424B5
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Index to Financial Statements

Filed pursuant to Rule 424(b)(5)
SEC File No. 333-191439

PROSPECTUS SUPPLEMENT

(To prospectus dated October 7, 2013)

16,400,000 Shares

 

LOGO

Cumulus Media Inc.

Class A Common Stock

 

 

We are offering 16,400,000 shares of our Class A common stock. Our Class A common stock is traded on the NASDAQ Global Select Market under the symbol “CMLS.” On October 9, 2013, the last sale price of our Class A common stock as reported on the NASDAQ Global Select Market was $5.10 per share.

 

     Per share      Total  

Public offering price

   $ 5.0000       $ 82,000,000   

Underwriting discounts and commissions

   $ 0.2375       $ 3,895,000   

Proceeds, before expenses, to us

   $ 4.7625       $ 78,105,000   

We have granted the underwriters a 30-day option to purchase up to 2,460,000 additional shares of our Class A common stock.

Investing in our Class  A common stock involves a high degree of risk. See “Risk Factors’’ beginning on page S-13 of this prospectus supplement and on page 3 of the accompanying prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of Class A common stock to purchasers on or about October 16, 2013.

 

 

Sole Book-Running Manager

RBC CAPITAL MARKETS

Co-Managers

 

Macquarie Capital   CRT Capital               Noble Financial Capital Markets

 

 

The date of this prospectus supplement is October 9, 2013.


Table of Contents
Index to Financial Statements

TABLE OF CONTENTS

 

Prospectus Supplement   
     Page  

About this Prospectus Supplement

     S-ii   

Forward-Looking Statements

     S-iii   

Summary

     S-1   

Risk Factors

     S-13   

Use of Proceeds

     S-26   

Price Range of Common Stock

     S-27   

Dividend Policy

     S-27   

Capitalization

     S-29   

Selected Historical Consolidated Financial Information

     S-31   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     S-34   

Business

     S-59   

Management

     S-79   

United States Federal Income Tax Considerations for Non-U.S. Holders

     S-82   

Underwriting

     S-86   

Legal Matters

     S-92   

Experts

     S-92   

Where You Can Find More Information

     S-93   

Incorporation of Certain Documents by Reference

     S-93   

Index to Cumulus Media Inc. Financial Statements

     F-1   
Prospectus   
     Page  

About this Prospectus

     1   

Forward-Looking Statements

     2   

Our Business

     3   

Risk Factors

     3   

Use of Proceeds

     3   

Description of Capital Stock

     4   

Plan of Distribution

     10   

Where You Can Find More Information

     12   

Incorporation of Certain Documents by Reference

     12   

Legal Matters

     13   

Experts

     13   
 

 

 

We and the underwriters have not authorized any person to provide you with any information other than the information contained in or incorporated by reference in this prospectus supplement, the accompanying prospectus and any related free writing prospectus we provide to you that is required to be filed with the Securities and Exchange Commission, or SEC. We and the underwriters take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give to you. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus, as well as the information we previously filed with the SEC that is incorporated by reference in this prospectus supplement or the accompanying prospectus, is accurate as of any date other than its respective date.

 

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ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is this prospectus supplement and the information incorporated by reference herein, which, among other things, describes the specific terms of this offering and adds to and updates the information contained in the accompanying prospectus. The second part is the accompanying prospectus and the information incorporated by reference therein, which, among other things, provides more general information about the Company and its business, some of which may not apply to this offering. If any information varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

Additional information about us is incorporated in this prospectus supplement by reference to certain of our filings with the SEC. You are urged to read carefully this prospectus supplement and the accompanying prospectus and the information incorporated by reference in this prospectus supplement and the accompanying prospectus supplement, including the risk factors and other cautionary statements described under the heading “Risk Factors” included elsewhere in this prospectus supplement and in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012, before deciding whether to invest in our Class A common stock. See “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference” in this prospectus supplement.

References in this prospectus supplement to the terms “we,” “us,” “our,” “Cumulus,” the “Company” or other similar terms mean Cumulus Media Inc., including our consolidated subsidiaries, unless we state otherwise or the context indicates otherwise.

We use the term “local marketing agreement,” or LMA, in this prospectus supplement. In a typical LMA, the licensee of a radio station makes available, for a fee and reimbursement of its expenses, airtime on its station to a party which supplies programming to be broadcast during that airtime, and collects revenues from advertising aired during such programming. In addition to entering into LMAs, we from time to time enter into management or consulting agreements that provide us with the ability, as contractually specified, to assist current owners in the management of radio station assets, subject to Federal Communications Commission, or FCC, approval. In such arrangements, we generally receive a contractually specified management fee or consulting fee in exchange for the services provided.

The data included or incorporated by reference into this prospectus regarding markets, ranking and forecasts, including the size of certain markets and our positions, the positions of other market participants and the position of our competitors within these markets, are based on published industry sources and estimates based on our management’s knowledge and experience. Unless otherwise indicated, as disclosed herein:

 

  Ÿ  

we obtained total radio industry listener and revenue levels from the Radio Advertising Bureau;

 

  Ÿ  

we derived historical market revenue statistics and market revenue share percentages from data published by Miller Kaplan, Arase & Co., LLP, a public accounting firm that specializes in serving the broadcasting industry and BIA Financial Network, Inc., or BIA, a media and telecommunications advisory services firm; and

 

  Ÿ  

we derived all audience share data and audience rankings, including ranking by population, except where otherwise stated to the contrary, from surveys of people ages 12 and over, listening Monday through Sunday, 6 a.m. to 12 midnight, and based on the Arbitron Market Report.

While we are not aware of any misstatements regarding any market, industry or similar data presented herein, we have not independently verified any such third-party data, and such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings “Forward-Looking Statements” and “Risk Factors” in and incorporated by reference into this prospectus supplement and the accompanying prospectus.

 

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This prospectus supplement may include trademarks, service marks or trade names of other companies. Our use or display of other parties’ trademarks, service marks, trade names or products is not intended to, and does not imply a relationship with, or endorsement or sponsorship of us by, the trademark, service mark or trade name owners.

FORWARD-LOOKING STATEMENTS

This prospectus supplement contains and incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, which we refer to as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, which we refer to as the Exchange Act. For purposes of federal and state securities laws, forward-looking statements are all statements other than those of historical fact and are typically identified by the words “believes,” “expects,” “anticipates,” “continues,” “intends,” “likely,” “may,” “plans,” “potential,” “should,” “will,” and similar expressions, whether in the negative or the affirmative. These statements include statements regarding the intent, belief or current expectations of Cumulus and its directors and officers with respect to, among other things, future events, financial results and financial trends expected to impact Cumulus.

Such forward-looking statements are and will be, as the case may be, subject to change and subject to many risks, uncertainties and other factors relating to our operations and business environment, which may cause our actual results to be materially different from any future results, expressed or implied, by such forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:

 

  Ÿ  

the possibility that we may be unable to achieve certain expected revenue results, including as a result of unexpected factors or events;

 

  Ÿ  

our ability to execute our business plan and strategy;

 

  Ÿ  

our ability to execute and implement our acquisition and divestiture strategies;

 

  Ÿ  

the possibility that we may be unable to achieve cost-saving or operational synergies in connection with any acquisitions or business improvements, or achieve them within the expected time periods;

 

  Ÿ  

general economic or business conditions affecting the radio broadcasting industry being less favorable than expected, including the impact of decreased spending by advertisers;

 

  Ÿ  

our ability to attract, motivate and/or retain key executives and associates;

 

  Ÿ  

increased competition in the radio broadcasting industry;

 

  Ÿ  

the impact of current or pending legislation and regulations, antitrust considerations, and pending or future litigation or claims;

 

  Ÿ  

changes in regulatory or legislative policies or actions or in regulatory bodies;

 

  Ÿ  

changes in uncertain tax positions and tax rates;

 

  Ÿ  

changes in the financial markets;

 

  Ÿ  

changes in capital expenditure requirements;

 

  Ÿ  

changes in market conditions that could impair our goodwill or intangible assets;

 

  Ÿ  

changes in interest rates; and

 

  Ÿ  

other risks and uncertainties.

 

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Many of these factors are beyond our control or are difficult to predict, and their ultimate impact could be material. We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date of this prospectus supplement in the case of forward-looking statements contained in this prospectus supplement, the date of the prospectus in the case of forward-looking statements contained in the prospectus, or the dates of the documents incorporated by reference in this prospectus supplement or the accompanying prospectus in the case of forward-looking statements made in those incorporated documents. Except as may be required by law, we do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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SUMMARY

The following summary highlights selected information contained elsewhere in this prospectus supplement, the accompanying prospectus and in the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, but does not contain all the information you will need in making your investment decision. You should read carefully this entire prospectus supplement, the accompanying prospectus and the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, especially the risks of investing in our Class A common stock discussed under “Risk Factors.” See also “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”

The Company

Our Business

We own and operate commercial radio station clusters throughout the United States, and we believe we are the largest pure-play radio broadcaster in the United States based on number of stations owned and operated. At June 30, 2013, we owned or operated approximately 520 radio stations (including under LMAs for 14 radio stations) in 108 United States media markets. Additionally, we create audio content and partner with third parties to create audio content to support nationwide radio networks serving over 5,500 affiliates. Our combined portfolio of stations reaches over 65 million broadcast listeners weekly through a broad assortment of programming formats including rock, sports, top 40 and country, among others. Furthermore, we distribute our content digitally through radio station websites, mobile applications, or apps, and streaming video.

Operating Overview

We believe that we have created a leading radio broadcasting company with a true national platform and an opportunity to further leverage and expand upon our strengths, market presence and programming. Specifically, we have an extensive radio station portfolio consisting of approximately 520 radio stations, including a presence in eight of the top 10 markets, and broad diversity in format, listener base, geography, advertiser base and revenue stream, all of which are designed to reduce our dependence on any single demographic, region or industry. Our nationwide radio network platform generates premium content that can be distributed through both broadcast and digital mediums. Our scale allows more significant investments in the local digital media marketplace enabling us to leverage our local digital platforms and strategies, including our social commerce initiatives across additional markets. We believe our national platform perspective will allow us to optimize our available advertising inventory while providing holistic and comprehensive solutions for our customers.

Industry Overview

The primary source of revenues for radio stations is the sale of advertising time to local, regional and national spot advertisers, and national network advertisers. National network advertisers place advertisements on a national network show and such advertisements air in each market where the network has an affiliate. Over the past ten years, radio advertising revenue has represented 8% to 10% of the overall United States advertising market, and typically follows macroeconomic growth trends. In 2012, radio advertising revenues reached $16.5 billion.

 

 

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Generally, radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, rock, adult contemporary, oldies and news/talk. A station’s format and style of presentation enables it to target specific segments of listeners sharing certain demographic features. By capturing a specific share of a market’s radio listening audience with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations use data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations.

The number of advertisements that can be broadcast by a station without jeopardizing listening levels and the resulting ratings is limited in part by the format of a particular station and the local competitive environment. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year.

A station’s local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station usually will engage a firm that specializes in soliciting radio-advertising sales on a national level. Stations also may engage directly with an internal national sales team that supports the efforts of third-party representatives. National sales representatives obtain advertising principally from advertising agencies located outside the station’s market and receive commissions based on the revenue from the advertising they obtain.

Our stations compete for advertising revenue with other broadcast radio stations in their particular market as well as with other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons and outdoor advertising. In addition, the radio broadcasting industry is subject to competition from services that use new media technologies that are being developed or have already been introduced, such as the internet and satellite-based digital radio services. Such services may reach regional and nationwide audiences with multi-channel, multi-format, digital radio services.

We cannot predict how existing, new or any future generated sources of competition will affect our performance and results of operations. The radio broadcasting industry historically has grown over the long term despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes, compact discs, iPods and other similar devices, as well as streaming Internet music providers. We believe population growth and greater availability of radios, particularly car and portable radios, when combined with increased travel and commuting time, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have a material adverse effect on the radio broadcasting industry in general or our stations in particular.

Business Strategies

Our operating strategy is based upon the following principles that we expect will continue to position us for future growth and increase stockholder value:

 

   

Focus on unique brands.

We view each of our radio stations and network content assets as a unique brand that serves a local and distinct community of listeners. Our business model is designed to offer local businesses access to each of our stations’ communities of listeners through the sale of advertising time. To drive sales growth, we structure and incentivize our sales organization to create demand through increased coverage and access to

 

 

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sophisticated productivity tools, such as our proprietary customer relationship management system, market research and listener databases, as well as continuously updated training and presentation materials and extensive client-focused marketing support. As we grow, organically and through acquisitions, we believe this focused model will be scalable, allowing us to continue to provide a high level of customer service and further expand our advertiser base.

 

   

Further leverage our operating efficiencies.

We utilize a scalable, enterprise-wide, proprietary management system and technology platform to run our business, which we believe is a competitive advantage. As a result of our experienced management team and the benefits derived from our technology platform, we intend to continue to maximize this structural competitive advantage across our business. As we continue to grow both organically and through acquisitions, we expect process management and operating efficiency to remain at the core of our culture, leading to continued improvement in, among other things, our expense management and our ability to realize meaningful synergies from such growth.

 

   

Leverage experience in the application of uniform systems and practices.

Our management team has significant experience in acquisition integration, and the consistent application of our proprietary systems in such integration. Our success is partly based on adhering to a set of time-proven fundamentals and processes to run and manage our business, which we have standardized throughout our portfolio of stations. We believe that as we grow, organically and through acquisitions, we will continue to implement our systems and technology platform across our business, and obtain additional benefits from increased purchasing power, scale and supplier relationships. We believe our culture promotes the identification and recognition of best practices in all functional areas, which are then evaluated, tested and, upon acceptance, rolled out across our portfolio of stations.

 

   

Enhance operating performance across our portfolio of radio stations to drive efficiencies through scale.

Our business is designed to drive local sales growth and reduce costs at each radio station. We believe that in doing so, we are able to provide a higher level of service to the existing customer base at those stations in addition to expanding the advertiser base, which we believe enables us to continue to grow in those markets.

 

   

Maintain our financial discipline.

We seek to maintain a strong balance sheet and have focused on enhancing our strong free cash flow to de-leverage. In addition, from time to time, we use derivative financial instruments to mitigate fluctuations in interest rates. We also continually seek to identify and implement cost savings at each of our stations and the stations to which we provide services. To that end, we believe our overall size benefits each station with respect to negotiating favorable terms with programming suppliers and other vendors.

 

   

Pursue opportunistic acquisitions.

We believe the familiarity of our management team with the industry enables us to identify attractive acquisition opportunities. We selectively pursue opportunities where we believe we can enhance value and performance. We view these acquisitions as an important component of our business strategy and intend to selectively pursue future acquisitions on attractive terms that complement our strategy and help us achieve further economies of scale. We believe there are enormous benefits to achieving scale in order to compete in the radio industry, where advertisers have choices and are looking for integrated solutions with ease of execution.

 

 

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Pursue opportunities to expand and diversify our business.

As part of our overall strategy, we selectively evaluate opportunities that have synergies with our core business and add incremental growth opportunities that help to diversify our platform. These opportunities exist in a variety of content verticals both in and out of traditional broadcast radio and are focused on creating a comprehensive experience for our listening audience, as well as offering our advertisers greater flexibility and reach. These growth initiatives may arise out of strategic partnerships, joint ventures or targeted investments, and we believe our scale and management expertise will allow us to intelligently develop and execute on expansion opportunities.

Competitive Strengths

We believe our prior success is, and our future performance will be, directly related to the following combination of strengths that will enable us to implement our strategies:

 

   

Large pure-play radio broadcasting company in the United States with a broad national reach.

Currently, we offer advertisers access to a broad portfolio of 520 stations, comprised of 72 large market and 448 small and mid-sized market stations in 108 United States media markets. Our stations cover a wide variety of programming formats, geographic regions, audience demographics and advertising clients. We believe this scale and diversity allows us to offer advertisers the ability to customize advertising campaigns on a national, regional and local basis through broadcast, digital and mobile mediums. We believe this capability enables us to compete effectively with other media to reach our broad and diverse listener and customer base.

We also own one of the largest radio networks in the United States. With approximately 5,500 station affiliates and 9,000 program affiliations, this radio network, combined with our radio station platform, reaches approximately 65 million listeners a week, and provides a national platform to more effectively and efficiently compete for advertising dollars. In addition, this national network platform provides access to targeted and more diverse demographics and age groups to better meet our customers’ needs and allow for more focused marketing. Our sales team has the ability to consolidate advertising time across our affiliate network, create an aggregated inventory and divide it into packages focused on specific demographics that can be sold to national advertisers looking to reach specific national or regional audiences across all of the radio network affiliates.

 

   

Diversified customer base and geographic mix.

We generate substantially all of our revenue from the sale of advertising time to a broad and diverse customer base. We sell our advertising time both nationally and locally through an integrated sales approach that ranges from traditional radio spots to non-traditional sales programs, including on-line couponing and various on-air and internet-related integrated marketing programs.

Our advertising exposure is highly diversified across a broad range of industries, which lessens the impact of the economic conditions applicable to any one specific industry or customer group. Our top industry segments by advertising volume include automotive, restaurants, entertainment, financial, and communications. Due to the localized nature of our business, we have a broad distribution of advertisers across all of our stations. Our geographic reach extends to 108 markets from coast to coast.

 

   

Industry-leading margins.

We operate as an integrated business and benefit from leveraging costs and relationships across our markets, all of which allow us to generate strong margins. We have developed a proprietary management system and technology platform that creates operating efficiencies through centralized management

 

 

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functions such as strategic planning, finance, corporate development, financial reporting, expense management, information systems and quality control. This management system consists of web-based applications that were designed to create maximum efficiency while increasing our management’s level and span of control.

 

   

Leveraging network to create content.

We have over 5,500 broadcast affiliates served by our growing nationwide network. We believe there are growth opportunities in news/talk, sports and traffic content offerings with shared risk and revenue relationships. The content we create is distributed domestically to broadcast and digital platforms, with potential for expansion into other mediums such as television and print, as well as internationally.

 

   

Strong technology platform.

Our recent acquisitions and partnerships strategically complement our core terrestrial radio business to help exploit our best-in-class technology platform and operating systems across a much larger platform. Additionally, our in-house technology solutions help to manage costs across our whole network.

 

   

Strong and experienced management team.

We have an experienced management team with an average of 27 years of experience in the radio industry. Lew Dickey, our co-founder, Chairman, President and Chief Executive Officer, John Dickey and John Pinch, our co-Chief Operating Officers, Richard Denning, our Senior Vice President, Secretary and General Counsel and J.P. Hannan, our Chief Financial Officer, have been with us for 16, 15, 12, 11 and five years, respectively. Additionally, other members of our senior management team held leadership positions at various media companies, including ABC, Jefferson-Pilot and Clear Channel.

Recent Developments

Pending Acquisition of Dial Global (now known as WestwoodOne)

On August 30, 2013, Cumulus announced that it had entered into an agreement to acquire Dial Global, Inc., now known as WestwoodOne, which we refer to as Dial Global, an independent, full-service radio network company offering news, sports, formats, prep services, talk and music programming, jingles and imaging, and special events, as well as national advertising sales representation, or the Dial Global Acquisition. The Dial Global Acquisition is expected to add sports, news, talk, music and programming services content – enabling Cumulus to provide an even broader array of programming content to approximately 10,000 U.S. radio stations, other media platforms and international platforms. New content to be acquired through the Dial Global Acquisition will include NFL, NCAA, NASCAR, Olympics, AP Radio News, NBC News and other popular programming. For the year ended December 31, 2012, Dial Global reported revenues of $239.0 million and an operating loss of $124.2 million (which operating loss reflected goodwill impairment of $92.2 million, depreciation and amortization of $23.4 million, restructuring and other charges of $13.3 million and non-cash stock compensation expense of $6.6 million).

Pursuant to the Dial Global Acquisition, Dial Global will become a wholly owned subsidiary of the Company and, in connection therewith, all of the issued and outstanding shares of capital stock of Dial

 

 

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Global will be automatically cancelled and converted into the right to receive an aggregate of approximately $45 million in cash, and Dial Global will repay all of its outstanding indebtedness, including approximately $215 million with cash from Cumulus. Cumulus expects to fund the purchase price to complete the Dial Global Acquisition with proceeds from its sale of stations in the Townsquare Transaction.

