Item 1.
Financial Statements
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
69,431
|
|
|
$
|
131,259
|
|
Restricted cash
|
7,680
|
|
|
8,025
|
|
Accounts receivable, less allowance for doubtful accounts of $5,922 and $4,691 at September 30, 2017 and December 31, 2016, respectively
|
231,630
|
|
|
231,585
|
|
Trade receivable
|
4,679
|
|
|
4,985
|
|
Assets held for sale
|
30,150
|
|
|
30,150
|
|
Prepaid expenses and other current assets
|
58,140
|
|
|
33,923
|
|
Total current assets
|
401,710
|
|
|
439,927
|
|
Property and equipment, net
|
157,507
|
|
|
162,063
|
|
Broadcast licenses
|
1,539,718
|
|
|
1,540,183
|
|
Other intangible assets, net
|
90,369
|
|
|
116,499
|
|
Goodwill
|
135,214
|
|
|
135,214
|
|
Other assets
|
17,856
|
|
|
18,805
|
|
Total assets
|
$
|
2,342,374
|
|
|
$
|
2,412,691
|
|
Liabilities and Stockholders’ (Deficit)
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued expenses
|
$
|
96,526
|
|
|
$
|
96,241
|
|
Trade payable
|
3,640
|
|
|
4,550
|
|
Total current liabilities
|
100,166
|
|
|
100,791
|
|
Term loan, net of debt issuance costs/discounts of $23,054 and $29,909 at September 30, 2017 and December 31, 2016, respectively
|
1,705,560
|
|
|
1,780,357
|
|
7.75% senior notes, net of debt issuance costs of $4,335 and $6,200 at September 30, 2017 and December 31, 2016, respectively
|
605,665
|
|
|
603,800
|
|
Other liabilities
|
27,235
|
|
|
31,431
|
|
Deferred income taxes
|
393,939
|
|
|
388,050
|
|
Total liabilities
|
2,832,565
|
|
|
2,904,429
|
|
Commitments and Contingencies (Note 10)
|
|
|
|
Stockholders’ deficit:
|
|
|
|
Class A common stock, par value $0.01 per share; 93,750,000 shares authorized; 32,031,952 shares issued, and 29,225,765 shares outstanding, at both September 30, 2017 and December 31, 2016
|
320
|
|
|
320
|
|
Class C common stock, par value $0.01 per share; 80,609 shares authorized, issued and outstanding at both September 30, 2017 and December 31, 2016
|
1
|
|
|
1
|
|
Treasury stock, at cost, 2,806,187 shares at both September 30, 2017 and December 31, 2016
|
(229,310
|
)
|
|
(229,310
|
)
|
Additional paid-in-capital
|
1,626,237
|
|
|
1,624,815
|
|
Accumulated deficit
|
(1,887,439
|
)
|
|
(1,887,564
|
)
|
Total stockholders’ deficit
|
(490,191
|
)
|
|
(491,738
|
)
|
Total liabilities and stockholders’ deficit
|
$
|
2,342,374
|
|
|
$
|
2,412,691
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)
(Unaudited)
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|
|
|
|
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|
|
|
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Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net revenue
|
$
|
287,240
|
|
|
$
|
286,136
|
|
|
$
|
841,801
|
|
|
$
|
841,859
|
|
Operating expenses:
|
|
|
|
|
|
|
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Content costs
|
96,321
|
|
|
115,348
|
|
|
291,390
|
|
|
312,526
|
|
Selling, general and administrative expenses
|
119,293
|
|
|
117,387
|
|
|
354,189
|
|
|
352,474
|
|
Depreciation and amortization
|
15,208
|
|
|
21,957
|
|
|
47,610
|
|
|
68,023
|
|
Local marketing agreement fees
|
2,717
|
|
|
2,481
|
|
|
8,137
|
|
|
10,351
|
|
Corporate expenses (including stock-based compensation expense of $354, $735, $1,422 and $2,403, respectively)
|
10,853
|
|
|
9,960
|
|
|
32,281
|
|
|
34,028
|
|
Gain on sale of assets or stations
|
(83
|
)
|
|
(94,014
|
)
|
|
(2,585
|
)
|
|
(97,155
|
)
|
Impairment of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
1,816
|
|
Total operating expenses
|
244,309
|
|
|
173,119
|
|
|
731,022
|
|
|
682,063
|
|
Operating income
|
42,931
|
|
|
113,017
|
|
|
110,779
|
|
|
159,796
|
|
Non-operating expense:
|
|
|
|
|
|
|
|
Interest expense
|
(35,335
|
)
|
|
(34,929
|
)
|
|
(103,742
|
)
|
|
(103,896
|
)
|
Interest income
|
34
|
|
|
139
|
|
|
106
|
|
|
364
|
|
Loss on early extinguishment of debt
|
(1,063
|
)
|
|
—
|
|
|
(1,063
|
)
|
|
—
|
|
Other (expense) income, net
|
(36
|
)
|
|
882
|
|
|
(64
|
)
|
|
1,598
|
|
Total non-operating expense, net
|
(36,400
|
)
|
|
(33,908
|
)
|
|
(104,763
|
)
|
|
(101,934
|
)
|
Income before income taxes
|
6,531
|
|
|
79,109
|
|
|
6,016
|
|
|
57,862
|
|
Income tax expense
|
(5,257
|
)
|
|
(32,788
|
)
|
|
(6,465
|
)
|
|
(24,904
|
)
|
Net income (loss)
|
$
|
1,274
|
|
|
$
|
46,321
|
|
|
$
|
(449
|
)
|
|
$
|
32,958
|
|
Basic and diluted earnings (loss) per common share (see Note 8, “Earnings (Loss) Per Share”):
|
|
|
|
|
|
|
|
Basic: Earnings (loss) per share
|
$
|
0.04
|
|
|
$
|
1.58
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.12
|
|
Diluted: Earnings (loss) per share
|
$
|
0.04
|
|
|
$
|
1.58
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.12
|
|
Weighted average basic common shares outstanding
|
29,306,374
|
|
|
29,275,111
|
|
|
29,306,374
|
|
|
29,268,885
|
|
Weighted average diluted common shares outstanding
|
29,306,374
|
|
|
29,275,111
|
|
|
29,306,374
|
|
|
29,268,885
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
Net (loss) income
|
$
|
(449
|
)
|
|
$
|
32,958
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
47,610
|
|
|
68,023
|
|
Amortization of debt issuance costs/discounts
|
7,661
|
|
|
7,325
|
|
Provision for doubtful accounts
|
4,770
|
|
|
1,188
|
|
Gain on sale of assets or stations
|
(2,585
|
)
|
|
(97,155
|
)
|
Loss on early extinguishment of debt
|
1,063
|
|
|
—
|
|
Impairment of intangible assets and goodwill
|
—
|
|
|
1,816
|
|
Deferred income taxes
|
6,463
|
|
|
25,086
|
|
Stock-based compensation expense
|
1,422
|
|
|
2,403
|
|
Changes in assets and liabilities:
|
|
|
|
Accounts receivable
|
(4,815
|
)
|
|
21,817
|
|
Trade receivable
|
306
|
|
|
(813
|
)
|
Prepaid expenses and other current assets
|
(23,536
|
)
|
|
(9,169
|
)
|
Other assets
|
1,036
|
|
|
(8,444
|
)
|
Accounts payable and accrued expenses
|
285
|
|
|
(5,643
|
)
|
Trade payable
|
(910
|
)
|
|
383
|
|
Other liabilities
|
(4,196
|
)
|
|
(7,496
|
)
|
Net cash provided by operating activities
|
34,125
|
|
|
32,279
|
|
Cash flows from investing activities:
|
|
|
|
Restricted cash
|
345
|
|
|
3,431
|
|
Proceeds from sale of assets or stations
|
6,090
|
|
|
106,935
|
|
Capital expenditures
|
(20,645
|
)
|
|
(16,704
|
)
|
Net cash (used in) provided by investing activities
|
(14,210
|
)
|
|
93,662
|
|
Cash flows from financing activities:
|
|
|
|
Repayment of borrowings under term loans and revolving credit facilities
|
(81,652
|
)
|
|
—
|
|
Deferred financing costs
|
(91
|
)
|
|
—
|
|
Proceeds from exercise of warrants
|
—
|
|
|
3
|
|
Net cash (used in) provided by financing activities
|
(81,743
|
)
|
|
3
|
|
(Decrease) increase in cash and cash equivalents
|
(61,828
|
)
|
|
125,944
|
|
Cash and cash equivalents at beginning of period
|
131,259
|
|
|
31,657
|
|
Cash and cash equivalents at end of period
|
$
|
69,431
|
|
|
$
|
157,601
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
Interest paid
|
$
|
82,844
|
|
|
$
|
83,122
|
|
Income taxes paid
|
3,444
|
|
|
3,814
|
|
Supplemental disclosures of non-cash flow information:
|
|
|
|
Trade revenue
|
$
|
28,926
|
|
|
$
|
26,493
|
|
Trade expense
|
27,847
|
|
|
25,593
|
|
Transfer of deposit from escrow - Los Angeles land and building sale
|
—
|
|
|
6,000
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
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,” 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
A leader in the radio broadcasting industry, Cumulus Media (NASDAQ:CMLS) combines high-quality local programming with iconic, nationally syndicated media, sports and entertainment brands to deliver premium content choices to the
245 million
people reached each week through its
446
owned-and-operated stations broadcasting in
90
US media markets (including
eight
of the top 10), approximately
8,000
broadcast radio stations affiliated with its Westwood One network and numerous digital channels. Together, the Cumulus/Westwood One platforms make Cumulus Media one of the few media companies that can provide advertisers with national reach and local impact. Cumulus/Westwood One is the exclusive radio broadcast partner to some of the largest brands in sports, entertainment, news, and talk, including the NFL, the NCAA, the Masters, the Olympics, the GRAMMYs, the Academy of Country Music Awards, the American Music Awards, the Billboard Music Awards, Westwood One News, and more. Additionally, it is the nation's leading provider of country music and lifestyle content through its NASH brand, which serves country fans nationwide through radio programming, exclusive digital content, and live events. For more information, visit
www.cumulus.com
.
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, 2016
. The accompanying unaudited condensed consolidated financial statements include the condensed consolidated accounts of Cumulus and its wholly-owned subsidiaries, with all intercompany balances and transactions eliminated in consolidation. The
December 31, 2016
condensed balance sheet data was derived from audited financial statements. The accompanying unaudited condensed consolidated 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 statement of the Company's results of operations for, and financial condition as of the end of, the interim periods have been made. The results of operations for the
three and nine
months ended
September 30, 2017
, the cash flows for the
nine
months ended
September 30, 2017
and the Company’s financial condition as of
September 30, 2017
, are not necessarily indicative of the results of operations or cash flows that can be expected for, or the Company’s financial condition that can be expected as of the end of, any other interim period or for the fiscal year ending December 31,
2017
.
Reverse Stock Split
On October 12, 2016, the Company effected a one-for-eight (1:
8
) reverse stock split (the "Reverse Stock Split"). As a result of the Reverse Stock Split, every
eight
shares of each class of the Company's outstanding common stock were combined into one share of the same class of common stock and the authorized shares of each class of the Company's common stock were reduced by the same ratio. No fractional shares were issued in connection with the Reverse Stock Split. The number and exercise price of the Company's outstanding stock options and warrants were adjusted proportionally, as appropriate. The par value of the Company's common stock was not adjusted as a result of the Reverse Stock Split. All authorized, issued and outstanding stock and per share amounts contained within the accompanying unaudited condensed consolidated financial statements and these footnotes have been adjusted to reflect this Reverse Stock Split for all periods presented retroactively, as appropriate.
Use of Estimates
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 significant estimates related to revenue recognition, bad debts, intangible assets, income taxes, stock-based compensation, contingencies, litigation, certain expense accruals and, if applicable, purchase price allocation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, and 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.
Comprehensive Income
Comprehensive income (loss) includes net income (loss) and certain items that are excluded from net income (loss) and recorded as a separate component of stockholders' equity (deficit). During the three and nine months ended September 30, 2017 and 2016, the Company had no items of other comprehensive income (loss) and, therefore, comprehensive income does not differ from reported net income (loss).
Liquidity and Going Concern Considerations
In accordance with the requirements of Accounting Standards Update (“ASU”), 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40), or Accounting Standards Codification ("ASC") 205-40, the Company has the responsibility to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations. In its evaluation for this report, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due for 12 months following the date of issuance of this Quarterly Report on Form 10-Q.
As of September 30, 2017, the Company had
$69.4 million
of cash and cash equivalents and
$50.0 million
of availability under its Securitization Facility (defined below). The Company has generated positive cash flows from operating activities of
$34.1 million
and
$32.3 million
for the nine months ended September 30, 2017 and 2016, respectively. The Company expects it will continue to generate positive cash flows from operating activities in the fourth quarter of 2017 and full year 2018. Although the servicing of the Company’s debt obligations requires a substantial amount of the cash generated, the Company anticipates that its current capital resources will enable it to meet its anticipated debt service obligations, operational expenses and capital expenditures through at least the third quarter of calendar year 2018, assuming that the Company’s lenders and other creditors do not accelerate any amounts due to them, as described in more detail below.
