10-Q 1 d405775d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2012

OR

 

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

For the transition period from                    to                    

Commission file number 000-24525

 

 

CUMULUS MEDIA INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   36-4159663

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

3280 Peachtree Road, NW Suite 2300,

Atlanta, GA

  30305
(Address of Principal Executive Offices)   (ZIP Code)

(404) 949-0700

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)    Smaller reporting company   x

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

As of October 26, 2012, the registrant had 174,392,288 outstanding shares of common stock consisting of (i) 158,322,473 shares of Class A common stock; (ii) 15,424,944 shares of Class B common stock; and (iii) 644,871 shares of Class C common stock.

 

 

 


Table of Contents

CUMULUS MEDIA INC.

INDEX

 

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements (Unaudited)

     3   

Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011

     3   

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September  30, 2012 and 2011

     4   

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011

     5   

Notes to Unaudited Condensed Consolidated Financial Statements

     6   

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

     33   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     42   

Item 4. Controls and Procedures

     42   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     43   

Item 1A. Risk Factors

     43   

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

     43   

Item 6. Exhibits

     43   

Signatures

     44   

 

 

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except for per share data)

(Unaudited)

 

     September 30,
2012
    December 31,
2011
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 46,976      $ 30,592   

Restricted cash

     3,254        3,854   

Accounts receivable, less allowance for doubtful accounts of $4,504 and $2,765 at September 30, 2012 and December 31, 2011, respectively

     222,096        236,804   

Trade receivable

     7,073        5,967   

Compensation held in trust

     —          24,807   

Prepaid expenses and other current assets

     33,155        22,315   
  

 

 

   

 

 

 

Total current assets

     312,554        324,339   

Property and equipment, net

     261,967        278,070   

Broadcast licenses

     1,610,128        1,625,415   

Other intangible assets, net

     287,667        390,509   

Goodwill

     1,296,348        1,334,512   

Other assets

     79,554        87,746   
  

 

 

   

 

 

 

Total assets

   $ 3,848,218      $ 4,040,591   
  

 

 

   

 

 

 

Liabilities, Redeemable Preferred Stock and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable and accrued expenses

   $ 124,805      $ 160,186   

Trade payable

     5,623        4,999   

Current portion of long-term debt

     13,250        13,250   

Other current liabilities

     12,022        —     
  

 

 

   

 

 

 

Total current liabilities

     155,700        178,435   

Long-term debt, excluding 7.75% senior notes

     2,068,705        2,227,287   

7.75% senior notes

     610,000        610,000   

Other liabilities

     48,129        63,938   

Deferred income taxes

     562,811        556,771   
  

 

 

   

 

 

 

Total liabilities

     3,445,345        3,636,431   
  

 

 

   

 

 

 

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; 75,767 and 125,000 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

     70,854        113,447   
  

 

 

   

 

 

 

Total redeemable preferred stock

     70,854        113,447   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 182,053,736 and 160,783,484 shares issued and 157,908,633 and 137,085,813 shares outstanding at September 30, 2012 and December 31, 2011, respectively

     1,821        1,608   

Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 15,424,944 and 12,439,667 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

     154        124   

Class C common stock, par value $0.01 per share; 644,871 shares authorized, issued and outstanding at both September 30, 2012 and December 31, 2011

     6        6   

Treasury stock, at cost, 24,145,103 and 23,697,671 shares at September 30, 2012 and December 31, 2011, respectively

     (251,957     (251,666

Additional paid-in-capital

     1,515,407        1,526,114   

Accumulated deficit

     (933,412     (985,473
  

 

 

   

 

 

 

Total stockholders’ equity

     332,019        290,713   
  

 

 

   

 

 

 

Total liabilities, redeemable preferred stock and stockholders’ equity

   $ 3,848,218      $ 4,040,591   
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CUMULUS MEDIA INC.

CONDENSED 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,
 
     2012     2011     2012     2011  

Broadcast revenues

   $ 274,160      $ 124,332      $ 790,870      $ 235,989   

Management fees

     1,190        458        1,516        2,708   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     275,350        124,790        792,386        238,697   

Operating expenses:

        

Direct operating expenses (excluding depreciation, amortization and LMA fees)

     161,740        73,710        484,106        142,690   

Depreciation and amortization

     35,239        11,025        106,321        14,702   

LMA fees

     928        530        2,652        1,670   

Corporate general and administrative expenses (including stock-based compensation expense of $2,764, $1,601, $15,671 and $2,788, respectively)

     12,979        44,654        46,473        61,924   

Gain on exchange of assets or stations

     —          —          —          (15,278

Realized (gain) loss on derivative instrument

     (129     1,436        624        2,681   

Impairment of intangible assets

     —          —          12,435        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     210,757        131,355        652,611        208,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     64,593        (6,565     139,775        30,308   

Non-operating (expense) income:

        

Interest expense, net

     (49,757     (19,503     (150,179     (34,999

Loss on early extinguishment of debt

     —          —          —          (4,366

Other (expense) income, net

     (224     182        (34     88   

Gain on equity investment in Cumulus Media Partners, LLC

     —          11,636        —          11,636   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expense, net

     (49,981     (7,685     (150,213     (27,641
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     14,612        (14,250     (10,438     2,667   

Income tax benefit

     12,175        69,206        22,862        65,723   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     26,787        54,956        12,424        68,390   

Income from discontinued operations, net of taxes

     29,258        4,582        39,635        8,608   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     56,045        59,538        52,059        76,998   

Less: dividends declared and accretion of redeemable preferred stock

     5,274        382        17,765        382   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income attributable to common shareholders

   $ 50,771      $ 59,156      $ 34,294      $ 76,616   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted income (loss) per common share (see Note 12, “Earnings Per Share”):

        

Basic: Income (loss) from continuing operations per share

   $ 0.10      $ 0.72      $ (0.03   $ 1.26   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations per share

   $ 0.14      $ 0.06      $ 0.25      $ 0.16   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income per share

   $ 0.24      $ 0.78      $ 0.22      $ 1.42   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted: Income (loss) from continuing operations per share

   $ 0.10      $ 0.66      $ (0.03   $ 1.20   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations per share

   $ 0.14      $ 0.06      $ 0.25      $ 0.15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income per share

   $ 0.24      $ 0.72      $ 0.22      $ 1.35   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average basic common shares outstanding

     169,510,007        60,295,163        158,902,196        47,282,132   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average diluted common shares outstanding

     176,352,267        66,740,660        158,902,196        50,016,375   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 52,059      $ 76,998   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     107,481        15,231   

Amortization of debt issuance costs/discounts

     7,581        1,699   

Provision for doubtful accounts

     2,892        920   

(Gain) loss on sale of assets or stations

     (163     33   

Gain on exchange of assets or stations

     (63,228     (15,278

Impairment of intangible assets

     12,435        —     

Fair value adjustment of derivative instruments

     935        (1,002

Deferred income taxes

     6,043        (68,443

Stock-based compensation expense

     15,671        2,788   

Loss on early extinguishment of debt

     —          4,366   

Other

     —          (1,318

Gain on equity investment in Cumulus Media Partners, LLC

     —          (11,636

Changes in assets and liabilities:

    

Accounts receivable

     15,174        (1,259

Trade receivable

     (1,106     (555

Prepaid expenses and other current assets

     (8,130     2,118   

Other assets

     1,451        (1,087

Accounts payable and accrued expenses

     (4,421     24,860   

Trade payable

     624        345   

Other liabilities

     (16,598     3,571   
  

 

 

   

 

 

 

Net cash provided by operating activities

     128,700        32,351   

Cash flows from investing activities:

    

Restricted cash

     600        (17

Proceeds from sale of assets or stations

     426        —     

Capital expenditures

     (4,655     (2,885

Proceeds from exchange of assets or stations

     114,918        —     

Acquisition less cash acquired

     —          (2,024,153
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     111,289        (2,027,055

Cash flows from financing activities:

    

Repayment of borrowings under term loans and revolving credit facilities

     (161,000     (1,214,676

Tax withholding payments on behalf of employees

     (1,909     (666

Preferred stock dividends

     (11,599     —     

Proceeds from exercise of warrants

     136        —     

Redemption of preferred stock

     (49,233     —     

Proceeds from borrowings under term loans and revolving credit facilities, net of $25.1 million debt discount

     —          2,289,900   

Proceeds from issuance of senior notes

     —          610,000   

Proceeds from sale of equity securities

     —          444,513   

Redemption of CMP preferred stock

     —          (41,565

Deferred financing costs

     —          (58,540
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (223,605     2,028,966   

Increase in cash and cash equivalents

     16,384        34,262   

Cash and cash equivalents at beginning of period

     30,592        12,814   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 46,976      $ 47,076   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Interest paid

   $ 133,975      $ 16,365   

Income taxes paid

     3,956        5,141   

Supplemental disclosures of non-cash flow information:

    

Compensation held in trust

     24,807        —     

Trade revenue

     20,396        12,752   

Trade expense

     19,114        12,184   

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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CUMULUS MEDIA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business, Interim Financial Data and Basis of Presentation:

Description of Business

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.

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, 2012, Cumulus Media owned or operated more than 525 radio stations (including under local marketing agreements, or “LMAs”) in 110 United States media markets and a nationwide radio network serving over 4,000 stations.

Interim Financial Data

The accompanying unaudited condensed 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, 2011. The accompanying unaudited interim condensed consolidated financial statements include the condensed 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 for the three and nine months ended September 30, 2012, the cash flows for the nine months ended September 30, 2012 and the Company’s financial condition as of September 30, 2012, 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, 2012.