Completion of the Dial Global Acquisition is subject to various customary closing conditions, as well as regulatory approval by the FCC, the absence of a material adverse effect on Dial Global’s business prior to closing, and the completion of the Townsquare Transaction.

Townsquare Transaction

Also on August 30, 2013 Cumulus entered into an agreement with Townsquare Media, LLC, or Townsquare pursuant to which it agreed to sell to Townsquare 53 radio stations in 12 small and mid-sized markets for approximately $238 million in cash, or the Townsquare Transaction, and swap 15 radio stations in two small and mid-sized markets with Townsquare in exchange for five radio stations in Fresno, California. The Company intends to use the net proceeds from the Townsquare Transaction to pay a portion of the purchase price to complete the Dial Global Acquisition. For the six months ended June 30, 2013 and 2012, and the year ended December 31, 2012, the radio stations to be sold to Townsquare in the Townsquare Transaction generated revenues of $29.6 million, $30.0 million and $64.5 million, respectively and total direct operating expenses of $15.6 million, $16.8 million and $32.7 million, respectively.

Completion of the Townsquare Transaction is subject to various customary closing conditions, as well as regulatory approval by the FCC, and the condition that Townsquare obtains financing to complete the Townsquare Transaction.

Issuance and Redemption of Preferred Stock

On August 20, 2013, the Company issued 77,241 shares of a newly created series of its preferred stock, or the Series B Preferred Stock, for gross proceeds of approximately $77.2 million. Proceeds from the issuance of the Series B Preferred Stock were used to redeem all outstanding shares of the Company’s Series A Preferred Stock, plus accrued and unpaid dividends thereon. The Company intends to use approximately $77.6 million of proceeds from this offering to redeem all outstanding shares of the Series B Preferred Stock, plus accrued and unpaid dividends. See “Use of Proceeds.”

Agreement with Rdio

On September 13, 2013, the Company and Pulser Media (the parent company of Rdio and Vdio), or Pulser, entered into a five year strategic promotional partnership and sales arrangement, or the Rdio Agreement.

The Rdio Agreement provides that Cumulus will act as the exclusive promotional agent for Rdio ad products, including display, mobile, in-line audio, synched banners and other digital inventory that may become available from time to time. In exchange for $75 million of promotional commitments over five years, Cumulus will receive 15% of the current fully-diluted equity of Pulser, with the opportunity to earn additional equity in the form of warrants based on the achievement of certain performance milestones over the term of the Rdio Agreement.

 

 

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Certain Preliminary Financial Information for the Quarter ended September 30, 2013

Cumulus is in the process of finalizing its financial results for the quarter ended September 30, 2013. The Company has prepared, and is presenting, the following range of estimated net revenues set forth below in good faith based upon our internal reporting for the quarter ended September 30, 2013. The estimates represent the most current information available to Cumulus. Such estimates have not been subject to our normal financial closing and financial statement preparation processes. As a result, our actual results could be different and those differences could be material. Investors should exercise caution in relying on the information contained herein and should not draw any inferences from this information regarding financial or operating data that is not discussed herein.

 

      Range of Amounts  
     (dollars in thousands)  

Net revenues

   $ 279,000       $ 281,000   

Net revenues in the quarter ended September 30, 2012 were $275.4 million, which included approximately $5.0 million in political advertising revenue.

In addition, Cumulus expects that its Adjusted EBITDA (as defined below) for the quarter ended September 30, 2013 will be approximately flat as compared to the quarter ended September 30, 2012, excluding the previously disclosed one-time $8.3 million credit from the industry-wide settlement with Broadcast Music Inc., or BMI, that positively impacted Adjusted EBITDA during the quarter ended September 30, 2012.

The preliminary financial information included in this prospectus supplement has been prepared by and, is the responsibility of, Cumulus’ management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to the accompanying preliminary financial information. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

Corporate Information

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. Our principal executive office is located at 3280 Peachtree Road, N.W., Suite 2300, Atlanta, Georgia 30305. Our telephone number is (404) 949-0700. Our website address is www.cumulus.com. Information contained in, or accessible through, our website does not constitute part of this prospectus supplement or the accompanying prospectus.

 

 

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The Offering

 

Issuer

Cumulus Media Inc.

 

Class A Common Stock Offered

16,400,000 shares (or up to 18,860,000 shares if the underwriters exercise in full their option to purchase an additional 2,460,000 shares).

 

Class A Common Stock to be Outstanding after the Offering(1)

183,700,363 shares (or up to 186,160,363 shares if the underwriters exercise in full their option to purchase an additional 2,460,000 shares).

 

Voting Rights

One vote per share of Class A common stock. We have three classes of common stock outstanding. See “Description of Capital Stock” in the accompanying prospectus.

 

Use of Proceeds

The net proceeds from this offering are expected to be approximately $77.6 million (or $89.3 million if the underwriters exercise in full their option to purchase additional shares) after deducting underwriting discounts and commissions and estimated offering expenses. We intend to use approximately $77.6 million of the net proceeds from this offering to redeem all outstanding shares of the Series B Preferred Stock, including accrued and unpaid dividends. The remaining net proceeds from this offering, if any, including any net proceeds from the underwriters’ exercise of their option to purchase additional shares, are expected to be placed in our corporate treasury, and used for general corporate purposes. See “Use of Proceeds.”

 

Risk Factors

Investing in our Class A common stock involves substantial risks. You should carefully consider the risk factors set forth in the section entitled “Risk Factors” and the other information contained in this prospectus supplement and the accompanying prospectus and the documents incorporated by reference herein and therein, prior to making an investment decision with respect to our Class A common stock. See “Risk Factors.”

 

NASDAQ Global Select Market Symbol

CMLS

 

(1) Based on 167,300,363 shares outstanding as of October 1, 2013, excluding: (i) 20,481,685 shares of Class A common stock issuable pursuant to the exercise of outstanding stock options; (ii) 15,424,944 shares of Class A common stock issuable upon the conversion of outstanding shares of Class B common stock; (iii) 644,871 shares of Class A common stock issuable upon the conversion of outstanding shares of Class C common stock; (iv) 29,801,369 shares of Class A common stock issuable upon the exercise of outstanding warrants to purchase Class A common stock or Class B common stock (including warrants to purchase 2.4 million shares of common stock reserved for potential future issuance in connection with the settlement of certain remaining allowed, disputed or not reconciled claims relating to the bankruptcy of Citadel Broadcasting Corporation, or Citadel, which we acquired in 2011); and (v) 13,750,850 shares of Class A common stock reserved for future issuance under our equity incentive plans.

 

 

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Summary Historical Financial Information

Set forth below is our summary historical financial information. The summary historical financial information for the six months ended June 30, 2013 and 2012, and as of June 30, 2013, has been derived from our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus supplement. The summary historical financial information for the years ended December 31, 2012, 2011 and 2010, and as of December 31, 2012 and 2011, has been derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus supplement. The summary historical financial information as of June 30, 2012 and December 31, 2010 has been derived from our consolidated financial statements and related notes not included or incorporated by reference in this prospectus supplement. Our results of operations for the six months ended, and our financial condition as of, June 30, 2013 are not necessarily indicative of the results or financial condition that may be expected for the year ending December 31, 2013, or any other future period.

The summary historical consolidated financial information presented below does not contain all of the information you should consider before deciding whether or not to invest in our Class A common stock, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, and notes thereto, each of which is included elsewhere in this prospectus supplement. You should read this summary historical financial information in conjunction with that other information as well as the information under “Risk Factors” and “Capitalization” included elsewhere in this prospectus supplement and the other documents incorporated by reference in this prospectus supplement. See “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”

 

 

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     Six Months Ended
June 30,
    Year Ended December 31,  
     2013     2012     2012     2011(1)      2010(1)  
     (Unaudited)     (Unaudited)                     
     (Dollars in thousands)  

Statement of operations data:

           

Net revenues

   $ 522,548      $ 517,036      $ 1,076,582      $ 519,963       $ 236,640   

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

     335,934        322,442        661,511        316,253         143,717   

Depreciation and amortization

     57,866        71,007        142,143        51,148         8,214   

LMA fees

     1,728        1,724        3,556        2,525         2,054   

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

     21,626        33,494        57,438        90,761         18,519   

(Gain) loss on exchange of assets or stations

                          (15,278        

Loss on sale of stations

     1,400                                

Realized (gain) loss on derivative instrument

     (2,844     753        (12     3,368         1,957   

Impairment of intangible assets and goodwill(2)

            12,435        127,141                671   

Operating income

     106,838        75,181        84,805        71,186         61,508   

Interest expense, net

     (88,085     (100,422     (198,628     (86,989      (30,307

Loss on early extinguishment of debt

     (4,539            (2,432     (4,366        

Terminated transaction (income) expense

                                  (7,847

Other (expense) income, net

     (378     190        (2,474     39         108   

Income tax benefit (expense)

     4,276        10,689        26,552        3,313         (1,505

Gain on equity investment in Cumulus Media Partners, LLC

                          11,636           

Income (loss) from continuing operations

     18,112        (14,362     (92,177     (5,181      21,957   

Income from discontinued operations, net of taxes

            10,375        59,448        69,041         7,445   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 18,112      $ (3,987   $ (32,729   $ 63,860       $ 29,402   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Other data:

           

Adjusted EBITDA(3)

   $ 172,688      $ 179,736      $ 393,737      $ 123,693       $ 91,745   

Net cash provided by (used in):

           

Operating activities

   $ 56,774      $ 55,190      $ 179,490      $ 71,751       $ 42,553   

Investing activities

     (54,012     (1,493     98,143        (2,031,256      (2,240

Financing activities

     (44,596     (65,206     (220,175     1,977,283         (43,723

Capital expenditures

     (4,830)        (1,919)        (6,607     (6,690      (2,475

Balance sheet data (at period end):

           

Total assets

   $ 3,690,184      $ 3,914,456      $ 3,743,575      $ 4,040,591       $ 319,636   

Long-term debt (including current portion)

     2,663,609        2,795,240        2,701,067        2,850,537         591,008   

Total Stockholders’ equity (deficit)

   $ 262,927      $ 278,507      $ 246,633      $ 290,713       $ (341,309

 

 

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(1) On August 1, 2011, we completed the acquisition of the 75.0% of the equity interests in Cumulus Media Partners, LLC, or CMP, that we did not then own, which we refer to as the CMP Acquisition. On September 16, 2011, we completed the acquisition of Citadel, which we refer to as the Citadel Merger. Each of CMP’s and Citadel’s operating results have been included in Cumulus’ financial statements since the date of completion of each respective transaction. 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. Primarily as a result of the completion of these significant transactions at various dates in 2011, Cumulus believes that its results of operations for the year ended December 31, 2012, and its financial condition at December 31, 2011, will provide only limited comparability to prior periods. Investors are cautioned to not place undue reliance on any such comparisons.

 

(2) Impairment charge recorded in connection with our interim and annual impairment testing under Accounting Standards Codification Topic 350. See Note 6, “Intangible Assets and Goodwill,” in the notes to our audited consolidated financial statements included elsewhere in this prospectus supplement.

 

(3) Adjusted EBITDA is the financial metric utilized by management to analyze the cash flow generated by our business. This measure isolates the amount of income generated by our radio stations after the incurrence of corporate general and administrative expenses. Management also uses this measure to determine the contribution of our radio station portfolio, including the corporate resources employed to manage the portfolio, to the funding of our 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 (as defined below under “Risk Factors”).

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

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

 

 

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companies use identical calculations in determining Adjusted EBITDA, our presentation may not be comparable to similarly titled measures of other companies.

For a quantitative unaudited reconciliation of our net income (loss) to Adjusted EBITDA, see footnote 3 to the table under the heading “Selected Historical Consolidated Financial Information” included elsewhere in this prospectus supplement.

 

 

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RISK FACTORS

Any investment in our Class A common stock involves a high degree of risk. In addition to the risks described below, you should also carefully read all of the other information included in this prospectus supplement, the accompanying prospectus and the documents we have incorporated by reference into this prospectus supplement and the accompanying prospectus in evaluating an investment in our Class A common stock. If any of the described risks actually were to occur, our business, financial condition, results of operations and cash flows could be materially adversely affected. In that event, the trading price of our Class A common stock could decline, and you may lose all or part of your investment in our Class A common stock.

The risks described below are not the only ones facing the Company. Additional risks not presently known to us or that we currently deem immaterial individually or in the aggregate may also impair our business operations.

This prospectus supplement, the accompanying prospectus and documents incorporated by reference herein and therein also contain forward-looking statements that involve risks and uncertainties, some of which are described in the documents incorporated by reference in this prospectus supplement and the accompanying prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks and uncertainties faced by us described below or incorporated by reference in this prospectus supplement and the accompanying prospectus. See “Forward-Looking Statements.”

Risks Related to Our Business

Our results of operations have been, and could continue to be, adversely affected by the past recession experienced by the U.S. economy and in many of the local economies in which we operate.

Revenue generated by our radio stations depends primarily upon the sale of advertising. Advertising expenditures, which we believe to be largely a discretionary business expense, declined significantly during the 2008 economic recession, and although they have begun to recover, such recovery has remained muted, partially in light of continued economic uncertainty. Furthermore, because a substantial portion of our revenue is derived from local advertisers, our ability to generate advertising revenue in specific markets is directly affected by local or regional economic conditions, many of which have not returned to pre-recessionary levels. Consequently, the continued uncertainty in the general economic environment, including the current government shutdown and potential debt ceiling implications, as well in specific economies of several individual geographic markets in which we own or operate stations, could continue to adversely affect our advertising revenue and, therefore, our results of operations.

In light of the limited and ongoing recovery from the recession, certain individual business sectors that may have historically spent more on advertising than other sectors might be forced to reduce their advertising expenditures or not return them to pre-recessionary levels if that sector fails to recover on pace with the overall economy. If that sector’s spending would otherwise have represented a significant portion of our advertising revenues, any continued reduction in its expenditures may adversely affect our revenue.

We operate in a very competitive business environment and a decrease in our ratings or market share would adversely affect our revenues.

The radio broadcasting industry is very competitive. The success of each of our stations depends largely upon rates it can charge for its advertising which in turn depends on, among other things, the number of local advertising competitors and the overall demand for advertising within individual markets. These conditions are subject to change and highly susceptible to both micro and macroeconomic conditions.

Audience ratings and market shares fluctuate, and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. While we already compete

 

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with other stations with comparable programming formats in many of our markets, any one of our stations could suffer a reduction in ratings or revenue and could require increased promotion and other expenses, and, consequently, could reduce operating results, if:

 

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another radio station in the market was to convert its programming format to a format similar to our station or launch aggressive promotional campaigns;

 

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a new station were to adopt a competitive format;

 

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we experience increased competition from non-radio sources;

 

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there is a shift in population, demographics, audience tastes or other factors beyond our control;

 

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an existing competitor was to strengthen its operations; or

 

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any one or all of our stations was unable to maintain or increase advertising revenue or market share for any other reasons.

The Telecommunications Act of 1996, or the Telecom Act, may allow for the further consolidation of ownership of radio broadcasting stations in markets in which we operate or may operate in the future, which could further increase competition in these markets. In addition, some competing owners may be larger and have substantially more financial and other resources than we do, which could provide them with certain advantages in competing against us. As a result of all of the foregoing, there can be no assurance that the competitive environment will not adversely affect us, and that any one or all of our stations will be able to maintain or increase advertising revenue market share.

The loss of affiliation agreements by our radio networks could materially adversely affect our financial condition and results of operations.

Our radio networks have approximately 5,500 station affiliates and 9,000 program affiliations. They receive advertising inventory from their affiliated stations, either in the form of stand-alone advertising time within a specified time period or commercials inserted by our radio networks into their programming. In addition, primarily with respect to satellite radio providers, we receive a fee for providing such programming. The loss of network affiliation agreements by our radio networks could adversely affect our results of operations by reducing the reach of our network programming and, therefore, its attractiveness to advertisers. Renewals of such agreements on less favorable terms may also adversely affect our results of operations through reduction of advertising revenue.

We must respond to the rapid changes in technology, services and standards that characterize our industry in order to remain competitive. Our failure to timely or appropriately respond to any such changes could materially adversely affect our business and results of operations.

The radio broadcasting industry is subject to technological change, evolving industry standards and the emergence of new competing media technologies and services. In some cases, our ability to successfully compete will be dependent on our development and acquisition of new technologies and our provision of new services, and there can be no assurance that we will have the resources to develop or acquire those new technologies or provide those new services; in other cases, the introduction of new technologies and services, including online music and other entertainment services, could increase competition and have a material adverse effect on our revenue. Recent new media technologies and services include the following:

 

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audio programming by cable television systems, direct broadcast satellite systems, internet content providers (both landline and wireless), internet-based audio radio services, smart phone and other mobile applications, satellite delivered digital audio radio service and other digital audio broadcast formats; and

 

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HD RadioTM digital radio, which could provide multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services.

In the future, there may be additional technologies or services developed that compete with radio broadcasting or for advertising revenue, and that could have a material adverse effect on our revenues and results of operations. We also cannot provide any assurances that we will continue to have the resources to develop or acquire any necessary new technologies or to introduce new services that could compete with any new technologies. We cannot predict the effect, if any, that competition arising from new technologies may have on the radio broadcasting industry or on our business.

We have written off, and could in the future be required to write off, a significant portion of the fair market value of our FCC broadcast licenses and goodwill, which may adversely affect our financial condition and results of operations.

As of December 31, 2012 and June 30, 2013, our FCC licenses and goodwill comprised 74.7% and 76.6%, respectively, of our assets. Each year, and more frequently on an interim basis if appropriate, we are required by Accounting Standards Codification Topic 350, Intangibles — Goodwill and Other, or ASC 350, to assess the fair market value of our FCC broadcast licenses and goodwill to determine whether the carrying value of those assets is impaired. For the year ended December 31, 2012, we recorded impairment charges of $104.0 million and $14.7 million related to goodwill and FCC broadcast licenses, respectively, and a definite-lived intangible asset impairment of $12.4 million related to the cancellation of a contract. Although there were no similar impairments in 2011, during the year ended December 31, 2010 we recorded an impairment charge of approximately $0.7 million in order to reduce the carrying value of certain broadcast licenses and goodwill to their respective fair market values. Future impairment reviews could result in additional impairment charges. Any such impairment charges would reduce our reported earnings for the periods in which they are recorded, which could materially reduce the value of our Company.

There are risks associated with our acquisition strategy, and our failure to execute on this strategy could materially adversely affect our financial condition and results of operations.

We intend to continue to grow by selectively acquiring radio stations in larger markets and geographically strategic regional clusters in the future, as well as complimentary platforms. We cannot predict whether we will be successful in pursuing or completing any acquisitions, including the pending Dial Global Acquisition, or what the consequences of not completing any acquisitions would be. In addition, there can be no assurances that we will be able to continue to identify suitable acquisition candidates.

Consummation of any proposed acquisitions would likely be, and each of the pending Dial Global Acquisition and Townsquare Transaction are, subject to various conditions such as compliance with FCC rules and policies. Consummation of acquisitions may also be subject to antitrust regulatory requirements. These FCC rules and policies include provisions which:

 

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require prior FCC approval of license assignments and transfers;

 

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limit the number of stations a broadcaster may own in a given local market; and

 

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include ownership “attribution” rules that could limit our ability to acquire stations in certain markets where one or more of our stockholders, officers or directors has other media interests.

Antitrust regulatory requirements include:

 

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filings with the Department of Justice, or the DOJ, and the Federal Trade Commission, or the FTC, under the Hart-Scott-Rodino Act, or the HSR Act, where applicable;

 

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expiration or termination of any applicable waiting period under the HSR Act; and

 

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possible review by the DOJ or the FTC of antitrust issues under the HSR Act or otherwise.

