receive a pro rata share of (i) the Emergence Term Loan Facility; (ii) 90% of the equity in the reorganized Successor company, subject to dilution for distributions of equity under the Successors equity incentive program; and (iii) cash held as of the Emergence Date in excess, if any, of the sum of $86.0 million (as further described in the Emergence Term Loan Facility documents). There was no such excess cash as of the Emergence Date, and no additional payment was made to holders of senior secured claims. As of December 31, 2010, 2.6 million shares of Successor class A common stock, 10.0 million shares of class B common stock and 28.5 million special warrants had been distributed with respect to secured claims. See further discussion of equity in the Successor at Note 14.
Unsecured claims
Holders of unsecured claims, including the secured lenders deficiency claim in the stipulated amount of $267.2 million and the claims of the Predecessors convertible subordinated noteholders, received a pro rata share of (i) 10% of Successor equity (subject to dilution for distributions of equity under the Successors equity incentive program) and (ii) $36.0 million in cash. Once the allowed amount of an unsecured claim is determined through settlement or by Bankruptcy Court order, the claimant is entitled to a distribution as provided for by the Emergence Plan. As of December 31, 2010, 4.1 million shares of equity and $32.2 million in cash had been distributed to holders of allowed unsecured claims that totaled $320.9 million, and approximately 478,000 shares of Successor equity and $3.8 million of cash were held in reserve to satisfy remaining allowed, disputed or unreconciled unsecured claims. Shares held in reserve are not designated as class A common stock or class B common stock until issuance. The cash held in reserve is included with restricted cash and is classified as prepaid expenses and other current assets in the accompanying consolidated balance sheet. The offsetting amount remaining to be disbursed on account of unsecured claims is classified as accounts payable, accrued liabilities and other liabilities in the accompanying consolidated balance sheet. If excess shares of equity and cash remain in reserve after resolution of all disputed unsecured claims, such shares and cash will be distributed to the claimants with allowed unsecured claims pro-rata, based on the number of shares and cash they received pursuant to the Emergence Plan. There is no assurance that there will be sufficient shares and cash to satisfy all allowed claims or any excess shares for any such subsequent distribution.
Administrative and Priority Claims
Pursuant to the Emergence Plan, administrative and priority claims are satisfied with cash. Administrative and priority claims that were allowed as of the Emergence Date were paid in full shortly thereafter. Other administrative claims were required to be asserted by application filed with the Bankruptcy Court by August 2, 2010 (with certain exceptions, including ordinary course of business claims). Proofs of claims for priority claims were required to be submitted by April 21, 2010 (June 18, 2010 for governmental entities). Any administrative or priority claim that was not asserted in a timely filed application (unless subject to an exception) or timely submitted proof of claim is no longer enforceable against the Debtors. As the claims resolution process remains ongoing, the allowed amounts of certain administrative and priority claims have not yet been established. The Company recorded an estimate of the allowed amount of administrative and priority claims incurred as of the Fresh-Start Date, based on the best information then available to the Company. The claims resolution process for such claims could result in additional expense or income in the Successors financial statements if actual results differ from such estimates. Such additional expense or income could be material.
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Leases and Contracts
As of the Emergence Date, the Debtors assumed the majority of leases and other executory contracts, including numerous collective bargaining agreements, as well as certain employee benefit programs. Any past due amounts owed under the assumed leases and contracts were required to be cured, and all undisputed cure payments were made shortly after the Emergence Date. Continuing obligations under the assumed leases and contracts will be satisfied in the ordinary course of business. Any lease or contract that was not assumed or rejected by order of the Bankruptcy Court, or that had not otherwise expired or terminated pursuant to its terms, was deemed assumed as of the Emergence Date pursuant to the Emergence Plan. Pre-petition amounts owing under rejected leases and contracts, as well as prospective rejection damage claims, were treated as unsecured claims under the Emergence Plan.
Reorganization Items
Reorganization items shown below were a direct result of the Chapter 11 Proceedings and consist of the following for the period from January 1, 2010 through May 31, 2010 and for the year ended December 31, 2009:
Predecessor | ||||||||
Period
from January 1, 2010 through May 31, 2010 |
Year ended December 31, 2009 |
|||||||
(in thousands) | ||||||||
Gain on extinguishment of debt |
$ | (139,813 | ) | $ | | |||
Revaluation of assets and liabilities |
(921,801 | ) | | |||||
SERP liability (See Note 9) |
10,510 | | ||||||
Professional fees |
31,666 | 469 | ||||||
Rejected executory contracts |
5,361 | | ||||||
Write-off of deferred financing costs |
| 4,087 | ||||||
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|
|
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Reorganization items, net |
$ | (1,014,077 | ) | $ | 4,556 | |||
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For the period from January 1, 2010 through May 31, 2010, gain on extinguishment of debt resulted from debt extinguishments exceeding the value of distributions to creditors, and the gain from revaluation of assets and liabilities was a result of the application of fresh-start reporting, as further described below. Professional fees included legal, consulting, and other related services directly associated with the reorganization process. Lease rejections represent the net non-cash amounts that resulted from claims associated with the rejections of certain executory contracts and the adjustment of previously recorded liabilities to their estimated allowed claim amounts. For the year ended December 31, 2009, expenses related to the evaluation of financial and strategic alternatives, including financial advisory services and legal expenditures, associated with the Companys prepetition reorganization efforts, including preparing for the bankruptcy filing, amounted to approximately $9.0 million and are included in other, net in the accompanying consolidated statement of operations. During the period from June 1, 2010 through December 31, 2010, the Company incurred approximately $6.0 million of bankruptcy-related expenses, which are included in other, net in the accompanying consolidated statement of operations.
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Liabilities Subject to Compromise
Liabilities subject to compromise reflected the estimated liability to unsecured creditors for pre-petition claims that were expected to be restructured pursuant to the Emergence Plan. Subsequent to the Petition Date, as permitted under the Bankruptcy Code, the Predecessor rejected certain of its pre-petition contracts and calculated its estimated liability to the unsecured creditors. Liabilities subject to compromise at December 31, 2009 consisted of the following:
Predecessor | ||||
December 31, 2009 |
||||
(in thousands) | ||||
Accounts payable |
$ | 4,846 | ||
Accrued liabilities and other liabilities |
13,231 | |||
Working capital adjustment |
10,927 | |||
Accrued interest |
1,657 | |||
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|
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Accounts payable, accrued and other liabilities |
30,661 | |||
Senior debt |
2,144,387 | |||
Convertible subordinated notes |
48,310 | |||
Other long-term liabilities, less current portion |
47,060 | |||
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|
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$ | 2,270,418 | |||
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The Emergence Plan discharged most of the Predecessors pre-petition liabilities. Any reinstated pre-petition liabilities that had previously been subject to compromise were reclassified to the appropriate liability accounts under the terms of the Emergence Plan.
Application of Fresh-Start Reporting
Accounting guidance on reorganizations states that fresh-start reporting was required upon emergence because holders of existing voting shares immediately before confirmation of the Emergence Plan received less than 50 percent of the voting shares of the Successor and the reorganization value of the Successors assets immediately before the recording of the effects of the Emergence Plan on the Fresh-Start Date was less than the total of all post-petition liabilities and allowed claims. Fresh-start reporting generally requires the adjustment of the historical net book value of assets and liabilities to fair value by allocating the entitys enterprise value as set forth in the Emergence Plan to its assets and liabilities pursuant to accounting guidance related to business combinations as of the Fresh-Start Date.
In the disclosure statement related to the Emergence Plan, as confirmed by the Bankruptcy Court on May 19, 2010, the enterprise value of the Company was estimated to be approximately $2.04 billion. The enterprise value was estimated using various valuation methods, including (i) a comparable company analysis, in which implied valuation multiples observed from industry participants were considered and comparisons were made between the expected performance of the Company relative to other industry participants; (ii) a calculation of the present value of the future cash flows based on the Companys projections as included in the disclosure statement related to the Emergence Plan; and (iii) review and analysis of mergers, acquisitions, and restructuring transactions of companies determined to be similar to the Company. The enterprise value using the discounted cash flow method, a form of the income approach, was determined using financial projections for the period 2010 through 2014. The discount rate applied was in the range of 9.5% to 11.5%, and the present value of all cash flows after 2014 were calculated using the terminal multiple methodology and the implied perpetuity growth rate, which were calculated by applying enterprise value to EBITDA (as defined) multiples ranging from 8.0 to 9.0. The reorganization value was determined using numerous projections and assumptions that are inherently subject to significant uncertainties and the resolution of contingencies beyond the control of the Company. Accordingly, there can be no assurance that the estimates, assumptions and amounts reflected in the valuation will be realized.
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In accordance with fresh-start reporting, the reorganization value of the Successor was allocated to assets and liabilities in conformity with relevant accounting guidance, with any portion that could not be attributed to specific tangible or identified intangible assets of the Successor reported as goodwill. Each liability existing at the Fresh-Start Date, other than deferred taxes, was stated at the present values of amounts expected to be paid. Certain of these values differed materially from the values recorded on the Predecessors consolidated balance sheet as of December 31, 2009. The Companys emergence from bankruptcy and reorganization resulted in a new reporting entity that had no retained earnings or accumulated deficit as of the Fresh-Start Date. Therefore, the Predecessors accumulated deficit has been eliminated, and the Companys new debt and equity have been recorded in accordance with the Emergence Plan. In addition, the Companys accounting practices and policies may not be the same as that of the Predecessor. For all of these reasons, the consolidated financial statements for periods subsequent to the Fresh-Start Date are not comparable with the Predecessors prior periods.
As detailed below, the net fresh-start valuation adjustments increased the book values of assets, excluding goodwill, and liabilities by $543.8 million and $63.8 million, respectively. Management considered a number of factors, including valuations or appraisals, in determining the fair values of assets. Liabilities were revalued at present values using appropriate discount rates. Deferred taxes were determined in accordance with accounting principles generally accepted in the United States of America. In addition to revaluing existing assets and liabilities, the Company recorded certain previously unrecognized assets and liabilities, including customer and affiliate relationships, income contracts and unfavorable leases. The reorganization value exceeded the sum of the amounts assigned to assets and liabilities by approximately $763.8 million. The Company recorded the excess to goodwill.
Adjustments to reflect the revaluation of assets and liabilities resulted in a net gain of $921.8 million. The restructuring of the Companys capital structure and resulting discharge of pre-petition debt resulted in a gain of $139.8 million. Both of these amounts were recorded as reorganization items in the Predecessors statement of operations.
Fresh-start reporting resulted in the selection of appropriate accounting policies for the Successor. The significant accounting policies disclosed in the Predecessors Annual Report on Form 10-K for the year ended December 31, 2009, were adopted by the Successor, though many of the account balances were affected by the adjustments detailed below.
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The following table presents the effects of transactions outlined in the Emergence Plan and adoption of fresh-start reporting on the consolidated balance sheet as of the Fresh-Start Date. The table reflects settlement of various liabilities, cancellation of existing stock, issuance of new stock, and other transactions, as well as the fresh-start adjustments, such as revaluation of assets and liabilities to fair values and recording of certain intangible assets.
Predecessor | Plan of Reorganization Adjustments |
Fresh-start Valuation Adjustments |
Successor | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current assets |
||||||||||||||||||||||
Cash and cash equivalents |
$ | 126,746 | $ | (36,000 | ) | a | $ | | $ | 90,746 | ||||||||||||
Accounts receivable, net |
144,734 | 285 | b | 93 | f | 145,112 | ||||||||||||||||
Prepaid expenses and other current assets |
19,341 | 5,313 | c | 3,289 | f | 27,943 | ||||||||||||||||
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Total current assets |
290,821 | (30,402 | ) | 3,382 | 263,801 | |||||||||||||||||
Long-term assets |
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Property and equipment, net |
197,365 | | 5,606 | f | 202,971 | |||||||||||||||||
FCC licenses |
600,604 | | 293,006 | f | 893,610 | |||||||||||||||||
Goodwill |
321,976 | | 441,873 | g | 763,849 | |||||||||||||||||
Customer and affiliate relationships, net |
31,268 | | 207,632 | f | 238,900 | |||||||||||||||||
Other assets, net |
19,917 | | 34,147 | f | 54,064 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 1,461,951 | $ | (30,402 | ) | $ | 985,646 | $ | 2,417,195 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||||
Liabilities not subject to compromise |
||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||
Accounts payable, accrued liabilities and other liabilities |
$ | 54,375 | $ | 14,007 | c,d | $ | 1,068 | f | $ | 69,450 | ||||||||||||
Senior debt, current |
| 7,625 | d | | 7,625 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities not subject to compromise |
54,375 | 21,632 | 1,068 | 77,075 | ||||||||||||||||||
Long-term liabilities |
||||||||||||||||||||||
Senior debt, less current portion |
| 773,938 | d | | 773,938 | |||||||||||||||||
Other long-term liabilities, less current portion |
2,718 | 55,113 | d | 5,120 | f | 62,951 | ||||||||||||||||
Deferred income tax liabilities |
185,913 | 1,224 | d | 57,657 | f | 244,794 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities not subject to compromise |
243,006 | 851,907 | 63,845 | 1,158,758 | ||||||||||||||||||
Liabilities subject to compromise |
2,270,288 | (2,270,288 | ) | d | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
2,513,294 | (1,418,381 | ) | 63,845 | 1,158,758 | |||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||
Stockholders equity (deficit) |
||||||||||||||||||||||
Successor preferred stock |
| | | | ||||||||||||||||||
Successor class A common stock |
| 3 | e | | 3 | |||||||||||||||||
Successor class B common stock |
| 17 | e | | 17 | |||||||||||||||||
Successor equity held in reserve |
| 14,305 | e | | 14,305 | |||||||||||||||||
Additional paid-in capital |
2,448,187 | 903,730 | e | (2,107,805 | ) | h | 1,244,112 | |||||||||||||||
Predecessor preferred stock |
| | | | ||||||||||||||||||
Predecessor common stock |
2,942 | (2,942 | ) | e | | | ||||||||||||||||
Predecessor treasury stock |
(344,376 | ) | 344,376 | e | | | ||||||||||||||||
Retained earnings (accumulated deficit) |
(3,158,096 | ) | 128,490 | e | 3,029,606 | h | | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total stockholders equity (deficit) |
(1,051,343 | ) | 1,387,979 | 921,801 | 1,258,437 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 1,461,951 | $ | (30,402 | ) | $ | 985,646 | $ | 2,417,195 | |||||||||||||
|
|
|
|
|
|
|
|
21
a. | Amount represents the cash payment to be allocated to holders of general unsecured claims. |
b. | Represents primarily the recognition of a note receivable related to amounts due from an employee for the remaining purchase price of shares of Predecessor common stock, which were canceled in connection with the Emergence Plan. |
c. | Amount represents primarily restricted cash held in reserve and not yet disbursed to satisfy remaining allowed, disputed or unreconciled unsecured claims. |
d. | Included in liabilities subject to compromise were amounts settled with the Emergence Term Loan Facility and the issuance of equity in the Successor. These adjustments reflect the discharge of most of the Predecessors pre-petition liabilities in accordance with the Emergence Plan, including the reclassification of remaining liabilities that had been subject to compromise to the appropriate liability accounts, as well as additional liabilities incurred pursuant to the Emergence Plan, including the related income tax consequences. Pursuant to the Emergence Plan, the Company agreed to enter into the SERP effective as of the Emergence Date (see Note 9). |
e. | Reflects the issuance of new Successor common stock to pre-petition creditors, the cancellation of Predecessor common stock and treasury stock, the gain on extinguishment of pre-petition liabilities, the acceleration of stock-based compensation expense resulting from the cancellation of Predecessor stock options and restricted stock awards, and other costs incurred pursuant to the Emergence Plan. Certain amounts of Successor equity are held in reserve and have not yet been issued to satisfy remaining allowed, disputed or unreconciled unsecured claims. |
f. | Reflects the revaluation of the carrying values of assets and liabilities to reflect estimated fair values, as well as the recognition of certain intangible assets and other liabilities, in accordance with fresh-start reporting. |
g. | Reflects the elimination of historical goodwill of the Predecessor and the recording of goodwill for the amount of reorganization value in excess of the amount allocable to specifically identifiable assets and liabilities. |
h. | Reflects the gain on revaluation of assets and liabilities and the elimination of the Predecessors historical accumulated deficit and other equity accounts, resulting in an adjustment to stockholders equity to arrive at the estimated reorganized equity value of the Successor. |
Correction
Certain amounts in the Predecessors consolidated statement of cash flows (previously reported in the Companys quarterly reports on Form 10-Q for the quarters ended June 30, 2010 and September 30, 2010) were corrected in the consolidated statement of cash flows for the five-month period from January 1, 2010 to May 31, 2010, resulting in a decrease in the amount of the line Reorganization items, net of $4 million, an increase to net cash provided by operating activities of $4 million, an increase in the change in restricted cash of $4 million and an increase in net cash used in investing activities of $4 million.
22
4. Property and Equipment
Successor
As a result of the application of fresh-start reporting, property and equipment assets were revalued to $203.0 million, which represented an increase of $5.6 million. Additionally, the adoption of fresh-start reporting resulted in a new accounting basis for these assets, which were recorded at their estimated fair values, and the Predecessors accumulated depreciation was eliminated. Depreciation expense was $8.9 million for the period from June 1, 2010 through December 31, 2010, and property and equipment consisted of the following as of December 31, 2010:
December 31, 2010 | Estimated Useful Life |
|||||||
(in thousands) | ||||||||
Land |
$ | 86,090 | ||||||
Buildings and improvements |
38,655 | 3 to 40 years | ||||||
Transmitters, towers and studio equipment |
70,728 | 5 to 25 years | ||||||
Office furniture, equipment and vehicles |
10,502 | 2 to 12 years | ||||||
Construction in progress |
2,971 | |||||||
|
|
|||||||
208,946 | ||||||||
Less accumulated depreciation and amortization |
(8,825 | ) | ||||||
|
|
|||||||
$ | 200,121 | |||||||
|
|
Predecessor
Depreciation expense was $6.1 million, $15.4 million and $18.0 million for the period from January 1, 2010 through May 31, 2010 and each of the years ended December 31, 2009 and 2008, respectively, and property and equipment consisted of the following as of December 31, 2009:
December 31, 2009 | Estimated Useful Life |
|||||||
(in thousands) | ||||||||
Land |
$ | 119,682 | ||||||
Buildings and improvements |
53,443 | 3 to 25 years | ||||||
Transmitters, towers and studio equipment |
126,045 | 5 to 10 years | ||||||
Office furniture, equipment and vehicles |
30,166 | 2 to 12 years | ||||||
Construction in progress |
4,848 | |||||||
|
|
|||||||
334,184 | ||||||||
Less accumulated depreciation and amortization |
(132,642 | ) | ||||||
|
|
|||||||
$ | 201,542 | |||||||
|
|
5. Intangible Assets
Successor
Indefinite-Lived Intangible Assets and Goodwill
Indefinite-lived intangible assets consist of FCC broadcast licenses and goodwill.
FCC licenses and goodwill represent a substantial portion of the Companys total assets. The fair value of FCC licenses and goodwill is primarily dependent on the future cash flows of the Radio Markets and Radio Network and other assumptions, including, but not limited to, forecasted revenue growth rates, market share, profit margins and a risk-adjusted discount rate.
23
As a result of fresh-start reporting, FCC licenses were revalued to $893.6 million, which represented an increase of $293.0 million. The material assumptions utilized in the valuation included overall future market revenue growth rates for the residual year of approximately 2.0% and weighted average cost of capital of 10.5%. Goodwill represents the excess of total acquisition costs over the fair market value of net assets acquired and liabilities assumed in a business combination. The Company established deferred tax liabilities for book and tax differences between assigned values and tax bases of the acquired assets, which resulted in the recognition of additional goodwill. Upon the application of fresh-start reporting, the Company recorded goodwill of $763.8 million, and the Predecessors goodwill of $322.0 million was eliminated.
The Company performed its 2010 annual evaluation of FCC licenses and goodwill as of October 1, the annual testing date. Based on the results of the Companys 2010 annual impairment evaluation, the fair values of the Companys FCC licenses more likely than not exceeded their carrying values and therefore, no impairment of these assets had occurred as of the date of the annual test. Additionally, the Company concluded that the fair values of its reporting units more likely than not exceeded their related carrying values, and goodwill had not been impaired as of the annual testing date.
If market conditions and operational performance of the Companys reporting units were to deteriorate and management had no expectation that the performance would improve within a reasonable period of time or if an event occurs or circumstances change that would, more likely than not, reduce the fair value of its intangible assets below the amounts reflected in the balance sheet, the Company may be required to recognize impairment charges in future periods.
Definite-Lived Intangible Assets
Definite-lived intangible assets consist primarily of customer and affiliate relationships, but also include certain other intangible assets identified in conjunction with fresh-start reporting or acquired in business combinations. In connection with the adoption of fresh-start reporting, the Companys definite-lived intangible assets were revalued, which resulted in customer and affiliate relationships of $193.4 million and $45.5 million, respectively. This revaluation represented net increases to the customer and affiliate relationships of $176.1 million and $31.6 million, respectively. These assets are being amortized in relation to the economic benefits of such assets over total estimated useful lives of approximately four to six years.
Approximately $43.8 million of amortization expense was recognized on the intangible assets discussed above during the period from June 1, 2010 through December 31, 2010.
Other definite-lived intangible assets, excluding the customer relationships and affiliate relationships, are a component of other assets, net, in the accompanying consolidated balance sheets. As a result of fresh-start reporting, other intangible assets, including income contracts and favorable leases, were increased by $36.0 million to $36.7 million. The balance of other intangible assets as of December 31, 2010 was $30.9 million. These assets are generally being amortized over their estimated useful lives of approximately three to six years, and the amount of amortization expense for definite-lived intangible assets, excluding the customer and affiliate relationships discussed above, during the period from June 1, 2010 through December 31, 2010 was $5.9 million.
These other definite-lived intangible assets consisted of the following as of December 31, 2010:
(in thousands) | ||||
Other intangible assets, gross |
$ | 36,726 | ||
Less accumulated amortization |
(5,876 | ) | ||
|
|
|||
Other intangible assets, net |
$ | 30,850 | ||
|
|
24
The Company estimates the following amount of amortization expense over the next five years related to the total definite-lived intangible asset balance as of December 31, 2010:
(in thousands) | ||||
2011 |
$ | 76,023 | ||
2012 |
62,836 | |||
2013 |
50,286 | |||
2014 |
22,439 | |||
2015 |
10,295 | |||
|
|
|||
$ | 221,879 | |||
|
|
The changes in the carrying amounts of FCC licenses for the year ended December 31, 2009, for the five months ended May 31, 2010 and for the seven months ended December 31, 2010 are as follows:
(in thousands) | ||||
Balance as of January 1, 2009: (Predecessor) |
$ | 1,370,904 | ||
Asset impairment and disposal charges |
(770,301 | ) | ||
|
|
|||
Balance as of January 1, 2010 (Predecessor) |
$ | 600,603 | ||
Elimination of Predecessor FCC licenses as of May 31, 2010 |
(600,603 | ) | ||
FCC licenses from application of fresh-start reporting as of May 31, 2010 |
893,610 | |||
|
|
|||
Balance as of December 31, 2010 (Successor) |
$ | 893,610 | ||
|
|
The changes in the gross amounts of goodwill and the accumulated asset impairment and disposal charges for the year ended December 31, 2009, for the five months ended May 31, 2010 and for the seven months ended December 31, 2010 are as follows:
(in thousands) | ||||
Balance as of January 1, 2009 (Predecessor): |
||||
Goodwill |
$ | 1,975,197 | ||
Accumulated asset impairment and disposal charges |
(1,482,398 | ) | ||
|
|
|||
Goodwill net of impairment as of January 1, 2009 (Predecessor) |
$ | 492,799 | ||
Asset impairment and disposal charges |
(170,823 | ) | ||
Balance as of January 1, 2010 (Predecessor): |
||||
Goodwill |
$ | 1,975,197 | ||
Accumulated asset impairment and disposal charges |
(1,653,221 | ) | ||
|
|
|||
Goodwill net of impairment as of January 1, 2010 (Predecessor) |
$ | 321,976 | ||
Elimination of Predecessor goodwill as of May 31, 2010 |
(1,975,197 | ) | ||
Elimination of Predecessor accumulated goodwill impairment as of May 31, 2010 |
1,653,221 | |||
Goodwill from application of fresh-start reporting as of May 31, 2010 |
763,849 | |||
Balance as of December 31, 2010 (Successor): |
||||
Goodwill |
$ | 763,849 | ||
Accumulated asset impairment and disposal charges |
| |||
|
|
|||
Goodwill net of impairment as of December 31, 2010 (Successor) |
$ | 763,849 | ||
|
|
25
Predecessor
Indefinite-Lived Intangible Assets and Goodwill
During 2009, the Predecessor performed an interim impairment analysis for its Radio Markets and Radio Network as of June 30, 2009 in addition to its annual impairment test as of October 1, 2009. As a result of these evaluations during the year ended December 31, 2009, the Company recognized non-cash impairment charges of $933.1 million, which were comprised of $762.3 million and $170.8 million of FCC licenses and goodwill, respectively, to reduce the carrying values to their estimated fair values at that time. The Predecessor also recognized non-cash impairment and disposal charges of $10.0 million in the second quarter of 2009 in order to write down the FCC licenses of the stations in the Divestiture Trusts to their estimated fair value since these stations are more likely than not to be disposed. The material assumptions utilized in the Predecessors analyses as of June 30, 2009 included overall future market revenue growth rates for the residual year of approximately 1.5%, a weighted average cost of capital of 12.0% and estimated EBITDA multiples of approximately 5.0 times.
Definite-Lived Intangible Assets
In connection with the ABC Merger, the Predecessor allocated $82.5 million to customer relationships and $57.9 million to affiliate relationships that were being amortized in relation to the economic benefits of such assets over total estimated useful lives of approximately five to seven years. In connection with the Predecessors interim impairment test during the second quarter of 2009, the Predecessor assessed the carrying value of certain material definite-lived intangible assets at the Radio Network. This assessment resulted in a non-cash impairment charge of approximately $17.2 million to customer relationships and $25.4 million to affiliate relationships to reduce the carrying value of the definite-lived intangibles to their estimated fair values at that time.
Approximately $5.0 million of amortization expense was recognized on the intangible assets discussed above during the five months ended May 31, 2010 and approximately $19.6 million and $26.7 million was recognized during the years ended December 31, 2009 and 2008, respectively. Other definite-lived intangible assets, excluding the customer relationships and affiliate relationships, are a component of other assets, net, in the accompanying consolidated balance sheets, and the balance as of December 31, 2009 was $1.2 million. The amount of amortization expense for definite-lived intangible assets, excluding the customer and affiliate relationships discussed above, during the five months ended May 31, 2010 was $0.2 million and $0.6 million for each of the years ended December 31, 2009 and 2008.
These other definite-lived intangible assets consisted of the following as of December 31, 2009:
(in thousands) | ||||
Other intangible assets, gross |
$ | 7,362 | ||
Less accumulated amortization |
(6,168 | ) | ||
|
|
|||
Other intangible assets, net |
$ | 1,194 | ||
|
|
6. Acquisitions and Dispositions
Completed Acquisition
During the year ended December 31, 2008, the Company acquired a radio station in Salt Lake City, UT in exchange for the balance of a note receivable of approximately $9.7 million. In order to comply with the FCCs rules and policies regarding ownership limitations, the Company transferred one of its existing stations in the Salt Lake City market into the Divestiture Trusts.
Completed Dispositions
During the year ended December 31, 2008, the Divestiture Trusts completed the sale of two stations for a total purchase price of approximately $1.3 million.
26
7. Accounts Payable, Accrued Liabilities and Other Liabilities
Accounts payable, accrued liabilities and other liabilities as of December 31 consisted of the following:
Successor | Predecessor | |||||||||
December 31, 2010 | December 31, 2009 | |||||||||
(in thousands) | ||||||||||
Accounts payable |
$ | 4,745 | $ | 3,627 | ||||||
Accrued compensation and related costs |
16,426 | 10,634 | ||||||||
Other accrued liabilities |
9,243 | 2,257 | ||||||||
Payments received in advance |
4,837 | 5,237 | ||||||||
Accrual for revenue sharing |
5,379 | 3,159 | ||||||||
Accrual for unsecured claims |
3,771 | | ||||||||
Accrual for network programming |
3,731 | 2,997 | ||||||||
Accrued national representation fees |
2,715 | | ||||||||
Accrued professional fees |
2,007 | 516 | ||||||||
Accrued interest |
1,938 | 6,979 | ||||||||
Accrued property, sales and use taxes |
1,869 | 970 | ||||||||
|
|
|
|
|||||||
$ | 56,661 | $ | 36,376 | |||||||
|
|
|
|
8. Liabilities Subject to Compromise (Predecessor)
Liabilities subject to compromise as of December 31, 2009 consisted of the following:
December 31, 2009 | ||||
(in thousands) | ||||
Accounts payable |
$ | 4,846 | ||
Accrued liabilities and other liabilities |
13,231 | |||
Working capital adjustment |
10,927 | |||
Accrued interest |
1,657 | |||
|
|
|||
Accounts payable, accrued and other liabilities |
30,661 | |||
Senior debt |
2,144,387 | |||
Convertible subordinated notes |
48,310 | |||
Other long-term liabilities, less current portion |
47,060 | |||
|
|
|||
$ | 2,270,418 | |||
|
|
9. Other Long-Term Liabilities
In prior periods, the Predecessor terminated contracts with its previous national representation firms and entered into long-term agreements with a new representation firm. Pursuant to these transactions, the national representation firm settled the Predecessors obligations with its previous representation firms. As such, the Predecessor recognized the estimated payments to the previous national representation firm as a non-cash charge related to contract obligations in the period in which such payments were made, and the total up-front payment amounts related to these contracts represented a deferred obligation. Additionally, the Predecessors new national representation firm guaranteed a minimum amount of national sales for the twelve-month period ended March 31, 2009. The minimum for the guarantee period was not attained, and the present value of the guaranteed amount was recorded as a receivable of approximately $11.5 million, with a corresponding deferred liability. The aggregate deferred obligation was included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2009.
During the application of fresh-start reporting, the remaining deferred obligation was determined to approximate fair value as of the Fresh-Start Date and was reclassified to other long-term liabilities. The remaining deferred amount is being amortized over the remaining term of the underlying agreement as a reduction to national commission expense, which is included in cost of revenue.
27
As a result of applying fresh-start reporting, the Company also recognized certain unfavorable leases and contracts, which resulted from agreements with rates in excess of market value rates as of the Fresh-Start Date. These amounts are being amortized on a straight-line basis over the terms of the underlying contracts as a component of cost of revenues or selling, general and administrative expenses, as appropriate. In addition, the Companys liability under the SERP was initially recorded at its estimated fair value as of the Fresh-Start Date and represents the actuarial present value of benefits attributed to service rendered prior to the measurement date. The expected lump sum payment at retirement is measured using expected future pay increases and is calculated using the mortality table and yield curve assumptions prescribed by the Internal Revenue Service for lump sums payable from qualified retirement plans. The discount rate for pension cost purposes is the rate at which the pension obligations could be effectively settled and is developed from yields on available high-quality bonds. Expense amounts related to the liability are being amortized over the applicable service period as a component of non-cash compensation expense and were $0.7 million during the period from June 1, 2010 through December 31, 2010. The Company evaluates the estimated fair value of the SERP liability as of each reporting date to determine if any significant changes have occurred in the underlying assumptions. Any change in the fair value relating to prior service cost would be recognized in the statement of operations at the time of adjustment.
