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 March 31, 2013

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

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 April 30, 2013, the registrant had 175,963,810 outstanding shares of common stock consisting of (i) 159,893,995 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 March 31, 2013 and December 31, 2012

     3   

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012

     4   

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012

     5   

Notes to Unaudited Condensed Consolidated Financial Statements

     6   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations      31   
Item 3. Quantitative and Qualitative Disclosures About Market Risk      37   
Item 4. Controls and Procedures      37   
PART II. OTHER INFORMATION   
Item 1. Legal Proceedings      37   
Item 1A. Risk Factors      38   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds      38   
Item 6. Exhibits      38   
Signatures      39   

 

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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)

 

     March 31,
2013
    December 31,
2012
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 82,806      $ 88,050   

Restricted cash

     6,096        5,921   

Accounts receivable, less allowance for doubtful accounts of $3,882 and $4,131 at March 31, 2013 and December 31, 2012, respectively

     164,099        207,563   

Trade receivable

     5,926        6,104   

Prepaid expenses and other current assets

     47,299        45,481   
  

 

 

   

 

 

 

Total current assets

     306,226        353,119   

Property and equipment, net

     251,459        255,903   

Broadcast licenses

     1,642,044        1,602,373   

Other intangible assets, net

     236,850        258,761   

Goodwill

     1,205,166        1,195,594   

Other assets

     75,985        77,825   
  

 

 

   

 

 

 

Total assets

   $ 3,717,730      $ 3,743,575   
  

 

 

   

 

 

 

Liabilities, Redeemable Preferred Stock and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable and accrued expenses

   $ 100,651      $ 102,586   

Trade payable

     4,754        4,803   

Current portion of long-term debt

     48,868        76,468   

Other current liabilities

     10,648        11,386   
  

 

 

   

 

 

 

Total current liabilities

     164,921        195,243   

Long-term debt, excluding 7.75% senior notes

     2,039,647        2,014,599   

7.75% senior notes

     610,000        610,000   

Other liabilities

     43,884        45,313   

Deferred income taxes

     550,346        559,918   
  

 

 

   

 

 

 

Total liabilities

     3,408,798        3,425,073   
  

 

 

   

 

 

 

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 at both March 31, 2013 and December 2012

     72,368        71,869   
  

 

 

   

 

 

 

Total redeemable preferred stock

     72,368        71,869   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 183,772,345 and 182,682,073 shares issued, and 159,505,841 and 158,519,394 shares outstanding, at March 31, 2013 and December 31, 2012, respectively

     1,838        1,827   

Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 15,424,944 shares issued and outstanding at both March 31, 2013 and December 31, 2012

     154        154   

Class C common stock, par value $0.01 per share; 644,871 shares authorized, issued and outstanding at both March 31, 2013 and December 31, 2012

     6        6   

Treasury stock, at cost, 24,266,504 and 24,162,676 shares at March 31, 2013 and December 31, 2012, respectively

     (252,341     (252,001

Additional paid-in-capital

     1,514,098        1,514,849   

Accumulated deficit

     (1,027,191     (1,018,202
  

 

 

   

 

 

 

Total stockholders’ equity

     236,564        246,633   
  

 

 

   

 

 

 

Total liabilities, redeemable preferred stock and stockholders’ equity

   $ 3,717,730      $ 3,743,575   
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 

     Three Months Ended
March 31,
 
     2013     2012  

Broadcast revenues

   $ 232,872      $ 235,965   

Management fees

     —          30   
  

 

 

   

 

 

 

Net revenues

     232,872        235,995   

Operating expenses:

    

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

     164,172        153,627   

Depreciation and amortization

     28,930        34,882   

LMA fees

     969        839   

Corporate general and administrative expenses (including stock-based compensation expense of $2,663 and $6,978 in 2013 and 2012, respectively)

     13,866        16,692   

Loss on station sale

     1,309        —     

Gain on derivative instrument

     (738     (88
  

 

 

   

 

 

 

Total operating expenses

     208,508        205,952   
  

 

 

   

 

 

 

Operating income

     24,364        30,043   
  

 

 

   

 

 

 

Non-operating (expense) income:

    

Interest expense, net

     (44,252     (50,803

Other income, net

     133        262   
  

 

 

   

 

 

 

Total non-operating expense, net

     (44,119     (50,541
  

 

 

   

 

 

 

Loss from continuing operations before income taxes

     (19,755     (20,498

Income tax benefit

     10,767        7,892   
  

 

 

   

 

 

 

Loss from continuing operations

     (8,988     (12,606

Income from discontinued operations, net of taxes

     —          476   
  

 

 

   

 

 

 

Net loss

     (8,988     (12,130

Less: dividends declared and accretion of redeemable preferred stock

     3,152        5,700   
  

 

 

   

 

 

 

Loss attributable to common shareholders

   $ (12,140   $ (17,830
  

 

 

   

 

 

 

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

    

Basic: Loss from continuing operations per share

   $ (0.07   $ (0.13
  

 

 

   

 

 

 

Income from discontinued operations per share

   $ —        $ 0.01   
  

 

 

   

 

 

 

Loss per share

   $ (0.07   $ (0.12
  

 

 

   

 

 

 

Diluted: Loss from continuing operations per share

   $ (0.07   $ (0.13
  

 

 

   

 

 

 

Income from discontinued operations per share

   $ —        $ 0.01   
  

 

 

   

 

 

 

Loss per share

   $ (0.07   $ (0.12
  

 

 

   

 

 

 

Weighted average basic common shares outstanding

     174,748,001        149,369,152   
  

 

 

   

 

 

 

Weighted average diluted common shares outstanding

     174,748,001        149,369,152   
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

     Three Months Ended March 31,  
           2013                 2012        

Cash flows from operating activities:

    

Net loss

   $ (8,988   $ (12,130

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

    

Depreciation and amortization

     28,930        35,678   

Amortization of debt issuance costs/discounts

     2,624        2,974   

Provision for doubtful accounts

     529        3,361   

Loss (gain) on sale of assets or stations

     1,309        (262

Fair value adjustment of derivative instruments

     (733     (3

Deferred income taxes

     (9,573     (5,980

Stock-based compensation expense

     2,663        6,978   

Changes in assets and liabilities:

    

Accounts receivable

     42,933        42,186   

Trade receivable

     178        (28

Prepaid expenses and other current assets

     (1,864     (611

Other assets

     252        (124

Accounts payable and accrued expenses

     (1,945     (9,425

Trade payable

     (49     (325

Other liabilities

     (1,460     (2,011
  

 

 

   

 

 

 

Net cash provided by operating activities

     54,806        60,278   

Cash flows from investing activities:

    

Proceeds from sale of assets or stations

     467        322   

Acquisitions less cash acquired

     (52,066     —     

Restricted cash

     (175     —     

Capital expenditures

     (1,986     (1,122
  

 

 

   

 

 

 

Net cash used in investing activities

     (53,760     (800

Cash flows from financing activities:

    

Repayment of borrowings under term loans and revolving credit facilities

     (3,313     (54,000

Tax withholding payments on behalf of employees for stock based compensation

     (337     (1,346

Preferred stock dividends

     (2,652     (3,125

Proceeds from exercise of warrants

     12        34   
  

 

 

   

 

 

 

Net cash used in financing activities

     (6,290     (58,437

(Decrease) increase in cash and cash equivalents

     (5,244     1,041   

Cash and cash equivalents at beginning of period

     88,050        30,592   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 82,806      $ 31,633   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Interest paid

   $ 28,692      $ 37,037   

Income taxes paid (refunds)

     (270     107   

Supplemental disclosures of non-cash flow information:

    

Compensation held in trust

     —          24,807   

Trade revenue

     4,915        6,832   

Trade expense

     4,771        6,432   

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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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 March 31, 2013, Cumulus Media owned or operated approximately 520 radio stations (including under local marketing agreements, or “LMAs”) in 108 United States media markets and a nationwide radio network serving over 5,000 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, 2012. 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 months ended March 31, 2013, the cash flows for the three months ended March 31, 2013 and the Company’s financial condition as of March 31, 2013, 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, 2013.

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.

Revisions to Prior Period Financial Statements

In connection with the preparation of the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2013, the Company identified an error in the Quarterly Results (Unaudited) footnote included in the Company’s 2012 Annual Report on Form 10-K. Upon completion of the Company’s evaluation of the error, it was determined that “Income from discontinued operations, net of tax” as presented for the fourth quarter of 2012 improperly excluded the effect of taxes while “Income from discontinued operations, net of tax” as presented for the first quarter of 2012 improperly included the effect of taxes related to the fourth quarter of 2012. The errors had no impact on net income of the consolidated financial statements for the year ended December 31, 2012 or on any other periods or disclosures previously presented.

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 elected to present herein the revised financial information for the three months ended March 31, 2012 and December 31, 2012.

The following tables present the effect of this revision on all disclosures and periods affected.

 

     First
Quarter
    First
Quarter
    First
Quarter
 
     As Previously
Reported
    Adjustment     As Revised  

FOR THE YEAR ENDED DECEMBER 31, 2012

      

Income from discontinued operations, net of taxes

   $ 20,552      $ (20,076   $ 476   

Income from discontinuing operations per share

   $ 0.14      $ (0.13   $ 0.01   
     Fourth
Quarter
    Fourth
Quarter
    Fourth
Quarter
 
     As Previously
Reported
    Adjustment     As Revised  

FOR THE YEAR ENDED DECEMBER 31, 2012

      

(Loss) income from discontinued operations, net of taxes

   $ (268   $ 20,076      $ 19,808   

Income from discontinuing operations per share

   $ —        $ 0.11      $ 0.11   

The error had no impact on net income for the year ended December 31, 2012 or on any other periods or disclosures previously presented.