The Communications Act of 1934, as amended, or the Communications Act, and FCC rules allow members of the public and other interested parties to file petitions seeking to deny, or other objections to the FCC with respect to, the grant of any transfer or assignment application. The FCC could rely on those objections or its own initiative to deny a transfer or assignment application or to require changes in the transaction, including the divestiture of radio stations and other assets that we already own or propose to acquire, as a condition to having the application granted. The FCC could also change its existing rules and policies to reduce the number of stations that we would be permitted to acquire in some markets. We cannot be certain that any of these conditions would be satisfied in connection with any pending or future proposed acquisition, the timing thereof or the potential impact that any such conditions may have on us, which may include one or more requirements that we divest stations or assets in order to complete any proposed acquisition. In addition, the FCC has in the past asserted the authority to review levels of local radio market concentration as part of its acquisition approval process, even where proposed assignments would comply with the numerical limits on local radio station ownership in the FCC’s rules and the Communications Act, and the assertion of this authority may materially adversely affect our ability to complete, or obtain the expected benefits from, any proposed acquisition. Any actions by the FCC or DOJ that have the effect of denying, delaying or affecting the terms of any potential acquisitions could have a material adverse effect on our financial condition or results of operations.

Our acquisition strategy, involves numerous other risks, which may include risks associated with:

 

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identifying suitable acquisition candidates and negotiating definitive purchase agreements on satisfactory terms;

 

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integrating operations and systems and managing a large and geographically diverse group of stations;

 

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obtaining financing to complete acquisitions, which financing may not be available to us at times, in amounts, or at rates acceptable to us, if at all, and potentially the related risks associated with increased debt;

 

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diverting our management’s attention from other business concerns;

 

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potentially losing key employees at acquired stations; and

 

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potential changes in the regulatory approval process that may make it materially more expensive, or materially delay our ability, to consummate any proposed acquisitions.

We cannot be certain that we will be able to successfully integrate any acquired stations or businesses, including the pending Dial Global Acquisition, or manage the resulting business effectively, or that any acquisition will achieve the benefits that we anticipate. In addition, we are not certain that we will be able to acquire properties at valuations as favorable as those of previous acquisitions. Depending upon the nature, size and timing of potential future acquisitions, we may be required to obtain additional financing in order to consummate any acquisitions. We cannot assure you that our debt agreements, as may be in place at any time, will permit us to consummate an acquisition or access the necessary additional financing because of certain covenant restrictions or that additional financing will be available to us or, if available, that financing would be on terms acceptable to our management.

Our failure to identify, complete or integrate any acquired business, or to obtain the expected benefits therefrom, could materially adversely affect our strategy, and our financial condition and results of operations.

 

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We may fail to realize any benefits and incur unanticipated losses related to any acquisition.

The success of our future strategic acquisitions, including the pending Dial Global Acquisition, will depend, in part, on our ability to successfully combine the acquired business and assets with our business and our ability to successfully manage the assets so acquired. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers and employees or to achieve the anticipated benefits of the acquisition. Successful integration may also be hampered by any differences between the operations and corporate culture of the two organizations. Additionally, general market and economic conditions may inhibit our successful integration of any business, including Dial Global. If we experience difficulties with the integration process, the anticipated benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected. Finally, any cost savings that are realized may be offset by losses in revenues from the acquired business, any assets or operations disposed of in connection therewith or otherwise, or charges to earnings in connection with such acquisitions. For example, Dial Global has experienced significant financial difficulties in recent periods due to its leverage and cash flows. If we do not realize the synergies we expect from the pending Dial Global Acquisition, then such acquisition could be dilutive to our earnings.

We may not be able to complete any of our recently announced transactions, including for reasons outside of our control.

We have recently announced our entry into a number of definitive transaction agreements in furtherance of our strategy, including agreements governing the Dial Global Acquisition and the Townsquare Transaction. Notwithstanding the entry into definitive agreements to complete these transactions, they are subject to the satisfaction of a number of conditions to closing, including the satisfaction of various regulatory conditions described above. In addition, the Townsquare Transaction is subject to the condition that Townsquare obtain financing to complete the Townsquare Transaction, the satisfaction of which condition is outside of our control. Further, the Dial Global Acquisition is conditioned on the completion of the Townsquare Transaction, and, as a result, if we do not complete the Townsquare Transaction (including for reasons outside of our control), we will not be able to complete the Dial Global Acquisition.

The failure to complete these transactions could have a material adverse effect on our business and the price of our Class A common stock.

This prospectus supplement contains only limited financial information on which to evaluate the Dial Global Acquisition and the Townsquare Transaction.

As described above, each of the Dial Global Acquisition and the Townsquare Transaction are subject to a number of conditions to completion. As a result, this prospectus supplement contains and incorporates by reference only limited financial information on which to evaluate certain pending transactions, including the Dial Global Acquisition and the Townsquare Transaction, and our business after such transactions. The prospectus supplement may not contain all of the financial and other information about Dial Global and the assets that we intend to acquire, or the stations we intend to sell in the Townsquare Transaction, that you may consider important, including information related to the content that we will acquire, the impact of the acquisition on our business in the future and, ultimately, an investment in our Class A common stock.

Disruptions in the capital and credit markets could restrict our ability to access further financing.

We may rely in significant part on the capital and credit markets to meet our financial commitments and short-term liquidity needs if internal funds from operations are not sufficient for these purposes in the future. Disruptions in the capital and credit markets, such as have been experienced over the past several

 

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years, could adversely affect our ability to draw on our credit facilities or access capital. Access to funds under credit facilities is dependent on the ability of our lenders to meet their funding commitments. Those lenders may not be able or willing to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from their borrowers within a short period of time. Disruptions in the capital and credit markets have also resulted in increased costs associated with bank credit facilities. Continued disruptions could increase our interest expense and adversely affect our results of operations.

Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions, could adversely affect our access to financing. Any such disruption could increase our costs, require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding could be arranged. Such measures could include seeking higher cost financings, deferring capital expenditures and reducing or eliminating future uses of cash, any of which could materially adversely affect our business and results of operations.

We are exposed to credit risk on our accounts receivable. This risk is heightened during periods of worsened economic conditions.

Our outstanding trade receivables are not covered by collateral or credit insurance. While we have procedures to monitor and limit exposure to credit risk on our receivables, which risk is heightened during periods of worsened economic conditions, there can be no assurance that such procedures will effectively limit our credit risk and enable us to avoid losses, which could have a material adverse effect on our financial condition and operating results.

Counterparties to derivative transactions we enter into may not be able to perform their obligations under such transactions.

Although we evaluate the credit quality of potential counterparties to derivative transactions and only enter into agreements from time to time with those deemed to have minimal credit risk at the time the agreements are executed, there can be no assurances that such counterparties will be able to perform their obligations under the relevant agreements. If our counterparties fail to perform their obligations, we may not be able to receive the expected benefits from such derivative transactions, which could adversely affect our financial condition and results of operations.

We are dependent on key personnel.

Our business is managed by a small number of key management and operating personnel, and our loss of one or more of these individuals could have a material adverse effect on our business. We believe that our future success will depend in large part on our ability to attract and retain highly skilled and qualified personnel and to expand, train and manage our employee base. Although we have entered into employment agreements with some of our key management personnel that include provisions restricting their ability to compete with us under specified circumstances, we cannot assure you that all of those restrictions would be enforced if challenged in court.

We also enter into agreements with several on-air personalities with large loyal audiences in their individual markets to protect our interests in those relationships that we believe to be valuable. The loss of one or more of these personalities could result in losses of audience share in that particular market which, in turn, could adversely affect revenues in that particular market.

The broadcasting industry is subject to extensive and changing federal regulation.

The radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act. We are required to obtain licenses from the FCC to operate our stations. Licenses are

 

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normally granted for a term of eight years and are renewable. Although the vast majority of FCC radio station licenses are routinely renewed, we cannot assure you that the FCC will grant our existing or future renewal applications or that the renewals will not include conditions out of the ordinary course of our operations. The non-renewal, or renewal with conditions, of one or more of our licenses could have a material adverse effect on us.

We must also comply with the extensive FCC regulations and policies in the ownership and operation of our radio stations. FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to acquire radio stations that could be material to our overall financial performance or our financial performance in a particular market.

The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations. Despite those limitations, a dispute could arise whether another station is improperly interfering with the operation of one of our stations or another radio licensee could complain to the FCC that one our stations is improperly interfering with that licensee’s station. There can be no assurance as to how the FCC might resolve that dispute. These FCC regulations and others may change over time, and we cannot assure you that those changes would not have a material adverse effect on us.

The FCC has been vigorous in its enforcement of its indecency rules against the broadcast industry, a violation of which could have a material adverse effect on our business.

FCC regulations prohibit the broadcast of “obscene” material at any time, and “indecent” material between the hours of 6:00 a.m. and 10:00 p.m. The FCC regulatory oversight is augmented by statutory authority for the FCC to impose substantial penalties (up to $325,000 for each violation). The FCC also has the statutory authority to revoke a station license or to shorten or condition the renewal of a station license in the event that the station broadcasts indecent or obscene material. In June 2012, the United States Supreme Court issued a decision which held that the FCC had failed to give broadcasters adequate notice of a change in FCC policy in 2004 that exposed a station owner to penalties because of broadcasts which included fleeting expletives or momentary nudity (in a television broadcast). In April 2013, the FCC invited comment on the Supreme Court’s decision and what, if any, changes are required in its policies and how it should handle the volume of indecency complaints that are still pending at the FCC. This matter remains pending at the FCC and, it is therefore impossible to predict what, if any, impact the Supreme Court’s decision will have on any complaints that have been or may be filed against our stations. Whatever the impact, we may in the future become subject to new FCC inquiries or proceedings related to our stations’ broadcast of allegedly indecent or obscene material. To the extent that such an inquiry or proceeding results in the imposition of fines, a settlement with the FCC, revocation of any of our station licenses or denials of license renewal applications, our results of operation and business could be materially adversely affected.

Proposed legislation requires radio broadcasters to pay royalties to record labels and recording artists.

We currently pay royalties to song composers and publishers through BMI, the American Society of Composers, Authors and Publishers and SESAC, Inc. but not to record labels or recording artists for exhibition or use of over the air broadcasts of music. Congress has been considering legislation which would change the copyright fees and the procedures by which the fees are determined. The legislation has been the subject of considerable debate and activity by the broadcast industry and other parties affected by the legislation. It cannot be predicted whether any proposed legislation will become law or what impact it would have on our results from operations, cash flows or financial position.

 

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We are a holding company with no material independent assets or operations and we depend on our subsidiaries for cash.

We are a holding company with no material independent assets or operations, other than our investments in our subsidiaries. Because we are a holding company, we are dependent upon the payment of dividends, distributions, loans or advances to us by our subsidiaries to fund our obligations. These payments could be or become subject to restrictions on dividends or other payment restrictions under applicable laws in the jurisdictions in which our subsidiaries operate. Payments by our subsidiaries are also contingent upon the subsidiaries’ earnings. If we are unable to obtain sufficient funds from our subsidiaries to fund our obligations, our financial condition and ability to meet our obligations may be adversely affected.

Risks Related to Our Indebtedness

The level of our outstanding debt may make it more difficult to comply with the covenants in our debt instruments, including the financial covenants in our First Lien Facility, which could cause a default or an event of default under such debt instruments and could result in the loss of our sources of liquidity, acceleration of our indebtedness and, in some instances, the foreclosure on some or all of our assets, any of which could have a material adverse effect on our financial condition and results of operations.

The instruments governing our outstanding indebtedness contain restrictive covenants. In addition, our First Lien Credit Agreement, dated as of September 16, 2011, among the Company, Cumulus Holdings, as Borrower, certain lenders, JPMorgan Chase Bank, N.A., as Administrative Agent, or JPMorgan, UBS, Macquarie, Royal Bank of Canada and ING Capital LLC, as Co-Syndication Agents, and U.S. Bank National Association and Fifth Third Bank, as Co-Documentation Agents, as amended and restated, the First Lien Facility, requires us to comply with a financial covenant if any amounts are outstanding under the revolving credit facility, or the Revolving Credit Facility, or any letters of credit are outstanding that have not been collateralized by cash. As of June 30, 2013, we had no amounts outstanding under the Revolving Credit Facility, and, as result, were not subject to the financial covenant. Our ability to comply with the covenants in (i) the indenture governing our 7.75% Senior Notes due 2019, or the Indenture, (ii) the First Lien Facility and (iii) our Second Lien Credit Agreement dated as of September 16, 2011, among the Company, Cumulus Holdings, as Borrower, certain lenders, JPMorgan, as Administrative Agent, and UBS, Macquarie, Royal Bank of Canada and ING Capital LLC, as Co-Syndication Agents, which we refer to as the Second Lien Facility and which, together with the First Lien Facility, we refer to as the 2011 Credit Facilities, will depend upon our future performance and various other factors, such as business, competitive, technological, legislative and regulatory factors, some of which are beyond our control. We may not be able to maintain compliance with all of our covenants in the future. In that event, we would need to seek an amendment or waiver to the applicable agreement, or a refinancing of such obligations. There can be no assurance that we would be able obtain any amendment or waiver of any such facilities or the costs associated therewith, and, if so, it is likely that such relief would only last for a specified period, potentially necessitating additional amendments, waivers or refinancings in the future.

In the event that we do not maintain compliance with the covenants under the 2011 Credit Facilities, lenders could declare an event of default, subject to applicable notice and cure provisions, which would likely result in a material adverse impact on our financial position. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding under the 2011 Credit Facilities to be immediately due and payable and terminate all commitments to extend further credit. In addition, lenders under any of our indebtedness to which a cross-default or cross-acceleration provision applies may then be entitled to take certain similar actions. In the event any of our lenders or note holders accelerate the required repayment of our borrowings, we may not have sufficient assets to repay such indebtedness.

The lenders under the 2011 Credit Facilities have taken security interests in substantially all of our consolidated assets, and we have pledged the stock of certain of our subsidiaries to secure the debt under the

 

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2011 Credit Facilities. If the lenders accelerate the required repayment of borrowings, we may be forced to liquidate certain assets to repay all or part of such borrowings, and we cannot assure you that sufficient assets will remain after we have paid all of the borrowings under such 2011 Credit Facilities. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness and we could be forced into bankruptcy or liquidation. Our ability to liquidate assets could also be affected by the regulatory restrictions associated with radio stations, including FCC licensing, which may make the market for these assets less liquid and increase the chances that these assets would be liquidated at a significant loss. Any requirement for us to liquidate assets would likely have a material adverse effect on our business.

We require substantial cash flows to service our debt and other obligations. Our inability to generate sufficient cash flows could have a material adverse effect on our business.

In order to service our significant indebtedness, we require, and will continue to require, significant cash flows. Our revenue is subject to such factors as shifts in population, station listenership, demographics, or audience tastes, and fluctuations in preferred advertising media. Our ability to generate sufficient cash flow to make required principal and interest payments on, or refinance, our debt obligations depends on our financial condition and operating performance, which are subject to prevailing micro-economic and macro-economic and competitive conditions, some of which are beyond our control. We may be unable to maintain or derive a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to seek to dispose of material assets or operations, seek additional debt or equity capital or seek to restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. Our inability to generate sufficient cash from operations to service our debt and other obligations would lead to a material adverse effect on our business.

Despite our current level of indebtedness, we may still be able to incur additional debt. This could further exacerbate the risks to our financial condition described above.

We may be able to incur additional indebtedness in the future. Although the Indenture and the 2011 Credit Facilities contain, and credit facilities we enter into in the future may contain, restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and any additional indebtedness incurred in compliance with these restrictions could be material. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under the First Lien Facility and the Second Lien Facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. As a result, a significant increase in interest rates could have a material adverse effect on our financial condition.

 

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The terms of the Indenture and the 2011 Credit Facilities restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The Indenture and the 2011 Credit Facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

 

  Ÿ  

incur additional indebtedness and guarantee indebtedness;

 

  Ÿ  

pay dividends or make other distributions or repurchase or redeem capital stock;

 

  Ÿ  

prepay, redeem or repurchase certain debt;

 

  Ÿ  

issue certain preferred stock or similar equity securities;

 

  Ÿ  

make loans and investments;

 

  Ÿ  

sell assets;

 

  Ÿ  

incur liens;

 

  Ÿ  

enter into transactions with affiliates;

 

  Ÿ  

alter the businesses we conduct;

 

  Ÿ  

enter into agreements restricting our restricted subsidiaries’ ability to pay dividends; and

 

  Ÿ  

consolidate, merge or sell all or substantially all of our assets.

In addition, as described above, the restrictive covenants in the 2011 Credit Facilities require us to maintain compliance with specified financial ratios and satisfy other financial condition tests.

As a result of these restrictions, we may be:

 

  Ÿ  

limited in how we conduct our business;

 

  Ÿ  

unable to raise additional debt or equity financing to operate during general economic or business downturns; or

 

  Ÿ  

unable to compete effectively or to take advantage of new business opportunities.

These restrictions may adversely affect our ability to operate our current and planned business, or make certain changes in our business and to respond to changing circumstances, any of which could have a material adverse effect on our financial condition or results of operations.

Risks Related to Our Class A Common Stock and this Offering

The public market for our Class A Common Stock may be volatile.

We cannot assure you that the market price of our Class A common stock will not decline and the market price could be subject to wide fluctuations in response to such factors as:

 

  Ÿ  

conditions and trends in the radio broadcasting industry;

 

  Ÿ  

actual or anticipated variations in our operating results, including audience share ratings and financial results;

 

  Ÿ  

changes in financial estimates by securities analysts;

 

  Ÿ  

technological innovations;

 

  Ÿ  

competitive developments;

 

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  Ÿ  

adoption of new accounting standards affecting companies in general or affecting companies in the radio broadcasting industry in particular; and

 

  Ÿ  

general market conditions and other factors.

Further, the stock markets, and in particular the NASDAQ Global Select Market, the market on which our Class A common stock is listed, from time to time have experienced extreme price and volume fluctuations that were not necessarily related or proportionate to the operating performance of the affected companies. In addition, general economic, political and market conditions such as recessions, interest rate movements or international currency fluctuations, may adversely affect the market price of our Class A common stock.

Certain stockholders or groups of stockholders have, and will continue to have, the right to appoint members to our board of directors and, consequently, the ability to exert significant influence over us.

As of October 1, 2013, and after giving effect to the exercise of all of their respective options exercisable within 60 days of that date, Lewis W. Dickey, Jr., our Chairman, President, Chief Executive Officer and a director, his brother, John W. Dickey, our Executive Vice President, and their father, Lewis W. Dickey, Sr., together with members of their family, collectively referred to as the Dickeys, collectively beneficially owned shares representing approximately 17.1% of the outstanding voting power of our common stock.

Also as of October 1, 2013, Crestview Radio Investors, LLC, referred to, with its affiliates, as Crestview, was our largest shareholder and, according to a Schedule 13D/A filed on December 14, 2012, beneficially owned shares representing approximately 39.4% of the outstanding voting power of our common stock.

In addition, in connection with the financing transactions undertaken in connection with the completion of the Citadel Merger, on September 16, 2011, the Company entered into a stockholders’ agreement, which we refer to as the Stockholders Agreement, with BA Capital Company, L.P. and Banc of America Capital Investors SBIC, L.P., together referred to as the BofA Stockholders, Blackstone, the Dickeys, Crestview, Macquarie and UBS. Under the Stockholders Agreement, the size of the our board was increased to seven members, and the two vacancies on our board created thereby were filled by individuals designated by Crestview. In accordance with the Stockholders Agreement, Crestview maintains the right to designate two individuals for nomination to our board, and each of the Dickeys, the BofA Stockholders and Blackstone maintains the right to designate one individual for nomination to our board. The Stockholders Agreement provides that the other two positions on our board will be filled by directors who meet applicable independence criteria. The Stockholders Agreement also provides that, for so long as Crestview is our largest stockholder, it will have the right to have one of its designees, who shall meet the definition of an independent director and who is elected to our board, and is selected by it, appointed as the “lead director” of our board. Further, the parties to the Stockholders Agreement (other than the Company) have agreed to support such directors (or others as may be designated by the relevant stockholders) as nominees to be presented to our stockholders for approval at subsequent stockholder meetings for the term set out in the Stockholders Agreement. Each stockholder party’s respective director nomination rights will generally survive for so long as it continues to own a specified percentage of our stock, subject to certain exceptions.

