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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1O-Q

     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004.
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For or the transition period from ____ to ____.

Commission file number 000-24525


CUMULUS MEDIA INC.

(Exact Name of Registrant as Specified in Its Charter)
     
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  36-4159663
(I.R.S. Employer
Identification No.)
     
3535 Piedmont Road, Building 14, 14TH Floor, Atlanta, GA
(Address of Principal Executive Offices)
  30305
(ZIP Code)

(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, 2004, the registrant had outstanding 69,927,846 shares of common stock consisting of (i) 57,652,216 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.



 


CUMULUS MEDIA INC.

INDEX

     
  FINANCIAL INFORMATION
  Financial Statements
  Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003
  Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003
  Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003
  Notes to Consolidated Financial Statements
  Management’s Discussion and Analysis of Financial Condition and Results of Operations
  Quantitative and Qualitative Disclosures About Market Risk
  Controls and Procedures
  OTHER INFORMATION
  Legal Proceedings
  Unregistered Sales of Equity Securities and Use of Proceeds
  Defaults Upon Senior Securities
  Submission of Matters to a Vote of Security Holders
  Other Information
  Exhibits
   
Exhibit Index
 EX-31.1 SECTION 302 CERTIFICATION OF THE CHAIRMAN, PRESIDENT AND CEO
 EX-31.2 SECTION 302 CERTIFICATION OF THE EXECUTIVE VP, TREASURER AND CFO
 EX-32.1 SECTION 906 CERTIFICATION OF THE CHAIRMAN, PRESIDENT AND CEO/EXECUTIVE VP, TREASURER AND CFO

 


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CUMULUS MEDIA INC.

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share and per share data)
                 
    (Unaudited)    
    September 30,   December 31,
    2004
  2003
Assets
Current assets:
               
Cash and cash equivalents
  $ 1,418     $ 6,720  
Accounts receivable, less allowance for doubtful accounts of $2,999 and $2,488, respectively
    60,579       51,215  
Prepaid expenses and other current assets
    10,367       14,706  
Deferred income taxes
    355       747  
 
   
 
     
 
 
Total current assets
    72,719       73,388  
Property and equipment, net
    90,492       91,149  
Goodwill and intangible assets, net
    1,410,772       1,299,709  
Other assets
    17,264       13,384  
 
   
 
     
 
 
Total assets
  $ 1,591,247     $ 1,477,630  
 
   
 
     
 
 
Liabilities and Stockholders’ Equity
Current liabilities:
               
Accounts payable and accrued expenses
  $ 24,810     $ 21,500  
Current portion of long-term debt
    37,674       27,313  
Other current liabilities
          33  
 
   
 
     
 
 
Total current liabilities
    62,484       48,846  
Long-term debt
    417,268       460,031  
Other liabilities
    5,150       1,112  
Deferred income taxes
    226,650       183,338  
 
   
 
     
 
 
Total liabilities
    711,552       693,327  
 
   
 
     
 
 
Stockholders’ equity:
               
Preferred stock, 20,262,000 shares authorized, par value $0.01 per share, including:
               
250,000 shares designated as 13 3/4% Series A Cumulative Exchangeable Redeemable Stock due 2009, stated value $1,000 per share, and 12,000 shares designated as 12% Series B Cumulative Preferred Stock, stated value $10,000 per share: 0 shares issued and outstanding
           
Class A common stock, par value $.01 per share; 100,000,000 shares authorized; 57,650,684 and 53,816,502 shares issued and outstanding
    577       538  
Class B common stock, par value $.01 per share; 20,000,000 shares authorized; 11,630,759 shares issued and outstanding
    116       116  
Class C common stock, par value $.01 per share; 30,000,000 shares authorized; 644,871 shares issued and outstanding
    6       6  
Additional paid-in-capital
    1,010,841       937,279  
Accumulated deficit
    (128,527 )     (149,045 )
Accumulated other comprehensive income
    1,674       401  
Loan to officers
    (4,992 )     (4,992 )
 
   
 
     
 
 
Total stockholders’ equity
    879,695       784,303  
 
   
 