As of September 30, 2017, the Company had a
$1.729 billion
term loan under its Credit Agreement (defined below) and
$610.0 million
of
7.75%
Senior Notes (defined below) outstanding. Amounts outstanding under the term loan mature on December 23, 2020 and the
7.75%
Senior Notes mature on May 1, 2019. Notwithstanding these maturity dates, and as disclosed further in Note 4, the Credit Agreement includes a springing maturity provision that provides that if on January 30, 2019 the aggregate principal amount of
7.75%
Senior Notes outstanding exceeds
$200.0 million
, the maturity date of the term loan will be accelerated to January 30, 2019. If the Company is unable to refinance or extend its term loan or the
7.75%
Senior Notes, or take other steps to create additional liquidity or otherwise avoid the occurrence of the springing maturity, forecasted cash flows would not be sufficient for the Company to meet its obligations as of January 30, 2019.
As discussed further in Note 13, on October 30, 2017, the Restructuring Committee of the Board of Directors authorized the Company to forgo the scheduled interest payment on the
7.75%
Senior Notes on November 1, 2017 of approximately
$23.6 million
and thus enter into the applicable
30
-day grace period under the terms of the indenture governing such notes (the “Indenture”). This nonpayment constitutes a “default” under the terms of the Indenture, which matures into an “Event of Default” (as defined in the Indenture) if such “default” is not cured or waived before the expiration of the
30
-day grace period on December 1, 2017. Upon the occurrence of an Event of Default, the trustee under the Indenture, or the holders of a specified percentage of
7.75%
Senior Notes, may declare all outstanding amounts immediately due and payable. Such an Event of Default would also constitute an event of default under the Credit Agreement, which would permit the lenders thereunder to declare all amounts outstanding under the Credit Agreement to be immediately due and payable.
As previously disclosed, the Company, with the assistance of outside advisors, is in private discussions with its lenders and the holders of its
7.75%
Senior Notes to proactively restructure its balance sheet and reduce its debt. Such restructuring or refinancing transactions could include the issuance of additional equity securities in satisfaction of a portion of our
indebtedness outside of the protections of Chapter 11 of the U.S. Bankruptcy Code. We cannot provide any assurances of our ability to timely complete any such transactions, or the structure or likelihood of success thereof. If the Company is unsuccessful in restructuring or refinancing its indebtedness outside the court-approved process, it could seek to effectuate a restructuring under the protection of Chapter 11 of the U.S. Bankruptcy Code.
Based on the significance of the Company's debt balance and the potential that the Company could seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, the Company determined that, as a result of these two factors and as required by the accounting guidance cited above, there is substantial doubt as to the Company’s ability to continue as a going concern for a period of 12 months following the date of issuance of this Quarterly Report on Form 10-Q.
Notwithstanding the aforementioned, the accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the ability to continue as a going concern.
Out of Period Adjustment
In connection with the preparation of certain prior period unaudited condensed consolidated financial statements, the Company recorded a correction of an immaterial misstatement that occurred in periods prior thereto, which resulted in an increase in content costs of
$3.6 million
in the second quarter of 2016. The correction related to the Radio Station Group segment only and was not material to the prior year quarterly or annual results.
Assets Held for Sale
During the year ended December 31, 2015, the Company entered into an agreement to sell certain land in the Company's Washington, DC market to a third party. The closing of the transaction is subject to various conditions and approvals, which remain pending. The identified asset has been classified as held for sale in the accompanying unaudited condensed consolidated balance sheets at
September 30, 2017
and
December 31, 2016
. The estimated fair value of the land to be disposed of is in excess of its carrying value.
Adoption of New Accounting Standards
ASU 2016-09 - Compensation - Stock Compensation
("
ASU 2016-09
")
.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, which provides guidance for employee stock-based payments. This update removes the requirement that reporting entities present tax benefits as excess cash flows from financing activities and cash flows from operating activities. As a result of this amendment, cash flows related to excess tax benefits will be classified only in operating activities. The Company adopted ASU 2016-09 effective January 1, 2017. As a result of adoption, in the first quarter of 2017, the Company recorded an adjustment to accumulated deficit of approximately
$0.6 million
to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation that had not been previously recognized in additional paid in capital. The Company is continuing its practice of estimating forfeitures and recording cash paid for withholding taxes as a financing activity.
ASU 2017-04 - Intangibles - Goodwill and Other ("ASU 2017-04").
In January 2017, the FASB issued ASU 2017-04 to simplify the accounting for goodwill impairment. The update eliminates the requirement to perform Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Upon effectiveness of this update, a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance remains substantially unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The new standard is effective for fiscal years, and interim periods within fiscal years, beginning after December 15, 2019, with early adoption permitted. The impact on the Company's financial statements of it not being required to perform Step 2 to measure the amount of any potential goodwill impairment will depend on various factors determined by the Company's annual impairment test which will be performed on December 31, 2017. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company adopted ASU 2017-04 effective January 1, 2017.
Recent Accounting Standards Updates
ASU 2014-09 and related updates - Revenue from Contracts with Customers ("ASU 2014-09").
In May 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most current revenue recognition guidance, including industry-
specific guidance. The core principle of the single comprehensive revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In August 2015, the FASB issued
ASU 2015-14 - Deferral of the Effective Date ("ASU 2015-14")
, which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In March 2016, the FASB issued
ASU 2016-08 - Principal versus Agent Considerations ("ASU 2016-08")
which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued
ASU 2016-10 - Identifying Performance Obligations and Licensing ("ASU 2016-10")
which amends the revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations as well as clarifies when a promised good or service is separately identifiable. In May 2016, the FASB issued
ASU 2016-12 - Narrow-Scope Improvements and Practical Expedients ("ASU 2016-12")
which provides clarifying guidance in certain narrow areas such as an assessment of collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition as well as adds certain practical expedients. In December 2016, the FASB issued
ASU 2016-20 - Technical Corrections and Improvements ("ASU 2016-20")
which provides technical corrections and improvements to Topic 606. In March 2017, the FASB issued
ASU 2017-05 - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05")
which clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of non-financial assets, including partial sales of real estate. In May 2017, the FASB issued
ASU 2017-10 - Determining the Customer of the Operation Services ("ASU 2017-10")
which clarifies the diversity in practice in how an operating entity determines the customer of the operation services for transactions within the scope of ASC 853, Service Concession Arrangements by clarifying that the grantor is the customer of the operation services in all cases for those arrangements. The amendments also allow for a more consistent application of other aspects of the revenue guidance, which are affected by this customer determination. The amendments in ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20, ASU 2017-05 and ASU 2017-10 may be applied either retrospectively to each prior period presented or retrospectively with the cumulative effect of initially applying such updates at the date of initial application.
The Company plans to adopt the new standard using a modified retrospective approach effective January 1, 2018.
The Company created a revenue recognition implementation team to oversee the planning, testing and implementation of ASC 606. The responsibilities of this team include developing an appropriate testing methodology, performing the testing of contracts and evaluating the impact of the new revenue recognition standard on the Company's financial statements. The revenue recognition implementation team meets on a regular basis and have created a detailed timetable to ensure the Company is on pace for the required 2018 adoption. The initial scoping procedures have been completed and material revenue streams have been identified.
The Company continues to assess the potential impacts of the new standard, including in the areas described above, and anticipates adoption of this standard could have a material impact on its consolidated financial statements; however, the Company cannot reasonably estimate quantitative information related to the impact of the new standard on its financial statements at this time.
ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01").
In January 2016, the FASB issued ASU 2016-01 which enhances the reporting model for financial instruments including aspects of recognition, measurement, presentation and disclosure. The new guidance revises the accounting requirements related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The update also changes certain disclosure requirements associated with the fair value of financial instruments. These changes will require an entity to measure, at fair value, investments in equity securities and other ownership interests in an entity - including investments in partnerships, unincorporated joint ventures and limited liability companies that do not result in consolidation and are not accounted for under the equity method - and recognize the changes in fair value within net income. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, and interim periods thereafter. Early adoption is not permitted, except for certain amendments within the ASU. The Company does not expect adoption of this guidance to have a material impact on its financial condition, results of operation or disclosures.
ASU 2016-02 - Leases ("ASU 2016-02").
In February 2016, the FASB issued ASU 2016-02 which provides updated guidance for the accounting for leases. This update requires lessees to recognize assets and liabilities for the rights and obligations created by leases with a term longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, and interim periods thereafter. A modified retrospective transition method is required, with the option to elect certain practical expedients. Early adoption is permitted. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.
ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15")
. In August 2016, the FASB issued ASU 2016-15 which provides guidance for several new and/or revised disclosures pertaining to the classification of certain cash receipts and cash payments on the statement of cash flows, including contingent consideration payments made after a business acquisition. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its financial condition, results of operation or disclosures.
ASU 2016-16 - Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16")
. In October 2016, the FASB issued ASU 2016-16 which provides guidance for the accounting for the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs between entities in different tax jurisdictions. ASU 2016-16 will be effective for fiscal years beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its financial condition, results of operation or disclosures.
ASU 2016-18 - Restricted Cash ("ASU 2016-18")
. In November 2016, the FASB issued ASU 2016-18 which provides guidance for the accounting for the disclosure of restricted cash on the Statement of Cash Flows. ASU 2016-18 will be effective for fiscal years beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its financial condition, results of operation or disclosures. As of
September 30, 2017
and December 31, 2016, the Company had approximately
$7.7 million
and
$8.0 million
in restricted cash, respectively, on its consolidated balance sheets. Upon adoption of ASU 2016-18, restricted cash balances will be included along with cash and cash equivalents as of the end of the period and beginning of the period, respectively, in the Company's consolidated Statement of Cash Flows for all periods presented; additionally, separate line items showing changes in restricted cash balances will be eliminated from its consolidated statement of cash flows.
ASU 2017-01 - Clarifying the Definition of a Business ("ASU 2017-01").
In January 2017, the FASB issued guidance that clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The new standard is effective for fiscal years, and interim periods within fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect adoption of this guidance to have a material impact on its financial condition, results of operation or disclosures.
ASU 2017-09 - Scope of Modification Accounting ("ASU 2017-09").
In May 2017, the FASB issued an update to guidance on Topic 718,
Compensation—Stock Compensation
that clarifies when changes to the terms or conditions of a share-based award must be accounted for as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 will be effective for all entities for annual periods, and interim periods within annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its financial condition, results of operation or disclosure.
2. Restricted Cash
As of
September 30, 2017
and
December 31, 2016
, the Company’s balance sheet included approximately
$7.7 million
and
$8.0 million
, respectively, in restricted cash. Restricted cash is used primarily to collateralize standby letters of credit for certain leases and insurance policies in addition to securing certain transactions as dictated by the financial institutions used by the Company.
3. Intangible Assets and Goodwill
The following tables present goodwill and accumulated impairment losses on a segment and consolidated basis as of January 1, 2017 and
September 30, 2017
(dollars in thousands):
Radio Station Group
|
|
|
|
|
Balance as of January 1, 2017:
|
|
Goodwill
|
$
|
1,278,526
|
|
Accumulated impairment losses
|
(1,278,526
|
)
|
Total
|
$
|
—
|
|
Balance as of September 30, 2017:
|
|
Goodwill
|
1,278,526
|
|
Accumulated impairment losses
|
(1,278,526
|
)
|
Total
|
$
|
—
|
|
Westwood One
|
|
|
|
|
Balance as of January 1, 2017:
|
|
Goodwill
|
$
|
304,280
|
|
Accumulated impairment losses
|
(169,066
|
)
|
Total
|
$
|
135,214
|
|
Balance as of September 30, 2017:
|
|
Goodwill
|
304,280
|
|
Accumulated impairment losses
|
(169,066
|
)
|
Total
|
$
|
135,214
|
|
Consolidated
|
|
|
|
|
Balance as of January 1, 2017:
|
|
Goodwill
|
$
|
1,582,806
|
|
Accumulated impairment losses
|
(1,447,592
|
)
|
Total
|
$
|
135,214
|
|
Balance as of September 30, 2017:
|
|
Goodwill
|
1,582,806
|
|
Accumulated impairment losses
|
(1,447,592
|
)
|
Total
|
$
|
135,214
|
|
The following table shows the Company's intangible asset balances as of December 31, 2016 and
September 30, 2017
, as well as dispositions and amortization during the period (dollars in thousands):
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC Licenses
|
|
Definite-Lived
|
|
Total
|
Balance as of December 31, 2016
|
$
|
1,540,183
|
|
|
$
|
116,499
|
|
|
$
|
1,656,682
|
|
Dispositions
|
(465
|
)
|
|
—
|
|
|
(465
|
)
|
Amortization
|
—
|
|
|
(26,130
|
)
|
|
(26,130
|
)
|
Balance as of September 30, 2017
|
$
|
1,539,718
|
|
|
$
|
90,369
|
|
|
$
|
1,630,087
|
|
The Company performs annual impairment testing of its Federal Communications Commission ("FCC") licenses and goodwill as of December 31, each year and on an interim basis if events or circumstances indicate that FCC licenses or goodwill may be impaired. The Company reviews the carrying value of its definite-lived intangible assets, primarily broadcast licenses, for recoverability prior to its annual impairment test of goodwill and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events and circumstances did not necessitate an interim impairment test as of
September 30, 2017
.