As a result of these significant stockholdings, and their right to designate members of our board, these stockholders are expected to be able to continue to exert significant influence over our policies and management, potentially in a manner which may not be in our best interests or the best interests of the other shareholders.

 

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The trading volume of our Class A common stock has been low, and the sale of a substantial number of shares in the public market could depress the price of our Class A common stock.

Our Class A common stock is listed on the NASDAQ Global Select Market, but has had a low average daily trading volume relative to many other stocks. Thinly traded stocks can have more price volatility than stocks trading in an active public market, which can lead to significant price swings even when a relatively small number of shares are being traded, and can limit an investor’s ability to quickly sell blocks of stock.

There may be future sales or other dilution of our equity, which may adversely affect the market price of our Class A common stock.

Except as described under the heading “Underwriting” of this prospectus supplement, we are not restricted from issuing additional Class A common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, Class A common stock. The issuance of any additional shares of Class A common stock or preferred stock or securities convertible into, exchangeable for or that represent the right to receive Class A common stock or the conversion or exercise of such securities could be substantially dilutive to holders of our Class A common stock. Holders of our shares of Class A common stock have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series of our equity securities. Moreover, certain holders of shares of our common stock or securities convertible into, or exercisable for, shares of our common stock, have rights, subject to certain conditions, to require us to file registration statements covering the such securities, or to include these securities in registration statements that we may file for ourselves or other stockholders. We cannot predict or estimate the amount, timing or nature of any such requests from holders of registration rights or when any sales by such stockholders may occur.

The market price of our Class A common stock could decline as a result of this offering as well as sales of shares of our Class A common stock made after this offering by us or stockholders with registration rights, or the perception that such sales could occur. Because our decision to issue securities in any future offering, or decisions by holders of registration rights to sell shares in any future offerings, will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. Thus, our stockholders bear the risk of future offerings reducing the market price of our Class A common stock and/or diluting their stock holdings in us. In addition, after giving effect to the issuance of Class A common stock in this offering, the receipt of the expected net proceeds and the use of those proceeds, the issuance of such shares in this offering will have a dilutive effect on our expected earnings per share.

We do not plan to pay cash dividends on our Class A common stock in the foreseeable future. As a result, investors must look solely to stock appreciation for a return on their investment in our Class A common stock.

We do not currently pay, nor do we expect to pay, cash dividends on our Class A common stock in the foreseeable future. We currently intend to retain any future earnings to support our operations and growth. The payment of cash dividends on our Class A common stock in the future will depend on our earnings, financial condition, capital requirements and other factors that our board of directors may deem relevant at the appropriate time. Additionally, our debt agreements restrict the payment of dividends. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our Class A common stock.

Anti-takeover provisions contained in our Third Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our Third Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provisions may have the effect of delaying, deferring or discouraging a prospective acquiror from making a

 

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tender offer for our shares of Class A common stock or otherwise attempting to obtain control of us. To the extent that these provisions discourage takeover attempts, they could deprive stockholders of opportunities to realize takeover premiums for their shares. Moreover, these provisions could discourage accumulations of large blocks of Class A common stock, thus depriving stockholders of any advantages which large accumulations of stock might provide.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware. Section 203 prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations unless the business combination was approved in advance by our board of directors, results in the stockholder holding more than 85% of our outstanding common stock or is approved by the holders of at least 66 2/3% of our outstanding common stock not held by the stockholder engaging in the transaction.

Any provision of our Third Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.

 

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USE OF PROCEEDS

We expect to receive net proceeds of approximately $77.6 million from this offering (or $89.3 million if the underwriters exercise in full their option to purchase additional shares), after deducting underwriting discounts and commissions and estimated offering expenses. We intend to use approximately $77.6 million of the net proceeds from this offering to redeem all outstanding shares of the Series B Preferred Stock, including accrued and unpaid dividends. The remaining net proceeds from this offering, if any, including any net proceeds from the underwriters’ exercise of their option to purchase additional shares, are expected to be placed in our corporate treasury for general corporate purposes, and may be used from time to time for, among other things, repayment of debt, capital expenditures, the financing of possible business expansions and acquisitions, increasing our working capital and the financing of ongoing operating expenses and overhead.

 

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PRICE RANGE OF COMMON STOCK

Shares of our Class A common stock, par value $0.01 per share, have been listed on the NASDAQ Global Select Market (or its predecessor, the NASDAQ National Market) under the symbol “CMLS” since July 1, 1998. There is no established public trading market for our Class B common stock or our Class C common stock. The following table sets forth, for the calendar quarters indicated, the high and low closing sales prices of the Class A common stock on the NASDAQ Global Select Market, as reported in published financial sources.

 

2012

   High      Low  

First Quarter

   $ 3.91       $ 3.21   

Second Quarter

   $ 3.63       $ 2.75   

Third Quarter

   $ 3.11       $ 2.44   

Fourth Quarter

   $ 2.76       $ 2.16   

2013

     

First Quarter

   $ 3.45       $ 2.61   

Second Quarter

   $ 3.89       $ 2.90   

Third Quarter

   $ 5.59       $ 3.31   

Fourth Quarter (through October 9, 2013)

   $ 5.51       $ 4.87   

As of October 1, 2013, there were approximately 1,144 holders of record of our Class A common stock, 17 holders of record of our Class B common stock and one holder of record of our Class C common stock. The number of holders of our Class A common stock does not include an estimate of the number of beneficial holders whose shares may be held of record by brokerage firms or clearing agencies.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our common stock since our inception and do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings for use in our business. We are currently subject to restrictions under the terms of the 2011 Credit Facilities that limit the amount of dividends that we may pay on our common stock. For a more detailed discussion of the restrictions in the 2011 Credit Facilities, see Note 7, “Long-Term Debt” to our unaudited condensed consolidated financial statements included elsewhere in this prospectus supplement.

Holders of the Series B Preferred Stock are entitled to receive mandatory and cumulative dividends in an amount per annum equal to the dividend rate (described below) multiplied by the $1,000 liquidation preference per share, calculated on the basis of a 360-day year, from the date of issuance, whether or not declared and whether or not we report net income. Dividends on the Series B Preferred Stock accrue at a rate of 12% per annum until September 30, 2014, thereafter at a rate of 14% per annum until March 31, 2015, and thereafter at a rate of 17% per annum, in each case subject to increase as described below. Dividends are payable in cash, except that, if on any dividend payment date we do not have cash on hand and availability under our financing agreements to pay dividends due in full in cash, we will be required to pay the portion of such dividend that we are unable to pay in cash through the issuance of additional shares of the Series B Preferred Stock. In such event, the applicable dividend rate will increase by 200 basis points until all accrued but unpaid dividends outstanding on the Series B Preferred Stock are paid in cash and all shares of the Series B preferred stock previously issued in lieu of cash dividends are redeemed in full. If we do not redeem all outstanding shares of the Series B Preferred Stock on the maturity date therefor, the applicable dividend rate will increase by 300 basis points until all shares of the Series B Preferred Stock are redeemed. Payments of dividends on the Series B Preferred Stock are in preference and prior to any

 

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dividends payable on any class of our common stock and, in the event of any liquidation, dissolution or winding up of the Company, holders of the Series B 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 our common stock.

After payment of dividends to the holders of the Series B Preferred Stock, the holders of our common stock share ratably in any dividends that may be declared by our board of directors. We intend to use a portion of the net proceeds from this offering to redeem all outstanding shares of the Series B Preferred Stock, including accrued and unpaid dividends thereon.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and consolidated capitalization at June 30, 2013:

 

  Ÿ  

on a historical basis; and

 

  Ÿ  

on an as adjusted basis, giving effect to: (i) our issuance, on August 20, 2013, of 77,241 shares of the Series B Preferred Stock, the proceeds from which issuance were used to redeem all outstanding shares of Series A Preferred Stock, including accrued and unpaid dividends; and (ii) the completion of this offering and our application of the estimated net proceeds thereof of approximately $77.6 million, after deducting underwriting discounts and commissions and estimated offering expenses, as described in “Use of Proceeds,” but assuming no exercise of the underwriters’ option to purchase 2,460,000 additional shares of Class A common stock.

Except as described below, adjustments have been made to reflect normal course operations by us or other developments with our business after June 30, 2013. As a result, the as adjusted information provided below is not indicative of our actual cash and cash equivalents position or consolidated capitalization as of any date. The following table is unaudited and should be read together with “Use of Proceeds,” the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results

 

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of Operations”, and our historical consolidated financial statements and the related notes thereto, each of which is included elsewhere in this prospectus supplement.

 

     At June 30, 2013,  
         Actual             As Adjusted      
     (In thousands, except for shares)  

Cash and cash equivalents

   $ 46,216      $ 46,216   
  

 

 

   

 

 

 

Long-term debt, including current portion:

    

7.75% Senior Notes

   $ 610,000      $ 610,000   

2011 Credit Facilities:

    

First Lien Term Loan

     1,287,260        1,287,260   

Second Lien Term Loan

     785,496        785,496   

Revolving Credit Facility

              

Total debt

   $ 2,682,756      $ 2,682,756   

Redeemable preferred stock(1):

    

Series A cumulative redeemable preferred stock, par value $0.01 per share; stated value of $1,000 per share; 100,000,000 shares authorized; 75,767 shares issued and outstanding

     72,871          

Series B cumulative redeemable preferred stock, par value $0.01 per share; stated value of $1,000 per share; 150,000 shares authorized; no shares issued or outstanding

              

Stockholders’ equity:

    

Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 186,456,601 and 202,856,601 shares issued, and 162,326,226 and 178,726,226 shares outstanding at June 30, 2013, actual and as adjusted, respectively

     1,864        2,029   

Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 15,424,944 shares issued and outstanding

     154        154   

Class C common stock, par value $0.01 per share; 644,871 shares authorized, issued and outstanding

     6        6   

Treasury stock, at cost, 24,130,375 shares

     (250,697     (250,697

Additional paid-in capital

     1,511,689        1,584,759   

Accumulated deficit

     (1,000,089     (1,000,453
  

 

 

   

 

 

 

Total stockholders’ equity

     262,927        335,798   
  

 

 

   

 

 

 

Total capitalization

   $ 3,018,554      $ 3,018,554   
  

 

 

   

 

 

 

 

(1) On August 20, 2013, the Company issued 77,241 shares of Series B Preferred Stock for gross proceeds of approximately $77.2 million. Proceeds from the issuance of the Series B Preferred Stock were used to redeem all outstanding shares of the Company’s Series A Preferred Stock, plus accrued and unpaid dividends thereon. The Company intends to use approximately $77.6 million of proceeds from this offering to redeem all outstanding shares of Series B Preferred Stock, plus accrued and unpaid dividends.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

Set forth below is selected historical consolidated financial information for Cumulus as of and for the six months ended June 30, 2013 and 2012 and the fiscal years ended December 31, 2012, 2011, 2010, 2009 and 2008 (dollars in thousands, except per share data). The selected historical consolidated financial information as of June 30, 2013 and December 31, 2012 and 2011 and for the six months ended June 30, 2013 and 2012 and the years ended December 31, 2012, 2011 and 2010 has been derived from our historical consolidated financial statements and related notes included elsewhere in this prospectus supplement. The selected historical consolidated financial information as of June 30, 2012, December 31, 2010, 2009 and 2008, and for the years ended December 31, 2009 and 2008, has been derived from our historical consolidated financial statements and related notes previously filed with the SEC, but not included or incorporated by reference herein.

The selected historical consolidated financial information presented below does not contain all of the information you should consider when evaluating Cumulus, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements, and notes thereto, each of which is included elsewhere in this prospectus supplement. Various factors are expected to have an effect on our financial condition and results of operations in the future, including the ongoing integration of acquired businesses. You should also read this selected historical consolidated financial information in conjunction with the information under “Risk Factors” included elsewhere in this prospectus supplement.

 

    Six Months Ended
June 30,
    Year Ended December 31,  
    2013     2012     2012     2011(1)     2010(1)     2009(1)     2008(1)  
    (unaudited)     (unaudited)                                
    (Dollars in thousands)  

Statement of Operations Data:

             

Net revenues

  $ 522,548      $ 517,036      $ 1,076,582      $ 519,963      $ 236,640      $ 230,585      $ 281,719   

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

    335,934        322,442        661,511        316,253        143,717        149,384        183,999   

Depreciation and amortization

    57,866        71,007        142,143        51,148        8,214        10,236        11,563   

LMA fees

    1,728        1,724        3,556        2,525        2,054        2,332        631   

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

    21,626        33,494        57,438        90,761        18,519        20,699        19,325   

Gain on exchange of assets or stations

                         (15,278            (7,204       

Realized (gain) loss on derivative instrument

    (2,844     753        (12     3,368        1,957        3,640          

Impairment of intangible assets and goodwill(2)

           12,435        127,141               671        174,950        498,897   

Loss on sale of stations

    1,400                                             

Other operating expense

                                              2,041   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    106,838        75,181        84,805        71,186        61,508        (123,452     (434,737

Interest expense, net

    (88,085     (100,422     (198,628     (86,989     (30,307     (33,989     (47,262

Loss on early extinguishment of debt

    (4,539            (2,432     (4,366                     

 

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    Six Months Ended
June 30,
    Year Ended December 31,  
    2013     2012     2012     2011(1)     2010(1)     2009(1)     2008(1)  
    (unaudited)     (unaudited)                                
    (Dollars in thousands)  

Terminated transaction expense (income)

                                (7,847            15,000   

Other (expense) income, net

    (378     190        (2,474     39        108        (136     (10

Equity losses in affiliate

                                              (22,252

Gain on equity investment in Cumulus Media Partners, LLC

                         11,636                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    13,836        (25,051     (118,729     (8,494     23,462        (157,577     (489,261

Income tax (expense) benefit

    4,276        10,689        26,552        3,313        (1,505     3,259        3,637   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    18,112        (14,362     (92,177     (5,181     21,957        (154,318     (485,624
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations, net of taxes

           10,375        59,448        69,041        7,445        27,616        123,955   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    18,112        (3,987     (32,729     63,860        29,402        (126,702     (361,669

Less: dividends declared and accretion of redeemable preferred stock

    6,307        12,491        21,432        6,961                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) attributable to common shareholders

  $ 11,805      $ 16,478      $ (54,161   $ 56,899      $ 29,402      $ (126,702   $ (361,669
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic income (loss) per common share

  $ 0.05      $ (0.17   $ (0.33   $ 0.80      $ 0.70      $ (3.13   $ (8.55

Diluted income (loss) per common share

  $ 0.05      $ (0.17   $ (0.33   $ 0.80      $ 0.68      $ (3.13   $ (8.55

Other Data:

             

Adjusted EBITDA(3)

  $ 172,688      $ 179,736      $ 393,737      $ 123,693      $ 91,745      $ 63,381      $ 83,059   

Cash flows related to:

             

Operating activities

  $ 56,774      $ 55,190      $ 179,490      $ 71,751      $ 42,553      $ 28,691      $ 76,654   

Investing activities

    (54,012     (1,493     98,143        (2,031,256     (2,240     (3,060     (6,754

Financing activities

    (44,596     (65,206     (220,175     1,977,283        (43,723     (62,410     (49,183

Capital expenditures

    (4,830)        (1,919)        (6,607     (6,690     (2,475     (3,110     (6,069

Balance Sheet Data:

             

Total assets

  $ 3,690,184      $ 3,914,456      $ 3,734,575      $ 4,040,591      $ 319,636      $ 334,064      $ 543,519   

Long-term debt (including current portion)

    2,663,609        2,795,240        2,701,067        2,850,537        591,008        633,508        696,000   

Total stockholders’ equity (deficit)

  $ 262,927      $ 278,507      $ 246,633      $ 290,713      $ (341,309   $ (372,512   $ (248,147

 

(1)

On August 1, 2011, we completed the CMP Acquisition and on September 16, 2011, we completed the Citadel Merger. Each of CMP’s and Citadel’s operating results have been included in Cumulus’ financial statements since the date of completion of each respective transaction. Revenues of $288.3 million attributable to the acquisitions of CMP and Citadel in 2011 are included in the selected historical consolidated financial information for the year ended December 31, 2011. Primarily

 

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  as a result of the completion of these significant transactions at various dates in 2011, Cumulus believes that its results of operations for the year ended December 31, 2012, and its financial condition as of December 31, 2011, will provide only limited comparability to prior periods. Investors are cautioned to not place undue reliance on any such comparisons.

 

(2) Impairment charge recorded in connection with our interim and annual impairment testing under ASC Topic 350. See Note 6, “Intangible Assets and Goodwill,” in the consolidated financial statements included elsewhere in this prospectus supplement.

 

(3) The following table provides an unaudited reconciliation of our net income (loss) to Adjusted EBITDA:

 

    Six Months Ended
June 30,
    Year Ended December 31,  
    2013     2012     2012     2011(a)     2010(a)     2009(a)     2008(a)  
    (Dollars in thousands)  

Net income (loss)

  $ 18,112      $ (3,987   $ (32,729   $ 63,860      $ 29,402        (126,702     (361,669

Income tax (benefit) expense

    (4,276     (10,689     (26,552     (3,313     1,505        (3,259     (3,677
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating expenses, including net interest expense

    93,002        100,232        201,102        86,950        30,199        34,125        32,272   

LMA fees

    1,728        1,724        3,556        2,525        2,054        2,332        631   

Depreciation and amortization

    57,866        71,007        142,143        51,148        8,214        10,236        11,563   

Stock-based compensation expense

    5,134        12,906        18,779        10,744        2,451        2,879        4,664   

Loss on sale of stations

    1,400                                             

Gain on exchange of assets or stations

                         (15,278)               (7,204       

Realized (gain) loss on derivative instrument

    (2,844     753        (12     3,368        1,957        3,640          

Acquisition-related costs

    2,214        5,465        16,989                               

Franchise taxes

    352        265        336                               

Impairment of goodwill and intangible assets

           12,435        127,141               671        174,950        498,897   

Loss on early extinguishment of debt

                  2,432        4,366                        

Gain on equity investment in CMP

                         (11,636                   22,252   

Terminated transaction expense

                                7,847               2,041   

Discontinued operations: income from discontinued operations, net of tax

           (10,375     (59,448     (69,041     7,445        (27,616     (123,915
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 172,688      $ 179,736      $ 393,737      $ 123,693      $ 91,745      $ 63,381      $ 83,059   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) As described in footnote 1 above, primarily as a result of the completion of the acquisitions of CMP and Citadel at various dates in 2011, Cumulus believes that its results of operations for the year ended December 31, 2012, and its financial condition at December 31, 2011, will provide only limited comparability to prior periods. Investors are cautioned to not place undue reliance on any such comparisons.

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations 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, and contractual obligations. This section also includes general information about our business and 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. This discussion 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. 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. You should read the following information in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus supplement, as well as the information set forth under “Risk Factors” and “Forward-Looking Statements.”

Our Business

We own and operate commercial radio station clusters throughout the United States, and we believe we are the largest pure-play radio broadcaster in the United States based on number of stations owned and operated. At June 30, 2013, we owned or operated approximately 520 radio stations (including under LMAs for 14 radio stations) in 108 United States media markets. Additionally, we create audio content and partner with third parties to create audio content to support nationwide radio networks serving over 5,500 affiliates. Our combined portfolio of stations reaches over 65 million broadcast listeners weekly through a broad assortment of programming formats including rock, sports, top 40 and country, among others. Further, we distribute our content digitally through radio station websites, apps and streaming audio.

Operating Overview and Highlights

We believe that we have created a leading radio broadcasting company with a true national platform and an opportunity to further leverage and expand upon our strengths, market presence and programming. Specifically, we have an extensive radio station portfolio consisting of approximately 520 radio stations, including a presence in eight of the top 10 markets, and broad diversity in format, listener base, geography, advertiser base and revenue stream, all of which are designed to reduce our dependence on any single demographic, region or industry. Our nationwide radio networks platform generates premium content that can be distributed through broadcast and digital mediums. Our increased scale allows larger, more significant investments in the local digital media marketplace enabling us to apply our local digital platforms and strategies, including our social commerce initiatives, across additional markets. We believe national platform perspective will allow us to optimize our available advertising inventory while providing holistic and comprehensive solutions for our customers.

Cumulus believes that our capital structure provides adequate liquidity and scale for Cumulus to operate and grow our current business operations, as well as to pursue and finance potential strategic acquisitions in the future.

