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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 1O-Q

For the Transition Period from to

Commission File Number 000-24525

CUMULUS MEDIA INC.

(404) 949-0700
Registrant’s telephone number, including area code:

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No o

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

     As of October 31, 2003, the registrant had outstanding 65,271,659 shares of common stock consisting of (i) 52,996,029 shares of Class A Common Stock; (ii) 11,630,759 shares of Class B Common Stock; and (iii) 644,871 shares of Class C Common Stock.

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CUMULUS MEDIA INC.

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CUMULUS MEDIA INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share and per share data)

See Accompanying Notes to Consolidated Financial Statements

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CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)

See Accompanying Notes to Consolidated Financial Statements

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CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

See Accompanying Notes to Consolidated Financial Statements

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

1. Interim Financial Data

  Interim Financial Data

     The consolidated financial statements should be read in conjunction with the consolidated financial statements of Cumulus Media Inc., referred to as the Company, and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the nine months ended September 30, 2003 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2003.

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

2. Recent Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (“FIN 46”). FIN 46 addresses the consolidation by business enterprises of variable interest entities (“VIEs”) as defined in the Interpretation. The Interpretation applied immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. In October 2003, the FASB announced that the effective date of FIN 46 was deferred from July 1, 2003 to periods ending after December 15, 2003 for VIEs created prior to February 1, 2003. FIN 46 requires existing unconsolidated VIEs to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among the parties involved. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE.

     The Company has assessed the impact of this interpretation and has determined that several entities with which it has existing contractual relationships under local marketing agreements (“LMA”) qualify as VIEs. A typical LMA is an agreement under which a Federal Communications Commission licensee of a radio station makes available, typically for a fee, air time on its station to another party. The other party provides programming to be broadcast during such airtime and collects revenues from advertising it sells for broadcast during such programming. As of September 30, 2003, the Company operated six radio stations under local marketing agreements. These six stations are owned and licensed to 5 separate entities qualifying as VIEs. Under these agreements, the licensee of the stations does not have the right to access the Company’s assets to pay general creditors. The Company has determined that it is the primary beneficiary of each of the VIEs and, as such, these entities must be consolidated into the Company’s financial statements.

     Due to the nature of the local marketing agreements, the Company’s historical practice has been to consolidate the operations of these entities. As a result, the adoption of FIN 46 did not require any changes to the Company’s existing accounting practices, nor did it have a material effect on the Company’s results of operations or financial position. During the three and nine months ended September 30, 2003, the six stations operated under LMA’s contributed $1.0 million and $1.7 million, respectively, to the consolidated net revenues of the Company.

3. Stock Based Compensation

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

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following table illustrates the pro forma effect on net loss attributable to common stockholders if the fair value-based method had been applied to all outstanding and unvested awards in each period (dollars in thousands, except for per share data).

4. Restructuring Charges

     During June 2000 the Company implemented two separate Board-approved restructuring programs. During the second quarter of 2000, the Company recorded a $9.3 million charge to operating expenses related to the restructuring costs.

     The June 2000 restructuring programs were the result of Board-approved mandates to discontinue the operations of Cumulus Internet Services and to centralize the Company’s corporate and administrative organization and employees in Atlanta, Georgia. The programs included severance and related costs and costs for vacated leased facilities, impaired leasehold improvements at vacated leased facilities, and impaired assets related to the Internet businesses. As of June 30, 2001, the Company had completed the restructuring programs. The remaining portion of the unpaid balance as of that date represented lease obligations and various contractual obligations for services related to the Internet business and have been paid by the Company through the present day consistent with the contracted terms.

     During 2002, the Company successfully negotiated and executed sublease agreements for a majority of the vacated corporate office space in Milwaukee, Wisconsin and Chicago, Illinois. As a result, during the twelve months ended December 31, 2002 and the nine months ended September 30, 2003, the Company reversed $1.0 million and $0.3 million, respectively, of the remaining liability related to lease obligations. The amount reversed in each period represents the Company’s estimate of the reduction of the remaining lease obligations as a result of offsetting contractual sublease income. The reversal of liability related to the subleases has been presented in the Consolidated Statements of Operations on the restructuring charges line, consistent with the presentation of the original restructuring charge.

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     The following table presents the restructuring liability at December 31, 2002 and September 30, 2003 and the related activity applied to the balances for the nine months ended September 30, 2003 (dollars in thousands):

5. Derivative Financial Instruments

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

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

     The fair value of the interest rate swap agreement is determined periodically by obtaining quotations from the financial institution that is the counterparty to the Company’s swap arrangement. The fair value represents an estimate of the net amount that Cumulus would receive if the agreement was transferred to another party or cancelled as of the date of the valuation. Changes in the fair value of the interest rate swap are reported in accumulated other comprehensive income, or AOCI, which is an element of stockholders’ equity. These amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings. During the three and nine months ended September 30, 2003, approximately $0.7 million and $1.3 million, respectively, related to the interest rate swap was reported as interest expense and represents a yield adjustment of the hedged debt obligation. The balance sheet as of September 30, 2003 reflects other long-term liabilities of $0.1 million to reflect the fair value of the swap agreement.

