Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CMLS > SEC Filings for CMLS > Form 10-K on 12-Mar-2012All Recent SEC Filings

Show all filings for CUMULUS MEDIA INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for CUMULUS MEDIA INC


12-Mar-2012

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis is intended to provide the reader with an overall understanding of our financial condition, changes in financial condition, results of operations, cash flows, sources and uses of cash, contractual obligations and financial position. Operating results attributable to CMP and Citadel as of August 1 and September 16, 2011, respectively, are included in the accompanying consolidated financial information for the year ended December 31, 2011. This section also includes general information about our business and a discussion of our management's analysis of certain trends, risks and opportunities in our industry. We also provide a discussion of accounting policies that require critical judgments and estimates as well as a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results. You should read the following information in conjunction with our consolidated financial statements and notes to our consolidated financial statements beginning on page F-1 in this Annual Report on Form 10-K, as well as the information set forth in Item 1A. "Risk Factors."

Our Business

We own and operate commercial radio station clusters throughout the United States. We believe we are the largest pure-play radio broadcaster in the United States based on number of stations owned and operated. At December 31, 2011, we owned or operated approximately 570 radio stations (including under LMAs) in 120 United States media markets and operated nationwide radio networks serving over 4,500 affiliates. At December 31, 2011, under LMAs, we provided sales and marketing services for seven radio stations in the United States.

We are a Delaware corporation, organized in 2002, and successor by merger to an Illinois corporation with the same name that had been organized in 1997.

2011 Operating Overview and Highlights

We believe that by completing the CMP Acquisition and the Citadel Acquisition we have created a leading radio broadcasting company with a true national platform and with an opportunity to further leverage and expand upon our strengths, market presence and programming. Specifically, with the completion of these acquisitions, we now have an extensive radio station portfolio consisting of approximately 570 radio stations, including a presence in eight of the top 10 markets, and broad diversity in format, listener base, geography, advertiser base and revenue stream, all of which are designed to reduce dependence on any single demographic, region or industry. We believe our increased scale will allow larger, more significant investments in the local digital media marketplace and allow our local digital platforms and strategies, including our social commerce initiatives, to be applied across significant additional markets. Furthermore, the acquisition of Citadel's nationwide radio networks, consisting of approximately 4,500 station affiliates and 9,000 program affiliates, which reach approximately 107 million listeners weekly, are intended to create a national network platform for the syndication of our fully-distributed content and technology assets.

Cumulus believes that the capital structure resulting from the completion of the CMP Acquisition and the Citadel Acquisition, and our related financing transactions, will provide increased liquidity and scale for Cumulus to pursue and finance strategic acquisitions in the future. We also believe that we have substantially completed our integration that will enable us to realize synergies of $51.9 million on an annualized basis resulting from the integration of Citadel's historical operations, which when combined with the expected incremental revenues therefrom and the other expected benefits from the foregoing transactions, should strongly position Cumulus for future growth in what we believe is still a highly fragmented industry.

As we entered 2011, we forecasted that advertising revenues in our markets would experience only modest growth in certain categories, offset by the absence of robust political spending throughout 2011. Our principal focus for potential revenue growth in 2011 was primarily on local advertising expected to be fueled largely by the continued recovery of the automotive advertising sector. Looking back on our results for 2011, we believe our actual experience and results were generally consistent with that forecast.

Certain key operating and financial highlights in 2011, both of which are discussed in more detail below, are as follows:

• throughout 2011, we experienced a generally stable operating environment, overcoming the short-term negative macroeconomic impacts of the March 2011 Japanese tsunami and related events that temporarily disrupted the automobile industry, our largest advertising category and the financial market disruptions associated with the U.S. debt ceiling debates. As a result, our operating income decreased; and


Table of Contents
• in connection with the completion of the Citadel Acquisition, we completed our previously announced Global Refinancing.

