Summary of CUMULUS MEDIA INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report. This discussion, as well as various other sections of this quarterly report, contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to the intent, belief or current expectations of our officers primarily with respect to our future operating performance. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those in 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, FCC and government approval of pending acquisitions, our inability to renew one or more of our broadcast licenses, changes in interest rates, consummation of our pending acquisitions, integration of acquisitions, our ability to eliminate certain costs, the management of rapid 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. Many of these risks and uncertainties are beyond our control. This discussion identifies important factors that could cause such differences. The unexpected occurrence of any such factors would significantly alter the results set forth in these statements.
Overview
The following discussion of our financial condition and results of operations includes the results of acquisitions and local marketing, management and consulting agreements. As of June 30, 2009, we owned and operated 314 stations in 59 U.S. markets, provided sales and marketing services under local marketing, management and consulting agreements (pending FCC approval of acquisition) to 12 stations in 4 U.S. markets and, as a result of our investment in CMP, managed an additional 33 stations in 9 markets, making us the second largest radio broadcasting company in the United States based on number of stations. We believe that, including the stations we manage through CMP, we are the fourth largest radio broadcasting company based on net revenues. Our historical focus has been on mid-sized markets throughout the United States. Among the reasons we have historically focused on such markets is our belief that these markets are characterized by a lower susceptibility to economic downturns. Our belief stems from historical experience that indicates that during recessionary times these markets have tended to be more resilient to economic declines. In addition, these markets, as compared to large markets, are characterized by a higher ratio of local advertisers to national advertisers and a larger number of smaller-dollar customers, both of which lead to lower volatility in the face of changing macroeconomic conditions.
Our management team remains focused on our strategy of pursuing growth through acquisition. However, acquisitions are closely evaluated to ensure that they will generate incremental value to our existing portfolio of radio stations, and as such, our management is committed to completing only those acquisitions that they believe will increase our Station Operating Income. The compression of publicly traded radio broadcast company multiples since 2005, which has been exacerbated by the current economic crisis, combined with a market for privately held radio stations that did not see corresponding multiples compression, translated to minimal acquisition activity for us in 2008 and through the first six months of 2009. In addition, the capital markets crisis has led to a general decline in funds available for acquisitions. As a result, we have been consummating more swap transactions, whereby one station or a group of stations in our portfolio is exchanged for another equally valued station or group of stations with another company, due to the fact funding is not required to complete such transactions.
Liquidity Considerations
Given the current capital and credit market crisis, and in conjunction with the development of our 2009 business plan, we continue to assess the impact of recent market developments on a variety of areas, including our forecasted advertising revenues and liquidity. In response to these conditions, we refined our 2009 business plan to incorporate a further reduction in our forecasted 2009 revenues and additional cost reductions to mitigate the impact of our anticipated decline in 2009 revenues. Based upon actions we have already taken, described under "-Liquidity and Capital Resources - Sources of Liquidity" and Note 1 to our consolidated financial statements, management believes we will continue to be in compliance with all of our applicable debt covenants through June 30, 2010.
As of June 30, 2009, the effective interest rate on the borrowings pursuant to our credit facilities was approximately 2.221%. As of June 30, 2009, our average cost of debt, including the effects of our derivative position, was 4.326%. Advertising Revenue and Station Operating Income Our primary source of revenue is the sale of advertising time on our radio stations. Our sales of advertising time are primarily affected by the demand for advertising time from local, regional and national advertisers and the advertising rates charged by our radio stations. Advertising demand and rates are based primarily on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron and Nielsen on a periodic basis, generally two to four times per year. Because