     In order to effect the lowest fixed rate under the swap arrangement, Cumulus also entered into an interest rate option agreement, which provides for the counterparty to the agreement, Bank of America, to unilaterally extend the period of the swap for two additional years, from March of 2006 through March of 2008. This option may only be exercised in March of 2006. This instrument is not highly effective in mitigating the risks in cash flows, and therefore is deemed speculative and its changes in value are accounted for as a current element of operating results. Interest expense for the three and nine months ended September 30, 2003 includes $0.5 and $0.4 million of net gains, respectively, and the balance sheet as of September 30, 2003 reflects other long-term liabilities of $0.7 million to reflect the fair value of the option agreement. This amount represents the ineffectiveness of this instrument in effectively managing cash flow risk, and an increase in the fair value of the option agreement, which represents an increase of Cumulus’ reported liability.

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6. Acquisitions

  Pending Acquisitions

     As of September 30, 2003, the Company was a party to various agreements to acquire eight stations across seven markets. The aggregate purchase price of those pending acquisitions is expected to be approximately $25.8 million, of which $17.2 million would be paid in cash and $8.6 million would be paid in shares of the Company’s common stock. Subsequent to September 30, 2003, the Company announced that it had entered into an agreement to purchase two stations serving the Kansas City, Missouri market for $25.0 million. The consideration for this purchase may be paid, at the Company’s option, in cash or shares of the Company’s Class A Common Stock.

  Completed Acquisitions

     During the quarter ended September 30, 2003, the Company completed two acquisitions of six radio stations in two markets for $82.1 million in purchase price. In those acquisitions, the Company acquired two stations serving the Nashville, Tennessee market and four stations serving the Huntsville, Alabama market. Of the $82.1 million required to fund the acquisitions, $21.1 million was funded in the form of shares of Class A Common Stock, $60.1 million was funded in cash and $0.9 million was paid in capitalizable acquisition costs.

     In connection with the two stations acquired serving the Nashville, Tennessee market, the Company also entered into a Joint Services Agreement related to a third radio station. Under the terms of the agreement, the Company will provide sales and marketing services to the station for a period of five years and will retain all of the revenues of the station. In return, the licensee of the station received $2.5 million at the commencement date of the agreement and will receive a monthly fee equal to a percentage of the net revenues realized less certain selling costs incurred by the Company.

     Intangible assets recognized in the transactions were comprised of $70.0 million of broadcast license and $14.8 million of goodwill. Fair value of the intangible assets was determined by management using a discounted cash flow approach.

     During the quarter ended June 30, 2003, the Company completed one acquisition of two radio stations in one market for $2.4 million in purchase price. Of the $2.4 million required to fund the acquisition, $1.3 million was funded in cash, $0.1 million was paid in capitalizable acquisition costs and $1.0 million had been previously funded as escrow deposits on the pending acquisition.

     Intangible assets recognized in the transaction, comprised entirely of broadcast licenses, amount to $2.2 million. Fair value of the intangible assets was determined by management using a discounted cash flow approach.

     During the quarter ended March 31, 2003, the Company completed 2 acquisitions of 13 radio stations in 2 markets for $65.6 million in purchase price. In those acquisitions, the Company acquired 8 stations serving the Macon, Georgia market and 5 stations serving the Ft. Walton Beach, Florida market. Of the $65.6 million required to fund the acquisitions, $1.6 million was funded in the form of shares of Class A Common Stock, and $64.0 million was funded in cash.

     Intangible assets recognized in the transaction, comprised entirely of broadcast licenses, amount to $63.0 million. Fair value of the intangible assets was determined by management using a discounted cash flow approach.

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

     The unaudited consolidated condensed pro forma results of operations data for the three and nine months ended September 30, 2003 and 2002, reflecting adjustments as if all acquisitions and dispositions completed during 2002 and during the first, second, and third quarter of 2003 occurred at January 1, 2002, follow (dollars in thousands, except per share data):

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     Escrow funds of approximately $1.0 million paid by the Company in connection with pending acquisitions have been classified as Other Assets at September 30, 2003 in the accompanying consolidated balance sheet.

     At September 30, 2003 the Company operated six stations under local marketing agreements (“LMA”), pending FCC approval of our acquisition of those stations. The consolidated statements of operations for the three and nine months ended September 30, 2003 includes the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMA from the effective date of the LMA through the earlier of the acquisition date or September 30, 2003.