Recent Accounting Pronouncements

ASU 2012-02. In July 2012, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“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 Company adopted this guidance effective January 1, 2013. The adoption of this guidance did not have an impact on the Company’s interim financial statements.

ASU 2013-01. In January 2013, the FASB issued ASU 2013-01 which provides scope clarification related to the previously issued ASU 2011-11. The amendments in this ASU require companies to disclose information about offsetting and related arrangements to enable users of their financial statements to understand the effect of those arrangements on the Company’s 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. The Company adopted this guidance effective January 1, 2013. The adoption of this guidance did not have an impact on the Company’s interim financial statements.

ASU 2013-02. In February 2013, the FASB issued ASU 2013-02 which amends existing guidance by requiring that additional information be disclosed about items reclassified (“reclassification adjustments”) out of accumulated other comprehensive income. The additional information includes separately stating the total change for each component of other comprehensive income (for example unrealized gains or losses on available-for-sale securities or foreign currency items) and separately disclosing both current-period other comprehensive income and reclassification adjustments. Entities are also required to present, either on the face of the income statement or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income as separate line items of net income but only if the entire amount reclassified must be reclassified to net income in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity must cross-reference to other disclosures that provide additional detail about those amounts The ASU is required to be applied prospectively for all prior periods presented and is effective for annual periods for fiscal years beginning on or after January 1, 2013. The Company adopted this guidance effective January 1, 2013. The adoption of this guidance did not have an impact on the Company’s interim financial statements.

 

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ASU 2013-04. In February 2013, the FASB issued ASU 2013-04 which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements where the total obligation is fixed at the reporting date, and for which no specific guidance currently exists. This ASU is effective for annual reporting periods beginning on or after December 15, 2013 and subsequent interim periods. The Company is currently assessing the impact, if any, on the consolidated financial statements.

2. Acquisitions and Dispositions

2013 Acquisitions

WFME Asset Exchange

On January 8, 2013 the Company completed its previously announced asset exchange (the “WFME Asset Exchange”) with Family Stations, Inc. pursuant to which it exchanged its WDVY station in New York plus $40.0 million in cash for Family Stations’ WFME station in Newark, New Jersey. The total purchase price is subject to additional contingent cash consideration of $10 million payable to the sellers if certain future conditions are met as detailed in the purchase agreement. We have estimated the fair value of the contingent consideration to be less than $0.1 million as of March 31, 2013. Any future change in the estimated fair value of the contingent consideration, during the contingency period, will be recorded in the Company’s results of operations in the period of such change. This acquisition provided Cumulus with a radio station in the United States’ largest media market, for the national NASH entertainment brand based on the country music lifestyle.

The table below summarizes the preliminary purchase price allocation among the tangible and intangible assets acquired and liabilities assumed in the WFME Asset Exchange (dollars in thousands):

 

Allocation

   Amount  

Other assets

   $ 1,460   

Goodwill

     11,461   

Broadcast licenses

     27,100   

Plant, property, and equipment, net

     62   
  

 

 

 

Total purchase price

     40,083   

Less: Cash consideration

     (40,000

Less: Carrying value of station transferred

     (52

Less: Contingent consideration

     (31
  

 

 

 

Gain on asset exchange

   $ —     
  

 

 

 

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 10.0%. Goodwill was equal to the difference between the purchase price and value assigned to tangible and intangible assets and liabilities. $11.4 million of the acquired goodwill is deductible for tax purposes. The indefinite-lived intangible assets acquired in the WFME Asset Exchange consists of broadcast licenses and goodwill.

Pamal Broadcasting Asset Purchase

On January 17, 2013, the Company completed the Pamal Broadcasting Asset Purchase, acquiring WMEZ-FM and WXBM-FM for a purchase price of $6.5 million.

Revenues of $0.4 million attributable to the Pamal Broadcasting Asset Purchase were included in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2013

 

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The table below summarizes the preliminary purchase price allocation among the tangible and intangible assets acquired in the Pamal Broadcasting Asset Purchase (dollars in thousands):

 

Allocation

   Amount  

Plant, property, and equipment, net

   $ 783   

Broadcast licenses

     5,700   
  

 

 

 

Total purchase price

   $ 6,483   
  

 

 

 

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.

In conjunction with this Asset Exchange, the Company recorded a gain of $63.0 million, which is included within discontinued operations in the accompanying unaudited condensed consolidated statements of operations for the year ended December 31, 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 purchase price allocation for 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

     (71,697

Add: Cash received

     114,918   
  

 

 

 

Gain on asset exchange

   $ 62,967   
  

 

 

 

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. None of the acquired goodwill balance is non deductible for tax purposes.

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.

 

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AR Broadcasting Asset Purchase

On September 25, 2012, the Company, through its subsidiaries, entered into an asset purchase agreement with AR Broadcasting, LLC, AR Licensing, LLC, CMP KC Corp. and CMP Houston-KC, LLC to acquire the KCHZ-FM and KMJK-FM radio stations operated in the Kansas City market for an aggregate purchase price of $18.1 million.

On December 6, 2012, the Company completed the acquisition of KCHZ-FM (“KCHZ Acquisition”), a radio station operated in the Kansas City market, for a purchase price of $11.2 million. The Company paid $10.0 million in cash at closing with the remaining $1.2 million paid in January 2013 with the closing of KMJK-FM.

On January 28, 2013, the Company completed the AR Broadcasting Asset Purchase, acquiring KMJK-FM for a purchase price of $6.9 million.

Revenues of $0.5 million attributable to the AR Broadcasting Asset Purchase were included in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2013.

The table below summarizes the preliminary purchase price allocation among the tangible and intangible assets acquired and liabilities assumed in the AR Broadcasting Asset Purchase (dollars in thousands):

 

Allocation

   Amount  

Current assets

   $ 93   

Plant, property, and equipment, net

     1,256   

Other assets

     23   

Broadcast licenses

     16,850   

Current liabilities

     (152
  

 

 

 

Total purchase price

   $ 18,070   
  

 

 

 

The indefinite lived intangible assets acquired in the acquisition consist of broadcast licenses.

 

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The following pro forma information assumes the Townsquare Asset Exchange occurred as of January 1, 2012. 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 the Townsquare Asset Exchange actually occurred on January 1, 2012 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):

 

     Unaudited
Supplemental
Pro Forma Data
 
     Three Months Ended
March 31,
 

Description

           2012          

Net revenue

   $ 238,527   

Net loss

     (12,754

The pro forma financial information set forth above for the three months ended March 31, 2012 includes adjustments to reflect: (i) depreciation and amortization expense based on the fair value of long-lived assets acquired in the Townsquare Asset Exchange; (ii) certain other pro forma adjustments that would be required to be made to prepare pro forma financial information under ASC Topic 805, Business Combinations.

Completed Dispositions

The company did not complete any material dispositions during the three months ended March 31, 2013 or 2012.

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 months ended March 31, 2013 and 2012, income from discontinued operations was as follows (dollars in thousands):

 

     Three Months Ended
March 31,
 
         2013              2012      

Discontinued operations:

     

Net revenue

   $ —         $ 9,321   

Operating income

     —           2,392   
  

 

 

    

 

 

 

Income from discontinued operations before taxes

     —           2,392   

Income tax expense

     —           (1,916
  

 

 

    

 

 

 

Income from discontinued operations

   $ —         $ 476   
  

 

 

    

 

 

 

4. Restricted Cash

As of March 31, 2013 and December 31, 2012, the Company’s balance sheet included approximately $6.1 million and $5.9 million in restricted cash, of which $2.3 million related to a cash reserve from the Company’s previously completed acquisition of Citadel Broadcasting Company (“Citadel”) (the “Citadel Merger”). The reserve is expected to be used to satisfy the remaining allowed, disputed or not reconciled unsecured claims related to Citadel’s prior bankruptcy proceedings. For both periods, at March 31, 2013, and December 31, 2012 $0.6 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. At March 31, 2013 and December 31, 2012 $3.2 million and 0.7 million of the restricted cash balance relates to collateral on the Company’s letters of credit. At December 31, 2012, amounts held in escrow related to pending acquisitions were $2.3 million.