4. Long-Term Debt
The Company’s long-term debt consisted of the following as of
September 30, 2017
and
December 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Term loan:
|
|
|
|
Term loan
|
$
|
1,728,614
|
|
|
$
|
1,810,266
|
|
Less: unamortized term loan discount and debt issuance costs
|
(23,054
|
)
|
|
(29,909
|
)
|
Total term loan
|
1,705,560
|
|
|
1,780,357
|
|
7.75% senior notes:
|
610,000
|
|
|
610,000
|
|
Less: unamortized debt issuance costs
|
(4,335
|
)
|
|
(6,200
|
)
|
Total 7.75% senior notes
|
605,665
|
|
|
603,800
|
|
Less: Current portion of long-term debt
|
—
|
|
|
—
|
|
Long-term debt, net
|
$
|
2,311,225
|
|
|
$
|
2,384,157
|
|
Amended and Restated Credit Agreement
On December 23, 2013, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), among the Company, Cumulus Media Holdings Inc., a direct wholly-owned subsidiary of the Company (“Cumulus Holdings”), as borrower, and certain lenders and agents. The Credit Agreement consists of a Term Loan (the “Term Loan”) maturing in December 2020 and a
$200.0 million
revolving credit facility, with a
$30.0 million
sublimit for letters of credit (the “Revolving Credit Facility”) maturing in December 2018.
At
September 30, 2017
, and
December 31, 2016
, the Company had
$1.729 billion
and
$1.810 billion
, respectively, outstanding under the Term Loan and
no
amounts outstanding under the Revolving Credit Facility.
On August 29, 2017, we used proceeds from sale of certain land and buildings to repay approximately
$81.7 million
of the Term Loan borrowings.
Notwithstanding the stated maturity date of the Term Loan, if on January 30, 2019, the aggregate principal amount of
7.75%
Senior Notes outstanding exceeds
$200.0 million
, the Term Loan maturity date shall be accelerated to January 30, 2019.
Borrowings under the Credit Agreement bear interest, at the option of Cumulus Holdings, based on the Base Rate (as defined below) or the London Interbank Offered Rate (“LIBOR”), plus
3.25%
on LIBOR-based borrowings and
2.25%
on Base Rate-based borrowings. LIBOR-based borrowings are subject to a LIBOR floor of
1.0%
under the Term Loan. Base Rate-based borrowings are subject to a Base Rate floor of
2.0%
under the Term Loan. Base Rate is defined, for any day, as the rate per annum equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus
0.5%
, (ii) the prime commercial lending rate of JPMorgan Chase Bank, N.A., as established from time to time, and (iii) 30 day LIBOR plus
1.0%
. Amounts outstanding under the Term Loan amortize at a rate of
1.0%
per annum of the original principal amount of the Term Loan, payable quarterly, with the balance payable on the maturity date. At
September 30, 2017
, the Term Loan bore interest at
4.49%
per annum.
Under the terms of the Credit Agreement, a commitment fee in the amount of
0.50%
per year, payable monthly, is payable on the unused portion of the commitments.
The representations, covenants and events of default in the Credit Agreement are customary for financing transactions of this nature. Events of default in the Credit Agreement include, among others: (a) the failure to pay obligations when due; (b) the failure to comply with (and not timely remedy, if applicable) certain covenants; (c) certain defaults and accelerations under other indebtedness; (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 of warranty made, or report, certificate or financial statement delivered to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the Credit Agreement). Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Credit Agreement and the ancillary loan documents as a secured party.
In the event amounts are outstanding under the Revolving Credit Facility or any letters of credit are outstanding that have not been collateralized by cash as of the end of each quarter, the Credit Agreement requires compliance with a consolidated first lien leverage ratio covenant. The required ratio at
September 30, 2017
was
4.25
to 1.0, and the first lien net leverage ratio covenant periodically decreases until it reaches
4.0
to 1.0 on March 31, 2018. At
September 30, 2017
, the Company's actual leverage ratio was in excess of the required ratio. The Company had
no
borrowings outstanding under the Revolving Credit Facility.
Certain mandatory prepayments on the Term Loan are required upon the occurrence of specified events, including upon the incurrence of certain additional indebtedness, upon the sale of certain assets and upon the occurrence of certain condemnation or casualty events, and from excess cash flow.
The Company’s, Cumulus Holdings’ and their respective restricted subsidiaries’ obligations under the Credit Agreement are collateralized by a first priority lien on substantially all of the Company’s, Cumulus Holdings’ and their respective restricted subsidiaries’ assets (excluding the Company’s accounts receivable collateralizing the Company's revolving accounts receivable securitization facility (the “Securitization Facility”) with Wells Fargo Capital Finance ("Wells Fargo") as described below) 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 wholly-owned subsidiaries and
66%
of the capital stock of any future first-tier foreign subsidiaries. In addition, Cumulus Holdings’ obligations under the Credit Agreement are guaranteed by the Company and substantially all of its restricted subsidiaries, other than Cumulus Holdings.
As described in more detail in Note 13, "Subsequent Events", on October 30, 2017, the Restructuring Committee of the Board of Directors authorized the Company to forgo the November 1, 2017, scheduled interest payment on the Company's
7.75%
Senior Notes (defined below), thereby entering into the applicable
30
-day grace period under the terms of the Indenture. This nonpayment constitutes a "default" under the terms of such Indenture, which matures into an "Event of Default" if not cured or waived before the expiration of the 30-day grace period on December 1, 2017. Such an Event of Default, if and when it occurs, would also be an event of default under the Credit Agreement.
7.75% Senior Notes
On May 13, 2011, the Company issued
$610.0 million
aggregate principal amount of
7.75%
Senior Notes due 2019 (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 Company's prior credit agreement.
On September 16, 2011, the Company and Cumulus Holdings entered into a supplemental Indenture 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 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 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 liabilities of the Company and its subsidiaries.
The Indenture contains representations, covenants and events of default customary for financing transactions of this nature. As described in more detail in Note 13, “Subsequent Events", on October 30, 2017, the Restructuring Committee of the Board of Directors authorized the Company to forgo the November 1, 2017 scheduled interest payment on the
7.75%
Senior Notes, thereby entering into the applicable
30
-day grace period under the Indenture. This nonpayment constitutes a “default” under the Indenture, which matures into an “Event of Default” if not cured or waived before the expiration of the
30
-day grace period on December 1, 2017. Upon the occurrence of an Event of Default, the trustee under the Indenture, or the holders of a specified percentage of
7.75%
Senior Notes, may declare all outstanding amounts due and payable. Such an “Event of Default”, if and when it occurs, would also be an event of default under the Credit Agreement.
Accounts Receivable Securitization Facility
On December 6, 2013, the Company entered into a
5
-year,
$50.0 million
Securitization Facility with Wells Fargo (as successor to General Electric Capital Corporation), as a lender, swingline lender and administrative agent (together with any other lenders party thereto from time to time, the “Lenders”).
In connection with the entry into the Securitization Facility, pursuant to a Receivables Sale and Servicing Agreement, dated as of December 6, 2013 (the “Sale Agreement”), certain subsidiaries of the Company (collectively, the “Originators”) sell and/or contribute their existing and future accounts receivable (representing up to all of the Company’s accounts receivable) to a special purpose entity and wholly-owned subsidiary of the Company (the “SPV”). The SPV may thereafter make borrowings from the Lenders, which borrowings are secured by those receivables, pursuant to an Amended and Restated Receivables Funding and Administration Agreement, dated as of March 15, 2017 (the “Funding Agreement”). Cumulus Holdings services the accounts receivable on behalf of the SPV.
Advances available under the Funding Agreement at any time are based on advance rates relating to the value of the eligible receivables held by the SPV at that time. The Securitization Facility matures on December 6, 2018, subject to earlier termination at the election of the SPV. Advances bear interest based on either LIBOR plus
2.50%
or the Index Rate (as defined in the Funding Agreement) plus
1.00%
. The SPV is also required to pay a monthly fee based on any unused portion of the Securitization Facility. The Securitization Facility contains representations and warranties, affirmative and negative covenants, and events of default that are customary for financings of this type.
At
September 30, 2017
and
December 31, 2016
, there were
no
amounts outstanding under the Securitization Facility.
Amortization of Debt Discount and Debt Issuance Costs
For the
three and nine
months ended
September 30, 2017
, the Company amortized
$2.6 million
and
$7.7 million
, respectively, of debt discount and debt issuance costs related to its Term Loan and
7.75%
Senior Notes. For the
three and nine
months ended
September 30, 2016
, the Company amortized
$2.5 million
and
$7.3 million
, respectively, of debt discount and debt issuance costs related to its Term Loan and
7.75%
Senior Notes.
5. Fair Value Measurements
The three levels of the fair value hierarchy to be applied when determining fair value of financial instruments 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.
The following table shows the gross amount and fair value of the Company’s Term Loan and
7.75%
Senior Notes (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Term Loan:
|
|
|
|
Gross value
|
$
|
1,728,614
|
|
|
$
|
1,810,266
|
|
Fair value - Level 2
|
1,408,820
|
|
|
1,226,455
|
|
7.75% Senior Notes:
|
|
|
|
Gross value
|
$
|
610,000
|
|
|
$
|
610,000
|
|
Fair value - Level 2
|
179,950
|
|
|
249,673
|
|
As of
September 30, 2017
, the Company obtained a level 2 third-party valuation of
81.5%
to calculate the fair value of the Term Loan and
29.5%
to calculate the level 2 fair value of the
7.75%
Senior Notes.
As of
December 31, 2016
, the Company obtained a level 2 third-party valuation of
67.8%
to calculate the fair value of the Term Loan and
40.9%
to calculate the level 2 fair value of the
7.75%
Senior Notes.
6. Stockholders’ Equity
For information on the Company's October 12, 2016 Reverse Stock Split and the resulting adjustments to authorized, issued and outstanding common stock, warrants and options, see Note 1, "Description of Business, Interim Financial Data and Basis of Presentation: Reverse Stock Split."
The Company is authorized to issue an aggregate of
269,080,609
shares of stock, each with a par value of
$0.01
per share, divided into
four
classes consisting of:
(i)
93,750,000
shares designated as Class A common stock;
(ii)
75,000,000
shares designated as Class B common stock;
(iii)
80,609
shares designated as Class C common stock, and
(iv)
100,250,000
shares of preferred stock.
On June 5, 2017, the Company’s Board of Directors adopted a stockholder rights plan, which is scheduled to expire in June 2018. Pursuant to the rights plan, the Company declared a dividend of
one
right for each outstanding share of Class A common stock of the Company, payable to holders of record on June 15, 2017. The rights initially trade with the Company’s Class A common stock and will generally become exercisable only if any person (or any persons acting in concert or as a group) acquires a voting or economic position in
4.99%
or more of the Company’s outstanding Class A common stock. If the rights become exercisable, all holders of rights (other than any triggering person) will be entitled to acquire shares of Class A common stock at a
50%
discount or the Company may exchange each right held by such holders for one share of Class A common stock. Under the rights plan, any person that owned more than
4.99%
of the Company’s outstanding Class A common stock may continue to own its shares of Class A common stock but may not acquire a voting or economic interest in any additional shares of Class A common stock without triggering the rights plan.
Common Stock
Shares of Class A, Class B and Class C common stock are identical in all respects, except with regard to voting and conversion rights. 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) 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. There were
no
shares of Class B common stock issued or outstanding as of
September 30, 2017
or December 31, 2016.
|
The holders of all classes of common stock are entitled to share ratably in any dividends that may be declared by the Board of Directors of the Company.
As of
September 30, 2017
there were no preferred shares outstanding.
2009 Warrants
In June 2009, in connection with the execution of an amendment to the Company's then-existing credit agreement, the Company issued warrants to the lenders thereunder that allow them to acquire up to
156,250
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.
None
of such warrants were converted during the
nine
months ended
September 30, 2017
and, as of such date, there were
40,057
of the 2009 Warrants outstanding.
Company Warrants
As a component of the Company's September 16, 2011 acquisition of Citadel Broadcasting Corporation (the "Citadel Merger") and the related financing transactions, the Company issued warrants to purchase an aggregate of
9.0 million
shares of Class A common stock (the "Company Warrants") under a warrant agreement dated September 16, 2011 (the "Warrant Agreement"). The Company Warrants are exercisable at any time prior to June 3, 2030 at an exercise price of
$0.01
per share with each Company Warrant providing the right to purchase one share. The number of shares for which the Company Warrants are exercisable is not subject to any anti-dilution protection, other than standard adjustments in the case of stock splits, dividends and certain other similar events. 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.
Exercise 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 will 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.
No
Company Warrants were exercised during the
nine
months ended
September 30, 2017
.
0.3 million
Company Warrants were exercised during the
nine
months ended
September 30, 2016
to purchase
43,192
shares of Class A common stock. At
September 30, 2017
,
31,955
Company Warrants remained outstanding.
Crestview Warrants
Also on September 16, 2011, but pursuant to a separate warrant agreement, the Company issued warrants to purchase
1.0 million
shares of Class A common stock with an exercise price, as adjusted to date, of
$34.56
per share (the "Crestview Warrants"). The Crestview Warrants are exercisable until September 16, 2021, and the 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 defined in the Crestview Warrants, 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 certain other similar events. As of
September 30, 2017
, all
1.0 million
Crestview Warrants remained outstanding.
7. Stock-Based Compensation Expense
The Company uses the Black-Scholes option pricing model to estimate the fair value on the date of grant of stock options issued. The fair value of stock options is determined by the Company’s stock price, historical stock price volatility over the expected term of the awards, risk-free interest rates and expected dividends. With respect to restricted stock awards, the Company recognizes compensation expense over the vesting period equal to the grant date fair value of the shares awarded in accordance with
ASC 718 - Compensation - Stock Compensation
. To the extent non-vested restricted stock awards include performance or market vesting conditions, management uses the requisite service period to recognize the cost associated with the award.