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.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Certain assets were sold on July 31, 2012 (see Note 2, “Acquisitions and Dispositions”). The results of operations associated with these assets were separately reported, net of the related tax impact, for all periods presented in the accompanying unaudited condensed consolidated statements of operations because the operations and cash flows generated by these assets have been eliminated from the Company’s consolidated results of operations as a result of the sale and the Company no longer has continuing involvement in the operations of the stations after their disposal (see Note 3, “Discontinued Operations”).

Recent Accounting Pronouncements

ASU 2011-04. In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, which amends Accounting Standards Codification (“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. The Company adopted the prescribed disclosures which became effective January 1, 2012, for its condensed consolidated financial statements as of such date. See Note 8, “Fair Value Measurements.”

 

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ASU 2011-05. In June 2011, the FASB issued ASU 2011-05, which amends the guidance in ASC Topic 220, “Comprehensive Income,” by eliminating the option to present components of other comprehensive income (“OCI”) in the statement of stockholders’ equity. This ASU requires entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements of income and comprehensive income. The components of OCI have not changed nor has the guidance on when OCI items are reclassified to net income. Similarly, ASU 2011-05 does not change the guidance to disclose OCI components gross or net of the effect of income taxes, provided that the tax effects are presented on the face of the statement in which OCI is presented, or disclosed in the notes to the financial statements. The Company adopted this guidance effective January 1, 2012. Since the Company has no transactions classified as OCI, the adoption of this guidance did not have an impact on the Company’s condensed consolidated financial statements.

ASU 2011-08. 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. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance did not have an impact on the Company’s unaudited condensed consolidated financial statements.

ASU 2011-11. In December 2011, the FASB issued ASU 2011-11. The amendments in this ASU require companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years beginning on or after January 1, 2013, and interim periods within those annual fiscal years. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

ASU 2012-02. In July 2012, the FASB issued ASU 2012-02. The amendments in this ASU give companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired rather than calculating the fair value of the indefinite-lived intangible asset. It is effective prospectively for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

2. Acquisitions and Dispositions

2012 Acquisitions

On July 31, 2012, the Company completed its sale of 55 stations in eleven non-strategic markets to Townsquare Media, LLC (“Townsquare Asset Exchange”) in exchange for ten of Townsquare’s radio stations in Bloomington, IL and Peoria, IL, plus approximately $114.9 million in cash. The transaction was part of the Company’s ongoing efforts to focus on radio stations in larger markets and geographically strategic regional clusters. The stations sold by the Company operated in the following markets: Augusta, ME; Bangor, ME; Binghamton, NY; Bismarck, ND; Grand Junction, CO; Killeen-Temple, TX; New Bedford, MA; Odessa-Midland, TX; Presque Isle, ME; Sioux Falls, SD and Tuscaloosa, AL. Additional information regarding discontinued operations is provided in Note 3, “Discontinued Operations” in the accompanying consolidated financial statements.

In conjunction with this Asset Exchange, the Company recorded a gain of $63.2 million, which is included within discontinued operations in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2012.

Acquisition related costs attributable to the Townsquare Asset Exchange included in corporate, general and administrative expenses totaled $1.6 million.

The table below summarizes the preliminary purchase price allocation for the Townsquare Asset Exchange based on management’s estimates of the fair values of the assets acquired and liabilities assumed as of the date of the Townsquare Asset Exchange (dollars in thousands):

 

Allocation

   Amount  

Current assets

   $ 149   

Property and equipment

     4,690   

Broadcast licenses

     11,900   

Goodwill

     3,014   

Other intangibles

     200   

Current liabilities

     (207
  

 

 

 

Total purchase price

     19,746   

Less: Carrying value of stations transferred

     (71,436

Add: Cash received

     114,918   
  

 

 

 

Gain on asset exchange

   $ 63,228   
  

 

 

 

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 a weighted average cost of capital of 10%. Goodwill was equal to the difference between the purchase price and the value assigned to tangible and intangible assets and liabilities.

 

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The indefinite-lived intangible assets acquired in the Townsquare Asset Exchange consist of broadcast licenses and goodwill. The definite-lived intangible assets acquired in the Townsquare Asset Exchange are being amortized in relation to the expected economic benefits of such assets over their estimated useful lives and consist of the following (dollars in thousands):

 

Description

   Estimated Useful
Life in Years
     Fair Value  

Advertising relationships

     6       $ 200   

The use of different assumptions could result in materially different amounts. In addition, the above allocation is preliminary only and based on information available to management to date. Management of the Company is in the process of finalizing the purchase price allocation, and such final allocation may be materially different from the related preliminary allocation.

For additional information regarding the discontinued operations associated with this transaction, see Note 3, “Discontinued Operations.”

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 this asset exchange, Cumulus acquired eight of Clear Channel’s radio stations located in Ann Arbor and Battle Creek, Michigan in exchange for its 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 Federal Communications Commission (“FCC”) broadcast ownership limits. This asset exchange was accounted for as a business combination in accordance with FASB’s guidance. The fair value of the assets acquired in this 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 expenses. 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 our statements of operations since 2007 when the Company entered into a LMA with Clear Channel to manage these stations. Prior to this asset exchange, the Company did not have any relationship with Clear Channel with regard to the Canton, Ohio market.

In conjunction with this asset exchange, 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 condensed consolidated statements of operations for the nine months ended September 30, 2011.

The table below summarizes the final purchase price allocation from this asset exchange (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 Cumulus Media Partners LLC (“CMP”) that it did not already own (the “CMP Acquisition”). The Company had owned 25.0% of CMP’s 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 CMP’s 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 the Company’s 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 was subsequently converted into an equivalent number of shares of the Company’s 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 Company’s third amended and restated certificate of incorporation (the “Third Amended and Restated Charter”) which became effective upon the effectiveness of the Citadel Acquisition (defined below). Also in connection with the CMP Acquisition, outstanding warrants to purchase 3.7 million shares of common stock of CMP Susquehanna Radio Holdings Corp., an indirect wholly owned subsidiary of CMP (“Radio Holdings”), were amended to instead become exercisable for up to 8.3 million shares of the Company’s common stock. CMP’s operating results have been included in Cumulus’ consolidated financial statements since the date of the completion of the CMP Acquisition.

 

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As a component of the CMP Acquisition, the Company acquired an interest in the San Francisco Baseball Associates L.P., the owner of the San Francisco Giants Major League Baseball Franchise. The fair value of this interest as of the date of the CMP Acquisition was $9.8 million. This interest is included in other long-term assets on the Company’s accompanying unaudited condensed consolidated balance sheet and is carried under the cost method.

Under the acquisition method of accounting for business combinations, the purchase price paid in the CMP Acquisition has been allocated among the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. Goodwill as of the acquisition date was measured as the excess of the consideration paid over the net acquisition date fair values of the assets acquired and the liabilities assumed. 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 the date of completion of the CMP Acquisition and the carrying value, which was zero, given CMP’s 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.

The table below summarizes the fair value of consideration transferred in the CMP Acquisition (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) Fair value, equal to the closing price of the Company’s Class A common stock on the NASDAQ Global Select Market (“NASDAQ”) on August 1, 2011, of the 9.9 million shares of our common stock issued to affiliates of the CMP Sellers.
(2) Fair value, equal to the closing price of the Company’s Class A common stock on the NASDAQ on August 1, 2011, of the CMP Restated Warrants, which, prior to their expiration on July 31, 2012, were exercisable for 8.3 million shares of our common stock.
(3) Fair value of preferred stock is the par value of $32.8 million plus cumulative undeclared dividends of $8.3 million.
(4) Equal to the closing price of our Class A common stock on the NASDAQ on August 1, 2011, multiplied by the estimated 3.3 million shares of common stock that we would have received in exchange for the equity interests in CMP that the Company owned immediately prior to the CMP Acquisition.

Acquisition related costs attributable to the CMP Acquisition included in income, general and administrative expenses totaled $1.9 million.

The table below summarizes the final purchase price allocation among the tangible and intangible assets acquired and liabilities assumed in the CMP Acquisition (dollars in thousands):

 

Allocation

   Amount  

Current assets

   $ 61,598   

Property and equipment

     29,092   

Broadcast licenses

     317,917   

Other intangibles

     94,422   

Goodwill

     403,130   

Other assets

     11,014   

Current liabilities

     (12,869

Other long-term liabilities

     (5,730

Deferred income taxes

     (162,705
  

 

 

 

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 a weighted average cost of capital of 10.5%. Goodwill is equal to the difference between the purchase price and the value assigned to tangible and intangible assets and liabilities. $402.6 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 CMP’s 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 expected economic benefits of such assets over their estimated useful lives and consist of the following (dollars in thousands):

 

Description

   Estimated Useful
Life in Years
     Fair Value  

Advertising relationships

     6       $ 94,422   

 

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Citadel Acquisition

The Company completed the Citadel Acquisition on September 16, 2011 for an aggregate purchase price of approximately $2.3 billion, consisting of approximately $1.4 billion in cash, the issuance of 23.6 million shares of the Company’s Class A common stock, including 0.9 million restricted shares, warrants to purchase 47.6 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 repay the outstanding 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 Cumulus’ consolidated financial statements since the date of the completion of the Citadel Acquisition.

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 an affiliate of Crestview Partners II, L.P. (“Crestview”), 125,000 shares of Series A Preferred Stock to an affiliate of Macquarie Capital (USA) Inc. (“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 Securities LLC (“UBS”) and certain other entities.