 

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5. Intangible Assets and Goodwill

The following table presents the changes in intangible assets other than goodwill, and goodwill respectively during the periods from January 1, 2012 to December 31, 2012 and January 1, 2013 to March 31, 2013, and balances as of such dates (dollars in thousands):

 

     Indefinite-Lived     Definite-Lived     Total  

Intangible Assets:

      

Balance as of January 1, 2012

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

Purchase price allocation adjustments

     —          (1,027     (1,027

Acquisition

     22,253        376        22,629   

Impairment

     (14,706     (12,435     (27,141

Disposition

     (30,589     (6,880     (37,469

Amortization

     —          (112,240     (112,240
  

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2012

     1,602,373        258,303        1,860,676   

Acquisition

     41,195        —          41,195   

Disposition

     (1,524     —          (1,524

Amortization

     —          (21,453     (21,453
  

 

 

   

 

 

   

 

 

 

Balance as of March 31, 2013

   $ 1,642,044      $ 236,850      $ 1,878,894   
  

 

 

   

 

 

   

 

 

 

The following table presents the changes in goodwill and accumulated impairment losses during the periods from January 1, 2013 to March 31, 2013 and January 1, 2012 to March 31, 2012, and balances as of such dates (dollars in thousands):

 

     2013     2012  

Goodwill:

    

Balance as of January 1:

   $ 1,525,335      $ 1,564,253   

Accumulated impairment losses

     (329,741     (229,741
  

 

 

   

 

 

 

Subtotal

     1,195,594        1,334,512   

Acquisition

     11,461        —     

Purchase price allocation adjustments

       784   

Finalization of purchase accounting for fourth quarter 2012 acquisitions

     (1,889     —     

Disposition

     —          (105

Balance as of March 31:

    

Goodwill

     1,534,907        1,564,932   

Accumulated impairment losses

     (329,741     (229,741
  

 

 

   

 

 

 

Total

   $ 1,205,166      $ 1,335,191   
  

 

 

   

 

 

 

The Company has significant intangible assets recorded and these intangible assets are comprised primarily of broadcast licenses and goodwill acquired through the acquisition of radio stations. The Company reviews the carrying value of its indefinite lived intangible assets and goodwill at least annually for impairment. If the carrying value exceeds the estimate of fair value, the Company calculates impairment as the excess of the carrying value of goodwill over its estimated 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.

In connection with each of the WFME Asset Exchange, the Pamal Broadcasting Asset Purchase, and the AR Broadcasting Asset Purchase, the Company made certain allocations of the purchase price paid therein among each of the tangible and intangible assets and liabilities acquired, including goodwill. Such purchase price allocations are preliminary and subject to change during the respective measurement periods. Any such changes could be material, and could result in significantly different allocations from those contained in the tables above.

6. Derivative Financial Instruments

The Company’s derivative financial instruments consist of the following:

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 unaudited condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012 include long term-assets of less than one hundred thousand dollars attributable to the fair value of the interest rate cap. The Company reported interest expense of $0.0 million and $0.1 million during the three months ended March 31, 2013, and March 31, 2012 respectively, attributed to the change in fair value adjustment. The interest rate cap matures on December 8, 2015.

 

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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 March 31, 2013 and December 31, 2012 reflect other current liabilities of $10.6 million and $11.4 million to include the fair value of the Green Bay Option. The Company recorded $0.7 million and $0.1 million in gains 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 months ended March 31, 2013 and 2012, respectively.

The location and fair value amounts of derivatives in the consolidated balance sheets are shown in the following table:

Information on the Location and Amounts of Derivatives Fair Values in the

Consolidated Balance Sheets (dollars in thousands)

 

          Fair Value  
Derivative Instruments   

Balance Sheet Location

   March 31,
2013
    December 31,
2012
 

Derivatives not designated as hedging instruments:

       

Interest rate cap

  

Other long-term assets

   $ 40      $ 44   

Green Bay Option

  

Other current liabilities

     (10,648     (11,386
     

 

 

   

 

 

 
  

    Total

   $ (10,608   $ (11,342
     

 

 

   

 

 

 

The location and effect of derivatives in the statements of operations are shown in the following table (dollars in thousands):

 

          Recognized on Derivatives  
          For the Three Months Ended
March 31,
 
Derivative Instruments   

Statement of Operations Location

   2013     2012  

Interest rate cap

  

Interest expense

   $ 5      $ 85   

Green Bay Option

  

Gain on derivative instrument

     (738     (88
     

 

 

   

 

 

 
  

    Total

   $ (733   $ (3
     

 

 

   

 

 

 

 

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7. Long-Term Debt

The Company’s long-term debt consisted of the following as of March 31, 2013 and December 31, 2012 (dollars in thousands):

 

     March 31, 2013     December 31, 2012  

Term loan and revolving credit facilities:

    

First Lien Term Loan

   $ 1,318,375      $ 1,321,687   

Second Lien Term Loan

     790,000        790,000   

Revolving Credit Facility

     —          —     

Less: Term loan discount

     (19,860     (20,620
  

 

 

   

 

 

 

Total term loan and revolving credit facilities

     2,088,515        2,091,067   

7.75% Senior Notes

     610,000        610,000   

Less: Current portion of long-term debt

     (48,868     (76,468
  

 

 

   

 

 

 

Long-term debt, net

   $ 2,649,647      $ 2,624,599   
  

 

 

   

 

 

 

First Lien and Second Lien Credit Facilities

On September 16, 2011, the Company entered into a (i) First Lien Credit Agreement (as amended and restated 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”).

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 Merger; (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.

On December 20, 2012, the Company entered into an amendment and restatement (the “Amendment and Restatement”) of its First Lien Facility. Pursuant to the Amendment and Restatement, the terms and conditions contained in the First Lien Facility remained substantially unchanged, except as follows: (i) the amount outstanding thereunder was increased to $1.325 billion; (ii) the margin for LIBOR (as defined below) based borrowings was reduced from 4.5% to 3.5% and for Base Rate (as defined below) -based borrowings was reduced from 3.5% to 2.5%; and (iii) the LIBOR floor for LIBOR-based borrowings was reduced from 1.25% to 1.0%.

The Amendment and Restatement had both a debt modification and extinguishment for accounting purposes. As a result, the Company wrote off $2.4 million of deferred financing costs related to the First Lien Facility which has been included in the “Loss on early extinguishment of debt” caption of the consolidated statement of operations for the year ended December 31, 2012. The Company also capitalized $0.8 million of deferred financing costs related to the Amendment and Restatement.

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 3.5% on LIBOR-based borrowings and 2.5% on Base Rate-based borrowings. LIBOR-based borrowings are subject to a LIBOR floor of 1.0% for the First Lien Term Loan and 1.0% for the Revolving Credit Facility. Base Rate-based borrowings are subject to a Base Rate Floor of 2.25% for the First Lien Term Loan and 2.0% for the Revolving Credit Facility. Base Rate is defined, for any day, as the fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1.0%, (ii) the prime commercial lending rate of JPMorgan, as established from time to time, and (iii) 30 day LIBOR plus 1.0%. The First Lien Term Loan amortizes at a per annum rate of 1.0% of the original principal amount of the First Lien Term Loan, payable quarterly, 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.

 

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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 March 31, 2013, borrowings under the First Lien Term Loan bore interest at 4.5% per annum and borrowings under the Second Lien Term Loan bore interest at 7.5% per annum. Effective December 8, 2011, the Company entered into the Interest Rate Cap with an aggregate notional amount of $71.3 million, which agreement caps the interest rate on an equivalent amount of the Company’s LIBOR based term loans at a maximum of 3.0% per annum. The Interest Rate Cap matures on December 8, 2015. See Note 5, “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 March 31, 2013, this ratio would have been 6.5 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. At March 31, 2013, if we were subject to compliance with this ratio, we would not have been in compliance therewith. As a result borrowings under the revolving credit facility were not available at that date.

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.

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.

Based upon the calculation of excess cash flow at December 31, 2012, the Company was required to make a mandatory prepayment on the First Lien Term Loan. Due to certain rights retained by the lenders to decline proportionate shares of such prepayments, the final prepayment amount was reduced from $63.2 million to $35.6 million of which a portion was applied to the Second Lien Term Loan. The prepayment was made on April 1, 2013 and has been classified in the current portion of long-term debt caption of the condensed consolidated balance sheet.

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.

 

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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.

Interest on the 7.75% Senior Notes is payable on each May 1 and November 1 of each year. 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 months ended March 31, 2013 and 2012 the Company recorded an aggregate of $2.6 million and $3.0 million, respectively, of amortization of debt discount and debt issuance 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.

 

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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 and non-financial assets and liabilities are measured at fair value on a non-recurring basis. Fair values as of March 31, 2013 and December 31, 2012 were as follows (dollars in thousands):

 

           Fair Value Measurements at March 31, 2013 Date  Using  
     Total Fair
Value
    Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Financial assets:

          

Interest rate cap (1)

   $ 40      $ —         $ 40       $ —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Total assets

   $ 40      $ —         $ 40       $ —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Financial liabilities:

          

Other current liabilities

          

Green Bay Option (4)

   $ (10,648   $ —         $ —         $ (10,648

Contingent consideration (5)

     (31           (31
  

 

 

   

 

 

    

 

 

    

 

 

 

Total liabilities

   $ (10,679   $ —         $ —         $ (10,679
  

 

 

   

 

 

    

 

 

    

 

 

 

 

           Fair Value Measurements at December 31, 2012 Using  
     Total Fair
Value
    Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Financial assets:

          

Interest rate cap (1)

   $ 44      $ —         $ 44       $ —     

Non-financial assets:

          

Goodwill (2)

   $ 131,997            $ 131,997   

Broadcast licenses (3)

   $ 384,350            $ 384,350   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total assets

   $ 516,391      $ —         $ 44       $ 516,347   
  

 

 

   

 

 

    

 

 

    

 

 

 

Financial liabilities:

          

Other current liabilities

          

Green Bay Option (4)

   $ (11,386   $ —         $ —         $ (11,386
  

 

 

   

 

 

    

 

 

    

 

 

 

Total liabilities

   $ (11,386   $ —         $ —         $ (11,386
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) The Company’s only derivative financial instrument is the 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 Interest Rate Cap is determined based on 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) In accordance with the provisions of ASC 350, goodwill with a carrying amount of $232.0 million was written down to its implied fair value of $132.0 million, resulting in an impairment charge of $100.0 million, which was included in earnings for the year ended December 31, 2012.
(3) In accordance with the provisions of ASC 350, FCC licenses with a carrying amount of $399.1 million was written down to its fair value of $384.4 million, resulting in an impairment charge of $14.7 million, which has been included in earnings for the year ended December 31, 2012.
(4) The fair value of the Green Bay Option was determined using inputs that are supported by little or no market activity (a Level 3 measurement). The fair value represents an estimate of the net amount that the Company would pay if the option was transferred to another party as of the date of the valuation. The option valuation incorporates a credit risk adjustment to reflect the probability of default by the Company.
(5) The fair value of the contingent consideration was determined using inputs that are supported by little or no market activity (a Level 3 measurement). Contingent consideration represents the fair value of the additional cash consideration to be paid to the sellers of the assets purchased as part of the WFME Asset Exchange if certain future conditions are met as detailed in the purchase agreement. See Note 2 “Acquisitions and Dispositions”.