During the
nine
months ended
September 30, 2017
, the Company granted
76,250
stock options with a grant date aggregate fair value of
$0.1 million
. During the
nine
months ended
September 30, 2016
, the Company granted
383,375
stock options with a grant date aggregate fair value of
$0.5 million
. The options granted in both periods range in exercise price from
$0.41
to
$24.00
per share, and provide for vesting on each of the first
four
anniversaries of the date of grant, with
30%
of the award vesting on each of the first
two
anniversaries thereof, and
20%
of the award vesting on each of the next
two
anniversaries thereof.
For the
three and nine
months ended
September 30, 2017
the Company recognized approximately
$0.4 million
and
$1.4 million
in stock-based compensation expense related to equity awards. For the
three and nine
months ended
September 30, 2016
, the Company recognized approximately
$0.7 million
and
$2.4 million
in stock-based compensation expense related to equity awards.
As of
September 30, 2017
, unrecognized stock-based compensation expense of approximately
$0.3 million
related to equity awards is expected to be recognized over a weighted-average remaining life of
2.23
years. Unrecognized stock-based compensation expense for equity awards will be adjusted for future changes in estimated forfeitures.
There were
no
stock options exercised during the
nine
months ended
September 30, 2017
or
September 30, 2016
.
On May 18, 2017 the Company adopted the 2017 Supplemental Incentive Plan (the "2017 SIP"), which provides participating executives of the Company with the opportunity to earn cash payments in ratable installments over the last three quarters of 2017, based on the Company's year-to-date performance at the end of each respective period, commencing with the second quarter of 2017. In order to be eligible to participate in the 2017 SIP, each participant therein had to agree to the cancellation of all of such participant's respective outstanding equity incentive awards. During the nine months ended September 30, 2017, the participants forfeited an aggregate of
963,493
options.
8. Earnings (Loss) Per Share
For all periods presented, the Company has disclosed basic and diluted earnings (loss) per common share utilizing the two-class method. In accordance with ASC Topic 260,
"Earnings per Share,"
the presentation of basic and diluted EPS is required only for common stock and not for participating securities.
Non-vested restricted shares of Class A common stock are considered participating securities for purposes of calculating basic weighted-average common shares outstanding in all periods. In addition, Company Warrants are accounted for as participating securities, as holders of such Warrants, in accordance with and subject to the terms and conditions of the Warrant Agreement, are entitled to receive ratable distributions of the Company's earnings concurrently with such distributions made to the holders of Class A common stock.
Basic earnings (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. In accordance with the terms of the Company's certificate of incorporation, the Company allocates undistributed net income (loss), after any allocation for preferred stock dividends, between each class of common stock on an equal basis per share. In accordance with the two-class method, earnings applicable to the non-vested restricted shares of Class A common stock and Company Warrants are excluded from the computation of basic EPS.
Diluted earnings (loss) per share is computed in the same manner as basic earnings (loss) per share after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes stock options and certain warrants to purchase common stock. Antidilutive instruments are not considered in this calculation. Under the two-class method, net income (loss) is allocated to common stock to the extent that each security may share in earnings, as if all of the earnings (loss) for the period had been distributed. Earnings (loss) are allocated to each class of common stock equally per share. The following table sets forth the computation of basic and diluted earnings (loss) per common share for the
three and nine
months ended
September 30, 2017
and
2016
(amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Basic Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Undistributed net income (loss) from continuing operations
|
$
|
1,274
|
|
|
$
|
46,321
|
|
|
$
|
(449
|
)
|
|
$
|
32,958
|
|
Less:
|
|
|
|
|
|
|
|
Participation rights of the Company Warrants in undistributed earnings
|
1
|
|
|
50
|
|
|
—
|
|
|
43
|
|
Participation rights of unvested restricted stock in undistributed earnings
|
—
|
|
|
48
|
|
|
—
|
|
|
34
|
|
Basic undistributed net income (loss) attributable to common shares
|
$
|
1,273
|
|
|
$
|
46,223
|
|
|
$
|
(449
|
)
|
|
$
|
32,881
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
29,306
|
|
|
29,275
|
|
|
29,306
|
|
|
29,269
|
|
Basic undistributed net income per share attributable to common shares
|
$
|
0.04
|
|
|
$
|
1.58
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.12
|
|
Diluted Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Undistributed net income (loss) from continuing operations
|
$
|
1,274
|
|
|
$
|
46,321
|
|
|
$
|
(449
|
)
|
|
$
|
32,958
|
|
Less:
|
|
|
|
|
|
|
|
Participation rights of the Company Warrants in undistributed net earnings
|
1
|
|
|
50
|
|
|
—
|
|
|
43
|
|
Participation rights of unvested restricted stock in undistributed earnings
|
—
|
|
|
48
|
|
|
—
|
|
|
34
|
|
Basic undistributed net income (loss) attributable to common shares
|
$
|
1,273
|
|
|
$
|
46,223
|
|
|
$
|
(449
|
)
|
|
$
|
32,881
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
29,306
|
|
|
29,275
|
|
|
29,306
|
|
|
29,269
|
|
Effect of dilutive stock options, warrants and restricted stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
29,306
|
|
|
29,275
|
|
|
29,306
|
|
|
29,269
|
|
Diluted undistributed net income (loss) per share attributable to common shares
|
$
|
0.04
|
|
|
$
|
1.58
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.12
|
|
9. Income Taxes
For the three months ended
September 30, 2017
, the Company recorded income tax expense of
$5.3 million
on income before income taxes of
$6.5 million
, resulting in an effective tax rate for the three months ended
September 30, 2017
of approximately
80.5%
. For the three months ended
September 30, 2016
, the Company recorded income tax expense of
$32.8 million
on income before income taxes of
$79.1 million
, resulting in an effective tax rate for the three months ended
September 30, 2016
of approximately
41.4%
. The difference between the effective tax rate and the federal statutory rate of
35.0%
for the three months ended
September 30, 2017
is attributable to state and local income taxes, the tax effect of certain statutory non-deductible items, the tax effect of changes in uncertain tax positions, and state tax law changes enacted during the period. The difference between the effective tax rate and the federal statutory rate of
35.0%
for the three months ended September 30, 2016 is attributable to state and local income taxes, the tax effect of certain statutory non-deductible items, the tax effect of changes in uncertain tax positions, the tax effect of stock option terminations and forfeitures, as well as adjustments as a result of differences between the amounts estimated in the tax provision and the actual amounts in the tax return.
For the
nine
months ended
September 30, 2017
, the Company recorded income tax expense of
$6.5 million
on income before income taxes of
$6.0 million
, resulting in an effective tax rate for the
nine
months ended
September 30, 2017
of approximately
107.5%
. The difference between the effective tax rate and the federal statutory rate of
35.0%
for the nine months ended September 30, 2017 relates to state and local taxes, the tax effect of stock option terminations and forfeitures, the tax effect of changes in uncertain tax positions, and enacted tax law changes.
For the
nine
months ended
September 30, 2016
, the Company recorded income tax expense of
$24.9 million
on income before income taxes of
$57.9 million
, resulting in an effective tax rate for the
nine
months ended
September 30, 2016
of approximately
43.0
%. The difference between the effective tax rate and the federal statutory rate of
35.0%
for the nine months ended September 30, 2016, primarily relates to state and local income taxes, an increase in the valuation allowance with respect to state net operating losses, the tax effect of certain statutory non-deductible items, enacted changes to state and local tax laws, the tax effect of changes in uncertain tax positions, and differences between the amounts estimated in the tax provision and the actual amounts in the tax return.
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 740,
Income Taxes
(“ASC 740”). As of
September 30, 2017
, the Company continues to maintain a partial valuation allowance on certain state net operating loss carryforwards which the Company does not believe will be able to meet the more likely than not recognition standard for recovery. 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.
As discussed in Note 1 (Liquidity and Going Concern Considerations), the accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company continues to believe that the remaining deferred tax assets are more likely than not to be realized. The Company is currently evaluating various debt restructuring alternatives which, if undertaken, could have a significant impact on the Company’s income taxes, including the realization of deferred tax assets. At this time, the Company believes it is more likely than not that it will recover its deferred tax assets, with the exception of certain state net operating loss carryforwards, through a combination of existing taxable temporary differences and future taxable income. In the event of a restructuring transaction, the Company believes that these deferred tax assets would likely be utilized to offset operating income or cancellation of debt income. If however, the Company is not able to generate sufficient future income during the attribute carryforward period or expectations around future events or earnings change, these deferred tax assets may require a valuation allowance.
10. Commitments and Contingencies
Future Commitments
The radio broadcast industry’s principal ratings service is Nielsen Audio ("Nielsen"), which publishes surveys for domestic radio markets. Certain of the Company’s subsidiaries have agreements with Nielsen under which they receive programming ratings information. The remaining aggregate obligation under the agreements with Nielsen is approximately
$13.7 million
, as of
September 30, 2017
, 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, based upon a formula set forth in the contract.
The Company is committed under various contractual agreements to pay for broadcast rights that include sports and news services and to pay for talent, executives, research, weather information and other services.
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
September 30, 2017
, the Company believes that it will meet all such material minimum obligations.
On January 3, 2014 (the "Commencement Date”), Merlin Media, LLC (“Merlin”) and the Company entered into an agreement under which the Company is responsible for operating
two
FM radio stations in Chicago, Illinois, for monthly fees payable to Merlin of approximately
$0.3 million
,
$0.4 million
,
$0.5 million
and
$0.6 million
in the first, second, third and fourth years following the Commencement Date, respectively, in exchange for the Company retaining the operating profits from these radio stations.
The Company and Merlin entered into a separate agreement pursuant to which the Company has the right to purchase these
two
FM radio stations until October 5, 2017 for an amount in cash equal to the greater of (i)
$70.0 million
minus the aggregate amount of monthly fees paid by the Company on or prior to the earlier of the closing date or the date that is
four
years after the Commencement Date; or (ii)
$50.0 million
. Conversely, Merlin has the right to require the Company to purchase these
two
FM radio stations at any time during a
ten
business day period commencing October 6, 2017 for
$71.0 million
, minus the aggregate amount of monthly fees paid by the Company on or prior to the earlier of the closing date and January 3, 2018.
On October 6, 2017, Merlin notified the Company that it was exercising the right to require the Company to acquire the stations.
The Company determined through its review of the requirements of ASC Topic 810, Consolidation ("ASC 810") that the stations are a variable interest entity (“VIE”) for which it is not the primary beneficiary, therefore consolidation is not required.
On April 1, 2014, the Company initiated an exit plan for an office lease as part of a restructuring in connection with the acquisition of Westwood One (the "Exit Plan"), which included charges related to terminated contract costs. As of
September 30, 2017
, liabilities related to the Exit Plan of
$0.2 million
were included in accounts payable and accrued expenses and
$1.0 million
of other liabilities in the unaudited condensed consolidated balance sheet. The Company does not anticipate any additional meaningful future charges in connection with the Exit Plan other than those for which the Company has already accrued.
Legal Proceedings
On March 1, 2011, the Company and certain of our subsidiaries were named as defendants along with other radio companies, including Beasley Broadcast Group, Inc., CBS Radio, Inc., Entercom Communications, Greater Media, Inc. and Townsquare Media, LLC in a patent infringement suit. The case, Mission Abstract Data L.L.C., d/b/a Digimedia ("Plaintiff") v. Beasley Broadcast Group, Inc., et. al., Civil Action Case No: 1:11-mc-00176-LPS, U.S. District Court for the District of Delaware, alleges that the defendants have infringed on two of plaintiff’s patents entitled “Selection and Retrieval of Music from a Digital Database.” The Complaint seeks unspecified damages. The Court stayed the case on November 14, 2011 pending reexamination of the patents-in-suit before the U.S. Patent Office. On June 6, 2012, Plaintiff filed a motion to lift the stay. On March 25, 2013, the Court entered an order denying Plaintiff’s motion to lift the stay. However, the Court ordered that “the stay shall be lifted upon the issuance of the Notice of Intent to Issue Reexamination Certifications (‘NIRC’)” for the two patents-in-suit. By operation of the Court’s Order, the stay was lifted on July 8, 2013, when the final NIRC was issued for the two patents-in-suit. On July 25, 2013, counsel for Defendants invited Plaintiff to confer to discuss the viability of Plaintiff maintaining the suit in light of the result of the reexamination proceedings or to discuss a case schedule. Plaintiff did not respond substantively to Defendants’ invitation. Plaintiff has filed no further papers with the Court to move the proceeding forward. Should Plaintiff attempt to pursue the case in the future, and assuming the Court now allows the Plaintiff to pursue the case, the Company intends to defend itself vigorously. The Company is not yet able to determine what effect the lawsuit will have, if any, on its financial position, results of operations or cash flows.
In August 2015, the Company was named as a defendant in
two
separate putative class action lawsuits relating to its use and public performance of certain sound recordings fixed prior to February 15, 1972 (the "Pre-1972 Recordings"). The first suit, ABS Entertainment, Inc., et. al. v, Cumulus Media Inc., was filed in the United States District Court for the Central District of California and alleged, among other things, copyright infringement under California state law, common law conversion, misappropriation and unfair business practices. On December 11, 2015, this suit was dismissed without prejudice. The second suit, ABS Entertainment, Inc., v. Cumulus Media Inc., was filed in the United States District Court for the Southern District of New York and claimed, among other things, common law copyright infringement and unfair competition. The New York lawsuit was stayed pending an appeal before the Second Circuit involving unrelated third parties over whether the owner of a Pre-1972 Recording holds an exclusive right to publicly perform that recording under New York common law. On December 20, 2016, the New York Court of Appeals held that New York common law does not recognize a right of public performance for owners of pre-1972 Recordings. As a result of that case (to which Cumulus Media, Inc., was not a party) the New York case against Cumulus Media, Inc., was voluntarily dismissed by the plaintiffs on April 3, 2017. The question of whether public performance rights exist for Pre-1972 recordings under state laws is still being litigated in the Ninth and Eleventh Circuits as a result of cases filed in California and Florida. Cumulus is not a party to those cases, and the Company is not yet able to determine what effect those proceedings will have, if any, on its financial position, results of operations or cash flows.
