Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1O-Q

Commission file number 000-24525

CUMULUS MEDIA INC.

(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   o

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

     As of April 30, 2003, the registrant had outstanding 63,770,436 shares of common stock consisting of (i) 49,174,187 shares of Class A Common Stock; (ii) 13,951,378 shares of Class B Common Stock; and (iii) 644,871 shares of Class C Common Stock.

Table of Contents

CUMULUS MEDIA INC.

INDEX

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CUMULUS MEDIA INC.

See Accompanying Notes to Consolidated Financial Statements

3

Table of Contents

CUMULUS MEDIA INC.

See Accompanying Notes to Consolidated Financial Statements

4

Table of Contents

CUMULUS MEDIA INC.

See Accompanying Notes to Consolidated Financial Statements

5

Table of Contents

Cumulus Media Inc. Notes to Consolidated Financial Statements (Unaudited)

1. Interim Financial Data and Basis of Presentation

Interim Financial Data

     The consolidated financial statements should be read in conjunction with the consolidated financial statements of Cumulus Media Inc. (“Cumulus” or the “Company”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 2003 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2003.

     Certain 2002 balances have been reclassified to conform to the 2003 presentation.

2. Recent Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this Interpretation is not expected to have a material effect on the Company’s financial statements. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective.

3. Stock Based Compensation

     The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standard (“SFAS”) No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the pro forma effect on net loss attributable to common stockholders if the fair value-based method had been applied to all outstanding and unvested awards in each period.

6

Table of Contents

     The per share weighted average fair value of options granted during the three months ended March 31, 2003 and 2002 was $9.61 and $7.82, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

     2003 Option Grants: expected volatility of 54.5% for 2003; risk-free interest rate of 3.96%; dividend yield of 0% and expected lives of four years from the date of grant.

     2002 Option Grants: expected volatility of 66.6% for 2002; risk-free interest rate of 4.01%; dividend yield of 0% and expected lives of four years from the date of grant.

4. Derivative Financial Instruments

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

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

     The fair value of the interest rate swap agreement is determined periodically by obtaining quotations from the financial institution that is the counterparty to the Company’s swap arrangement. The fair value represents an estimate of the net amount that Cumulus would receive if the agreement was transferred to another party or cancelled as of the date of the valuation. Changes in the fair value of the interest rate swap are reported in accumulated other comprehensive income, or AOCI, which is an element of stockholders’ equity. These amounts subsequently are reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings. During the three months ended March 31, 2003, approximately $0.1 million of gains in AOCI related to the interest rate swap were reclassified into interest expense as a yield adjustment of the hedged debt obligation, and the balance sheet as of March 31, 2003 reflects other long-term assets of $2.1 million to reflect the fair value of the swap agreement.

7

Table of Contents

     In order to effect the lowest fixed rate under the swap arrangement, Cumulus also entered into an interest rate option agreement, which provides for the counterparty to the agreement, Bank of America, to unilaterally extend the period of the swap for two additional years, from March of 2006 through March of 2008. This option may only be exercised in March of 2006. This instrument is not highly effective in mitigating the risks in cash flows, and therefore is deemed speculative and its changes in value are accounted for as a current element of its operating results. Interest expense for the three months ended March 31, 2003, includes $0.3 million of net gains, and the balance sheet as of March 31, 2003 reflects other long-term liabilities of $0.7 million to reflect the fair value of the option agreement. This amount represents the ineffectiveness of this instrument in effectively managing cash flow risk, and a decrease in the fair value of the option agreement, which represents a reduction of Cumulus’ reported liability.

5. Acquisitions

     Pending Acquisitions

     As of March 31, 2003, the Company was a party to various agreements to acquire 8 stations across 7 markets. The aggregate purchase price of those pending acquisitions is expected to be approximately $82.7 million, of which $79.7 million would be paid in cash and $3.0 million would be paid in shares of the Company’s common stock.

     Completed Acquisitions

     During the quarter ended March 31, 2003, the Company completed 2 acquisitions of 13 radio stations in 2 markets for $65.6 million in purchase price. More specifically, the Company acquired 8 stations serving the Macon, Georgia market and 5 stations serving the Ft. Walton Beach, Florida market. Of the $65.6 million required to fund the acquisitions, $1.6 million was funded in the form of shares of Class A Common Stock, and $64.0 million was funded in cash. Intangible assets recognized in the transactions, comprised entirely of broadcast licenses, amounted to $63.0. Fair value of the intangible assets was determined by management using a discounted cash flow approach.

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

     The unaudited consolidated condensed pro forma results of operations data for the three months ended March 31, 2003 and 2002, reflect adjustments as if all acquisitions and dispositions completed during 2002 and during the first quarter of 2003 occurred at January 1, 2002 (dollars in thousands, except per share data):

     Escrow funds of approximately $1.9 million paid by the Company in connection with pending acquisitions have been classified as Other Assets at March 31, 2003 in the accompanying consolidated balance sheet.

     At March 31, 2003 the Company operated 6 stations under local marketing agreements (“LMA”), pending FCC approval of our acquisition of those stations. The consolidated statements of operations for the three months ended March 31, 2003 includes the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMA from the effective date of the LMA through the earlier of the acquisition date or March 31, 2003.

8

Table of Contents

6. Long-Term Debt

     During the three months ended March 31, 2003, the Company completed the repurchase of $30.1 million in aggregate principal of its 10 3/8% Senior Subordinated Notes Due 2008 (“Notes”) for $32.5 million, including repurchase premiums. The Company’s outstanding Notes balance at March 31, 2003 was $102.5 million.

7. Redeemable Preferred Stock

     During the three months ended March 31, 2003, the Company negotiated and completed the repurchase of 4,900 shares of its Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 (“Series A Preferred Stock”) for $5.5 million in cash. A redemption premium of $0.6 million associated with the repurchase during 2003 has been included as a component of preferred stock dividends and redemption premiums in the accompanying Consolidated Statements of Operations. As of March 31, 2003, the Series A Preferred Stock presented on the balance sheet represents 9,268 shares outstanding.

8. Guarantor’s Financial Information

     Certain of the Company’s direct and indirect subsidiaries (all such subsidiaries are directly or indirectly wholly owned by the Company) will provide full and unconditional guarantees for the Company’s Notes on a joint and several basis.

     There ar