     
 
 
Total liabilities and stockholders’ equity
  $ 1,591,247     $ 1,477,630  
 
   
 
     
 
 

See Accompanying Notes to Consolidated Financial Statements

 


Table of Contents

CUMULUS MEDIA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)
                                 
    (Unaudited)
    Three Months   Three Months   Nine Months   Nine Months
    Ended   Ended   Ended   Ended
    September 30, 2004
  September 30, 2003
  September 30, 2004
  September 30, 2003
Net revenues
  $ 83,976     $ 74,564     $ 235,741     $ 207,060  
Operating expenses:
                               
Station operating expenses, excluding depreciation, amortization and LMA fees (including provision for doubtful accounts of $1,258, $704, $2,849 and $2,126, respectively)
    51,588       46,774       150,503       131,895  
Depreciation and amortization
    5,213       4,848       15,272       14,325  
LMA fees
    762       577       2,059       1,208  
Corporate general and administrative (excluding non-cash stock compensation (income) expense of $(221), $(41), $(437) and $218, respectively).
    3,940       3,131       11,366       9,981  
Non-cash stock compensation
    (221 )     (41 )     (437 )     218  
Restructuring charges (credits)
    (21 )     (85 )     (42 )     (268 )
 
   
 
     
 
     
 
     
 
 
Total operating expenses
    61,261       55,204       178,721       157,359  
 
   
 
     
 
     
 
     
 
 
Operating income
    22,715       19,360       57,020       49,701  
 
   
 
     
 
     
 
     
 
 
Nonoperating income (expense):
                               
Interest expense
    (5,028 )     (4,823 )     (15,162 )     (17,488 )
Interest income
    196       110       493       501  
Loss on early extinguishments of debt
    (2,074 )     (1,010 )     (2,536 )     (15,243 )
Other expense, net
    (21 )     (100 )     (9 )     (256 )
 
   
 
     
 
     
 
     
 
 
Total nonoperating expenses, net
    (6,927 )     (5,823 )     (17,214 )     (32,486 )
 
   
 
     
 
     
 
     
 
 
Income before income taxes
    15,788       13,537       39,806       17,215  
Income tax expense
    (6,506 )     (5,862 )     (19,288 )     (17,072 )
 
   
 
     
 
     
 
     
 
 
Net income
    9,282       7,675       20,518       143  
Preferred stock dividends and redemption premiums
          659             1,908  
 
   
 
     
 
     
 
     
 
 
Net income (loss) attributable to common stockholders
  $ 9,282     $ 7,016     $ 20,518     $ (1,765 )
Basic income (loss) per common share
  $ 0.13     $ 0.11     $ 0.30     $ (0.03 )
Diluted income (loss) per common share
  $ 0.13     $ 0.10     $ 0.29     $ (0.03 )
Weighted average basic common shares outstanding
    69,915,186       64,876,925       68,724,005       63,897,237  
 
   
 
     
 
     
 
     
 
 
Weighted average diluted common shares outstanding
    71,759,916       67,656,150       71,462,284       63,897,237  
 
   
 
     
 
     
 
     
 
 

See Accompanying Notes to Consolidated Financial Statements

 


Table of Contents

CUMULUS MEDIA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
                 
    (Unaudited)
    Nine Months   Nine Months
    Ended   Ended
    September 30, 2004
  September 30, 2003
Cash flows from operating activities:
               
Net income
  $ 20,518     $ 143  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Write-off of debt issue costs
    2,536       4,381  
Redemption premiums for repurchase of 10 3/8% Senior Subordinated Notes
          9,128  
Depreciation
    14,633       13,608  
Amortization of intangible assets and other assets
    833       1,055  
Provision for doubtful accounts
    2,849       2,126  
Adjustment of the fair value of derivative instruments
    (203 )     (351 )
Loss on sale of assets or stations
          118  
Deferred income taxes
    19,288       17,072  
Non-cash stock compensation
    (437 )     218  
Adjustment of restructuring charges
    (42 )     (268 )
Changes in assets and liabilities, net of effects of acquisitions:
               