Liquidity Considerations

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

 

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Our principal sources of funds have primarily been cash flow from operations and borrowings under credit facilities in existence from time to time. We continually monitor our capital structure, and from time to time have evaluated, and expect that we will continue to evaluate, future opportunities to, obtain other public or private capital from the divestiture of radio stations or other assets that are not a part of, or do not compliment, our strategic operations, and the issuance of equity and/or debt securities, in each case subject to market and other conditions in existence at the appropriate time. No assurances can be provided that any source of funds would be available when needed on terms acceptable to the Company, or at all. Our cash flow from operations is subject to such factors as shifts in population, station listenership, demographics, and 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 that our broad diversity in format, listener base, geography, advertiser base and revenue stream helps us to reduce our dependence on any single demographic, region or industry.

On September 16, 2011, we entered into the First Lien Facility and the Second Lien Facility. The First Lien Facility (as amended and restated to date) 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, which we refer to as the First Lien Term Loan, and the $150.0 million Revolving Credit Facility, maturing in September 2016. Under the Revolving Credit Facility, up to $15.0 million of availability may be drawn in the form of letters of credit and up to $15.0 million is available for swingline borrowings. The Second Lien Facility consists of a $790.0 million second lien term loan facility, net of an original issue discount of $12.0 million, maturing in September 2019, which we refer to as the Second Lien Term Loan.

On December 20, 2012, we entered into an amendment and restatement of the First Lien Facility, which we refer to as the Amendment and Restatement. Pursuant to the Amendment and Restatement, the terms and conditions contained in the First Lien Facility remained substantially unchanged, except as follows: (i) the amount outstanding thereunder was increased to $1.325 billion; (ii) the margin for LIBOR (as defined below) based borrowings was reduced from 4.5% to 3.5% and for Base Rate (as defined below)—based borrowings was reduced from 3.5% to 2.5%; and (iii) the LIBOR floor for LIBOR-based borrowings was reduced from 1.25% to 1.0%. The Amendment and Restatement resulted in both a debt modification and extinguishment for accounting purposes. As a result, we wrote off $2.4 million of deferred financing costs related to the First Lien Facility in the year ended December 31, 2012. We also capitalized $0.8 million of deferred financing costs related to the Amendment and Restatement.

On May 31, 2013, we entered into an amendment to the First Lien Facility, which we refer to as the Amendment. Pursuant to the Amendment, the consolidated total net leverage ratio covenant contained in the First Lien Facility with which we were required to comply in the event amounts were outstanding under the Revolving Credit Facility was replaced with a consolidated first lien net leverage ratio covenant, and the total commitments under the Revolving Credit Facility were reduced from $300.0 million to $150.0 million. The Amendment constituted an extinguishment of debt for accounting purposes. As a result, we wrote off $4.5 million of deferred financing costs related to the Revolving Credit Facility which has been included in “Loss on early extinguishment of debt” of the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2013 included elsewhere in this prospectus supplement.

Borrowings under the First Lien Facility bear interest, at the option of Cumulus Media Holdings Inc., or Cumulus Holdings, a wholly owned subsidiary of the Company, based on the Base Rate or the London Interbank Offered Rate, or LIBOR, in each case plus 3.5% on LIBOR-based borrowings and 2.5% on Base Rate-based borrowings. LIBOR-based borrowings are subject to a LIBOR floor of 1.0% for the First Lien Term Loan and 1.0% for the Revolving Credit Facility. Base Rate-based borrowings are subject to a Base

 

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Rate Floor of 2.25% for the First Lien Term Loan and 2.0% for the Revolving Credit Facility. Base Rate is defined, for any day, as the fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1.0%, (ii) the prime commercial lending rate of JPMorgan, as established from time to time, and (iii) 30 day LIBOR plus 1.0%. The First Lien Term Loan amortizes at a per annum rate of 1.0% of the original principal amount of the First Lien Term Loan, payable quarterly, which commenced on March 31, 2012, with the balance payable on the maturity date. Amounts outstanding under the Revolving Credit Facility are due and payable on the maturity date.

Borrowings under the Second Lien Facility bear interest, at the option of Cumulus Holdings, at either the Base Rate plus 5.0%, subject to a Base Rate floor of 2.5%, or LIBOR plus 6.0%, subject to a LIBOR floor of 1.5%. The Second Lien Term Loan original principal amount is due on the maturity date, September 16, 2019.

At June 30, 2013, borrowings under the First Lien Term Loan bore interest at 4.5% per annum and borrowings under the Second Lien Term Loan bore interest at 7.5% per annum. Effective December 8, 2011, the Company entered into an interest rate cap agreement with an aggregate notional amount of $71.3 million, which agreement caps the interest rate on an equivalent amount of the Company’s LIBOR based term loans at a maximum of 3.0% per annum. The interest rate cap agreement matures on December 8, 2015. See Note 6, “Derivative Financial Instruments” in the notes to the unaudited condensed consolidated financial statements included elsewhere in this prospectus supplement.

The representations, covenants and events of default in the 2011 Credit Facilities and financial covenants in the First Lien Facility are customary for financing transactions of this nature. Events of default in the 2011 Credit Facilities include, among others: (a) the failure to pay when due the obligations owing under the credit facilities; (b) the failure to comply with (and not timely remedy, if applicable) certain financial covenants (as required by the First Lien Facility); (c) certain cross defaults and cross accelerations; (d) the occurrence of bankruptcy or insolvency events; (e) certain judgments against the Company or any of its restricted subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use one or more of, any material FCC licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the First Lien Facility and the Second Lien Facility, as applicable). Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the First Lien Facility and the Second Lien Facility, as applicable, and the ancillary loan documents as a secured party.

In the event amounts are outstanding under the Revolving Credit Facility, the First Lien Facility requires compliance with a consolidated first lien net leverage ratio covenant. At June 30, 2013, this ratio would have been 4.5 to 1.0. Such ratio will be reduced in future periods if amounts are outstanding under the Revolving Credit Facility at an applicable date. At June 30, 2013, the Company would have been in compliance with the covenant if the Company had amounts outstanding under the Revolving Credit Facility. The Second Lien Facility does not contain any financial covenants.

At June 30, 2013, we had $1.287 billion outstanding under the First Lien Term Loan, $785.5 million outstanding under the Second Lien Facility and $0.0 million outstanding under the Revolving Credit Facility. We also had outstanding $610.0 million of 7.75% Senior Notes due 2019.

On August 20, 2013, the Company issued 77,241 shares of newly designated Series B Preferred Stock. Proceeds from the issuance of approximately $77.2 million were used to redeem all outstanding shares of Series A Preferred Stock, including accrued and unpaid dividends. Dividends on the Series B Preferred Stock accrue at a rate of 12% per annum until September 30, 2014, thereafter at a rate of 14% per annum until March 31, 2015, and thereafter at a rate of 17% per annum, in each case subject to increase as described in “Description of Capital Stock — Preferred Stock” in the accompanying prospectus.

 

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We have assessed the current and expected conditions of our business climate, our current and expected needs for funds, and our current and expected sources of funds and determined, based on our financial condition as of June 30, 2013, that cash on hand, cash expected to be generated from operating activities and cash available from various financing sources 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 June 30, 2014.

Advertising Revenue and Adjusted EBITDA

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

We strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices up or down based on supply and demand. The optimal number of advertisements available for sale depends on the programming format of a particular radio program. Each sales vehicle has a general target level of on-air inventory available for advertising. This target level of advertising inventory may vary at different times of the day but tends to remain stable over time. We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across each cluster of stations, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group. In the broadcasting industry, we sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of for cash. Trade revenue totaled $12.5 million, $13.6 million, $27.7 million, $21.2 million and $16.7 million in the six months ended June 30, 2013 and 2012 and the years ended December 31, 2012, 2011 and 2010, 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 67.6%, 67.3%, 77.4%, 72.6% and 84.5% of our total revenues during six months ended June 30, 2013 and 2012 and the years ended December 31, 2012, 2011 and 2010, respectively.

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

Our advertising revenues vary by quarter throughout the year. As is typical in the radio broadcasting industry, our first calendar quarter typically produces the lowest revenues of a last twelve month period, as advertising generally declines following the winter holidays. The second and fourth calendar quarters typically produce the highest revenues for the year. Our operating results in any period may be affected by

 

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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. For a discussion of Adjusted EBITDA, including the Company’s definition thereof and its utilization, see footnote 2 in “Summary—Summary Historical Financial Information” included elsewhere in this prospectus supplement. A quantitative reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, follows in this section.

Results of Operations

Analysis of Unaudited Condensed Consolidated Results of Operations

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

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
    %
Change
Three
Months
Ended
    %
Change
Six
Months
Ended
 
    2013     2012     2013     2012      

Statement of Operations Data:

           

Net revenues

  $ 289,676      $ 281,041      $ 522,548      $ 517,036        3.1     1.1

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

    171,762        168,746        335,934        322,442        1.8     4.2

Depreciation and amortization

    28,935        36,200        57,866        71,007        (20.2 )%      (18.5 )% 

LMA fees

    759        885        1,728        1,724        (14.2 )%      0.2

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

    7,760        16,802        21,626        33,494        (53.8 )%      (35.5 )% 

Loss on sale of stations

    91               1,400                 **        ** 

(Gain) loss on derivative instrument

    (2,106     841        (2,844     753          **        ** 

Impairment of intangible assets

           12,435               12,435          **        ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    82,475        45,132        106,838        75,181        82.7     42.1

Interest expense, net

    (43,833     (49,619     (88,085     (100,422     (11.7 )%      (12.3 )% 

Loss on early extinguishment of debt

    (4,539            (4,539              **        ** 

Other (loss) income, net

    (511     (74     (378     190        590.5     (298.9 )% 

Income (loss) from continuing operations before income taxes

    33,592        (4,561     13,836        (25,051       **        ** 

Income tax (expense) benefit

    (6,491     2,798        4,276        10,689          **        ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    27,101        (1,763     18,112        (14,362       **        ** 

Income from discontinued operations, net of taxes

           9,906               10,375          **        ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 27,101      $ 8,143      $ 18,112      $ (3,987       **        ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Data:

           

Adjusted EBITDA

  $ 112,800      $ 106,129      $ 172,688      $ 179,736        6.3     (3.9 )% 

 

** Calculation is not meaningful.

 

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Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Net Revenues. Net revenues for the three months ended June 30, 2013 increased $8.7 million, or 3.1%, to $289.7 million, compared to $281.0 million for the three months ended June 30, 2012. This increase was attributable to a $4.3 million increase in local advertising revenue, a $3.9 million increase in revenue related to digital initiatives and a $2.8 million increase in revenue due to the addition of stations in the Bloomington and Peoria markets that we acquired from Townsquare as a part of our sale of 55 stations in eleven non-strategic markets to Townsquare in exchange for Townsquare’s radio stations in Bloomington, IL and Peoria, IL, plus approximately $114.9 million in cash, which we refer to as the Townsquare Asset Exchange, in July 2012. These increases were partially offset by a decrease of $2.3 million in cyclical political revenue.

Direct Operating Expenses, Excluding Depreciation and Amortization. Direct operating expenses for the three months ended June 30, 2013 increased $3.1 million, or 1.8%, to $171.8 million, compared to $168.7 million for the three months ended June 30, 2012. The increase was primarily attributable to a $4.6 million increase in our strategic content initiatives, a $4.1 million increase related to ongoing investments in our sales infrastructure and a $1.9 million increase in expenses due to the addition of stations in the Bloomington and Peoria markets we acquired from Townsquare in July 2012. These increases were partially offset by a $7.5 million decrease in music royalties.

Depreciation and Amortization. Depreciation and amortization for the three months ended June 30, 2013 decreased $7.3 million, or 20.2%, to $28.9 million, compared to $36.2 million for the three months ended June 30, 2012. This decrease was primarily due to a $6.6 million decrease in amortization expense on our definite lived intangible assets, which results from the accelerated amortization methodology we have applied since acquisition of the assets based on the expected pattern in which the underlying assets’ economic benefits are consumed. There was also a $0.7 million decrease in depreciation expense.

Corporate, General and Administrative Expenses, Including Stock-based Compensation Expense. Corporate general and administrative expenses, including stock-based compensation expense, for the three months ended June 30, 2013 decreased $9.0 million, or 53.8%, to $7.8 million, compared to $16.8 million for the three months ended June 30, 2012. This decrease is primarily due to a decrease of $4.4 million mostly associated with the closure of the legacy Citadel corporate offices, a $3.5 million decrease in stock-based compensation expense and a $1.1 million decrease in other overhead costs.

(Gain) loss on Derivative Instrument. For the three months ended June 30, 2013, we recorded a $2.1 million gain related to the fair value adjustment of the put option on five radio stations in Green Bay we operate under an LMA, which we refer to as the Green Bay Option, compared to a $0.8 million loss recorded for the three months ended June 30, 2012.

Impairment of Intangible Assets. For the three months ended June 30, 2012, we recorded a definite-lived intangible asset impairment of $12.4 million related to the cancellation of a contract. There was no similar impairment for the three months ended June 30, 2013.

Interest Expense, net. Total interest expense, net of interest income, for the three months ended June 30, 2013 decreased $5.8 million, or 11.7%, to $43.8 million compared to $49.6 million for the three months ended June 30, 2012. Interest expense associated with outstanding debt decreased by $6.3 million to $41.4 million as compared to $47.7 million in the prior year period. This decrease was due to lower average indebtedness outstanding resulting from principal repayments and a lower weighted average cost of debt

 

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due to the December 2012 amendment to our First Lien Facility. The following summary details the components of our interest expense, net of interest income (dollars in thousands):

 

     Three Months Ended
June 30,
    2013 vs 2012  
     2013     2012     $ Change     % Change  

7.75% Senior Notes

   $ 11,819      $ 11,819      $       

Bank borrowings — term loans and revolving credit facilities

     29,534        35,848        (6,314     (17.6 )% 

Other interest expense

     2,876        2,089        787        37.7

Change in fair value of interest rate cap and swap

     (32     165        (197     (119.4 )% 

Interest income

     (364     (302     (62     20.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

   $ 43,833      $ 49,619      $ (5,786     (11.7 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Taxes. For the three months ended June 30, 2013, the Company recorded income tax expense of $6.5 million, on a pre-tax income from continuing operations of $33.6 million, resulting in an effective tax rate for the three months ended June 30, 2013 of approximately 19.3%. For the three months ended June 30, 2012, the Company recorded an income tax benefit of $2.8 million, on pre-tax loss from continuing operations of $4.6 million, resulting in an effective tax rate for the three months ended June 30, 2012 of approximately 60.9%.

The difference between the effective tax rate for each period and the federal statutory rate of 35.0% primarily relates to state and local income taxes and the tax amortization of broadcast licenses and goodwill and changes in the valuation allowance on net deferred tax assets.

In accordance with ASC 740, Accounting for Income Taxes, each quarter we assess the likelihood that the Company will be able to recover its deferred tax assets with respect to the amount of its federal and state net operating loss carryovers available to satisfy the settlement of its deferred tax liability related to the prior elections made by certain of its acquired subsidiaries to defer the recognition of cancellation of debt income, or CODI. As a result of this quarter’s assessment, the Company estimates that more of its net operating loss carryovers will become available to settle the deferred tax liabilities associated with the deferred CODI resulting in a $14.1 million release of its valuation allowance during the three months ended June 30, 2013.

Adjusted EBITDA. As a result of the factors described above, Adjusted EBITDA for the three months ended June 30, 2013 increased $6.7 million to $112.8 million from $106.1 million for the three months ended June 30, 2012.

 

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

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
    % Change
Three Months

Ended
    % Change
Six Months
Ended
 
    2013     2012     2013     2012      

Net income (loss)

  $ 27,101      $ 8,143      $ 18,112      $ (3,987       **        ** 

Income tax expense (benefit)

    6,491        (2,798     (4,276     (10,689       **        ** 

Non-operating expenses, including net interest expense

    48,883        49,693        93,002        100,232        (1.6 )%      (7.2 )% 

LMA fees

    759        885        1,728        1,724        (14.2 )%      0.2

Depreciation and amortization

    28,935        36,200        57,866        71,007        (20.1 )%      (18.5 )% 

Stock-based compensation expense

    2,470        5,928        5,134        12,906        (58.3 )%      (60.2 )% 

Loss on sale of stations

    91               1,400                 **        ** 

(Gain) loss on derivative instrument

    (2,106     841        (2,844     753          **        ** 

Impairment of intangible assets

           12,435               12,435          **        ** 

Acquisition-related costs

           4,443        2,214        5,465          **      (59.5 )% 

Franchise taxes

    176        265        352        265        (33.6 )%      32.8

Discontinued operations

           (9,906            (10,375       **        ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 112,800      $ 106,129      $ 172,688      $ 179,736        6.3     (3.9 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

** Calculation is not meaningful.

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

Net Revenues. Net revenues for the six months ended June 30, 2013 increased $5.5 million, or 1.1%, to $522.5 million, compared to $517.0 million for the six months ended June 30, 2012. This increase was attributable to a $1.5 million increase in local advertising revenue, a $3.0 million increase in revenue related to digital initiatives and a $5.0 million increase in revenue due to the addition of stations in the Bloomington and Peoria markets we acquired from Townsquare in July 2012. These increases were partially offset by a decrease of $4.0 million in cyclical political revenue.

Direct Operating Expenses, Excluding Depreciation and Amortization. Direct operating expenses for the six months ended June 30, 2013 increased $13.5 million, or 4.2%, to $335.9 million, compared to $322.4 million for the six months ended June 30, 2012. The increase was primarily attributable to an $18.7 million increase in our strategic content initiatives as well as ongoing investments in our sales infrastructure and a $3.5 million increase in expenses due to the addition of stations in the Bloomington and Peoria markets we acquired from Townsquare in July 2012. These increases were partially offset by an $8.7 million decrease in music royalties.

Depreciation and Amortization. Depreciation and amortization for the six months ended June 30, 2013 decreased $13.1 million to $57.9 million, compared to $71.0 million for the six months ended June 30, 2012. This decrease was primarily due to a $13.7 million decrease in amortization expense on our definite

 

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Index to Financial Statements

lived intangible assets, which results from the accelerated amortization methodology we have applied since acquisition of the assets based on the expected pattern in which the underlying assets’ economic benefits are consumed. There was also a $0.6 million increase in depreciation expense.

Corporate, General and Administrative Expenses, Including Stock-based Compensation Expense. Corporate general and administrative expenses, including stock-based compensation expense, for the six months ended June 30, 2013 decreased $11.9 million, or 35.5%, to $21.6 million, compared to $33.5 million for the six months ended June 30, 2012. The decrease is primarily due to a decrease in acquisition related costs of $3.3 million mostly associated with the closure of the legacy Citadel corporate offices, a $7.8 million decrease in stock-based compensation expense and a $0.8 million decrease in other overhead costs.

(Gain) loss on Derivative Instrument. For the six months ended June 30, 2013, we recorded a $2.8 million gain related to the fair value adjustment of the put option on five Green Bay stations we operate under an LMA, compared to a $0.8 million loss recorded for the six months ended June 30, 2012.

Impairment of Intangible Assets. For the six months ended June 30, 2012, we recorded a definite-lived intangible asset impairment of $12.4 million related to the cancellation of a contract. There was no similar impairment for the six months ended June 30, 2013.

Interest Expense, net. Total interest expense, net of interest income, for the six months ended June 30, 2013 decreased $12.3 million, or 12.3%, to $88.1 million compared to $100.4 million for the six months ended June 30, 2012. Interest expense associated with outstanding debt decreased by $12.8 million to $82.9 million as compared to $95.7 million in the prior year period. This decrease was due to lower average indebtedness outstanding resulting from principal repayments and a lower weighted average cost of debt due to the December 2012 amendment to our First Lien Facility. The following summary details the components of our interest expense, net of interest income (dollars in thousands):

 

     Six Months Ended
June 30,
    2013 vs 2012  
     2013     2012     $ Change     % Change  

7.75% Senior Notes

   $ 23,638      $ 23,638      $       

Bank borrowings — term loans and revolving credit facilities

     59,214        72,067        (12,853     (17.8 )% 

Other interest expense

     5,894        5,065        829        16.4

Change in fair value of interest rate cap and swap

     (27     250        (277     (110.8 )% 

Interest income

     (634     (598     (36     6.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

   $ 88,085      $ 100,422      $ (12,337     (12.3 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Taxes. For the six months ended June 30, 2013, the Company recorded an income tax benefit of $4.3 million on pre-tax income from continuing operations of $13.8 million, resulting in an effective tax rate of approximately (31.2%). For the six months ended June 30, 2012, the Company recorded an income tax benefit of $10.7 million on pre-tax loss from continuing operations of $25.1 million, resulting in an effective tax rate of 42.6%.