Table of Contents

audience ratings in local markets are crucial to a station's financial success, we endeavor to develop strong listener loyalty. We believe that the diversification of formats on our stations helps to insulate them from the effects of changes in the musical tastes of the public with respect to any particular format.
The current economic crisis has reduced demand for advertising in general, including advertising on our radio stations. In addition, the recent capital and credit market crisis is adversely affecting the U.S. and global economies. This has and could continue to have adverse effects on the markets in which we operate. Continued slow economic growth could lead to increasingly lower demand for advertising. The recent economic downturn and resulting decline in the demand for advertising could continue to have future adverse effects on our ability to grow revenues. Furthermore, considering the impact of the current economic crisis on the capital markets as well as the global economy and the resulting negative effects it has had on our operations, our historical results cannot be relied upon to be indicative of future performance. The number of advertisements that can be broadcast without jeopardizing listening levels and the resulting ratings is limited in part by the format of a particular station. Our stations strive to maximize revenue by managing their on-air inventory of advertising time and adjusting prices based upon local market conditions. In the broadcasting industry, radio stations sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of for cash.
Our advertising contracts are generally short-term. We generate most of our revenue from local advertising, which is sold primarily by a station's sales staff. During the six months ended June 30, 2009 and 2008, approximately 88.7% and 88.1% of our revenues were from local advertising, respectively. We generate national advertising revenue with the assistance of an outside national representation firm. We engaged Katz Media Group, Inc. ("Katz") to represent us as our national advertising sales agent.
Our revenues vary throughout the year. As is typical in the radio broadcasting industry, we expect our first calendar quarter will produce the lowest revenues for the year, and the second and fourth calendar quarters will generally produce the highest revenues for the year, with the exception of certain of our stations such as those in Myrtle Beach, South Carolina, where the stations generally earn higher revenues in the second and third quarters of the year because of the higher seasonal population in those communities. 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.
Our most significant station operating expenses are employee salaries and commissions, programming expenses, advertising and promotional expenditures, technical expenses, and general and administrative expenses. We strive to control these expenses by working closely with local station management. The performance of radio station groups, such as ours, is customarily measured by the ability to generate Station Operating Income. See the quantitative reconciliation of Station Operating Income the most directly comparable financial measure calculated and presented in accordance with GAAP, that follows this section.
Results of Operations
Analysis of Condensed Consolidated Statements of Operations. The following analysis of selected data from our condensed consolidated statements of operations and other supplementary data should be referred to while reading the results of operations discussion that follows (dollars in thousands):

Table of Contents

                                                     For the Three Months
                                                        Ended June 30,                Dollar Change         Percent Change
                                                    2009               2008           2009 vs. 2008          2009 vs. 2008

STATEMENT OF OPERATIONS DATA:
Net revenues                                    $   65,962          $ 83,628          $    (17,666 )                -21.1 %
Station operating expenses (excluding
depreciation, amortization and LMA fees)            39,232            52,975               (13,743 )                -25.9 %
Depreciation and amortization                        2,817             3,311                  (494 )                -14.9 %
LMA fees                                               728               320                   408                  127.5 %
Corporate general and administrative
(including non-cash stock compensation
expense)                                             3,958             4,094                  (136 )                 -3.3 %
(Gain) on exchange of assets or stations            (7,204 )               -                (7,204 )               -100.0 %
Costs associated with terminated
transaction                                              -             1,753                (1,753 )               -100.0 %

Operating income                                    26,431            21,175                 5,256                   24.8 %
Interest (expense) income, net                      (6,204 )             581                (6,785 )              -1167.8 %
Terminated transaction fee                               -            15,000               (15,000 )               -100.0 %
Other income (expense), net                            (38 )             (25 )                 (13 )                 52.0 %
Income tax (expense)                                (6,115 )          (8,094 )               1,979                  -24.5 %
Equity in net income of affiliate                        -             1,652                (1,652 )               -100.0 %

Net income                                      $   14,074          $ 30,289          $    (16,215 )                -53.5 %

OTHER DATA:
Station Operating Income (1)                    $   26,730          $ 30,653          $     (3,923 )                -12.8 %
Station Operating Income Margin (2)                   40.5 %            36.7 %                   * *                    * *

Table of Contents

                                                      For the Six Months
                                                        Ended June 30,                 Dollar Change         Percent Change
                                                   2009               2008             2009 vs. 2008          2009 vs. 2008

STATEMENT OF OPERATIONS DATA:
Net revenues                                    $ 121,316          $ 156,527          $     (35,211 )                -22.5 %
Station operating expenses (excluding
depreciation, amortization and LMA fees)           81,530            104,124                (22,594 )                -21.7 %
Depreciation and amortization                       5,715              6,421                   (706 )                -11.0 %
LMA fees                                            1,196                500                    696                  139.2 %
Corporate general and administrative
(including non-cash stock compensation
expense)                                           10,067              9,555                    512                    5.4 %
(Gain) on exchange of assets or stations           (7,204 )                -                 (7,204 )               -100.0 %
Costs associated with terminated
transaction                                             -              1,893                 (1,893 )               -100.0 %

Operating income                                   30,012             34,034                 (4,022 )                -11.8 %
Interest expense, net                             (13,941 )          (19,951 )                6,010                  -30.1 %
Terminated transaction fee                              -             15,000                (15,000 )               -100.0 %
Other income (expense), net                           (35 )               (7 )                  (28 )                400.0 %
Income tax expense                                 (5,257 )           (4,431 )                 (826 )                 18.6 %
Equity in net income of affiliate                       -              1,404                 (1,404 )               -100.0 %

Net income                                      $  10,779          $  26,049          $     (15,270 )                -58.6 %