10. Senior Debt
Senior debt consisted of the following as of December 31, 2010 and 2009:
Successor | Predecessor | |||||||||
Type of Borrowing |
December 31, 2010 | December 31, 2009 | ||||||||
(in thousands) | ||||||||||
Term Loan |
$ | 350,000 | $ | | ||||||
Tranche A term loans |
| 526,176 | ||||||||
Tranche B term loans |
| 1,345,017 | ||||||||
Revolving loans |
| 135,747 | ||||||||
|
|
|
|
|||||||
350,000 | 2,006,940 | |||||||||
Interest rate swap |
| 72,628 | ||||||||
Facility fee |
| 64,819 | ||||||||
|
|
|
|
|||||||
350,000 | 2,144,387 | |||||||||
Less current portion of senior debt |
3,500 | | ||||||||
|
|
|
|
|||||||
Total senior debt less current portion |
$ | 346,500 | $ | 2,144,387 | (a) | |||||
|
|
|
|
(a) | Classified as liability subject to compromise as of December 31, 2009. See Note 8. |
In connection with the ABC Merger in June 2007, the Predecessor entered into the Predecessor Senior Credit and Term Facility. For the period from January 1, 2010 through May 31, 2010, interest expense was incurred on the $2.1 billion outstanding under the Predecessor Senior Credit and Term Facility at a rate of approximately 2.0%.
On the Emergence Date, approximately $2.1 billion of the debt outstanding under the Predecessor Senior Credit and Term Facility was converted into the Emergence Term Loan Facility, which was guaranteed by the Companys operating subsidiaries. The initial principal amount of $762.5 million under the Emergence Term Loan Facility was payable in 20 consecutive quarterly installments of approximately $1.9 million, due on the last day of each fiscal quarter, which commenced on September 30, 2010, with the final maturity of $724.4 million on June 3, 2015. A valuation adjustment of $19.1 million was recorded to reflect the Emergence Term Loan Facility at its estimated fair value upon issuance. This valuation adjustment was being amortized as a reduction of interest expense, net, over the contractual term of the Emergence Term Loan Facility.
During the period from the Fresh-Start Date through December 10, 2010, interest expense was incurred on the Emergence Term Loan Facility at 11.0%. On December 10, 2010 the Company refinanced the Emergence
28
Term Loan Facility with the proceeds from the issuance of $400.0 million in Senior Notes (see Note 11) and borrowings of $350.0 million under the Term Loan, along with cash on hand. Interest was incurred on the Term Loan through December 31, 2010 at an annual rate of 4.25%, compared to the rate applicable to each of the components of the Predecessor Senior Credit and Term Facility as of December 31, 2009 of 1.99%.
During the period from January 1, 2010 through May 31, 2010, the Company incurred $1.1 million in debt issuance costs related to the Emergence Term Loan Facility. Approximately $0.1 million of such costs were amortized, and the remaining balance of $1.0 million was written off in connection with the refinancing of the Emergence Term Loan Facility. Pursuant to the terms of the Emergence Term Loan Facility, a prepayment penalty of $38.0 million was incurred; this was netted against the write off of the unamortized balance of the valuation adjustment of $17.1 million, which resulted in a loss on the extinguishment of debt of $21.0 million. The Company incurred $11.9 million of debt issuance costs in connection with the Credit Facilities, and amortization of these costs was $0.1 million during the period from June 1, 2010 through December 31, 2010.
At the Companys election, interest on outstanding principal for the Emergence Term Loan Facility accrued at a rate based on either: (a) the greatest of (1) the Prime Rate in effect; (2) the Federal Funds Rate plus 0.50%; and (3) the one-month Eurodollar rate plus 1.0%, in all cases subject to a 4.0% floor, plus, in each case, a spread of 7.0% or (b) the Eurodollar rate, subject to a 3.0% floor, plus 8.0%.
The Credit Facilities are unconditionally guaranteed by certain of the Companys subsidiaries and secured by the following: (a) a perfected first priority security interest in, among other things, all of accounts receivable, inventory, cash, personal property, material intellectual property and, in each case, proceeds thereof (subject to certain exceptions) of the Company and its guarantee subsidiaries; and (b) a perfected first priority pledge of the capital stock in the Companys subsidiaries.
The proceeds from the Term Loan and the Revolving Loan bear interest at either (A) ABR (as defined in the Credit Agreement) subject to a 2.0% floor, plus 2.25% or (B) Eurodollar Rate (as defined in the Credit Agreement) subject to a 1.0% floor, plus 3.25%.
The Term Loan is payable in quarterly payments of $875,000 commencing on March 31, 2011, with the remaining amount payable on December 30, 2016. Outstanding amounts under the Revolving Loan are payable on December 10, 2013.
The Credit Agreement requires compliance with a consolidated total leverage ratio of 4.5 to 1.0 as of December 31, 2010 (with stepdowns thereafter), a senior secured leverage ratio of 2.25 to 1.0 as of December 31, 2010 and consolidated interest coverage ratio of 2.5 to 1.0 as of December 31, 2010.
The Credit Agreement also contains customary restrictive non-financial covenants, which, among other things, and with certain exceptions, limit the Companys ability to incur or guarantee additional indebtedness; consummate asset sales, acquisitions or mergers; make investments; enter into transactions with affiliates; and pay dividends or repurchase stock.
The Company was in compliance with the covenants under its Term Loan as of December 31, 2010.
Predecessor
In connection with the ABC Merger, the Predecessor entered into the Predecessor Senior Credit and Term Facility, under which it borrowed $600 million under the Tranche A Term Loans and $1,535 million under the Tranche B Term Loans and used the proceeds to repay the ABC Radio Debt and to fund the Special Distribution, other merger-related costs or working capital purposes.
Pursuant to the terms of the Predecessor Senior Credit and Term Facility and the resulting classification as a current liability beginning with the quarter ended March 31, 2009, the Predecessor had been amortizing the
29
remaining amount of debt issuance costs over the 9.5 month period through January 15, 2010. However, the Predecessor ceased amortization of these assets as of December 19, 2009 since subsequent to the Petition Date, interest expense was only recognized to the extent it would be paid. During the years ended December 31, 2009 and 2008, the amortization of these debt issuance costs was $41.1 million and $5.1 million, respectively. The Predecessor wrote off the remaining $4.0 million balance of deferred financing costs in the fourth quarter of 2009 since the amount of the allowed claim for the Predecessors senior debt was known as of December 31, 2009.
The Predecessor incurred $0.6 million in costs paid to third parties and wrote off $0.2 million in debt issuance costs in connection with the fourth amendment to the Predecessor Senior Credit and Term Facility entered into on March 26, 2009 (the Fourth Amendment) during the year ended December 31, 2009.
As a result of the Companys voluntary petitions for reorganization, all of the Predecessors senior debt obligations were accelerated, and the outstanding balances were aggregated as of December 20, 2009, including the liability of $72.8 million outstanding under the interest rate swap agreement (see Note 13), which was converted to a component of senior debt as of that date. The total modified amount of interest-bearing senior debt as of December 20, 2009 of $2,148.4 million began incurring interest at the non-default rate previously applicable to the Tranche B Term Loans under the Predecessor Senior Credit and Term Facility (see discussion below), which was due in monthly payments. In December 2009, the $4.0 million that had been remitted to a cash collateral account for the benefit of the Predecessors lenders pursuant to a covenant under the Predecessor Senior Credit and Term Facility was applied as a reduction to the outstanding balance of the Predecessors senior debt. This payment reduced the balance to $2,144.4 million, which is included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2009.
The Company stopped recognizing and paying interest on outstanding pre-petition debt obligations except for the Predecessor Senior Credit and Term Facility. However, interest expense related to the Predecessor Senior Credit and Term Facility for the period from January 1, 2010 through May 31, 2010 was approximately $1.9 million higher than it would have been absent the voluntary petitions for reorganization due mainly to the conversion of the outstanding interest rate swap liability and accrued facility fee balance as of the Petition Date, as well as the increased interest rate spread being paid on certain components of senior debt. In addition to these differences, in the first five months of 2009, the Company recognized and paid interest on its interest rate swap agreement and the convertible subordinated notes and no comparable amounts were incurred or paid in 2010. The Companys interest expense for the year ended December 31, 2009 was approximately $1.6 million lower than it would have been absent the voluntary petitions for reorganization.
Prior to the Fourth Amendment, at the Predecessors election, interest on outstanding principal for the revolving loans and Tranche A Term Loans accrued at a rate based on either: (a) the greater of (1) the Prime Rate in effect; or (2) the Federal Funds Rate plus 0.5% plus, in each case, a spread that ranged from 0.00% to 0.50%, depending on the Predecessors leverage ratio; or (b) the Eurodollar rate plus a spread that ranged from 0.75% to 1.50%, depending on the Predecessors leverage ratio. As of the effective date of the Fourth Amendment, at the Predecessors election, interest on outstanding principal for the revolving loans and Tranche A Term Loans accrued at a rate based on either: (a) the greatest of (1) the Prime Rate in effect; (2) the Federal Funds Rate plus 0.50%; and (3) the one-month Eurodollar rate plus 1.0% plus, in each case, a spread of 0.50% or (b) the Eurodollar rate plus 1.50%. These interest payments were due monthly.
Prior to the Fourth Amendment, for the outstanding principal for Tranche B Term Loans, the Predecessor could have elected interest to accrue at a rate based on either: (a) the greater of (1) the Prime Rate in effect; or (2) the Federal Funds Rate plus 0.5% plus, in each case, a spread that ranged from 0.50% to 0.75%, depending on the Predecessors leverage ratio; or (b) the Eurodollar rate plus a spread that ranged from 1.50% to 1.75%, depending on the Predecessors leverage ratio. As of the effective date of the Fourth Amendment, at the Predecessors election, interest on outstanding principal for the Tranche B Term Loans accrued at a rate based on either: (a) the greatest of (1) the Prime Rate in effect; (2) the Federal Funds Rate plus 0.50%; and (3) the one-month Eurodollar rate plus 1.0% plus, in each case, a spread of 0.75% or (b) the Eurodollar rate plus 1.75%. These interest payments were due monthly.
30
As of the effective date of the Fourth Amendment, the revolving loans and Tranche A Term Loans incurred a facility fee in the amount of 4.50% per annum, and the Tranche B Term Loans incurred a rate of 4.25% per annum. On each interest payment date, this additional interest increased the principal amount of the related debt and was to be payable upon the termination of the revolving loans, Tranche A Term Loans, and Tranche B Term Loans, as applicable. The Predecessor had incurred $64.9 million of total facility fee through December 19, 2009, and this liability was converted to a component of senior debt as of that date.
11. Senior Notes
On December 10, 2010, the Company completed the private placement of $400.0 million aggregate principal amount of the Senior Notes to qualified institutional buyers under Rule 144A and to persons outside the United States under Regulation S of the Securities Act of 1933, as amended. The private placement of the Senior Notes resulted in net proceeds to the Company of approximately $392.0 million. The Senior Notes were issued pursuant to an indenture (the Indenture), dated as of December 10, 2010 by and among the Company, Wilmington Trust Company, a Delaware banking corporation, as trustee, and Deutsche Bank Trust Company Americas, a New York banking corporation, as registrar, authentication agent and paying agent.
The Senior Notes will mature on December 15, 2018, and bear interest at a rate of 7.75% per annum, payable semi-annually in cash in arrears on June 15 and December 15 of each year, beginning on June 15, 2011. The Senior Notes are senior unsecured obligations of the Company and are guaranteed by each of the Companys subsidiaries that guarantees the Credit Facilities.
The terms of the Indenture, among other things, limit the ability of the Company and its restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock or repurchase their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of their assets; and (vii) engage in certain transactions with affiliates. These covenants are subject to a number of important limitations and exceptions that are described in the Indenture.
The Senior Notes are redeemable, in whole or in part, at any time after December 15, 2014, at the redemption prices specified in the Indenture, together with accrued and unpaid interest, if any, to the redemption date. At any time prior to December 15, 2013 and upon the terms set forth in the Indenture, the Company may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds from one or more equity offerings at a redemption price equal to 107.75% of the principal amount thereof, together with accrued and unpaid interest, if any, to the redemption date. In addition, at any time prior to December 15, 2014, the Company may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes so redeemed, plus a make-whole premium, plus accrued and unpaid interest, if any, to the redemption date. The Company may also redeem all or part of the Senior Notes at a redemption price equal to 107.75% of the face amount thereof plus accrued and unpaid interest, if any, to the redemption date if specified change of control or business combination events occur on or before 180 days after the issue date of the Senior Notes.
The Company incurred $8.9 million of debt issuance costs in connection with the issuance of the Senior Notes, and amortization of these costs was $0.1 million during the period from June 1, 2010 through December 31, 2010.
12. Subordinated Debt and Convertible Subordinated Notes (Predecessor)
On February 18, 2004, the Predecessor sold $330.0 million principal amount of convertible subordinated notes. These convertible subordinated notes (the Original Notes) were scheduled to mature in February of 2011 and bore interest at a rate of 1.875% per annum, payable February 15 and August 15 each year. The Original Notes were redeemable prior to maturity under certain circumstances.
31
Pursuant to the terms of a settlement agreement regarding previous litigation with certain of the holders of the Original Notes that was dismissed in 2008, the Predecessor issued $274.5 million aggregate principal amount of amended and restated convertible subordinated notes (the Amended Notes) through an exchange offer and cash tender for the Original Notes at a price of $900 per $1,000 principal amount of Original Notes. The Amended Notes had increased interest rates and specifically negotiated redemption terms (Amended Notes). The conversion terms of the Amended Notes did not differ in any material respect from those of the Original Notes. Through September 30, 2009, the Predecessor had repurchased an aggregate amount of $281.7 million in principal amount of convertible subordinated notes, including $0.7 million repurchased during the nine months ended September 30, 2009, which resulted in a gain of approximately $0.4 million, net of transaction fees. The Amended Notes were scheduled to mature on February 15, 2011 and bore interest at a rate of 8.0% per annum during the year ended December 31, 2009.
The Predecessor ceased accruing interest on all unsecured debt subject to compromise, including the convertible subordinated notes, since the amount of the allowed claim for the convertible subordinated notes was known as of December 31, 2009. The balance of convertible subordinated notes was $48.3 million as of December 31, 2009, including $0.5 million of Original Notes, and this amount, along with unpaid interest of $1.3 million related to the convertible subordinated notes, was included in liabilities subject to compromise in the accompanying consolidated balance sheet.
At the time that the Predecessor issued the Amended Notes, the underlying terms contained contingent interest rate adjustments that could have caused interest to vary in future periods depending on the outstanding balance of Amended Notes. The estimated fair value of the contingent interest rate derivative instrument was measured at each subsequent reporting date. As of December 31, 2009, no value was attributed to this derivative. The changes in fair value for the years ended December 31, 2009 and 2008 represented gains of $1.8 million and $3.3 million, respectively, which are included in the accompanying consolidated statement of operations as a component of interest expense, net.
The debt issuance costs and discount amounts corresponding to the convertible subordinated notes had been amortized over the remaining contractual term of the Amended Notes, which was accelerated pursuant to the terms of the convertible subordinated notes and the resulting classification as a current liability beginning with the quarter ended March 31, 2009. However, the Predecessor ceased amortization of these assets as of December 19, 2009 since subsequent to the Petition Date, interest expense was only recognized to the extent it would be paid. For the years ended December 31, 2009 and 2008, the amortization of these debt issuance costs was $0.3 million and $0.6 million, respectively, and of the debt discount was $0.6 million and $0.9 million, respectively. The Predecessor wrote off the remaining balance of deferred financing costs and debt discount in the fourth quarter of 2009 since the amount of the allowed claim for the convertible subordinated notes was known as of December 31, 2009.
In accordance with the Emergence Plan, all of the obligations of the Predecessor with respect to the convertible subordinated notes were terminated and these notes were cancelled on the Emergence Date.
13. Interest Rate Swap (Predecessor)
In June 2007, the Predecessor entered into an amortizing interest rate swap agreement through September 2012 with an initial notional amount of $1,067.5 million on which the Predecessor paid a fixed rate of 5.394% and received a variable rate from the counterparty based on a three-month London Inter-Bank Offered Rate (LIBOR), for which measurement and settlement was performed quarterly.
The interest rate swap fair value was derived from the present value of the difference in cash flows based on the forward-looking LIBOR yield curve rates as compared to the Companys fixed rate applied to the hedged amount through the term of the agreement less adjustments for credit risk. As part of the fair value determination of the interest rate swap, the Predecessor evaluated its default risk and credit spread compared to the swap
32
counterpartys credit spread and adjusted the fair value of the interest rate swap liability to account for the Predecessors nonperformance risk. Changes in the fair value of the interest rate swap liability during the years ended December 31, 2009 and 2008 were net gains of $9.6 million and $82.4 million, respectively, including the impact of the credit default risk, and were recognized as a component of interest expense, net.
The liability under the interest rate swap agreement of $72.8 million was converted to a component of senior debt as of the Petition Date and was included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2009.
14. Stockholders Equity
Successor
Pursuant to the Emergence Plan and upon the Companys emergence from bankruptcy, the Company issued three forms of equity: class A common stock (currently traded over-the-counter under the symbol CDELA); class B common stock (currently traded over-the-counter under the symbol CDELB); and warrants to purchase shares of class B common stock (the Special Warrants) (currently traded over-the-counter under the symbol CDDGW). As of its emergence from bankruptcy, the Company issued approximately 3.0 million shares of class A common stock; approximately 16.7 million shares of class B common stock and approximately 25.4 million Special Warrants.
The Company is authorized to issue up to 100 million shares of class A common stock, of which approximately 4.5 million shares were issued and outstanding as of December 31, 2010. This includes the remaining 1.2 million nonvested shares of class A common stock granted in August 2010 (see Note 15). Each holder of class A common stock has unlimited voting rights and is entitled to one vote for each share and shall vote, together with the holders of class B common stock, as a single class with respect to the limited number of matters which may be submitted to a vote of the holders of common stock and for which the holders of class B common stock are entitled to vote.
The Company is authorized to issue up to 100 million shares of class B common stock, of which approximately 18.1 million shares were issued and outstanding as of December 31, 2010. Holders of class B common stock have certain limitations on their voting rights, but are entitled to vote on most material matters involving the Company, including material asset sales, business combinations or recapitalizations. Each holder of class B common stock is entitled to a separate class vote on any amendment or modification of any specific rights or obligations of the holders of class B common stock that does not similarly affect the rights or obligations of the holders of class A common stock. If certain specific actions are submitted to a vote of the holders of common stock, each share of class B common stock shall be entitled to vote with class A common stock, with each share of common stock having one vote and voting together with the class A common shares as a single class. Each share of class B common stock may be converted into one share of class A common stock by the holder, provided that such holder does not have an attributable interest in another entity that would cause the Company to violate applicable FCC multiple ownership rules and regulations.
As of the Emergence Date, the Company issued Special Warrants to purchase up to an aggregate of approximately 25.4 million shares of class B common stock to certain holders of senior claims and general unsecured claims, of which 23.7 million Special Warrants were outstanding as of December 31, 2010. The Special Warrants have a 20-year term and will expire on June 3, 2030. The conversion of the Special Warrants is subject to the Companys compliance with applicable FCC regulations. Each Special Warrant to purchase class B common stock may be exercised prior to its expiration date at the minimal exercise price, which is the $0.001 per share par value of the class B common stock, provided that ownership of the Company by the holder does not cause the Company to violate applicable FCC rules and regulations surrounding foreign ownership of broadcasting licenses.
The Company is authorized to issue up to 50 million shares of preferred stock. No preferred shares were issued as of December 31, 2010.
33
The holders of shares of class A and B common stock, including holders under the Citadel Broadcasting Corporation 2010 Equity Incentive Plan (the 2010 EI Plan) as more fully described at Note 15, as well as warrant holders, participate in any dividends ratably on a per share basis, provided that no such distribution shall be made to holders of Special Warrants, class A common stock and class B common stock if (i) an FCC ruling, regulation or policy prohibits such distribution to holders of warrants or (ii) the Companys FCC counsel opines that such distribution is reasonably likely to cause (a) the Company to violate any applicable FCC rules or regulations or (b) any such holder of Special Warrants to be deemed to hold an attributable interest in the Company.
Equity Held in Reserve
Holders of unsecured claims, including the secured lenders deficiency claim in the stipulated amount of $267.2 million and the claims of the Predecessors convertible subordinated noteholders, received a pro rata share of (i) 10% of Successor equity (subject to dilution for distributions of equity under the Successors equity incentive program) and (ii) $36.0 million in cash. Once the allowed amount of an unsecured claim is determined through settlement or by Bankruptcy Court order, the claimant is entitled to a distribution as provided for by the Emergence Plan. As of December 31, 2010, 4.1 million units of equity and $32.2 million in cash had been distributed to holders of allowed unsecured claims that totaled $320.9 million, and approximately 478,000 shares of Successor equity and $3.8 million of cash were held in reserve to satisfy remaining allowed, disputed or unreconciled unsecured claims. Shares held in reserve are not designated as class A common stock or class B common stock until issuance. The Successor equity held in reserve to be disbursed on account of unsecured claims is separately identified in the accompanying consolidated balance sheet as of December 31, 2010. If sufficient excess shares of equity and cash remain in reserve after resolution of all disputed unsecured claims, such shares and cash will be distributed to the claimants with allowed unsecured claims pro-rata, based on the number of shares and cash they received pursuant to the Emergence Plan.
Predecessor
Citadel Broadcasting Corporation was incorporated in Delaware in 1993 and was initially capitalized by partnerships affiliated with FL&Co. in connection with a leveraged buyout transaction. The Predecessors initial public offering registration statement with the Securities and Exchange Commission was declared effective on July 31, 2003. The Predecessor issued 151.7 million shares of its common stock to TWDCs stockholders in connection with the ABC Merger. In connection with the Companys reorganization and emergence from bankruptcy, all shares of common stock of the Predecessor outstanding prior to the Emergence Date were cancelled pursuant to the Emergence Plan.
15. Stock-Based Compensation
The cost of the Companys share-based payments to employees is recognized in the financial statements based on their fair values measured at the grant date, or the value determined based on subsequent modification, over the requisite service period. At the date of grant, the Company estimates the number of equity awards granted that are expected to be forfeited and subsequently adjusts the estimated forfeitures to reflect actual forfeitures when recording compensation cost for equity awards.
Successor
The Company adopted the 2010 EI Plan via approval of the Bankruptcy Court, effective as of June 3, 2010, which was amended on June 9, 2010. The 2010 EI Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock and other stock awards (collectively, the Awards).
The aggregate number of shares of common stock available for delivery pursuant to Awards granted under the 2010 EI Plan is 10,000,000 shares, which may be either shares of the Companys common stock or Special
34
Warrants. To the extent shares subject to an Award are not issued or delivered by reason of (i) the expiration, cancellation, forfeiture or other termination of an Award, (ii) the withholding of such shares in satisfaction of applicable taxes or (iii) the settlement of all or a portion of an Award in cash, then such shares will again be available for issuance under the 2010 EI Plan. The aggregate number of shares available for issuance under the 2010 EI Plan is subject to adjustment in connection with certain types of corporate events, including, but not limited to, a recapitalization, extraordinary dividend, stock split, spin-off or merger. As of December 31, 2010, the total number of shares that remain authorized, reserved, and available for issuance under the 2010 EI Plan was approximately 5,500,000.
In August 2010, the Successors board of directors approved a grant to employees of the Successor under the 2010 EI Plan, of approximately 3.7 million non-vested shares of class A common stock, which are scheduled to vest in two equal annual installments. The fair value of the grant will be recognized as stock-based compensation of the Successor over the vesting period based upon the trading price of the shares on the grant date. In early November 2010, certain members of senior management and the board of directors elected to voluntarily forfeit approximately 2.5 million shares of nonvested stock previously granted by the Company. These forfeited nonvested shares were replaced with options to purchase approximately 3.3 million shares of class A common stock, the terms of which are governed by the 2010 EI Plan. The forfeiture of nonvested shares and subsequent issuance of stock options to these individuals was accounted for as a modification of the original award. No incremental stock-based compensation expense was recognized related to the modification since the fair value of the replacement stock options did not exceed the fair value of the nonvested shares of common stock originally granted.
Total stock-based compensation expense for the period from June 1, 2010 through December 31, 2010 was $18.0 million, on a pre-tax basis. The associated tax benefit for the period from June 1, 2010 through December 31, 2010 was $7.2 million.
As of December 31, 2010, unrecognized pre-tax stock-based compensation expense was approximately $59.5 million and is expected to be recognized over a weighted average period of approximately 1.4 years.
The following table summarizes the Successors stock option activity for the period from June 1, 2010 through December 31, 2010:
Options (in thousands) |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
Options of Common Stock |
||||||||||||||||
Outstanding as of June 1, 2010 |
| $ | | |||||||||||||
Granted |
3,267 | 29.00 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Cancelled |
| | ||||||||||||||
|
|
|||||||||||||||
Outstanding as of December 31, 2010 |
3,267 | $ | 29.00 | 9.4 | $ | 5,512 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested or expected to vest as of December 31, 2010 (1) |
3,191 | $ | 29.00 | 9.4 | $ | 5,384 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable as of December 31, 2010 |
| $ | | | $ | | ||||||||||
|
|
|
|
|
|
|
|
(1) | Options expected to vest represents the options outstanding reduced for estimated forfeitures. |
For accounting purposes, the weighted average grant-date fair value of options granted during the period from June 1, 2010 through December 31, 2010 was $23.00 per share due to the modification of the original award, and no options were exercised during the same period.
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The Successors activity related to shares of nonvested stock for the period from June 1, 2010 through December 31, 2010 is summarized as follows:
Number of Nonvested Share Awards (in thousands) |
Weighted- Average Grant Date Fair Value |
|||||||
Shares of Nonvested Class A Common Stock Awards |
||||||||
Nonvested awards as of June 1, 2010 |
| $ | | |||||
Granted |
3,735 | 23.00 | ||||||
Awards vested |
| | ||||||
Forfeited |
(2,528 | ) | 23.00 | |||||
|
|
|||||||
Nonvested awards as of December 31, 2010 |
1,207 | $ | 23.00 | |||||
|
|
|
|
There were no nonvested shares of common stock that vested during the period from June 1, 2010 through December 31, 2010.
Predecessor
Nonvested shares of the Predecessors common stock and stock options to purchase shares of the Predecessors common stock were generally granted under the Citadel Broadcasting Corporation Amended and Restated 2002 Stock Option and Award Plan (the 2002 Stock Option and Award Plan). However, pursuant to the Emergence Plan, the 2002 Stock Option and Award Plan was terminated as of the Emergence Date and all share-based payments previously granted thereunder were canceled as of the Emergence Date. As of May 31, 2010, approximately 7.5 million stock options and 1.4 million nonvested shares were outstanding.
The Predecessor issued no share-based payments during the five months ended May 31, 2010. There were no options exercised during the period from January 1, 2010 through May 31, 2010 or for the years ended December 31, 2009 and 2008. The total fair value of awards of nonvested shares of common stock that vested during the period from January 1, 2010 through May 31, 2010 and for the years ended December 31, 2009 and 2008 was $2.9 million, $8.2 million and $20.4 million, respectively.
Total stock-based compensation expense for the period from January 1, 2010 through May 31, 2010 and for the years ended December 31, 2009 and 2008 was $1.9 million, $10.5 million and $14.0 million, respectively, on a pre-tax basis. No tax benefit was recognized with respect to the expense for the period from January 1, 2010 through May 31, 2010 and for the year ended December 31, 2009 since there was a valuation allowance against the Companys deferred tax asset as of December 31, 2009. The associated tax expense for the year ended December 31, 2008 was $5.2 million. The expense for the year ended December 31, 2008 includes an $8.5 million non-cash write down of the Companys deferred tax asset for the excess of stock-based compensation expense recorded over the amount of such compensation costs deductible for income tax purposes upon vesting of these stock-based awards.
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16. Income Taxes
Income tax expense (benefit)
The components of the income tax expense (benefit) for the Successor period from June 1, 2010 through December 31, 2010 and the Predecessor period from January 1, 2010 through May 31, 2010 and years ended December 31, 2009 and 2008 are as follows:
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Years Ended December 31, |
||||||||||||||||
2009 | 2008 | |||||||||||||||||
(in thousands) | ||||||||||||||||||
Current tax expense (benefit): |
||||||||||||||||||
Federal |
$ | 73 | $ | 5 | $ | (9,372 | ) | $ | 9,066 | |||||||||
State |
1,423 | 583 | 792 | 4,423 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
1,496 | 588 | (8,580 | ) | 13,489 | ||||||||||||||
Deferred tax benefit: |
||||||||||||||||||
Federal |
1,508 | 4,577 | (220,226 | ) | (162,900 | ) | ||||||||||||
State |
4,549 | 572 | (25,291 | ) | (13,268 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
6,057 | 5,149 | (245,517 | ) | (176,168 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total income tax expense (benefit) |
$ | 7,553 | $ | 5,737 | $ | (254,097 | ) | $ | (162,679 | ) | ||||||||
|
|
|
|
|
|
|
|
Reconciliations of the income tax expense (benefit) to the tax expense (benefit) calculated by applying the federal statutory rate of 35% to the income (loss) before income taxes for the Successor period from June 1, 2010 through December 31, 2010 and the Predecessor period from January 1, 2010 through May 31, 2010 and years ended December 31, 2009 and 2008 are as follows:
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Years Ended December 31, |
||||||||||||||||
2009 | 2008 | |||||||||||||||||
(in thousands) | ||||||||||||||||||
Federal statutory rate applied to the income |
||||||||||||||||||
(loss) from continuing operations before income taxes |
$ | 2,020 | $ | 376,405 | $ | (363,110 | ) | $ | (396,374 | ) | ||||||||
State tax expense (benefit), net of federal tax |
4,850 | 1,814 | (34,564 | ) | (30,723 | ) | ||||||||||||
Non-deductible compensation |
704 | 857 | 2,212 | 1,783 | ||||||||||||||
Restructuring costs |
(1,934 | ) | 11,151 | 3,335 | | |||||||||||||
Other permanent differences |
666 | 440 | 773 | 2,338 | ||||||||||||||
Change in federal and state valuation allowance |
(470 | ) | (68,709 | ) | 83,156 | 131,888 | ||||||||||||
Non-taxable restructuring gain |
| (322,630 | ) | | | |||||||||||||
Non-deductible goodwill |
| | 51,895 | 119,249 | ||||||||||||||
State rate change |
906 | | 224 | (1,369 | ) | |||||||||||||
Excess book stock compensation |
113 | 6,252 | 2,609 | 8,483 | ||||||||||||||
Other permanent differences |
698 | 157 | (627 | ) | 2,046 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,553 | $ | 5,737 | $ | (254,097 | ) | $ | (162,679 | ) | |||||||||
|
|
|
|
|
|
|
|
Successor
For the period from June 1, 2010 through December 31, 2010, the Company recognized an income tax expense of $7.6 million based on income before taxes of $5.8 million resulting in an effective tax rate of 130.9%.
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This effective rate differed from the federal rate of 35% primarily due to state tax expense net of federal benefit, non-deductible restructuring costs, certain non-deductible compensation costs, and other non-deductible expenses.
Predecessor
For the period from January 1, 2010 through May 31, 2010, the Company recognized an income tax expense of $5.7 million based on income before taxes of $1,075.4 million resulting in an effective tax rate of 0.5%. Excluding the valuation benefit of approximately $68.7 million and restructuring gain of approximately $921.8 million, for which no income tax expense was recognized, income before taxes would have been $153.6 million and tax expense would have been $74.4 million, resulting in an effective rate of 48.5%. This rate differs from the federal tax rate of 35% primarily due to a $6.3 million non-cash write-down of the Companys deferred tax asset related to stockbased compensation expense as discussed below, state tax expense net of federal benefit and non-deductible restructuring costs. In the first quarter of 2010, time-vesting nonvested shares vested and the Company recognized a $1.5 million non-cash write down of its deferred tax asset for the excess of stock-based compensation expense recorded over the amount of such compensation costs deductible for income tax purposes upon vesting of the stock-based awards. An additional $4.8 million non-cash write down of the Companys deferred tax asset was recognized in the second quarter primarily due to the Companys emergence from Chapter 11 Proceedings.