Restricted cash
          13,000  
Accounts receivable
    (10,003 )     (5,812 )
Prepaid expenses and other current assets
    125       (11 )
Accounts payable and accrued expenses
    3,757       (18,761 )
Other assets
    (764 )     (2,523 )
Other liabilities
    (1,565 )     (838 )
 
   
 
     
 
 
Net cash provided by operating activities
    51,525       32,285  
 
   
 
     
 
 
Cash flows from investing activities:
               
Acquisitions
    (11,001 )     (126,013 )
Dispositions
          715  
Escrow deposits on pending acquisitions
    (3,908 )     (45 )
Capital expenditures
    (8,761 )     (6,756 )
Acquisition costs and other
    (735 )     (3,055 )
 
   
 
     
 
 
Net cash used in investing activities
    (24,405 )     (135,154 )
 
   
 
     
 
 
Cash flows from financing activities:
               
Proceeds from bank borrowings
    6,500       430,500  
Payments on bank borrowings
    (28,902 )     (234,938 )
Payments for repurchase of 10 3/8% Senior Subordinated Notes, including redemption premiums
          (141,710 )
Payments on promissory notes
    (10,000 )     (163 )
Payments for debt issuance costs
    (1,017 )      
Payment of dividends on Series A Preferred Stock
          (1,146 )
Payments for redemption of preferred stock
          (15,417 )
Proceeds from issuance of common stock
    997       10,555  
 
   
 
     
 
 
Net cash (used in) provided by financing activities
    (32,422 )     47,681  
 
   
 
     
 
 
Decrease in cash and cash equivalents
    (5,302 )     (55,188 )
Cash and cash equivalents at beginning of period
  $ 6,720     $ 60,380  
Cash and cash equivalents at end of period
  $ 1,418     $ 5,192  
Non-cash operating and financing activities:
               
Trade revenue
  $ 13,672     $ 12,735  
Trade expense
    13,603       12,174  
Assets acquired through notes payable
    5,000        
Issuance of common stock in exchange for acquired businesses
    71,344       1,593  

See Accompanying Notes to Consolidated Financial Statements

 


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

1. Interim Financial Data and Basis of Presentation

Interim Financial Data

     The consolidated financial statements should be read in conjunction with the consolidated financial statements of Cumulus Media Inc. (“Cumulus” or the “Company”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 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, 2004 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2004.

2. 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 following table illustrates the pro forma effect on net income (loss) attributable to common stockholders if the fair value-based method had been applied to all outstanding and unvested awards in each period.

                                 
    Three Months Ended
  Nine Months Ended
    September 30, 2004
  September 30, 2003
  September 30, 2004
  September 30, 2003
Net income (loss) attributable to common stockholders:
                               
Net income, as reported
  $ 9,282     $ 7,675     $ 20,518     $ 143  
Add: Stock-based compensation expense included in reported net income
    (221 )     (41 )     (437 )     218  
Deduct: Total stock based compensation expense determined under fair value-based method
    (2,903 )     (2,327 )     (8,597 )     (10,373 )
 
   
 
     
 
     
 
     
 
 
Pro forma net income (loss)
    6,158       5,307       11,484       (10,012 )
Preferred stock dividends and redemption premium
          659             1,908  
 
   
 
     
 
     
 
     
 
 
Pro forma net income (loss) attributable to common stockholders
  $ 6,158     $ 4,648     $ 11,484     $ (11,920 )
 
   
 
     
 
     
 
     
 
 
Basic income (loss) per common share:
                               
As reported
  $ 0.13     $ 0.11     $ 0.30     $ (0.03 )
Pro forma
  $ 0.09     $ 0.07     $ 0.17     $ (0.19 )
Diluted income (loss) per common share:
                               
As reported
  $ 0.13     $ 0.10     $ 0.29     $ (0.03 )
Pro forma
  $ 0.09     $ 0.07     $ 0.16     $ (0.19 )

 


Table of Contents

3. 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 represents lease obligations and various contractual obligations for services related to the Internet business and has been paid by the Company through the present day consistent with the contracted terms.