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 5, “Derivative Financial Instruments.”

 

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The reconciliation below contains the components of the change in fair value associated with the Green Bay Option from January 1, 2013 to March 31, 2013 (dollars in thousands):

 

Description

   Green Bay Option  

Fair value balance at January 1, 2013

   $ (11,386

Add: Mark to market fair value adjustment

     738   
  

 

 

 

Fair value balance at March 31, 2013

   $ (10,648
  

 

 

 

Quantitative information regarding the significant unobservable inputs related to the Green Bay Option as of March 31, 2013 was as follows (dollars in thousands):

 

Fair Value

  

Valuation Technique

  

Unobservable Inputs

    
$    (10,648)   

Black-Scholes Model

  

Risk adjusted discount rate

   6.4%
     

Total term

   less than 1 year
     

Volatility rate

   30.0%
     

Annual dividend rate

   0.0%
     

Bond equivalent yield discount rate

   0.1%

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.

 

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Quantitative information regarding the significant unobservable inputs related to the contingent consideration as of March 31, 2013 was as follows:

 

Fair Value

  

Valuation Technique

  

Unobservable Inputs

    
$    31,000   

Income Approach

  

Total term

  

5 years

     

Conditions

  

3

     

Bond equivalent yield discount rate

   0.1%

Significant increases (decreases) in any of the inputs in isolation would result in a lower (higher) fair value measurement.

The following table shows the gross amount and fair value of the Company’s term loans and 7.75% Senior Notes (dollars in thousands):

 

     March 31,
2013
     December 31,
2012
 

First Lien Term Loan:

     

Carrying value

   $ 1,318,375       $ 1,321,687   

Fair value - Level 2

     1,331,559         1,331,600   

Second Lien Term Loan:

     

Carrying value

   $ 790,000       $ 790,000   

Fair value - Level 2

     821,600         811,725   

7.75% Senior Notes:

     

Carrying value

   $ 610,000       $ 610,000   

Fair value - Level 2

     625,250         599,325   

As of March 31, 2013, the Company used the trading prices of 101.0% and 104.0% to calculate the fair value of the First Lien Term Loan and Second Lien Term Loan, respectively, and 102.5% to calculate the fair value of the 7.75% Senior Notes.

As of December 31, 2012, the Company used the trading prices of 100.75% and 102.75% to calculate the fair value of the First Lien Term Loan and Second Lien Term Loan, respectively, and 98.3% to calculate the fair value of the 7.75% Senior Notes.

9. Redeemable Preferred Stock

In connection with the Citadel Merger 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”). As a part of the financing transactions entered into in connection therewith (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.

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 certificate of incorporation 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. 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.

 

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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.

In the event of the liquidation, dissolution or winding-up of the affairs of the Company, whether voluntary or involuntary, the holders of Series A preferred stock at the time shall be entitled to receive liquidating distributions with respect to each share of Series A Preferred Stock in an amount equal to the amount invested therein plus any accrued but unpaid dividends, and dividend rights to the fullest extent permitted by law, before any distribution of assets is made to the holders of our common stock.

Additionally, upon receipt by the Company of net cash proceeds from (i) the issuance by the Company or any of its subsidiaries of debt for borrowed money or (ii) the issuance by the Company or any of its subsidiaries of equity, the Company shall redeem, for cash, to the fullest extent permitted by law, that number of shares of Series A preferred stock with an aggregate redemption price equal to the lesser of (1) an amount equal to 100% of such net cash proceeds and (2) the $125.0 million aggregate par value of the Series A Preferred Stock plus any accrued but unpaid dividends.

In conjunction with the CMP Acquisition, the Company assumed preferred stock of CMP with a fair value of $41.1 million as of August 1, 2011, which consisted of the par value of $32.7 million plus cumulative undeclared dividends of $8.3 million as of the acquisition date. The Company recorded $0.5 million in dividends for the period from the date of the CMP Acquisition, August 1, 2011, to September 16, 2011. This preferred stock was redeemed on September 16, 2011 for $41.6 million.

Total dividends accrued on the Series A Preferred Stock during the three months ended March 31, 2013 and 2012 and were $2.7 million and $3.3 million, respectively. Total dividends paid on the Series A Preferred Stock during the three months ended March 31, 2013 and 2012 and were $2.7 million and $3.1 million, respectively. During the three months ended March 31, 2013 and 2012, the Company accreted $0.5 million and $2.4 million, respectively, on the Series A Preferred Stock. At March 31, 2013, 75,767 shares of Series A Preferred Stock remain outstanding. The accretion of Series A Preferred Stock resulted in an equivalent reduction in additional paid-in capital on the consolidated balance sheet at March 31, 2013 and March 31, 2012. The Company paid approximately $2.7 million in cash dividends in April 2013, in accordance with the terms described above.

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.

In connection with the August 1, 2011 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.

In connection with the Citadel Merger, and in addition to the shares of common stock issued therein the Company issued 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, as described below.

Also on September 16, 2011, and 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 the Class A common stock following such conversion, the holder will first be required to deliver to the Company an ownership certification to enable the Company to (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) 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 all classes 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 March 31, 2013, 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 Merger and as of March 31, 2013, 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 not reconciled unsecured claims. If excess shares remain in reserve after resolution of all remaining allowed, disputed or not reconciled 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 March 31, 2013 and December 31, 2012.

Company Warrants

At the effective time of the Citadel Merger, 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-

 

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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.

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 three months ended March 31, 2013, approximately 1.1 million Company Warrants were converted into shares of Class A common stock with an aggregate total of 35.3 million having been converted since issuance through March 31, 2013. At March 31, 2013, 36.3 million Company Warrants remained outstanding.

Crestview Warrants

Pursuant to the Equity Investment and 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 March 31, 2013, all 7.8 million Crestview Warrants remained outstanding.

11. Stock-Based Compensation Expense

On February 16, 2012, the Company granted 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 $3.3 million. The options have an exercise price of $4.34 per share, with 30% of the awards having vested on each of September 16, 2012 and February 16, 2013, and with 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 Merger (“Liability Awards”). For the three months ended March 31, 2013 and 2012, the Company recognized $2.7 million and $2.8 million, respectively, in stock-based compensation expense related to equity awards. For the three months ended March 31, 2012, the Company recognized $4.2 million in stock-based compensation expense related to Liability Awards.

As of March 31, 2013, unrecognized stock-based compensation expense of approximately $16.5 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 March 31, 2013. 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 three months ended March 31, 2013 was $1.5 million. The total fair value of restricted stock awards that vested during the three months ended March 31, 2012 was $5.7 million, of which $1.5 million related to the Liability Awards and was paid in cash. No options were exercised during either of the three months ended March 31, 2012 or 2013.

 

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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 (loss) from continuing operations after any allocation for preferred stock dividends between each class of common stock on an equal basis as the Third Amendment and Restated charter provides that the holders of each class of common stock have equal rights and privileges, except with respect to voting on certain matters.