Acquisition of CMP

We completed the CMP Acquisition on August 1, 2011. As a result of the CMP Acquisition, CMP became an indirect wholly owned subsidiary of the Company. CMP's operating results have been included in Cumulus' accompanying consolidated financial statements since the date of the completion of the CMP Acquisition. Pursuant to a management agreement, we had operated CMP's business since 2006. In connection with the CMP Acquisition, we issued 9.9 million shares of our common stock to the CMP Sellers. Also in connection with the CMP Acquisition, the 3.7 million outstanding warrants to purchase stock of a subsidiary of CMP were amended and restated to become exercisable for up to 8.3 million shares of our common stock. For additional information regarding the CMP Acquisition, see Note 1, "Description of Business, Basis of Presentation and Summary of Significant Accounting Policies," and Note 2, "Acquisitions and Dispositions."

Acquisition of Citadel and Related Financing Transactions

We completed the Citadel Acquisition on September 16, 2011 for an aggregate purchase price of approximately $2.3 billion, consisting of approximately $1.4 billion in cash, the issuance of 23.6 million shares of our Class A common stock, including 0.9 million restricted shares, warrants to purchase 47.6 million shares of Class A common stock, 2.4 million warrants held in reserve for potential future issuance related to the pending final settlement of certain outstanding unsecured claims arising from Citadel's emergence from bankruptcy, and the consideration to repay the outstanding debt of Citadel. As a result of the Citadel Acquisition, Citadel became an indirect wholly owned subsidiary of Cumulus. Citadel's operating results have been included in Cumulus' accompanying audited consolidated financial statements since the date of the completion of the Citadel Acquisition (see Note 2, "Acquisitions and Dispositions").

Also on September 16, 2011 and in connection with the Citadel Acquisition, we issued and sold 51.8 million shares of Class A common stock and warrants to purchase 7.8 million shares of Class A common stock to an affiliate of Crestview, 125,000 shares of Series A preferred stock to an affiliate of Macquarie, and 4.7 million shares of Class A common stock and immediately exercisable warrants to purchase 24.1 million shares of Class A common stock to UBS and certain other entities.

In connection with the closing of the Citadel Acquisition and the completion of our previously announced Global Refinancing, on September 16, 2011, we repaid approximately $1.4 billion in outstanding senior or subordinated indebtedness and other obligations of (a) the Company, (b) certain of our other wholly-owned subsidiaries, and (c) Citadel. This Global Refinancing, and the cash portion of the purchase price paid in the Citadel Acquisition, were funded with (i) $1.325 billion in borrowings under a new first lien term loan, $200.0 million in borrowings under a new first lien revolving credit facility and $790.0 million in borrowings under a new second lien term loan, all as described in more detail in Note 8, "Long-Term Debt," and (ii) proceeds from the sale of $475.0 million of our common stock, preferred stock and warrants to purchase common stock to certain investors in a private placement exempt from the registration requirements under the Securities Act. The $610.0 million of 7.75% Senior Notes issued by us in May 2011 remain outstanding (see Note 2, "Acquisitions and Dispositions").

Also in connection with the Citadel Acquisition and as part of the transactions contemplated by the Global Refinancing, the Company completed an internal restructuring into a holding company structure, which included transferring the remaining assets and operations held directly or indirectly by us, other than the equity interests of our direct wholly-owned subsidiary Cumulus Holdings, to Cumulus Holdings. In connection with the Internal Restructuring, all obligations under the Indenture were assigned to and assumed by Cumulus Holdings, which was substituted for us as the issuer and primary obligor thereunder, and we provided a guarantee of all such obligations of Cumulus Holdings.


Table of Contents

Liquidity Considerations

Historically, our principal needs for funds have been for acquisitions of radio stations, expenses associated with our station and corporate operations, capital expenditures, and interest and debt service payments. We believe that our funding needs in the future will be for substantially similar matters including, but not limited to, expected capital expenditures associated with implementing HD Radio™ technology, as well as expenses relating to the ongoing integration of Citadel and CMP into our Company and additional expenses incurred in connection with those operations, including the operations of our acquired radio network.