In connection with the closing of the Citadel Acquisition and the completion of the Company’s previously announced related refinancing (the “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 wholly-owned subsidiaries, and (c) Citadel. This 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 7, “Long-Term Debt,” and (ii) proceeds from the sale of $475.0 million of the Company’s common stock, preferred stock and warrants to purchase common stock to certain investors (see Note 10, “Stockholders’ Equity”). The $610.0 million of 7.75% Senior Notes due 2019 (the “7.75% Senior Notes”) issued by the Company in May 2011 remained outstanding.

In connection with the Citadel Acquisition, the Company completed its previously announced 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”).

Also, in connection with the Citadel Acquisition, the Company agreed that it would divest certain stations to comply with FCC ownership limits. These stations were assigned to a trustee under divestiture trusts that comply with FCC rules. 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, accordingly, consolidates the trusts.

Under the acquisition method of accounting for business combinations, the purchase price in the Citadel Acquisition has been allocated among the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. Goodwill as of the acquisition date was measured as the excess of the consideration paid over the net acquisition date fair values of the assets acquired and the liabilities assumed.

The table below summarizes the fair value of consideration transferred in the Citadel Acquisition (dollars in thousands):

 

Fair Value of Consideration Transferred

   Amount  

Cash consideration to Citadel stockholders

   $ 1,405,471   

Common stock issued to Citadel stockholders (1)

     178,122   

Stock-based compensation value

     576   

Cash consideration to Citadel to settle Citadel obligations

     736,072   
  

 

 

 

Total fair value for allocation

   $ 2,320,241   
  

 

 

 

 

(1) Fair value of the 22.7 million shares of the Company’s common stock and warrants to purchase 47.6 million shares of the Company’s common stock issued in the Citadel Acquisition and 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, based on the closing price of the Company’s Class A common stock on the NASDAQ on September 15, 2011.

 

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Acquisition related costs attributable to the Citadel Acquisition included in corporate, general and administrative expenses totaled $57.7 million.

Certain termination-related compensation amounts resulting from the Citadel Acquisition were funded prior to closing and were classified as compensation held in trust on the condensed consolidated balance sheet as of December 31, 2011. These amounts were settled during the first quarter of 2012.

The table below summarizes the final purchase price allocation among the tangible and intangible assets acquired and liabilities assumed in the Citadel Acquisition (dollars in thousands):

 

Allocation

   Amount  

Current assets

   $ 328,306   

Property and equipment

     221,697   

Broadcast licenses

     1,135,669   

Other intangibles

     333,480   

Goodwill

     861,305   

Other assets

     18,794   

Current liabilities

     (106,799

Other long-term liabilities

     (38,660

Deferred income taxes

     (433,551
  

 

 

 

Total purchase price

   $ 2,320,241   
  

 

 

 

The material assumptions utilized in the valuation of intangible assets included expected overall future market revenue growth rates for the residual year of approximately 2.0% and a weighted average cost of capital of 10.0%. Goodwill is equal to the difference between the purchase price and the value assigned to tangible and intangible assets and liabilities. $756.6 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 Citadel’s station platform throughout prominent national markets and its overall employee base, including its experienced sales force. During the nine months ended September 30, 2012, the Company recorded goodwill purchase accounting adjustments primarily related to fair value adjustments of assets and liabilities totaling approximately $9.1 million and $8.3 million, respectively. These adjustments are reflected in the table above.

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 expected economic benefits of such assets over their estimated useful lives and consist of the following (dollars in thousands):

 

Description

   Estimated Useful
Life in Years
     Fair Value  

Broadcast advertising relationships

     6       $ 235,800   

Affiliate relationships

     5         40,700   

Network advertising relationships

     5         18,300   

Other contracts and agreements

     2-4         38,680   

The following pro forma information assumes the CMP Acquisition and the Citadel Acquisition occurred as of January 1, 2010 and the Townsquare Asset Exchange occurred as of January 1, 2011. The pro forma financial information also includes the business combination accounting effects of the CMP Acquisition, the Citadel Acquisition and the Townsquare Asset Exchange, including Cumulus’s amortization expense resulting from acquired intangible assets, the elimination of certain intangible asset amortization expense incurred by CMP and Citadel, adjustments to interest expense for certain borrowings, adjustments for transaction-related expenses and the related tax effects. This 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 either the CMP Acquisition or the Citadel Acquisition actually occurred on January 1, 2010 or the Townsquare Asset Exchange actually occurred on January 1, 2011 or on any other historical dates, nor is it reflective of the Company’s expected actual financial position or results of operations for any future period. (dollars in thousands):

 

     Supplemental Pro Forma Data  
     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  

Description

   2012      2011     2012      2011  

Net revenue

   $ 276,166       $ 289,050      $ 798,681       $ 827,539   

Net income

     17,684         (19,122     13,512         (22,063

The pro forma financial information set forth above for the three and nine months ended September 30, 2012 and 2011 includes adjustments to reflect: (i) depreciation and amortization expense based on the fair value of long-lived assets acquired in the CMP Acquisition, the Citadel Acquisition and the Townsquare Asset Exchange; (ii) interest expense assuming the 7.75% Senior Notes were issued and

 

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outstanding and replaced the Company’s historical debt for all periods; (iii) the completion of the Refinancing undertaken in connection with the completion of the Citadel Acquisition for all periods; and (iv) certain other pro forma adjustments that would be required to be made to prepare pro forma financial information under ASC Topic 805, Business Combinations.

Pending Acquisition

On September 25, 2012, the Company, through its subsidiaries entered into an asset purchase agreement (the “ARB Asset Purchase”) with AR Broadcasting, LLC, AR Licensing, LLC, CMP KC Corp. and CMP Houston-KC, LLC to acquire certain radio stations operated in the Kansas City Market for an aggregate purchase price of $16.8 million. The pending acquisition is subject to customary regulatory and other closings conditions. The Company currently anticipates the ARB Asset Purchase will be completed prior to the end of 2012.

Completed Dispositions

For dispositions completed during the three and nine months ended September 30, 2012, see “2012 Acquisitions” above. The Company did not complete any material dispositions during the three or nine months ended September 30, 2011.

3. Discontinued Operations

On July 31, 2012, the Company completed the Townsquare Asset Exchange. The transaction is part of the Company’s ongoing efforts to focus on radio stations in larger markets and geographically strategic regional clusters. The results of operations associated with these stations were separately reported, net of the related tax impact, for all periods presented in the accompanying condensed consolidated statements of operations.

Components of Results of Discontinued Operations

For the three and nine months ended September 30, 2012 and 2011, income from discontinued operations was as follows (dollars in thousands):

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2012     2011     2012     2011  

Discontinued operations:

        

Net revenues

   $ 3,534      $ 7,513      $ 23,855      $ 20,643   

Operating income

     1,458        3,156        8,227        8,218   

Non-operating income (expense)

     63,226        (1     63,219        (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations before taxes

     64,684        3,155        71,446        8,217   

Income tax (expense) benefit

     (35,426     1,427        (31,811     391   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

   $ 29,258      $ 4,582      $ 39,635      $ 8,608   
  

 

 

   

 

 

   

 

 

   

 

 

 

During the nine months ended September 30, 2012, the Company recognized a $7.2 million deferred tax benefit related to the release of a valuation allowance resulting from the consumption of NOL carryovers associated with the settlement of deferred tax liabilities related to intangible assets classified as indefinite lived intangibles prior to their sale in the Townsquare Asset Exchange. The deferred tax benefit is reflected in income tax expense for discontinued operations. In conjunction with Townsquare Asset Exchange, the Company recorded a gain of $63.2 million, which is included within discontinued operations in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2012.

4. Restricted Cash

As of September 30, 2012 and December 31, 2011, the Company’s balance sheet included approximately $3.3 million and $3.8 million in restricted cash, of which $2.3 million related to a cash reserve from the Citadel Acquisition. The reserve is expected to be used to satisfy the remaining allowed, disputed or unreconciled unsecured claims related to Citadel’s prior bankruptcy proceedings. $1.0 million of the restricted cash balance relates to securing the maximum exposure generated by automated clearing house transactions in the Company’s operating bank accounts and as dictated by the Company’s bank’s internal policies with respect to cash.

 

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5. Intangible Assets and Goodwill

The following table presents the changes in intangible assets other than goodwill during the periods from January 1, 2011 to September 30, 2011 and January 1, 2012 to September 30, 2012, and balances as of such dates (dollars in thousands):

 

     Indefinite-Lived     Definite-Lived     Total  

Intangible Assets:

      

Balance as of January 1, 2011

   $ 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   
  

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2012

     1,625,415        390,509        2,015,924   

Purchase price allocation adjustments

     (1,581     957        (624

Acquisition

     11,900        200        12,100   

Impairment

     —          (12,435     (12,435

Disposition

     (25,606     (6,884     (32,490

Amortization

     —          (84,680     (84,680
  

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2012

   $ 1,610,128      $ 287,667      $ 1,897,795   
  

 

 

   

 

 

   

 

 

 

The following table presents the changes in goodwill and accumulated impairment losses during the periods from January 1, 2012 to September 30, 2012 and January 1, 2011 to September 30, 2011, and balances as of such dates (dollars in thousands):

 

     2012     2011  

Balance as of January 1:

    

Goodwill

   $ 1,564,253      $ 285,820   

Accumulated impairment losses

     (229,741     (229,741
  

 

 

   

 

 

 

Subtotal

     1,334,512        56,079   

Acquisitions

     3,014        1,257,118   

Purchase price allocation adjustments

     (9,550     —     

Disposal

     (31,628     —     

Balance as of September 30:

    

Goodwill

     1,526,089        1,542,938   

Accumulated impairment losses

     (229,741     (229,741
  

 

 

   

 

 

 

Total

   $ 1,296,348      $ 1,313,197   
  

 

 

   

 

 

 

In connection with each of the CMP Acquisition, the Citadel Acquisition and the Townsquare Asset Exchange, the Company made certain allocations of the purchase price paid therein among each of the tangible and intangible assets and liabilities acquired, including goodwill. Adjustments to these allocations are reflected as purchase price allocation adjustments. Purchase price allocation adjustments during the nine months ended September 30, 2012 related to the CMP Acquisition and the Citadel Acquisition were primarily related to fair value adjustments of certain acquired broadcast licenses, property and equipment, current assets and current liabilities.