Non-vested restricted shares of Class A common stock, and the Company Warrants are, and the CMP Restated Warrants prior to their expiration were considered participating securities for purposes of calculating basic weighted average common shares outstanding in periods in which the Company records net income. Diluted earnings per share is computed in the same manner as basic earnings per share after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes stock options and certain other warrants to purchase common stock. Antidilutive instruments are not considered in this calculation. Under the two-class method, net income is allocated to common stock and participating securities to the extent that each security may share in earnings, as if all of the earnings for the period had been distributed. Earnings are allocated to each participating security and common shares equally, after deducting dividends declared or accretion on preferred stock. The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2013 and 2012 (amounts in thousands, except per share data):

 

     Three Months Ended
March 31,
 
     2013     2012  

Basic Loss Per Share

    

Numerator:

    

Undistributed net loss from continuing operations

   $ (8,988   $ (12,606

Less:

    

Dividends declared on redeemable preferred stock

     2,652        3,333   

Accretion of redeemable preferred stock

     982        2,767   

Participation rights of Company Warrants in undistributed earnings

     —          —     

Participation rights of unvested restricted stock in undistributed earnings

     —          —     

Basic undistributed net loss from continuing operations

    
  

 

 

   

 

 

 

Attributable to common shares

   $ (12,622   $ (18,706
  

 

 

   

 

 

 

Denominator:

    

Basic weighted average shares outstanding

     174,748        149,369   
  

 

 

   

 

 

 

Basic Loss from continuing operations per share—attributable to common shares

   $ (0.07   $ (0.13
  

 

 

   

 

 

 

Diluted Loss Per Share:

    

Numerator:

    

Undistributed net loss from continuing operations

   $ (8,988   $ (12,606

Less:

    

Dividends declared on redeemable preferred stock

     2,652        3,333   

Accretion of redeemable preferred stock

     982        2,767   

Participation rights of the Company Warrants in undistributed net income

     —          —     

Participation rights of unvested restricted stock in undistributed earnings

     —          —     

Basic undistributed net loss from continuing operations

    
  

 

 

   

 

 

 

Attributable to common shares

   $ (12,622   $ (18,706
  

 

 

   

 

 

 

Denominator:

    

Basic weighted average shares outstanding

     174,748        149,369   

Effect of dilutive options and warrants

     —          —     
  

 

 

   

 

 

 

Diluted weighted average shares outstanding

     174,748        149,369   
  

 

 

   

 

 

 

Diluted undistributed net loss from continuing operations attributable to common shares

   $ (0.07   $ (0.13
  

 

 

   

 

 

 

Potentially dilutive equivalent shares outstanding for the three months ended March 31, 2013 and 2012 excluded from the computation of diluted loss per share, consisted of approximately 39.8 million and 64.3 million, respectively, additional shares of common stock to underlying outstanding warrants.

 

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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 2013 could be different from the forecasted rate.

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 tax amortization of broadcast licenses and goodwill; and assets classified as having an indefinite life for book purposes.

As of March 31, 2013, 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 March 31, 2013, the Company does not believe it is more likely than not that the deferred tax assets will be recognized. Should the Company’s assessment change in a future period it may release all or a portion of the valuation allowance at such time, 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 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 is approximately $187.0 million and is expected to be paid in accordance with the agreements through December 2017.

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. As of March 31, 2013, we have complied with these provisions and reinvested the proceeds from the Townsquare Asset Exchange; as such, we will not be required to prepay principal outstanding under the 2012 Credit Facilities.

 

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The Company from time to time enters into radio network contractual obligations to guarantee a minimum amount of revenue share to contractual counterparties on certain programming in future years. Generally, these guarantees are subject to decreases dependent on clearance targets achieved. As of March 31, 2013, the Company believes that it will meet such minimum obligations.

As described in Note 2, “Acquisitions and Dispositions” the Company is subject to an increase in purchase price for the acquisition of WFME Station in New York.

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 March 31, 2013, Cumulus and certain of its 100% 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 months ended March 31, 2013 and 2012, (ii) unaudited condensed consolidating balance sheets as of March 31, 2013 and December 31, 2012, and (iii) unaudited condensed consolidating statements of cash flows for the three months ended March 31, 2013 and 2012, 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.

Effective January 1, 2013, the Company completed an internal restructuring where all of the operations, with the exception of any equity-related transactions, of the Parent Guarantor were legally transferred to the Subsidiary Issuer. These changes have been reflected in the unaudited condensed consolidating statements as of March 31, 2013 and for the three months ended March 31, 2013.

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.

During the fourth quarter of 2012, Cumulus Media Inc. determined that it did not properly classify certain intercompany transactions in its supplemental condensed consolidating financial information footnote in previous 2012 interim periods or at December 31, 2011. The Company should have presented the intercompany transactions within financing activities as these transactions had been previously presented in the operating cash flows section of the statement of cash flows. In addition, Cumulus determined that certain intercompany transactions were classified within investment in subsidiaries or additional paid-in capital and have classified such balances as intercompany transactions as either intercompany receivables or intercompany payables depending on the nature of the balance. In the following disclosure, a separate line item entitled “Intercompany transactions, net” is presented on the condensed consolidating balance sheets and statements of cash flows. 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 errors and concluded that the errors were not material to any of the Company’s previously

 

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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 as of December 31, 2011 and the three months ended March 31, 2012 and will revise the interim condensed consolidating information in future quarterly filings.

 

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CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2013

(Dollars in thousands)

(Unaudited)

 

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

Broadcast revenues

   $ —        $ —        $ 232,872      $ —        $ —        $ 232,872   

Management fees

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     —          —          232,872        —          —          232,872   

Operating expenses:

            

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

     —          —          163,683        489        —          164,172   

Depreciation and amortization

     —          497        28,433        —          —          28,930   

LMA fees

     —          —          969        —          —          969   

Corporate general and administrative expenses (including stock-based compensation expense of
$2,663)

     —          13,866        —          —          —          13,866   

Loss on station sale

     —          —          1,309        —          —          1,309   

Gain on derivative instrument

     —          —          (738     —          —          (738
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —          14,363        193,656        489        —          208,508   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     —          (14,363     39,216        (489     —          24,364   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating (expense) income:

            

Interest (expense) income, net

     (2,142     (42,112     2        —          —          (44,252

Other expense, net

     —          —          133        —          —          133   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expense, net

     (2,142     (42,112     135        —          —          (44,119
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (2,142     (56,475     39,351        (489     —          (19,755

Income tax benefit

     —          —          1,195        9,572        —          10,767   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (2,142     (56,475     40,546        9,083        —          (8,988

Income from discontinued operations, net of taxes

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) earnings from consolidated subsidiaries

     (6,846     49,629        9,083        —          (51,866     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (8,988   $ (6,846   $ 49,629      $ 9,083      $ (51,866   $ (8,988
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2012

(Dollars in thousands)

(Unaudited)

 

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

Broadcast revenues

   $ —        $ —        $ 235,965      $ —        $ —        $ 235,965   

Management fees

     30        —          —          —          —          30   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     30        —          235,965        —          —          235,995   

Operating expenses:

            

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

     —          —          153,098        529        —          153,627   

Depreciation and amortization

     221        —          34,661        —          —          34,882   

LMA fees

     —          —          839        —          —          839   

Corporate general and administrative expenses (including stock-based compensation expense of $6,978)

     15,606        —          1,086        —          —          16,692   

Gain on derivative instrument

     —          —          (88     —          —          (88
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     15,827        —          189,596        529        —          205,952   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (15,797     —          46,369        (529     —          30,043   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating (expense) income:

            

Interest (expense) income, net

     (95     (51,004     296        —          —          (50,803

Other expense, net

     —          —          262        —          —          262   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (expense) income, net

     (95     (51,004     558        —          —          (50,541
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (15,892     (51,004     46,927        (529     —          (20,498

Income tax benefit

     —          —          926        6,966        —          7,892   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (15,892     (51,004     47,853        6,437        —          (12,606

Income (loss) from discontinued operations, net of taxes

     —          —          2,156        (1,680     —          476   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from consolidated subsidiaries

     3,762        54,766        4,757        —          (63,285     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (12,130   $ 3,762      $ 54,766      $ 4,757      $ (63,285   $ (12,130
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2013

(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

   $ —        $ 80,659       $ 2,147      $ —        $ —        $ 82,806   

Restricted cash

     —          6,096         —          —          —          6,096   

Accounts receivable, less allowance for doubtful accounts of $3,882

     —          —           164,099        —          —          164,099   

Trade receivable

     —          —           5,926        —          —          5,926   

Prepaid expenses and other current assets

     —          17,696         29,603        —          —          47,299   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     —          104,451         201,775        —          —          306,226   

Property and equipment, net

     —          4,280         247,179        —          —          251,459   

Broadcast licenses

     —          —           —          1,642,044        —          1,642,044   

Other intangible assets, net

     —          —           236,850        —          —          236,850   

Goodwill

     —          —           1,205,166        —          —          1,205,166   

Investment in consolidated subsidiaries

     381,568        3,407,209         1,176,378        —          (4,965,155     —     

Intercompany receivables

     —          72,636         527,054        —          (599,690     —     

Other assets

     —          57,532         18,453        —          —          75,985   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 381,568      $ 3,646,108       $ 3,612,855      $ 1,642,044      $ (5,564,845   $ 3,717,730   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

             

Current liabilities:

             

Accounts payable and accrued expenses

   $ —        $ 35,005       $ 65,646      $ —        $ —        $ 100,651   

Trade payable

     —          —           4,754        —          —          4,754   

Current portion of long-term debt

     —          48,868         —          —          —          48,868   

Other current liabilities

     —          —           10,648        —          —          10,648   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     —          83,873         81,048        —          —          164,921   

Long-term debt, excluding 7.75% Senior Notes

     —          2,039,647         —          —          —          2,039,647   

7.75% Senior Notes

     —          610,000         —          —          —          610,000   

Other liabilities

     —          3,966         39,918        —          —          43,884   

Intercompany payables

     72,636        527,054         —          —          (599,690     —     

Deferred income taxes

     —          —           84,680        465,666        —          550,346   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     72,636        3,264,540         205,646        465,666        (599,690     3,408,798   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

     72,368        —           —          —          —          72,368   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total redeemable preferred stock

     72,368        —           —          —          —          72,368   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

             

Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 183,772,345 shares issued and 159,505,841 shares outstanding

     1,838        —           —          —          —          1,838   

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; 644,871 shares issued and outstanding