The difference between the effective tax rate for each period and the federal statutory rate of 35.0% primarily relates to state and local income taxes and the tax amortization of broadcast licenses and goodwill and changes in the valuation allowance on net deferred tax assets.

In accordance with ASC 740, Accounting for Income Taxes, each quarter we assesses the likelihood that the Company will be able to recover its deferred tax assets with respect to the amount of its federal and state net operating loss carryovers available to satisfy the settlement of its deferred tax liability related to the

 

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prior elections made by certain of its acquired subsidiaries to defer the recognition of CODI. As a result of this quarter’s assessment, the Company estimates that more of its net operating loss carryovers will become available to settle the deferred tax liabilities associated with the deferred CODI resulting in a $14.1 million release of its valuation allowance during the six months ended June 30, 2013.

Adjusted EBITDA. As a result of the factors described above, Adjusted EBITDA for the six months ended June 30, 2013 decreased $7.0 million to $172.7 million from $179.7 million for the six months ended June 30, 2012.

Analysis of Audited Consolidated Results of Operations

Primarily as a result of the completion the CMP Acquisition and the Citadel Merger at various times in 2011, Cumulus believes that its results of operations for the year ended December 31, 2012, and its financial condition at December 31, 2012 and 2011, 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 CMP Acquisition and Citadel Merger 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,     2012 vs 2011     2011 vs 2010  
    2012     2011     2010     $ Change     % Change     $ Change     % Change  

Statement of Operations Data:

             

Net revenues

  $ 1,076,582      $ 519,963      $ 236,640      $ 556,619        107.0   $ 283,323        119.7

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

    661,511        316,253        143,717        345,258        109.2     172,536        120.1

Depreciation and amortization

    142,143        51,148        8,214        90,995        177.9     42,934          ** 

LMA fees

    3,556        2,525        2,054        1,031        40.8     471        22.9

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

    57,438        90,761        18,519        (33,323     -36.7     72,242          ** 

Gain on exchange of assets or stations

           (15,278            15,278          **      (15,278       ** 

Realized (gain) loss on derivative instrument

    (12     3,368        1,957        (3,380     -100.4     1,411        72.1

Impairment of intangible assets and goodwill

    127,141               671        127,141          **      (671       ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    84,805        71,186        61,508        13,619        19.1     9,678        15.7

Interest expense, net

    (198,628     (86,989     (30,307     (111,639     128.3     (56,682     187.0

Loss on early extinguishment of debt

    (2,432     (4,366            1,934        -44.3     (4,366       ** 

Other (expense) income, net

    (2,474     39        108        (2,513       **      (69     -63.9

Terminated transaction expense

                  (7,847              **      7,847          ** 

Gain on equity investment in Cumulus Media Partners, LLC

           11,636               (11,636       **      11,636          ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes

    (118,729     (8,494     23,462        (110,235     1297.8     (31,956     -136.2

Income tax benefit (expense)

    26,552        3,313        (1,505     23,239        701.4     4,818        320.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

    (92,177     (5,181     21,957        (86,996     1679.1     (27,138     -123.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations, net of taxes

    59,448        69,041        7,445        (9,593     13.9     (61,596     827.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (32,729     63,860        29,402        (96,589     -151.3     34,458        117.2

Less: dividends declared and accretion of redeemable preferred stock

    21,432        6,961               14,576          **      6,961          ** 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income attributable to common shareholders

  $ (54,161   $ 56,899      $ 29,402      $ (111,165     -195.4   $ 27,497        93.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Data:

             

Adjusted EBITDA

  $ 393,737      $ 123,693      $ 91,745      $ 270,044        218.3   $ 31,948        34.8

 

** Calculation is not meaningful.

 

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Our management’s discussion and analysis of results of operations for the three years ended December 31, 2012 has been presented on a historical basis.

Year Ended December 31, 2012 compared to Year Ended December 31, 2011

Net Revenues. Net revenues for the year ended December 31, 2012 increased $556.6 million, or 107.0%, to $1,076.6 million compared to $520.0 million for the year ended December 31, 2011. This increase is primarily attributable to the impact of a full year of net revenues attributable to CMP and Citadel, as well as a $26.4 million increase in political advertising due to the presidential and local government elections.

Direct Operating Expenses, Excluding Depreciation, Amortization and LMA Fees. Direct operating expenses for the year ended December 31, 2012 increased $345.2 million, or 109.2%, to $661.5 million compared to $316.3 million for the year ended December 31, 2011. This increase reflects the impact of a full year of direct operating expenses attributable to CMP and Citadel.

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2012 increased $91.0 million, or 177.9%, to $142.1 million compared to $51.1 million for the year ended December 31, 2011. This increase reflects the impact of a full year of additional depreciation and amortization expense from assets acquired in the CMP Acquisition and the Citadel Merger. This was partially offset by a $1.3 million decrease in depreciation expense on assets within our legacy markets due to an increasingly fully depreciated asset base and a decrease of $29.0 million in depreciable assets related to the Townsquare Asset Exchange.

LMA Fees. LMA fees for the year ended December 31, 2012 increased $1.0 million, or 40.8%, to $3.6 million compared to $2.5 million for the year ended December 31, 2011. The increase relates to a full year of fees associated with the operation of stations in a divestiture trust associated with the Citadel Merger and additional LMAs entered into during the year.

Corporate General and Administrative Expenses, Including, Stock-based Compensation Expense. Corporate, general and administrative expenses, including stock-based compensation expense, for year ended December 31, 2012, decreased $33.4 million to $57.4 million, or 36.7% compared to $90.8 million for the year ended December 31, 2011. This decrease is primarily comprised of a $2.2 million reduction of certain contractual obligations assumed in the Citadel Merger and a $46.1 million reduction in acquisition costs since the prior year expenses contained those costs related to the CMP Acquisition and Citadel Merger. This was partially offset primarily by an increase of $8.0 million in stock compensation costs for equity awards granted in late 2011 and early 2012 and a $2.9 million increase in professional, legal, insurance and various other corporate facility related fees.

Gain on Exchange of Assets or Stations. During 2011, we completed an asset exchange with Clear Channel Communications, Inc, or Clear Channel, to swap our Canton, Ohio station for eight of Clear Channel’s radio stations in the Ann Arbor and Battle Creek, Michigan markets. In connection with this transaction, we recorded a gain of approximately $15.3 million. There were no similar transactions during the 2012 period.

Realized (Gain) Loss on Derivative Instrument. During the years ended December 31, 2012 and 2011, we recorded a gain of $0.0 million and a charge of $3.4 million, respectively, related to our recording of the fair value of the Green Bay Option.

Impairment of Intangible Assets and Goodwill. For the year ended December 31, 2012, we recorded impairment charges of $100.0 million and $14.7 million related to goodwill and indefinite lived intangible assets (FCC Licenses), respectively, and a definite-lived intangible asset impairment of $12.4 million related to the cancellation of a contract. In the fourth quarter, as the Company headed into its annual

 

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impairment test of goodwill and FCC Licenses, format and structural changes made in the first half of 2012 at certain markets acquired during the second half of 2011 did not achieve the expected results for fiscal year 2012. As a result, certain markets failed step 1 of our annual impairment test of goodwill. There were no similar impairments during 2011. The impairment loss is related to the broadcasting license and goodwill recorded in conjunction with our annual impairment testing conducted during the fourth quarter (see Note 6, “Intangible Assets and Goodwill” in the notes to the audited consolidated financial statements included elsewhere in this prospectus supplement).

Interest Expense, net. Interest expense, net of interest income, for the year ended December 31, 2012 increased $111.6 million to $198.6 million compared to $87.0 million for the year ended December 31, 2011. Interest expense associated with outstanding debt increased by $104.0 million to $187.8 million as compared to $83.8 million in the prior year period. Interest expense increased due to a higher average amount of indebtedness outstanding as a result of our refinancing efforts undertaken in connection with the Citadel Merger in 2011. The following summary details the components of our interest expense, net of interest income (dollars in thousands):

 

     Year Ended
December 31,
       
     2012     2011     $ Change     % Change  

7.75% Senior Notes

   $ 47,275      $ 29,941      $ 17,334        57.9

Bank borrowings — term loans and revolving credit facilities

     140,525        53,845        86,680        161.0

Bank borrowings yield adjustment – interest rate swap

            3,708        (3,708       ** 

Other, including debt cost amortization

     11,443        3,476        7,967        229.2

Change in fair value of interest rate cap and Green Bay Option

     331        (3,582     3,913        -109.2

Interest income

     (946     (399     (547     137.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

   $ 198,628      $ 86,989      $ 111,639        128.3
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** Not meaningful

Loss on Early Extinguishment of Debt. For the years ended December 31, 2012 and 2011, we recorded $2.4 million and $4.4 million in losses on early extinguishment of debt as a result of our debt refinancings in December 2012 and May 2011, respectively.

Gain on Equity Investment in CMP. For the year ended December 31, 2011, we recorded an $11.6 million gain on our equity investment in CMP due to the CMP Acquisition. There was not a similar gain during the year ended December 31, 2012 (see Note 2, “Acquisitions and Dispositions” in the notes to the audited consolidated financial statements included elsewhere in this prospectus supplement).

Income Tax Benefit (Expense). We recorded an income tax benefit on continuing operations of $26.6 million in 2012 as compared to a $3.3 million benefit during the prior year. The income tax benefit for 2012 is equal to the amount of tax expense on discontinued operations that is offset by the loss from continuing operations. The income tax benefit for 2011 is primarily due to a release of the valuation allowance as a result of the CMP Acquisition and Citadel Merger while the 2010 tax expense is primarily due to tax amortization of intangibles.

Adjusted EBITDA. As a result of the factors described above, Adjusted EBITDA for the year ended December 31, 2012 increased $270.0 million, or 218.3%, to $393.7 million compared to $123.7 million for the year ended December 31, 2011.

 

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

 

     Year Ended
December 31,
    % Change  
     2012     2011    

Net income (loss)

   $ (32,729   $ 63,860        -151.3

Income tax benefit

     (26,552     (3,313     701.4

Non-operating expenses, including net interest expense

     201,102        86,950        131.3

LMA fees

     3,556        2,525        40.8

Depreciation and amortization

     142,143        51,148          ** 

Stock-based compensation expense

     18,779        10,744        74.8

Gain on exchange of assets or stations

            (15,278       ** 

Realized (gain) loss on derivative instrument

     (12     3,368          ** 

Acquisition-related costs

     16,989                 ** 

Franchise taxes

     336                 ** 

Impairment of intangible assets and goodwill

     127,141                 ** 

Loss on early extinguishment of debt

     2,432        4,366        -44.3

Gain on equity investment in CMP

            (11,636       ** 

Discontinued operations:

      

Income from discontinued operations, net of tax

     (59,448     (69,041       ** 
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 393,737      $ 123,693        218.3
  

 

 

   

 

 

   

 

 

 

 

** Calculation is not meaningful

Intangible Assets (including Goodwill), net. Intangible assets, net of amortization, were $3,056.3 million and $3,350.4 million as of December 31, 2012 and 2011, respectively. These intangible asset balances primarily consist of broadcast licenses and goodwill. Intangible assets, net, decreased from the prior year primarily due to a $114.7 million impairment charge in the year ended December 31, 2012 in conjunction with our annual impairment evaluation in the fourth quarter of 2012 and a $12.4 million impairment on a definite – lived intangible asset in 2012 related to the cancellation of a contract.

We will continue to monitor whether any impairment triggers are present and we may be required to record material impairment charges in future periods. Our impairment testing requires us to make certain assumptions in determining fair value, including assumptions about the cash flow growth of our businesses. Additionally, fair values are significantly impacted by macroeconomic factors, including market multiples at the time the impairments tests are performed. The following factors could adversely impact the current carrying value of our broadcast licenses and goodwill: (a) sustained decline in the price of our common stock, (b) the potential for a decline in our forecasted operating profit margins or expected cash flow growth rates, (c) a decline in our industry forecasted operating profit margins, (d) the potential for a continued decline in advertising market revenues within the markets we operate stations, or (e) the sustained decline in the selling prices of radio stations.

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 Merger, net revenues for the year ended December 31, 2011 decreased $0.3 million, or 0.1%, to $236.3 million compared to $236.6 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

 

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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 Merger, direct operating expenses for the year ended December 31, 2011 decreased $6.2 million, or 4.3%, to $137.5 million compared to $143.7 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 Merger, depreciation and amortization for the year ended December 31, 2011 decreased $1.7 million, or 20.7%, to $6.5 million compared to $8.2 million for the year ended December 31, 2010, resulting from a decrease in our asset base due to assets becoming fully depreciated.

LMA Fees. Excluding the impact of LMA fees as a result of the CMP Acquisition and the Citadel Merger, LMA fees for the year ended December 31, 2011 increased $0.2 million, or 9.5%, to $2.3 million compared to $2.1 million for the year ended December 31, 2010.

Corporate General and Administrative Expenses, Including Stock-based Compensation Expense. Corporate, general and administrative expenses, including stock-based compensation expense for year ended December 31, 2011, increased $72.3 million to $90.8 million, compared to $18.5 million for the year ended December 31, 2010. This increase is primarily comprised of $54.0 million in one-time costs associated with the CMP Acquisition and the Citadel Merger, additional personnel costs of $6.1 million as a result of the acquisitions, an increase of $8.3 million in stock-based compensation expenses and increases in other corporate expense items.

Gain on Exchange of Assets or Stations. During 2011, we completed an exchange transaction with Clear Channel to swap our Canton, Ohio station for eight of Clear Channel’s radio stations in the Ann Arbor and Battle Creek, Michigan markets. In connection with this transaction, we recorded a gain of approximately $15.3 million. We did not complete any similar transactions in 2010.

Realized Loss on Derivative Instruments. During the years ended December 31, 2011 and 2010, we recorded charges of $3.4 million and $2.0 million, respectively, related to our recording of the fair value of the Green Bay Option.

Impairment of Intangible Assets and Goodwill. We recorded approximately $0.7 million of charges related to the impairment of intangible assets and goodwill for the year ended December 31, 2010. The impairment loss is related to the broadcasting licenses and goodwill recorded in conjunction with our annual impairment testing conducted during the fourth quarter (see Note 6, “Intangible Assets and Goodwill” in the notes to the audited consolidated financial statements included elsewhere in this prospectus supplement). There were no similar asset impairment charges during the year ended December 31, 2011.

Interest Expense, net. Interest expense, net of interest income, for the year ended December 31, 2011 increased $56.7 million to $87.0 million compared to $30.3 million for the year ended December 31, 2010. Interest expense associated with outstanding debt increased by $57.8 million to $83.8 million as compared to $26.0 million in the prior year period. Interest expense increased due to a higher average amount of indebtedness outstanding as a result of the Company’s refinancing efforts in the third quarter of 2011. The

 

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following summary details the components of our interest expense, net of interest income (dollars in thousands):

 

     Year Ended
December 31,
       
     2011     2010     $ Change  

7.75% senior notes

   $ 29,941      $      $ 29,941   

Bank borrowings — term loans and revolving credit facilities

     53,845        25,993        27,852   

Bank borrowings yield adjustment — interest rate swap and cap

     3,708        14,796        (11,088

Change in fair value of interest rate swap

     (3,582     (11,957     8,375   

Other interest expense

     3,476        1,483        1,993   

Interest income

     (399     (8     (391
  

 

 

   

 

 

   

 

 

 

Interest expense, net

   $ 86,989      $ 30,307      $ 56,682   
  

 

 

   

 

 

   

 

 

 

Loss on Early Extinguishment of Debt. For the year ended December 31, 2011, we recorded $4.4 million in loss on early extinguishment of debt as a result of our debt refinancing in May 2011. There was not a similar extinguishment of debt during 2010.

Terminated Transaction (Expense) Income. For the year ended December 31, 2010, we incurred $7.8 million in costs, which were paid in 2011 and were associated with the settlement of litigation related to our since-terminated attempt to purchase radio station WTKE-FM in Holt, Florida (see Note 17, “Commitments and Contingencies” in the notes to the audited consolidated financial statements included elsewhere in this prospectus supplement). We had no similar expense for the year ended December 31, 2011.

Gain on Equity Investment in CMP. For the year ended December 31, 2011, we recorded an $11.6 million gain on our equity investment in CMP due to the CMP Acquisition. There was not a similar gain during the year ended December 31, 2010.

Income Tax Benefit (Expense). We recorded an income tax benefit on continuing operations of $3.3 million in 2011 as compared to a $1.5 million expense during the prior year. The income tax benefit for 2011 is primarily due to a release of the valuation allowance as a result of the CMP Acquisition and Citadel Merger while the 2010 tax expense is primarily due to tax amortization of intangibles.

Adjusted EBITDA. As a result of the factors described above, Adjusted EBITDA for the year ended December 31, 2011 increased $32.0 million, or 34.8%, to $123.7 million compared to $91.7 million for the year ended December 31, 2010.

 

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

 

     Year Ended
December 31,
     % Change  
     2011     2010     

Net income (loss)

   $ 63,860      $ 29,402         117.2

Income tax (benefit) expense

     (3,313     1,505         -320.1

Non-operating expenses, including net interest expense

     86,950        30,199         187.9

Terminated transaction expense

            7,847         -100.0

LMA fees

     2,525        2,054         22.9

Depreciation and amortization

     51,148        8,214         522.7

Stock-based compensation expense

     10,744        2,451         338.4

Gain on exchange of assets or stations

     (15,278             *

Realized (gain) loss on derivative instrument

     3,368        1,957         72.1

Impairment of intangible assets and goodwill

            671         -100.0

Loss on early extinguishment of debt

     4,366                *

Gain on equity investment in CMP

     (11,636             *

Discontinued operations:

       

Income from discontinued operations, net of tax

     (69,041     7,445         *
  

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

   $ 123,693      $ 91,745         34.8
  

 

 

   

 

 

    

 

 

 

Intangible Assets (including Goodwill), net. Intangible assets, net of amortization, were $3,350.4 million and $217.0 million as of December 31, 2011 and 2010, respectively. These intangible asset balances primarily consist of broadcast licenses and goodwill. Intangible assets, net, increased from the prior year due to the acquisitions of CMP and Citadel in 2011.

Seasonality and Cyclicality

We expect that our operations and revenues will continue to be seasonal in nature, with generally lower revenue generated in the first quarter of the year and generally higher revenue generated in the second and fourth quarters of the year. The seasonality of our business reflects the adult orientation of our formats and relationship between advertising purchases on these formats with the retail cycle. This seasonality causes and will likely continue to cause a variation in our quarterly operating results. Such variations could have a material effect on the timing of our cash flows.

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.

Liquidity and Capital Resources

Six Months Ended June 30, 2013 and 2012

Cash Flows Provided By Operating Activities

 

     Six Months Ended
June 30,
 
     2013      2012  
     (Dollars in thousands)  

Net cash provided by operating activities

   $ 56,774       $ 55,190   

 

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For the six months ended June 30, 2013 compared to the six months ended June 30, 2012, net cash provided by operating activities increased $1.6 million as compared to the six months ended June 30, 2012. The increase was primarily due to an increase in working capital driven by slightly better collections and timing of payments.

Cash Flows Used In Investing Activities

 

     Six Months Ended
June 30,
 
     2013     2012  
     (Dollars in
thousands)
 

Net cash used in investing activities

   $ (54,012   $ (1,493

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012, net cash used in investing activities increased $52.5 million, primarily due to completing $52.1 million in acquisitions during the six months ended June 30, 2013.