The Company currently is, and expects that from time to time in the future it will be, party to, or a defendant in, various other 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 such known claim or lawsuit will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
11. Supplemental Condensed Consolidated Financial Information
At
September 30, 2017
, Cumulus (the "Parent Guarantor") and certain of its
100%
owned subsidiaries (such subsidiaries, the “Subsidiary Guarantors”) provided guarantees of the obligations of Cumulus Holdings (the "Subsidiary Issuer") 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 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”).
Investments in consolidated subsidiaries are held primarily by the Parent Guarantor in the net assets of its subsidiaries and have been presented using the equity method of accounting. The “Eliminations” entries in the following tables primarily eliminate investments in subsidiaries and intercompany balances and transactions. The columnar presentations in the following tables are not consistent with the Company’s business groups; accordingly, this basis of presentation is not intended to present the Company’s financial condition, results of operations or cash flows on a consolidated basis.
Revision to Prior Period Financial Statements
During the first quarter of 2017, the Company determined that it did not properly classify the investment in consolidated subsidiaries balance residing at the Parent Guarantor as a liability at December 31, 2016. The Company should have presented the investment in consolidated subsidiary balance as a liability as the balance was negative at December 31, 2016. In the following disclosure, a separate line item entitled “Accumulated losses in consolidated subsidiaries” is presented in the Condensed Consolidated Balance Sheet to correct this misclassification. This presentation misclassification was not material to the previously issued financial statements.
In accordance with 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
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, 2016.
The following tables present (i) unaudited condensed consolidated statements of operations for the
three and nine
months ended
September 30, 2017
and
2016
, (ii) unaudited condensed consolidated balance sheets as of
September 30, 2017
and
December 31, 2016
, and (iii) unaudited condensed consolidated statements of cash flows for the
nine
months ended
September 30, 2017
and
2016
, of each of the Parent Guarantor, Cumulus Holdings, the Subsidiary Guarantors, and the Subsidiary Non-guarantors.
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2017
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulus
Media Inc.
(Parent
Guarantor)
|
|
Cumulus
Media
Holdings Inc.
(Subsidiary
Issuer)
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-guarantors
|
|
Eliminations
|
|
Total
Consolidated
|
Net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
287,240
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
287,240
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Content costs
|
—
|
|
|
—
|
|
|
96,321
|
|
|
—
|
|
|
—
|
|
|
96,321
|
|
Selling, general and administrative expenses
|
—
|
|
|
—
|
|
|
118,758
|
|
|
535
|
|
|
—
|
|
|
119,293
|
|
Depreciation and amortization
|
—
|
|
|
298
|
|
|
14,910
|
|
|
—
|
|
|
—
|
|
|
15,208
|
|
Local marketing agreement fees
|
—
|
|
|
—
|
|
|
2,717
|
|
|
—
|
|
|
—
|
|
|
2,717
|
|
Corporate expenses (including stock-based compensation expense of $354)
|
—
|
|
|
10,853
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,853
|
|
Gain on sale of assets or stations
|
—
|
|
|
—
|
|
|
(83
|
)
|
|
—
|
|
|
—
|
|
|
(83
|
)
|
Total operating expenses
|
—
|
|
|
11,151
|
|
|
232,623
|
|
|
535
|
|
|
—
|
|
|
244,309
|
|
Operating (loss) income
|
—
|
|
|
(11,151
|
)
|
|
54,617
|
|
|
(535
|
)
|
|
—
|
|
|
42,931
|
|
Non-operating (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
(2,184
|
)
|
|
(33,089
|
)
|
|
34
|
|
|
(62
|
)
|
|
—
|
|
|
(35,301
|
)
|
Loss on early extinguishment of debt
|
—
|
|
|
(1,063
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,063
|
)
|
Other expense, net
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
Total non-operating expense, net
|
(2,184
|
)
|
|
(34,152
|
)
|
|
(2
|
)
|
|
(62
|
)
|
|
—
|
|
|
(36,400
|
)
|
(Loss) income before income taxes
|
(2,184
|
)
|
|
(45,303
|
)
|
|
54,615
|
|
|
(597
|
)
|
|
—
|
|
|
6,531
|
|
Income tax (expense) benefit
|
8,782
|
|
|
176,495
|
|
|
(193,046
|
)
|
|
2,512
|
|
|
—
|
|
|
(5,257
|
)
|
Earnings (loss) from consolidated subsidiaries
|
(5,324
|
)
|
|
(136,516
|
)
|
|
1,915
|
|
|
—
|
|
|
139,925
|
|
|
—
|
|
Net income (loss)
|
$
|
1,274
|
|
|
$
|
(5,324
|
)
|
|
$
|
(136,516
|
)
|
|
$
|
1,915
|
|
|
$
|
139,925
|
|
|
$
|
1,274
|
|
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2017
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulus
Media Inc.
(Parent
Guarantor)
|
|
Cumulus
Media
Holdings Inc.
(Subsidiary
Issuer)
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-guarantors
|
|
Eliminations
|
|
Total
Consolidated
|
Net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
841,801
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
841,801
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Content costs
|
—
|
|
|
—
|
|
|
291,390
|
|
|
—
|
|
|
—
|
|
|
291,390
|
|
Selling, general and administrative expenses
|
—
|
|
|
—
|
|
|
352,465
|
|
|
1,724
|
|
|
—
|
|
|
354,189
|
|
Depreciation and amortization
|
—
|
|
|
902
|
|
|
46,708
|
|
|
—
|
|
|
—
|
|
|
47,610
|
|
Local marketing agreement fees
|
—
|
|
|
—
|
|
|
8,137
|
|
|
—
|
|
|
—
|
|
|
8,137
|
|
Corporate expenses (including stock-based compensation expense of $1,422)
|
—
|
|
|
32,281
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,281
|
|
Gain on sale of assets or stations
|
—
|
|
|
—
|
|
|
(2,585
|
)
|
|
—
|
|
|
—
|
|
|
(2,585
|
)
|
Total operating expenses
|
—
|
|
|
33,183
|
|
|
696,115
|
|
|
1,724
|
|
|
—
|
|
|
731,022
|
|
Operating (loss) income
|
—
|
|
|
(33,183
|
)
|
|
145,686
|
|
|
(1,724
|
)
|
|
—
|
|
|
110,779
|
|
Non-operating (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
(6,551
|
)
|
|
(97,020
|
)
|
|
106
|
|
|
(171
|
)
|
|
—
|
|
|
(103,636
|
)
|
Loss on early extinguishment of debt
|
—
|
|
|
(1,063
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,063
|
)
|
Other expense, net
|
—
|
|
|
—
|
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
Total non-operating (expense) income, net
|
(6,551
|
)
|
|
(98,083
|
)
|
|
42
|
|
|
(171
|
)
|
|
—
|
|
|
(104,763
|
)
|
(Loss) income before income taxes
|
(6,551
|
)
|
|
(131,266
|
)
|
|
145,728
|
|
|
(1,895
|
)
|
|
—
|
|
|
6,016
|
|
Income tax (expense) benefit
|
7,040
|
|
|
141,059
|
|
|
(156,600
|
)
|
|
2,036
|
|
|
|
|
(6,465
|
)
|
Earnings (loss) from consolidated subsidiaries
|
(938
|
)
|
|
(10,731
|
)
|
|
141
|
|
|
—
|
|
|
11,528
|
|
|
—
|
|
Net (loss) income
|
$
|
(449
|
)
|
|
$
|
(938
|
)
|
|
$
|
(10,731
|
)
|
|
$
|
141
|
|
|
$
|
11,528
|
|
|
$
|
(449
|
)
|
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2016
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulus
Media Inc.
(Parent
Guarantor)
|
|
Cumulus
Media
Holdings
Inc.
(Subsidiary
Issuer)
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-guarantors
|
|
Eliminations
|
|
Total
Consolidated
|
Net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
286,136
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
286,136
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Content costs
|
—
|
|
|
—
|
|
|
115,348
|
|
|
—
|
|
|
—
|
|
|
115,348
|
|
Selling, general and administrative expenses
|
—
|
|
|
—
|
|
|
116,706
|
|
|
681
|
|
|
—
|
|
|
117,387
|
|
Depreciation and amortization
|
—
|
|
|
400
|
|
|
21,557
|
|
|
—
|
|
|
—
|
|
|
21,957
|
|
Local marketing agreement fees
|
—
|
|
|
—
|
|
|
2,481
|
|
|
—
|
|
|
—
|
|
|
2,481
|
|
Corporate expenses (including stock-based compensation expense of $735)
|
—
|
|
|
9,960
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,960
|
|
Gain on sale of assets or stations
|
—
|
|
|
—
|
|
|
(94,014
|
)
|
|
—
|
|
|
—
|
|
|
(94,014
|
)
|
Total operating expenses
|
—
|
|
|
10,360
|
|
|
162,078
|
|
|
681
|
|
|
—
|
|
|
173,119
|
|
Operating (loss) income
|
—
|
|
|
(10,360
|
)
|
|
124,058
|
|
|
(681
|
)
|
|
—
|
|
|
113,017
|
|
Non-operating (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
(2,178
|
)
|
|
(32,704
|
)
|
|
139
|
|
|
(47
|
)
|
|
—
|
|
|
(34,790
|
)
|
Other income, net
|
—
|
|
|
—
|
|
|
882
|
|
|
—
|
|
|
—
|
|
|
882
|
|
Total non-operating (expense) income, net
|
(2,178
|
)
|
|
(32,704
|
)
|
|
1,021
|
|
|
(47
|
)
|
|
—
|
|
|
(33,908
|
)
|
(Loss) income before income taxes
|
(2,178
|
)
|
|
(43,064
|
)
|
|
125,079
|
|
|
(728
|
)
|
|
—
|
|
|
79,109
|
|
Income tax benefit (expense)
|
937
|
|
|
19,816
|
|
|
(53,834
|
)
|
|
293
|
|
|
—
|
|
|
(32,788
|
)
|
Earnings (loss) from consolidated subsidiaries
|
47,562
|
|
|
70,810
|
|
|
(435
|
)
|
|
—
|
|
|
(117,937
|
)
|
|
—
|
|
Net income (loss)
|
$
|
46,321
|
|
|
$
|
47,562
|
|
|
$
|
70,810
|
|
|
$
|
(435
|
)
|
|
$
|
(117,937
|
)
|
|
$
|
46,321
|
|
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2016
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulus
Media Inc.
(Parent
Guarantor)
|
|
Cumulus
Media
Holdings
Inc.