     6        —           —          —          —          6   

Treasury stock, at cost, 24,266,504 shares

     (252,341     —           —          —          —          (252,341

Additional paid-in-capital

     1,514,098        205,805         3,855,690        2,139,674        (6,201,169     1,514,098   

Accumulated (deficit) equity

     (1,027,191     175,763         (448,481     (963,296     1,236,014        (1,027,191
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     236,564        381,568         3,407,209        1,176,378        (4,965,155     236,564   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 381,568      $ 3,646,108       $ 3,612,855      $ 1,642,044      $ (5,564,845   $ 3,717,730   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2012

(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

   $ 81,599      $ —         $ 6,451      $ —        $ —        $ 88,050   

Restricted cash

     5,921        —           —          —          —          5,921   

Accounts receivable, less allowance for doubtful accounts of $4,131

     —          —           207,563        —          —          207,563   

Trade receivable

     —          —           6,104        —          —          6,104   

Prepaid expenses and other current assets

     6,928        —           38,553        —          —          45,481   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     94,448        —           258,671        —          —          353,119   

Property and equipment, net

     4,690        —           251,213        —          —          255,903   

Broadcast licenses

     —          —           —          1,602,373        —          1,602,373   

Other intangible assets, net

     —          —           258,761        —          —          258,761   

Goodwill

     —          —           1,195,594        —          —          1,195,594   

Investment in consolidated subsidiaries

     415,573        3,354,891         1,127,135        —          (4,897,599     —     

Intercompany receivables

     —             471,329          (471,329     —     

Other assets

     11,605        47,818         18,402        —          —          77,825   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 526,316      $ 3,402,709       $ 3,581,105      $ 1,602,373      $ (5,368,928   $ 3,743,575   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

             

Current liabilities:

             

Accounts payable and accrued expenses

   $ 10,690      $ 8,213       $ 83,683      $ —        $ —        $ 102,586   

Trade payable

     —          —           4,803        —          —          4,803   

Current Portion of long-term debt

     —          76,468         —          —          —          76,468   

Other current liabilities

          11,386            11,386   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     10,690        84,681         99,872        —          —          195,243   

Long-term debt, excluding 7.75% Senior Notes

     —          2,014,599         —          —          —          2,014,599   

7.75% Senior Notes

     —          610,000         —          —          —          610,000   

Other liabilities

     3,651        —           41,662        —          —          45,313   

Intercompany payables

     193,473        277,856             (471,329     —     

Deferred income taxes

     —          —           84,680        475,238        —          559,918   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     207,814        2,987,136         226,214        475,238        (471,329     3,425,073   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

     71,869        —           —          —          —          71,869   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total redeemable preferred stock

     71,869        —           —          —          —          71,869   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

             

Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 182,682,073 shares issued and 158,519,394 shares outstanding

     1,827        —           —          —          —          1,827   

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; 644,871 shares issued and outstanding

     6        —           —          —          —          6   

Treasury stock, at cost, 24,162,676 shares

     (252,001     —           —          —          —          (252,001

Additional paid-in-capital

     1,514,849        232,964         3,853,001        2,099,514        (6,185,479     1,514,849   

Accumulated (deficit) equity

     (1,018,202     182,609         (498,110     (972,379     1,287,880        (1,018,202
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     246,633        415,573         3,354,891        1,127,135        (4,897,599     246,633   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 526,316      $ 3,402,709       $ 3,581,105      $ 1,602,373      $ (5,368,928   $ 3,743,575   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2013

(Dollars in thousands)

(Unaudited)

 

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

Cash flows from operating activities:

           

Net (loss) income

  $ (8,988   $ (6,846   $ 49,629      $ 9,083      $ (51,866   $ (8,988

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

           

Depreciation and amortization

    —          497        28,433        —          —          28,930   

Amortization of debt issuance costs/discounts

    —          2,624        —          —          —          2,624   

Provision for doubtful accounts

    —          —          529        —          —          529   

Loss on station sale

    —          —          1,309        —          —          1,309   

Fair value adjustment of derivative instruments

    —          5        (738     —          —          (733

Deferred income taxes

    —          —          —          (9,573     —          (9,573

Stock-based compensation expense

    —          2,663        —          —          —          2,663   

Earnings from consolidated subsidiaries

    6,846        (49,629     (9,083     —          51,866        —     

Changes in assets and liabilities

    44,020        (41,305     34,840        490        —          38,045   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    41,878        (91,991     104,919        —          —          54,806   

Cash flows from investing activities

           

Proceeds from sale of assets or stations

    —          —          467        —          —          467   

Acquisitions less cash required

    —          —          (52,066     —          —          (52,066

Restricted cash

    —          (175     —          —          —          (175

Capital expenditures

    —          (87     (1,899     —          —          (1,986
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —          (262     (53,498     —          —          (53,760

Cash flows from financing activities:

           

Intercompany transactions, net

    (120,837     176,562        (55,725     —          —          —     

Repayments of borrowings under term loans and revolving credit facilities

    —          (3,313     —          —          —          (3,313

Tax withholding payments on behalf of employees for stock-based compensation

    —          (337     —          —          —          (337

Preferred stock dividends

    (2,652     —          —          —          —          (2,652

Proceeds exercise of warrants

    12        —          —          —          —          12   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (123,477     172,912        (55,725     —          —          (6,290

(Decrease) Increase in cash and cash equivalents

    (81,599     80,659        (4,304     —          —          (5,244

Cash and cash equivalents at beginning of period

    81,599        —          6,451        —          —          88,050   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ —        $ 80,659      $ 2,147      $ —        $ —        $ 82,806   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CUMULUS MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2012

(Dollars in thousands)

(Unaudited)

 

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

Cash flows from operating activities:

           

Net (loss) income

  $ (12,130   $ 3,762      $ 54,766      $ 4,757      $ (63,285   $ (12,130

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

           

Depreciation and amortization

    221        —          35,457        —          —          35,678   

Amortization of debt issuance costs/discount

    —          2,974        —          —          —          2,974   

Provision for doubtful accounts

    —          —          3,361        —          —          3,361   

Loss on sale of assets or stations

    —          —          (262     —          —          (262

Fair value adjustment of derivative instruments

    85        —          (88     —          —          (3

Deferred income taxes

    —          —          (694     (5,286     —          (5,980

Stock-based compensation expense

    6,978        —          —          —          —          6,978   

Earnings from consolidated subsidiaries

    (3,762     (54,766     (4,757     —          63,285        —     

Changes in assets and liabilities:

    1,421        54,246        (26,534     529        —          29,662   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

    (7,187     6,217        61,249        —          —          60,278   

Cash flows from investing activities:

           

Proceeds from sale of assets or stations

    322        —          —          —          —          322   

Capital expenditures

    (400     —          (722     —          —          (1,122
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (78     —          (722     —          —          (800

Cash flows from financing activities:

           

Intercompany transactions, net

    18,826        47,784        (66,610     —          —          —     

Repayments of borrowings under term loans and revolving credit facilities

    —          (54,000     —          —          —          (54,000

Tax withholding payments on behalf of employees for stock-based compensation

    (1,346     —          —          —          —          (1,346

Preferred stock dividends

    (3,125     —          —          —          —          (3,125

Exercise of warrants

    34        —          —          —          —          34   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    14,389        (6,217     (66,610     —          —          (58,437

Increase in cash and cash equivalents

    7,124        —          (6,083     —          —          1,041   

Cash and cash equivalents at beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 18,838      $ —        $ 12,795      $ —        $ —        $ 31,633   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

General

        The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report. This discussion, as well as various other sections of this quarterly report, contains and refers to statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such statements relate to our intent, belief or current expectations primarily with respect to our future operating, financial and strategic performance. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those contained in or implied by the forward-looking statements as a result of various factors, including, but not limited to, risks and uncertainties relating to the need for additional funds to execute our business strategy, our inability to renew one or more of our broadcast licenses, changes in interest rates, the timing, costs and synergies resulting from the integration of any completed acquisitions, our ability to eliminate certain costs, our ability to manage rapid growth, the popularity of radio as a broadcasting and advertising medium, changing consumer tastes, any material changes from the preliminary to final purchase price allocations in completed acquisitions, the impact of general economic conditions in the United States or in specific markets in which we currently do business, industry conditions, including existing competition and future competitive technologies, cancellation, disruptions or postponements of advertising schedules in response to national or world events, and our ability to generate revenue from new sources, including technology-based initiatives. Many of these risks and uncertainties are beyond our control, and the unexpected occurrence or failure to occur of any such events or matters could significantly alter our actual results of operations or financial condition.

For additional information about certain of the matters discussed and described in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, including certain defined terms used herein, see the notes to the accompanying unaudited condensed consolidated financial statements included elsewhere in this quarterly report.

Our Business

We own and operate commercial radio station clusters throughout the United States. We believe we are the largest pure-play radio broadcaster in the United States based on number of stations owned and operated. At March 31, 2013, we owned or operated

 

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approximately 520 radio stations (including under LMAs) in 108 United States media markets and operated nationwide radio networks serving over 5,000 affiliates. At March 31, 2013, under LMAs, we provided sales and marketing services for 14 radio stations in the United States.