     The following table presents the restructuring liability at December 31, 2003 and September 30, 2004 and the related activity applied to the balances for the nine months ended September 30, 2004 (dollars in thousands):

                                 
    Restructuring            
    Liability   Liability   Liability   Restructuring
    December 31,   Utilized   Reversed   Liability
Expense Category
  2003
  in 2004
  in 2004
  September 30, 2004
Lease termination costs — office relocation.
  $ 321       (199 )     (28 )   $ 94  
Accrued Internet contractual obligations
    228       (3 )           225  
Internet lease termination costs
    155       (65 )     (14 )     76  
 
   
 
     
 
     
 
     
 
 
Restructuring liability totals
  $ 704       (267 )     (42 )   $ 395  
 
   
 
     
 
     
 
     
 
 

4. 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.

     Cumulus 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 subsequently are 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, 2004, approximately $0.4 million and $1.8 million, respectively, related to the interest rate swap were reported as interest expense and represent a yield adjustment of the hedged debt obligation. The balance sheet as of September 30, 2004 reflects other long-term assets of $2.7 million to reflect the fair value of the swap agreement.

 


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     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 months ended September 30, 2004 includes $0.2 million of net losses related to the current period change in the fair value of the interest rate option agreement. Interest expense for the nine months ended September 30, 2004 includes $0.2 million of net gains which increased the fair value of the option agreement. The balance sheet as of September 30, 2004 reflects other long-term liabilities of $0.3 million to reflect the fair value of the option agreement. This amount represents the ineffectiveness of this instrument in effectively managing cash flow risk.

5. Acquisitions

Pending Acquisitions

     As of September 30, 2004, the Company was a party to various agreements to acquire 13 stations across 7 markets. The aggregate purchase price of those pending acquisitions is expected to be approximately $81.6 million. The Company may, at its option, pay up to $72.0 million of the purchase price of the pending acquisitions in shares of Class A Common Stock.

Completed Acquisitions

     During the quarter ended September 30, 2004, the Company completed the acquisition of seven radio stations in one market and a tract of land for a tower site for $8.7 million in purchase price, of which $3.8 million was funded in cash, $4.7 million had been previously funded as an escrow deposit, $0.1 million represented capitalizable acquisition costs and $0.1 million was deferred beyond the closing of the transaction.

     During the quarter ended June 30, 2004, the Company completed the acquisition of one radio station for $0.8 million in purchase price, all of which was funded in cash.

     During the quarter ended March 31, 2004, the Company completed 5 acquisitions of 17 radio stations in 4 markets for $83.1 million in purchase price. Of the $83.1 million required to fund the acquisitions, $71.3 million was funded in the form of shares of Class A Common Stock, $6.4 million was funded in cash, $0.4 million represented capitalizable acquisition costs and $5.0 million was deferred beyond the closing of the transaction. With regard to the $5.0 million of deferred purchase price, the Company began to pay the amount in cash in 60 monthly installments commencing in April 2004, consistent with the terms of the purchase agreement. These aggregate acquisition amounts include the assets acquired pursuant to the transactions described briefly below.

     On March 29, 30 and 31, 2004, the Company completed the acquisitions of KYBB-FM, KIKN-FM, KKLS-FM, KMXC-FM, KSOO-AM and KXRB-AM serving Sioux Falls, South Dakota and KROC-AM, KROC-FM, KYBA-FM, KFIL-FM, KFIL-AM, KVGO-FM, KOLM-AM, KWWK-FM and KLCX-FM serving Rochester, Minnesota from three separate parties. In connection with the acquisitions, the Company paid $1.2 million in cash and issued 3,569,135 shares of Class A Common Stock.