OTHER DATA:
Station operating income (1)                    $  39,786          $  52,403          $     (12,617 )                -24.1 %
Station operating income margin (2)                  32.8 %             33.5 %                    * *                    * *
Cash flows related to:
Operating activities                               11,960             36,191                (24,231 )                -67.0 %
Investing activities                               (1,192 )           (4,934 )                3,742                  -75.8 %
Financing activities                              (51,389 )          (11,348 )              (40,041 )                352.8 %
Capital expenditures                               (1,206 )           (3,971 )                2,765                  -69.6 %

** Not a
meaningful
calculation to
present.

(1) Station Operating Income consists of operating income before depreciation and amortization, LMA fees, corporate general and administrative expenses, non-cash stock compensation, impairment of goodwill and intangible assets, gain on exchange of assets or stations sold and costs associated with the terminated transaction. Station
Operating
Income is not
a measure of
performance
calculated in
accordance
with GAAP.
Station
Operating
Income should
not be
considered in
isolation or
as a
substitute for
net income,
operating
income (loss),
cash flows
from operating
activities or
any other
measure for
determining
our operating
performance or
liquidity that
is calculated
in accordance
with GAAP. See
management's
explanation of
this measure
and the
reasons for
its use and
presentation,
along with a
quantitative
reconciliation
of Station
Operating
Income to its
most directly
comparable
financial
measure
calculated and
presented in
accordance
with GAAP,
below under "-
Station
Operating
Income."

(2) Station Operating Income margin is defined as Station Operating Income as a percentage of net revenues.

Three Months Ended June 30, 2009 versus the Three Months Ended June 30, 2008. Net Revenues. Net revenues decreased $17.6 million or 21.1% to $66.0 million for the three months ended June 30, 2009 compared to $83.6 million for the three months ended June 30, 2008, primarily due to the impact the current economic recession has had across our entire station platform. We believe that while this negative trend will continue through the fourth quarter of 2009, the rate of decline should begin to become less severe sometime during the fourth quarter. However, a more specific projection is extremely difficult at this time as one of the new trends we have noticed is a significant decrease in the lead time with respect to writing sales orders for the sale of advertising time. Prior to the current economic crisis, the majority of radio station adverting inventory was being sold three to six months prior to being run on the air. Recently, we have noted that a much larger portion of our inventory is being sold in the quarter it is being aired. At this time it is unknown if this trend will be permanent or represent a short term change. We believe this new trend represents, for some of our clients, their increased scrutiny over their advertising budgets and cash management in response to the current economic crisis.

Table of Contents

Station Operating Expenses Excluding Depreciation, Amortization and LMA Fees. Station operating expenses excluding depreciation, amortization and LMA fees decreased $13.8 million, or 25.9%, to $39.2 million for the three months ended June 30, 2009 from $53.0 million for the three months ended June 30, 2008, primarily due to our continued efforts to contain operating costs, such as employee reductions, a mandatory one-week furlough, and continued scrutiny of all operating expenses. We will continue to monitor all our operating costs as well as implement additional cost saving measures as necessary in an attempt to remain in compliance with current and future debt covenant requirements. Depreciation and Amortization. Depreciation and amortization decreased $0.5 million, or 14.9%, to $2.8 million for the three months ended June 30, 2009, compared to $3.3 million for the three months ended June 30, 2008 resulting in a decrease in our asset base due to assets becoming fully depreciated.
LMA Fees. LMA fees totaled $0.7 million and $0.3 million for the three months ended June 30, 2009 and 2008, respectively. LMA fees in the current year were comprised primarily of fees associated with stations operated under LMAs in Cedar Rapids, Iowa, Ann Arbor, Michigan, Green Bay, WI, and Battle Creek, Michigan.
Corporate, General and Administrative Expenses Including Non-cash Stock Compensation. Corporate, general and administrative expenses decreased $0.1 million, or 3.3%, to $4.0 million for the three months ended June 30, 2009, compared to $4.1 million for the three months ended June 30, 2008, primarily due to an increase in professional fees associated with our defense of certain lawsuits plus timing differences associated with the payment of various corporate expenses, offset by a $0.6 million decrease in non cash stock compensation, due to the absence of amortization expense associated with certain option awards becoming fully amortized in 2008.
Gain on Stations Swap. During the second quarter of 2009 we completed a swap transaction with Clear Channel Communications, Inc ("Clear Channel") to exchange five of our radio stations in Green Bay, Wisconsin for two of Clear Channel's radio stations located in Cincinnati, Ohio. In connection with the exchange, the Company recorded a gain of approximately $7.2 million during the second quarter. We did not complete any similar transactions during the second quarter in the prior year.
Costs Associated With Terminated Transaction. We did not incur any costs associated with a terminated transaction for the three months ended June 30, 2009 as compared to $1.8 million in 2008. These costs were attributable to a going-private transaction that was terminated in May 2008.
Non-operating (Income) Expense. Interest expense, net of interest income increased by $6.8 million to $6.2 million expense for the three months ended June 30, 2009 as compared with $0.6 million income in the three months ended June 30, 2008. Interest expense associated with outstanding debt, decreased by $4.3 million to $3.8 million as compared to $8.1 million in the three months ended June 30, 2008. This decrease is primarily due to lower average levels of bank debt, as well as, a decrease in the interest rates associated with our debt. The following summary details the components of our interest expense, net of interest income (dollars in thousands):