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. The Company reviews the carrying value of its indefinite-lived intangible assets and goodwill at least annually for impairment and on an interim basis if events or circumstances indicate that such assets may be impaired. 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 estimated implied fair value and charges the impairment to results of operations. The Company reviews the carrying value of its definite-lived intangible assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. During the nine months ended September 30, 2012, the Company recognized an impairment of $12.4 million on one contract definite-lived intangible asset related to the cancellation of an underlying contract.

 

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6. Derivative Financial Instruments

The Company’s derivative financial instruments are as follows:

Interest Rate Cap

On December 8, 2011, the Company entered into an interest rate cap agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), to limit the Company’s exposure to interest rate risk. The interest rate cap has an aggregate notional amount of $71.3 million. The agreement caps the LIBOR-based variable interest rate component of the Company’s long-term debt at a maximum of 3.0% on an equivalent amount of the Company’s term loans. The condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011 include long-term assets of $0.1 million and $0.4 million, respectively, attributable to the fair value of the interest rate cap. The Company reported interest expense of $0.1 million and $0.3 million during the three and nine months ended September 30, 2012, respectively, attributed to the change in fair value adjustment. The interest rate cap matures on December 8, 2015.

The Company does not utilize financial instruments for trading or other speculative purposes.

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 radio stations in Green Bay, Wisconsin 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 from managing the radio stations. Clear Channel also has a put option (the “Green Bay Option”) that allows 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 Green Bay Option was recorded as a liability 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 amount that the Company would pay if the option was transferred to another party as of the date of the valuation.

The unaudited condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011 reflect other current liabilities of $12.0 million and other long-term liabilities of $11.4 million, respectively, to include the fair value of the Green Bay Option. The Company recorded a $0.1 million realized gain and a $0.6 million realized loss on derivative instruments associated with marking to market the Green Bay Option to reflect the fair value of the option during each of the three and nine months ended September 30, 2012 and $1.4 million and $2.7 million of expense in realized losses on derivative instruments for the three and nine months ended September 30, 2011, respectively.

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 during certain periods.

The May 2005 Option was exercised on March 11, 2009. This instrument was not highly effective in mitigating the risks in the Company’s cash flows, and therefore the Company deemed it speculative and accounted for the changes in the May 2005 Option’s value as a current element of interest expense. The May 2005 Option expired on March 13, 2011 in accordance with its terms. The Company reported interest income related to this option of $0.0 million and $3.7 million, inclusive of the fair value adjustment during the three and nine months ended September 30, 2011, respectively.

The location and fair value amounts of derivatives in the accompanying unaudited condensed consolidated balance sheets are shown in the following table (dollars in thousands):

 

    

Fair Value

 
          September 30,     December 31,  

Derivative Instrument

  

Balance Sheet Location

   2012     2011  

Derivatives not designated as hedging instruments:

    

Interest rate cap

   Other long-term assets    $ 65      $ 376   

Green Bay Option

   Other current liabilities      (12,022     —     

Green Bay Option

   Other long-term liabilities      —          (11,398
     

 

 

   

 

 

 
   Total    $ (11,957   $ (11,022
     

 

 

   

 

 

 

 

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The location of income or expense recognized due to adjustments to the fair values of derivatives in the accompanying unaudited condensed consolidated statements of operations are shown in the following table (dollars in thousands):

 

          Amount of Expense (Income)
Recognized on Derivatives
 
          For the Three Months Ended      For the Nine Months Ended  
          September 30,      September 30,  

Derivative Instrument

  

Statement of Operations Location

   2012     2011      2012      2011  

Interest rate cap

   Interest expense    $ 61      $ —         $ 311       $ —     

Green Bay Option

   Realized (gain) losses on derivative instrument      (129     1,436         624         2,681   

May 2005 Option

   Interest income      —          —           —           (3,683
     

 

 

   

 

 

    

 

 

    

 

 

 
   Total    $ (68   $ 1,436       $ 935       $ (1,002
     

 

 

   

 

 

    

 

 

    

 

 

 

7. Long-Term Debt

The Company’s long-term debt consisted of the following as of September 30, 2012 and December 31, 2011 (dollars in thousands):

 

     September 30, 2012     December 31, 2011  

Term loan and revolving credit facilities:

    

First Lien Term Loan

   $ 1,314,000      $ 1,325,000   

Second Lien Term Loan

     790,000        790,000   

Revolving Credit Facility

     —          150,000   

Less: Term loan discount

     (22,045     (24,463
  

 

 

   

 

 

 

Total term loan and revolving credit facilities

     2,081,955        2,240,537   

7.75% Senior Notes

     610,000        610,000   

Less: Current portion of long-term debt

     (13,250     (13,250
  

 

 

   

 

 

 

Long-term debt, net

   $ 2,678,705      $ 2,837,287   
  

 

 

   

 

 

 

First Lien and Second Lien Credit Facilities

On September 16, 2011, to complete the Refinancing, the Company entered into a (i) First Lien Credit Agreement (the “First Lien Facility”), among the Company, Cumulus Holdings, as Borrower, certain lenders, JPMorgan as Administrative Agent, UBS, 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” and, together with the First Lien Facility, the “2011 Credit Facilities”), 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 $13.5 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 $12.0 million, maturing in September 2019 (the “Second Lien Term Loan”).

At September 30, 2012, there was $1.314 billion outstanding under the First Lien Term Loan and $790.0 million outstanding under the Second Lien Term Loan. During the quarter ended September 30, 2012, the Company repaid all outstanding borrowings under the Revolving Credit Facility.

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 Company’s pre-existing credit agreement (the “Terminated 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 CMPSC’s 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 Radio Holdings and the direct parent of CMPSC; and (vi) repay all amounts outstanding, including any accrued interest and the premiums thereon, under Citadel’s pre-existing credit agreement and to redeem its 7.75% Senior Notes.

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

 

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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, which commenced on March 31, 2012, with the balance payable on the maturity date. Amounts outstanding under the Revolving Credit Facility are due and payable on the maturity date.

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.

At September 30, 2012, borrowings under the First Lien Term Loan bore interest at 5.75% per annum and borrowings under the Second Lien Term Loan bore interest at 7.50% per annum. There were no outstanding borrowings under the Revolving Credit Facility at September 30, 2012. The Company’s interest rate cap agreement with JPMorgan caps the interest rate on an equivalent amount of the Company’s LIBOR-based term loans at a maximum of 3.0% per annum. See Note 6, “Derivative Financial Instruments” for additional information.

The representations, covenants and events of default in the 2011 Credit Facilities and financial covenants in the First Lien Facility are customary for financing transactions of this nature. Events of default in the 2011 Credit Facilities include, among others: (a) the failure to pay when due the obligations owing under the credit facilities; (b) the failure to comply with (and not timely remedy, if applicable) certain financial covenants (as required by the First Lien Facility); (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 one 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.

In the event amounts are outstanding under the Revolving Credit Facility, the First Lien Facility requires compliance with a consolidated total net leverage ratio. At September 30, 2012, this ratio would have been 7.0 to 1.0. Such ratio will be reduced in future periods if amounts are outstanding under the Revolving Credit Facility at an applicable date. The Second Lien Facility does not contain any financial covenants.

The First Lien Facility also requires our compliance with customary restrictive non-financial covenants, which, among other things, and with certain exceptions, limit the Company’s 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, 2012, the Company was in compliance with all of the required covenants under the First Lien Facility.

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 Company’s, 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 Company’s, 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 Company’s 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 Terminated 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) Company’s guarantee of all of Cumulus Holdings’ obligations, in each case under the indenture and the 7.75% Senior Notes.

 

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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 Company’s indebtedness, Cumulus Holdings’ indebtedness or indebtedness of the Company’s subsidiary guarantors (other than the Company’s subsidiaries that hold the licenses for the Company’s radio stations) guarantees, and will guarantee, the 7.75% Senior Notes. The 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 Company’s and the other guarantors’ senior unsecured obligations and rank equally in right of payment to all of the Company’s and the other guarantors’ existing and future senior debt and senior in right of payment to all of the Company’s and the other guarantors’ future subordinated debt. The 7.75% Senior Notes and the guarantees are effectively subordinated to any of Cumulus Holdings’, the Company’s 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 Company’s non-guarantor subsidiaries, including all of the liabilities of the Company’s and the guarantors’ foreign subsidiaries and the Company’s subsidiaries that hold the licenses for the Company’s radio stations.