     The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in connection with the acquisitions completed during the nine months ended September 30, 2004 (dollars in thousands):

         
Current assets, other than cash
  $ 2,260  
Property and equipment
    3,777  
Intangible assets
    74,356  
Goodwill
    37,295  
 
   
 
 
Total assets acquired
    117,688  
 
   
 
 
Current liabilities
    488  
Long term liabilities
    1,509  
Deferred tax liabilities
    24,415  
 
   
 
 
Total liabilities assumed
    26,412  
 
   
 
 
Net assets acquired
  $ 91,276  
 
   
 
 

 


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     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 following unaudited consolidated condensed pro forma results of operations data for the three and nine months ended September 30, 2004 and 2003, reflect adjustments as if all acquisitions and dispositions completed during 2003 and during the first, second and third quarters of 2004 occurred at January 1, 2003 (dollars in thousands, except per share data):

                                 
    Three Months Ended
  Nine Months Ended
    September 30,   September 30,   September 30,   September 30,
    2004
  2003
  2004
  2003
Net revenues
  $ 84,279     $ 79,776     $ 241,214     $ 225,292  
Operating income
    23,596       19,139       59,968       52,301  
Net income
    10,030       7,336       23,332       5,061  
Net income attributable to common stockholders
  $ 10,030     $ 6,678     $ 23,332     $ 3,153  
 
   
 
     
 
     
 
     
 
 
Basic income per common share
  $ 0.14     $ 0.10     $ 0.34     $ 0.05  
Diluted income per common share
  $ 0.14     $ 0.10     $ 0.33     $ 0.05  

     Escrow funds of approximately $4.9 million paid by the Company in connection with pending acquisitions have been classified as Other Assets at September 30, 2004 in the accompanying consolidated balance sheet.

     At September 30, 2004 the Company operated 12 stations under local marketing agreements (“LMAs”), pending FCC approval of our acquisition of those stations. The consolidated statements of operations for the three and nine months ended September 30, 2004 includes the revenue and broadcast operating expenses of these radio stations and any related fees associated with the LMAs from the effective date of the LMAs through the earlier of the acquisition date or September 30, 2004.

Goodwill and Other Intangible Assets

     The following tables summarize the September 30, 2004 gross carrying amounts and accumulated amortization of amortized and unamortized intangible assets, amortization expense for the nine months ended September 30, 2004 and September 30, 2003 and the estimated amortization expense for the five succeeding fiscal years (dollars in thousands):

                 
    September 30,   September 30,
    2004
  2003
Amortized Intangible Assets: Non-Compete Agreements
               
Gross Carrying Value
  $ 3,850     $ 5,326  
Accumulated Amortization
    (2,666 )     (3,337 )
 
   
 
     
 
 
Net Value
    1,184       1,989  
Unamortized Intangible Assets: FCC Broadcast Licenses
    1,126,785       1,019,020  
Aggregate Amortization Expense for Non-Compete Agreements:
               
Three months ended September 30, 2004
    204          
Three months ended September 30, 2003
    222          
Nine months ended September 30, 2004
    638          
Nine months ended September 30, 2003
    718          
Estimated Amortization Expense:
               
For the year ending December 31, 2004
    846          
For the year ending December 31, 2005
    675          
For the year ending December 31, 2006
    297          
For the year ending December 31, 2007
    4          
For the year ending December 31, 2008
             

 


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     A summary of changes in the carrying amount of goodwill for the nine months ended September 30, 2004 follows (dollars in thousands):

         
    Goodwill
Balance as of December 31, 2003.
  $ 245,508  
Acquisitions
    37,295  
Dispositions
     
 
   
 
 
Balance as of September 30, 2004
  $ 282,803  
 
   
 
 

6. Long-Term Debt

     On January 29, 2004 the Company completed an amendment and restatement of its existing Credit Agreement, which reduced the margin applicable to both Alternative Base Rate and Adjusted LIBO Rate borrowings under its $325.0 million eight-year term loan facility. The January 29, 2004 amendment and restatement did not change any other material terms or restrictive covenants under the Credit Agreement. In connection with the amendment and restatement, the Company incurred $0.5 million of professional fees, which have been included in losses on early extinguishment of debt on the consolidated statements of operations.