For the year ended December 31, 2009, the Company recognized an income tax benefit of $254.1 million based on a loss before income taxes of $1,037.5 million. Excluding the valuation allowance charge of approximately $83.2 million and asset impairment charge of approximately $985.7 million and the tax benefit associated with this charge of approximately $327.2 million, which was adversely impacted by the impairment of non-deductible goodwill, loss before income taxes would have been $51.8 million and tax benefit would have been $10.1 million, resulting in an effective tax rate of 19.5%. This effective rate differs from the federal tax rate of 35% as the result of a $2.6 million non-cash write-down of the Companys deferred tax asset related to stock-based compensation expense as discussed below, state tax benefit net of federal expense, non-deductible restructuring costs, certain non-deductible compensation costs, and other non-deductible expenses. In the first quarter of 2009, the compensation committee of the Companys board of directors determined that specified performance goals were achieved for certain of the outstanding stock-based awards. In addition, time-vesting nonvested shares vested during the year ended December 31, 2009, and the Company recognized a $2.6 million non-cash write down of its deferred tax asset for the excess of stock-based compensation expense recorded over the amount of such compensation costs deductible for income tax purposes upon vesting of the stock-based awards.
For the year ended December 31, 2008 the Company recognized an income tax benefit of $162.7 million based on a loss before income taxes of $1,132.5 million. Excluding the valuation allowance charge of $131.9 million and asset impairment charge of $1,208.2 million and the tax benefit associated with this charge of approximately $338.9 million, which was adversely impacted by the impairment of non-deductible goodwill, income before taxes would have been $75.7 million and tax expense would have been $44.3 million, resulting in an effective tax rate of 58.5%. This effective rate differs from the federal tax rate of 35% as the result of an $8.5 million non-cash write-down of the Companys deferred tax asset related to stock-based compensation expense as discussed below, state tax benefit, net of federal expense, certain non-deductible compensation costs, and other non-deductible expenses. In the first quarter of 2008, the compensation committee of the Companys board of directors determined that specified performance goals were achieved for certain of the outstanding stock-based awards. In addition, time-vesting nonvested shares vested during the year ended December 31, 2008, and the Company recognized an $8.5 million non-cash write down of its deferred tax asset for the excess of stock-based compensation expense recorded over the amount of such compensation costs deductible for income tax purposes upon vesting of the stock-based awards.
38
Deferred tax assets (liabilities)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets, liabilities and the valuation allowance at December 31 are as follows:
Successor | Predecessor | |||||||||
December 31, 2010 | December 31, 2009 | |||||||||
(in thousands) | ||||||||||
Deferred tax assets: |
||||||||||
Receivables, principally due to allowance for doubtful accounts |
$ | 2,839 | $ | 3,234 | ||||||
Net operating loss carryforwards |
79,217 | 28,933 | ||||||||
Accrued liabilities and other obligations not currently deductible |
18,794 | 17,041 | ||||||||
Compensation/benefits related |
11,969 | 6,252 | ||||||||
Hedging transaction |
| 27,047 | ||||||||
Property and equipment |
| 792 | ||||||||
Intangible assets |
| 131,450 | ||||||||
Other |
10,326 | 13,193 | ||||||||
|
|
|
|
|||||||
Total deferred tax assets |
123,145 | 227,942 | ||||||||
Valuation allowance |
(5,729 | ) | (214,610 | ) | ||||||
|
|
|
|
|||||||
Net deferred tax assets |
117,416 | 13,332 | ||||||||
Deferred tax liabilities: |
||||||||||
Property and equipment |
(48,082 | ) | (42,957 | ) | ||||||
Intangible assets |
(252,162 | ) | (150,170 | ) | ||||||
Cancellation of debt income |
(62,305 | ) | | |||||||
Other |
(298 | ) | (62 | ) | ||||||
|
|
|
|
|||||||
Total deferred tax liabilities |
(362,847 | ) | (193,189 | ) | ||||||
|
|
|
|
|||||||
Net deferred tax liabilities |
$ | (245,431 | ) | $ | (179,857 | ) | ||||
|
|
|
|
At December 31, 2010, the Company has approximately $225.7 million of net operating loss carryforwards for federal income tax purposes, $202.0 million net of unrecognized tax benefits. The federal net operating loss carryforwards expire as follows:
Year of Expiration |
Net Operating Loss Carryforward |
|||
(in millions) | ||||
December 31, 2025 |
$ | 5.5 | ||
December 31, 2029 |
86.4 | |||
December 31, 2030 |
133.8 | |||
|
|
|||
Total federal loss carryforwards |
$ | 225.7 | ||
|
|
The Companys Chapter 11 Proceedings resulted in a change of control for purposes of Section 382 of the U.S. Internal Revenue Code of 1986, limiting our ability to utilize approximately $150 million of our net operating losses to offset future federal income tax liabilities. We estimate that the amount of limited net operating losses that we may use in each year through 2030 to offset federal income tax liabilities is approximately $50 million. We expect to increase this amount for certain recognized built-in gains. However, the amount of the increase is uncertain and varies by year.
At December 31, 2010, the Company had approximately $160.3 million in net operating loss carryforwards for state income tax purposes, $137.7 million net of unrecognized tax benefits. These net operating loss carryforwards expire in 2013 through 2030. The determination of the state net operating loss carryforwards is dependent upon the federal net operating loss, apportionment percentages and other respective state laws, which
39
can change year to year and impact the amount of the state net operating loss carryforwards. Utilization of such federal and state net operating losses is subject to certain limitations under federal and state income tax laws.
Management assesses all available positive and negative evidence to evaluate the realizability of the Companys deferred tax assets. During 2010 management concluded that the expected timing of future reversals of deferred tax liabilities and assets arising from the emergence from bankruptcy provided positive objective evidence on the realizability of the deferred tax assets. Based on this evaluation, as of May 31, 2010, $143.9 million of valuation allowance was reversed in order to recognize the portion of the deferred tax assets that is more likely than not to be realized. This reversal was recognized as a reduction to goodwill as part of the Companys application of fresh-start reporting. The Company is required to evaluate the recoverability of its deferred tax assets at each reporting period. Changing facts and circumstances in future reporting periods may result in additional valuation allowances being recorded in those periods.
As of December 31, 2010, the Company has an alternative minimum tax (AMT) credit carryforward of approximately $2.1 million. AMT credits are available to be carried forward indefinitely and may be utilized against regular federal tax to the extent they do not exceed computed AMT calculations.
Generally for tax purposes, the Company is entitled to a tax deduction, subject to certain limitations, based on the fair value of the underlying equity awards when the restrictions lapse or stock options are exercised. As outlined in Note 15, in December 2010 the Company issued stock options to members of the board and certain management as replacement for awards of restricted stock which had subsequently been rescinded. The Company has accounted for the issuance of these options as a modification of the original restricted stock awards and, accordingly, compensation cost will be based on the value of the restricted stock awards while the ultimate tax deduction will be based on the value of the stock options when exercised. Through December 31, 2010, the Successor Company has recognized pre-tax compensation cost of $18.0 million and a related $7.2 million deferred tax asset for such awards on a cumulative basis. As of December 31, 2010, the Company does not have an available additional paid-in capital pool (as defined pursuant to ASC 718-740-35). Accordingly, absent significant increases of the underlying fair value of the stock options, the Company may be required to immediately recognize a non-cash write down of the deferred tax asset when the restrictions lapse or the stock options are exercised or expire. This adjustment to align compensation cost previously recognized in the financial statements to the amount that is ultimately realized for tax may be material to the future consolidated results of operations when the adjustment occurs.
Uncertain tax positions
A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the Successor period from June 1, 2010 through December 31, 2010 and the Predecessor period from January 1, 2010 through May 31, 2010 and the years ended December 31, 2009 and 2008:
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Years Ended December 31, |
||||||||||||||||
2009 | 2008 | |||||||||||||||||
(in thousands) | ||||||||||||||||||
Deferred tax assets: |
||||||||||||||||||
Unrecognized tax benefitopening balance |
$ | 12,410 | $ | 12,217 | $ | 10,961 | $ | 10,258 | ||||||||||
Gross increasestax positions in prior periods |
186 | 66 | 1,111 | 574 | ||||||||||||||
Gross decreasestax positions in prior periods |
| | | (25 | ) | |||||||||||||
Gross increasestax positions in current period |
| 127 | | | ||||||||||||||
Gross increasestax positions in current period |
(4 | ) | | 145 | 154 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Unrecognized tax benefitending balance |
$ | 12,592 | $ | 12,410 | $ | 12,217 | $ | 10,961 | ||||||||||
|
|
|
|
|
|
|
|
40
The entire balance of unrecognized tax benefits at December 31, 2010, 2009 and 2008, if recognized, would affect the effective tax rate. No additional significant increases or decreases in unrecognized tax benefit are expected within the next 12 months.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued $0.3 million and $0.2 million of interest during 2010 and 2009, respectively. In total, the Company has recognized a liability for interest related to uncertain tax benefits of $0.6 million, $0.3 million, and $0.1 million as of December 31, 2010, 2009, and 2008, respectively.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company has a number of federal and state income tax years still open for examination as a result of the net operating loss carryforwards. Accordingly, the Company is subject to examination for both U.S. federal and certain state tax return purposes for the years 1993 to present.
17. Earnings per Share
Successor
Basic earnings per share for the period from June 1, 2010 through December 31, 2010 includes the outstanding amount of both class A and class B common stock, as well as Special Warrants, whether outstanding or held in reserve to be issued. All of the components of the Successors equity described above are treated equally for accounting purposes, and the distinctions relate solely to certain voting restrictions and conversion mechanisms in order to allow the Company to comply with applicable FCC rules and regulations. Potentially dilutive equivalent shares outstanding for the seven months ended December 31, 2010 include approximately 0.6 million additional shares of the Successors class A common stock related to outstanding nonvested shares, which were excluded from the computation of diluted weighted average shares outstanding as their effect was antidilutive due to the net loss reported. There were no potentially dilutive equivalent shares related to stock options for the seven months ended December 31, 2010.
Predecessor
The diluted shares outstanding for the five months ended May 31, 2010 include approximately 1.9 million shares of common stock of the Predecessor related to the conversion of the Predecessors convertible subordinated notes. While operating under Chapter 11 of the Bankruptcy Code, the Predecessor was prohibited from paying unsecured pre-petition debts, including the convertible subordinated notes and interest thereon. Therefore, for the five months ended May 31, 2010, there was no related interest expense to consider in the calculation of the Predecessors diluted shares. Potentially dilutive equivalent shares related to the conversion of the Predecessors convertible subordinated notes into 1.9 million and 8.0 million shares of common stock of the Predecessor for the years ended December 31, 2009 and 2008, respectively, along with the related interest expense impact, net of tax, were excluded from the computation of diluted weighted average shares outstanding as their effect is antidilutive. There were no potentially dilutive equivalent shares related to stock options or nonvested shares of common stock for the five months ended May 31, 2010 or the years ended December 31, 2009 and 2008.
18. Supplemental Financial Information
Successor
A summary of additions and deductions related to the Successors allowance for doubtful accounts for the seven months ended December 31, 2010 is as follows:
Successor | ||||||||||||||||
Balance at Beginning of Period |
Additions | Deductions | Balance at End of Period |
|||||||||||||
(in thousands) | ||||||||||||||||
Seven months ended December 31, 2010 |
$ | | $ | 4,361 | $ | | $ | 4,361 |
41
Predecessor
A summary of additions and deductions related to the Predecessors allowance for doubtful accounts for the years ended December 31, 2008 and 2009 and for the five months ended May 31, 2010 is as follows:
Predecessor | ||||||||||||||||
Balance at Beginning of Period |
Additions | Deductions | Balance at End of Period |
|||||||||||||
(in thousands) | ||||||||||||||||
Year ended December 31, 2008 |
$ | 8,064 | $ | 6,574 | $ | (6,025 | ) | $ | 8,613 | |||||||
Year ended December 31, 2009 |
8,613 | 6,231 | (6,242 | ) | 8,602 | |||||||||||
Five months ended May 31, 2010 |
8,602 | 570 | (9,172 | ) | |
19. Fair Value of Financial Instruments
The Companys financial instruments are measured at fair value on a recurring basis. The related guidance requires, among other things, enhanced disclosures about investments that are measured and reported at fair value and establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. The three levels of the fair value hierarchy are described below:
Level 1Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As of December 31, 2010 and 2009, all of the Companys financial instruments were classified as level 3 except for its cash equivalents, which are classified as level 1.
The following tables present the changes in Level 3 instruments measured on a recurring basis for the year ended December 31, 2009 for the Predecessor period from January 1, 2010 through May 31, 2010 and the Successor period from June 1, 2010 through December 31, 2010:
January 1, 2009 |
Net realized/unrealized gains included in earnings (a) |
Transfers in and/or out of Level 3 (b) |
December 31, 2009 |
|||||||||||||
(in thousands) | ||||||||||||||||
Financial Liabilities: |
||||||||||||||||
Contingent interest derivative |
$ | 1,770 | $ | (1,770 | ) | $ | | $ | | |||||||
Interest rate swap |
82,355 | (9,578 | ) | (72,777 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 84,125 | $ | (11,348 | ) | $ | (72,777 | ) | $ | | ||||||
|
|
|
|
|
|
|
|
Predecessor | Successor | |||||||||||||||||
January 1, 2010 |
Additions (c) |
Expense items recognized |
December 31, 2010 | |||||||||||||||
(in thousands) | ||||||||||||||||||
Financial Liabilities: |
||||||||||||||||||
SERP liability |
$ | | $ | 10,510 | $ | 967 | $ | 11,477 |
(a) | Earnings impact is included in the interest expense, net caption of the accompanying consolidated statements of operations. |
42
(b) | As of the Petition Date, the liability of $72.8 million outstanding under the interest rate swap agreement was converted to a component of senior debt. |
(c) | The initial establishment of the Companys liability under the SERP was valued at $10.5 million and is included in reorganization items, net in the accompanying consolidated statement of operations of the Predecessor. |
The following summary presents a description of the methodologies and assumptions used to determine the estimated fair values for the Companys significant financial instruments.
Cash Equivalents: As of December 31, 2010, cash equivalents represent amounts held in a mutual fund that invests in short-term United States Treasury funds or other short-term instruments backed by the United States government. Due to the short-term nature of these investments, the carrying value is assumed to approximate fair value.
Accounts Receivable, Accounts Payable and Accrued Liabilities: The carrying amount is assumed to be the fair value because of the liquidity or short-term maturity of these instruments.
Senior Debt: Based on available evidence, including certain trading prices, the estimated fair value of the Term Loan as of December 31, 2010 approximates its carrying value of $350.0 million. Based on evidence available as of that date, including average trading prices, the estimated fair value of the Predecessor Senior Credit and Term Facility at December 31, 2009 was $1,586.8 million compared to the Predecessors carrying value of $2,144.4 million at December 31, 2009.
Senior Notes: Based on available evidence, including certain trading prices, the estimated fair value of the Senior Notes at December 31, 2010 approximates its carrying value of $400.0 million.
Subordinated Debt and Convertible Subordinated Notes: Based on available evidence, including average trading prices, the estimated fair value of the Predecessors convertible subordinated notes at December 31, 2009 was $2.4 million compared to the Predecessors carrying value of $48.3 million at December 31, 2009.
Other Long-Term Liabilities, including the SERP: The Companys liability under the SERP was initially recorded at its estimated fair value as of the Fresh-Start Date. The Company evaluates the estimated fair value of the SERP liability as of each reporting date to determine if any significant changes have occurred in the underlying assumptions. Any change in the fair value is recognized in the statement of operations at the time of adjustment. The terms of the Companys other long-term liabilities approximate the terms in the marketplace. Therefore, the fair value approximates the carrying value of these financial instruments.
43
20. Reportable Segments
The Company operates two reportable segments, Radio Markets and Radio Network, as there is discrete financial information available for each segment and the segment operating results are reviewed by the chief operating decision maker. The Radio Markets revenue is primarily derived from the sale of broadcasting time to local, regional and national advertisers. Revenue for the Radio Network is generated primarily through national advertising. The Company presents segment operating income (SOI) as the primary measure of profit and loss for its operating segments. SOI is defined as operating income by segment adjusted to exclude depreciation and amortization, local marketing agreement fees, asset impairment and disposal charges, non-cash amounts related to contractual obligations, non-cash compensation, corporate general and administrative expenses, and other, net. The Company believes the presentation of SOI is relevant and useful for investors because it allows investors to view segment performance in a manner similar to a primary method used by the Companys management and enhances their ability to understand the Companys operating performance.
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period
from January 1, 2010 through May 31, 2010 |
Years Ended December 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||||
(in thousands) | ||||||||||||||||||
Net revenue: |
||||||||||||||||||
Radio Markets |
$ | 382,011 | $ | 247,112 | $ | 604,120 | $ | 688,815 | ||||||||||
Radio Network |
64,924 | 50,324 | 123,839 | 181,798 | ||||||||||||||
Intersegment revenue: |
||||||||||||||||||
Radio Markets |
$ | (2,793 | ) | $ | (2,012 | ) | $ | (4,339 | ) | $ | (7,492 | ) | ||||||
Radio Network |
| | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net revenue |
$ | 444,142 | $ | 295,424 | $ | 723,620 | $ | 863,121 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
SOI: |
||||||||||||||||||
Radio Markets |
$ | 160,591 | $ | 94,023 | $ | 214,942 | $ | 261,405 | ||||||||||
Radio Network |
9,518 | 8,027 | 3,559 | 28,539 | ||||||||||||||
Corporate general and administrative |
(26,394 | ) | (8,929 | ) | (26,320 | ) | (32,049 | ) | ||||||||||
Local marketing agreement fees |
(379 | ) | (455 | ) | (1,027 | ) | (1,334 | ) | ||||||||||
Asset impairment and disposal charges |
| | (985,653 | ) | (1,208,208 | ) | ||||||||||||
Non-cash amounts related to contractual obligations |
| | | (21,440 | ) | |||||||||||||
Non-cash compensation expense |
(4,198 | ) | (1,311 | ) | (5,400 | ) | (7,354 | ) | ||||||||||
Depreciation and amortization |
(58,564 | ) | (11,365 | ) | (35,599 | ) | (45,264 | ) | ||||||||||
Other, net |
(7,486 | ) | (854 | ) | (6,841 | ) | 1,688 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
73,088 | 79,136 | (842,339 | ) | (1,024,017 | ) | ||||||||||||
Reorganization items, net |
| (1,014,077 | ) | 4,556 | | |||||||||||||
Interest expense, net |
45,365 | 17,771 | 190,175 | 211,818 | ||||||||||||||
Extinguishment of debt |
20,969 | | (428 | ) | (114,736 | ) | ||||||||||||
Write-off of deferred financing costs and debt discount upon extinguishment of debt |
984 | | 814 | 11,399 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
5,770 | 1,075,442 | (1,037,456 | ) | (1,132,498 | ) | ||||||||||||
Income tax expense (benefit) |
7,553 | 5,737 | (254,097 | ) | (162,679 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income |
$ | (1,783 | ) | $ | 1,069,705 | $ | (783,359 | ) | $ | (969,819 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||||
Asset impairment and disposal charges |
||||||||||||||||||
Radio Markets |
$ | | $ | | $ | 912,577 | $ | 1,188,338 | ||||||||||
Radio Network |
| | 73,076 | 19,870 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total asset impairment and disposal charges |
$ | | $ | | $ | 985,653 | $ | 1,208,208 | ||||||||||
|
|
|
|
|
|
|
|
44
Successor | Predecessor | |||||||||||||||||
Period from June 1, 2010 through December 31, 2010 |
Period
from January 1, 2010 through May 31, 2010 |
Years Ended December 31, |
||||||||||||||||
2009 | 2008 | |||||||||||||||||
(in thousands) | ||||||||||||||||||
Non-cash amounts related to contractual obligations |
||||||||||||||||||
Radio Markets |
$ | | $ | | $ | | $ | 21,440 | ||||||||||
Radio Network |
| | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total non-cash amounts related to contractual obligations |
$ | | $ | | $ | | $ | 21,440 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Segment local marketing agreement fees: |
||||||||||||||||||
Radio Markets |
$ | 379 | $ | 455 | $ | 1,027 | $ | 1,334 | ||||||||||
Radio Network |
| | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total segment local marketing agreement fees |
$ | 379 | $ | 455 | $ | 1,027 | $ | 1,334 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Segment non-cash compensation expense: |
||||||||||||||||||
Radio Markets |
$ | 3,719 | $ | 1,143 | $ | 4,064 | $ | 5,170 | ||||||||||
Radio Network |
479 | 168 | 1,336 | 2,184 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total segment non-cash compensation expense |
$ | 4,198 | $ | 1,311 | $ | 5,400 | $ | 7,354 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Segment depreciation and amortization: |
||||||||||||||||||
Radio Markets |
$ | 50,764 | $ | 8,370 | $ | 22,434 | $ | 25,719 | ||||||||||
Radio Network |
7,800 | 2,995 | 13,165 | 19,545 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total segment depreciation and amortization |
$ | 58,564 | $ | 11,365 | $ | 35,599 | $ | 45,264 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Successor | Predecessor | |||||||||||||||||
December 31, 2010 | December 31, 2009 | |||||||||||||||||
(in thousands) | ||||||||||||||||||
Identifiable assets: |
||||||||||||||||||
Radio Markets, exclusive of goodwill shown separately below |
$ | 1,416,723 | $ | 964,580 | ||||||||||||||
Goodwill |
719,229 | 292,563 | ||||||||||||||||
|
|
|
|
|||||||||||||||
Total Radio Markets identifiable assets |
$ | 2,135,952 | $ | 1,257,143 | ||||||||||||||
|
|
|
|
|||||||||||||||
Radio Network, exclusive of goodwill shown separately below |
$ | 103,130 | $ | 77,435 | ||||||||||||||
Goodwill |
44,620 | 29,413 | ||||||||||||||||
|
|
|
|
|||||||||||||||
Total Radio Network identifiable assets |
$ | 147,750 | $ | 106,848 | ||||||||||||||
|
|
|
|
|||||||||||||||
Corporate and other identifiable assets |
$ | 124,412 | $ | 53,998 | ||||||||||||||
|
|
|
|
|||||||||||||||
Total assets |
$ | 2,408,114 | $ | 1,417,989 | ||||||||||||||
|
|
|
|
45
The following table presents the gross amount of goodwill and the accumulated asset impairment and disposal charges for the Companys two reportable segments, Radio Markets and Radio Network, for the year ended December 31, 2009, the five months ended May 31, 2010 and the seven months ended December 31, 2010:
Radio Markets | Radio Network | |||||||
(in thousands) | ||||||||
Balance as of January 1, 2009 (Predecessor): |
||||||||
Goodwill |
$ | 1,784,918 | $ | 190,279 | ||||
Accumulated asset impairment and disposal charges |
(1,352,019 | ) | (130,379 | ) | ||||
|
|
|
|
|||||
Goodwill net of impairment as of January 1, 2009 (Predecessor) |
$ | 432,899 | $ | 59,900 | ||||
Asset impairment and disposal charges |
(140,336 | ) | (30,487 | ) | ||||
Balance as of January 1, 2010 (Predecessor): |
||||||||
Goodwill |
$ | 1,784,918 | $ | 190,279 | ||||
Accumulated asset impairment and disposal charges |
(1,492,355 | ) | (160,866 | ) | ||||
|
|
|
|
|||||
Goodwill net of impairment as of January 1, 2010 (Predecessor) |
$ | 292,563 | $ | 29,413 | ||||
Elimination of Predecessor goodwill as of May 31, 2010 |
(1,784,918 | ) | (190,279 | ) | ||||
Elimination of Predecessor goodwill impairment as of May 31, 2010 |
1,492,355 | 160,866 | ||||||
Goodwill from application of fresh-start reporting as of May 31, 2010 |
719,229 | 44,620 | ||||||
Balance as of December 31, 2010 (Successor): |
||||||||
Goodwill |
$ | 719,229 | $ | 44,620 | ||||
Accumulated asset impairment and disposal charges |
| | ||||||
|
|
|
|
|||||
Goodwill net of impairment as of December 31, 2010 (Successor) |
$ | 719,229 | $ | 44,620 | ||||
|
|
|
|
21. Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, or other sources are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.
Effective December 31, 2009, the Companys radio music license agreements with the two largest performance rights organizations, American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), expired. The Radio Music License Committee (RMLC), which negotiates music licensing fees for most of the radio industry with ASCAP and BMI, had reached an agreement with these organizations on a temporary fee schedule that reflects a provisional discount of 7.0% against 2009 fee levels. The temporary fee reductions became effective in January 2010. Absent an agreement on long-term fees between the RMLC and ASCAP and BMI, the U.S. District Court in New York has the authority to make an interim and permanent fee ruling for the new contract period. In May 2010 and June 2010, the U.S. District Courts judges charged with determining the licenses fees ruled to further reduce interim fees paid to ASCAP and BMI, respectively, down approximately another 11.0% from the previous temporary fees negotiated with the RMLC. When the license fee negotiations are finalized, the rate will be retroactive to January 1, 2010, and the amounts could be greater or less than the temporary fees and could be material to the Companys financial results and cash flows. John Sander is currently the chairman of the board of directors of both the Company and BMI.
Litigation
On December 20, 2009, the Debtors filed voluntary petitions in the Bankruptcy Court seeking relief under the Bankruptcy Code. Upon commencement of the Chapter 11 Proceedings, the Debtors also announced that they had reached an accord with over 60% of their senior secured lenders on the terms of a pre-negotiated financial
46
restructuring that sought to extinguish approximately $1.4 billion of indebtedness. Specifically, the Company entered into a letter agreement, effective as of December 20, 2009 (the Emergence Plan Support Agreement), with over 60% of the holders of the Companys secured debt issued pursuant to the Predecessor Senior Credit and Term Facility.
On December 21, 2009, the Company announced that the Bankruptcy Court granted all of the Companys first day motions and applications, which allowed the Company to satisfy its obligations with cash on hand and pay employee wages, salaries and benefits, among other things, without interruption during the course of the restructuring.
On February 3, 2010, the Debtors filed with the Bankruptcy Court a proposed joint plan of reorganization and a related disclosure statement pursuant to Chapter 11 of the Bankruptcy Code. On March 15, 2010, the Debtors filed with the Bankruptcy Court a First Modified Joint Plan of Reorganization and the related disclosure statement pursuant to Chapter 11 of the Bankruptcy Code.
On March 15, 2010, the Bankruptcy Court approved the disclosure statement and authorized the Company to begin soliciting votes on the Emergence Plan.
On May 10, 2010, the Debtors filed the second modified Emergence Plan, reflecting certain technical, nonmaterial modifications to the first modification. Objections to the Debtors Emergence Plan were filed with the Bankruptcy Court by several stockholders, and on May 12, 2010, the Bankruptcy Court commenced a multi-day hearing, which ended on May 17, 2010 with the Bankruptcy Court confirming the Debtors Emergence Plan.
On May 19, 2010, (the Confirmation Date), the Bankruptcy Court entered the Confirmation Order confirming the Emergence Plan, and on May 26, 2010, the FCC granted the long form applications for transfer of control of the Companys FCC licenses to the new stockholders of the company.
On June 3, 2010, the Debtors consummated their reorganization, and the Emergence Plan became effective. The distribution of securities of the new reorganized successor to the Company under the Emergence Plan was made on the Emergence Date. Under the Emergence Plan, the Debtors distributed three forms of equity: class A common stock; class B common stock; and the special warrants.
In October 2010, R2 Investment, LDC (R2), a stockholder of the Company, filed a motion in the Bankruptcy Court requesting the Company be directed to revoke awards of restricted common stock granted in August 2010 to certain members of the Companys senior management and its board of directors and instead issue stock options, as R2 contended was required by the Emergence Plan. In early November 2010, certain members of the Companys senior management and its board of directors elected to voluntarily forfeit approximately 2.5 million shares of restricted stock that were granted in August 2010. Based upon (i) the relinquishment of the restricted stock by the named executive officers and the Companys board of directors and (ii) the Companys intent to replace the forfeited shares with options to purchase approximately 3.3 million shares of class A common stock, the terms of which are governed by the Emergence Plan, R2 withdrew its motion without prejudice. The forfeiture of restricted stock and subsequent issuance of stock options to these individuals was accounted for as a modification of the original award. For more information see Notes 14 and 15.
Pursuant to the Bankruptcy Code, pre-petition claims (including secured, unsecured, priority and administrative claims) of the Debtors are evidenced in the schedules of liabilities filed by the Debtors with the Bankruptcy Court and by proofs of claim filed by creditors. The process to resolve these claims continues until all pre-petition claims are resolved. In connection with resolving these claims, while not expected, certain claims could result in additional expense or income in the Successors financial statements if actual results differ from estimated liabilities, and such additional expense or income could be material.
47
The Company is involved in certain other claims and lawsuits arising in the ordinary course of its business. The Company believes that such litigation and claims will be resolved without a material adverse impact on its results of operations, cash flows or financial condition.
Lease Commitments
The Company leases certain studio buildings, tower sites, transmitters and equipment, vehicles and office equipment. The following is a schedule by year of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2010:
Year Ended |
Commitments | Sublease Rentals |
Net Lease Commitments |
|||||||||
2011 |
$ | 18,645 | $ | (1,278 | ) | $ | 17,367 | |||||
2012 |
17,346 | (1,174 | ) | 16,172 | ||||||||
2013 |
15,902 | (951 | ) | 14,951 | ||||||||
2014 |
13,384 | (669 | ) | 12,715 | ||||||||
2015 |
9,304 | (501 | ) | 8,803 | ||||||||
Thereafter |
44,733 | (6,407 | ) | 38,326 | ||||||||
|
|
|
|
|
|
|||||||
$ | 119,314 | $ | (10,980 | ) | $ | 108,334 | ||||||
|
|
|
|
|
|
Total rental expense was approximately $11.7 million for the Successor period from June 1, 2010 through December 31, 2010 and approximately $8.2 million, $21.5 million and $20.8 million for the Predecessor period from January 1, 2010 through May 31, 2010 and the years ended December 31, 2009 and 2008, respectively.
Contractual Commitments
The Company has entered into binding contracts in the normal course of business related to sports broadcasting, employment of personnel, and other goods and services utilized in our operations.
Defined Contribution Plan
The Company has a defined contribution 401(k) plan for all employees who are at least 21 years of age. Under the 401(k) plan, eligible employees can contribute up to 80% of their compensation, subject to the maximum contribution allowed by the Internal Revenue Code. Participants vest immediately in their contributions, and participants rights to amounts contributed by the Company vest on a graded schedule after five years of service. Participants are credited with one year of service if they work 1,000 hours in a plan year. Each year, for participants who have completed one year of service, the Company may, at the discretion of the board of directors, contribute a matching contribution in an amount equal to a discretionary percentage, not to exceed the participants elective deferral. The Company may also make discretionary contributions as approved by the board of directors. Matching contributions by the Company were approximately $1.2 million for the combined Successor period from June 1, 2010 through December 31, 2010 and Predecessor period from January 1, 2010 through May 31, 2010 and none for the years ended December 31, 2009 and 2008.