Operating Overview

We believe that following the completion of the CMP Acquisition and the Citadel Merger, which included the acquisition of our radio networks, consisting of 5,000 station affiliates and 9,000 program affiliates, in 2011 we have created a leading radio broadcasting company with a true national platform with an opportunity to further leverage and expand upon our strengths, market presence and programming. Specifically, with the completion of these acquisitions, we now have an extensive radio station portfolio consisting of approximately 520 radio stations, including a presence in eight of the top 10 markets, and broad diversity in format, listener base, geography, advertiser base and revenue stream, all of which are designed to reduce dependence on any single demographic, region or industry. Our increased scale has allowed larger, more significant investments in the local digital media marketplace allowing our local digital platforms and strategies, including our social commerce initiatives, to be applied across significant additional markets. We believe our one national platform will allow us to optimize our available advertising inventory while providing holistic and comprehensive solutions for our customers.

Cumulus believes that our capital structure provides for adequate liquidity and scale for Cumulus to pursue and finance strategic acquisitions in the future.

Liquidity Considerations

Historically, our principal needs for funds have been for acquisitions of radio stations, expenses associated with our station and corporate operations, capital expenditures, and interest and debt service payments. We believe that our funding needs in the future will be for substantially similar matters.

Our principal sources of funds historically have been cash flow from operations and borrowings under credit facilities in existence from time to time. Our cash flow from operations is subject to such factors as shifts in population, station listenership, demographics, or audience tastes, and fluctuations in preferred advertising media. In addition, customers may not be able to pay, or may delay payment of, accounts receivable that are owed to us, which risks may be exacerbated in challenging economic periods. In recent periods, management has taken steps to mitigate this risk through heightened collection efforts and enhancements to our credit approval process, although no assurances as to the longer-term success of these efforts can be provided. In addition, we believe the acquisition of the broad diversity in format, listener base, geography, advertiser base and revenue stream that accompanied the CMP Acquisition and the Citadel Merger will help us reduce dependence on any single demographic, region or industry.

At March 31, 2013 we had $1.318 billion outstanding under the First Lien Facility, $790.0 million outstanding under the Second Lien Facility and no amounts outstanding under the Revolving Credit Facility.

On December 20, 2012, we entered into an amendment and restatement (the “Amendment and Restatement”) of our First Lien Facility Credit Agreement, dated as of September 16, 2011, among the Company, Cumulus Media Holdings, Inc., as borrower (the “Borrower”), and the lenders and the agents thereto (the “Original Agreement”). Pursuant to the Amendment and Restatement, the terms and conditions contained in the Original Agreement remained substantially unchanged, except as follows: (i) the amount outstanding thereunder was increased to $1.325 billion; (ii) the margin for LIBOR (as defined below) -based borrowings was reduced from 4.5% to 3.5% and for Base Rate (as defined below) -based borrowings was reduced from 3.5% to 2.5%; and (iii) the LIBOR floor for LIBOR-based borrowings was reduced from 1.25% to 1.0%.

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 March 31, 2013, this ratio would have been 6.5 to 1.0. Such ratio will be reduced in future periods if amounts are outstanding under the Revolving Credit Facility at an applicable date. At March 31, 2013 we would not have been in compliance with this ratio. As a result, borrowings under the revolving credit facility were not available at that date. The Second Lien Facility does not contain any financial covenants. At March 31, 2013 our long-term debt consisted of $2.1 billion in total term loans and $610.0 million in 7.75% Senior Notes.

Based upon the calculation of excess cash flow at December 31, 2012, the Company was required to make a mandatory prepayment on the First Lien Term Loan. Due to certain rights retained by the lenders to decline proportionate shares of such prepayments, the final prepayment amount was reduced from 63.2 million to $35.6 million of which a portion was applied to the Second Lien Term Loan. The prepayment was made on April 1, 2013 and has been classified in the current portion of long-term debt caption of the condensed consolidated balance sheet

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. As of March 31, 2013, we have complied with these provisions and reinvested the proceeds from the Townsquare Asset Exchange as such, we will not be required to prepay principal outstanding under the 2012 Credit Facilities.

 

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We have assessed the current and expected conditions of our business climate, our current and expected needs for funds and our current and expected sources of funds and determined, based on our financial condition as of March 31, 2013, that cash on hand and cash expected to be generated from operating activities will be sufficient to satisfy our anticipated financing needs for working capital, capital expenditures, interest and debt service payments, and any repurchases of securities and other debt obligations through at least March 31, 2014.

Advertising Revenue and Adjusted EBITDA

Our primary source of revenues is the sale of advertising time on our radio stations and networks. Our sales of advertising time are primarily affected by the demand for advertising time from local, regional and national advertisers and the advertising rates charged by us. Advertising demand and rates are based primarily on a station’s ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by various ratings agencies on a periodic basis. We endeavor to develop strong listener loyalty and we believe that the diversification of formats and programs helps to insulate us from the effects of changes in the musical tastes of the public with respect to any particular format. In addition, we believe that the portfolio that we own and operate, which has increased diversity in terms of format, listener base, geography, advertiser base and revenue stream as a result of our recent acquisitions and the development of our strategy to focus on radio stations in larger markets and geographically strategic regional clusters, will further reduce our revenue dependence on any single demographic, region or industry.

We strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices up or down based on supply and demand. The optimal number of advertisements available for sale depends on the programming format of a particular station or program network. Each sales vehicle has a general target level of on-air inventory available for advertising. This target level of advertising inventory may vary at different times of the day but tends to remain stable over time. We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across each cluster of stations, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group. In the broadcasting industry, we sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of for cash. Trade revenue totaled $4.9 million and $6.8 million in the three months ended March 31, 2013 and 2012, respectively. Our advertising contracts are generally short-term. We generate most of our revenue from local and regional advertising, which is sold primarily by a station’s sales staff. Local advertising represented approximately 71.9% and 72.7% of our total revenues during the three months ended March 31, 2013 and 2012, respectively.

In addition to local advertising revenues, we monetize our available inventory in both national spot and network sales market places using our national platform. To effectively deliver our network advertising for our customers, we distribute content and programming through third party affiliates in order to achieve a broader national audience. Typically, in exchange for the right to broadcast radio network programming, third party affiliates remit a portion of their advertising time, which is then aggregated into packages focused on specific demographic groups and sold by us to our advertiser clients that want to reach the listeners who comprise those demographic groups on a national basis. Revenues derived from third party affiliates represented less than 10% of consolidated revenues.

Our advertising revenues vary by quarter throughout the year. As is typical in the radio broadcasting industry, our first calendar quarter typically produces the lowest revenues of a last twelve month period, as advertising generally declines following the winter holidays. The second and fourth calendar quarters typically produce the highest revenues for the year. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods, if at all. We continually evaluate opportunities to increase revenues through new platforms, including technology-based initiatives.

Adjusted EBITDA is the financial metric utilized by management to analyze the cash flow generated by the Company’s business. This measure isolates the amount of income generated by the Company’s radio stations apart from the incurrence of non-cash and non-operating expenses. Management also uses this measure to determine the contribution of the Company’s radio station portfolio, including the corporate resources employed to manage the portfolio, to the funding of its other operating expenses and to the funding of debt service and acquisitions. In addition, Adjusted EBITDA is a key metric for purposes of calculating and determining our compliance with certain covenants contained in our First Lien Credit Agreement, as amended and restated, (the “First Lien Facility”).

In deriving this measure, management excludes depreciation, amortization and stock-based compensation expense, as these do not represent cash payments for activities directly related to the operation of the radio stations. In addition, we exclude LMA fees from our calculation of Adjusted EBITDA, even though such fees require a cash settlement, because they are excluded from the definition of Adjusted EBITDA contained in our First Lien Facility. Management excludes any gain or loss on the exchange of assets or stations as they do not represent a cash transaction. Management also excludes any realized gain or loss on derivative instruments as they do

 

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not represent a cash transaction nor are they associated with radio station operations. Interest expense, net of interest income, income tax (benefit) expense including franchise taxes, and expenses relating to acquisitions are also excluded from the calculation of Adjusted EBITDA as they are not directly related to the operation of radio stations. Management excludes impairment of goodwill and intangible assets as they do not require a cash outlay. Management believes that Adjusted EBITDA, although not a measure that is calculated in accordance with GAAP, nevertheless is commonly employed by the investment community as a measure for determining the market value of a radio company. Management has also observed that Adjusted EBITDA is routinely employed to evaluate and negotiate the potential purchase price for radio broadcasting companies, and is a key metric for purposes of calculating and determining compliance with certain covenants in our First Lien Facility. Given the relevance to the overall value of the Company, management believes that investors consider the metric to be extremely useful.

Adjusted EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure for determining the Company’s operating performance or liquidity that is calculated in accordance with GAAP.

A quantitative reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, follows in this section.

Results of Operations

Analysis of the Unaudited Condensed Consolidated Results of Operations.