     On July 15, 2004 the Company completed another amendment and restatement of its existing Credit Agreement. Under the terms of this amendment and restatement, $100.0 million of principal outstanding under the eight-year term loan facility was retired and simultaneously redrawn under the seven-year term loan facility. In the aggregate there were no changes in amounts outstanding under the Credit Agreement as a result of the amendment and restatement. The amendment and restatement also reduced by 0.5% the margin applicable to both Alternate Base Rate and Adjusted LIBO Rate borrowings under both the seven-year and eight-year term loan facilities. In addition, certain financial restrictive covenants were amended as a part of the amendment and restatement, which generally give the Company greater flexibility during fiscal years 2004 and 2005. The terms of the seven-year revolving commitment were not amended.

     In connection with the amendment and restatement of the Credit Agreement, the Company recorded a loss on early extinguishments of debt of $2.1 million, which was comprised of a $1.5 million write-off of previously capitalized debt issuance costs and $0.6 million of legal and professional fees.

     As a result of the reallocation of amounts outstanding under the seven-year term loan and eight-year term loan, the amounts repayable on a quarterly basis were effectively increased. As of September 30, 2004, the remaining scheduled annual amortization under the seven-year term loan borrowing is $7.6 million for 2004 (October 1, 2004 through December 31, 2004), $38.0 million for fiscal 2005, $40.5 million in each of fiscal years 2006, 2007 and 2008 and $27.9 million for fiscal 2009. As of September 30, 2004, the remaining scheduled annual amortization under the eight-year term loan borrowing is $0.6 million for fiscal 2004 (October 1, 2004 through December 31, 2004), $2.2 million in each of fiscal years 2005, 2006, 2007 and 2008, $156.3 million in fiscal 2009 and $54.7 million in fiscal 2010.

7. Earnings Per Share

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

     The following table sets forth the computation of basic and diluted income (loss) per share for the three and nine month periods ended September 30, 2004 and 2003 (in thousands, except per share data).

 


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    Three Months   Three Months   Nine Months   Nine Months
    Ended   Ended   Ended   Ended
    September 30,   September 30,   September 30,   September 30,
    2004
  2003
  2004
  2003
Numerator:
                               
Net income
  $ 9,282     $ 7,675     $ 20,518     $ 143  
Preferred stock dividends and accretion of discount
          (659 )           (1,908 )
 
   
 
     
 
     
 
     
 
 
Numerator for basic and diluted income (loss) per common share
  $ 9,282     $ 7,016     $ 20,218     $ (1,765 )
Denominator:
                               
Denominator for basic income (loss) per common share:
                               
Weighted average common shares outstanding
    69,915       64,877       68,724       63,897  
Effect of dilutive securities:
                               
Options
    1,845       2,779       2,738        
 
   
 
     
 
     
 
     
 
 
Shares applicable to diluted income (loss) per common share
    71,760       67,656       71,462       63,897  
 
   
 
     
 
     
 
     
 
 
Basic income (loss) per common share
  $ 0.13     $ 0.11     $ 0.30     $ (0.03 )
 
   
 
     
 
     
 
     
 
 
Diluted income (loss) per common share
  $ 0.13     $ 0.10     $ 0.29     $ (0.03 )
 
   
 
     
 
     
 
     
 
 

     The Company has issued options to key executives and employees to purchase shares of common stock as part of the Company’s stock option plans. At September 30, 2004 and 2003 there were options issued to purchase the following classes of common stock:

                 
    September 30, 2004
  September 30, 2003
Options to purchase Class A Common Stock
    8,404,897       7,279,349  
Options to purchase Class C Common Stock
    1,500,690       1,500,690  

     Earnings per share assuming dilution has not been presented for the nine months ended September 30, 2003 as the effect of the options would be antidilutive. For the three and nine months ended September 30, 2004, 3,164,649 and 2,718,161 options, respectively, were not included in the calculation of weighted average diluted common shares outstanding as the exercise price of the options exceeded the average share price for the period. Likewise, for the three months ended September 30, 2003, 1,336,691 options were not included in the calculation of weighted average diluted common shares outstanding for the same reason.