48
22. Quarterly Financial Data (unaudited), in thousands, except for share amounts.
Predecessor | Successor | |||||||||||||||||||||
Quarter Ended March 31 |
Period from April 1 through May 31 |
Period from June 1 through June 30 |
Quarters Ended | |||||||||||||||||||
September 30 | December 31 | |||||||||||||||||||||
2010: |
||||||||||||||||||||||
Net revenue |
$ | 165,028 | $ | 130,396 | $ | 64,027 | $ | 188,604 | $ | 191,511 | ||||||||||||
Operating income |
37,137 | 41,999 | 13,984 | 33,957 | 25,147 | |||||||||||||||||
Net income (loss) (a) |
11,480 | 1,058,225 | 3,130 | 3,564 | (8,477 | ) | ||||||||||||||||
Basic net income (loss) per common share |
$ | 0.04 | $ | 3.98 | $ | 0.07 | $ | 0.08 | $ | (0.19 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Diluted net income (loss) per common share |
$ | 0.04 | $ | 3.95 | $ | 0.07 | $ | 0.08 | $ | (0.19 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted average common shares outstandingBasic |
266,085 | 265,977 | 45,625 | 47,409 | 45,625 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted average common shares outstandingDiluted |
268,005 | 267,897 | 45,625 | 47,409 | 45,625 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Predecessor | ||||||||||||||||
Quarters Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
2009: |
||||||||||||||||
Net revenue |
$ | 158,891 | $ | 188,061 | $ | 183,810 | $ | 192,858 | ||||||||
Operating income (loss) (b) |
14,239 | (944,080 | ) | 37,969 | 49,533 | |||||||||||
Net (loss) income |
(5,305 | ) | (758,657 | ) | (21,251 | ) | 1,854 | |||||||||
Basic net (loss) income per common share |
$ | (0.02 | ) | $ | (2.88 | ) | $ | (0.08 | ) | $ | 0.01 | |||||
|
|
|
|
|
|
|
|
|||||||||
Diluted net (loss) income per common share |
$ | (0.02 | ) | $ | (2.88 | ) | $ | (0.08 | ) | $ | 0.01 | |||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstandingBasic |
263,630 | 263,815 | 264,237 | 264,263 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstandingDiluted |
263,630 | 263,815 | 264,237 | 264,263 | ||||||||||||
|
|
|
|
|
|
|
|
(a) | The revaluation of assets and liabilities through the application of fresh-start reporting resulted in a net gain of $921.8 million. The restructuring of the Companys capital structure and resulting discharge of pre-petition debt resulted in a gain of $139.8 million. Both of these amounts were recorded as reorganization items in the Predecessors statement of operations for the period from April 1, 2010 through May 31, 2010. The net loss in the Successors quarter ended December 31, 2010 was due primarily to net expense of $21.0 million incurred on extinguishment of debt in connection with the refinancing of the Emergence Term Loan Facility. |
(b) | The Company conducted an interim impairment test during 2009 in addition to its annual impairment test as of October 1, 2009. As a result, the Company recorded non-cash impairment charges on a pre-tax basis of $985.7 million during the quarter ended June 30, 2009. |
23. Subsequent Events
Pending Transaction
On March 10, 2011, the Company entered into a definitive merger agreement with Cumulus Media Inc., a Delaware corporation (Cumulus), Cadet Holding Corporation, a Delaware corporation and wholly owned subsidiary of Cumulus (HoldCo), and Cadet Merger Corporation, a Delaware corporation and wholly owned
49
subsidiary of HoldCo (Cumulus Merger Sub), which provides that, upon completion of the merger of Cumulus Merger Sub into the Company (the Cumulus Merger), each outstanding share of class A common stock and class B common stock of the Company (other than shares owned by Cumulus Merger Sub, held in treasury by the Company or pursuant to which a holder has properly exercised and perfected appraisal rights under Delaware law), will, at the election of the holder thereof and subject to proration as described below, be converted into the right to receive (i) $37.00 in cash (the Cash Consideration), or (ii) 8.525 shares of class A common stock, par value $0.01 per share, of Cumulus (the Stock Consideration and, together with the Cash Consideration, the Cumulus Merger Consideration). In addition, holders of warrants to purchase class B common stock of the Company will have the right to elect to have their warrants adjusted at the effective time of the Cumulus Merger to become the right to receive upon exercise the (i) Cash Consideration or (ii) Stock Consideration, subject to proration as described below.
The merger agreement provides that each holder of the Companys common stock and/or warrants may elect to receive the Cash Consideration or the Stock Consideration for all or any number of such holders common stock and/or warrants, however, such elections will be prorated, and consideration adjusted, so that Cumulus will not issue in excess of 151,485,282 shares of Cumulus class A Common Stock (as increased for the exercise of stock options of the Company prior to closing of the Cumulus Merger) or pay in excess of $1,408,728,600 in cash (less the cash value of any dissenting shares and increased for the exercise of Company stock options prior to closing of the Cumulus Merger). In circumstances where holders of common stock and/or warrants of the Company make aggregate elections which exceed either the aggregate available Cash Consideration or aggregate available Stock Consideration, holders of common stock of the Company will receive a combination of Cash Consideration and Stock Consideration pursuant to the terms of the merger agreement. Holders of common stock and/or warrants of the Company who do not make an election will receive the consideration choice selected by the majority of Company stockholders and warrantholders, subject to the proration described above.
Cumulus has obtained equity and debt financing commitments, subject to certain conditions set forth in definitive agreements related to such commitments, for the transactions contemplated by the merger agreement, the proceeds of which, in addition to cash on hand, will be sufficient for Cumulus to pay the cash portion of the aggregate Cumulus Merger Consideration contemplated by the merger agreement and any associated fees and expenses. In connection with the transactions contemplated by the merger agreement, affiliates of Crestview Partners and Macquarie Capital (the Equity Investors) have agreed, at or prior to the closing of the Cumulus Merger, to make an equity investment in Cumulus in an amount of up to approximately $500 million on the terms and subject to the conditions set forth in the investment agreements entered into by the Equity Investors and Cumulus in connection with the Cumulus Merger. Certain affiliates of the Equity Investors having guaranteed the respective payment obligations of the termination fees payable by the Equity Investors if the merger agreement is terminated under specified circumstances, pursuant to limited guarantees executed in favor of the Company.
Upon the completion of the Cumulus Merger, the Company would cease to be a publicly reporting company and would cease all filings under the Securities Exchange Act of 1934, as amended.
The Cumulus Merger was unanimously approved by the respective Boards of Directors of the Company and Cumulus. The merger agreement and the transactions contemplated thereby will be submitted to a vote of stockholders of the Company at a special/annual meeting of Company stockholders.
On March 14, 2011, the Company, its board of directors, and Cumulus were named in a putative shareholder class action complaint filed in the District Court of Clark County, Nevada, by a purported Citadel shareholder. On March 23, 2011, these same defendants, as well as Cadet Holding Corporation and Cadet Merger Corporation, were named in a second putative shareholder class action complaint filed in the same court by another purported Citadel shareholder. The complaints allege that the Companys directors breached their fiduciary duties by approving the Cumulus Merger for allegedly inadequate consideration and following an allegedly unfair sale process. The complaint in the first action also alleges that the Companys directors breached
50
their fiduciary duties by allegedly withholding material information relating to the Cumulus Merger. The two complaints further allege that the Company and Cumulus aided and abetted the Citadel directors alleged breaches of fiduciary duty, and the complaint filed in the second action alleges, additionally, that Cadet Holding Company and Cadet Merger Corporation aided and abetted these alleged breaches of fiduciary duty. The complaints seek, among other things, a declaration that the action can proceed as a class action, an order enjoining the completion of the Cumulus Merger, rescission of the merger, attorneys fees, and such other relief as the court deems just and proper. The complaint filed in the second action also seeks rescissory damages. The Company intends to vigorously defend against these actions.
Consummation of the Cumulus Merger is conditioned, among other things, on (i) the adoption of the merger agreement by stockholders of the Company (voting together as a single class), (ii) the absence of certain legal impediments to the consummation of the Cumulus Merger, (iii) the effectiveness of a Form S-4 registration statement to be filed by Cumulus and (iv) the receipt of certain regulatory approvals regarding the transactions contemplated by the merger agreement, including expiration of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and approval by the FCC.
Cumulus stockholders who hold in the aggregate approximately 54% of the outstanding voting power of the Cumulus stock have approved the issuance of Cumulus shares in connection with the Cumulus Merger and an amendment to Cumulus certificate of incorporation in connection with the transactions contemplated by the merger agreement. No further Cumulus stockholder approval is necessary for consummation of the transactions contemplated by the merger agreement.
Completion of the Cumulus Merger is anticipated to occur by the end of 2011, although there can be no assurance the Cumulus Merger will occur within the expected timeframe or at all.
Pursuant to the merger agreement, except as Cumulus may otherwise consent to in writing (which consent will not be unreasonably withheld, conditioned or delayed), the Company has agreed to (i) conduct, in all material respects, its business in the ordinary course; (ii) use commercially reasonable efforts to preserve intact its business organization and significant business relationships and to retain the services of current key officers and key employees; (iii) use commercially reasonable efforts to comply with the Communications Act of 1934, as amended by the Telecommunications Act of 1996, and FCC rules and policies in the operation of its stations; (iv) promptly deliver to Cumulus copies of any material reports or applications filed with the FCC, subject to certain exceptions; (v) promptly notify Cumulus of any inquiry, investigation or proceeding which to its knowledge has been initiated by the FCC relating to its stations, subject to certain exceptions; and (vi) diligently prosecute any pending FCC applications or any other filings necessary or appropriate in other proceedings before the FCC to preserve or obtain any FCC authorization for its stations without material adverse modification, subject to certain exceptions. In addition, under the merger agreement, the Company is not permitted to, without the prior written consent of Cumulus (which consent will not be unreasonably withheld, conditioned or delayed): (a) incur indebtedness, subject to certain exceptions; (b) (i) adjust, split, combine or reclassify any of its capital stock, (ii) make, declare or pay any dividend, or make any other distribution on, or redeem, purchase or otherwise acquire, any shares of its capital stock or any convertible or exchangeable securities, subject to certain exceptions, (iii) grant any stock appreciation rights or rights to acquire shares of its capital stock, other than grants to employees in the ordinary course of business, (iv) issue any additional shares of capital stock, subject to certain exceptions; (c) change certain specified compensation arrangements, subject to certain exceptions; (d) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets, subject to certain exceptions; (e) cancel, release, settle or assign any indebtedness or third party claim, action or proceeding, subject to certain exceptions; (f) enter into any local marketing agreement in respect of the programming of any radio or television broadcast station or contract for the acquisition or sale of any radio broadcast station, subject to certain exceptions; (g) enter into any new material line of business, subject to certain exceptions; (h) amend its charter or by-laws or terminate, amend or waive any provisions of any confidentiality or standstill agreements in place with any third parties; (i) except as required by GAAP or the Securities and Exchange Commission as concurred in by its independent auditors or in the ordinary course of business, make any material change in its
51
methods or principles of accounting or make or change any material tax election; (j) enter into or amend in any material respect or waive any of its material rights under specified contracts, subject to certain exceptions; (k) adopt or recommend a plan of dissolution, liquidation, recapitalization, restructuring or other reorganization; (l) except as required by law, enter into or amend in any material respect any collective bargaining agreement; or (m) agree to take, make any commitment to take, or adopt specified resolutions of its board of directors. These constraints could significantly impact the Companys operations and business strategy as discussed in this report prior to the consummation of the proposed Cumulus Merger or the termination of the merger agreement.
License renewal applications may be pending before the FCC at the time the Cumulus Merger occurs. Pursuant to the merger agreement, Cumulus has agreed to request that the FCC apply its policy permitting license assignments and transfers in transactions involving multiple markets to proceed, notwithstanding the pendency of one or more license renewal applications. Under this policy, Cumulus will agree to assume the position of the Company with respect to any pending renewal applications, and to assume the risks relating to such applications.
The closing of the Cumulus Merger would constitute a change in control as defined in the Credit Agreement, which would be considered an event of default, also as defined, and could cause all amounts outstanding under the Credit Agreement to become immediately due and payable.
It is anticipated that the funds necessary to consummate the Cumulus Merger and related transactions will be funded by new credit facilities, private and/or public offerings of debt securities and equity financing of Cumulus. Under the merger agreement, we have agreed to commence a debt tender offer to purchase our existing Senior Notes. As part of the debt tender offer, we will solicit the consent of the holders to amend, eliminate or waive certain sections (as specified by Cumulus) of the applicable indenture governing the Senior Notes. The closing of the debt tender offer will be conditioned on the occurrence of the closing of the Cumulus Merger, but the closing of the Cumulus Merger and the debt financing are not conditioned upon the closing of the debt tender offer.
In addition, the closing of the Cumulus Merger would constitute a change of control under the indenture governing the Senior Notes. Following the occurrence of a change of control, the Company would be required to make an offer to purchase all outstanding Senior Notes at a price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest.
Completed Transaction
During February 2011, the Divestiture Trusts completed the sale of a radio station for a total purchase price of approximately $5.8 million.
52
24. Supplemental Consolidating Financial Information
In connection with the completion of the Cumulus Merger, the Company (the Guarantor Parent) and certain of its wholly owned subsidiaries (collectively, the Non-parent Subsidiary Guarantors) provided guarantees under HoldCos $610.0 million aggregate principal amount 7.75% Senior Notes due 2019 (the HoldCo Notes). These guarantees are full and unconditional as well as joint and several. Certain guarantors may be subject to restrictions on their ability to distribute earnings to HoldCo or its parent company, Cumulus. The remaining subsidiaries of the Company are not guarantors of the HoldCo Notes (collectively, the Non-guarantors).
The following tables present the consolidating balance sheet as of December 31, 2010 (Successor), consolidating statements of operations for the periods from June 1, 2010 through December 31, 2010 (Successor) and January 1, 2010 through May 31, 2010 (Predecessor) and the consolidating statements of cash flows for the periods from June 1, 2010 through December 31, 2010 (Successor) and January 1, 2010 through May 31, 2010 (Predecessor) of the Guarantor Parent (on a stand-alone, non-consolidated basis), the Non-parent Subsidiary Guarantors and the Non-guarantors. The operating activities of the separate legal entities included in the Companys consolidating financial statements are interdependent and reflect certain allocations of assets, liabilities and expenses between the entities that involve the exercise of management judgment.
53
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
As of December 31, 2010
(Dollars in thousands)
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 99,458 | $ | 12,166 | $ | | $ | | $ | 111,624 | ||||||||||
Accounts receivable, net |
8 | 138,743 | | | 138,751 | |||||||||||||||
Intercompany |
(100,719 | ) | 100,466 | (698 | ) | 951 | | |||||||||||||
Prepaid expenses and other current assets |
3,989 | 33,429 | | | 37,418 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
2,736 | 284,804 | (698 | ) | 951 | 287,793 | ||||||||||||||
Long-term assets |
||||||||||||||||||||
Investments in consolidated subsidiaries |
2,068,533 | | | (2,068,533 | ) | | ||||||||||||||
Property and equipment, net |
| 200,121 | | | 200,121 | |||||||||||||||
FCC licenses |
| | 893,610 | | 893,610 | |||||||||||||||
Goodwill |
| 763,849 | | | 763,849 | |||||||||||||||
Customer and affiliate relationships, net |
| 195,080 | | | 195,080 | |||||||||||||||
Other assets, net |
20,833 | 46,828 | | | 67,661 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 2,092,102 | $ | 1,490,682 | $ | 892,912 | $ | (2,067,582 | ) | $ | 2,408,114 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Accounts payable, accrued liabilities and other liabilities |
$ | 7,410 | $ | 48,997 | $ | 254 | $ | | $ | 56,661 | ||||||||||
Senior debt, current |
3,500 | | | | 3,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
10,910 | 48,997 | 254 | | 60,161 | |||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Senior debt, less current portion |
346,500 | | | | 346,500 | |||||||||||||||
Senior notes |
400,000 | | | | 400,000 | |||||||||||||||
Other long-term liabilities, less current portion |
| 58,342 | | | 58,342 | |||||||||||||||
Deferred income tax liabilities |
60,035 | 13,134 | 195,285 | | 268,454 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
817,445 | 120,473 | 195,539 | | 1,133,457 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Stockholders equity (deficit) |
||||||||||||||||||||
Class A common stock |
5 | | | | 5 | |||||||||||||||
Class B common stock |
18 | | | | 18 | |||||||||||||||
Equity held in reserve |
13,182 | | | | 13,182 | |||||||||||||||
Additional paid-in capital |
1,263,235 | 1,349,061 | 702,570 | (2,051,631 | ) | 1,263,235 | ||||||||||||||
Accumulated deficit |
(1,783 | ) | 21,148 | (5,197 | ) | (15,951 | ) | (1,783 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total stockholders equity (deficit) |
1,274,657 | 1,370,209 | 697,373 | (2,067,582 | ) | 1,274,657 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 2,092,102 | $ | 1,490,682 | $ | 892,912 | $ | (2,067,582 | ) | $ | 2,408,114 | |||||||||
|
|
|
|
|
|
|
|
|
|
54
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
(Dollars in thousands)
Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||||
Period from 2010 through |
Period 2010 |
Period from 2010 through |
Period 2010 |
Period from 2010 through |
Period 2010 |
Period from 2010 through |
Period from January 1, 2010 through |
Period from 2010 through |
Period 2010 |
|||||||||||||||||||||||||||||||||||||||||
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
|||||||||||||||||||||||||||||||||||||||||
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Net revenue |
$ | | $ | | $ | 444,142 | $ | 295,424 | $ | | $ | | $ | | $ | | $ | 444,142 | $ | 295,424 | ||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue, exclusive of depreciation and amortization and including non-cash compensation expense |
| | 164,594 | 116,103 | | | | | 164,594 | 116,103 | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative, including non-cash compensation expense |
| | 113,637 | 78,582 | | | | | 113,637 | 78,582 | ||||||||||||||||||||||||||||||||||||||||
Corporate general and administrative, including non-cash compensation expense |
| | 25,849 | 8,521 | 545 | 408 | | | 26,394 | 8,929 | ||||||||||||||||||||||||||||||||||||||||
Local marketing agreement fees |
| | 379 | 455 | | | | | 379 | 455 | ||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| | 58,564 | 11,365 | | | | | 58,564 | 11,365 | ||||||||||||||||||||||||||||||||||||||||
Other, net |
| | 7,486 | 854 | | | | | 7,486 | 854 | ||||||||||||||||||||||||||||||||||||||||
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Operating expenses |
| | 370,509 | 215,880 | 545 | 408 | | | 371,054 | 216,288 | ||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
Operating income (loss) |
| | 73,633 | 79,544 | (545 | ) | (408 | ) | | | 73,088 | 79,136 | ||||||||||||||||||||||||||||||||||||||
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Non-operating (expense) income: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings from consolidated subsidiaries |
27,517 | 29,235 | | | | | (27,517 | ) | (29,235 | ) | | | ||||||||||||||||||||||||||||||||||||||
Reorganization items, net |
| 1,043,160 | | (29,083 | ) | | | | | | 1,014,077 | |||||||||||||||||||||||||||||||||||||||
Interest (expense) income net |
(45,726 | ) | (1,048 | ) | 361 | (16,723 | ) | | | | | (45,365 | ) | (17,771 | ) | |||||||||||||||||||||||||||||||||||
Extinguishment of debt |
(20,969 | ) | | | | | | | | (20,969 | ) | | ||||||||||||||||||||||||||||||||||||||
Write-off of deferred financing costs and debt discount upon extinguishment of debt and other debt-related fees |
(984 | ) | | | | | | | | (984 | ) | | ||||||||||||||||||||||||||||||||||||||
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Total non-operating (expense) income, net |
(40,162 | ) | 1,071,347 | 361 | (45,806 | ) | | | (27,517 | ) | (29,235 | ) | (67,318 | ) | 996,306 | |||||||||||||||||||||||||||||||||||
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(Loss) income before income taxes |
(40,162 | ) | 1,071,347 | 73,994 | 33,738 | (545 | ) | (408 | ) | (27,517 | ) | (29,235 | ) | 5,770 | 1,075,442 | |||||||||||||||||||||||||||||||||||
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Income tax benefit (expense) |
38,379 | (1,642 | ) | (45,932 | ) | 150 | | (4,245 | ) | | | (7,553 | ) | (5,737 | ) | |||||||||||||||||||||||||||||||||||
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Net (loss) income |
$ | (1,783 | ) | $ | 1,069,705 | $ | 28,062 | $ | 33,888 | $ | (545 | ) | $ | (4,653 | ) | $ | (27,517 | ) | $ | (29,235 | ) | $ | (1,783 | ) | $ | 1,069,705 | ||||||||||||||||||||||||
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55
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in thousands)
Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||||
Period from 2010 through |
Period 2010 |
Period from 2010 through |
Period 2010 |
Period from 2010 through |
Period 2010 |
Period from 2010 through |
Period 2010 |
Period from 2010 through |
Period 2010 |
|||||||||||||||||||||||||||||||||||||||||
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
December 31, 2010 |
May 31, 2010 |
|||||||||||||||||||||||||||||||||||||||||
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income |
$ | (1,783 | ) | $ | 1,069,705 | $ | 28,062 | $ | 33,888 | $ | (545 | ) | $ | (4,653 | ) | $ | (27,517 | ) | $ | (29,235 | ) | $ | (1,783 | ) | $ | 1,069,705 | ||||||||||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| | 58,564 | 11,365 | | | | | 58,564 | 11,365 | ||||||||||||||||||||||||||||||||||||||||
Non-cash debt-related amounts |
| | (1,693 | ) | | | | | | (1,693 | ) | | ||||||||||||||||||||||||||||||||||||||
Extinguishment of debt |
20,969 | | | | | | | | 20,969 | | ||||||||||||||||||||||||||||||||||||||||
Write-off of deferred financing costs and debt discount upon extinguishment of debt and other debt-related fees |
984 | | | | | | | | 984 | | ||||||||||||||||||||||||||||||||||||||||
Reorganization items, net |
| (1,092,722 | ) | | 29,083 | | | | | | (1,063,639 | ) | ||||||||||||||||||||||||||||||||||||||
Provision for bad debts |
| | 2,385 | 578 | | | | | 2,385 | 578 | ||||||||||||||||||||||||||||||||||||||||
Loss on sale of assets |
| | 271 | 708 | | | | | 271 | 708 | ||||||||||||||||||||||||||||||||||||||||
Deferred income taxes |
| 1,565 | 6,057 | 3,585 | | | | | 6,057 | 5,150 | ||||||||||||||||||||||||||||||||||||||||
Non-cash compensation expense |
| 1,881 | 18,785 | | | | | | 18,785 | 1,881 | ||||||||||||||||||||||||||||||||||||||||
Changes in operating assets and liabilities |
73,272 | 55,691 | (112,237 | ) | (111,643 | ) | 545 | 4,628 | 27,517 | 70,163 | (10,903 | ) | 18,839 | |||||||||||||||||||||||||||||||||||||
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Net cash provided by (used in) operating activities |
93,442 | 36,120 | 194 | (32,436 | ) | | (25 | ) | | 40,928 | 93,636 | 44,587 | ||||||||||||||||||||||||||||||||||||||
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Cash flows from investing activities: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures |
| | (6,671 | ) | (3,409 | ) | | | | | (6,671 | ) | (3,409 | ) | ||||||||||||||||||||||||||||||||||||
Proceeds from sale of assets |
| | 13 | 5 | | | | | 13 | 5 | ||||||||||||||||||||||||||||||||||||||||
Restricted cash |
| | 6,302 | (7,773 | ) | | | | | 6,302 | (7,773 | ) | ||||||||||||||||||||||||||||||||||||||
Other assets, net |
| | 78 | | | 25 | | | 78 | 25 | ||||||||||||||||||||||||||||||||||||||||
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Net cash (used in) provided by investing activities |
| | (278 | ) | (11,177 | ) | | 25 | | | (278 | ) | (11,152 | ) | ||||||||||||||||||||||||||||||||||||
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Cash flows from financing activities: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Principal payments on other long-term obligations |
(762,500 | ) | | | (125 | ) | | | | | (762,500 | ) | (125 | ) | ||||||||||||||||||||||||||||||||||||
Proceeds from Term Loan |
350,000 | | | | | | | | 350,000 | | ||||||||||||||||||||||||||||||||||||||||
Proceeds from Senior Notes |
400,000 | | | | | | | | 400,000 | | ||||||||||||||||||||||||||||||||||||||||
Debt issuance costs |
(21,878 | ) | | | | | | | | (21,878 | ) | | ||||||||||||||||||||||||||||||||||||||
Prepayment penalty on extinguishment of debt |
(38,030 | ) | | | | | | | | (38,030 | ) | | ||||||||||||||||||||||||||||||||||||||
Principal payments on other long-term obligations |
| | (72 | ) | | | | | | (72 | ) | | ||||||||||||||||||||||||||||||||||||||
Purchase of shares held in treasury |
| (5 | ) | | | | | | | | (5 | ) | ||||||||||||||||||||||||||||||||||||||
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Net cash used in financing activities |
(72,408 | ) | (5 | ) | (72 | ) | (125 | ) | | | | | (72,480 | ) | (130 | ) | ||||||||||||||||||||||||||||||||||
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Net (decrease) increase in cash and cash equivalents |
21,034 | 36,115 | (156 | ) | (43,738 | ) | | | | 40,928 | 20,878 | 33,305 | ||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents, beginning of period |
78,424 | 42,309 | 12,322 | 56,060 | | | | (40,928 | ) | 90,746 | 57,441 | |||||||||||||||||||||||||||||||||||||||
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Cash and cash equivalents, end of period |
$ | 99,458 | $ | 78,424 | $ | 12,166 | $ | 12,322 | $ | | $ | | $ | | $ | | $ | 111,624 | $ | 90,746 | ||||||||||||||||||||||||||||||
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56
Exhibit 99.4
Citadel Broadcasting Corporation
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION |
||||||
ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED) |
1 | ||||
Consolidated Condensed Balance Sheets |
1 | |||||
Consolidated Condensed Statements of Operations |
2 | |||||
Consolidated Condensed Statements of Cash Flows |
4 | |||||
Notes to Consolidated Condensed Financial Statements |
6 |
ITEM 1. | FINANCIAL STATEMENTS (unaudited) |
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands, except warrants, share and per share amounts)
(unaudited)
Successor | ||||||||
June 30, 2011 | December 31, 2010 | |||||||
ASSETS | ||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 104,803 | $ | 111,624 | ||||
Accounts receivable, net |
142,401 | 138,751 | ||||||
Prepaid expenses and other current assets (including deferred income tax assets of $12,049 and $23,023 as of June 30, 2011 and December 31, 2010, respectively) |
31,937 | 37,418 | ||||||
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|
|||||
Total current assets |
279,141 | 287,793 | ||||||
Long-term assets |
||||||||
Property and equipment, net |
196,008 | 200,121 | ||||||
FCC licenses |
887,975 | 893,610 | ||||||
Goodwill |
763,849 | 763,849 | ||||||
Customer and affiliate relationships, net |
162,085 | 195,080 | ||||||
Other assets, net |
63,296 | 67,661 | ||||||
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|
|||||
Total assets |
$ | 2,352,354 | $ | 2,408,114 | ||||
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|||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities |
||||||||
Accounts payable, accrued liabilities and other liabilities |
$ | 49,850 | $ | 56,661 | ||||
Senior debt, current |
| 3,500 | ||||||
|
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|
|||||
Total current liabilities |
49,850 | 60,161 | ||||||
Long-term liabilities |
||||||||
Senior debt, less current portion |
296,500 | 346,500 | ||||||
Senior notes |
400,000 | 400,000 | ||||||
Other long-term liabilities, less current portion |
54,068 | 58,342 | ||||||
Deferred income tax liabilities |
255,756 | 268,454 | ||||||
|
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|
|||||
Total liabilities |
1,056,174 | 1,133,457 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity |
||||||||
Preferred stock, $.001 par value authorized, 50,000,000 shares at June 30, 2011 and December 31, 2010; no shares issued or outstanding at June 30, 2011 and December 31, 2010 |
| | ||||||
Class A common stock, $.001 par value authorized, 100,000,000 shares as of June 30, 2011 and December 31, 2010; issued, 4,592,506 and 4,539,601 as of June 30, 2011 and December 31, 2010, respectively; outstanding, 4,394,758 and 4,539,601 shares as of June 30, 2011 and December 31, 2010, respectively |
5 | 5 | ||||||
Class B common stock, $.001 par value authorized, 100,000,000 shares as of June 30, 2011 and December 31, 2010; issued and outstanding, 19,059,409 and 18,131,638 shares as of June 30, 2011 and December 31, 2010, respectively |
19 | 18 | ||||||
Treasury stock, at cost, 197,748 shares at June 30, 2011 |
(6,575 | ) | | |||||
Equity held in reserve |
7,887 | 13,182 | ||||||
Additional paid-in capital (including 22,933,523 and 23,682,484 special warrants as of June 30, 2011 and December 31, 2010, respectively) |
1,294,526 | 1,263,235 | ||||||
Retained earnings (accumulated deficit) |
318 | (1,783 | ) | |||||
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|||||
Total stockholders equity |
1,296,180 | 1,274,657 | ||||||
|
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|||||
Total liabilities and stockholders equity |
$ | 2,352,354 | $ | 2,408,114 | ||||
|
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|
See accompanying notes to consolidated condensed financial statements.
1
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Successor | Predecessor | |||||||||||
Three Months Ended June 30, 2011 |
Period from June 1, 2010 through June 30, 2010 |
Period from April 1, 2010 through May 31, 2010 |
||||||||||
Net revenue |
$ | 184,996 | $ | 64,027 | $ | 130,396 | ||||||
Operating expenses: |
||||||||||||
Cost of revenue, exclusive of depreciation and amortization shown separately below, and including non-cash compensation expense and related taxes of $748, $0 and $330, respectively |
69,006 | 22,631 | 47,124 | |||||||||
Selling, general and administrative, including non-cash compensation expense and related taxes of $2,553, $0 and $664, respectively |
49,312 | 15,915 | 31,952 | |||||||||
Corporate general and administrative, including non-cash compensation expense and related taxes of $9,161, $106 and $242, respectively |
13,366 | 1,792 | 3,769 | |||||||||
Local marketing agreement fees |
109 | 100 | 186 | |||||||||
Depreciation and amortization |
23,074 | 8,592 | 4,510 | |||||||||
Other, net |
1,794 | 1,013 | 856 | |||||||||
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|||||||
Operating expenses |
156,661 | 50,043 | 88,397 | |||||||||
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Operating income |
28,335 | 13,984 | 41,999 | |||||||||
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|||||||
Reorganization items, net |
| | (1,027,557 | ) | ||||||||
Interest expense, net |
12,085 | 6,314 | 7,251 | |||||||||
Write-off of deferred financing costs |
1,048 | | | |||||||||
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|||||||
Income before income taxes |
15,202 | 7,670 | 1,062,305 | |||||||||
Income tax expense |
6,463 | 4,540 | 4,078 | |||||||||
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|||||||
Net income |
$ | 8,739 | $ | 3,130 | $ | 1,058,227 | ||||||
|
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|||||||
Net income per share - basic |
$ | 0.19 | $ | 0.07 | $ | 3.98 | ||||||
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|||||||
Net income per share - diluted |
$ | 0.19 | $ | 0.07 | $ | 3.95 | ||||||
|
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|||||||
Weighted average common shares outstanding - basic |
46,775 | 45,625 | 265,977 | |||||||||
|
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|
|||||||
Weighted average common shares outstanding - diluted |
46,775 | 45,625 | 267,897 | |||||||||
|
|
|
|
|
|
See accompanying notes to consolidated condensed financial statements.