     Goodwill and Other Intangible Assets

     The following tables summarize the September 30, 2003 gross carrying amounts and accumulated amortization of amortized and unamortized intangible assets, amortization expense for the three and nine months ended September 30, 2003 and 2002 and the estimated amortization expense for the 5 succeeding fiscal years (dollars in thousands):

     A summary of changes in the carrying amount of goodwill for the nine months ended September 30, 2003 follows (dollars in thousands):

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7. Long-Term Debt

     The Company’s long-term debt consisted of the following at September 30, 2003 and December 31, 2002 (dollars in thousands):

Tender Offer and Redemption

     On April 30, 2003, the Company announced the completion of a tender offer and consent solicitation relating to its outstanding 10 3/8% Senior Subordinated Notes Due 2008 (the “Notes”). As of the expiration date of the offer, which was made pursuant to the Offer to Purchase and Consent Solicitation dated April 2, 2003, $88.8 million in principal amount of the Notes had been tendered and were subsequently accepted and paid for by the Company. After completing the tender offer, $13.7 million in principal amount of the Notes remained outstanding.

     Holders who validly tendered (and did not withdraw) their Notes at or prior to April 30, 2003, the expiration date of the tender offer, received $1,081.80 per $1,000 in principal amount of Notes, which included accrued and unpaid interest on the Notes to, but not including, April 30, 2003. In addition, those holders who validly consented to the proposed amendments to the indenture governing the Notes at or prior to April 15, 2003 received a consent payment of $20.00 per $1,000 in principal amount of Notes, for a total tender offer consideration of $1,101.80 per $1,000 in principal amount of Notes.

     In connection with the tender offer, the Company recorded a loss on the early extinguishment of debt of $8.2 million, comprised of $6.0 million of redemption premiums paid, a $2.0 million write-off of a portion of the related debt issuance costs and $0.2 million of costs related to the completion of the tender offer.

     On July 3, 2003, the Company completed the redemption of the $13.7 million in aggregate principal of its remaining Notes outstanding at a redemption price of 105.188% of the principal amount, plus accrued interest through July 2, 2003, all in accordance with the terms of the indenture governing the Notes. In connection with the redemption, the Company recorded a loss on the early extinguishment of debt of $1.0 million, comprised of $0.7 million of redemption premiums paid and a $0.3 million write-off of the remaining related debt issuance costs.

Refinancing

     On April 28, 2003 the Company completed an amendment and restatement of its existing credit facility, which, among other things, increased the aggregate principal borrowing availability from $400.0 million to $550.0 million. Under the amended and restated agreement, Cumulus received financing in the form of a new eight-year term loan facility of $325.0 million. Cumulus used the proceeds from the eight-year term loan to pay the consideration for the tendered Notes and the consents that were delivered, and to repay the existing eight-year term loan facility of $175.0 million outstanding and $30.0 million of outstanding revolving loan borrowings, under its existing credit agreement.

     In connection with the extinguishment of the $175.0 million eight-year term loan, the Company recorded a loss on the early extinguishment of debt during the second quarter of 2003 of $2.9 million, comprised of $1.5 million in professional fees and $1.4 million of previously capitalized debt issue costs.

     In connection with the completion of certain acquisitions in July 2003, the Company drew down $62.5 million from its seven-year revolving commitment.

     As of September 30, 2003 and following scheduled principal repayments of $4.4 million and discretionary repayments of $12.5 million towards outstanding revolving loan borrowings, $483.1 million was outstanding under the credit facility, consisting of a seven-year term loan facility of $109.7 million, an eight-year term loan facility of $323.4 million and a seven-year revolving loan borrowing of $50.0 million.

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8. Redeemable Preferred Stock

     On July 7, 2003, the Company completed the redemption of the 9,268 shares of the 13 ¾% Cumulative Exchangeable Redeemable Series A Preferred Stock due 2009 (the “Preferred Stock”) outstanding and valued at $9.3 million, at a redemption price of 106.875% of the stated value, all in accordance with the terms of the stock designations governing the Preferred Stock. A redemption premium of $0.6 million associated with the redemption, along with accrued dividends through July 7, 2003, has been included as a component of preferred stock dividends and redemption premiums for the three months ended September 30, 2003 in the accompanying Consolidated Statements of Operations.

9. Guarantor’s Financial Information

     Certain of the Company’s direct and indirect subsidiaries (all such subsidiaries are directly or indirectly wholly owned by the Company) provided full and unconditional guarantees for the Company’s Notes on a joint and several basis. As of July 3, 2003, all remaining outstanding Notes were redeemed in accordance with their terms.

     There were no significant restrictions on the ability of the guarantor subsidiaries to pay dividends or make loans to the Company.

     The following tables provide consolidated condensed financial information pertaining to the Company’s subsidiary guarantors. The Company has not presented separate financial statements for the subsidiary guarantors and non-guarantors because management does not believe that such information is material to investors (dollars in thousands).

10. Earnings Per Share

     Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted income per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options and warrants using the “treasury stock” method.

     The following table sets forth the computation of basic and diluted income (loss) per common share for the three and nine month periods ended September 30, 2003 and 2002 (in thousands, except per share data).

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