For the three and nine months ended September 30, 2012, the Company recorded an aggregate of $2.5 million and $7.6 million, respectively, of amortization costs related to its First Lien and Second Lien Credit Facilities and 7.75% Senior Notes.

8. 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 instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s 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, 2012 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 asset:

          

Interest rate cap (1)

   $ 65      $ —         $ 65       $ —     

Financial liabilities:

          

Other current liabilities

          

Green Bay Option (2)

   $ (12,022   $ —         $ —         $ (12,022

 

(1) The Company is party to an interest rate cap pursuant to which the Company pays a fixed interest rate on a $71.3 million notional amount of its term loans. The fair value of the Company’s interest rate cap is determined based on a discounted cash flow analysis on the expected future cash flows using observable inputs, including interest rates and yield curves. Derivative valuations incorporate adjustments that are necessary to reflect the credit risk.
(2) The fair value of the Green Bay Option was determined using certain significant unobservable inputs (a Level 3 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.

 

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The assets associated with the Company’s interest rate cap are measured within Level 2 on the fair value hierarchy. To estimate the fair value of the interest rate cap, the Company used an industry standard cash valuation model, which utilizes a discounted cash flow approach, with all significant inputs derived from or corroborated by observable market data. See Note 6, “Derivative Financial Instruments.”

The reconciliation below contains the components of the change in fair value associated with the Green Bay Option from January 1, 2012 to September 30, 2012 (dollars in thousands):

 

Description

   Green Bay Option  

Fair value balance at January 1, 2012

   $ (11,398

Add: Mark to market fair value adjustment

     (624
  

 

 

 

Fair value balance at September 30, 2012

   $ (12,022
  

 

 

 

Quantitative information regarding the significant unobservable inputs related to the Green Bay Option as of September 30, 2012 were as follows (dollars in thousands):

 

Fair Value

  

Valuation Technique

  

Unobservable Inputs

  

 

 
$ (12,022)    Black-Scholes Model    Risk adjusted discount rate      7.4
      Total term      less than 1 year   
      Volatility rate      75.0
      Annual dividend rate      0.0
      Bond equivalent yield discount rate      0.2

Significant increases (decreases) in any of the inputs in isolation would result in a lower (higher) fair value measurement. For example, a decrease in the risk adjusted discount rate would result in a higher liability.

The carrying values of receivables, payables, and accrued expenses approximate their respective fair values due to the short maturity of these instruments.

The Company’s long-term debt is classified within Level 2 of the fair value hierarchy. The following table shows the gross amounts and fair value of the Company’s First Lien Term Loan, Second Lien Term Loan, Revolving Credit Facility and 7.75% Senior Notes (dollars in thousands):

 

     September 30, 2012      December 31, 2011  

First Lien Term Loan:

     

Carrying value

   $ 1,314,000       $ 1,325,000   

Fair value

     1,323,855         1,305,125   

Second Lien Term Loan:

     

Carrying value

   $ 790,000       $ 790,000   

Fair value

     797,900         770,250   

Revolving Credit Facility:

     

Carrying value

   $ —         $ 150,000   

Fair value

     —           150,000   

7.75% Senior Notes:

     

Carrying value

   $ 610,000       $ 610,000   

Fair value

     590,938         541,680   

As of September 30, 2012, the Company used the trading prices of 100.8% and 101.0% to calculate the fair value of the First Lien Term Loan and Second Lien Term Loan, respectively, and 96.9% to calculate the fair value of the 7.75% Senior Notes.

As of December 31, 2011, the Company used the trading prices of 98.5% and 97.5% to calculate the fair value of the First Lien Term Loan and Second Lien Term Loan, respectively, and 88.8% to calculate the fair value of the 7.75% Senior Notes.

9. Redeemable Preferred Stock

In connection with the Citadel Acquisition on September 15, 2011, 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.

 

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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 Company’s 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 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 Company’s common stock.

Dividends on the Series A Preferred Stock accrued at an annual rate of 10.0% from the date of issuance of the Series A Preferred Stock through March 15, 2012. After such date, dividends accrue at an annual rate as follows:

 

   

14.0% through 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.

During the three and nine months ended September 30, 2012, the Company redeemed 49,233 shares of its Series A Preferred Stock for $49.2 million and $0.8 million of unpaid dividends accrued through the redemption date. Total dividends accrued and paid on the Series A Preferred Stock during the three months ended September 30, 2012 were $3.4 million and $5.1 million, respectively, including $0.8 million of dividends paid on the redeemed shares through the redemption date. Total dividends accrued and paid on the Series A Preferred Stock during the nine months ended September 30, 2012 were $11.1 million and $11.6 million, respectively, including $0.8 million of dividends paid on the redeemed shares through the redemption date. During the three and nine months ended September 30, 2012, the Company accreted $1.9 million and $6.6 million, respectively, on the Series A Preferred Stock. At September 30, 2012, 75,767 shares of Series A Preferred Stock remained outstanding. During each of the three and nine months ended September 30, 2011, the Company accrued $0.5 million in dividends and accreted $0.2 million on the Series A Preferred Stock. No cash dividends were paid during the three or nine months ended September 30, 2011 related to the Series A Preferred Stock. The accretion of Series A Preferred Stock resulted in an equivalent reduction in additional paid-in capital on the accompanying unaudited condensed consolidated balance sheets at September 30, 2012 and December 31, 2011.

10. Stockholders’ Equity

The Company is authorized to issue an aggregate of 1,450,644,871 shares of stock 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 $0.01 per share (see Note 9, “Redeemable Preferred Stock”). Effective September 16, 2011, upon the filing of 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 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 2, “Acquisitions and Dispositions,” the Company completed the Citadel Acquisition on September 16, 2011. In connection with the Citadel Acquisition, the Company issued 23.6 million shares of Class A common stock, including 0.9 million restricted shares, and warrants to purchase 47.6 million shares of Class A common stock (the “Citadel Warrants”) to holders of Citadel’s common stock and warrants. Additionally, 2.4 million warrants to purchase shares of the Company’s common stock related to the pending final settlement of certain outstanding unsecured claims arising from Citadel’s emergence from bankruptcy in June 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; (ii) 125,000 shares of Series A Preferred Stock to an affiliate of Macquarie (see Note 9, “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.

 

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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 to 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 holder’s 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 Department of Justice.

After payment of dividends to the holders of Series A Preferred Stock, the holders of 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 the Terminated Credit Agreement, the Company issued immediately exercisable warrants to the lenders under the Terminated Credit Agreement that allow them to acquire up to 1.3 million shares of Class A common stock at an exercise price of $1.17 per share (the “2009 Warrants”). The 2009 Warrants expire on June 29, 2019. 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. At September 30, 2012, 1.0 million 2009 Warrants remained outstanding.

CMP Restated Warrants

As described above and 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”). 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 $0.01 per share, for an aggregate of approximately 8.3 million shares of Class B common stock (the “CMP Restated Warrants”). The CMP Restated Warrants expired by their terms on July 31, 2012. Prior to the termination thereof, approximately 3.7 million CMP Restated Warrants were converted into approximately 8.2 million shares of Class B common stock.

Equity Held in Reserve

Citadel emerged from bankruptcy effective June 3, 2010 and, as of September 16, 2011, certain bankruptcy-related claims against Citadel remained open for final resolution. As part of the Citadel Acquisition and as of September 30, 2012, warrants to purchase 2.4 million shares of the Company’s common stock were reserved for potential future issuance in connection with the settlement of these remaining allowed, disputed or unreconciled unsecured claims. If excess shares remain in reserve after resolution of all remaining allowed, disputed or unreconciled unsecured claims, such shares will be distributed to the claimants with allowed unsecured claims pro-rata, based on the number of shares they received pursuant to the plan under which Citadel emerged from bankruptcy. This equity held in reserve is included in additional paid-in-capital on the accompanying unaudited condensed consolidated balance sheets at September 30, 2012 and December 31, 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 an equivalent number of shares of Class A common stock. The Company Warrants 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 common stock in lieu of an equal number of shares of Class A common stock and, upon request of a holder and at the Company’s discretion, the Company has the right to exchange such warrants to purchase an equivalent number of shares of Class B common stock for outstanding warrants to purchase shares of Class A common stock.

 

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Conversion of the Company Warrants is subject to compliance with applicable FCC regulations, and the Company Warrants are exercisable provided that ownership of the Company’s securities by the holder does not cause the Company to violate applicable FCC rules and regulations relating to foreign ownership of broadcasting licenses.

Holders of Company Warrants are entitled to participate ratably in any distributions on the Company’s 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 Company’s 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.

During the nine months ended September 30, 2012, approximately 16.0 million Company Warrants were converted into shares of Class A common stock with an aggregate total of 33.6 million being converted since issuance through September 30, 2012. At September 30, 2012, 38.0 million Company Warrants remained outstanding.

Crestview Warrants

Pursuant to the Equity Investment, but pursuant to a separate warrant agreement, the Company issued the Crestview Warrants. The 7.8 million Crestview Warrants are exercisable until September 16, 2021 and the $4.34 per share exercise price is subject to standard weighted average adjustments in the event that the Company 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. 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. As of September 30, 2012, 7.8 million Crestview Warrants remained outstanding.

11. Stock-Based Compensation Expense

On February 16, 2012, the Company granted an aggregate of 161,724 shares of time-vesting restricted Class A common stock, with an aggregate grant date fair value of $0.6 million, to the non-employee directors of the Company with a cliff vesting term of one year. In addition, on February 16, 2012, the Company granted time-vesting stock options to purchase 1,357,500 shares of Class A common stock to certain Company employees under the Cumulus Media Inc. 2011 Equity Incentive Plan, with an aggregate grant date fair value of $3.0 million. The options have an exercise price of $4.34 per share and provide for 30% vesting on each of September 16, 2012 and February 16, 2013 and 20% vesting on each of February 16, 2014 and 2015.