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

On September 16, 2011 in connection with the closing of the Citadel Acquisition and in order to complete the Global Refinancing, the Company entered into the First Lien Facility and the Second Lien Facility. The First Lien Facility consists of a $1.325 billion first lien term loan facility, net of an original issue discount of $13.5 million, maturing in September 2018 (the "First Lien Term Loan") and a $300.0 million revolving credit facility (the "Revolving Credit Facility"), and matures in September 2016. The Second Lien Facility consists of a $790.0 million second lien term loan net of an original discount of $12.0 million (the "Second Lien Term Loan"), and matures in September 2019. On that date and also in connection therewith, the Company used borrowings of $1.325 billion under the First Lien Term Loan, $200.0 million under the Revolving Credit Facility and $790.0 million under the Second Lien Term Loan, along with proceeds from the Equity Investment, to (i) fund the cash portion of the purchase price paid in the Citadel Acquisition; (ii) repay in full amounts outstanding under the revolving credit facility under our then-existing credit agreement (the "Terminated Credit Agreement"); (iii) repay all amounts outstanding under the credit facilities of CMPSC; (iv) redeem CMPSC's outstanding 9.875% senior subordinated notes due 2014 and variable rate senior secured notes due 2014; (v) redeem in accordance with their terms all outstanding shares of preferred stock of CMP Susquehanna Radio Holdings Corp. ("Radio Holdings"); and (vi) repay all amounts outstanding, including any accrued interest and the premiums thereon, under Citadel's pre-existing credit agreement and to redeem Citadel's senior notes due 2018. The $610.0 million of 7.75% Senior Notes issued by the Company in May 2011 remain outstanding, with Cumulus Holdings substituted as the issuer thereunder pursuant to the Internal Restructuring.

Pursuant to the Equity Investment, on September 16, 2011, the Company issued and sold (i) 51.8 million shares of Class A common stock to Crestview; (ii) 125,000 shares of Series A preferred stock to Macquarie; and (iii) 4.7 million shares of Class A common stock and immediately exercisable warrants to purchase 24.1 million shares of its Class A common stock to UBS and certain other investors. Also pursuant thereto, the Company issued the Crestview warrants to purchase 7.8 million shares of Class A common stock, at an exercise price of $4.34 per share. Dividends on the Series A preferred stock accrue at a rate of 10.0% per annum for the first six months from issuance, and 14.0% per annum for the period commencing on March 16, 2012 and ending on September 15, 2013, with additional increases for every two-year period thereafter. The dividends are payable in cash, except that, at the option of the Company, up to 50.0% of the dividends for any period may be paid through the issuance of additional shares of Series A preferred stock. Payment of dividends on the Series A preferred stock is in preference and prior to any dividends payable on any class of the Company's common stock and, in the event of any liquidation, dissolution or winding up of the Company, holders of Series A preferred stock are entitled to the liquidation value thereof prior to, and in preference of, payment of any amounts to holders of any class of the Company's common stock.

We have assessed the current and expected implications of our business climate, our current and expected needs for funds and our current and expected sources of funds and determined, based on our financial condition as of December 31, 2011, that cash on hand, cash expected to be generated from operating activities and borrowing availability under the Revolving Credit Facility will be sufficient to satisfy our anticipated financing needs for working capital, capital expenditures, interest and debt service payments, and repurchases of securities and other debt obligations through December 31, 2012.


Table of Contents

Advertising Revenue and Adjusted EBITDA

Our primary source of revenues 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 various ratings agencies on a periodic basis. We endeavor to develop strong listener loyalty and 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. In addition, we believe that the radio station portfolio that we own and operate as a result of the CMP Acquisition and the Citadel Acquisition, which has increased diversity in terms of format, listener base, geography, advertiser base and revenue stream, will further reduce our revenue dependence on any single demographic, region or industry.