2
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations (Continued)
(in thousands, except per share amounts)
(unaudited)
Successor | Predecessor | |||||||||||
Six Months Ended June 30, 2011 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
||||||||||
Net revenue |
$ | 345,018 | $ | 64,027 | $ | 295,424 | ||||||
Operating expenses: |
||||||||||||
Cost of revenue, exclusive of depreciation and amortization shown separately below, and including non-cash compensation expense and related taxes of $1,391, $0 and $526, respectively |
137,528 | 22,631 | 116,103 | |||||||||
Selling, general and administrative, including non-cash compensation expense and related taxes of $4,717, $0 and $785, respectively |
95,504 | 15,915 | 78,582 | |||||||||
Corporate general and administrative, including non-cash compensation expense and related taxes of $18,705, $106 and $570, respectively |
27,818 | 1,792 | 8,929 | |||||||||
Local marketing agreement fees |
208 | 100 | 455 | |||||||||
Depreciation and amortization |
46,117 | 8,592 | 11,365 | |||||||||
Other, net |
9,078 | 1,013 | 854 | |||||||||
|
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|
|
|
|
|||||||
Operating expenses |
316,253 | 50,043 | 216,288 | |||||||||
|
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|
|||||||
Operating income |
28,765 | 13,984 | 79,136 | |||||||||
|
|
|
|
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|
|||||||
Reorganization items, net |
| | (1,014,077 | ) | ||||||||
Interest expense, net |
24,496 | 6,314 | 17,771 | |||||||||
Write-off of deferred financing costs |
1,048 | | | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
3,221 | 7,670 | 1,075,442 | |||||||||
Income tax expense |
1,120 | 4,540 | 5,737 | |||||||||
|
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|
|
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|
|||||||
Net income |
$ | 2,101 | $ | 3,130 | $ | 1,069,705 | ||||||
|
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|
|||||||
Net income per share - basic |
$ | 0.04 | $ | 0.07 | $ | 4.02 | ||||||
|
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|||||||
Net income per share - diluted |
$ | 0.04 | $ | 0.07 | $ | 3.99 | ||||||
|
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|
|||||||
Weighted average common shares outstanding - basic |
46,796 | 45,625 | 266,041 | |||||||||
|
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|
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|
|||||||
Weighted average common shares outstanding - diluted |
46,796 | 45,625 | 267,961 | |||||||||
|
|
|
|
|
|
See accompanying notes to consolidated condensed financial statements.
3
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
Successor | Predecessor | |||||||||||
Six Months Ended June 30, 2011 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
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Cash flows from operating activities: |
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Net income |
$ | 2,101 | $ | 3,130 | $ | 1,069,705 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
46,117 | 8,592 | 11,365 | |||||||||
Write-off of deferred financing costs |
1,048 | | | |||||||||
Non-cash debt-related amounts |
1,893 | (439 | ) | | ||||||||
Reorganization items, net |
| | (1,063,639 | ) | ||||||||
Provision for bad debts |
(647 | ) | 221 | 578 | ||||||||
Loss on sale of assets |
404 | | 708 | |||||||||
Deferred income taxes |
693 | 4,483 | 5,150 | |||||||||
Non-cash compensation expense |
24,216 | | 1,881 | |||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(2,599 | ) | (5,514 | ) | 13,884 | |||||||
Prepaid expenses and other current assets |
(7,268 | ) | (1,899 | ) | (900 | ) | ||||||
Accounts payable, accrued liabilities and other obligations |
(11,908 | ) | (12,705 | ) | 5,855 | |||||||
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|
|
|
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Net cash provided by (used in) operating activities |
54,050 | (4,131 | ) | 44,587 | ||||||||
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|
|
|
|
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Cash flows from investing activities: |
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Capital expenditures |
(4,128 | ) | (430 | ) | (3,409 | ) | ||||||
FCC license upgrade |
(65 | ) | | | ||||||||
Proceeds from sale of assets |
1,953 | | 5 | |||||||||
Restricted cash |
1,514 | 605 | (7,773 | ) | ||||||||
Other assets, net |
128 | 8 | 25 | |||||||||
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|
|
|
|
|
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Net cash (used in) provided by investing activities |
(598 | ) | 183 | (11,152 | ) | |||||||
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|
|
|
|
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Cash flows from financing activities: |
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Debt issuance costs |
(162 | ) | | | ||||||||
Principal payments on other long-term obligations |
(36 | ) | (8 | ) | (125 | ) | ||||||
Purchase of shares held in treasury |
(6,575 | ) | | (5 | ) | |||||||
Principal payments on Credit Facility |
(53,500 | ) | | | ||||||||
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|
|
|
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Net cash used in financing activities |
(60,273 | ) | (8 | ) | (130 | ) | ||||||
|
|
|
|
|
|
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Net (decrease) increase in cash and cash equivalents |
(6,821 | ) | (3,956 | ) | 33,305 | |||||||
Cash and cash equivalents, beginning of period |
111,624 | 90,746 | 57,441 | |||||||||
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|
|
|
|
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Cash and cash equivalents, end of period |
$ | 104,803 | $ | 86,790 | $ | 90,746 | ||||||
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|
|
See accompanying notes to consolidated condensed financial statements.
4
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Continued)
(in thousands)
(unaudited)
Supplemental schedule of cash flow information
Successor | Predecessor | |||||||||||
Six Months Ended June 30, 2011 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
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Cash Payments: |
||||||||||||
Interest |
$ | 23,537 | $ | 7,058 | $ | 24,478 | ||||||
Income taxes |
(469 | ) | 93 | 481 | ||||||||
Reorganization items - cash paid for professional fees |
| | 17,651 | |||||||||
Reorganization items - cash paid to unsecured creditors |
1,514 | | 31,911 | |||||||||
Barter Transactions: |
||||||||||||
Barter revenue - included in net revenue |
9,033 | 1,572 | 7,574 | |||||||||
Barter expenses - included in cost of revenue and selling, general and administrative expense |
8,734 | 1,497 | 7,278 | |||||||||
Other Non-Cash Transaction: |
||||||||||||
Issuance of notes receivable for sale of station |
3,750 | | |
See accompanying notes to consolidated condensed financial statements.
5
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
1. Description of the Company
Description of Business
Subsidiaries of Citadel Broadcasting Corporation, a Delaware corporation, own and operate radio stations and hold FCC licenses in 27 states and the District of Columbia. Radio stations serving the same geographic area (i.e., principally a city or combination of cities) are referred to as a market. Citadel Broadcasting Corporation (together with its consolidated subsidiaries, the Company) aggregates the geographic markets in which it operates into one reportable segment (Radio Markets). The Companys primary business segment is the Radio Markets segment, which, as of June 30, 2011, consisted of 225 owned and operated radio stations located in over 50 markets across the United States. In addition, the Company also owns and operates Citadel Media (the Radio Network), which produces and distributes a variety of radio programming and formats that are syndicated across approximately 4,000 station affiliates and 9,000 program affiliations, and is a separate reportable segment.
Company History
In January 2001, the Company was formed by affiliates of Forstmann Little & Co. (FL&Co.) in connection with a leveraged buyout transaction of our predecessor, Citadel Broadcasting Company (Citadel Broadcasting).
In February 2006, the Company and Alphabet Acquisition Corp., a wholly-owned subsidiary of the Company (ABC Merger Sub), entered into an agreement and plan of merger with The Walt Disney Company (TWDC), and ABC Radio Holdings, Inc. (ABC Radio), a wholly-owned subsidiary of TWDC. The Company, ABC Merger Sub, TWDC and ABC Radio consummated the (i) separation of the ABC Radio Network business and 22 ABC radio stations (collectively, the ABC Radio Business) from TWDC and its subsidiaries, (ii) spin-off of ABC Radio, which holds the ABC Radio Business, and (iii) merger of ABC Merger Sub with and into ABC Radio, with ABC Radio surviving as a wholly-owned subsidiary of the Company (the ABC Merger). Immediately thereafter, the separate corporate existence of ABC Merger Sub ceased, and ABC Radio was renamed Alphabet Acquisition Corp. The ABC Merger became effective in June 2007.
Plan of Reorganization
On December 20, 2009 (the Petition Date), Citadel Broadcasting Corporation and certain of its subsidiaries (collectively, the Debtors) filed voluntary petitions in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) seeking relief under the provisions of Chapter 11 of title 11 of the United States Code (the Bankruptcy Code) (collectively, the Chapter 11 Proceedings). On May 10, 2010, the Debtors filed the second modified joint plan of reorganization of Citadel Broadcasting Corporation and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (including all modifications, the Emergence Plan), and on May 19, 2010 (the Confirmation Date), the Bankruptcy Court entered an order (the Confirmation Order), confirming the Emergence Plan. On June 3, 2010 (the Emergence Date), the Debtors consummated their reorganization and the Emergence Plan became effective. As a result, the Company is considered a successor registrant and, pursuant to Rule 12g-3 under the Securities Exchange Act of 1934 (the Exchange Act), the Companys class A common stock is deemed to be registered pursuant to Section 12(g) of the Exchange Act.
Under the Emergence Plan, the Debtors distributed three forms of equity: class A common stock, class B common stock and Special Warrants (as defined in Note 9) to purchase class B common stock.
Correction
Certain amounts in the Predecessors consolidated statement of cash flows (previously reported in the Companys quarterly report on Form 10-Q for the quarter ended June 30, 2010) were corrected in the consolidated statement of cash flows for the five-month period from January 1, 2010 to May 31, 2010, resulting in a decrease in the amount of the line Reorganization items, net of $4 million, an increase to net cash provided by operating activities of $4 million, an increase in the change in restricted cash of $4 million and an increase in net cash used in investing activities of $4 million.
2010 Refinancing Transactions
In accordance with the Emergence Plan, approximately $2.1 billion of the debt outstanding prior to the Petition Date was converted into a term loan dated as of the Emergence Date among the Company, the several lenders party thereto (the Lenders) and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders (the Emergence Term Loan Facility) with an initial principal amount of $762.5 million with a five-year term. See Note 7.
6
The Company entered into a new credit agreement dated as of December 10, 2010 (the Credit Agreement) by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders. The Credit Agreement consists of a term loan credit facility of $350.0 million with a term of six years (the Term Loan) and a revolving credit facility in the amount of $150.0 million under which a swing line sub-facility of up to $30.0 million may be borrowed and letters of credit may be issued (the Revolving Loan, together with the Term Loan, the Credit Facilities). The Revolving Loan was undrawn at closing and remained undrawn as of June 30, 2011; however, the Company had $147.1 million of availability under the Revolving Loan due to outstanding letters of credit of $2.9 million. The Company used the proceeds of the Term Loan, along with the net proceeds from the concurrent issuance of the $400.0 million aggregate principal amount of senior notes (the Senior Notes), and cash on hand to repay the amounts outstanding under its Emergence Term Loan Facility. See additional discussion in Notes 7 and 8.
Pending Transaction
On March 10, 2011, the Company entered into a definitive merger agreement with Cumulus Media Inc., a Delaware corporation (Cumulus), Cumulus Media Holdings Inc. (f/k/a Cadet Holding Corporation), a Delaware corporation and wholly-owned subsidiary of Cumulus (HoldCo), and Cadet Merger Corporation, a Delaware corporation and wholly-owned subsidiary of HoldCo (Cumulus Merger Sub), which provides that, upon completion of the merger of Cumulus Merger Sub into the Company (the Cumulus Merger), each outstanding share of class A common stock and class B common stock of the Company (other than shares owned by Cumulus Merger Sub, held in treasury by the Company or pursuant to which a holder has properly exercised and perfected appraisal rights under Delaware law), will, at the election of the holder thereof and subject to proration as described below, be converted into the right to receive (i) $37.00 in cash (the Cash Consideration), or (ii) 8.525 shares of class A common stock, par value $0.01 per share, of Cumulus (the Stock Consideration and, together with the Cash Consideration, the Cumulus Merger Consideration). In addition, holders of Special Warrants to purchase class B common stock of the Company will have the right to elect to have their Special Warrants adjusted at the effective time of the Cumulus Merger to become the right to receive upon exercise the (i) Cash Consideration or (ii) Stock Consideration, subject to proration as described below.
Holders of nonvested shares of the Companys class A common stock will be eligible to receive the Cumulus Merger Consideration for their shares pursuant to the original vesting schedule for such shares unless earlier accelerated pursuant to the terms of the merger agreement or applicable grant agreement.
The merger agreement provides that each holder of the Companys common stock and/or Special Warrants may elect to receive the Cash Consideration or the Stock Consideration for all or any number of such holders common stock and/or Special Warrants, however, such elections will be prorated, and consideration adjusted, so that Cumulus will not issue in excess of 151,485,282 shares of Cumulus class A Common Stock (as increased for the exercise of stock options of the Company prior to closing of the Cumulus Merger) or pay in excess of $1,408,728,600 in cash (less the cash value of any dissenting shares and increased for the exercise of Company stock options prior to closing of the Cumulus Merger). In circumstances where holders of common stock and/or Special Warrants of the Company make aggregate elections which exceed either the aggregate available Cash Consideration or aggregate available Stock Consideration, holders of common stock and/or Special Warrants of the Company will receive a combination of Cash Consideration and Stock Consideration pursuant to the terms of the merger agreement. Holders of common stock and/or Special Warrants of the Company who do not make an election will be deemed to have elected, (i) if either the Cash Consideration or the Stock Consideration is oversubscribed, the election that is oversubscribed or (ii) if neither election is oversubscribed, the consideration choice selected by the majority of Citadel shares and warrants for which an election was properly made (or deemed made).
Cumulus has obtained equity and debt financing commitments, subject to certain conditions set forth in definitive agreements related to such commitments, for the transactions contemplated by the merger agreement, the proceeds of which, in addition to cash on hand, will be sufficient for Cumulus to pay the cash portion of the aggregate Cumulus Merger Consideration contemplated by the merger agreement and any associated fees and expenses. In connection with the transactions contemplated by the merger agreement, UBS Securities LLC and affiliates of Crestview Partners and Macquarie Capital (all three, the Equity Investors and affiliates of Crestview Partners and Macquarie Capital, the Original Equity Investors) have agreed, concurrently with the closing of the Cumulus Merger, to purchase for cash an aggregate amount of up to $500 million in shares of Cumulus common stock, preferred stock or warrants to purchase common stock. Depending on the amount of cash elected to be received by Company stockholders in the merger, the Equity Investors commitments may be reduced in accordance with the investment agreement (as amended from time to time) entered into by the Equity Investors and Cumulus in connection with the Cumulus Merger, subject to a minimum aggregate investment of $395.0 million. In addition, under certain circumstances where Cumulus does not require Macquarie Capitals full investment to consummate the merger, Macquarie Capital may elect to reduce its investment to the extent not so required. Certain affiliates of the Original Equity Investors have guaranteed the respective payment obligations of the termination fees payable by the Equity Investors if the merger agreement is terminated under specified circumstances, pursuant to limited guarantees executed in favor of the Company.
Upon the completion of the Cumulus Merger, the Company would cease to be a publicly reporting company and, when its shares are de-registered, will cease all filings under the Securities Exchange Act of 1934, as amended.
7
The Cumulus Merger was unanimously approved by the respective Boards of Directors of the Company and Cumulus. The merger agreement will be submitted to a vote of stockholders of the Company as of the close of business on August 3, 2011 at a special meeting of Company stockholders to be held on September 15, 2011.
Consummation of the Cumulus Merger is conditioned, among other things, on (i) the adoption of the merger agreement by stockholders of the Company (voting together as a single class), (ii) the absence of any legal injunction, restraint or prohibition on the consummation of the Cumulus Merger and (iii) the receipt of certain regulatory approvals regarding the transactions contemplated by the merger agreement, including expiration or termination of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and approval by the FCC.
Cumulus stockholders who held in the aggregate approximately 54% of the outstanding voting power of the Cumulus stock as of March 9, 2011 have approved the issuance of Cumulus shares in connection with the Cumulus Merger and an amendment to Cumulus certificate of incorporation in connection with the transactions contemplated by the merger agreement. No further Cumulus stockholder approval is necessary for consummation of the transactions contemplated by the merger agreement.
Completion of the Cumulus Merger is anticipated to occur by the end of 2011, although there can be no assurance the Cumulus Merger will occur within the expected timeframe or at all.
Pursuant to the merger agreement, except as Cumulus may otherwise consent to in writing (which consent will not be unreasonably withheld, conditioned or delayed), the Company has agreed to (i) conduct, in all material respects, its business in the ordinary course; (ii) use commercially reasonable efforts to preserve intact its business organization and significant business relationships and to retain the services of current key officers and key employees; (iii) use commercially reasonable efforts to comply with the Communications Act of 1934, as amended by the Telecommunications Act of 1996, and FCC rules and policies in the operation of its stations; (iv) promptly deliver to Cumulus copies of any material reports or applications filed with the FCC, subject to certain exceptions; (v) promptly notify Cumulus of any inquiry, investigation or proceeding which to its knowledge has been initiated by the FCC relating to its stations, subject to certain exceptions; and (vi) diligently prosecute any pending FCC applications or any other filings necessary or appropriate in other proceedings before the FCC to preserve or obtain any FCC authorization for its stations without material adverse modification, subject to certain exceptions. In addition, under the merger agreement, the Company is not permitted to, without the prior written consent of Cumulus (which consent will not be unreasonably withheld, conditioned or delayed): (a) incur indebtedness, subject to certain exceptions; (b) (i) adjust, split, combine or reclassify any of its capital stock, (ii) make, declare or pay any dividend, or make any other distribution on, or redeem, purchase or otherwise acquire, any shares of its capital stock or any convertible or exchangeable securities, subject to certain exceptions, (iii) grant any stock appreciation rights or rights to acquire shares of its capital stock, other than grants to employees in the ordinary course of business, or (iv) issue any additional shares of capital stock, subject to certain exceptions; (c) change certain specified compensation arrangements, subject to certain exceptions; (d) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets, subject to certain exceptions; (e) cancel, release, settle or assign any indebtedness or third party claim, action or proceeding, subject to certain exceptions; (f) enter into any local marketing agreement in respect of the programming of any radio or television broadcast station or contract for the acquisition or sale of any radio broadcast station, subject to certain exceptions; (g) enter into any new material line of business, subject to certain exceptions; (h) amend its charter or by-laws or terminate, amend or waive any provisions of any confidentiality or standstill agreements in place with any third parties; (i) except as required by GAAP or the Securities and Exchange Commission as concurred in by its independent auditors or in the ordinary course of business, make any material change in its methods or principles of accounting or make or change any material tax election; (j) enter into or amend in any material respect or waive any of its material rights under specified contracts, subject to certain exceptions; (k) adopt or recommend a plan of dissolution, liquidation, recapitalization, restructuring or other reorganization; (l) except as required by law, enter into or amend in any material respect any collective bargaining agreement; or (m) agree to take, make any commitment to take, or adopt specified resolutions of its board of directors. These constraints could significantly impact the Companys operations and business strategy as discussed in this report prior to the consummation of the proposed Cumulus Merger or the termination of the merger agreement.
License renewal applications may be pending before the FCC at the time the Cumulus Merger occurs. Pursuant to the merger agreement, Cumulus has agreed to request that the FCC apply its policy permitting license assignments and transfers in transactions involving multiple markets to proceed, notwithstanding the pendency of one or more license renewal applications. Under this policy, Cumulus will agree to assume the position of the Company with respect to any pending renewal applications, and to assume the risks relating to such applications.
The closing of the Cumulus Merger would constitute a change in control as defined in the Credit Agreement, which would be considered an event of default, also as defined, and could cause all amounts outstanding under the Credit Agreement to become immediately due and payable.
In addition, the closing of the Cumulus Merger would constitute a change of control under the indenture governing the Senior Notes. Following the occurrence of a change of control, the Company would be required to make an offer to purchase all outstanding Senior Notes at a price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest.
8
It is anticipated that the funds necessary to consummate the Cumulus Merger and related transactions will be funded by new credit facilities and equity financing of Cumulus. Under the merger agreement, upon request by Cumulus, the Company has agreed to commence a debt tender offer to purchase the existing Senior Notes. Cumulus had indicated to the Company that its current intention is not to ask the Company to commence the debt tender offer.
Principles of Consolidation and Presentation
The accompanying unaudited consolidated condensed financial statements of the Company include Citadel Broadcasting Corporation, Citadel Broadcasting, ABC Radio and each of their consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company was required to adopt fresh-start reporting as of the Confirmation Date or such later date when all material conditions precedent to the effectiveness of the Emergence Plan had been satisfied, but no later than the Emergence Date. All material conditions were satisfied on the Emergence Date, and in light of the proximity of this date to the Companys May 31, 2010 accounting period end, the effects of fresh-start reporting and the Emergence Plan were reported for accounting purposes as if they occurred on May 31, 2010 (the Fresh-Start Date). The Company adopted fresh-start reporting provisions in accordance with accounting guidance on reorganizations (see Note 2). The Company applied the provisions of fresh-start reporting as of May 31, 2010 instead of the June 3, 2010 Emergence Date, which did not result in a material difference to the Companys results of operations or financial condition.
References in this report to Successor refer to the Company on or after the Fresh-Start Date. References to Predecessor refer to the Company prior to the Fresh-Start Date. Consolidated condensed financial statements as of June 30, 2011 and December 31, 2010, for the three and six months ended June 30, 2011, and for the period from June 1, 2010 through June 30, 2010 represent the Successors financial position and results of operations (the Successor Periods). The consolidated condensed financial statements for the periods from January 1, 2010 through May 31, 2010 and from April 1, 2010 through May 31, 2010 represent the Predecessors results of operations (the Predecessor Period). References in this report to the Company refer to Citadel Broadcasting Corporation and its consolidated subsidiaries, whether Predecessor and/or Successor, as appropriate. The Predecessor Period reflects the historical accounting basis of the Predecessors assets and liabilities, while the Successor Periods reflect assets and liabilities at fair value, based on an allocation of the Companys enterprise value to its assets and liabilities pursuant to accounting guidance related to business combinations (see Note 2). The Companys emergence from bankruptcy resulted in a new reporting entity that had no retained earnings or accumulated deficit as of the Fresh-Start Date. Accordingly, the Companys consolidated condensed financial statements for the Predecessor Period are not comparable to its consolidated condensed financial statements for the Successor Periods.
For the period between the Petition Date and the Fresh-Start Date, the consolidated condensed financial statements of the Predecessor were prepared in accordance with accounting guidance for financial reporting by entities in reorganization under the Bankruptcy Code. Accordingly, reorganization items include the expenses, realized gains and losses, and provisions for losses resulting from the reorganization under the Bankruptcy Code, and are reported separately as reorganization items in the Predecessors consolidated condensed statement of operations.
The accompanying unaudited consolidated condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States 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. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in Citadel Broadcasting Corporations Annual Report on Form 10-K for the year ended December 31, 2010.
In connection with the ABC Merger, the Company is required to divest certain stations to comply with FCC ownership limits. Therefore, these stations, the carrying value of which is immaterial, were assigned to The Last Bastion Station Trust, LLC (Last Bastion) as trustee under a divestiture trust that complies with FCC rules as of the closing date of the ABC Merger. The trustee agreement stipulates that the Company must fund any operating shortfalls of the trustees activities, and any excess cash flow generated by the trustee is distributed to the Company. Also, the Company has transferred one other station to a separate divestiture trust to comply with FCC ownership limits in connection with a station acquisition (together with Last Bastion, the Divestiture Trusts), and this station was subsequently divested to a third party. The Company has determined that it is the primary beneficiary of the Divestiture Trusts and consolidates the Divestiture Trusts accordingly.
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States. These estimates and assumptions relate in particular to allocations of enterprise value made in connection with fresh-start reporting, fair values of assets and liabilities as of the Fresh-Start Date, the
9
evaluation of goodwill and intangible assets for potential impairment, including changes in market conditions that could affect the estimated fair values, the analysis of the measurement of deferred tax assets, including the calculation of a valuation allowance to reduce the amount of deferred tax asset to the amount that is more likely than not to be realized, the identification and quantification of income tax liabilities due to uncertain tax positions, and the determination of the allowance for estimated uncollectible accounts and notes receivable. The Company also uses assumptions when estimating the value of its supplemental executive retirement plan (the SERP) and when employing the Black-Scholes valuation model to estimate the fair value of stock options. The Predecessor used estimates to calculate the value of certain fully vested stock units and equity awards containing market conditions and in determining the estimated fair values of its interest rate swap, credit risk adjustments and certain derivative financial instruments. These estimates were based on the information that was available to management at the time of the estimate. Actual results could differ materially from those estimates.
Recent Accounting Standards
In December 2010, the Financial Accounting Standards Board (FASB) issued guidance that modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity will be required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. This guidance was effective January 1, 2011, and the adoption did not have a material impact on the Companys consolidated condensed financial statements.
In May 2011, the FASB issued guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. The guidance also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for reporting periods beginning on or after December 15, 2011, with early adoption prohibited. The Company is currently evaluating the effect that the provisions of this pronouncement will have on its financial statements.
In June 2011, the FASB issued guidance to enhance comparability between entities that report under U.S. GAAP and IFRS, and to provide a more consistent method of presenting non-owner transactions that affect an entitys equity. The guidance eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption of the new guidance is permitted and full retrospective application is required. The Company is currently evaluating the effect that the provisions of this pronouncement will have on its financial statements.
2. Emergence from Chapter 11 Proceedings and Fresh-Start Reporting
Plan of Reorganization, Claims Resolution and Plan Distributions
The pre-petition claims of the Debtors are evidenced in the schedules of liabilities filed by the Debtors and by proofs of claim filed by creditors with the Bankruptcy Court. The Bankruptcy Code requires the Bankruptcy Court to set the time within which proofs of claim must be filed in a Chapter 11 case. The Bankruptcy Court established April 21, 2010 as the last date for each person or entity to file a proof of claim (except for governmental units and administrative and priority claims whereby the bar dates were August 17, 2010 and August 2, 2010, respectively). Claims that were objected to are allowed or disallowed through a claims resolution process established by the Bankruptcy Court. Pursuant to objections filed by the Debtors, the Bankruptcy Court has reduced, reclassified and/or disallowed a significant number of claims for varying reasons, including claims that were duplicative, amended, without merit, misclassified or overstated. The claims resolution process is ongoing and will continue until all claims are resolved.
Secured Claims
Holders of senior secured claims received a pro rata share of the Emergence Term Loan Facility and 90% of the equity in the reorganized Successor company (subject to dilution for distributions of equity under the Successors equity incentive program). As of June 30, 2011, 41.1 million shares of Successor equity had been distributed with respect to secured claims. See further discussion of equity in the Successor at Note 9.
Unsecured Claims
Holders of unsecured claims, including the secured lenders deficiency claim in the stipulated amount of $267.2 million and the claims of the Predecessors convertible subordinated noteholders, received a pro rata share of (i) 10% of Successor equity (subject to dilution for distributions of equity under the Successors equity incentive program) and (ii) $36.0 million in cash. Once the allowed amount of an unsecured claim is determined through settlement or by Bankruptcy Court order, the claimant is entitled to a distribution as provided for by the Emergence Plan. As of June 30, 2011, 4.3 million shares of equity and $33.7 million in cash had been distributed to holders of allowed unsecured claims that totaled $336.0 million, and approximately 286,000 shares of Successor equity
10
and $2.3 million of cash were held in reserve to satisfy remaining allowed, disputed or unreconciled unsecured claims. Shares held in reserve are not designated as class A common stock, class B common stock or Special Warrants until issuance. The cash held in reserve is included with restricted cash and is classified as prepaid expenses and other current assets in the accompanying consolidated condensed balance sheets. The offsetting amount remaining to be disbursed on account of unsecured claims is classified as accounts payable, accrued liabilities and other liabilities in the accompanying consolidated condensed balance sheets. If excess shares of equity and cash remain in reserve after resolution of all disputed unsecured claims, such shares and cash will be distributed to the claimants with allowed unsecured claims pro-rata, based on the number of shares and amount of cash they received pursuant to the Emergence Plan. There is no assurance that there will be sufficient shares and cash to satisfy all allowed claims or any excess shares for any such subsequent distribution.
Administrative and Priority Claims
Pursuant to the Emergence Plan, administrative and priority claims are satisfied with cash. Administrative and priority claims that were allowed as of the Emergence Date were paid in full shortly thereafter. Other administrative claims were required to be asserted by application filed with the Bankruptcy Court by August 2, 2010 (with certain exceptions, including ordinary course of business claims). Proofs of claims for priority claims were required to be submitted by April 21, 2010 (or June 18, 2010 for governmental entities). Any administrative or priority claim that was not asserted in a timely filed application (unless subject to an exception) or timely submitted proof of claim is no longer enforceable against the Debtors. As the claims resolution process remains ongoing, the allowed amounts of certain administrative and priority claims have not yet been established. The Company recorded an estimate of the allowed amount of administrative and priority claims incurred as of the Fresh-Start Date, based on the best information then available to the Company. The claims resolution process for such claims could result in additional expense or income in the Successors financial statements if actual results differ from such estimates. Such additional expense or income could be material.
Restricted Cash
As of June 30, 2011 and December 31, 2010, the Company had $2.4 million and $3.9 million, respectively, of restricted cash, which is included in prepaid expenses and other current assets in the accompanying consolidated condensed balance sheets, primarily comprised of cash held in reserve to satisfy remaining allowed, disputed, or unreconciled unsecured claims.
Leases and Contracts
As of the Emergence Date, the Debtors assumed the majority of leases and other executory contracts, including numerous collective bargaining agreements, as well as certain employee benefit programs. Any past due amounts owed under the assumed leases and contracts were required to be cured, and all undisputed cure payments were made shortly after the Emergence Date. Continuing obligations under the assumed leases and contracts will be satisfied in the ordinary course of business. Any lease or contract that was not assumed or rejected by order of the Bankruptcy Court, or that had not otherwise expired or terminated pursuant to its terms, was deemed assumed as of the Emergence Date pursuant to the Emergence Plan. Pre-petition amounts owing under rejected leases and contracts, as well as prospective rejection damage claims, were treated as unsecured claims under the Emergence Plan.
Reorganization Items
Reorganization items shown below were a direct result of the Chapter 11 Proceedings and are presented separately in the accompanying consolidated condensed statements of operations during the five months ended May 31, 2010 and consist of the following:
Predecessor | ||||
Period from January 1, 2010 through May 31, 2010 |
||||
(in thousands) | ||||
Gain on extinguishment of debt |
$ | (139,813 | ) | |
Revaluation of assets and liabilities |
(921,801 | ) | ||
SERP liability (See Note 6) |
10,510 | |||
Professional fees |
31,666 | |||
Rejected executory contracts |
5,361 | |||
|
|
|||
Reorganization items, net |
$ | (1,014,077 | ) | |
|
|
Gain on extinguishment of debt resulted from debt extinguishments exceeding the value of distributions to creditors, and the gain from revaluation of assets and liabilities was a result of the application of fresh-start reporting, as further described below. Professional fees included legal, consulting, and other related services directly associated with the reorganization process. Lease
11
rejections represent the net non-cash amounts that resulted from claims associated with the rejections of certain executory contracts and the adjustment of previously recorded liabilities to their estimated allowed claim amounts.
Application of Fresh-Start Reporting
In accordance with fresh-start reporting, the reorganization value of the Successor was allocated to assets and liabilities in conformity with relevant accounting guidance, with any portion that could not be attributed to specific tangible or identified intangible assets of the Successor reported as goodwill. Each liability existing at the Fresh-Start Date, other than deferred taxes, was stated at the present values of amounts expected to be paid.
As of the Fresh-Start Date, the Companys enterprise value was estimated to be approximately $2.04 billion by using various valuation methods involving numerous projections and assumptions that are inherently subject to significant uncertainties. The net fresh-start valuation adjustments increased the book values of assets, excluding goodwill, and liabilities by $543.8 million and $63.8 million, respectively. The remaining enterprise value of $763.8 million was recorded as goodwill.
3. Accounts Receivable
Accounts receivable, net on the accompanying consolidated condensed balance sheets consisted of the following:
Successor | ||||||||
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Receivables |
$ | 147,894 | $ | 143,112 | ||||
Allowance for estimated uncollectible accounts |
(5,493 | )(a) | (4,361 | )(a) | ||||
|
|
|
|
|||||
Accounts receivable, net |
$ | 142,401 | $ | 138,751 | ||||
|
|
|
|
(a) | Since the Companys accounts receivable balance reflected its estimated fair value as of the Fresh-Start Date, the allowance for estimated uncollectible accounts was zero as of that date. The balance of the allowance for estimated uncollectible accounts as of December 31, 2010 and June 30, 2011 has continued to build in relation to accounts receivable generated since the Fresh-Start Date. |
4. Intangible Assets
Successor
Indefinite-Lived Intangible Assets and Goodwill
As a result of fresh-start reporting, FCC licenses were revalued to $893.6 million, which represented an increase of $293.0 million. Upon the application of fresh-start reporting, the Company recorded goodwill of $763.8 million, and the Predecessors goodwill of $322.0 million was eliminated.