The following analysis of selected data from our unaudited condensed consolidated statements of operations and other supplementary data should be referred to while reading the results of operations discussion that follows (dollars in thousands):

 

     Three Months Ended
March 31,
    2013 vs 2012
$ Change
    % Change
Three Months

Ended
 
     2013     2012      

STATEMENT OF OPERATIONS DATA:

        

Net revenues

   $ 232,872      $ 235,995      $ (3,123     -1.3

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

     164,172        153,627        10,545        6.9

Depreciation and amortization

     28,930        34,882        (5,952     -17.1

LMA fees

     969        839        130        15.5

Corporate, general and administrative expenses (including stock-based compensation expense)

     13,866        16,692        (2,826     -16.9

Loss on station sale

     1,309        —          1,309        *

Gain on derivative instrument

     (738     (88     (650     *
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     24,364        30,043        (5,679     -18.9

Interest expense, net

     (44,252     (50,803     6,551        -12.9

Other income, net

     133        262        (129     -49.2

Loss from continuing operations before income taxes

     (19,755     (20,498     743        -3.6

Income tax benefit

     10,767        7,892        2,875        36.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     (8,988     (12,606    

Income from discontinued operations, net of taxes

     —          476        (476     *
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (8,988   $ (12,130   $ 3,142        25.9
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER DATA:

        

Adjusted EBITDA

   $ 59,888      $ 76,865      $ (16,977     -22.1

 

** Calculation is not meaningful.

 

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Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012

Net Revenues. Net revenues for the three months ended March 31, 2013 decreased $3.1 million, or 1.3%, to $232.9 million, compared to $236.0 million for the three months ended March 31, 2012. This decrease was attributable to lower political revenues and general lower advertising spending in some of our markets.

Direct Operating Expenses, Excluding Depreciation and Amortization. Direct operating expenses for the three months ended March 31, 2013 increased $10.6 million, or 6.9%, to $164.2 million, compared to $153.6 million for the three months ended March 31, 2012. The increase was primarily attributable to a $1.0 million increase in sales salaries, a $1.6 million increase in Arbitron fees and a $4.9 million increase in expense at our network division as we invest in various content initiatives.

Depreciation and Amortization. Depreciation and amortization for the three months ended March 31, 2013 decreased $6.0 million, or 17.1%, to $28.9 million, compared to $34.9 million for the three months ended March 31, 2012. This decrease was primarily due to a $7.0 million decrease in amortization expense on the Company’s definite lived intangibles offset by a $1.0 million increase in depreciation expense.

Corporate General and Administrative Expenses, Including Stock-based Compensation Expense. Corporate general and administrative expenses, including stock-based compensation expense, for the three months ended March 31, 2013 decreased $2.8 million, or 16.9%, to $13.9 million, compared to $16.7 million for the three months ended March 31, 2012. The decrease is primarily due to a decrease in stock based compensation expense of $4.3 million, partially offset by a $1.2 million increase in acquisition related costs. Acquisition related costs for the three months ended March 31, 2013 included exit costs associated with a lease for vacated Citadel office space.

Realized Losses on Derivative Instrument. For the three months ended March 31, 2013, we recorded a $0.7 million gain related to the fair value adjustment of the put option on five Green Bay stations we operate under an LMA, compared to a $0.1 million gain recorded for the three months ended March 31, 2012.

Interest Expense, net. Total interest expense, net of interest income, for the three months ended March 31, 2013 decreased $6.5 million, or 12.9%, to $44.3 million compared to $50.8 million for the three months ended March 31, 2012. Interest expense associated with outstanding debt decreased by $6.5 million to $41.5 million as compared to $48.0 million in the prior year period. Interest expense decreased due to a lower average amount of indebtedness outstanding as a result principal repayments and a lower weighted average cost of debt due to the December 2012 Amendment and Restatement. The following summary details the components of our interest expense, net of interest income (dollars in thousands):

 

     Three Months Ended
March 31,
    2013 vs 2012  
     2013     2012     $ Change     % Change  

7.75% Senior Notes

   $ 11,819      $ 11,819      $ —          *

Bank borrowings – term loans and revolving credit facilities

     29,680        36,219        (6,539     -18.1

Other interest expense

     3,018        2,897        121        4.2

Change in fair value of interest rate cap and swap

     5        84        (79     *

Interest income

     (270     (216     (54     25.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

   $ 44,252      $ 50,803      $ (6,551     -12.9
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** Calculation is not meaningful.

Income Taxes. For the three months ended March 31, 2013, the Company recorded tax benefits of $10.8 million, on a pre-tax loss from continuing operations of $19.8 million, resulting in an effective tax rate for the three months ended March 31, 2013 of approximately 54.5%. For the three months ended March 31, 2012, the Company recorded income tax benefit of $7.9 million, on pre-tax loss from continuing operations of $20.5 million, resulting in an effective tax rate for the three months ended March 31, 2012 of approximately 38.5%.

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 tax amortization of broadcast licenses and goodwill; and assets classified as having an indefinite life for book purposes.

Adjusted EBITDA. As a result of the factors described above, Adjusted EBITDA for the three months ended March 31, 2013 decreased $17.0 million to $59.9 million from $76.9 million for the three months ended March 31, 2012.

 

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Reconciliation of Non-GAAP Financial Measure. The following table reconciles Adjusted EBITDA to net loss (the most directly comparable financial measure calculated and presented in accordance with GAAP) as presented in the accompanying consolidated statements of operations (dollars in thousands):

 

     Three Months Ended
March 31,
    % Change
Three Months

Ended
 
     2013     2012    

Net loss

   $ (8,988   $ (12,130     25.9

Income tax benefit

     (10,767     (7,892     36.4

Non-operating expenses, including net interest expense

     44,119        50,541        -12.7

LMA fees

     969        839        15.5

Depreciation and amortization

     28,930        34,882        -17.1

Stock-based compensation expense

     2,663        6,978        -61.8

Loss on station sale

     1,309        —          *

Gain on derivative instrument

     (738     (88     *

Acquisition-related costs

     2,214        1,023        116.4

Franchise taxes

     177        —          *

Discontinued operations:

      

Depreciation and amortization

     —          796        *

Income tax expense

     —          1,916        *
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 59,888      $ 76,865        -22.1
  

 

 

   

 

 

   

 

 

 

 

** Calculation is not meaningful.

Liquidity and Capital Resources

Cash Flows provided by Operating Activities

 

     Three Months Ended
March 31,
 
     2013      2012  
(Dollars in thousands)              

Net cash provided by operating activities

   $ 54,806       $ 60,278   

For the three months ended March 31, 2013 compared to the three months ended March 31, 2012, net cash provided by operating activities decreased $5.5 million as compared to the three months ended March 31, 2012. The decrease was primarily due to a decrease in net revenues of $12.4 million, partially offset by an aggregate increase in cash provided by operating assets and liabilities of $8.4 million.

Cash Flows used in Investing Activities

 

     Three Months Ended
March 31,
 
(Dollars in thousands)    2013     2012  

Net cash used in investing activities

   $ (53,760   $ (800

For the three months ended March 31, 2013 compared to the three months ended March 31, 2012, net cash used in investing activities increased $53.0 million, primarily due to completing $52.1 million in acquisitions during the three months ended March 31, 2013.

 

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Cash Flows used in Financing Activities

 

     Three Months Ended
March 31,
 
(Dollars in thousands)    2013     2012  

Net cash used in financing activities

   $ (6,290   $ (58,437

For the three months ended March 31, 2013 compared to the three months ended March 31, 2012, net cash used in financing activities decreased $52.1 million, primarily attributable to repaying $50.7 million less of borrowings under the Company’s term loans.

For additional detail regarding the Company’s material liquidity considerations, see “Liquidity Considerations” above.

2013 and 2012 Acquisitions and Dispositions

For a detailed discussion on our 2013 and 2012 acquisitions, see Note 2, “Acquisitions and Dispositions” in the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risks from those disclosed in Part II, Item 7A of our 2012 Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Annual Report”).

Item 4. Controls and Procedures

We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, the “Exchange Act”) designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Such disclosure controls and procedures are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chairman, President and Chief Executive Officer (“CEO”) and Senior Vice President and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives. Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and not be detected.

At the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective as the reasonable assurance level as of March 31, 2013.

There were no changes to our internal control over financial reporting during the fiscal quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are currently party to, or a defendant in, various claims or lawsuits that are generally incidental to our business. We also expect that from time to time in the future we will be party to, or a defendant in, various claims or lawsuits that are generally incidental to our business. We expect that we will vigorously contest any such claims or lawsuits and believe that the ultimate resolution of any known claim or lawsuit will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

 

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Item 1A. Risk Factors

Please refer to Part I, Item 1A, “Risk Factors,” in our 2012 Annual Report for information regarding known material risks that could affect our results of operations, financial condition and liquidity.

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

On May 21, 2008, our Board of Directors authorized the purchase, from time to time, of up to $75.0 million of our Class A Common Stock, subject to the terms and limitations obtained in any applicable agreements and compliance with other applicable legal requirements. During the three months ended March 31, 2013, we did not purchase any shares of our Class A Common Stock. As of March 31, 2013, we had authority to repurchase $68.3 million of our Class A Common Stock.

Item 6. Exhibits

 

31.1 —    Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 —    Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 —    Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
 101 —    The following materials from Cumulus Media Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Operations for the three months ended March 31, 2013 and 2012, (ii) Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (iii) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2013 and 2012, and (iv) Notes to Condensed Consolidated Financial Statements***.

 

*** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files submitted as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CUMULUS MEDIA INC.
Date: May 7, 2013     By:  

/s/ Joseph P. Hannan

      Joseph P. Hannan
     

Senior Vice President, Treasurer and Chief

Financial Officer

 

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EXHIBIT INDEX

 

31.1 —    Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 —    Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 —   

Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-

Oxley Act of 2002.

 101 —    The following materials from Cumulus Media Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Operations for the three months ended March 31, 2013 and 2012, (ii) Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (iii) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2013 and 2012, and (iv) Notes to Condensed Consolidated Financial Statements***.

 

*** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files submitted as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

 

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