Our radio stations strive to maximize revenue by managing their on-air inventory of advertising time and adjusting prices up or down based on supply and demand. The optimal number of advertisements available for sale depends on the programming format of a particular station. Each of our stations has a general target level of on-air inventory available for advertising. This target level of inventory for sale 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 our cluster of stations, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group. 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. Trade revenue totaled $21.2 million, $16.7 million and $16.6 million in the years ended December 31, 2011, 2010 and 2009, respectively. Our advertising contracts are generally short-term. We generate most of our revenue from local and regional advertising, which is sold primarily by a station's sales staff. Local and regional advertising represented approximately 72.6%, 84.5% and 89.5% of our total revenues during the years ended December 31, 2011, 2010 and 2009, respectively.

Our recently acquired radio networks generate substantially all of their revenue from the sale of advertising time accumulated from their affiliate stations. Typically, in exchange for the right to broadcast radio network programming, its affiliates remit a portion of their advertising time, which is then aggregated into packages focused on specific demographic groups and sold by our radio networks to our advertiser clients that want to reach the listeners who comprise those demographic groups on a national basis. Our radio networks generate advertising revenue by embedding a defined number of advertising units in their syndicated programs, which they sell to advertisers at premium prices.

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

Adjusted EBITDA is the financial metric utilized by management to analyze the cash flow generated by the Company's business. This measure isolates the amount of income generated by its radio stations after the incurrence of corporate general and administrative expenses. Management also uses this measure to determine the contribution of the Company's radio station portfolio, including the corporate resources employed to manage the portfolio, to the funding of its other operating expenses and to the funding of debt service and acquisitions. In addition, Adjusted EBITDA is a key metric for purposes of calculating and determining our compliance with certain covenants contained in our First Lien Facility.

In deriving this measure, management excludes depreciation, amortization and non-cash stock-based compensation expense from the measure, as these do not represent cash payments for activities related to the operation of the radio stations. In addition, we also exclude LMA fees from our calculation of Adjusted EBITDA, even though such fees require a cash settlement, because they are excluded from the definition of Adjusted EBITDA contained in our First Lien Facility. Management excludes any gain or loss on the exchange of radio stations as it does not represent a cash transaction. Management also excludes any realized gain or loss on derivative instruments as it does not represent a cash transaction nor is it associated with radio station operations. Management excludes impairment of goodwill and intangible assets as it does not require a cash outlay. Management believes that Adjusted EBITDA, although not a measure that is calculated in accordance with GAAP, nevertheless is commonly employed by the investment community as a measure for determining the market value of a radio company. Management has also observed that Adjusted EBITDA is routinely employed to evaluate and negotiate the potential purchase price for radio broadcasting companies, and is a key metric for purposes of calculating and determining compliance with certain covenants in our First Lien Facility. Given the relevance to the overall value of the Company, management believes that investors consider the metric to be extremely useful.


Table of Contents

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

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

Results of Operations

Primarily as a result of the completion of the significant transactions described above in 2011, Cumulus believes that its results of operations for the year ended December 31, 2011, and its financial condition at such date, will provide only limited comparability to prior periods. Investors are cautioned to not place undue reliance on any such comparison. Revenues of $288.3 million attributable to the acquisitions of CMP and Citadel in 2011 are included in the Company's accompanying consolidated financial statements for the year ended December 31, 2011.