The Company has certain liability-based awards related to the cash consideration portion of the Citadel Acquisition (“Liability Awards”). For the three and nine months ended September 30, 2012, the Company recognized $2.8 million and $15.7 million, respectively, in stock-based compensation expense related to equity awards and $6.9 million in stock-based compensation expense related to Liability Awards for the nine months ended September 30, 2012. There was no stock-based compensation expense related to Liability Awards recognized during the three months ended September 30, 2012. For the three and nine months ended September 30, 2011, the Company recognized approximately $1.0 million and $2.1 million, respectively, in stock-based compensation expense related to equity awards and $0.6 million for each of the three and nine months ended September 30, 2011 in stock-based compensation expense related to Liability Awards.

As of September 30, 2012, unrecognized stock-based compensation expense of approximately $20.4 million related to equity awards is expected to be recognized over a weighted average remaining life of 2.5 years. There is no unrecognized stock-based compensation expense related to Liability Awards as of September 30, 2012. Unrecognized stock-based compensation expense will be adjusted for future changes in estimated forfeitures.

The total fair value of restricted stock awards that vested during the nine months ended September 30, 2012 was $19.1 million, of which $13.2 million related to the Company’s Liability Awards and was paid in cash. The total fair value of restricted stock awards that vested during the nine months ended September 30, 2011 was $2.1 million. No options were exercised during either of the nine months ended September 30, 2012 or 2011.

12. 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 required pursuant to the Company’s Third Amended and Restated Charter.

Non-vested restricted shares of Class A common stock, the Company Warrants and the CMP Restated Warrants (until their expiration) are considered participating securities for purposes of calculating basic weighted average common shares outstanding in periods in which the Company records net income available to common shareholders. 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. Because the Company has not historically paid dividends to common stockholders, earnings are

 

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allocated to each participating security and common share equally, after deducting dividends declared on the Series A 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, 2012 and 2011 (amounts in thousands, except per share data):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012     2011  

Basic Earnings Per Share

          

Numerator:

          

Undistributed net income from continuing operations

   $ 26,787       $ 54,956       $ 12,424      $ 68,390   

Less:

          

Preferred stock dividends declared

     3,418         1,017         11,126        1,017   

Accretion of redeemable preferred stock

     1,446         527         6,065        527   

Participation rights of Company Warrants in undistributed earnings

     4,093         8,456         —          4,974   

Participation rights of unvested restricted stock in undistributed earnings

     84         1,388         —          2245   
  

 

 

    

 

 

    

 

 

   

 

 

 

Basic undistributed net income (loss) from continuing operations - attributable to common shares

   $ 17,746       $ 43,568       $ (4,767   $ 59,627   
  

 

 

    

 

 

    

 

 

   

 

 

 

Denominator:

          

Basic weighted average shares outstanding

     169,510         60,295         158,902        47,282   
  

 

 

    

 

 

    

 

 

   

 

 

 

Basic income (loss) from continuing operations per share - attributable to common shares

   $ 0.10       $ 0.72       $ (0.03   $ 1.26   
  

 

 

    

 

 

    

 

 

   

 

 

 

Diluted Earnings Per Share:

          

Numerator:

          

Undistributed net income from continuing operations

   $ 26,787       $ 54,956       $ 12,424      $ 68,390   

Less:

          

Preferred stock dividends declared

     3,418         1,017         11,126        1,017   

Accretion of redeemable preferred stock

     1,446         527         6,065        527   

Participation rights of the Company Warrants in undistributed net income

     3,962         7,778         —          4,730   

Participation rights of unvested restricted stock in undistributed earnings

     81         1,276         —          2,135   
  

 

 

    

 

 

    

 

 

   

 

 

 

Basic undistributed net income (loss) from continuing operations - attributable to common shares

   $ 17,880       $ 44,358       $ (4,767   $ 59,981   
  

 

 

    

 

 

    

 

 

   

 

 

 

Denominator:

          

Basic weighted average shares outstanding

     169,510         60,295         158,902        47,282   

Effect of dilutive options and warrants

     6,842         6,445         —          2,734   
  

 

 

    

 

 

    

 

 

   

 

 

 

Diluted weighted average shares outstanding

     176,352         66,740         158,902        50,016   
  

 

 

    

 

 

    

 

 

   

 

 

 

Diluted income (loss) from continuing operations per share - attributable to common shares

   $ 0.10       $ 0.66       $ (0.03   $ 1.20   
  

 

 

    

 

 

    

 

 

   

 

 

 

Potentially dilutive equivalent shares outstanding for the nine months ended September 30, 2012 excluded from the computation of diluted income (loss) per share, consisted of approximately 53.1 million additional shares of common stock to underlying outstanding warrants. No potentially dilutive equivalent shares outstanding for the three months ended September 30, 2012, 2011 and the nine months ended September 30, 2011 were excluded from the computation of diluted EPS.

Revisions to Financial Statements

In connection with the preparation of the second quarter of 2012 Unaudited Condensed Consolidated Financial Statements, the Company identified an error in the manner in which earnings per share in certain prior periods was calculated. Upon completion of the Company’s evaluation of the earnings per share calculation, it was determined that the weighted average shares outstanding used in the denominator of the earnings per share calculation in certain prior periods was improperly calculated.

In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 99, Materiality), the Company assessed the materiality of the errors and concluded that the errors were not material to any of the Company’s previously issued financial statements. As permitted by the accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the Company has elected to present herein certain revised financial information for the three and nine months ended September 30, 2011, and the year ended December 31, 2011. The error had no impact on any other periods previously presented.

 

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The following tables present the effect of this revision on earnings per share for all periods affected:

 

     Three Months  Ended
September 30, 2011
     Nine Months Ended September 30, 2011  
     As  Previously
Reported
     Adjustment      As Revised      As  Previously
Reported
     Adjustment      As Revised  

Basic income per common share

   $ 0.64       $ 0.14       $ 0.78       $ 1.27       $ 0.15       $ 1.42   

Diluted income per common share

   $ 0.60       $ 0.12       $ 0.72       $ 1.21       $ 0.14       $ 1.35   

 

     Year Ended December 31, 2011  
     As  Previously
Reported
     Adjustment      As Revised  

Basic income per common share

   $ 0.48       $ 0.14       $ 0.62   

Diluted income per common share

   $ 0.46       $ 0.13       $ 0.59   

13. 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.

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 2012 could be different from the forecasted rate.

For the three and nine months ended September 30, 2012, the Company recorded tax benefits of $12.2 million and $22.9 million, respectively, on a pre-tax income (loss) from continuing operations of $14.6 million and $(10.4) million, respectively, resulting in an effective tax rate for the three and nine months ended September 30, 2012 of approximately (83.6)% and 219.0%, respectively. In the third quarter of 2012 the Company released $9.3 million of valuation allowance based upon a revised forecast of our 2012 results which will allow us to recognize certain net operating losses that can be utilized against future definitive sources of tax income related the Company’s elective deferral of cancellation of indebtedness income associated with certain events that occurred in 2009. This valuation allowance release is reported as a discrete tax benefit for continuing operations in the third quarter of 2012. For the three and nine months ended September 30, 2011, the Company recorded income tax benefits of $69.2 million and $65.7 million, respectively, on pre-tax income (loss) from continuing operations of $(14.3) million and $2.7 million, respectively, resulting in effective tax rates of 483.9% and (2,464.3)% for the three and nine months ended September, 30, 2011, respectively.

The difference between the effective tax rate for each period and the federal statutory rate of 35.0% primarily relates to state and local income taxes and the change in the estimated amount of valuation allowance recorded on the Company’s net deferred tax assets. As of September 30, 2012, the Company continues to maintain a full valuation allowance on its net deferred tax assets excluding deferred tax liabilities associated with the Company’s indefinite lived intangible assets and deferred cancellation of debt income for which no estimated amount of deferred tax assets are available to satisfy. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company’s financial statements or tax returns as well as future profitability. The Company continually reviews the adequacy of the valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740, Accounting for Income Taxes. As of September 30, 2012, the Company does not believe it is more likely than not that the deferred tax assets will be recognized. In reaching this determination, the Company believes that its history of cumulative losses over the past three years outweighs other positive evidence that it is more likely than not that the Company’s deferred tax assets will be recognized. Should the Company’s experience of earning pre-tax income over the past two years continue into the future, the Company may release all or a portion of the valuation allowance during 2012, which would result in a deferred tax benefit in the period of adjustment.

14. Commitments and Contingencies

Future Commitments

Effective December 31, 2009, the Company’s radio music license agreements with the two largest performance rights organizations, The American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”), expired. In January 2010, the Radio Music License Committee (the “RMLC”), which negotiates music licensing fees for most of the radio industry with ASCAP and BMI, filed motions in the New York courts against these organizations on behalf of the radio industry, seeking interim fees and a determination of fair and reasonable industry-wide license fees. During 2010, the courts approved reduced interim fees for ASCAP and BMI. On January 27, 2012, the Federal District Court for the Southern District of New York approved a settlement between the RMLC and ASCAP concerning the fees payable covering the period January 1, 2010 through December 31, 2016. Included in the agreement is a $75.0 million industry fee credit against fees previously paid in 2010 and 2011, with such fees to be credited over the remaining period of the contract. The Company began recognizing the ASCAP credits as a reduction in direct operating expenses on January 1, 2012. On August 28, 2012, the Federal District Court for the Southern District of New York approved a settlement between the RMLC and BMI concerning the fees payable covering the period January 1, 2010 through December 31, 2016. Included in the agreement is a $70.5 million industry fee credit against fees previously paid in 2010 and 2011, with such fees immediately available to the industry. The Company recognized a full credit against such fees during the quarter ended September 30, 2012 in the amount of approximately $8.3 million.