The Company evaluates its intangible assets for impairment as of October 1, its annual impairment testing date, or more frequently if events or changes in circumstances indicate that the assets might be impaired. As of June 30, 2011, the Company concluded that there had been no conditions or events that would require an interim asset impairment analysis.
If market conditions and operational performance of the Companys reporting units were to deteriorate and management had no expectation that the performance would improve within a reasonable period of time or if an event occurs or circumstances change that would, more likely than not, reduce the fair value of its intangible assets below the amounts reflected in the balance sheet, the Company may be required to recognize impairment charges in future periods.
The changes in the carrying amounts of FCC licenses and goodwill for the six months ended June 30, 2011 are as follows:
FCC Licenses | Goodwill | |||||||
(in thousands) | ||||||||
Balance as of January 1, 2011 |
$ | 893,610 | $ | 763,849 | ||||
Addition |
65 | | ||||||
Disposition |
(5,700 | ) | | |||||
|
|
|
|
|||||
Balance as of June 30, 2011 |
$ | 887,975 | $ | 763,849 | ||||
|
|
|
|
Definite-Lived Intangible Assets
12
Definite-lived intangible assets consist primarily of customer and affiliate relationships, but also include certain other intangible assets identified in conjunction with fresh-start reporting or acquired in business combinations. In connection with the adoption of fresh-start reporting, the Companys definite-lived intangible assets were revalued, which resulted in customer and affiliate relationships of $193.4 million and $45.5 million, respectively. This revaluation represented net increases to the customer and affiliate relationships of $176.1 million and $31.6 million, respectively. These assets are being amortized in relation to the economic benefits of such assets over total estimated useful lives of approximately four to six years.
Approximately $16.5 million and $33.0 million of amortization expense was recognized on the intangible assets discussed above during the three and six months ended June 30, 2011, respectively. Approximately $6.3 million of amortization expense was recognized on these intangible assets during the one month ended June 30, 2010.
Other definite-lived intangible assets, excluding the customer relationships and affiliate relationships, are a component of other assets, net, in the accompanying consolidated condensed balance sheets. As a result of fresh-start reporting, other intangible assets, including income contracts and favorable leases, were increased by $36.0 million to $36.7 million. The balance of other intangible assets as of June 30, 2011 and December 31, 2010 was $25.8 million and $30.9 million, respectively. These assets are generally being amortized over their estimated useful lives of approximately three to six years. The amount of amortization expense for definite-lived intangible assets, excluding the customer and affiliate relationships discussed above, during the three and six months ended June 30, 2011 was $2.5 million and $5.0 million, respectively, and $0.8 million during the one month ended June 30, 2010. The Company estimates the following amount of amortization expense over the next five years related to the total definite-lived intangible asset balance as of the Fresh-Start Date:
(in thousands) | ||||
2011 |
$ | 76,023 | ||
2012 |
62,836 | |||
2013 |
50,286 | |||
2014 |
22,439 | |||
2015 |
10,295 | |||
|
|
|||
$ | 221,879 | |||
|
|
Predecessor
Indefinite-Lived Intangible Assets and Goodwill
During the period from January 1, 2010 through May 31, 2010, the Company concluded that there had been no conditions or events that would require an interim asset impairment analysis.
Definite-Lived Intangible Assets
In connection with the ABC Merger, the Predecessor acquired customer relationship and affiliate relationship assets that were being amortized in relation to the economic benefits of such assets over total estimated useful lives of approximately five to seven years. Approximately $2.0 million and $5.0 million of amortization expense was recognized on these intangible assets during the two and five months ended May 31, 2010, respectively.
The amount of amortization expense for definite-lived intangible assets, excluding the customer and affiliate relationships discussed above, during the two and five months ended May 31, 2010 was $0.1 million and $0.2 million, respectively.
5. Acquisitions and Dispositions
During the first quarter of 2011, the Divestiture Trusts completed the sale of a station for a total purchase price of approximately $5.8 million, of which $2.0 million was received in cash. The remainder consists of a note receivable, which is payable monthly with final maturity in January 2018.
6. Other Long-Term Liabilities
Amounts that the Companys national representation firm paid to settle the Predecessors then-remaining obligations under contracts with previous national representation firms that were cancelled in connection with the replacement of the prior firms represented a deferred obligation of the Predecessor. Additionally, the guaranteed minimum amount of national sales for a period specified in the underlying contract with the Predecessors national representation firm was not attained, which also resulted in a deferred liability of the Predecessor. The deferred obligation remaining as of the Fresh-Start Date was determined to approximate fair
13
value. The deferred amount is being amortized over the term of the underlying agreement as a reduction to national commission expense, which is included in cost of revenue.
As a result of applying fresh-start reporting, the Company also recognized certain unfavorable leases and contracts, which resulted from agreements with rates in excess of market value rates as of the Fresh-Start Date. These amounts are being amortized on a straight-line basis over the terms of the underlying contracts as a component of cost of revenue or selling, general and administrative expenses as appropriate. In addition, the Companys liability under the SERP was initially recorded at its estimated fair value as of the Fresh-Start Date. Expense amounts related to the liability are being amortized over the applicable service period as a component of non-cash compensation expense and were $0.3 million and $0.6 million during the three and six months ended June 30, 2011. The Company evaluates the estimated fair value of the SERP liability as of each reporting date to determine if any significant changes have occurred in the underlying assumptions. Any change in the fair value is recognized in the statement of operations at the time of adjustment.
7. Senior Debt
Senior debt consisted of the following as of June 30, 2011 and December 31, 2010:
Successor | ||||||||
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Type of Borrowing |
||||||||
Term Loan |
$ | 296,500 | $ | 350,000 | ||||
Less current portion of senior debt |
| 3,500 | ||||||
|
|
|
|
|||||
Total senior debt less current portion |
$ | 296,500 | $ | 346,500 | ||||
|
|
|
|
On the Emergence Date, approximately $2.1 billion of the debt outstanding prior to the Petition Date was converted into the Emergence Term Loan Facility, which was guaranteed by the Companys operating subsidiaries. The initial principal amount of $762.5 million under the Emergence Term Loan Facility was payable in 20 consecutive quarterly installments of approximately $1.9 million, due on the last day of each fiscal quarter, which commenced on September 30, 2010, with a final maturity of $724.4 million on June 3, 2015. A valuation adjustment of $19.1 million was recorded to reflect the Emergence Term Loan Facility at its estimated fair value upon issuance. This valuation adjustment was being amortized as a reduction of interest expense, net, over the contractual term of the Emergence Term Loan Facility. At the Companys election, interest on outstanding principal for the Emergence Term Loan Facility accrued at a rate based on either: (a) the greatest of (1) the Prime Rate in effect; (2) the Federal Funds Rate plus 0.50%; or (3) the one-month Eurodollar rate plus 1.0%, in all cases subject to a 4.0% floor, plus, in each case, a spread of 7.0% or (b) the Eurodollar rate, subject to a 3.0% floor, plus 8.0%.
During the period from the Fresh-Start Date through December 10, 2010, interest expense was incurred on the Emergence Term Loan Facility at 11.0%. On December 10, 2010, the Company refinanced the Emergence Term Loan Facility with the proceeds from the issuance of $400.0 million in Senior Notes (see Note 8) and borrowings of $350.0 million under the Term Loan, along with cash on hand. Interest was incurred on the Term Loan during the first six months of 2011 at an annual rate of 4.25%.
The Term Loan is payable in quarterly payments of $875,000, which commenced on March 31, 2011, with the remaining amount payable on December 30, 2016. Outstanding amounts under the Revolving Loan are payable on December 10, 2013. During the first quarter of 2011, the Company made a principal payment in the amount of $3.5 million, representing all principal amounts due during 2011, and during the second quarter of 2011, the Company made an additional principal payment in the amount of $50.0 million. No principal payments are now due until maturity in 2016.
The Company incurred $12.0 million of debt issuance costs in connection with the Credit Facilities, and amortization of these costs was $0.6 million and $1.3 million during the three and six months ended June 30, 2011, respectively. During the three months ended June 30, 2011, the Company wrote off $1.0 million of debt issuance costs in conjunction with the prepayment of the Term Loan.
The Credit Facilities are unconditionally guaranteed by certain of the Companys subsidiaries and secured by the following: (a) a perfected first priority security interest in, among other things, all accounts receivable, inventory, cash, personal property, material intellectual property and, in each case, proceeds thereof (subject to certain exceptions) of the Company and its guarantor subsidiaries; and (b) a perfected first priority pledge of the capital stock in the Companys subsidiaries.
The proceeds from the Term Loan and the Revolving Loan bear interest at either (A) ABR (as defined in the Credit Agreement) subject to a 2.0% floor, plus 2.25% or (B) Eurodollar Rate (as defined in the Credit Agreement) subject to a 1.0% floor, plus 3.25%, depending on the Companys designation.
14
The Credit Agreement requires compliance with a consolidated total leverage ratio of 4.5 to 1.0 as of June 30, 2011 (with stepdowns thereafter), a senior secured leverage ratio of 2.25 to 1.0 and consolidated interest coverage ratio of 2.5 to 1.0.
The Credit Agreement also contains customary restrictive non-financial covenants, which, among other things, and with certain exceptions, limit the Companys ability to incur or guarantee additional indebtedness; consummate asset sales, acquisitions or mergers; make investments; enter into transactions with affiliates; and pay dividends or repurchase stock.
The Company was in compliance with the covenants under its Term Loan as of June 30, 2011.
Predecessor
As a result of the Companys voluntary petitions for reorganization, all of the Predecessors senior debt obligations were accelerated, and the outstanding balances were aggregated as of the Petition Date. The total modified amount of interest-bearing senior debt began incurring interest as of the Petition Date at the non-default rate previously applicable to the Tranche B Term Loan portion of the Predecessors senior debt. During the periods from January 1, 2010 through May 31, 2010 and from April 1, 2010 through May 31, 2010, interest expense was incurred on the $2.1 billion outstanding prior to the Petition Date at a rate of approximately 2.0%.
For the period between the Petition Date and the Fresh-Start Date, the Company stopped recognizing and paying interest on outstanding pre-petition debt obligations except for the Predecessors senior debt. However, interest expense related to the Predecessors senior debt for the period from January 1, 2010 through May 31, 2010 was approximately $1.9 million higher than it would have been absent the voluntary petitions for reorganization due mainly to the conversion of the outstanding interest rate swap liability and accrued facility fee balance as of the Petition Date, as well as the increased interest rate spread being paid on certain components of senior debt.
8. Senior Notes
On December 10, 2010, the Company completed the private placement of $400.0 million aggregate principal amount of the Senior Notes to qualified institutional buyers under Rule 144A and to persons outside the United States under Regulation S of the Securities Act of 1933, as amended. The private placement of the Senior Notes resulted in net proceeds to the Company of approximately $392.0 million. The Senior Notes were issued pursuant to an indenture (the Indenture), dated as of December 10, 2010 by and among the Company, Wilmington Trust Company, a Delaware banking corporation, as trustee, and Deutsche Bank Trust Company Americas, a New York banking corporation, as registrar, authentication agent and paying agent.
The Senior Notes will mature on December 15, 2018, and bear interest at a rate of 7.75% per annum, payable semi-annually in cash in arrears on June 15 and December 15 of each year, beginning on June 15, 2011. The Senior Notes are senior unsecured obligations of the Company and are guaranteed by each of the Companys subsidiaries that guarantees the Credit Facilities.
The terms of the Indenture, among other things, limit the ability of the Company and its restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock or repurchase their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of their assets; and (vii) engage in certain transactions with affiliates. These covenants are subject to a number of important limitations and exceptions that are described in the Indenture.
The Senior Notes are redeemable, in whole or in part, at any time after December 15, 2014, at the redemption prices specified in the Indenture, together with accrued and unpaid interest, if any, to the redemption date. At any time prior to December 15, 2013, the Company may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds from one or more equity offerings at a redemption price equal to 107.75% of the principal amount thereof, together with accrued and unpaid interest, if any, to the redemption date. In addition, at any time prior to December 15, 2014, the Company may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes so redeemed, plus a make-whole premium, plus accrued and unpaid interest, if any, to the redemption date. The Company may also redeem all or part of the Senior Notes at a redemption price equal to 107.75% of the face amount thereof plus accrued and unpaid interest, if any, to the redemption date if specified change of control or business combination events occur on or before 180 days after the issue date of the Senior Notes.
The Company incurred $9.2 million of debt issuance costs in connection with the issuance of the Senior Notes, and amortization of these costs was $0.3 million and $0.6 million during the three and six months ended June 30, 2011, respectively.
15
9. Stockholders Equity
Successor
Pursuant to the Emergence Plan and upon the Companys emergence from bankruptcy, the Company issued three forms of equity: class A common stock, class B common stock and warrants to purchase shares of class B common stock (the Special Warrants). As of its emergence from bankruptcy, the Company issued approximately 3.0 million shares of class A common stock; approximately 16.7 million shares of class B common stock and approximately 25.4 million Special Warrants.
The Company is authorized to issue up to 100 million shares of class A common stock, of which approximately 4.4 million shares, net of shares held in treasury, were outstanding as of June 30, 2011, including 0.7 million nonvested shares of class A common stock. Each holder of class A common stock has unlimited voting rights and is entitled to one vote for each share and shall vote, together with the holders of class B common stock, as a single class with respect to the limited number of matters which may be submitted to a vote of the holders of common stock and for which the holders of class B common stock are entitled to vote.
The Company acquired approximately 0.2 million shares of class A common stock for approximately $6.6 million during both the three and six months ended June 30, 2011 through transactions related to the vesting of previously awarded nonvested shares of class A common stock. Upon vesting, the Company withheld shares of stock in an amount sufficient to pay the employees minimum statutory withholding tax required by the relevant tax authorities.
The Company is authorized to issue up to 100 million shares of class B common stock, of which approximately 19.1 million shares were issued and outstanding as of June 30, 2011. Holders of class B common stock have certain limitations on their voting rights, but are entitled to vote on most material matters involving the Company, including material asset sales, business combinations and recapitalizations. Each holder of class B common stock is entitled to a separate class vote on any amendment or modification of any specific rights or obligations of the holders of class B common stock that does not similarly affect the rights or obligations of the holders of class A common stock. If certain specific actions are submitted to a vote of the holders of common stock, each share of class B common stock shall be entitled to vote with class A common stock, with each share of common stock having one vote and voting together as a single class. Each share of class B common stock may be converted into one share of class A common stock by the holder, provided that such holder does not have an attributable interest in another entity that would cause the Company to violate applicable FCC multiple ownership rules and regulations.
As of the Emergence Date, the Company issued Special Warrants to purchase up to an aggregate of approximately 25.4 million shares of class B common stock to certain holders of senior claims and general unsecured claims, of which 22.9 million Special Warrants were outstanding as of June 30, 2011. The Special Warrants have a 20-year term and will expire on June 3, 2030. The conversion of the Special Warrants is subject to the Companys compliance with applicable FCC regulations. Each Special Warrant to purchase class B common stock may be exercised prior to its expiration date at the minimal exercise price, which is the $0.001 per share par value of the class B common stock, provided that ownership of the Company by the holder does not cause the Company to violate applicable FCC rules and regulations surrounding foreign ownership of broadcasting licenses.
The Company is authorized to issue up to 50 million shares of preferred stock. No preferred shares were issued as of June 30, 2011.
The holders of Special Warrants participate in any dividends ratably, provided that no such distribution shall be made to holders of Special Warrants, class A common stock and class B common stock if (i) an FCC ruling, regulation or policy prohibits such distribution to holders of warrants or (ii) the Companys FCC counsel opines that such distribution is reasonably likely to cause (a) the Company to violate any applicable FCC rules or regulations or (b) any such holder of Special Warrants to be deemed to hold an attributable interest in the Company.
Equity Held in Reserve
Holders of unsecured claims, including the secured lenders deficiency claim in the stipulated amount of $267.2 million and the claims of the Predecessors convertible subordinated noteholders, received a pro rata share of (i) 10% of Successor equity (subject to dilution for distributions of equity under the Successors equity incentive program) and (ii) $36.0 million in cash. Once the allowed amount of an unsecured claim is determined through settlement or by Bankruptcy Court order, the claimant is entitled to a distribution as provided for by the Emergence Plan. As of June 30, 2011, 4.3 million units of equity and $33.7 million in cash had been distributed to holders of allowed unsecured claims that totaled $336.0 million; and approximately 286,000 units of Successor equity and $2.3 million of cash were held in reserve to satisfy remaining allowed, disputed or unreconciled unsecured claims. Shares held in reserve are not designated as class A common stock, class B common stock or Special Warrants until issuance. The Successor equity held in reserve to be disbursed on account of unsecured claims is separately identified in the accompanying consolidated condensed balance sheets. If sufficient excess shares of equity and cash remain in reserve after resolution of all disputed unsecured claims, such shares and cash will be distributed to the claimants with allowed unsecured claims pro-rata, based on the number of shares and amount of cash they received pursuant to the Emergence Plan.
16
Predecessor
Citadel Broadcasting Corporation was incorporated in Delaware in 1993 and was initially capitalized by partnerships affiliated with FL&Co. in connection with a leveraged buyout transaction. The Predecessors initial public offering registration statement with the Securities and Exchange Commission was declared effective in July 2003. The Predecessor issued 151.7 million shares of its common stock to TWDCs stockholders in connection with the ABC Merger. In connection with the Companys reorganization and emergence from bankruptcy, all shares of common stock of the Predecessor outstanding prior to the Emergence Date were cancelled pursuant to the Emergence Plan.
10. Stock-Based Compensation
Successor
The Company adopted the Citadel Broadcasting Corporation 2010 Equity Incentive Plan (the 2010 EI Plan) via approval of the Bankruptcy Court, effective as of the Emergence Date, which was amended on June 9, 2010. The 2010 EI Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock and other stock awards (collectively, the Awards).
The aggregate number of shares of common stock available for delivery pursuant to Awards granted under the 2010 EI Plan is 10,000,000 shares, and as of June 30, 2011, the total number of shares that remain authorized, reserved, and available for issuance under the 2010 EI Plan was 5.8 million.
On a pre-tax basis, total stock-based compensation expense for the three and six months ended June 30, 2011 was $11.5 million and $23.6 million, respectively, excluding $0.6 million paid by the Company for taxes related to the vesting of stock awards for each of the three and six months ended June 30, 2011. The associated tax benefit related to the stock-based compensation expense for the three and six months ended June 30, 2011, was $4.6 million and $9.4 million, respectively. As of June 30, 2010, no share-based payments had been issued under the 2010 EI Plan; accordingly, the Company recognized no stock-based compensation expense during June 2010.
As of June 30, 2011, unrecognized pre-tax stock-based compensation expense was approximately $37.9 million and is expected to be recognized over a weighted average period of less than one year.
The following table summarizes the Successors stock option activity for the six months ended June 30, 2011:
Options (in thousands) |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
Options of Common Stock |
||||||||||||||||
Outstanding as of January 1, 2011 |
3,267 | $ | 29.00 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Cancelled |
(107 | ) | 29.00 | |||||||||||||
|
|
|||||||||||||||
Outstanding as of June 30, 2011 |
3,160 | $ | 29.00 | 9.4 | $ | 13,747 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested or expected to vest as of June 30, 2011 (1) |
3,110 | $ | 29.00 | 9.4 | $ | 13,527 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable as of June 30, 2011 |
1,053,396 | $ | 29.00 | 9.4 | $ | 4,582 | ||||||||||
|
|
|
|
|
|
|
|
(1) | Options expected to vest represent the options outstanding reduced for estimated forfeitures. |
No options were granted or exercised during the six months ended June 30, 2011.
The Successors activity related to shares of nonvested stock for the six months ended June 30, 2011 is summarized as follows:
17
Number of Nonvested Share Awards (in thousands) |
Weighted- Average Grant Date Fair Value |
|||||||
Shares of Nonvested Class A Common Stock Awards |
||||||||
Nonvested awards as of January 1, 2011 |
1,207 | $ | 23.00 | |||||
Granted |
60 | 33.85 | ||||||
Awards vested |
(594 | ) | 23.00 | |||||
Forfeited |
(20 | ) | 23.00 | |||||
|
|
|||||||
Nonvested awards as of June 30, 2011 |
653 | $ | 24.00 | |||||
|
|
|
|
The total grant date fair value of awards of nonvested shares of class A common stock that vested during the six months ended June 30, 2011 was $13.7 million.
Predecessor
Total stock-based compensation expense for the periods from April 1, 2010 through May 31, 2010 and from January 1, 2010 through May 31, 2010 was $1.2 million and $1.9 million, respectively, on a pre-tax basis. No tax benefit was recognized with respect to this expense in the Predecessor periods since there was a valuation allowance against the Companys deferred tax asset. The Predecessor issued no share-based payments and there were no options exercised during the period from January 1, 2010 through May 31, 2010. The total fair value of awards of nonvested shares of common stock units that vested during the Predecessor period was $2.9 million.
Nonvested shares of the Predecessors common stock and options to purchase shares of the Predecessors common stock were generally granted under the Citadel Broadcasting Corporation Amended and Restated 2002 Stock Option and Award Plan (the 2002 Stock Option and Award Plan). However, pursuant to the Emergence Plan, the 2002 Stock Option and Award Plan was terminated as of the Emergence Date and all share-based payments previously granted thereunder were canceled as of the Emergence Date. As of the Fresh-Start Date, approximately 7.5 million options to purchase common stock and 1.4 million nonvested shares were outstanding.
11. Income Taxes
Successor
For the three and six months ended June 30, 2011, the Companys effective tax rate was 42.5% and 34.8% respectively. The effective rate differed from the federal tax rate of 35% primarily due to state income taxes, net of federal benefit, and other permanent differences, offset by state tax benefit from changes in enacted tax laws.
For the month ended June 30, 2010, the Companys effective tax rate was 59.2%. This effective rate differed from the federal tax rate of 35% primarily due to state income taxes, net of federal benefit, non-deductible compensation and other permanent differences.
Predecessor
For the two and five months ended May 31, 2010, the Predecessors effective tax rates were 0.4% and 0.5%, respectively. These effective rates differed from the federal tax rate of 35% primarily due to reorganization benefits related to the application of fresh-start reporting for which no income tax expense was recognized, non-deductible restructuring costs, and changes in the Predecessors valuation allowance. The Predecessors effective tax rate for the two and five months ended May 31, 2010, excluding the impact of adopting fresh-start reporting, would have been 2.9% and 3.7%, respectively. These effective rates differed from the federal tax rate of 35% primarily due to non-deductible restructuring costs offset by changes in the Predecessors valuation allowance.
12. Earnings Per Share
Successor
Basic earnings per share for the three and six months ended June 30, 2011 included the outstanding amount of both class A and class B common stock, Special Warrants, whether outstanding or held in reserve to be issued, as well as 0.7 million outstanding nonvested shares of class A common stock. The Companys class A and class B common stock and Special Warrants, including warrants held in reserve, are treated equally for accounting purposes, and the distinctions relate solely to certain voting restrictions and conversion mechanisms in order to allow the Company to comply with applicable FCC rules and regulations. Diluted earnings per share is computed in the same manner as basic earnings per share after assuming issuance of common stock for all potentially dilutive equivalent shares. There were no potentially dilutive equivalent shares related to options to purchase shares of class A common stock for the three and six months ended June 30, 2011.
18
Predecessor
Predecessor | ||||||||
Period from April 1, 2010 through May 31, 2010 |
Period from January 1, 2010 through May 31, 2010 |
|||||||
(In thousands, except per share data) | ||||||||
NUMERATOR: |
||||||||
Income available to common stockholders |
$ | 1,058,227 | $ | 1,069,707 | ||||
DENOMINATOR: |
||||||||
Weighted average common shares |
265,977 | 266,041 | ||||||
Effect of dilutive securities: |
||||||||
Convertible subordinated notes |
1,920 | 1,920 | ||||||
|
|
|
|
|||||
Denominator for net income per common sharediluted |
267,897 | 267,961 | ||||||
|
|
|
|
|||||
Net income per common share: |
||||||||
Basic |
$ | 3.98 | $ | 4.02 | ||||
|
|
|
|
|||||
Diluted |
$ | 3.95 | $ | 3.99 | ||||
|
|
|
|
The diluted shares outstanding for each of the two and five months ended May 31, 2010 included approximately 1.9 million shares of common stock of the Predecessor related to the conversion of the Predecessors convertible subordinated notes. While operating under Chapter 11 of the Bankruptcy Code, the Predecessor was prohibited from paying unsecured pre-petition debts, including the convertible subordinated notes and interest thereon. Therefore, for the two and five months ended May 31, 2010, there was no related interest expense to consider in the calculation of the Predecessors diluted shares. There were no potentially dilutive equivalent shares related to nonvested shares of common stock or options to purchase shares of common stock for the two and five months ended May 31, 2010.
13. Fair Value of Financial Instruments
The Companys financial instruments are measured at fair value on a recurring basis. The related guidance requires, among other things, enhanced disclosures about investments that are measured and reported at fair value and establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. The three levels of the fair value hierarchy are described below:
Level 1Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As of June 30, 2011, all of the Companys financial instruments were classified as level 3 except for its cash equivalents, which were classified as level 1.
The following tables present the changes in level 3 instruments measured on a recurring basis for the six months ended June 30, 2011 and 2010:
Successor | ||||||||||||
January 1, 2011 | Expense items recognized |
June 30, 2011 | ||||||||||
(in thousands) | ||||||||||||
Financial Liabilities: |
||||||||||||
SERP liability |
$ | 11,477 | $ | 828 | $ | 12,305 |
19
Predecessor | Successor | |||||||||||||||
January 1, 2010 | Additions (a) | Expense items recognized |
June 30, 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Financial Liabilities: |
||||||||||||||||
SERP liability |
$ | | $ | 10,510 | $ | 138 | $ | 10,648 |
(a) | The Companys liability under the SERP was valued at $10.5 million and is included in reorganization items, net in the accompanying consolidated condensed statement of operations of the Predecessor. |
The following summary presents a description of the methodologies and assumptions used to determine the estimated fair values for the Companys significant financial instruments.
Cash Equivalents: Cash equivalents represent amounts held in mutual funds that invest in short-term United States Treasury funds or other short-term investments. Due to the short-term nature of these investments, their carrying values were assumed to approximate fair value.
Accounts Receivable, Accounts Payable and Accrued Liabilities: The carrying amount was assumed to approximate the fair value because of the liquidity or short-term maturity of these instruments.
Senior Debt: Based on available evidence, including certain trading prices, the estimated fair value of the Term Loan as of June 30, 2011 approximated its carrying value of $296.5 million.
Senior Notes: Based on available evidence, including certain trading prices, the estimated fair value of the Senior Notes as of June 30, 2011 was $431.0 million compared to the carrying value of $400.0 million.
Other Long-Term Liabilities, including the SERP: The Companys liability under the SERP was initially recorded at its estimated fair value as of the Fresh-Start Date. The Company evaluates the estimated fair value of the SERP liability as of each reporting date to determine if any significant changes have occurred in the underlying assumptions. Any change in the fair value is recognized in the statement of operations at the time of adjustment. The terms of the Companys other long-term liabilities approximate the terms in the marketplace. Therefore, the fair values approximated the carrying values of these financial instruments.
14. Reportable Segments
The Company operates two reportable segments, Radio Markets and Radio Network, as there is discrete financial information available for each segment and the segment operating results are reviewed by the chief operating decision maker. The Radio Markets revenue is primarily derived from the sale of broadcasting time to local, regional and national advertisers. Revenue for the Radio Network is generated primarily through national advertising. The Company presents segment operating income (SOI), which is not calculated according to accounting principles generally accepted in the United States, as the primary measure of operating performance; for planning purposes, including the preparation of the Companys annual operating budget; to allocate resources to enhance the financial performance of our business; to evaluate the effectiveness of our business strategies; to provide consistency and comparability with past financial performance; to facilitate a comparison of our results with those of other companies; in communications with our board of directors concerning our financial performance; and when determining managements incentive compensation. SOI is defined as operating income by segment adjusted to exclude depreciation and amortization, local marketing agreement fees, non-cash compensation expense and related taxes, corporate general and administrative expenses, and other, net. The Company believes the presentation of SOI is relevant and useful for investors because it allows investors to view segment performance in a manner similar to a primary method used by the Companys management and enhances their ability to understand the Companys operating performance.