Cash Flows Used In Financing Activities

 

     Six Months Ended
June 30,
 
     2013     2012  
     (Dollars in thousands)  

Net cash used in financing activities

   $ (44,596   $ (65,206

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012, net cash used in financing activities decreased $20.6 million, primarily attributable to repaying $18.1 million less of borrowings under the Company’s term loans.

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

Years Ended December 31, 2012, 2011 and 2010

Liquidity Considerations

The following table summarizes our principal funding needs for the years ended December 31, 2012, 2011 and 2010:

 

     Year Ended December 31,  
     2012      2011      2010  
     (Dollars in thousands)  

Repayments of bank borrowings

   $ 174,313       $ 1,264,676       $ 43,136   

Interest payments

     192,083         69,558         41,416   

Capital expenditures

     6,607         6,690         2,475   

Acquisition and purchase of intangible assets

     9,998         2,024,172           

Cash Flows Provided By Operating Activities

 

     Year Ended December 31,  
     2012      2011      2010  
     (Dollars in thousands)  

Net cash provided by operating activities

   $ 179,490       $ 71,751       $ 42,553   

 

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For the years ended December 31, 2012 and 2011, net cash provided by operating activities increased by $107.7 million and $29.2 million, respectively, over the prior year. The increase in 2012 was primarily due to an increase in net revenues of $556.6 million, partially offset by an aggregate decrease in cash provided by operating assets and liabilities of $31.0 million and increases in operating expenses and cash paid for interest of $303.9 million and $122.5 million, respectively.

Cash Flows Provided By (Used In) Investing Activities

 

     Year Ended December 31,  
     2012      2011     2010  
     (Dollars in thousands)  

Net cash provided by (used in) investing activities

   $ 98,143       $ (2,031,256   $ (2,240

For the year ended December 31, 2012, net cash provided by investing activities increased $2.1 billion as compared to the year ended December 31, 2011, primarily due to consideration paid in 2011 to complete the Citadel Merger. For the year ended December 31, 2011, net cash used in investing activities increased $2.0 billion as compared to the year ended December 31, 2010, primarily due to consideration paid to complete the Citadel Merger.

Cash Flows (Used In) Provided By Financing Activities

 

     Year Ended December 31,  
     2012     2011      2010  
     (Dollars in thousands)  

Net cash (used in) provided by financing activities

   $ (220,175   $ 1,977,283       $ (43,723

For the year ended December 31, 2012, net cash used in financing activities decreased $2.2 billion as compared to the year ended December 31, 2011, primarily due the Company’s receipt in 2011 of proceeds from the refinancing and the sale of equity securities in connection with the completion of the Citadel Merger. For the year ended December 31, 2011, net cash provided by financing activities increased $2.0 billion as compared to the year ended December 31, 2010, primarily due to proceeds from those refinancing activities including the related sale of equity securities.

Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, our management, in consultation with the Audit Committee of our Board, evaluates these estimates, including those related to bad debts, intangible assets, self-insurance liabilities, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue from the sale of commercial broadcast time to advertisers when the commercials are broadcast, subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are generally met at the time an advertisement is broadcast.

 

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Accounts Receivable and Concentration of Credit Risks

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on several factors including the length of time receivables are past due, trends and current economic factors. All balances are reviewed and evaluated on a consolidated basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers.

In the opinion of our management, credit risk with respect to accounts receivable is limited due to the large number of customers and the geographic diversification of our customer base. We perform ongoing credit evaluations of our customers and believe that adequate allowances for any uncollectible accounts receivable are maintained.

Intangible Assets

We have significant intangible assets recorded in our accounts. These intangible assets are comprised primarily of broadcast licenses and goodwill acquired through the acquisition of radio stations. We are required to review the carrying value of certain intangible assets and our goodwill annually for impairment, and more frequently if circumstances warrant, and record any impairment to results of operations in the periods in which the recorded value of those assets is more than their fair value. For the year ended December 31, 2012, we recorded aggregate impairment charges of $127.1 million to reduce the carrying value of certain broadcast licenses, goodwill and definite-lived intangible assets to their respective fair values. As of December 31, 2012, we had $3.1 billion in intangible assets and goodwill, which represented approximately 81.7% of our total assets.

We perform our annual impairment tests for indefinite-lived intangible assets and goodwill during the fourth quarter. The impairment tests require us to make certain assumptions in determining fair value, including assumptions about the cash flow growth rates of our businesses. Additionally, the fair values are significantly impacted by macroeconomic factors, including market multiples at the time the impairment tests are performed. More specifically, the following could adversely impact the current carrying value of our broadcast licenses and goodwill: (a) sustained decline in the price of our common stock, (b) the potential for a decline in our forecasted operating profit margins or expected cash flow growth rates, (c) a decline in our industry forecasted operating profit margins, (d) the potential for a continued decline in advertising market revenues within the markets we operate stations, or (e) the sustained decline in the selling prices of radio stations. The calculation of the fair value of each reporting unit is prepared using an income approach and discounted cash flow methodology. As part of our overall planning associated with the testing of goodwill, we have determined that our geographic markets are the appropriate unit of accounting.

The assumptions used in estimating the fair values of the reporting units are based on currently available data and management’s best estimates and, accordingly, a change in market conditions or other factors could have a material effect on the estimated values. The use of different estimates could also result in materially different results.

We generally conducted our impairment tests as follows:

Step 1 Goodwill Test

In performing our annual impairment testing of goodwill, the fair value of each market was calculated using a discounted cash flow analysis, an income approach. The discounted cash flow approach requires the projection of future cash flows and the calculation of these cash flows into their present value equivalent via

 

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a discount rate. We used an approximate five-year projection period to derive operating cash flow projections from a market participant view. We made certain assumptions regarding future revenue growth based on industry market data and historical and expected performance. We then projected future operating expenses in order to derive operating profits, which we combined with expected working capital additions and capital expenditures to determine operating cash flows.

For our annual impairment test, we performed the Step 1 goodwill test, or the Step 1 test, and compared the fair value of each market to the carrying value of its net assets as of December 31, 2012. This test was used to determine if any of our markets had an indicator of impairment (i.e. the market net asset carrying value was greater than the calculated fair value of the market).

The discount rate employed in the fair value calculations of our markets was 9.5% for our Step 1 test. We believe this discount rate was appropriate and reasonable for estimating the fair value of the markets.

For periods after 2012, we projected annual revenue growth based on industry data and historical performance. We derived projected expense growth based primarily on the stations’ historical financial performance and expected growth. Our projections were based on then-current market and economic conditions and our historical knowledge of the markets.

To validate our conclusions and determine the reasonableness of our assumptions, we conducted an overall check of our fair value calculations by comparing the implied fair value of our markets, in the aggregate, to our market capitalization as of December 31, 2012. As compared with the market capitalization value of $3.4 billion as of December 31, 2012, the aggregate fair value of all markets of approximately $4.0 billion was approximately $616.4 million, or 18.4%, higher than the market capitalization.

Key data points included in the market capitalization calculations were as follows:

 

  Ÿ  

shares outstanding, including certain warrants, of 215.3 million as of December 31, 2012;

 

  Ÿ  

closing price of our Class A common stock on December 31, 2012 of $2.67 per share; and

 

  Ÿ  

total debt, including preferred equity, of $2.8 billion, on December 31, 2012.

Utilizing the above analysis and data points, we concluded the fair values of our markets, as calculated, are appropriate and reasonable.

The table below presents the percentage within a range by which the fair value exceeded the carrying value of 77 different reporting units under the Step 1 test as of December 31, 2012. Management’s opinion is that the summary form of this table is more meaningful to the reader than presenting each reporting unit separately in assessing the recoverability of the reporting unit, including goodwill.

 

     Units Of Accounting As Of December 31, 2012
Percentage Range By Which Fair Value Exceeds Carrying Value
 
     0% to 5%      Greater than 5%
to 10%
     Greater than 10%
to 15%
     Greater than
15%
 

Number of reporting units

     2         6         5         64   

Carrying value (in thousands)

   $ 521,103       $ 258,925       $ 153,336       $ 1,474,227   

The Company’s analysis determined that, based on its Step 1 goodwill test, the fair value of 4 of its markets containing goodwill balances were below their carrying value. For the remaining markets, since no impairment indicator existed in Step 1, the Company determined goodwill was appropriately stated as of December 31, 2012.

 

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Step 2 Goodwill Test

As required by the Step 2 test, the Company prepared an allocation of the fair value of the markets identified in the Step 1 test as containing indications of impairment as if each market was acquired in a business combination. The presumed “purchase price” utilized in the calculation was the fair value of the market determined in the Step 1 test. The results of the Step 2 test and the calculated impairment charge for each of those markets follows (dollars in thousands):

 

      Reporting Unit
Fair Value
     Implied
Goodwill Value
     December 31, 2012  

Marked ID

         Carrying Value      Impairment  

Market 27

   $ 49,900       $ 22,488       $ 33,452       $ 10,964   

Market 60

     66,900         34,576         54,650         20,074   

Market 70

     52,900         20,723         43,477         22,754   

Market 80

     126,000         54,210         100,418         46,208   
           

 

 

 
            $ 100,000   
           

 

 

 

Indefinite Lived Intangibles (FCC Licenses)

We perform our annual impairment testing of indefinite-lived intangibles (our FCC licenses) during the fourth quarter and on an interim basis if events or circumstances indicate that the asset may be impaired. We have combined all of our broadcast licenses within a single geographic market cluster into a single unit of accounting for impairment testing purposes. As part of the overall planning associated with the indefinite-lived intangibles test, we determined that our geographic markets are the appropriate unit of accounting for the broadcast license impairment testing.

As a result of the annual impairment test, we determined that the carrying value of 15 reporting units (FCC licenses) exceeded their fair values. Accordingly, we recorded impairment charges of $14.7 million to reduce the carrying value of these assets in the year ended December 31, 2012.

For the annual impairment test of our FCC licenses, including both AM and FM licenses, we utilized the income approach, specifically the Greenfield Method, with the exception of two stations which were not operating as of the valuation date. A minimum value of fifty thousand was estimated for the FCC licenses of these two non-operating stations. In completing the appraisals, we conducted a thorough review of all aspects of the assets being valued.

The income approach measures value based on income generated by the subject property, which is then analyzed and projected over a specified time and capitalized at an appropriate market rate to arrive at the estimated value. The Greenfield Method isolates cash flows attributable to the subject asset using a hypothetical start-up approach.

The estimated fair values of our FCC licenses represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimated fair value also assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible and financially feasible.

A basic assumption in our valuation of these FCC licenses was that these radio stations were new radio stations, signing on-the-air as of the date of the valuation. We assumed the competitive situation that existed in those markets as of that date, except that these stations were just beginning operations. In doing so, we bifurcated the value of going concern and any other assets acquired, and strictly valued the FCC licenses.

In estimating the value of the AM and FM licenses using a discounted cash flow analysis we began with market revenue projections. Next, we estimated the percentage of the market’s total revenue, or market

 

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share, that market participants could reasonably expect an average start-up station to attain, as well as the duration (in years) required to reach the average market share. The estimated average market share was computed based on market share data, by type (i.e., AM and FM).

After market revenue and market shares have been estimated, operating expenses, including depreciation based on assumed investments in fixed assets and future capital expenditures, of a start-up station or operation are similarly estimated based on industry-average cost data. Appropriate estimated income taxes are then subtracted, estimated depreciation added back, estimated capital expenditures subtracted, and estimated working capital adjustments are made to calculate estimated free cash flow during the build-up period until a steady state or mature “normalized” operation is achieved.

We discounted the net free cash flows using an after-tax weighted average cost of capital of 9.5%, and then calculated the total discounted net free cash flows. For net free cash flows beyond the projection period, we estimated a perpetuity value, and then discounted the amounts to present values.

In order to estimate what listening audience share would be expected for each station by market, we analyzed the average local commercial share garnered by similar AM and FM stations competing in those radio markets. We may make adjustments to the listening share and revenue share based on the stations’ signal coverage within the market and the surrounding area population as compared to the other stations in the market. Based on our knowledge of the industry and familiarity with similar markets, we determined that approximately three years would be required for the stations to reach maturity. We also incorporated the following additional assumptions into the discounted cash flow valuation model:

 

  Ÿ  

the projected operating revenues and expenses through 2017;

 

  Ÿ  

the estimation of initial and on-going capital expenditures (based on market size);

 

  Ÿ  

depreciation on initial and on-going capital expenditures (we calculated depreciation using accelerated double declining balance guidelines over five years for the value of the tangible assets necessary for a radio station to go on-the-air);

 

  Ÿ  

the estimation of working capital requirements (based on working capital requirements for comparable companies);

 

  Ÿ  

the calculations of yearly net free cash flows to invested capital; and

 

  Ÿ  

amortization of the intangible asset — the FCC license (we calculated amortization on a straight line basis over 15 years).

The table below presents the percentage within a range by which the fair value exceeded the carrying value of FCC licenses for 89 geographical markets under the Step 1 test as of December 31, 2012. Management’s opinion is that the summary form of this table is more meaningful to the reader in assessing the recoverability of the FCC licenses.

 

     Units Of Accounting As Of December 31, 2012
Percentage Range By Which Fair Value Exceeds Carrying Value
 
     0% to 5%      Greater than 5%
to 10%
     Greater than 10%
to 15%
     Greater than
15%
 

Number of reporting units

     11         8         5         65   

Carrying value (in thousands)

   $ 242,546       $ 260,510       $ 192,742       $ 522,476   

 

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Sensitivity Analysis of Key FCC Licenses and Goodwill Assumptions

If we were to assume a 100 basis point change in certain of our key assumptions (a reduction in the long-term revenue growth rate, a reduction in the operating performance cash flow margin and an increase in the weighted average cost of capital) used to determine the fair value of our FCC licenses and goodwill at our annual impairment testing date, the following would be the incremental impact:

 

     Results Of
Long-Term
Revenue Growth
Rate Decrease
     Results Of
EBITDA Margin
Decrease
     Results Of
Weighted
Average Cost Of
Capital Increase
 
     (amounts in thousands)  

FCC Licenses

        

Incremental license impairment

   $ 84,398       $ 21,749       $ 134,172   
  

 

 

    

 

 

    

 

 

 

Goodwill

        

Incremental goodwill impairment

     54,760         33,929         58,660   
  

 

 

    

 

 

    

 

 

 

Total incremental impairment from sensitivity analysis

   $ 139,158       $ 55,678       $ 192,832   
  

 

 

    

 

 

    

 

 

 

Valuation Allowance on Deferred Taxes

In connection with the elimination of amortization of broadcast licenses upon the adoption of ASC Topic 350, the reversal of our deferred tax liabilities relating to those intangible assets is no longer assured within our net operating loss carry-forward period. We have a valuation allowance of approximately $171.1 million as of December 31, 2012 based on our assessment of whether it is more likely than not these deferred tax assets related to our net operating loss carry-forwards (and certain other deferred tax assets) will be realized. Should we determine that we would be able to realize all or part of these net deferred tax assets in the future, reduction of the valuation allowance would be recorded in income in the period such determination is made.

Stock-based Compensation Expense

Stock-based compensation expense recognized under ASC Topic 718, Compensation — Share-Based Payment, or ASC 718, for the years ended December 31, 2012, 2011 and 2010 was $18.8 million, $10.7 million, and $2.5 million respectively. Upon adopting ASC 718 for awards with service conditions, a one-time election was made to recognize stock-based compensation expense on a straight-line basis over the requisite service period for the entire award. For options with service conditions only, the Company utilized the Black-Scholes option pricing model to estimate the fair value of options issued. For restricted stock awards with service conditions, the Company utilized the intrinsic value method. For restricted stock awards with performance conditions, the Company evaluated the probability of vesting of the awards at each reporting period and adjusted compensation cost based on this assessment. The fair value is based on the use of certain assumptions regarding a number of highly complex and subjective variables. If other assumptions were used, the results could differ, possibly materially.

Trade Transactions

We provide advertising time in exchange for certain products, supplies and services. We include the value of such exchanges in both station revenues and station operating expenses. Trade valuation is based upon our management’s estimate of the fair value of the products, supplies and services received. For the years ended December 31, 2012, 2011 and 2010, amounts reflected under trade transactions were: (1) trade revenues of $27.7 million, $21.2 million and $16.7 million, respectively; and (2) trade expenses of $26.1 million, $20.8 million and $16.5 million, respectively.

 

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Summary Disclosures about Contractual Obligations and Commercial Commitments

The following tables reflect a summary of our contractual cash obligations and other commercial commitments as of December 31, 2012 (dollars in thousands):

 

            Payments Due By Period  

Contractual Cash Obligations

   Total      Less
Than 1
Year
     2 to 3 Years      4 to 5 Years      After 5
Years
 

Long-term debt(1)

   $ 3,455,748       $ 264,268       $ 214,300       $ 214,300       $ 2,762,880   

Operating leases

     147,910         27,887         48,645         24,149         47,229   

Other contractual obligations(2)

     255,368         45,958         101,505         107,710         195   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

   $ 3,859,026       $ 338,113       $ 364,450       $ 346,159       $ 2,810,304   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Based on amounts outstanding, interest rates and required repayments as of December 31, 2012. Also assumes that outstanding indebtedness will not be refinanced prior to scheduled maturity.

 

(2) Consists of contractual obligations for goods or services that are enforceable and legally binding obligations that include all significant terms.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2012.

Adoption of New Accounting Standards

ASU 2011-04. In May 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2011-04, which amends ASC Topic 820, Fair Value Measurements and Disclosures, to achieve common fair value measurement and disclosure requirements under GAAP and International Financial Reporting Standards. This standard gives clarification for the highest and best use valuation concepts. This ASU also provides guidance on fair value measurements relating to instruments classified in stockholders’ equity and instruments managed within a portfolio. Further, ASU 2011-04 clarifies disclosures for financial instruments categorized within level 3 of the fair value hierarchy that require companies to provide quantitative information about unobservable inputs used, the sensitivity of the measurement to changes in those inputs, and the valuation processes used by the reporting entity. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

ASU 2011-05. In June 2011, the FASB issued ASU 2011-05, which amends the guidance in ASC Topic 220, “Comprehensive Income,” by eliminating the option to present components of other comprehensive income, or OCI, in the statement of stockholders’ equity. This ASU requires entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements of income and comprehensive income. The components of OCI have not changed nor has the guidance on when OCI items are reclassified to net income. Similarly, ASU 2011-05 does not change the guidance to disclose OCI components gross or net of the effect of income taxes, provided that the tax effects are presented on the face of the statement in which OCI is presented, or disclosed in the notes to the financial statements. The Company adopted this guidance effective January 1, 2012. Since the Company has no transactions classified as OCI, the adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

ASU 2011-08. In September 2011, the FASB issued ASU 2011-8, which amends ASC Topic 350, Intangibles-Goodwill and Other. The amendments in this ASU give companies the option to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50.0%) that

 

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the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step goodwill impairment test. Otherwise, a company is not required to perform this two-step test. Under the amendments in this ASU, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance did not have an impact on the Company’s unaudited consolidated financial statements.

ASU 2013-01. In January 2013, the FASB issued ASU 2011-11. The amendments in this ASU require companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years beginning on or after January 1, 2013, and interim periods within those annual fiscal years. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

ASU 2012-02. In July 2012, the FASB issued ASU 2012-02. The amendments in this ASU give companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired rather than calculating the fair value of the indefinite-lived intangible asset. It is effective prospectively for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of December 31, 2012, 77.6% of our long-term debt, or $2.1 billion, bore interest at variable rates. Accordingly, our earnings and after-tax cash flow are affected by changes in interest rates. Assuming the level of borrowings outstanding at December 31, 2012 at variable interest rates and assuming a one percentage point change in the 2012 average interest rate payable on these borrowings, it is estimated that our 2012 interest expense would have increased (decreased) and net income would have decreased (increased) by $27.2 million. As part of our efforts to mitigate interest rate risk, in December 2011, we entered into an interest rate cap agreement with JPMorgan that effectively fixed the interest rate, based on LIBOR, on $71.3 million of our variable rate borrowings. This agreement caps the LIBOR-based variable interest rate component of our long-term debt at a maximum of 3.0% on an equivalent amount of our term loans. This agreement is intended to reduce our exposure to interest rate fluctuations and was not entered into for speculative purposes. After giving effect to the impact of this agreement, we had $2.1 billion of borrowings outstanding at December 31, 2012 that were not subject to the interest rate cap. Assuming a one percentage point change in the 2011 average interest rate payable on these borrowings, it is estimated that our 2012 interest expense would have increased (decreased) and net income would have decreased (increased) by $0.7 million.