(Subsidiary
Issuer)
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-guarantors
|
|
Eliminations
|
|
Total
Consolidated
|
Net revenue
|
$
|
—
|
|
|
$
|
165
|
|
|
$
|
841,694
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
841,859
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Content costs
|
—
|
|
|
—
|
|
|
312,526
|
|
|
—
|
|
|
—
|
|
|
312,526
|
|
Selling, general and administrative expenses
|
—
|
|
|
—
|
|
|
350,719
|
|
|
1,755
|
|
|
—
|
|
|
352,474
|
|
Depreciation and amortization
|
—
|
|
|
1,219
|
|
|
66,804
|
|
|
—
|
|
|
—
|
|
|
68,023
|
|
Local marketing agreement fees
|
—
|
|
|
—
|
|
|
10,351
|
|
|
—
|
|
|
—
|
|
|
10,351
|
|
Corporate expenses (including stock-based compensation expense of $2,403)
|
—
|
|
|
34,028
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,028
|
|
Gain on sale of assets or stations
|
—
|
|
|
—
|
|
|
(97,155
|
)
|
|
—
|
|
|
—
|
|
|
(97,155
|
)
|
Impairment on intangible assets and goodwill
|
—
|
|
|
—
|
|
|
1,816
|
|
|
—
|
|
|
—
|
|
|
1,816
|
|
Total operating expenses
|
—
|
|
|
35,247
|
|
|
645,061
|
|
|
1,755
|
|
|
—
|
|
|
682,063
|
|
Operating (loss) income
|
—
|
|
|
(35,082
|
)
|
|
196,633
|
|
|
(1,755
|
)
|
|
—
|
|
|
159,796
|
|
Non-operating (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
(6,533
|
)
|
|
(97,221
|
)
|
|
364
|
|
|
(142
|
)
|
|
—
|
|
|
(103,532
|
)
|
Other income, net
|
—
|
|
|
—
|
|
|
1,598
|
|
|
—
|
|
|
—
|
|
|
1,598
|
|
Total non-operating (expense) income, net
|
(6,533
|
)
|
|
(97,221
|
)
|
|
1,962
|
|
|
(142
|
)
|
|
—
|
|
|
(101,934
|
)
|
(Loss) income before income taxes
|
(6,533
|
)
|
|
(132,303
|
)
|
|
198,595
|
|
|
(1,897
|
)
|
|
—
|
|
|
57,862
|
|
Income tax benefit (expense)
|
2,613
|
|
|
51,219
|
|
|
(79,438
|
)
|
|
702
|
|
|
—
|
|
|
(24,904
|
)
|
Earnings (loss) from consolidated subsidiaries
|
36,878
|
|
|
117,962
|
|
|
(1,195
|
)
|
|
—
|
|
|
(153,645
|
)
|
|
—
|
|
Net income (loss)
|
$
|
32,958
|
|
|
$
|
36,878
|
|
|
$
|
117,962
|
|
|
$
|
(1,195
|
)
|
|
$
|
(153,645
|
)
|
|
$
|
32,958
|
|
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2017
(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
|
$
|
—
|
|
|
$
|
69,431
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,431
|
|
Restricted cash
|
—
|
|
|
7,680
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,680
|
|
Accounts receivable, less allowance for doubtful accounts of $5,922
|
—
|
|
|
—
|
|
|
—
|
|
|
231,630
|
|
|
—
|
|
|
231,630
|
|
Trade receivable
|
—
|
|
|
—
|
|
|
4,679
|
|
|
—
|
|
|
—
|
|
|
4,679
|
|
Asset held for sale
|
—
|
|
|
—
|
|
|
30,150
|
|
|
—
|
|
|
—
|
|
|
30,150
|
|
Prepaid expenses and other current assets
|
—
|
|
|
33,222
|
|
|
24,918
|
|
|
—
|
|
|
—
|
|
|
58,140
|
|
Total current assets
|
—
|
|
|
110,333
|
|
|
59,747
|
|
|
231,630
|
|
|
—
|
|
|
401,710
|
|
Property and equipment, net
|
—
|
|
|
11,621
|
|
|
145,886
|
|
|
—
|
|
|
—
|
|
|
157,507
|
|
Broadcast licenses
|
—
|
|
|
—
|
|
|
—
|
|
|
1,539,718
|
|
|
—
|
|
|
1,539,718
|
|
Other intangible assets, net
|
—
|
|
|
—
|
|
|
90,369
|
|
|
—
|
|
|
—
|
|
|
90,369
|
|
Goodwill
|
—
|
|
|
—
|
|
|
135,214
|
|
|
—
|
|
|
—
|
|
|
135,214
|
|
Investment in consolidated subsidiaries
|
—
|
|
|
3,466,078
|
|
|
1,002,755
|
|
|
—
|
|
|
(4,468,833
|
)
|
|
—
|
|
Intercompany receivables
|
—
|
|
|
110,068
|
|
|
1,982,500
|
|
|
—
|
|
|
(2,092,568
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
16,706
|
|
|
143,886
|
|
|
288
|
|
|
(143,024
|
)
|
|
17,856
|
|
Total assets
|
$
|
—
|
|
|
$
|
3,714,806
|
|
|
$
|
3,560,357
|
|
|
$
|
1,771,636
|
|
|
$
|
(6,704,425
|
)
|
|
$
|
2,342,374
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
—
|
|
|
$
|
30,190
|
|
|
$
|
66,336
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,526
|
|
Trade payable
|
—
|
|
|
—
|
|
|
3,640
|
|
|
—
|
|
|
—
|
|
|
3,640
|
|
Total current liabilities
|
—
|
|
|
30,190
|
|
|
69,976
|
|
|
—
|
|
|
—
|
|
|
100,166
|
|
Long-term debt, excluding 7.75% Senior Notes, net of debt issuance cost/discounts of $24,143
|
—
|
|
|
1,705,560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,705,560
|
|
7.75% Senior Notes, net of debt issuance costs of $4,335
|
—
|
|
|
605,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
605,665
|
|
Other liabilities
|
—
|
|
|
2,932
|
|
|
24,303
|
|
|
—
|
|
|
—
|
|
|
27,235
|
|
Intercompany payables
|
109,780
|
|
|
1,750,870
|
|
|
—
|
|
|
231,918
|
|
|
(2,092,568
|
)
|
|
—
|
|
Accumulated losses in consolidated subsidiaries
|
380,411
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(380,411
|
)
|
|
—
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
536,963
|
|
|
(143,024
|
)
|
|
393,939
|
|
Total liabilities
|
490,191
|
|
|
4,095,217
|
|
|
94,279
|
|
|
768,881
|
|
|
(2,616,003
|
)
|
|
2,832,565
|
|
Stockholders’ (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.01 per share; 93,750,000 shares authorized; 32,031,952 shares issued and 29,225,765 shares outstanding
|
320
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320
|
|
Class C common stock, par value $0.01 per share; 80,609 shares authorized, issued and outstanding
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Treasury stock, at cost, 2,806,187 shares
|
(229,310
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(229,310
|
)
|
Additional paid-in-capital
|
1,626,237
|
|
|
284,143
|
|
|
4,318,874
|
|
|
1,980,676
|
|
|
(6,583,693
|
)
|
|
1,626,237
|
|
Accumulated (deficit) equity
|
(1,887,439
|
)
|
|
(664,554
|
)
|
|
(852,796
|
)
|
|
(977,921
|
)
|
|
2,495,271
|
|
|
(1,887,439
|
)
|
Total stockholders’ (deficit) equity
|
(490,191
|
)
|
|
(380,411
|
)
|
|
3,466,078
|
|
|
1,002,755
|
|
|
(4,088,422
|
)
|
|
(490,191
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
$
|
—
|
|
|
$
|
3,714,806
|
|
|
$
|
3,560,357
|
|
|
$
|
1,771,636
|
|
|
$
|
(6,704,425
|
)
|
|
$
|
2,342,374
|
|
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2016
(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
|
$
|
—
|
|
|
$
|
131,259
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
131,259
|
|
Restricted cash
|
—
|
|
|
8,025
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,025
|
|
Accounts receivable, less allowance for doubtful accounts of $4,691
|
—
|
|
|
—
|
|
|
—
|
|
|
231,585
|
|
|
—
|
|
|
231,585
|
|
Trade receivable
|
—
|
|
|
—
|
|
|
4,985
|
|
|
—
|
|
|
—
|
|
|
4,985
|
|
Asset held for sale
|
—
|
|
|
—
|
|
|
30,150
|
|
|
—
|
|
|
—
|
|
|
30,150
|
|
Prepaid expenses and other current assets
|
—
|
|
|
17,321
|
|
|
16,602
|
|
|
—
|
|
|
—
|
|
|
33,923
|
|
Total current assets
|
—
|
|
|
156,605
|
|
|
51,737
|
|
|
231,585
|
|
|
—
|
|
|
439,927
|
|
Property and equipment, net
|
—
|
|
|
4,431
|
|
|
157,632
|
|
|
—
|
|
|
—
|
|
|
162,063
|
|
Broadcast licenses
|
—
|
|
|
—
|
|
|
—
|
|
|
1,540,183
|
|
|
—
|
|
|
1,540,183
|
|
Other intangible assets, net
|
—
|
|
|
—
|
|
|
116,499
|
|
|
—
|
|
|
—
|
|
|
116,499
|
|
Goodwill
|
—
|
|
|
—
|
|
|
135,214
|
|
|
—
|
|
|
—
|
|
|
135,214
|
|
Investment in consolidated subsidiaries
|
—
|
|
|
3,348,992
|
|
|
1,012,947
|
|
|
—
|
|
|
(4,361,939
|
)
|
|
—
|
|
Intercompany receivables
|
—
|
|
|
103,593
|
|
|
1,848,263
|
|
|
—
|
|
|
(1,951,856
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
21,631
|
|
|
135,996
|
|
|
364
|
|
|
(139,186
|
)
|
|
18,805
|
|
Total assets
|
$
|
—
|
|
|
$
|
3,635,252
|
|
|
$
|
3,458,288
|
|
|
$
|
1,772,132
|
|
|
$
|
(6,452,981
|
)
|
|
$
|
2,412,691
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
—
|
|
|
$
|
19,994
|
|
|
$
|
76,247
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,241
|
|
Trade payable
|
—
|
|
|
—
|
|
|
4,550
|
|
|
—
|
|
|
—
|
|
|
4,550
|
|
Total current liabilities
|
—
|
|
|
19,994
|
|
|
80,797
|
|
|
—
|
|
|
—
|
|
|
100,791
|
|
Long-term debt, excluding 7.75% Senior Notes, net of debt issuance costs/discounts of $29,909
|
—
|
|
|
1,780,357
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,780,357
|
|
7.75% Senior Notes, net of debt issuance costs of $6,200
|
—
|
|
|
603,800
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
603,800
|
|
Other liabilities
|
—
|
|
|
2,932
|
|
|
28,499
|
|
|
—
|
|
|
—
|
|
|
31,431
|
|
Intercompany payables
|
103,229
|
|
|
1,616,678
|
|
|
—
|
|
|
231,949
|
|
|
(1,951,856
|
)
|
|
—
|
|
Accumulated losses in consolidated subsidiaries
|
388,509
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(388,509
|
)
|
|
—
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
527,236
|
|
|
(139,186
|
)
|
|
388,050
|
|
Total liabilities
|
491,738
|
|
|
4,023,761
|
|
|
109,296
|
|
|
759,185
|
|
|
(2,479,551
|
)
|
|
2,904,429
|
|
Stockholders’ (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.01 per share; 93,750,000 shares authorized; 32,031,952 shares issued and 29,225,765 shares outstanding
|
320
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320
|
|
Class C common stock, par value $0.01 per share; 80,609 shares authorized, issued and outstanding
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Treasury stock, at cost, 2,806,187 shares
|
(229,310
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(229,310
|
)
|
Additional paid-in-capital
|
1,624,815
|
|
|
275,107
|
|
|
4,191,057
|
|
|
1,991,009
|
|
|
(6,457,173
|
)
|
|
1,624,815
|
|
Accumulated (deficit) equity
|
(1,887,564
|
)
|
|
(663,616
|
)
|
|
(842,065
|
)
|
|
(978,062
|
)
|
|
2,483,743
|
|
|
(1,887,564
|
)
|
Total stockholders’ (deficit) equity
|
(491,738
|
)
|
|
(388,509
|
)
|
|
3,348,992
|
|
|
1,012,947
|
|
|
(3,973,430
|
)
|
|
(491,738
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
$
|
—
|
|
|
$
|
3,635,252
|
|
|
$
|
3,458,288
|
|
|
$
|
1,772,132
|
|
|
$
|
(6,452,981
|
)
|
|
$
|
2,412,691
|
|
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2017
(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
|
$
|
(449
|
)
|
|
$
|
(938
|
)
|
|
$
|
(10,731
|
)
|
|
$
|
141
|
|
|
$
|
11,528
|
|
|
$
|
(449
|
)
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
—
|
|
|
902
|
|
|
46,708
|
|
|
—
|
|
|
—
|
|
|
47,610
|
|
Amortization of debt issuance costs/discounts
|
—
|
|
|
7,490
|
|
|
—
|
|
|
171
|
|
|
—
|
|
|
7,661
|
|
Provision for doubtful accounts
|
—
|
|
|
—
|
|
|
4,770
|
|
|
—
|
|
|
—
|
|
|
4,770
|
|
Gain on sale of assets or stations
|
—
|
|
|
—
|
|
|
(2,585
|
)
|
|
—
|
|
|
—
|
|
|
(2,585
|
)
|
Deferred income taxes
|
(7,040
|
)
|
|
(141,059
|
)
|
|
156,598
|
|
|
(2,036
|
)
|
|
—
|
|
|
6,463
|
|
Stock-based compensation expense
|
—
|
|
|
1,422
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,422
|
|
Loss on early extinguishment of debt
|
—
|
|
|
1,063
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,063
|
|
(Earnings) loss from consolidated subsidiaries
|
938
|
|
|
10,731
|
|
|
(141
|
)
|
|
—
|
|
|
(11,528
|
)
|
|
—
|
|
Changes in assets and liabilities
|
2,171
|
|
|
198,131
|
|
|
(233,856
|
)
|
|
1,724
|
|
|
—
|
|
|
(31,830
|
)
|
Net cash (used in) provided by operating activities
|
(4,380
|
)
|
|
77,742
|
|
|
(39,237
|
)
|
|
—
|
|
|
—
|
|
|
34,125
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets or stations
|
—
|
|
|
—
|
|
|
6,090
|
|
|
—
|
|
|
—
|
|
|
6,090
|
|
Restricted cash
|
—
|
|
|
345
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
345
|
|
Capital expenditures
|
—
|
|
|
(8,092
|
)
|
|
(12,553
|
)
|
|
—
|
|
|
—
|
|
|
(20,645
|
)
|
Net cash used in investing activities
|
—
|
|
|
(7,747
|
)
|
|
(6,463
|
)
|
|
—
|
|
|
—
|
|
|
(14,210
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany transactions, net
|
4,380
|
|
|
(50,080
|
)
|
|
45,700
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repayments of borrowings under term loans and revolving credit facilities
|
—
|
|
|
(81,652
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(81,652
|
)
|
Deferred financing costs
|
—
|
|
|
(91
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(91
|
)
|
Net cash provided by (used in) financing activities
|
4,380
|
|
|
(131,823
|
)
|
|
45,700
|
|
|
—
|
|
|
—
|
|
|
(81,743
|
)
|
Decrease in cash and cash equivalents
|
—
|
|
|
(61,828
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(61,828
|
)
|
Cash and cash equivalents at beginning of period
|
—
|
|
|
131,259
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
131,259
|
|
Cash and cash equivalents at end of period
|
$
|
—
|
|
|
$
|
69,431
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,431
|
|
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2016
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulus Media
Inc.
(Parent
Guarantor)
|
|
Cumulus Media
Holdings Inc.