                                                     For the Three Months
                                                        Ended June 30,                Dollar Change         Percent Change
                                                    2009               2008           2009 vs. 2008          2009 vs. 2008

Bank Borrowings - term loan and revolving
credit facilities                               $    3,805          $  8,069          $     (4,264 )                -52.8 %
Bank Borrowings yield adjustment -
interest rate swap arrangement                       3,629               326                 3,303                 1013.2 %
Change in fair value of interest rate
swap agreement                                           -            (3,308 )               3,308                 -100.0 %
Change in fair value of interest rate
option agreement                                    (1,837 )          (5,589 )               3,752                  -67.1 %
Other interest expense                                 616               204                   412                  202.0 %
Interest income                                         (9 )            (283 )                 274                  -96.8 %

Interest income (expense), net                  $    6,204          $   (581 )        $      6,785                -1167.8 %

Income Taxes. We recorded income tax expense of $6.1 million for the three months ended June 30, 2009, compared to an income tax expense of $8.1 million for the three months ended June 30, 2008. The change in the effective tax rate during 2009 as compared to 2008 is primarily due to the impact of the deferred taxes recorded in conjunction with the gain on the asset exchange completed during the second quarter.
Station Operating Income. As a result of the factors described above, Station Operating Income decreased $3.9 million, or 12.8%, to $26.7 million for the three months ended June 30, 2009, compared to $30.6 million for the three months ended June 30, 2008.
Station Operating Income consists of operating income before depreciation and amortization, LMA fees, corporate general and administrative expenses, including non-cash stock compensation, impairment of goodwill and intangible assets, gain on exchange of

Table of Contents

assets or stations, and cost associated with the terminated transaction. Station Operating Income should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with GAAP. We exclude depreciation and amortization due to the insignificant investment in tangible assets required to operate our stations and the relatively insignificant amount of intangible assets subject to amortization. We exclude LMA fees from this measure, even though it requires a cash commitment, due to the insignificance and temporary nature of such fees. Corporate expenses, despite representing an additional significant cash commitment, are excluded in an effort to present the operating performance of our stations exclusive of the corporate resources employed. We exclude gain on assets or stations and terminated transaction costs due to the temporary nature of such gains. We believe this is important to our investors because it highlights the gross margin generated by our station portfolio. Finally, we exclude non-cash stock compensation and impairment of goodwill and intangible assets from the measure as they do not represent cash payments for activities related to the operation of the stations.
We believe that Station Operating Income is the most frequently used financial measure in determining the market value of a radio station or group of stations. We have observed that Station Operating Income is commonly employed by firms that provide appraisal services to the broadcasting industry in valuing radio stations. Further, in each of the more than 140 radio station acquisitions we have completed since our inception, we have used Station Operating Income as our primary metric to evaluate and negotiate the purchase price to be paid. Given its relevance to the estimated value of a radio station, we believe, and our experience indicates, that investors consider the measure to be useful in order to determine the value of our portfolio of stations. We believe that Station Operating Income is the most commonly used financial measure employed by the investment community to compare the performance of radio station operators. Finally, Station Operating Income is one of the measures that our management uses to evaluate the performance and results of our stations. Our management uses the measure to assess the performance of our station managers and our Board of Directors uses it as part of its assessment of the relative performance of our executive management. As a result, in disclosing Station Operating Income, we are providing our investors with an analysis of our performance that is consistent with that which is utilized by our management and our Board. Station Operating Income is not a recognized term under GAAP and does not purport to be an alternative to operating income from continuing operations as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, Station Operating Income is not intended to be a measure of free cash flow available for dividends, reinvestment in our business or other Company discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Station Operating Income should be viewed as a supplement to, and not a substitute for, results of operations presented on the basis of GAAP. We compensate for the limitations of using Station Operating Income by using it only to supplement our GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone. Station Operating Income has its limitations as an analytical tool, and you should not . . .