In certain prior periods, we managed our interest rate risk on a portion of our variable rate debt by entering into interest rate swap agreements in which we received payments based on variable interest rates and made payments based on a fixed interest rate. These swap agreements expired on March 13, 2011. In the event of an adverse change in interest rates, our management would likely take actions, in addition to the interest rate cap agreement discussed above, to mitigate our exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, additional analysis is not possible at this time.

Foreign Currency Risk

None of our operations are measured in foreign currencies. As a result, our financial results are not subject to factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.

 

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BUSINESS

Company Overview

We own and operate commercial radio station clusters throughout the United States, and we believe we are the largest pure-play radio broadcaster in the United States based on number of stations owned and operated. At June 30, 2013, we owned or operated approximately 520 radio stations (including under LMAs for 14 radio stations) in 108 United States media markets. Additionally, we create audio content and partner with third parties to create audio content to support nationwide radio networks serving over 5,500 affiliates. Our combined portfolio of stations reaches over 65 million broadcast listeners weekly through a broad assortment of programming formats including rock, sports, top 40 and country, among others. Furthermore, we distribute our content digitally through radio station websites, apps and streaming audio.

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.

Strategic Overview

Our operating strategy is primarily focused on generating internal growth through improving the performance of the portfolio of stations we own and operate, while enhancing our station portfolio and our business as a whole through the acquisition of individual stations or clusters that satisfy our acquisition criteria. We further seek to use our national platform to develop new media businesses that we believe are synergistic with radio broadcasting.

Our Company was formed in 1997 with an initial strategic focus on mid-sized markets throughout the United States. We historically focused on such markets because it was our belief that these markets, as compared to large markets, had been characterized by a higher ratio of local advertisers to national advertisers and a larger number of smaller-dollar customers, both of which have historically led to lower volatility in the face of changing macroeconomic conditions. We believed that the attractive operating characteristics of mid-sized markets, together with the relaxation of radio station ownership limits under the Telecom Act and FCC rules, created significant opportunities for growth from the formation of groups of radio stations within these markets. We focused on capitalizing on opportunities to acquire groups of stations in attractive markets at favorable purchase prices, taking advantage of the size and fragmented nature of ownership in those markets and the greater attention historically given to larger markets by radio station acquirers.

Although our historical focus was on mid-sized radio markets in the United States, we recognized that the large radio markets can provide an attractive combination of scale, stability and opportunity for future growth, particularly for emerging digital advertising initiatives. According to BIA, these markets typically have per capita and household income, and expected household after-tax effective buying income growth, in excess of the national average, which we believe makes radio broadcasters in these markets attractive to a broad base of advertisers, and allows a radio broadcaster to reduce its dependence on any one economic sector or specific advertiser. We also believe that having a national platform provides appropriate scale and additional opportunities to launch new digital media businesses and partner with other national media companies when appropriate. In furtherance of this strategy, in 2011, we completed the CMP Acquisition and the Citadel Merger, each as described in more detail below.

Industry Overview

The primary source of revenues for radio stations is the sale of advertising time to local, regional and national spot advertisers, and national network advertisers. National network advertisers place advertisements on a national network show and such advertisements air in each market where the network

 

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has an affiliate. Over the past ten years, radio advertising revenue has represented 8% to 10% of the overall United States advertising market, and typically follows macroeconomic growth trends. In 2012, radio advertising revenues reached $16.5 billion.

Generally, radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, rock, adult contemporary, oldies and news/talk. A station’s format and style of presentation enables it to target specific segments of listeners sharing certain demographic features. By capturing a specific share of a market’s radio listening audience with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations use data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations.

The number of advertisements that can be broadcast by a station without jeopardizing listening levels and the resulting ratings is limited in part by the format of a particular station and the local competitive environment. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year.

A station’s local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station usually will engage a firm that specializes in soliciting radio-advertising sales on a national level. Stations also may engage directly with an internal national sales team that supports the efforts of third-party representatives. National sales representatives obtain advertising principally from advertising agencies located outside the station’s market and receive commissions based on the revenue from the advertising they obtain.

Our stations compete for advertising revenue with other broadcast radio stations in their particular market as well as other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons and outdoor advertising. In addition, the radio broadcasting industry is subject to competition from services that use new media technologies that are being developed or have already been introduced, such as the internet and satellite-based digital radio services. Such services may reach regional and nationwide audiences with multi-channel, multi-format, digital radio services.

We cannot predict how existing, new or any future generated sources of competition will affect our performance and results of operations. The radio broadcasting industry historically has grown over the long term despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes, compact discs and iPods and other similar devices. We believe population growth and greater availability of radios, particularly car and portable radios when combined with increased travel and commuting time, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have a material adverse effect on the radio broadcasting industry in general or our stations in particular.

Advertising Sales

Virtually all of our revenue is generated from the sale of local, regional, and national advertising for broadcast on our radio stations. In the six months ended June 30, 2013 and the years ended December 31, 2012, 2011 and 2010, approximately 72.5%, 77.4%, 72.6% and 84.5%, respectively, of our net broadcasting

 

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revenue was generated from the sale of local and regional advertising. Additional broadcasting revenue is generated from the sale of national advertising. The major categories of our advertisers consist of:

 

Amusement and recreation

   Banking and mortgage    Furniture and home furnishings

Arts and entertainment

   Food and beverage services    Healthcare services

Automotive dealers

   Food and beverage stores    Telecommunications

Each station’s local sales staff solicits advertising either directly from a local advertiser or indirectly through an advertising agency. We employ a tiered commission structure to focus our sales staffs on new business development. Consistent with our operating strategy of dedicated sales forces for each of our stations, we have increased the number of salespeople per station. We believe that we can outperform the traditional growth rates of our markets by (1) expanding our base of advertisers, (2) training newly hired sales people and (3) providing a higher level of service to our existing customer base. We believe this will be effectively accomplished though a larger sales staff than most of the stations employed at the time we acquired them.

Our national sales are made by a firm specializing in radio advertising sales on the national level, in exchange for a commission that is based on the gross revenue from the advertising generated. Regional sales, which we define as sales in regions surrounding our markets to buyers that advertise in our markets, are generally made by our local sales staff and market managers. Whereas we seek to grow our local sales through larger and more customer-focused sales staffs, we seek to grow our national and regional sales by offering to key national and regional advertisers access to groups of stations within specific markets and regions that make us a more attractive platform. Many of these advertisers have previously been reluctant to advertise in certain smaller markets because of the logistics involved in buying advertising from individual stations. Certain of our stations had no national representation before we acquired them.

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. Our stations strive to maximize revenue by managing their on-air advertising inventory and adjusting prices up or down based on supply and demand. We seek to broaden our advertiser base in each market by providing a wide array of audience demographic segments across our cluster of stations, thereby providing potential advertisers with an effective means to reach a targeted demographic group. Our selling and pricing activity is based on demand for our radio stations’ on-air inventory and, in general, we respond to this demand by varying prices rather than by varying our target inventory level for a particular station. Most changes in revenue are explained by a combination of demand-driven pricing changes and changes in inventory utilization rather than by changes in available inventory. Advertising rates charged by radio stations, which are generally highest during morning and afternoon commuting hours, are based primarily on:

 

  Ÿ  

a station’s share of audiences and the demographic groups targeted by advertisers (as measured by ratings surveys);

 

  Ÿ  

the supply and demand for radio advertising time and for time targeted at particular demographic groups; and

 

  Ÿ  

certain additional qualitative factors.

A station’s listenership is reflected in ratings surveys that estimate the number of listeners tuned in to the station, and the time they spend listening. Each station’s ratings are used by its advertisers and advertising representatives to consider advertising with the station and are used by Cumulus to chart audience growth, set advertising rates and adjust programming.

 

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Competition

The radio broadcasting industry is very competitive. Our stations compete for listeners and advertising revenues directly with other radio stations within their respective markets, as well as with other advertising media. Additionally, new online music and other entertainment services have begun selling advertising locally, creating additional competition for both listeners and advertisers.

Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. Factors that affect a radio station’s competitive position include station brand identity and loyalty, management experience, the station’s local audience rank in its market, transmitter power and location, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations and other advertising media in the market area. We attempt to improve our competitive position in each market by extensively researching and seeking to improve our stations’ programming, by implementing targeted advertising campaigns aimed at the demographic groups for which our stations program and by managing our sales efforts to attract a larger share of advertising dollars for each station individually. We also seek to improve our competitive position by focusing on building a strong brand identity with a targeted listener base consisting of specific demographic groups in each of our markets, which we believe will allow us to better attract advertisers seeking to reach those listeners.

The success of each of our stations depends largely upon rates it can charge for its advertising, which in turn is affected by the number of local advertising competitors, and the overall demand for advertising within individual markets. These conditions may fluctuate and are highly susceptible to changes in both local markets and more general macroeconomic conditions. Specifically, a radio station’s competitive position can be enhanced or negatively impacted by a variety of factors, including the changing of, or another station changing, its format to compete directly for a different demographic of listeners and advertisers or an upgrade of the station’s authorized power through the relocation or upgrade of transmission equipment. Another station’s decision to convert to a format similar to that of one of our radio stations in the same geographic area, to improve its signal reach through equipment changes or upgrades, or to launch an aggressive promotional campaign may result in lower ratings and advertising revenue. Any adverse change affecting advertising expenditures in a particular market or in the relative market share of our stations located in a particular market could have a material adverse effect on the results of the radio stations located in that market or, possibly, the Company as a whole. There can be no assurance that any one or all of our stations will be able to maintain or increase advertising revenue market share.

There are also regulations that impact competition within the radio industry. Under federal laws and FCC rules, a single party can own and operate multiple stations in a local market, subject to certain limitations described below. We believe that companies that form groups of commonly owned stations or joint arrangements, such as LMAs, in a particular market may, in certain circumstances, have lower operating costs and may be able to offer advertisers in those markets more attractive rates and services. Although we currently operate multiple stations in most of our markets and intend to pursue the creation of additional multiple station groups in particular markets, our competitors in certain markets include other parties that own and operate as many or more stations than we do.

However, the competitive position of existing radio stations is protected to some extent by certain regulatory barriers to new entrants. The operation of a radio broadcast station requires an FCC license, and the number of radio stations that an entity can operate in a given market is limited under certain FCC rules. The number of radio stations that a party can own in a particular market is dictated largely by whether the station is in a defined “Arbitron Metro” (a designation designed by a private party for use in advertising matters), and, if so, the number of stations included in that Arbitron Metro. In those markets that are not in an Arbitron Metro, the number of stations a party can own in the particular market is dictated by the number of AM and FM signals that together comprise that FCC-defined radio market. These FCC ownership rules

 

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may, in some instances, limit the number of stations one or more of our existing competitors can own or operate, or may limit potential new market entrants. However, FCC ownership rules may change in the future to limit any protections they provide. We also cannot predict what other matters might be considered in the future by the FCC or Congress, nor can we assess in advance what impact, if any, the implementation of any of these proposals or changes might have on our business. For a discussion of FCC regulation (including recent changes), see “— Federal Regulation of Radio Broadcasting.”

Employees

At June 30, 2013, we employed 5,943 people, 4,025 of whom were employed full time. Of these employees, approximately, 207 employees are covered by collective bargaining agreements. We have not experienced any material work stoppages by our employees covered by collective bargaining agreements, and overall, we consider our relations with our employees to be satisfactory.

On occasion, we enter into contracts with various on-air personalities with large loyal audiences in their respective markets to protect our interests in those relationships that we believe to be valuable. The loss of one or more of these personalities could result in a short-term loss of audience share, but we do not believe that any such loss would have a material adverse effect on our financial condition or results of operations, taken as a whole.

Properties

The types of properties required to support each of our radio stations include studios, sales offices, and tower sites. A station’s studios are generally housed with its offices in a business district within the station’s community of license or largest nearby community. The tower sites are generally located in an area to provide maximum market coverage.

At June 30, 2013, we owned 45 studio facilities and 105 tower sites in our 108 markets. We lease additional studio, office facilities, and tower sites throughout all of our markets. We also lease corporate office space in Atlanta, Georgia and office space in New York, New York and Dallas, Texas for the production and distribution of our radio network. We do not anticipate any difficulties in renewing any facility leases or in leasing alternative or additional space, if required. We own substantially all of our other equipment, consisting principally of transmitting antennae, transmitters, studio equipment, and general office equipment.

No single property is material to our operations. We believe that our properties are generally in good condition and suitable for our operations; however, we continually look for opportunities to upgrade our studios, office space and transmission facilities.

Federal Regulation of Radio Broadcasting

General

The ownership, operation and sale of radio broadcast stations, including those licensed to us, is subject to the jurisdiction of the FCC, which acts under authority of the Communications Act. The Telecom Act amended the Communications Act and directed the FCC to change certain of its broadcast rules. Among its other regulatory responsibilities, the FCC issues permits and licenses to construct and operate radio stations; assigns broadcast frequencies; determines whether to approve changes in ownership or control of station licenses; regulates transmission equipment, operating power, and other technical parameters of stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; regulates the content of some forms of radio broadcast programming; and has the authority under the Communications Act to impose penalties for violations of its rules.

 

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The following is a brief summary of certain provisions of the Communications Act, the Telecom Act, and related FCC rules and policies, collectively referred to as the Communications Laws. This description does not purport to be comprehensive, and reference should be made to the Communications Laws, public notices, and decisions issued by the FCC for further information concerning the nature and extent of federal regulation of radio broadcast stations. Failure to observe the provisions of the Communications Laws can result in the imposition of various sanctions, including monetary forfeitures and the grant of a “short-term” (less than the maximum term) license renewal. For particularly egregious violations, the FCC may deny a station’s license renewal application, revoke a station’s license, or deny applications in which an applicant seeks to acquire additional broadcast properties.

License Grant and Renewal

Radio broadcast licenses are generally granted and renewed for terms of up to eight years at a time. Licenses are renewed by filing an application with the FCC, which is subject to review and approval. The Communications Act expressly provides that a radio station is authorized to continue to operate after the expiration date of its existing license until the FCC acts on a pending renewal application. Petitions to deny license renewal applications may be filed by interested parties, including members of the public. While we are not currently aware of any facts that would prevent the renewal of our licenses to operate our radio stations, there can be no assurance that all of our licenses will be renewed in the future for a full term, or at all.

Service Areas

The area served by AM stations is determined by a combination of frequency, transmitter power, antenna orientation, and soil conductivity. To determine the effective service area of an AM station, the station’s power, operating frequency, antenna patterns and its day/night operating modes are evaluated. The area served by an FM station is determined by a combination of effective radiated power, or ERP, antenna height and terrain with stations divided into eight classes according to these technical parameters.

Each class of FM radio station has the right to broadcast with a certain amount of ERP from an antenna located at a certain height above average terrain. The most powerful FM radio stations, which are generally those with the largest geographic reach, are Class C FM stations, which operate with up to the equivalent of 100 kilowatts, or kW, of ERP at an antenna height of 1,968 feet above average terrain. These stations typically provide service to a large area that covers one or more counties (which may or may not be in the same state). There are also Class C0, C1, C2 and C3 FM radio stations which operate with progressively less power and/or antenna height above average terrain and, thus, less geographic reach. In addition, Class B FM stations operate with the equivalent of up to 50 kW ERP at an antenna height of 492 feet above average terrain. Class B stations can serve large metropolitan areas and their outer suburban areas. Class B1 stations can operate with up to the equivalent of 25 kW ERP at an antenna height of 328 feet above average terrain. Class A FM stations operate with up to the equivalent of 6 kW ERP at an antenna height of 328 feet above average terrain, and often (but not always) serve smaller cities or suburbs of larger cities.

 

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The following table sets forth, as of September 2013, the market, call letters, FCC license classification, antenna height above average terrain (for FM stations only), power frequency and license expiration date of all our owned and/or operated stations, including pending station acquisitions operated under an LMA, and all other announced pending station acquisitions. Stations with a license expiration date prior to September 2013 represent stations for which a renewal application has been timely filed with the FCC and is currently pending before the FCC. The Communications Act expressly provides that a radio station is authorized to continue to operate after the expiration date of its existing license until the FCC acts on a pending renewal application.

 

Market

  Stations   City of License   Frequency     Expiration
Date of License
  FCC
Class
  Height
Above
Average
Terrain
(in feet)
    Power (in
Kilowatts)
 
              Day     Night  

Abilene, TX

  KBCY FM   Tye, TX     99.7      August 1, 2021   C1     745        100.0        100.0   
  KCDD FM   Hamlin, TX     103.7      August 1, 2021   C0     984        100.0        100.0   
  KHXS FM   Merkel, TX     102.7      August 1, 2021   C1     745        99.2        99.2   
  KTLT FM   Anson, TX     98.1      August 1, 2021   C2     305        50.0        50.0   

Albany, GA

  WALG AM   Albany, GA     1590      April 1, 2020   B     N/A        5.0        1.0   
  WEGC FM   Sasser, GA     107.7      April 1, 2020   C3     312        11.5        11.5   
  WGPC AM   Albany, GA     1450      April 1, 2020   C     N/A        1.0        1.0   
  WJAD FM   Leesburg, GA     103.5      April 1, 2020   C3     463        12.5        12.5   
  WKAK FM   Albany, GA     104.5      April 1, 2020   C1     981        100.0        100.0   
  WNUQ FM   Sylvester, GA     102.1      April 1, 2020   A     259        6.0        6.0   
  WQVE FM   Albany, GA     101.7      April 1, 2020   A     299        6.0        6.0   

Albuquerque, NM

  KKOB AM   Albuquerque, NM     770      October 1, 2021   B     N/A        50.0        50.0   
  KKOB FM   Albuquerque, NM     93.3      October 1, 2021   C     4150        21.5        21.5   
  KMGA FM   Albuquerque, NM     99.5      October 1, 2021   C     4131        22.5        22.5   
  KNML AM   Albuquerque, NM     610      October 1, 2021   B     N/A        5.0        5.0   
  KRST FM   Albuquerque, NM     92.3      October 1, 2021   C     4160        22.0        22.0   
  KTBL AM   Los Ranchos, NM     1050      October 1, 2021   B     N/A        1.0        1.0   
  KDRF FM   Albuquerque, NM     103.3      October 1, 2021   C     4424        20.0        20.0   
  KBZU FM   Albuquerque, NM     96.3      October 1, 2021   C     4134        17.5        17.5   

Allentown, PA

  WCTO FM   Easton, PA     96.1      August 1, 2014   B     499        50.0        50.0   
  WLEV FM   Allentown, PA     100.7      August 1, 2014   B     1073        11.0        11.0   

Amarillo, TX

  KARX FM   Claude, TX     95.7      August 1, 2021   C1     390        100.0        100.0   
  KPUR AM   Amarillo, TX     1440      August 1, 2021   B     N/A        5.0        1.0   
  KPUR FM   Canyon, TX     107.1      August 1, 2021   A     315        6.0        6.0   
  KQIZ FM   Amarillo, TX     93.1      August 1, 2021   C1     699        100.0        100.0   
  KZRK AM   Canyon, TX     1550      August 1, 2021   B     N/A        1.0        0.2   
  KZRK FM   Canyon, TX     107.9      August 1, 2021   C1     476        100.0        100.0   

Ann Arbor, MI

  WLBY AM   Saline, MI     1290      October 1, 2020   D     N/A        0.5        0.0   
  WQKL FM   Ann Arbor, MI     107.1      October 1, 2020   A     289        3.0        3.0   
  WTKA AM   Ann Arbor, MI     1050      October 1, 2020   B     N/A        10.0        0.5   
  WWWW FM   Ann Arbor, MI     102.9      October 1, 2020   B     440        50.0        50.0   

Appleton, WI

  WNAM AM   Neenah Menasha, WI     1280      December 1, 2020   B     N/A        5.0        5.0   
  WOSH AM   Oshkosh, WI     1490      December 1, 2020   C     N/A        1.0        1.0