(Subsidiary
Issuer)
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-guarantors
|
|
Eliminations
|
|
Total
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
32,958
|
|
|
$
|
36,878
|
|
|
$
|
117,962
|
|
|
$
|
(1,195
|
)
|
|
$
|
(153,645
|
)
|
|
$
|
32,958
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
—
|
|
|
1,219
|
|
|
66,804
|
|
|
—
|
|
|
—
|
|
|
68,023
|
|
Amortization of debt issuance costs/discount
|
—
|
|
|
7,183
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
7,325
|
|
Provision for doubtful accounts
|
—
|
|
|
—
|
|
|
1,188
|
|
|
—
|
|
|
—
|
|
|
1,188
|
|
Gain on sale of assets or stations
|
—
|
|
|
—
|
|
|
(97,155
|
)
|
|
—
|
|
|
—
|
|
|
(97,155
|
)
|
Impairment of intangible assets and goodwill
|
—
|
|
|
—
|
|
|
1,816
|
|
|
—
|
|
|
—
|
|
|
1,816
|
|
Deferred income taxes
|
(2,613
|
)
|
|
(51,219
|
)
|
|
79,620
|
|
|
(702
|
)
|
|
—
|
|
|
25,086
|
|
Stock-based compensation expense
|
—
|
|
|
2,403
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,403
|
|
(Loss) earnings from consolidated subsidiaries
|
(36,878
|
)
|
|
(117,962
|
)
|
|
1,195
|
|
|
—
|
|
|
153,645
|
|
|
—
|
|
Changes in assets and liabilities
|
—
|
|
|
295,419
|
|
|
(306,539
|
)
|
|
1,755
|
|
|
—
|
|
|
(9,365
|
)
|
Net cash (used in) provided by operating activities
|
(6,533
|
)
|
|
173,921
|
|
|
(135,109
|
)
|
|
—
|
|
|
—
|
|
|
32,279
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets or stations
|
—
|
|
|
—
|
|
|
106,935
|
|
|
—
|
|
|
—
|
|
|
106,935
|
|
Restricted cash
|
—
|
|
|
3,431
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,431
|
|
Capital expenditures
|
—
|
|
|
(868
|
)
|
|
(15,836
|
)
|
|
—
|
|
|
—
|
|
|
(16,704
|
)
|
Net cash provided by investing activities
|
—
|
|
|
2,563
|
|
|
91,099
|
|
|
—
|
|
|
—
|
|
|
93,662
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany transactions, net
|
6,530
|
|
|
(50,540
|
)
|
|
44,010
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Proceeds from exercise of warrants
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Net cash provided by (used in) financing activities
|
6,533
|
|
|
(50,540
|
)
|
|
44,010
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Increase in cash and cash equivalents
|
—
|
|
|
125,944
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125,944
|
|
Cash and cash equivalents at beginning of period
|
—
|
|
|
31,657
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,657
|
|
Cash and cash equivalents at end of period
|
$
|
—
|
|
|
$
|
157,601
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
157,601
|
|
12. Segment Data
The Company operates in
two
reportable segments for which there is discrete financial information available and whose operating results are reviewed by the chief operating decision maker. Radio Station Group revenue is derived primarily from the sale of broadcasting time to local, regional, and national advertisers. Westwood One revenue is generated primarily through network advertising. Corporate includes overall executive, administrative and support functions for both of the Company's reportable segments, including programming, finance, legal, human resources and information technology functions.
The Company presents segment adjusted EBITDA ("Adjusted EBITDA") as this is the financial metric by which management and the chief operating decision maker allocate resources of the Company and analyze the performance of the Company’s reportable segments. Management also uses this measure to determine the contribution of the Company's core operations to the funding of its corporate resources utilized to manage operations and non-operating expenses including debt service and acquisitions. In addition, segment Adjusted EBITDA, excluding the impact of local marketing agreement fees, is a key metric for purposes of calculating and determining compliance with certain covenants contained in the Company's Credit Agreement.
The Company excludes from Adjusted EBITDA items not related to core operations and those that are non-cash including: depreciation, amortization, stock-based compensation expense, gain or loss on the exchange or sale of any assets or stations, early extinguishment of debt, local marketing agreement fees, expenses relating to acquisitions and restructuring costs and non-cash impairments of assets.
Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss), 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. In addition, Adjusted EBITDA may be defined or calculated differently by other companies, and comparability may be limited.
The Company’s financial data by segment is presented in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
Radio Station Group
|
|
Westwood One
|
|
Corporate and Other
|
|
Consolidated
|
Net revenue
|
|
$
|
202,852
|
|
|
$
|
83,778
|
|
|
$
|
610
|
|
|
$
|
287,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
Radio Station Group
|
|
Westwood One
|
|
Corporate and Other
|
|
Consolidated
|
Net revenue
|
|
$
|
206,199
|
|
|
$
|
79,413
|
|
|
$
|
524
|
|
|
$
|
286,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
Radio Station Group
|
|
Westwood One
|
|
Corporate and Other
|
|
Consolidated
|
Net revenue
|
|
$
|
585,050
|
|
|
$
|
254,867
|
|
|
$
|
1,884
|
|
|
$
|
841,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
Radio Station Group
|
|
Westwood One
|
|
Corporate and Other
|
|
Consolidated
|
Net revenue
|
|
$
|
592,640
|
|
|
$
|
247,507
|
|
|
$
|
1,712
|
|
|
$
|
841,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Adjusted EBITDA by segment
|
|
|
|
|
|
|
|
Radio Station Group
|
$
|
54,660
|
|
|
$
|
56,237
|
|
|
$
|
153,571
|
|
|
$
|
159,278
|
|
Westwood One
|
17,082
|
|
|
(2,689
|
)
|
|
42,993
|
|
|
17,998
|
|
Segment Adjusted EBITDA
|
71,742
|
|
|
53,548
|
|
|
196,564
|
|
|
177,276
|
|
Adjustments
|
|
|
|
|
|
|
|
Corporate and other expense
|
(9,977
|
)
|
|
(9,664
|
)
|
|
(28,665
|
)
|
|
(28,278
|
)
|
Income tax expense
|
(5,257
|
)
|
|
(32,788
|
)
|
|
(6,465
|
)
|
|
(24,904
|
)
|
Non-operating expense, including net interest expense
|
(35,336
|
)
|
|
(33,908
|
)
|
|
(103,700
|
)
|
|
(101,934
|
)
|
Local marketing agreement fees
|
(2,717
|
)
|
|
(2,481
|
)
|
|
(8,137
|
)
|
|
(10,351
|
)
|
Depreciation and amortization
|
(15,208
|
)
|
|
(21,957
|
)
|
|
(47,610
|
)
|
|
(68,023
|
)
|
Stock-based compensation expense
|
(354
|
)
|
|
(735
|
)
|
|
(1,422
|
)
|
|
(2,403
|
)
|
Gain on sale of assets or stations
|
83
|
|
|
94,014
|
|
|
2,585
|
|
|
97,155
|
|
Impairment of intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,816
|
)
|
Loss on early extinguishment of debt
|
(1,063
|
)
|
|
—
|
|
|
(1,063
|
)
|
|
—
|
|
Acquisition-related and restructuring costs
|
(499
|
)
|
|
450
|
|
|
(2,116
|
)
|
|
(3,237
|
)
|
Franchise and state taxes
|
(140
|
)
|
|
(158
|
)
|
|
(420
|
)
|
|
(527
|
)
|
Consolidated net income
|
$
|
1,274
|
|
|
$
|
46,321
|
|
|
$
|
(449
|
)
|
|
$
|
32,958
|
|
13. Subsequent Event
As previously disclosed, the Company, with the assistance of outside advisors, is in private discussions with its lenders and noteholders to proactively restructure its balance sheet and reduce its debt. In connection with the Company’s ongoing discussions with creditors, on October 30, 2017, the Restructuring Committee of the Board of Directors authorized the Company to forgo the scheduled interest payment on the
7.75%
Senior Notes due on November 1, 2017, thereby entering into the applicable
30
-day grace period under the terms of the Indenture. This nonpayment constitutes a “default” under the terms of the Indenture, which matures into an “Event of Default” if such “default” is not cured or waived before the expiration of the
30
-day grace period on December 1, 2017. Upon the occurrence of an Event of Default, the trustee under the Indenture, or the holders of a specified percentage of
7.75%
Senior Notes, may declare all outstanding amounts immediately due and payable. Such an Event of Default would also constitute an event of default under the Credit Agreement, which would give the lenders thereunder the right to declare all amounts outstanding under the Credit Agreement to be immediately due and payable.
In the event we are not able to satisfactorily restructure or refinance our debt obligations, or the lenders under our Senior Credit Agreement, or the trustee or the holders of our
7.75%
Senior Notes, accelerate the amounts due thereunder, we may seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. Any such action could result in a significant or complete loss of value to the holders of our common stock.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In the following Management's Discussion and Analysis, we provide information regarding the following areas:
|
|
|
|
|
|
l
|
General Overview;
|
|
|
|
l
|
Results of Operations; and
|
|
|
|
l
|
Liquidity and Capital Resources.
|
|
|
|
General Overview
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 and our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016. 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. Historical operating results are not necessarily indicative of future operating results. Actual future 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 service our debt and to execute our business strategy, our need to restructure or refinance our debt and the terms on which any such restructuring or refinancing may be completed, including through any court-approved restructuring, our ability to access borrowings under our revolving credit facility, further reductions in revenue from market pressures or otherwise, our ability from time to time to renew one or more of our broadcast licenses, changes in interest rates, changes in the fair value of our investments, the timing of, and our ability to complete any acquisitions or dispositions pending from time to time, costs and synergies resulting from the integration of any completed acquisitions, our ability to effectively manage costs, our ability to drive and manage growth, the popularity of radio as a broadcasting and advertising medium, changing consumer tastes, 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 and cancellation, disruptions or postponements of advertising schedules in response to national or world events, our ability to generate revenues from new sources, including local commerce and technology-based initiatives, the impact of regulatory rules or proceedings that may affect our business from time to time, our ability to successfully appeal the notice of delisting our Class A common stock from the NASDAQ stock market ("NASDAQ"), the future write off of any material portion of the fair value of our FCC broadcast licenses and goodwill, and other risk factors described from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”) and any subsequent filings. 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 and Operating Overview
A leader in the radio broadcasting industry, Cumulus Media combines high-quality local programming with iconic, nationally syndicated media, sports and entertainment brands to deliver premium content choices to the
245 million
people reached each week through its
446
owned-and-operated stations broadcasting in
90
US media markets (including
eight
of the top 10), approximately
8,000
broadcast radio stations affiliated with its Westwood One network and numerous digital channels. Together, the Cumulus/Westwood One platforms make Cumulus Media one of the few media companies that can provide advertisers with national reach and local impact. Cumulus/Westwood One is the exclusive radio broadcast partner to some of the largest brands in sports, entertainment, news and talk, including the NFL, the NCAA, the Masters, the Olympics, the GRAMMYs, the Academy of Country Music Awards, the American Music Awards, the Billboard Music Awards, Westwood One News, and more. Additionally, it is the nation's leading provider of country music and lifestyle content through its NASH brand, which serves country fans nationwide through radio programming, exclusive digital content, and live events. For more information, visit
www.cumulus.com
.
Liquidity Considerations
Historically, our principal needs for funds have been for acquisitions, expenses associated with our station, network advertising 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 have primarily been cash flow from operations and borrowings under credit facilities in existence from time to time. Our cash flow from operations is subject to factors such as fluctuations in preferred advertising media and changes in demand caused by shifts in population, station listenership, demographics, and audience tastes. In addition, our cash flows may be affected if customers are not able to pay, or delay payment of, accounts receivable that are owed to us, which risks may be exacerbated in challenging or otherwise uncertain economic periods. In recent periods, the Company has experienced reductions in revenue and profitability from prior historical periods because of continuing market revenue pressures and cost escalations built into certain contracts. As disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2016, as part of the Company’s annual impairment analysis, the Company reduced its forecasted revenue and profitability. This reduction was based on a number of factors including overall industry trends and the Company’s actual performance in 2016. Management has taken steps to mitigate these risks and reductions through renewed business generation activities and cost containment initiatives, although we can provide no assurances as to the longer-term success of these efforts. In addition, we believe that our national platform and extensive station portfolio representing a broad diversity in format, listener base, geography, and advertiser base helps us maintain a more stable revenue stream by reducing our dependence on any single demographic, region or industry. Future reductions in revenue or profitability are possible and could have a material adverse effect on the Company's results of operations, financial condition or liquidity. From time to time we have evaluated, and expect that we will continue to evaluate, opportunities to obtain additional public or private capital from the divestiture of radio stations or other assets that are not a part of, or do not complement, our strategic operations, as well as the issuance of equity and/or debt securities, in each case subject to market and other conditions in existence at that time. For the nine months ended September 30, 2017, the Company generated $34.1 million in cash from operations.
From time to time we have evaluated, and expect that we will continue to evaluate, opportunities to obtain additional public or private capital from the divestiture of radio stations or other assets that are not a part of, or do not complement, our strategic operations, as well as the issuance of equity and/or debt securities, in each case subject to market and other conditions in existence at that time.
W
e are party to various agreements intended to supplement our cash flows from operations. Our Amended and Restated Credit Agreement, dated as of December 23, 2013 (the "Credit Agreement"), consists of a term loan (the “Term Loan”) maturing in December 2020 and a $200.0 million revolving credit facility (the "Revolving Credit Facility"), with a $30.0 million sublimit for letters of credit maturing in December 2018.
On August 29, 2017, we used proceeds from the sale of certain land an buildings to repay approximately $81.7 million of Term Loan borrowings. At September 30, 2017 and December 31, 2016, the Company had $1.729 billion and $1.810 billion, respectively, outstanding under the Term Loan and no amounts outstanding under the Revolving Credit Facility.