20
Three Month Periods
Successor | Predecessor | |||||||||||
Three Months Ended June 30, 2011 |
Period from June 1, 2010 through June 30, 2010 |
Period from April 1, 2010 through May 31, 2010 |
||||||||||
(in thousands) | ||||||||||||
Net revenue: |
||||||||||||
Radio Markets |
$ | 157,734 | $ | 55,529 | $ | 108,969 | ||||||
Radio Network |
28,510 | 8,918 | 22,265 | |||||||||
Intersegment revenue: |
||||||||||||
Radio Markets |
(1,248 | ) | (420 | ) | (838 | ) | ||||||
Radio Network |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net revenue |
$ | 184,996 | $ | 64,027 | $ | 130,396 | ||||||
|
|
|
|
|
|
|||||||
SOI: |
||||||||||||
Radio Markets |
$ | 65,498 | $ | 24,497 | $ | 47,640 | ||||||
Radio Network |
4,481 | 984 | 4,674 | |||||||||
Corporate general and administrative |
(13,366 | ) | (1,792 | ) | (3,769 | ) | ||||||
Local marketing agreement fees |
(109 | ) | (100 | ) | (186 | ) | ||||||
Non-cash compensation expense and related taxes |
(3,301 | ) | | (994 | ) | |||||||
Depreciation and amortization |
(23,074 | ) | (8,592 | ) | (4,510 | ) | ||||||
Other, net |
(1,794 | ) | (1,013 | ) | (856 | ) | ||||||
|
|
|
|
|
|
|||||||
Operating income |
28,335 | 13,984 | 41,999 | |||||||||
Reorganization items, net |
| | (1,027,557 | ) | ||||||||
Interest expense, net |
12,085 | 6,314 | 7,251 | |||||||||
Write-off of deferred financing costs |
1,048 | | | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
15,202 | 7,670 | 1,062,305 | |||||||||
Income tax expense |
6,463 | 4,540 | 4,078 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 8,739 | $ | 3,130 | $ | 1,058,227 | ||||||
|
|
|
|
|
|
|||||||
Segment local marketing agreement fees: |
||||||||||||
Radio Markets |
$ | 109 | $ | 100 | $ | 186 | ||||||
Radio Network |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total segment local marketing agreement fees |
$ | 109 | $ | 100 | $ | 186 | ||||||
|
|
|
|
|
|
|||||||
Segment non-cash compensation expense and related taxes: |
||||||||||||
Radio Markets |
$ | 2,958 | $ | | $ | 848 | ||||||
Radio Network |
343 | | 146 | |||||||||
|
|
|
|
|
|
|||||||
Total segment non-cash compensation expense and related taxes |
$ | 3,301 | $ | | $ | 994 | ||||||
|
|
|
|
|
|
|||||||
Segment depreciation and amortization: |
||||||||||||
Radio Markets |
$ | 19,618 | $ | 7,480 | $ | 3,338 | ||||||
Radio Network |
3,456 | 1,112 | 1,172 | |||||||||
|
|
|
|
|
|
|||||||
Total segment depreciation and amortization |
$ | 23,074 | $ | 8,592 | $ | 4,510 | ||||||
|
|
|
|
|
|
21
Six Month Periods
Successor | Predecessor | |||||||||||
Six Months Ended June 30, 2011 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
||||||||||
(in thousands) | ||||||||||||
Net revenue: |
||||||||||||
Radio Markets |
$ | 294,099 | $ | 55,529 | $ | 247,112 | ||||||
Radio Network |
53,380 | 8,918 | 50,324 | |||||||||
Intersegment revenue: |
||||||||||||
Radio Markets |
(2,461 | ) | (420 | ) | (2,012 | ) | ||||||
Radio Network |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net revenue |
$ | 345,018 | $ | 64,027 | $ | 295,424 | ||||||
|
|
|
|
|
|
|||||||
SOI: |
||||||||||||
Radio Markets |
$ | 112,461 | $ | 24,497 | $ | 94,023 | ||||||
Radio Network |
5,633 | 984 | 8,027 | |||||||||
Corporate general and administrative |
(27,818 | ) | (1,792 | ) | (8,929 | ) | ||||||
Local marketing agreement fees |
(208 | ) | (100 | ) | (455 | ) | ||||||
Non-cash compensation expense and related taxes |
(6,108 | ) | | (1,311 | ) | |||||||
Depreciation and amortization |
(46,117 | ) | (8,592 | ) | (11,365 | ) | ||||||
Other, net |
(9,078 | ) | (1,013 | ) | (854 | ) | ||||||
|
|
|
|
|
|
|||||||
Operating income (loss) |
28,765 | 13,984 | 79,136 | |||||||||
Reorganization items, net |
| | (1,014,077 | ) | ||||||||
Interest expense, net |
24,496 | 6,314 | 17,771 | |||||||||
Write-off of deferred financing costs |
1,048 | | | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
3,221 | 7,670 | 1,075,442 | |||||||||
Income tax expense |
1,120 | 4,540 | 5,737 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 2,101 | $ | 3,130 | $ | 1,069,705 | ||||||
|
|
|
|
|
|
|||||||
Segment local marketing agreement fees: |
||||||||||||
Radio Markets |
$ | 208 | $ | 100 | $ | 455 | ||||||
Radio Network |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total segment local marketing agreement fees |
$ | 208 | $ | 100 | $ | 455 | ||||||
|
|
|
|
|
|
|||||||
Segment non-cash compensation expense and related taxes: |
||||||||||||
Radio Markets |
$ | 5,444 | $ | | $ | 1,143 | ||||||
Radio Network |
664 | | 168 | |||||||||
|
|
|
|
|
|
|||||||
Total segment non-cash compensation expense and related taxes |
$ | 6,108 | $ | | $ | 1,311 | ||||||
|
|
|
|
|
|
|||||||
Segment depreciation and amortization: |
||||||||||||
Radio Markets |
$ | 39,206 | $ | 7,480 | $ | 8,370 | ||||||
Radio Network |
6,911 | 1,112 | 2,995 | |||||||||
|
|
|
|
|
|
|||||||
Total segment depreciation and amortization |
$ | 46,117 | $ | 8,592 | $ | 11,365 | ||||||
|
|
|
|
|
|
Successor | ||||||||
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Identifiable assets: |
||||||||
Radio Markets, exclusive of goodwill shown separately below |
$ | 1,369,232 | $ | 1,416,723 | ||||
Goodwill |
719,229 | 719,229 | ||||||
|
|
|
|
22
Total Radio Markets identifiable assets |
$ | 2,088,461 | $ | 2,135,952 | ||||
|
|
|
|
|||||
Radio Network, exclusive of goodwill shown separately below |
$ | 108,606 | $ | 103,130 | ||||
Goodwill |
44,620 | 44,620 | ||||||
|
|
|
|
|||||
Total Radio Network identifiable assets |
$ | 153,226 | $ | 147,750 | ||||
|
|
|
|
|||||
Corporate and other identifiable assets |
$ | 110,667 | $ | 124,412 | ||||
|
|
|
|
|||||
Total assets |
$ | 2,352,354 | $ | 2,408,114 | ||||
|
|
|
|
15. Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, or other sources are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.
Effective December 31, 2009, the Companys radio music license agreements with the two largest performance rights organizations, American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), expired. The Radio Music License Committee (RMLC), which negotiates music licensing fees for most of the radio industry with ASCAP and BMI, had reached an agreement with these organizations on a temporary fee schedule that reflects a provisional discount of 7.0% against 2009 fee levels. The temporary fee reductions became effective in January 2010. Absent an agreement on longer-term fees between the RMLC and ASCAP and BMI, the U.S. District Court in New York has the authority to make an interim and permanent fee ruling for the new contract period. In May 2010 and June 2010, the U.S. District Courts judges charged with determining the license fees ruled to further reduce interim fees paid to ASCAP and BMI, respectively, down approximately another 11.0% from the previous temporary fees negotiated with the RMLC. When the final license fees are set (either by negotiation or by court order), the rates will be retroactive to January 1, 2010, and the amounts could be greater or less than the temporary fees and could be material to the Companys financial results and cash flows. John Sander is currently the chairman of the board of directors of both the Company and BMI.
Litigation
On March 14, 2011, the Company, its board of directors, and Cumulus were named in a putative stockholder class action complaint filed in the District Court of Clark County, Nevada, by a purported Company stockholder. On March 23, 2011, these same defendants, as well as Holdco and Cumulus Merger Sub, were named in a second putative stockholder class action complaint filed in the same court by another purported Company stockholder. The complaints allege that the Companys directors breached their fiduciary duties by approving the merger for allegedly inadequate consideration and following an allegedly unfair sale process. The complaint in the first action also alleges that the Companys directors breached their fiduciary duties by allegedly withholding material information relating to the merger. The two complaints further allege that the Company and Cumulus aided and abetted the Companys directors alleged breaches of fiduciary duties, and the complaint filed in the second action alleges, additionally, that Holdco and Cumulus Merger Sub aided and abetted these alleged breaches of fiduciary duties. The complaints seek, among other things, a declaration that the action can proceed as a class action, an order enjoining the completion of the merger, rescission of the merger, attorneys fees, and such other relief as the court deems just and proper. The complaint filed in the second action also seeks rescissory damages. On June 23, 2011, the court consolidated the two Nevada actions and appointed lead counsel. On July 29, 2011, lead counsel filed a Notice of Voluntary Dismissal dismissing the claims of one of the two Nevada plaintiffs against all the defendants without prejudice, because the plaintiff no longer had standing to pursue claims on his own behalf or on behalf of the putative class. The claims of the putative class have not yet been dismissed.
On May 6, 2011, two purported common stockholders of the Company filed a putative class action complaint against the Company, its board of directors, Cumulus, Holdco, and Cumulus Merger Sub in the Court of Chancery of the State of Delaware (Delaware Chancery Court). On July 19, 2011, the plaintiffs in the Delaware action filed an amended complaint alleging that the Companys directors breached their fiduciary duties to the Companys stockholders by approving the merger for allegedly inadequate consideration, following an allegedly unfair sale process, and by failing to disclose material information related to the merger. The amended complaint further alleges that the Company, Cumulus, HoldCo, and Cumulus Merger Sub aided and abetted these alleged fiduciary breaches. The complaint seeks, among other things, an order enjoining the merger, a declaration that the action is properly maintainable as a class action, and rescission of the merger agreement, as well as attorneys fees and costs. Also on July 19, 2011, the plaintiffs in the Delaware action filed a Motion for Expedited Proceedings. On July 20, 2011, the plaintiffs in the Delaware action filed a Motion for Preliminary Injunction, seeking an order preliminarily enjoining the merger. On August 1, 2011, the plaintiffs in the Delaware action filed a Notice of Dismissal pursuant to Court of Chancery Rule 41(a)(1)(i) dismissing their claims against all the
23
defendants without prejudice. On August 3, 2011, the plaintiffs in the Delaware action filed a revised notice and proposed Order of Dismissal pursuant to Rule 41(a)(1)(i) dismissing their claims against all defendants without prejudice. On August 5, 2011, the Delaware Court of Chancery signed Plaintiffs proposed Order of Dismissal pursuant to Rule 41(a)(1)(i) dated August 3, 2011. The claims of the putative class have not yet been dismissed.
Each of Cumulus and the Company is obliged under certain circumstances to indemnify and hold harmless each of their respective directors and officers from and against any and all claims and liabilities to which such director or officer shall have become subject by reason of being a director or officer, to the full extent permitted under Delaware law. An adverse outcome in these lawsuits could prevent or delay the consummation of the merger and result in substantial costs to the Company and/or Cumulus. It is also possible that other similar lawsuits may be filed in the future. Neither Cumulus nor the Company can reasonably estimate any possible loss from current or future litigation.
Pursuant to the Bankruptcy Code, pre-petition claims (including secured, unsecured, priority and administrative claims) of the Debtors are evidenced in the schedules of liabilities filed by the Debtors with the Bankruptcy Court and by proofs of claim filed by creditors. The process to resolve these claims continues until all pre-petition claims are resolved. In connection with resolving these claims, certain claims could result in additional expense or income in the Successors financial statements if actual results differ from estimated liabilities, and such additional expense or income could be material.
The Company is involved in certain other claims and lawsuits arising in the ordinary course of its business. The Company believes that such litigation and claims will be resolved without a material adverse impact on its results of operations, cash flows or financial condition.
24
16. | Supplemental Consolidating Condensed Financial Information |
In connection with the completion of the Cumulus Merger, the Company (the Guarantor Parent) and certain of its wholly owned subsidiaries (collectively, the Non-parent Subsidiary Guarantors) provided guarantees under HoldCos $610.0 million aggregate principal amount 7.75% Senior Notes due 2019 (the HoldCo Notes). These guarantees are full and unconditional as well as joint and several. Certain guarantors may be subject to restrictions on their ability to distribute earnings to HoldCo or to its parent company, Cumulus. The remaining subsidiaries of the Company are not guarantors of the HoldCo Notes (collectively, the Non-guarantors).
The following tables present consolidating condensed balance sheets as of June 30, 2011 and December 31, 2010, consolidating condensed statements of operations for the three and six months ended June 30, 2011 and 2010, respectively, and consolidating condensed statements of cash flows for the six months ended June 30, 2011 and 2010, respectively, of the Parent Guarantor (on a stand-alone, non-consolidated basis), the Non-parent Subsidiary Guarantors and the Non-guarantors. The operating activities of the separate legal entities included in the Companys consolidating condensed financial statements are interdependent and reflect certain allocations of assets, liabilities and expenses between the entities that involve the exercise of management judgment.
25
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
As of June 30, 2011
(Dollars in thousands)
(Unaudited)
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 89,993 | $ | 14,810 | $ | | $ | | $ | 104,803 | ||||||||||
Accounts receivable, net |
8 | 142,393 | | | 142,401 | |||||||||||||||
Intercompany |
(157,349 | ) | 156,591 | 258 | 500 | | ||||||||||||||
Prepaid expenses and other current assets |
2,487 | 29,450 | | | 31,937 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
(64,861 | ) | 343,244 | 258 | 500 | 279,141 | ||||||||||||||
Long-term assets |
||||||||||||||||||||
Investments in consolidated subsidiaries |
2,103,336 | | | (2,103,336 | ) | | ||||||||||||||
Property and equipment, net |
| 196,008 | | | 196,008 | |||||||||||||||
FCC licenses |
| | 887,975 | | 887,975 | |||||||||||||||
Goodwill |
| 763,849 | | | 763,849 | |||||||||||||||
Customer and affiliate relationships, net |
| 162,085 | | | 162,085 | |||||||||||||||
Other assets, net |
18,036 | 45,260 | | | 63,296 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 2,056,511 | $ | 1,510,446 | $ | 888,233 | $ | (2,102,836 | ) | $ | 2,352,354 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Accounts payable, accrued liabilities and other liabilities |
$ | 3,796 | $ | 45,296 | $ | 758 | $ | | $ | 49,850 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
3,796 | 45,296 | 758 | | 49,850 | |||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Senior debt, less current portion |
296,500 | | | | 296,500 | |||||||||||||||
Senior notes |
400,000 | | | | 400,000 | |||||||||||||||
Other long-term liabilities, less current portion |
| 54,068 | | | 54,068 | |||||||||||||||
Deferred income tax liabilities |
60,035 | 436 | 195,285 | | 255,756 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
760,331 | 99,800 | 196,043 | | 1,056,174 | |||||||||||||||
Stockholders equity (deficit) |
||||||||||||||||||||
Class A common stock |
5 | | | | 5 | |||||||||||||||
Class B common stock |
19 | | | | 19 | |||||||||||||||
Treasury stock |
(6,575 | ) | | | | (6,575 | ) | |||||||||||||
Equity held in reserve |
7,887 | | | | 7,887 | |||||||||||||||
Additional paid-in capital |
1,294,526 | 1,367,751 | 692,690 | (2,060,441 | ) | 1,294,526 | ||||||||||||||
Retained earnings (accumulated deficit) |
318 | 42,895 | (500 | ) | (42,395 | ) | 318 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total stockholders equity (deficit) |
1,296,180 | 1,410,646 | 692,190 | (2,102,836 | ) | 1,296,180 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 2,056,511 | $ | 1,510,446 | $ | 888,233 | $ | (2,102,836 | ) | $ | 2,352,354 | |||||||||
|
|
|
|
|
|
|
|
|
|
26
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
As Of December 31, 2010
(Dollars in thousands)
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 99,458 | $ | 12,166 | $ | | $ | | $ | 111,624 | ||||||||||
Accounts receivable, net |
8 | 138,743 | | | 138,751 | |||||||||||||||
Intercompany |
(100,719 | ) | 100,466 | (698 | ) | 951 | | |||||||||||||
Prepaid expenses and other current assets |
3,989 | 33,429 | | | 37,418 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
2,736 | 284,804 | (698 | ) | 951 | 287,793 | ||||||||||||||
Long-term assets |
||||||||||||||||||||
Investments in consolidated subsidiaries |
2,068,533 | | | (2,068,533 | ) | | ||||||||||||||
Property and equipment, net |
| 200,121 | | | 200,121 | |||||||||||||||
FCC licenses |
| | 893,610 | | 893,610 | |||||||||||||||
Goodwill |
| 763,849 | | | 763,849 | |||||||||||||||
Customer and affiliate relationships, net |
| 195,080 | | | 195,080 | |||||||||||||||
Other assets, net |
20,833 | 46,828 | | | 67,661 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 2,092,102 | $ | 1,490,682 | $ | 892,912 | $ | (2,067,582 | ) | $ | 2,408,114 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Accounts payable, accrued liabilities and other liabilities |
$ | 7,410 | $ | 48,997 | $ | 254 | $ | | $ | 56,661 | ||||||||||
Senior debt, current |
3,500 | | | | 3,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
10,910 | 48,997 | 254 | | 60,161 | |||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Senior debt, less current portion |
346,500 | | | | 346,500 | |||||||||||||||
Senior notes |
400,000 | | | | 400,000 | |||||||||||||||
Other long-term liabilities, less current portion |
| 58,342 | | | 58,342 | |||||||||||||||
Deferred income tax liabilities |
60,035 | 13,134 | 195,285 | | 268,454 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
817,445 | 120,473 | 195,539 | | 1,133,457 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Stockholders equity (deficit) |
||||||||||||||||||||
Class A common stock |
5 | | | | 5 | |||||||||||||||
Class B common stock |
18 | | | | 18 | |||||||||||||||
Equity held in reserve |
13,182 | | | | 13,182 | |||||||||||||||
Additional paid-in capital |
1,263,235 | 1,349,061 | 702,570 | (2,051,631 | ) | 1,263,235 | ||||||||||||||
Accumulated deficit |
(1,783 | ) | 21,148 | (5,197 | ) | (15,951 | ) | (1,783 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total stockholders equity (deficit) |
1,274,657 | 1,370,209 | 697,373 | (2,067,582 | ) | 1,274,657 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity (deficit) |
$ | 2,092,102 | $ | 1,490,682 | $ | 892,912 | $ | (2,067,582 | ) | $ | 2,408,114 | |||||||||
|
|
|
|
|
|
|
|
|
|
54
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Three Months Ended June 30, 2011
(Dollars in thousands)
(Unaudited)
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||
Net revenue |
$ | | $ | 184,996 | $ | | $ | | $ | 184,996 | ||||||||||
Operating expenses: |
||||||||||||||||||||
Cost of revenue, exclusive of depreciation and amortization and including non-cash compensation expense and related taxes |
| 69,006 | | | 69,006 | |||||||||||||||
Selling, general and administrative, including non-cash compensation expense and related taxes |
| 49,312 | | | 49,312 | |||||||||||||||
Corporate general and administrative, including non-cash compensation expense and related taxes |
| 13,116 | 250 | | 13,366 | |||||||||||||||
Local marketing agreement fees |
| 109 | | | 109 | |||||||||||||||
Depreciation and amortization |
| 23,074 | | | 23,074 | |||||||||||||||
Other, net |
| 1,794 | | | 1,794 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses |
| 156,411 | 250 | | 156,661 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 28,585 | (250 | ) | | 28,335 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-operating income (expense): |
||||||||||||||||||||
Earnings from consildated subsiadiaries |
15,177 | (15,177 | ) | | ||||||||||||||||
Interest expense, net |
(12,342 | ) | 257 | | | (12,085 | ) | |||||||||||||
Write-off of deferred financing costs |
(1,048 | ) | | | | (1,048 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-operating expense, net |
1,787 | 257 | | (15,177 | ) | (13,133 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
1,787 | 28,842 | (250 | ) | (15,177 | ) | 15,202 | |||||||||||||
Income tax (expense) benefit |
6,952 | (13,415 | ) | | | (6,463 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 8,739 | $ | 15,427 | $ | (250 | ) | $ | (15,177 | ) | $ | 8,739 | ||||||||
|
|
|
|
|
|
|
|
|
|
27
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 2011
(Dollars in thousands)
(Unaudited)
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||
Net revenue |
$ | | $ | 345,018 | $ | | $ | | $ | 345,018 | ||||||||||
Operating expenses: |
||||||||||||||||||||
Cost of revenue, exclusive of depreciation and amortization and including non-cash compensation expense and related taxes |
| 137,528 | | | 137,528 | |||||||||||||||
Selling, general and administrative, including non-cash compensation expense and related taxes |
| 95,504 | | | 95,504 | |||||||||||||||
Corporate general and administrative, including non-cash compensation expense and related taxes |
| 27,318 | 500 | | 27,818 | |||||||||||||||
Local marketing agreement fees |
| 208 | | | 208 | |||||||||||||||
Depreciation and amortization |
| 46,117 | | | 46,117 | |||||||||||||||
Other, net |
| 9,078 | | | 9,078 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses |
| 315,753 | 500 | | 316,253 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
| 29,265 | (500 | ) | | 28,765 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-operating income (expense): |
||||||||||||||||||||
Earnings from consildated subsiadiaries |
15,380 | | | (15,380 | ) | | ||||||||||||||
Interest expense, net |
(24,991 | ) | 495 | | | (24,496 | ) | |||||||||||||
Write-off of deferred financing costs |
(1,048 | ) | | | | (1,048 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-operating expense, net |
(10,659 | ) | 495 | | (15,380 | ) | (25,544 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
(10,659 | ) | 29,760 | (500 | ) | (15,380 | ) | 3,221 | ||||||||||||
Income tax benefit (expense) |
12,760 | (13,880 | ) | | | (1,120 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income |
$ | 2,101 | $ | 15,880 | $ | (500 | ) | $ | (15,380 | ) | $ | 2,101 | ||||||||
|
|
|
|
|
|
|
|
|
|
28
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||||
Period from June 1, 2010 through June 30, 2010 |
Period from April 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from April 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from April 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from April 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from April 1, 2010 through May 31, 2010 |
|||||||||||||||||||||||||||||||||||||||||
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Net revenue |
$ | | $ | | $ | 64,027 | $ | 130,396 | $ | | $ | | $ | | $ | | $ | 64,027 | $ | 130,396 | ||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue, exclusive of depreciation and amortization shown separately below and including non-cash compensation expense and related taxes |
| | 22,631 | 47,124 | | | | | 22,631 | 47,124 | ||||||||||||||||||||||||||||||||||||||||
Selling, general and |
| | 15,915 | 31,952 | | | | | 15,915 | 31,952 | ||||||||||||||||||||||||||||||||||||||||
Corporate general and administrative including non-cash compensation expense and related taxes |
| | 1,708 | 3,525 | 84 | 244 | | | 1,792 | 3,769 | ||||||||||||||||||||||||||||||||||||||||
Local marketing agreement fees |
| | 100 | 186 | | | | | 100 | 186 | ||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| | 8,592 | 4,510 | | | | | 8,592 | 4,510 | ||||||||||||||||||||||||||||||||||||||||
Other, net |
1,008 | | 5 | 856 | | | | | 1,013 | 856 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Operating expenses |
1,008 | | 48,951 | 88,153 | 84 | 244 | | | 50,043 | 88,397 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Operating income |
(1,008 | ) | | 15,076 | 42,243 | (84 | ) | (244 | ) | | | 13,984 | 41,999 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Non-operating income (expense): |
||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings from consolidated subsiadiaries |
6,178 | 5,260 | | | | | (6,178 | ) | (5,260 | ) | | | ||||||||||||||||||||||||||||||||||||||
Reorganization items, net |
| 1,056,640 | | (29,083 | ) | | | | | | 1,027,557 | |||||||||||||||||||||||||||||||||||||||
Interest expense, net |
(6,348 | ) | (428 | ) | 34 | (6,823 | ) | | | | | (6,314 | ) | (7,251 | ) | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Total non-operating expense, net |
(170 | ) | 1,061,472 | 34 | (35,906 | ) | | | (6,178 | ) | (5,260 | ) | (6,314 | ) | 1,020,306 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Income before income taxes |
(1,178 | ) | 1,061,472 | 15,110 | 6,337 | (84 | ) | (244 | ) | (6,178 | ) | (5,260 | ) | 7,670 | 1,062,305 | |||||||||||||||||||||||||||||||||||
Income tax (expense) benefit |
4,308 | (3,245 | ) | (8,848 | ) | 2,292 | | (3,125 | ) | | | (4,540 | ) | (4,078 | ) | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Net (loss) income |
$ | 3,130 | $ | 1,058,227 | $ | 6,262 | $ | 8,629 | $ | (84 | ) | $ | (3,369 | ) | $ | (6,178 | ) | $ | (5,260 | ) | $ | 3,130 | $ | 1,058,227 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||||
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
|||||||||||||||||||||||||||||||||||||||||
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Net revenue |
$ | | $ | | $ | 64,027 | $ | 295,424 | $ | | $ | | $ | | $ | | $ | 64,027 | $ | 295,424 | ||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue, exclusive of depreciation and amortization shown separately below and including non-cash compensation expense and related taxes |
| | 22,631 | 116,103 | | | | | 22,631 | 116,103 | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative including non-cash compensation expense and related taxes |
| | 15,915 | 78,582 | | | | | 15,915 | 78,582 | ||||||||||||||||||||||||||||||||||||||||
Corporate general and administrative including non-cash compensation expense and related taxes |
| | 1,708 | 8,521 | 84 | 408 | | | 1,792 | 8,929 | ||||||||||||||||||||||||||||||||||||||||
Local marketing agreement fees |
| | 100 | 455 | | | | | 100 | 455 | ||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| | 8,592 | 11,365 | | | | | 8,592 | 11,365 | ||||||||||||||||||||||||||||||||||||||||
Other, net |
1,008 | | 5 | 854 | | | | | 1,013 | 854 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Operating expenses |
1,008 | | 48,951 | 215,880 | 84 | 408 | | 50,043 | 216,288 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Operating (loss) income |
(1,008 | ) | | 15,076 | 79,544 | (84 | ) | (408 | ) | | 13,984 | 79,136 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Non-operating income (expense): |
||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings from consildated subsiadiaries |
6,178 | 29,235 | | | | | (6,178 | ) | (29,235 | ) | | | ||||||||||||||||||||||||||||||||||||||
Reorganization items, net |
| 1,043,160 | | (29,083 | ) | | | | | | 1,014,077 | |||||||||||||||||||||||||||||||||||||||
Interest expense, net |
(6,348 | ) | (1,048 | ) | 34 | (16,723 | ) | | | | | (6,314 | ) | (17,771 | ) | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Total non-operating expense, net |
(170 | ) | 1,071,347 | 34 | (45,806 | ) | | | (6,178 | ) | (29,235 | ) | (6,314 | ) | 996,306 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
(Loss) income before income taxes |
(1,178 | ) | 1,071,348 | 15,110 | 33,738 | (84 | ) | (408 | ) | (6,178 | ) | (29,235 | ) | 7,670 | 1,075,442 | |||||||||||||||||||||||||||||||||||
Income tax benefit (expense) |
4,308 | (1,642 | ) | (8,848 | ) | 150 | | (4,245 | ) | | | (4,540 | ) | (5,737 | ) | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Net income (loss) |
$ | 3,130 | $ | 1,069,705 | $ | 6,262 | $ | 33,888 | $ | (84 | ) | $ | (4,653 | ) | $ | (6,178 | ) | $ | (29,235 | ) | $ | 3,130 | $ | 1,069,705 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2011
(Dollars in thousands)
(Unaudited)
Guarantor Parent (Company) |
Non-parent Subsidiary Guarantors |
Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net (loss) income |
$ | 2,101 | $ | 15,880 | $ | (500 | ) | $ | (15,380 | ) | $ | 2,101 | ||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||||||||||||||
Depreciation and amortization |
| 46,117 | | | 46,117 | |||||||||||||||
Write-off of deferred financing costs |
1,048 | | | | 1,048 | |||||||||||||||
Non-cash debt-related amounts |
1,893 | | | | 1,893 | |||||||||||||||
Provision for bad debts |
| (647 | ) | | | (647 | ) | |||||||||||||
Loss on sale of assets |
| 329 | 75 | | 404 | |||||||||||||||
Deferred income taxes |
| 693 | | | 693 | |||||||||||||||
Non-cash compensation expense |
| 24,216 | | | 24,216 | |||||||||||||||
Changes in operating assets and liabilities |
44,212 | (83,170 | ) | 1,803 | 15,380 | (21,775 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash (used in) provided by operating activities |
49,254 | 3,418 | 1,378 | | 54,050 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Capital expenditures |
| (4,128 | ) | | | (4,128 | ) | |||||||||||||
FCC license upgrade |
| | (65 | ) | | (65 | ) | |||||||||||||
Proceeds from sale of assets |
| 78 | 1,875 | | 1,953 | |||||||||||||||
Restricted cash |
1,515 | (1 | ) | | | 1,514 | ||||||||||||||
Other assets, net |
3 | 3,313 | (3,188 | ) | | 128 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided (used in) by investing activities |
1,518 | (738 | ) | (1,378 | ) | | (598 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Debt issuance costs |
(162 | ) | | | | (162 | ) | |||||||||||||
Principal payments on other long-term obligations |
| (36 | ) | | | (36 | ) | |||||||||||||
Purchase of shares held in treasury |
(6,575 | ) | | | | (6,575 | ) | |||||||||||||
Principal payments on Credit Facility |
(53,500 | ) | | | | (53,500 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in financing activities |
(60,237 | ) | (36 | ) | | | (60,273 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (decrease) increase in cash and cash equivalents |
(9,465 | ) | 2,644 | | | (6,821 | ) | |||||||||||||
Cash and cash equivalents, beginning of period |
99,458 | 12,166 | | | 111,624 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | 89,993 | $ | 14,810 | $ | | $ | | $ | 104,803 | ||||||||||
|
|
|
|
|
|
|
|
|
|
31
CITADEL BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||||
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
Period from June 1, 2010 through June 30, 2010 |
Period from January 1, 2010 through May 31, 2010 |
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Guarantor Parent (Company) | Non-parent SubsidiaryGuarantors | Non-guarantors | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from operating activities: |
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Net (loss) income |
$ | 3,130 | $ | 1,069,705 | $ | 6,262 | $ | 33,888 | $ | (84 | ) | $ | (4,653 | ) | $ | (6,178 | ) | $ | (29,235 | ) | $ | 3,130 | $ | 1,069,705 | ||||||||||||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
| | 8,592 | 11,365 | | | | | 8,592 | 11,365 | ||||||||||||||||||||||||||||||||||||||||
Non-cash debt-related amounts |
(439 | ) | | | | | | | | (439 | ) | | ||||||||||||||||||||||||||||||||||||||
Reorganization items, net |
| (1,092,722 | ) | | 29,083 | | | | | | (1,063,639 | ) | ||||||||||||||||||||||||||||||||||||||
Provision for bad debts |
| | 221 | 578 | | | | | 221 | 578 | ||||||||||||||||||||||||||||||||||||||||
Loss on sale of assets |
| | | 708 | | | | | | 708 | ||||||||||||||||||||||||||||||||||||||||
Deferred income taxes |
(4,324 | ) | 1,565 | 8,807 | 3,585 | | | | | 4,483 | 5,150 | |||||||||||||||||||||||||||||||||||||||
Non-cash compensation expense |
| 1,881 | | | | | | | | 1,881 | ||||||||||||||||||||||||||||||||||||||||
Changes in operating assets and liabilities |
(1,850 | ) | 55,691 | (24,522 | ) | (111,643 | ) | 76 | 4,628 | 6,178 | 70,163 | (20,118 | ) | 18,839 | ||||||||||||||||||||||||||||||||||||
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Net cash (used in) provided by operating activities |
(3,483 | ) | 36,120 | (640 | ) | (32,436 | ) | (8 | ) | (25 | ) | | 40,928 | (4,131 | ) | 44,587 | ||||||||||||||||||||||||||||||||||
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Cash flows from investing activities: |
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Capital expenditures |
| | (430 | ) | (3,409 | ) | | | | | (430 | ) | (3,409 | ) | ||||||||||||||||||||||||||||||||||||
Proceeds from sale of assets |
| | | 5 | | | | | | 5 | ||||||||||||||||||||||||||||||||||||||||
Restricted cash |
(2 | ) | | 607 | (7,773 | ) | | | | | 605 | (7,773 | ) | |||||||||||||||||||||||||||||||||||||
Other assets, net |
| | | | 8 | 25 | | | 8 | 25 | ||||||||||||||||||||||||||||||||||||||||
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Net cash (used in) provided by investing activities |
(2 | ) | | 177 | (11,177 | ) | 8 | 25 | | | 183 | (11,152 | ) | |||||||||||||||||||||||||||||||||||||
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Cash flows from financing activities: |
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Principal payments on other long-term obligations |
| | (8 | ) | (125 | ) | | | | | (8 | ) | (125 | ) | ||||||||||||||||||||||||||||||||||||
Purchase of shares held in treasury |
| (5 | ) | | | | | | | | (5 | ) | ||||||||||||||||||||||||||||||||||||||
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Net cash used in financing activities |
| (5 | ) | (8 | ) | (125 | ) | | | | | (8 | ) | (130 | ) | |||||||||||||||||||||||||||||||||||
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Net (decrease) increase in cash and cash equivalents |
(3,485 | ) | 36,115 | (471 | ) | (43,738 | ) | | | | 40,928 | (3,956 | ) | 33,305 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents, beginning of period |
78,424 | 42,309 | 12,322 | 56,060 | | | | (40,928 | ) | 90,746 | 57,441 | |||||||||||||||||||||||||||||||||||||||
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Cash and cash equivalents, end of period |
$ | 74,939 | $ | 78,424 | $ | 11,851 | $ | 12,322 | $ | | $ | | $ | | $ | | $ | 86,790 | $ | 90,746 | ||||||||||||||||||||||||||||||
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32
Income Taxes
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9 Months Ended | 6 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011
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Jun. 30, 2011
Citadel Broadcasting Corp. [Member]
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Income Taxes | 10. Income Taxes The Company accounts for income taxes in accordance with authoritative accounting guidance which establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns.