 

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The radio broadcast industry’s principal ratings service is Arbitron, which publishes surveys for domestic radio markets. Certain of the Company’s 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 $68.4 million as of September 30, 2012 and is expected to be paid in accordance with the agreements through June 2016.

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.

The 2011 Credit Facilities contain provisions requiring the Company to use the proceeds from the disposition of assets of the Company to prepay amounts outstanding under the First Lien Facility and the Second Lien Facility (to the extent proceeds remain after the required prepayment of all amounts outstanding under the First Lien Facility), subject to the right of the Company to use such proceeds to acquire, improve or repair assets useful in its business, all within one year from the date of receipt of such proceeds. If and to the extent that the proceeds from the Townsquare Asset Exchange are not otherwise reinvested within the applicable time period, the Company intends to prepay amounts outstanding under the 2011 Credit Facilities in accordance with the terms thereof.

The Company entered into a radio network contractual obligation to guarantee a minimum amount revenue share to the contractual party on certain programming within the contract for the year ended December 31, 2012 and in future years. This guarantee is subject to decreases dependent on clearance targets achieved. As of September 30, 2012, the Company believes that it will meet such minimum obligations.

Legal Proceedings

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.

15. Supplemental Condensed Consolidating Financial Information

At September 30, 2012, Cumulus and certain of its wholly owned subsidiaries (such subsidiaries, the “Subsidiary Guarantors”) provided guarantees of the obligations of Cumulus Holdings under the 7.75% Senior Notes. These guarantees are full and unconditional (subject to customary release provisions) as well as joint and several. Certain of the Subsidiary Guarantors may be subject to restrictions on their respective ability to distribute earnings to Cumulus Holdings or Cumulus Media Inc. (the “Parent Guarantor”). Not all of the subsidiaries of Cumulus and Cumulus Holdings guarantee the 7.75% Senior Notes (such non-guaranteeing subsidiaries, collectively, the “Subsidiary Non-guarantors”).

The following tables present (i) unaudited condensed consolidating statements of operations for the three and nine months ended September 30, 2012 and 2011, (ii) unaudited condensed consolidating balance sheets as of September 30, 2012 and December 31, 2011, and (iii) unaudited condensed consolidating statements of cash flows for the nine months ended September 30, 2012 and 2011, of each of the Parent Guarantor, Cumulus Holdings, 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 Company’s business groups; accordingly, this basis of presentation is not intended to present the Company’s financial condition, results of operations or cash flows on a consolidated basis.

Revision to Prior Period Financial Statements

During the third quarter of 2012, Cumulus Media Inc. determined that it did not properly classify its preferred stock in its supplemental condensed consolidating financial information footnote in previous 2012 interim periods or at December 31, 2011. The Company should have presented the preferred stock balance and related accrued dividends in the Cumulus Media Inc (Parent Guarantor) column and was inappropriately classified in the Cumulus Media Holdings Inc. (Subsidiary Issuer) column. There was no impact on the consolidated balance sheet, statement of income or statement of cash flows.

In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 99, Materiality), the Company assessed the materiality of the error and concluded that the error was not material to any of the Company’s previously issued financial statements. As permitted by the accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the Company has presented revised financial information for the year ended December 31, 2011.

 

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CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2012

(Dollars in thousands)

(Unaudited)

 

           Cumulus                          
     Cumulus     Media                          
     Media Inc.     Holdings Inc.     Subsidiary     Subsidiary           Total  
     (Parent Guarantor)     (Subsidiary Issuer)     Guarantors     Non-guarantors     Eliminations     Consolidated  

Broadcast revenues

   $ —        $ —        $ 274,160      $ —        $ —        $ 274,160   

Management fees

     1,190        —          —          —          —          1,190   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     1,190        —          274,160        —          —          275,350   

Operating expenses:

            

Direct operating expenses (excluding depreciation, amortization and LMA fees)

     —          —          160,282        1,458        —          161,740   

Depreciation and amortization

     543        —          34,696        —          —          35,239   

LMA fees

     —          —          928        —          —          928   

Corporate general and administrative expenses (including stock-based compensation expense of $2,764)

     12,979        —          —          —          —          12,979   

Gain on exchange of assets or stations

         —              —     

Realized gain on derivative instrument

     —          —          (129     —          —          (129
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,522        —          195,777        1,458        —          210,757   

Non-operating (expense) income:

            

Operating (loss) income

     (12,332     —          78,383        (1,458     —          64,593   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

     (1,361     (48,651     255        —          —          (49,757

Other expense, net

     —          —          (224     —          —          (224
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expense, net

     (1,361 )       (48,651     31        —          —          (49,981
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes

     (13,693     (48,651     78,414        (1,458     —          14,612   

Income tax benefit

     —          —          10,010        2,165        —          12,175   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (13,693     (48,651     88,424        707        —          26,787   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations, net of taxes

     —          —          35,275        (6,017     —          29,258   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from consolidated subsidiaries

     69,738        118,389        (5,310     —          (182,817     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 56,045      $ 69,738      $ 118,389      $ (5,310   $ (182,817   $ 56,045   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2011

(Dollars in thousands)

(Unaudited)

 

           Cumulus                          
     Cumulus     Media                          
     Media Inc.     Holdings Inc.     Subsidiary     Subsidiary           Total  
     (Parent Guarantor)     (Subsidiary Issuer)     Guarantors     Non-guarantors     Eliminations     Consolidated  

Broadcast revenues

   $ —        $ —        $ 124,332      $ —        $ —        $ 124,332   

Management fees

     458        —          —          —          —          458   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     458        —          124,332        —          —          124,790   

Operating expenses:

            

Direct operating expenses (excluding depreciation, amortization and LMA fees)

     —          —          73,404        306        —          73,710   

Depreciation and amortization

     360        —          10,665        —          —          11,025   

LMA fees

     —          —          530        —          —          530   

Corporate general and administrative expenses (including stock-based compensation expense of $1,601)

     44,024        —          630        —          —          44,654   

Realized loss on derivative instrument

     —          —          1,436        —          —          1,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     44,384        —          86,665        306        —          131,355   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (43,926     —          37,667        (306     —          (6,565

Non-operating (expense) income:

            

Interest expense, net

     (555     (19,045     97        —          —          (19,503

Other expense, net

     —          —          182        —          —          182   

Gain on equity investment in Cumulus Media Partners, LLC

     11,636        —          —          —          —          11,636   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expense, net

     11,081        (19,045     279        —          —          (7,685
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes

     (32,845     (19,045     37,946        (306     —          (14,250

Income tax expense

     —          —          67,199        2,007        —          69,206   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (32,845     (19,045     105,145        1,701        —          54,956   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations, net of taxes

     —          —          8,452        (3,870     —          4,582   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from consolidated subsidiaries

     92,383        111,428        (2,169     —          (201,642     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 59,538      $ 92,383      $ 111,428      $ (2,169   $ (201,642   $ 59,538   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2012

(Dollars in thousands)

(Unaudited)

 

     Cumulus    

Cumulus

Media

                         
     Media Inc.     Holdings Inc.     Subsidiary     Subsidiary           Total  
     (Parent Guarantor)     (Subsidiary Issuer)     Guarantors     Non-guarantors     Eliminations     Consolidated  

Broadcast revenues

   $ —        $ —        $ 790,870      $ —        $ —        $ 790,870   

Management fees

     1,516        —          —          —          —          1,516   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     1,516        —          790,870        —          —          792,386   

Operating expenses:

            

Direct operating expenses (excluding depreciation, amortization and LMA fees)

     —          —          481,601        2,505        —          484,106   

Depreciation and amortization

     1,109        —          105,212        —          —          106,321   

LMA fees

     —         
—  
  
    2,652        —          —          2,652   

Corporate general and administrative expenses (including stock-based compensation expense of $15,671)

     46,473        —          —          —          —          46,473   

Gain on exchange of assets or stations

     —          —          —          —          —          —     

Realized loss on derivative instrument

     —          —          624        —          —          624   

Impairment of intangible assets

     —          —          12,435        —          —          12,435   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     47,582        —          602,524        2,505        —          652,611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (46,066     —          188,346        (2,505     —          139,775   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating (expense) income:

            

Interest (expense) income, net

     (1,696     (149,336     853        —          —          (150,179

Other expense, net

     —          —          (34     —          —          (34
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (expense) income, net

     (1,696     (149,336     819        —          —          (150,213
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes

     (47,762     (149,336     189,165        (2,505     —          (10,438

Income tax benefit

     —          —          11,272        11,590        —          22,862   

(Loss) income from continuing operations

     (47,762     (149,336     200,437        9,085        —          12,424   

Income from discontinued operations, net of taxes

     —          —          48,766        (9,131     —          39,635   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from consolidated subsidiaries

     99,821        249,157        (46     —          (348,932     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 52,059      $ 99,821      $ 249,157      $ (46   $ (348,932   $ 52,059   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2011