The Company's outstanding $610.0 million of 7.75% senior notes due 2019 (the "7.75% Senior Notes") mature on May 1, 2019. Notwithstanding the stated maturity date of the Term Loan, as a result of a springing maturity provision, if on January 30, 2019, the aggregate principal amount of 7.75% Senior Notes outstanding exceeds $200.0 million, the Term Loan maturity date will be accelerated to January 30, 2019.
In the event amounts are outstanding under the Revolving Credit Facility or any letters of credit are outstanding that have not been collateralized by cash as of the end of each quarter, the Credit Agreement requires compliance with a consolidated first lien leverage ratio covenant. The required ratio at
September 30, 2017
was 4.25 to 1.0, and that ratio periodically decreases until it reaches 4.0 to 1.0 on March 31, 2018. As we currently have no borrowings outstanding under the Revolving Credit Facility, we are not required to comply with that ratio. However, as of
September 30, 2017
, our actual leverage ratio exceeded the required ratio.
We are also party to a five-year, $50.0 million revolving accounts receivable securitization facility entered into on December 6, 2013 (the “Securitization Facility”) with Wells Fargo (as successor to General Electric Capital Corporation), as a lender, swing line lender and administrative agent (together with any other lenders party thereto from time to time, the “Lenders”). Pursuant to a Receivables Sale and Servicing Agreement, dated as of December 6, 2013 (the “Sale Agreement”), certain subsidiaries of the Company sell and/or contribute their existing and future accounts receivable to a special purpose entity and wholly-owned subsidiary of the Company (the “SPV”). The SPV may thereafter make borrowings from the Lenders, which borrowings are secured by those receivables, pursuant to an Amended and Restated Receivables Funding and Administration Agreement, dated as of March 15, 2017.
At
September 30, 2017
, our long-term debt consisted of
$1.729 billion
outstanding under the Term Loan and
$610.0 million
in 7.75% Senior Notes. No amounts were outstanding under the Revolving Credit Facility or the Securitization Facility.
On January 3, 2014 (the "Commencement Date”), Merlin Media, LLC (“Merlin”) and the Company entered into a local marketing agreement. Under this local marketing agreement, the Company is responsible for operating
two
FM radio stations in Chicago, Illinois, for monthly fees payable to Merlin of approximately
$0.3 million
,
$0.4 million
,
$0.5 million
and
$0.6 million
in the first, second, third and fourth years following the Commencement Date, respectively, in exchange for the Company retaining the operating profits from these radio stations.
The Company and Merlin also entered into an agreement pursuant to which the Company had the right to purchase these
two
FM radio stations until October 5, 2017 for an amount in cash equal to the greater of (i)
$70.0 million
minus the aggregate amount of monthly fees paid by the Company on or prior to the earlier of the closing date or the date that is
four
years after the Commencement Date; or (ii)
$50.0 million
. Conversely, Merlin has the right to require the Company to purchase these
two
FM radio stations at any time during a
ten
business day period commencing October 6, 2017 for
$71.0 million
, minus the aggregate amount of monthly fees paid by the Company on or prior to the earlier of the closing date and January 2, 2018.
On October 6, 2017, Merlin notified the Company that it was exercising the right to require the Company to acquire the stations.
In accordance with the requirements of Accounting Standards Update (“ASU”), or ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40), or ASC 205-40, the Company has the responsibility to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations. In its evaluation for this report, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due for 12 months following the date of issuance of this Quarterly Report on Form 10-Q.
As of September 30, 2017, the Company had $69.4 million of cash and cash equivalents and $50.0 million of availability under its Securitization Facility. The Company has generated positive cash flows from operating activities of $34.1 million and $32.3 million for the nine months ended September 30, 2017 and 2016, respectively. The Company expects it will continue to generate positive cash flows from operating activities in the fourth quarter of 2017 and full year 2018. Although the servicing of the Company’s debt obligations requires a substantial amount of the cash generated, the Company anticipates that its current capital resources will enable it to meet its anticipated debt service obligations, operational expenses and capital expenditures through at least the third quarter of calendar year 2018, assuming that the Company’s lenders and other creditors do not accelerate any amounts due to them, as described in more detail below.
Amounts outstanding under the Term Loan mature on December 23, 2020 and the 7.75% Senior Notes mature on May 1, 2019. Notwithstanding these maturity dates, the Credit Agreement includes a springing maturity provision that provides that if on January 30, 2019, the aggregate principal amount of 7.75% Senior Notes outstanding exceeds $200.0 million, the maturity date of the Term Loan will be accelerated to January 30, 2019. If the Company is unable to refinance or extend its term loan or the 7.75% Senior Notes, or take other steps to create additional liquidity or otherwise avoid the occurrence of the springing maturity, forecasted cash flows would not be sufficient for the Company to meet its obligations as of January 30, 2019.
On October 30, 2017, the Restructuring Committee of the Board of Directors authorized the Company to forgo the scheduled interest payment on the 7.75% Senior Notes on November 1, 2017 of approximately $23.6 million and thus enter into the applicable 30-day grace period under the terms of the indenture governing such notes (the “Indenture”). This nonpayment constitutes a “default” under the terms of the Indenture, which matures into an “Event of Default” (as defined in the Indenture) if such “default” is not cured or waived before the expiration of the 30-day grace period on December 1, 2017. Upon the occurrence of an Event of Default, the trustee under the Indenture, or the holders of a specified percentage of 7.75% Senior Notes, may declare all outstanding amounts immediately due and payable. Such an Event of Default would also constitute an event of default under the Credit Agreement, which would permit the lenders thereunder to declare all amounts outstanding under the Credit Agreement to be immediately due and payable.
As previously disclosed, the Company, with the assistance of outside advisors, is in private discussions with its lenders and the holders of its 7.75% Senior Notes to proactively restructure its balance sheet and reduce its debt. Such restructuring or refinancing transactions could include the issuance of additional equity securities in satisfaction of a portion of our indebtedness outside of the protections of Chapter 11 of the U.S. Bankruptcy Code. We cannot provide any assurances of our ability to timely complete any such transactions, or the structure or likelihood of success thereof. If the Company is unsuccessful in restructuring or refinancing its indebtedness outside the court-approved process, it could seek to effectuate a restructuring under the protection of Chapter 11 of the U.S. Bankruptcy Code.
Based on the significance of the Company's debt balance and the potential that the Company could seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, the Company determined that, as a result of these two factors and as
required by the accounting guidance cited above, there is substantial doubt as to the Company’s ability to continue as a going concern for a period of 12 months following the date of issuance of this Quarterly Report on Form 10-Q.
Notwithstanding the aforementioned, the accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the ability to continue as a going concern.
As previously disclosed, based on the results of required annual or interim impairment testing in certain recent historical periods, we incurred non-cash impairment charges against intangible assets and goodwill, including charges of $603.1 million for the year ended December 31, 2016. Such non-cash charges reduced our reported operating results in those periods; however, as these charges did not require a cash outlay, they had no effect on our liquidity position in the near term. As described elsewhere herein, we did not incur any impairment charges during the
three and nine
months ended
September 30, 2017
. Any future impairment charges could materially adversely affect our financial results in the periods in which they are recorded.
As previously disclosed, on March 21, 2017, the Company received a notification from the NASDAQ indicating that the Company was not in compliance with NASDAQ Listing Rule 5550(b)(1) (the "Equity Listing Rule") because the Company's stockholder's equity was below the minimum required amount, and because the Company did not meet the alternative continued listing standards of that Rule. Separately, on April 5, 2017, the Company received a notification from the NASDAQ indicating that the Company was not in compliance with NASDAQ Listing Rule 5550(a)(2) (the "Bid Price Rule") because the bid price of the Company’s Class A common stock had closed below $1.00 per share for 30 consecutive business days.
On September 1, 2017 and October 3, 2017, the Company received letters from NASDAQ (the “Notices”) to delist the Company’s shares from the Nasdaq Capital Market for noncompliance under the Equity Listing Rule and Bid Price Rule, respectively. In accordance with the Listing Rules of NASDAQ, the Company filed an appeal of the pending delisting actions.
On October 26, 2017, we appeared before The NASDAQ Hearings Panel, where we appealed the Nasdaq Listing Qualification determination to delist the Company's securities from The Nasdaq Capital Market. The Company’s Class A common stock will continue to trade on the Nasdaq Capital Market while the appeal hearing is pending. As previously stated, there can be no assurance that the Company will be successful in its appeal and that the NASDAQ hearings panel will grant the Company’s request for an extension of time to regain compliance with either the Rule or the Equity Rule. In each event, if the Company is unsuccessful in its appeal, or it is not able to regain compliance with the Rule or the Equity Rule within any extension of time granted by the NASDAQ hearings panel, the Company expects that trading in its Class A common stock would thereafter be suspended and the stock would be removed from listing on NASDAQ. If the Company’s Class A common stock is removed from listing on NASDAQ, the Company expects that such stock would be eligible to be traded on the OTC Markets, an electronic quotation service operated by OTC Markets Group Inc. for eligible securities traded over-the-counter, on or about the same day or shortly thereafter.
Our inability to maintain the listing of our Class A common stock on the NASDAQ stock market may adversely affect the liquidity and market price of our Class A common stock.
On June 5, 2017, the Company’s Board of Directors adopted a stockholder rights plan, which is scheduled to expire in June 2018. Pursuant to the rights plan, the Company declared a dividend of one right for each outstanding share of Class A common stock of the Company, payable to holders of record on June 15, 2017. The rights will initially trade with the Company’s Class A common stock and will generally become exercisable only if any person (or any persons acting in concert or as a group) acquires a voting or economic position in 4.99% or more of the Company’s outstanding Class A common stock. If the rights become exercisable, all holders of rights (other than any triggering person) will be entitled to acquire shares of Class A common stock at a 50% discount or the Company may exchange each Right held by such holders for one share of Class A common stock. Under the rights plan, any person that owned more than 4.99% of the Company’s outstanding Class A common stock may continue to own its shares of Class A common stock but may not acquire a voting or economic interest in any additional shares of Class A common stock without triggering the rights plan.
Seasonality and Cyclicality
Our advertising revenues vary by quarter throughout the year. As is typical with advertising revenue supported businesses, our first calendar quarter typically produces the lowest revenues of any quarter during the year, as advertising generally declines following the winter holidays. The second and fourth calendar quarters typically produce the highest
revenues for the year. In addition, our revenues tend to fluctuate between years, consistent with, among other things, increased advertising expenditures in even-numbered years by political candidates, political parties and special interest groups. This political spending typically is heaviest during the fourth quarter.
Advertising Revenue and Adjusted EBITDA
Our primary source of revenue is the sale of advertising time. Our sales of advertising time are primarily affected by the demand from local, regional and national advertisers, which also impacts the advertising rates we charge. Advertising demand and rates are based primarily on the ability to attract audiences in the demographic groups targeted by such advertisers, as measured principally by various ratings agencies on a periodic basis. We endeavor to provide compelling programming and form connections between our on-air talent and listeners in order to develop strong listener loyalty, and we believe that the diversification of our formats and programs, including non-music formats and proprietary content, helps to insulate us from the effects of changes in the musical tastes of the public with respect to any particular format.
We strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices based on supply and demand. The optimal number of advertisements available for sale depends on the programming format of a particular radio program. Each program 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 potential advertisers with an effective means to reach a targeted demographic group. 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.
In addition to local and regional advertising revenues, we monetize our available inventory in both national spot and network sales marketplaces using our national platform. To effectively deliver network advertising for our customers, we distribute content and programming through third party affiliates in order to reach 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 to us, which is then aggregated into packages focused on specific demographic groups and sold by us to our advertiser clients that want to reach those demographic groups on a national basis.
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
$28.9 million
and
$26.5 million
for the
nine
months ended
September 30, 2017
and
2016
, respectively.
We continually evaluate opportunities to increase revenues through new platforms, including technology-based initiatives. As a result of those revenue increasing opportunities through new platforms, 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. In addition, as part of this evaluation we also from time to time reorganize and discontinue certain redundant and/or unprofitable content vehicles across our platform which we expect will impact our broadcast revenues in the future. To date inflation has not had a material effect on our revenues or results of operations, although no assurances can be provided that material inflation in the future would not materially adversely affect us.
Consolidated Adjusted EBITDA and segment Adjusted EBITDA are the financial metrics by which management and the chief operating decision maker allocate resources of the Company and analyze the performance of the Company as a whole and each of our reportable segments, respectively. Management also uses this measure to determine the contribution of our core operations to the funding of our corporate resources utilized to manage our operations and our non-operating expenses including debt service and acquisitions. In addition, consolidated Adjusted EBITDA, excluding the impact of local marketing agreement fees, is a key metric for purposes of calculating and determining our compliance with certain covenants contained in our Credit Agreement.
The Company excludes from Adjusted EBITDA items not related to core operations and those that are non-cash including: depreciation, amortization, stock-based compensation expense, gain or loss on the exchange or sale of any assets or stations, early extinguishment of debt, local marketing agreement fees, expenses relating to acquisitions, restructuring costs and non-cash impairments of assets.
Management believes that Adjusted EBITDA, although not a measure that is calculated in accordance with GAAP, is commonly employed by the investment community as a measure for determining the market value of a media company and comparing the operational and financial performance among media companies. Management has also observed that Adjusted
EBITDA is routinely utilized to evaluate and negotiate the potential purchase price for media companies. Given the relevance to our overall value, 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 (loss), 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. In addition, Adjusted EBITDA may be defined or calculated differently by other companies, and comparability may be limited.