In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact the Company's consolidated financial statements. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. In accordance with authoritative accounting guidance, the Company recognizes liabilities for anticipated tax audit issues based on managements' estimates of whether, and the extent to which, additional taxes may be required. If the Company ultimately determines that payment of these amounts is unnecessary, then the Company reverses the liability and recognizes a tax benefit during the period in which the Company determines that the liability is no longer necessary. The Company also recognizes tax benefits to the extent that it is more likely than not that its positions will be sustained if challenged by the taxing authorities. To the extent the Company prevails in matters for which liabilities have been established, or are required to pay amounts in excess of its liabilities, the Company's effective tax rate in a given period may be materially affected. An unfavorable tax settlement would require cash payments and may result in an increase in the Company's effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in the Company's effective tax rate in the year of resolution. The Company reports interest and penalties related to uncertain income tax positions as income taxes. In connection with the Citadel Acquisition, the Company acquired federal net operating losses totaling approximately $247.0 million. Due to the change in control in Citadel, these net operating losses are subject to annual limitations on their usage that the Company currently estimates will be between $70.0 and $80.0 million per year. In addition, the Citadel Acquisition triggered a change in control for the Company that will result in the Company's net operating losses also being subject to annual limitation on their usage. The Company is currently evaluating the extent of these annual limitations. Additionally, during the three months ended September 30, 2011, the Company established unrecognized tax benefit liabilities related to the Citadel Acquisition and the CMP Acquisition. The following table reconciles unrecognized tax benefits during the period (dollars in thousands):
The provision for income taxes reflects the Company's estimate of the effective tax rate expected to be applicable for the full current year. To the extent that actual pre-tax results for the year differ from the forecasted estimates applied at the end of the most recent interim period, the actual tax rate recognized during calendar 2011 could be different from the forecast rate. The Company's effective tax rate was 636.6% and 12.5% for the three months ended September 30, 2011 and September 30, 2010, respectively. The effective tax rate was -607.4% and 11.2% for the nine months ended September 30, 2011 and September 30, 2010, respectively. The effective tax rate increased significantly for the three months ended September 30, 2011 compared to the prior year period due to the impact of the CMP Acquisition and Citadel Acquisition providing future sources of taxable income sufficient to allow for a partial release of the valuation allowance previously recorded against the Company's deferred tax assets. The Company regularly reviews its deferred tax assets for recoverability taking into consideration such factors as historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. Current authoritative tax guidance requires the Company to record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." It further stipulates that "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years." Since inception through September 30, 2011, the Company maintained a 100% valuation allowance equal to the deferred U.S. tax assets after considering the U.S. deferred tax assets that can be realized through offsets to existing taxable temporary differences. The Company does not consider the indefinite-lived intangible assets as future sources of taxable income when determining the amount of valuation allowance needed. As a result of the CMP Acquisition and the Citadel Acquisition, the Company released $71.2 million of its valuation allowance. Because a business combination is a transaction that cannot be anticipated in the effective rate calculation prior to the acquisition date, the Company considered the valuation allowance as an unusual or infrequent item. The Company treated the release of the entire valuation allowance as a result of the business combinations as a discrete item as of the respective acquisition dates. The treatment of the release of the valuation allowance is an accounting policy election that the Company will apply consistently. |
11. Income Taxes Successor For the three and six months ended June 30, 2011, the Company's effective tax rate was 42.5% and 34.8% respectively. The effective rate differed from the federal tax rate of 35% primarily due to state income taxes, net of federal benefit, and other permanent differences, offset by state tax benefit from changes in enacted tax laws. For the month ended June 30, 2010, the Company's effective tax rate was 59.2%. This effective rate differed from the federal tax rate of 35% primarily due to state income taxes, net of federal benefit, non-deductible compensation and other permanent differences. Predecessor For the two and five months ended May 31, 2010, the Predecessor's effective tax rates were 0.4% and 0.5%, respectively. These effective rates differed from the federal tax rate of 35% primarily due to reorganization benefits related to the application of fresh-start reporting for which no income tax expense was recognized, non-deductible restructuring costs, and changes in the Predecessor's valuation allowance. The Predecessor's effective tax rate for the two and five months ended May 31, 2010, excluding the impact of adopting fresh-start reporting, would have been 2.9% and 3.7%, respectively. These effective rates differed from the federal tax rate of 35% primarily due to non-deductible restructuring costs offset by changes in the Predecessor's valuation allowance. |
Basis Of Presentation
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9 Months Ended | 6 Months Ended |
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Sep. 30, 2011
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Jun. 30, 2011
Citadel Broadcasting Corp. [Member]
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Basis Of Presentation | 1. Basis of Presentation Description of the Company Cumulus Media Inc. (and its consolidated subsidiaries, except as the context may otherwise require, "Cumulus," "Cumulus Media," "we," "us," "our," or the "Company") is a Delaware corporation, organized in 2002, and successor by merger to an Illinois corporation with the same name that had been organized in 1997. On August 1, 2011, Cumulus completed its previously announced acquisition of the remaining 75.0% of the equity interests of CMP that it did not already own (the "CMP Acquisition"). As a result of the CMP Acquisition, CMP became an indirect wholly-owned subsidiary of the Company. CMP's operating results have been included in the accompanying unaudited consolidated financial statements since the date of the completion of the CMP Acquisition. Prior to the completion of the CMP Acquisition, Cumulus had operated CMP's business pursuant to a management agreement since 2006. In connection with the CMP Acquisition, Cumulus issued 9.9 million shares of its common stock to affiliates of the three private equity firms that collectively owned the 75.0% of CMP not then-owned by Cumulus. Also in connection with the CMP Acquisition, 3.7 million outstanding warrants to purchase shares of common stock of a subsidiary of CMP were amended to instead become exercisable for up to 8.3 million shares of Class B common stock of Cumulus (see Note 7, "Stockholders' Equity"). On September 16, 2011, Cumulus completed its previously announced acquisition of Citadel (the "Citadel Acquisition") for an aggregate purchase price of approximately $2.3 billion, consisting of approximately $1.4 billion in cash, the issuance of 23.4 million shares of the Company's Class A common stock, par value $0.01 per share (the "Class A common stock"), including 0.9 million restricted shares, warrants to purchase 47.7 million shares of Class A common stock, 2.4 million warrants held in reserve for potential future issuance related to the pending final settlement of certain outstanding unsecured claims arising from Citadel's emergence from bankruptcy, and the consideration to settle the debt of Citadel. As a result of the Citadel Acquisition, Citadel became an indirect wholly-owned subsidiary of the Company. Citadel's operating results have been included in the accompanying unaudited consolidated financial statements since the date of the completion of the Citadel Acquisition (see Note 2, "Acquisitions and Dispositions"). Also on September 16, 2011 and in connection with the Citadel Acquisition, the Company issued and sold 51.8 million shares of Class A common stock and warrants to purchase 7.8 million shares of Class A common stock to Crestview, 125,000 shares of Series A preferred stock to Macquarie, and 4.7 million shares of Class A common stock and immediately exercisable warrants to purchase 24.1 million shares of Class A common stock to UBS and certain other entities. In connection with the closing of the Citadel Acquisition and the completion of the Company's previously announced related global refinancing (the "Global Refinancing"), on September 16, 2011, the Company repaid approximately $1.4 billion in outstanding senior or subordinated indebtedness and other obligations of (a) the Company, (b) certain of the Company's other wholly-owned subsidiaries, and (c) Citadel. This Global Refinancing, and the cash portion of the purchase price paid in the Citadel Acquisition, were funded with (i) $1.325 billion in borrowings under a new first lien term loan, $200.0 million in borrowings under a new first lien revolving credit facility and $790.0 million in borrowings under a new second lien term loan, all as described in more detail in Note 4, "Long-Term Debt," and (ii) proceeds from the sale of $475.0 million of Cumulus Media's common stock, preferred stock and warrants to purchase common stock to certain investors (the "Equity Investment") in a private placement exempt from the registration requirements under the Securities Act of 1933 (the "Securities Act"). The $610.0 million of 7.75% Senior Notes due 2019 (the "7.75% Senior Notes") issued by the Company in May 2011 remain outstanding (see Note 2, "Acquisitions and Dispositions"). Also in connection with the Citadel Acquisition and as part of the transactions contemplated by the Global Refinancing, during the three months ended September 30, 2011, the Company completed an internal restructuring into a holding company structure, which included transferring the remaining assets and operations held directly or indirectly by the Company, other than the equity interests of its direct wholly-owned subsidiary Cumulus Media Holdings Inc. ("Cumulus Holdings"), to Cumulus Holdings (the "Internal Restructuring"). In connection with the Internal Restructuring, all obligations under the 7.75% Senior Notes were assigned to and assumed by Cumulus Holdings, which was substituted for the Company as the issuer and primary obligor thereunder, and the Company provided a guarantee of all such obligations of Cumulus Holdings. Each of the CMP Acquisition and the Citadel Acquisition has been accounted for under the acquisition method of accounting for business combinations. Under the acquisition method of accounting, the respective purchase prices were allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the respective acquisition dates. Each purchase price allocation is preliminary and is subject to, among other things, the final valuation of assets acquired and liabilities assumed, and may be adjusted for up to twelve months following the closing date of each respective acquisition. For additional information on the preliminary allocation of the purchase price related to each such acquisition (see Note 2, "Acquisitions and Dispositions"). As a result of the foregoing, the accompanying unaudited consolidated financial statements as of and for the period ended September 30, 2011 are not necessarily comparable to the unaudited consolidated financial statements for any prior period.
Nature of Business Cumulus Media believes it is the largest pure-play radio broadcaster in the United States based on number of stations. At September 30, 2011, Cumulus Media owned or operated more than 570 radio stations (including under local marketing agreements, or "LMAs") in 120 United States media markets and a nationwide radio network serving over 4,000 stations. Interim Financial Data The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and the notes related thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The accompanying unaudited interim consolidated financial statements include the consolidated accounts of Cumulus and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations for and financial condition as of the end of, the interim periods have been made. The results of operations and cash flows for the nine months ended September 30, 2011 and the Company's' financial condition as of such date, are not necessarily indicative of the results of operations or cash flows that can be expected for, or the Company's financial condition as of, any other interim period or for the fiscal year ending December 31, 2011. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, intangible assets, derivative financial instruments, income taxes, stock-based compensation, contingencies, litigation and purchase price allocations. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts and results may differ materially from these estimates under different assumptions or conditions. Recent Accounting Pronouncements ASU 2010-28. In December 2010, the Financial Accounting Standards Board ("FASB") provided additional guidance for performing Step 1 of the test for goodwill impairment when an entity has reporting units with zero or negative carrying values. This Accounting Standards Update ("ASU") updates Accounting Standards Codification ("ASC") topic 350, Intangibles — Goodwill and Other, to amend the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The Company adopted this guidance effective on January 1, 2011. The update did not have a material impact on the Company's consolidated financial statements. ASU 2010-29. In December 2010, the FASB issued clarification of the accounting guidance related to disclosure of pro forma information for business combinations that occur in the current reporting period. The guidance requires companies to present pro forma information in their comparative financial statements as if the acquisition date for any business combination that occurred in the current reporting period had occurred at the beginning of the prior year reporting period. The Company adopted this guidance effective January 1, 2011. ASU 2010-29 is a disclosure only clarification and its adoption had no impact on the Company's financial condition or results of operation. The Company has included the disclosures required pursuant to this guidance in this report. ASU 2011-04. In May 2011, the FASB issued ASU 2011-04, which amends ASC topic 820, Fair Value Measurements and Disclosures, to achieve common fair value measurement and disclosure requirements under GAAP and International Financial Reporting Standards ("IFRS"). This standard gives clarification for the highest and best use valuation concepts. The ASU also provides guidance on fair value measurements relating to instruments classified in stockholders' equity and instruments managed within a portfolio. Further, ASU 2011-04 clarifies disclosures for financial instruments categorized within level 3 of the fair value hierarchy that require companies to provide quantitative information about unobservable inputs used, the sensitivity of the measurement to changes in those inputs, and the valuation processes used by the reporting entity. Early adoption is not permitted. Implementation of this standard will be effective in the first fiscal year beginning after December 15, 2011. The Company is currently evaluating the newly prescribed disclosures but does not expect they will have a material impact on the consolidated financial statements.
ASU 2011-8. In September 2011, the FASB issued ASU 2011-8, which amends ASC topic 350, Intangibles-Goodwill and Other. The amendments in this ASU give companies the option to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50.0%) that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step goodwill impairment test. Otherwise, a company is not required to perform this two-step test. Under the amendments in this ASU, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. Early adoption is permitted. Implementation of this standard will be required for fiscal years beginning after December 15, 2011. The adoption of this guidance is not expected to have an impact on the Company's consolidated financial statements. |
1. Description of the Company Description of Business Subsidiaries of Citadel Broadcasting Corporation, a Delaware corporation, own and operate radio stations and hold FCC licenses in 27 states and the District of Columbia. Radio stations serving the same geographic area (i.e., principally a city or combination of cities) are referred to as a market. Citadel Broadcasting Corporation (together with its consolidated subsidiaries, the "Company") aggregates the geographic markets in which it operates into one reportable segment ("Radio Markets"). The Company's primary business segment is the Radio Markets segment, which, as of June 30, 2011, consisted of 225 owned and operated radio stations located in over 50 markets across the United States. In addition, the Company also owns and operates Citadel Media (the "Radio Network"), which produces and distributes a variety of radio programming and formats that are syndicated across approximately 4,000 station affiliates and 9,000 program affiliations, and is a separate reportable segment. Company History In January 2001, the Company was formed by affiliates of Forstmann Little & Co. ("FL&Co.") in connection with a leveraged buyout transaction of our predecessor, Citadel Broadcasting Company ("Citadel Broadcasting"). In February 2006, the Company and Alphabet Acquisition Corp., a wholly-owned subsidiary of the Company ("ABC Merger Sub"), entered into an agreement and plan of merger with The Walt Disney Company ("TWDC"), and ABC Radio Holdings, Inc. ("ABC Radio"), a wholly-owned subsidiary of TWDC. The Company, ABC Merger Sub, TWDC and ABC Radio consummated the (i) separation of the ABC Radio Network business and 22 ABC radio stations (collectively, the "ABC Radio Business") from TWDC and its subsidiaries, (ii) spin-off of ABC Radio, which holds the ABC Radio Business, and (iii) merger of ABC Merger Sub with and into ABC Radio, with ABC Radio surviving as a wholly-owned subsidiary of the Company (the "ABC Merger"). Immediately thereafter, the separate corporate existence of ABC Merger Sub ceased, and ABC Radio was renamed Alphabet Acquisition Corp. The ABC Merger became effective in June 2007. Plan of Reorganization On December 20, 2009 (the "Petition Date"), Citadel Broadcasting Corporation and certain of its subsidiaries (collectively, the "Debtors") filed voluntary petitions in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") seeking relief under the provisions of Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") (collectively, the "Chapter 11 Proceedings"). On May 10, 2010, the Debtors filed the second modified joint plan of reorganization of Citadel Broadcasting Corporation and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (including all modifications, the "Emergence Plan"), and on May 19, 2010 (the "Confirmation Date"), the Bankruptcy Court entered an order (the "Confirmation Order"), confirming the Emergence Plan. On June 3, 2010 (the "Emergence Date"), the Debtors consummated their reorganization and the Emergence Plan became effective. As a result, the Company is considered a successor registrant and, pursuant to Rule 12g-3 under the Securities Exchange Act of 1934 (the "Exchange Act"), the Company's class A common stock is deemed to be registered pursuant to Section 12(g) of the Exchange Act. Under the Emergence Plan, the Debtors distributed three forms of equity: class A common stock, class B common stock and Special Warrants (as defined in Note 9) to purchase class B common stock. Correction Certain amounts in the Predecessor's consolidated statement of cash flows (previously reported in the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2010) were corrected in the consolidated statement of cash flows for the five-month period from January 1, 2010 to May 31, 2010, resulting in a decrease in the amount of the line "Reorganization items, net" of $4 million, an increase to net cash provided by operating activities of $4 million, an increase in the change in restricted cash of $4 million and an increase in net cash used in investing activities of $4 million. 2010 Refinancing Transactions In accordance with the Emergence Plan, approximately $2.1 billion of the debt outstanding prior to the Petition Date was converted into a term loan dated as of the Emergence Date among the Company, the several lenders party thereto (the "Lenders") and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders (the "Emergence Term Loan Facility") with an initial principal amount of $762.5 million with a five-year term. See Note 7.
The Company entered into a new credit agreement dated as of December 10, 2010 (the "Credit Agreement") by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders. The Credit Agreement consists of a term loan credit facility of $350.0 million with a term of six years (the "Term Loan") and a revolving credit facility in the amount of $150.0 million under which a swing line sub-facility of up to $30.0 million may be borrowed and letters of credit may be issued (the "Revolving Loan," together with the Term Loan, the "Credit Facilities"). The Revolving Loan was undrawn at closing and remained undrawn as of June 30, 2011; however, the Company had $147.1 million of availability under the Revolving Loan due to outstanding letters of credit of $2.9 million. The Company used the proceeds of the Term Loan, along with the net proceeds from the concurrent issuance of the $400.0 million aggregate principal amount of senior notes (the "Senior Notes"), and cash on hand to repay the amounts outstanding under its Emergence Term Loan Facility. See additional discussion in Notes 7 and 8. Pending Transaction On March 10, 2011, the Company entered into a definitive merger agreement with Cumulus Media Inc., a Delaware corporation ("Cumulus"), Cumulus Media Holdings Inc. (f/k/a Cadet Holding Corporation), a Delaware corporation and wholly-owned subsidiary of Cumulus ("HoldCo"), and Cadet Merger Corporation, a Delaware corporation and wholly-owned subsidiary of HoldCo ("Cumulus Merger Sub"), which provides that, upon completion of the merger of Cumulus Merger Sub into the Company (the "Cumulus Merger"), each outstanding share of class A common stock and class B common stock of the Company (other than shares owned by Cumulus Merger Sub, held in treasury by the Company or pursuant to which a holder has properly exercised and perfected appraisal rights under Delaware law), will, at the election of the holder thereof and subject to proration as described below, be converted into the right to receive (i) $37.00 in cash (the "Cash Consideration"), or (ii) 8.525 shares of class A common stock, par value $0.01 per share, of Cumulus (the "Stock Consideration" and, together with the Cash Consideration, the "Cumulus Merger Consideration"). In addition, holders of Special Warrants to purchase class B common stock of the Company will have the right to elect to have their Special Warrants adjusted at the effective time of the Cumulus Merger to become the right to receive upon exercise the (i) Cash Consideration or (ii) Stock Consideration, subject to proration as described below. Holders of nonvested shares of the Company's class A common stock will be eligible to receive the Cumulus Merger Consideration for their shares pursuant to the original vesting schedule for such shares unless earlier accelerated pursuant to the terms of the merger agreement or applicable grant agreement. The merger agreement provides that each holder of the Company's common stock and/or Special Warrants may elect to receive the Cash Consideration or the Stock Consideration for all or any number of such holder's common stock and/or Special Warrants, however, such elections will be prorated, and consideration adjusted, so that Cumulus will not issue in excess of 151,485,282 shares of Cumulus class A Common Stock (as increased for the exercise of stock options of the Company prior to closing of the Cumulus Merger) or pay in excess of $1,408,728,600 in cash (less the cash value of any dissenting shares and increased for the exercise of Company stock options prior to closing of the Cumulus Merger). In circumstances where holders of common stock and/or Special Warrants of the Company make aggregate elections which exceed either the aggregate available Cash Consideration or aggregate available Stock Consideration, holders of common stock and/or Special Warrants of the Company will receive a combination of Cash Consideration and Stock Consideration pursuant to the terms of the merger agreement. Holders of common stock and/or Special Warrants of the Company who do not make an election will be deemed to have elected, (i) if either the Cash Consideration or the Stock Consideration is oversubscribed, the election that is oversubscribed or (ii) if neither election is oversubscribed, the consideration choice selected by the majority of Citadel shares and warrants for which an election was properly made (or deemed made). Cumulus has obtained equity and debt financing commitments, subject to certain conditions set forth in definitive agreements related to such commitments, for the transactions contemplated by the merger agreement, the proceeds of which, in addition to cash on hand, will be sufficient for Cumulus to pay the cash portion of the aggregate Cumulus Merger Consideration contemplated by the merger agreement and any associated fees and expenses. In connection with the transactions contemplated by the merger agreement, UBS Securities LLC and affiliates of Crestview Partners and Macquarie Capital (all three, the "Equity Investors" and affiliates of Crestview Partners and Macquarie Capital, the "Original Equity Investors") have agreed, concurrently with the closing of the Cumulus Merger, to purchase for cash an aggregate amount of up to $500 million in shares of Cumulus common stock, preferred stock or warrants to purchase common stock. Depending on the amount of cash elected to be received by Company stockholders in the merger, the Equity Investors' commitments may be reduced in accordance with the investment agreement (as amended from time to time) entered into by the Equity Investors and Cumulus in connection with the Cumulus Merger, subject to a minimum aggregate investment of $395.0 million. In addition, under certain circumstances where Cumulus does not require Macquarie Capital's full investment to consummate the merger, Macquarie Capital may elect to reduce its investment to the extent not so required. Certain affiliates of the Original Equity Investors have guaranteed the respective payment obligations of the termination fees payable by the Equity Investors if the merger agreement is terminated under specified circumstances, pursuant to limited guarantees executed in favor of the Company. Upon the completion of the Cumulus Merger, the Company would cease to be a publicly reporting company and, when its shares are de-registered, will cease all filings under the Securities Exchange Act of 1934, as amended.
The Cumulus Merger was unanimously approved by the respective Boards of Directors of the Company and Cumulus. The merger agreement will be submitted to a vote of stockholders of the Company as of the close of business on August 3, 2011 at a special meeting of Company stockholders to be held on September 15, 2011. Consummation of the Cumulus Merger is conditioned, among other things, on (i) the adoption of the merger agreement by stockholders of the Company (voting together as a single class), (ii) the absence of any legal injunction, restraint or prohibition on the consummation of the Cumulus Merger and (iii) the receipt of certain regulatory approvals regarding the transactions contemplated by the merger agreement, including expiration or termination of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and approval by the FCC. Cumulus stockholders who held in the aggregate approximately 54% of the outstanding voting power of the Cumulus stock as of March 9, 2011 have approved the issuance of Cumulus' shares in connection with the Cumulus Merger and an amendment to Cumulus' certificate of incorporation in connection with the transactions contemplated by the merger agreement. No further Cumulus stockholder approval is necessary for consummation of the transactions contemplated by the merger agreement. Completion of the Cumulus Merger is anticipated to occur by the end of 2011, although there can be no assurance the Cumulus Merger will occur within the expected timeframe or at all. Pursuant to the merger agreement, except as Cumulus may otherwise consent to in writing (which consent will not be unreasonably withheld, conditioned or delayed), the Company has agreed to (i) conduct, in all material respects, its business in the ordinary course; (ii) use commercially reasonable efforts to preserve intact its business organization and significant business relationships and to retain the services of current key officers and key employees; (iii) use commercially reasonable efforts to comply with the Communications Act of 1934, as amended by the Telecommunications Act of 1996, and FCC rules and policies in the operation of its stations; (iv) promptly deliver to Cumulus copies of any material reports or applications filed with the FCC, subject to certain exceptions; (v) promptly notify Cumulus of any inquiry, investigation or proceeding which to its knowledge has been initiated by the FCC relating to its stations, subject to certain exceptions; and (vi) diligently prosecute any pending FCC applications or any other filings necessary or appropriate in other proceedings before the FCC to preserve or obtain any FCC authorization for its stations without material adverse modification, subject to certain exceptions. In addition, under the merger agreement, the Company is not permitted to, without the prior written consent of Cumulus (which consent will not be unreasonably withheld, conditioned or delayed): (a) incur indebtedness, subject to certain exceptions; (b) (i) adjust, split, combine or reclassify any of its capital stock, (ii) make, declare or pay any dividend, or make any other distribution on, or redeem, purchase or otherwise acquire, any shares of its capital stock or any convertible or exchangeable securities, subject to certain exceptions, (iii) grant any stock appreciation rights or rights to acquire shares of its capital stock, other than grants to employees in the ordinary course of business, or (iv) issue any additional shares of capital stock, subject to certain exceptions; (c) change certain specified compensation arrangements, subject to certain exceptions; (d) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets, subject to certain exceptions; (e) cancel, release, settle or assign any indebtedness or third party claim, action or proceeding, subject to certain exceptions; (f) enter into any local marketing agreement in respect of the programming of any radio or television broadcast station or contract for the acquisition or sale of any radio broadcast station, subject to certain exceptions; (g) enter into any new material line of business, subject to certain exceptions; (h) amend its charter or by-laws or terminate, amend or waive any provisions of any confidentiality or standstill agreements in place with any third parties; (i) except as required by GAAP or the Securities and Exchange Commission as concurred in by its independent auditors or in the ordinary course of business, make any material change in its methods or principles of accounting or make or change any material tax election; (j) enter into or amend in any material respect or waive any of its material rights under specified contracts, subject to certain exceptions; (k) adopt or recommend a plan of dissolution, liquidation, recapitalization, restructuring or other reorganization; (l) except as required by law, enter into or amend in any material respect any collective bargaining agreement; or (m) agree to take, make any commitment to take, or adopt specified resolutions of its board of directors. These constraints could significantly impact the Company's operations and business strategy as discussed in this report prior to the consummation of the proposed Cumulus Merger or the termination of the merger agreement. License renewal applications may be pending before the FCC at the time the Cumulus Merger occurs. Pursuant to the merger agreement, Cumulus has agreed to request that the FCC apply its policy permitting license assignments and transfers in transactions involving multiple markets to proceed, notwithstanding the pendency of one or more license renewal applications. Under this policy, Cumulus will agree to assume the position of the Company with respect to any pending renewal applications, and to assume the risks relating to such applications. The closing of the Cumulus Merger would constitute a "change in control" as defined in the Credit Agreement, which would be considered an event of default, also as defined, and could cause all amounts outstanding under the Credit Agreement to become immediately due and payable. In addition, the closing of the Cumulus Merger would constitute a "change of control" under the indenture governing the Senior Notes. Following the occurrence of a change of control, the Company would be required to make an offer to purchase all outstanding Senior Notes at a price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest.
It is anticipated that the funds necessary to consummate the Cumulus Merger and related transactions will be funded by new credit facilities and equity financing of Cumulus. Under the merger agreement, upon request by Cumulus, the Company has agreed to commence a debt tender offer to purchase the existing Senior Notes. Cumulus had indicated to the Company that its current intention is not to ask the Company to commence the debt tender offer. Principles of Consolidation and Presentation The accompanying unaudited consolidated condensed financial statements of the Company include Citadel Broadcasting Corporation, Citadel Broadcasting, ABC Radio and each of their consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company was required to adopt fresh-start reporting as of the Confirmation Date or such later date when all material conditions precedent to the effectiveness of the Emergence Plan had been satisfied, but no later than the Emergence Date. All material conditions were satisfied on the Emergence Date, and in light of the proximity of this date to the Company's May 31, 2010 accounting period end, the effects of fresh-start reporting and the Emergence Plan were reported for accounting purposes as if they occurred on May 31, 2010 (the "Fresh-Start Date"). The Company adopted fresh-start reporting provisions in accordance with accounting guidance on reorganizations (see Note 2). The Company applied the provisions of fresh-start reporting as of May 31, 2010 instead of the June 3, 2010 Emergence Date, which did not result in a material difference to the Company's results of operations or financial condition. References in this report to "Successor" refer to the Company on or after the Fresh-Start Date. References to "Predecessor" refer to the Company prior to the Fresh-Start Date. Consolidated condensed financial statements as of June 30, 2011 and December 31, 2010, for the three and six months ended June 30, 2011, and for the period from June 1, 2010 through June 30, 2010 represent the Successor's financial position and results of operations (the "Successor Periods"). The consolidated condensed financial statements for the periods from January 1, 2010 through May 31, 2010 and from April 1, 2010 through May 31, 2010 represent the Predecessor's results of operations (the "Predecessor Period"). References in this report to the "Company" refer to Citadel Broadcasting Corporation and its consolidated subsidiaries, whether Predecessor and/or Successor, as appropriate. The Predecessor Period reflects the historical accounting basis of the Predecessor's assets and liabilities, while the Successor Periods reflect assets and liabilities at fair value, based on an allocation of the Company's enterprise value to its assets and liabilities pursuant to accounting guidance related to business combinations (see Note 2). The Company's emergence from bankruptcy resulted in a new reporting entity that had no retained earnings or accumulated deficit as of the Fresh-Start Date. Accordingly, the Company's consolidated condensed financial statements for the Predecessor Period are not comparable to its consolidated condensed financial statements for the Successor Periods. For the period between the Petition Date and the Fresh-Start Date, the consolidated condensed financial statements of the Predecessor were prepared in accordance with accounting guidance for financial reporting by entities in reorganization under the Bankruptcy Code. Accordingly, reorganization items include the expenses, realized gains and losses, and provisions for losses resulting from the reorganization under the Bankruptcy Code, and are reported separately as reorganization items in the Predecessor's consolidated condensed statement of operations. The accompanying unaudited consolidated condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States 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. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in Citadel Broadcasting Corporation's Annual Report on Form 10-K for the year ended December 31, 2010. In connection with the ABC Merger, the Company is required to divest certain stations to comply with FCC ownership limits. Therefore, these stations, the carrying value of which is immaterial, were assigned to The Last Bastion Station Trust, LLC ("Last Bastion") as trustee under a divestiture trust that complies with FCC rules as of the closing date of the ABC Merger. The trustee agreement stipulates that the Company must fund any operating shortfalls of the trustee's activities, and any excess cash flow generated by the trustee is distributed to the Company. Also, the Company has transferred one other station to a separate divestiture trust to comply with FCC ownership limits in connection with a station acquisition (together with Last Bastion, the "Divestiture Trusts"), and this station was subsequently divested to a third party. The Company has determined that it is the primary beneficiary of the Divestiture Trusts and consolidates the Divestiture Trusts accordingly. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States. These estimates and assumptions relate in particular to allocations of enterprise value made in connection with fresh-start reporting, fair values of assets and liabilities as of the Fresh-Start Date, the evaluation of goodwill and intangible assets for potential impairment, including changes in market conditions that could affect the estimated fair values, the analysis of the measurement of deferred tax assets, including the calculation of a valuation allowance to reduce the amount of deferred tax asset to the amount that is more likely than not to be realized, the identification and quantification of income tax liabilities due to uncertain tax positions, and the determination of the allowance for estimated uncollectible accounts and notes receivable. The Company also uses assumptions when estimating the value of its supplemental executive retirement plan (the "SERP") and when employing the Black-Scholes valuation model to estimate the fair value of stock options. The Predecessor used estimates to calculate the value of certain fully vested stock units and equity awards containing market conditions and in determining the estimated fair values of its interest rate swap, credit risk adjustments and certain derivative financial instruments. These estimates were based on the information that was available to management at the time of the estimate. Actual results could differ materially from those estimates. Recent Accounting Standards In December 2010, the Financial Accounting Standards Board ("FASB") issued guidance that modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity will be required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. This guidance was effective January 1, 2011, and the adoption did not have a material impact on the Company's consolidated condensed financial statements. In May 2011, the FASB issued guidance to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. The guidance also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for reporting periods beginning on or after December 15, 2011, with early adoption prohibited. The Company is currently evaluating the effect that the provisions of this pronouncement will have on its financial statements. In June 2011, the FASB issued guidance to enhance comparability between entities that report under U.S. GAAP and IFRS, and to provide a more consistent method of presenting non-owner transactions that affect an entity's equity. The guidance eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders' equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption of the new guidance is permitted and full retrospective application is required. The Company is currently evaluating the effect that the provisions of this pronouncement will have on its financial statements. |