Analysis of Consolidated Statements of Operations

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



                                             Year Ended December 31,                     2011 vs 2010                  2010 vs 2009
                                       2011           2010            2009         $ Change       % Change        $ Change       % Change
Net revenues                         $ 549,544      $ 263,333      $  256,048      $ 286,211          108.7 %    $    7,285            2.8 %
Direct operating expenses
(excluding depreciation,
amortization and LMA fees)             333,471        159,807         165,676        173,664          108.7 %        (5,869 )         -3.5 %
Depreciation and amortization           52,443          9,098          11,136         43,345              * *        (2,038 )        -18.3 %
LMA fees                                 2,525          2,054           2,332            471           22.9 %          (278 )        -11.9 %
Corporate general and
administrative expenses
(including stock-based
compensation expense)                   90,761         18,519          20,699         72,242              * *        (2,180 )        -10.5 %
Gain on exchange of assets or
stations                               (15,278 )            -          (7,204 )      (15,278 )            * *         7,204              * *
Realized loss on derivative
instrument                               3,368          1,957           3,640          1,411           72.1 %        (1,683 )            * *
Impairment of intangible assets
and goodwill                                 -            671         174,950           (671 )       -100.0 %      (174,279 )        -99.6 %

Operating income (loss)                 82,254         71,227        (115,181 )       11,027           15.5 %       186,408          161.8 %
Interest expense, net                  (86,989 )      (30,307 )       (33,989 )      (56,682 )       -187.0 %         3,682           10.8 %
Loss on early extinguishment of
debt                                    (4,366 )            -               -         (4,366 )            * *             -              * *
Terminated transaction expense               -         (7,847 )             -          7,847              * *        (7,847 )            * *
Other income (expense), net                 31            108            (136 )          (77 )        -71.3 %           244          179.4 %
Gain on equity investment in CMP        11,636              -               -         11,636              * *             -              * *
Income tax benefit (expense)            61,294         (3,779 )        22,604         65,073              * *       (26,383 )       -116.7 %

Net income (loss)                    $  63,860      $  29,402      $ (126,702 )    $  34,458          117.2 %    $  156,104          123.2 %

OTHER DATA:
Adjusted EBITDA (1)                  $ 131,167      $  87,458      $   72,552      $  43,709           50.0 %    $   14,906           20.5 %

** Calculation is not meaningful.

(1) Adjusted EBITDA consists of net income before depreciation and amortization, LMA fees, acquisition costs, non-cash stock-based compensation expense, gain or loss on the exchange of assets or stations, realized gain or loss on derivative instruments, impairment of intangible assets and goodwill, interest expense, net loss on the early extinguishment of debt, other income or expense, gain on equity investment in CMP, and income tax expense. Adjusted EBITDA is not a measure of financial performance 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 Adjusted EBITDA to its most directly comparable financial measure calculated and presented in accordance with GAAP, above under "Advertising Revenue and Adjusted EBITDA" and below under "Adjusted EBITDA."


Table of Contents

Our management's discussion and analysis of results of operations for the three years ended December 31, 2011, has been presented on a historical basis.

Year Ended December 31, 2011 compared to Year Ended December 31, 2010

Net Revenues. Excluding the impact of net revenues as a result of the CMP Acquisition and the Citadel Acquisition, net revenues for the year ended December 31, 2011 decreased $2.1 million, or 0.8%, to $261.2 million compared to $263.3 million for the year ended December 31, 2010. This decrease was primarily attributable to reduced political advertising following the 2010 mid-term elections and a decrease in management fee income (which had been earned by us for services provided to CMP prior to the date of the CMP Acquisition), partially offset by an increase in core advertising categories, particularly automotive and retail categories.

Direct Operating Expenses, Excluding Depreciation, Amortization and LMA Fees. Excluding the impact of direct operating expenses as a result of the CMP Acquisition and the Citadel Acquisition, direct operating expenses for the year ended December 31, 2011 decreased $7.9 million, or 4.9%, to $151.9 million compared to $159.8 million for the year ended December 31, 2010, primarily due to a reduction in fixed sales expenses and other operating costs.

Depreciation and Amortization. Excluding the impact of depreciation and amortization as a result of the CMP Acquisition and the Citadel Acquisition, depreciation and amortization for the year ended December 31, 2011 decreased . . .

  Add CMLS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CMLS - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.