(Dollars in thousands)

(Unaudited)

 

    Cumulus    

Cumulus

Media

                         
    Media Inc.     Holdings Inc.     Subsidiary     Subsidiary           Total  
    (Parent Guarantor)     (Subsidiary Issuer)     Guarantors     Non-guarantors     Eliminations     Consolidated  

Broadcast revenues

  $ —        $ —        $ 235,989      $ —        $ —        $ 235,989   

Management fees

    2,708        —          —          —          —          2,708   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

    2,708        —          235,989        —          —          238,697   

Operating expenses:

           

Direct operating expenses (excluding depreciation, amortization and LMA fees)

    —          —          141,859        831        —          142,690   

Depreciation and amortization

    1,079        —          13,623        —          —          14,702   

LMA fees

    —          —          1,670        —          —          1,670   

Corporate general and administrative expenses (including stock-based compensation expense of $2,788)

    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        —          145,185        831        —          208,389   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (59,665     —          90,804        (831     —          30,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 expense, net

    —          —          88        —          —          88   

Gain on equity investment in Cumulus Media Partners, LLC

    11,636                11,636   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expense, net

    (2,006     (25,826     191        —          —          (27,641
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes

    (61,671     (25,826     90,995        (831     —          2,667   

Income tax expense

    —          —          66,779        (1,256     —          65,723   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

    (61,671     (25,826     157,974        (2,087     —          68,390   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations, net of taxes

    —          —          12,478        (3,870     —          8,608   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from consolidated subsidiaries

    138,669        164,495        (5,957     —          (297,207     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 76,998      $ 138,669      $ 164,495      $ (5,957   $ (297,207   $ 76,998   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2012

(Dollars in thousands, except for share and per share data)

(Unaudited)

 

    Cumulus     Cumulus                          
    Media Inc.     Media                          
    (Parent     Holdings Inc.     Subsidiary     Subsidiary           Total  
    Guarantor)     (Subsidiary Issuer)     Guarantors     Non-guarantors     Eliminations     Consolidated  

Assets

           

Current assets:

           

Cash and cash equivalents

  $ 38,847      $ —        $ 8,129      $ —        $ —        $ 46,976   

Restricted cash

    3,254        —          —          —          —          3,254   

Accounts receivable, less allowance for doubtful accounts of $4,504

    —          —          222,096        —          —          222,096   

Trade receivable

    —          —          7,073        —          —          7,073   

Prepaid expenses and other current assets

    8,560        —          24,595        —          —          33,155   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    50,661        —          261,893        —          —          312,554   

Property and equipment, net

    4,217        —          257,750        —          —          261,967   

Broadcast licenses

    —          —          —          1,610,128        —          1,610,128   

Other intangible assets, net

    —          —          287,667        —          —          287,667   

Goodwill

    —          —          1,296,348        —          —          1,296,348   

Investment in consolidated subsidiaries

    426,220        3,025,733        1,125,498        —          (4,577,451     —     

Other assets

    11,349        113,276        (45,071     —          —          79,554   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 492,447      $ 3,139,009      $ 3,184,085      $ 1,610,128      $ (4,577,451   $ 3,848,218   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities, Redeemable Preferred Stock and Stockholders’ Equity (Deficit)

           

Current liabilities:

           

Accounts payable and accrued expenses

  $ 13,608      $ 20,834      $ 90,363      $ —        $ —        $ 124,805   

Trade payable

    —          —          5,623        —          —          5,623   

Current portion of long-term debt

    —          13,250        —          —          —          13,250   

Other current liabilities

    —          —          12,022        —          —          12,022   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    13,608        34,084        108,008        —          —          155,700   

Long-term debt, excluding 7.75% senior notes

    —          2,068,705        —          —          —          2,068,705   

7.75% senior notes

    —          610,000        —          —          —          610,000   

Other liabilities

    75,966        —          (27,837     —          —          48,129   

Deferred income taxes

    —          —          78,181        484,630        —          562,811   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    89,574        2,712,789        158,352        484,630        —          3,445,345   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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; 75,767 shares issued and outstanding

    70,854        —          —          —          —          70,854   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total redeemable preferred stock

    70,854        —          —          —          —          70,854   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

           

Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 182,053,736 shares issued and 157,908,633 outstanding

    1,821        —          —          —          —          1,821   

Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 15,424,944 shares issued and outstanding

    154        —          —          —          —          154   

Class C common stock, par value $0.01 per share; 644,871 shares authorized, issued and outstanding

    6        —          —          —          —          6   

Treasury stock, at cost, 24,145,103 shares

    (251,957     —          —          —          —          (251,957

Additional paid-in-capital

    1,515,407        173,618        3,502,648        2,099,486        (5,775,752     1,515,407   

Accumulated (deficit) equity

    (933,412     252,602        (476,915     (973,988     1,198,301        (933,412
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

    332,019        426,220        3,025,733        1,125,498        (4,577,451     332,019   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable preferred stock and stockholders’ equity (deficit)

  $ 492,447      $ 3,139,009      $ 3,184,085      $ 1,610,128      $ (4,577,451   $ 3,848,218   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 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

  $ 11,714      $ —        $ 18,878      $ —        $ —        $ 30,592   

Restricted cash

    3,854        —          —          —          —          3,854   

Accounts receivable, less allowance for doubtful accounts of $2,765

    —          —          236,804        —          —          236,804   

Trade receivable

    —          —          5,967        —          —          5,967   

Compensation held in trust

    24,807                24,807   

Prepaid expenses and other current assets

    6,542        —          14,762        1,011        —          22,315   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    46,917        —          276,411        1,011        —          324,339   

Property and equipment, net

    6,555        —          271,515        —          —          278,070   

Broadcast licenses

    —          —          —          1,625,415        —          1,625,415   

Other intangible assets, net

    —          —          390,509        —          —          390,509   

Goodwill

    —          —          1,334,512        —          —          1,334,512   

Investment in consolidated subsidiaries

    440,008        3,247,865        1,157,317        —          (4,845,190     —     

Other assets

    13,577        55,176        18,993        —          —          87,746   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 507,057      $ 3,303,041      $ 3,449,257      $ 1,626,426      $ (4,845,190   $ 4,040,591   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities, Redeemable Preferred Stockand Stockholders’ Equity (Deficit)

           

Current liabilities:

           

Accounts payable and accrued expenses

  $ 60,345      $ 12,496      $ 87,070      $ 275      $ —        $ 160,186   

Trade payable

    —          —          4,999        —          —          4,999   

Current portion of long-term debt

    —          13,250        —          —          —          13,250   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    60,345        25,746        92,069        275        —          178,435   

Long-term debt, excluding 7.75% senior notes

    —          2,227,287        —          —          —          2,227,287   

7.75% senior notes

    —          610,000        —          —          —          610,000   

Other liabilities

    42,552        —          21,386        —          —          63,938   

Deferred income taxes

    —          —          87,937        468,834        —          556,771   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    102,897        2,863,033        201,392        469,109        —          3,636,431   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   
113,447
  
    —          —          —          —          113,447   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total redeemable preferred stock

    113,447        —          —          —          —          113,447   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

           

Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 160,783,484 shares issued and 137,085,813 shares outstanding

    1,608        —          —          —          —          1,608   

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; 644,871shares issued and outstanding

    6        —          —          —          —          6   

Treasury stock, at cost, 23,697,671 shares

    (251,666     —          —          —          —          (251,666

Additional paid-in-capital

    1,526,114        285,806        3,972,850        2,131,251        (6,389,907     1,526,114   

Accumulated (deficit) equity

    (985,473     154,202        (724,985     (973,934     1,544,717        (985,473
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

    290,713        440,008        3,247,865        1,157,317        (4,845,190     290,713   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable preferred stock and stockholders’ equity (deficit)

  $ 507,057      $ 3,303,041      $ 3,449,257      $ 1,626,426      $ (4,845,190   $ 4,040,591   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2012

(Dollars in thousands)

(Unaudited)

 

          Cumulus                          
    Cumulus     Media                          
    Media Inc.     Holdings Inc.     Subsidiary     Subsidiary           Total  
    (Parent Guarantor)     (Subsidiary Issuer)     Guarantors     Non-guarantors     Eliminations     Consolidated  

Cash flows from operating activities:

           

Net income

  $ 52,059      $ 99,821      $ 249,157      $ 46      $ (348,932   $ 52,059   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

           

Depreciation and amortization

    1,109        —          106,372        —          —          107,481   

Amortization of debt issuance costs/discounts

    —          7,581        —          —          —          7,581   

Provision for doubtful accounts

    —          —          2,892        —          —          2,892   

Gain on sale of assets or stations

    —          —          (163     —          —          (163

Gain on exchange of assets or stations

    —          —          (38,251     (24,977     —          (63,228

Impairment of intangible assets

    —            12,435            12,435   

Fair value adjustment of derivative instruments

    311        —          624        —          —          935   

Deferred income taxes

    —          —          (16,475     22,518        —          6,043   

Stock-based compensation expense

    15,671        —          —          —          —          15,671   

Earnings from consolidated subsidiaries

    (99,821     (249,157     46        —          348,932        —     

Changes in assets and liabilities

    120,105        302,755        (438,371     2,505        —          (13,006
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    89,434        161,000        (121,734     —          —          128,700   

Cash flows from investing activities:

           

Restricted cash

    600        —            —          —          600   

Proceeds from sale of assets or stations

    426        —          —          —          —          426   

Capital expenditures

    (722     —          (3,933