8. Comprehensive Income

     SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting comprehensive income. Comprehensive income includes net income as currently reported under accounting principles generally accepted in the United States of America, and also considers the effect of additional economic events that are not required to be reported in determining net income, but rather are reported as a separate component of stockholders’ equity. The Company reports changes in the fair value of derivatives qualifying as cash flow hedges as components of comprehensive income. The components of comprehensive income are as follows:

                                 
    Three Months   Three Months   Nine Months   Nine Months
    Ended   Ended   Ended   Ended
    September 30, 2004
  September 30, 2003
  September 30, 2004
  September 30, 2003
Net income
  $ 9,282     $ 7,675     $ 20,518     $ 143  
Change in the fair value of derivative instrument
    (1,535 )     1,630       1,273       (1,215 )
 
   
 
     
 
     
 
     
 
 
Comprehensive income (loss)
  $ 7,747     $ 9,305     $ 21,791     $ (1,072 )
 
   
 
     
 
     
 
     
 
 

 


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9. Commitments and Contingencies

     As of September 30, 2004 the Company has entered into various asset purchase agreements to acquire radio stations in exchange for cash or shares of our Class A Common Stock. In general, the transactions are structured such that if the Company cannot consummate these acquisitions because of a breach of contract, the Company may be liable for a percentage of the purchase price, as defined by the agreements. The ability of the Company to complete the pending acquisitions is dependent upon the Company’s ability to obtain additional equity or debt financing. The Company intends to finance the cash portion of pending acquisitions with cash on hand, the proceeds of borrowings under our Credit Facility or future credit facilities, and other sources to be identified. There can be no assurance the Company will be able to obtain such financing. In the event that the Company is unable to obtain financing necessary to consummate the remaining pending acquisitions, the Company could be liable for approximately $4.9 million in purchase price.

     The Company is also a defendant from time to time in various other lawsuits, which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

10. Subsequent Events

     On September 28, 2004, the Board of Directors of the Company authorized the repurchase, from time to time, of up to $100 million of its Class A Common Stock, subject to the terms of the Company’s credit agreement. Subsequent to September 30, 2004 and consistent with the Board approved repurchase plan, the Company repurchased 1,004,429 shares of its Class A Common Stock in the open market at an average repurchase price of $14.56 per share.

     On October 14, 2004 the Company entered into a Second Amended and Restated Employment Agreement with its Chairman of the Board, President and Chief Executive Officer, Lewis W. Dickey, Jr.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion of the consolidated financial condition and results of operations of Cumulus Media Inc. (“Cumulus,” “us” or the “Company”) should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this quarterly report. This discussion, as well as various other sections of this quarterly report, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to the intent, belief or current expectations of the Company, its directors or its officers primarily with respect to the future operating performance of the Company. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. Risks and uncertainties that may effect forward-looking statements in this document include, without limitation, risks and uncertainties relating to competition within the radio broadcasting industry, advertising demand in our markets, the possibility that advertisers may cancel or postpone schedules in response to national or world events, competition for audience share, our success in executing and integrating acquisitions, our ability to generate sufficient cash flow to meet our debt service obligations and to finance operations, obtaining FCC and government approval of pending acquisitions, our ability to renew our broadcast licenses, changes in interest rates, our ability to continue to achieve cost efficiencies, management of rapid growth, the popularity of radio as a broadcasting and advertising medium, and changing consumer tastes. Many of these risks and uncertainties are beyond the control of the Company. This discussion identifies important factors that could cause such differences. The occurrence of any such factors not currently expected by the Company would significantly alter the results set forth in these statements.

Overview

     The following is a discussion of the key factors that have affected our business since its inception on May 22, 1997. The following information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this report.

 


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     The following discussion of our financial condition and results of operations includes the results of acquisitions and local marketing, management and consulting agreements. As of September 30, 2004, we owned and operated 291 stations in 59 U.S. markets and provided sales and marketing services under local marketing, management and consulting agreements (pending FCC approval of acquisitions) to 12 stations in 6 U.S. markets. We are the second largest radio broadcasting company in the United States based on number of stations. We believe we are the eighth largest radio broadcasting company in the United States based on 2003 pro forma net revenues. We will own and operate a total of 305 radio stations (223 FM and 82 AM) in 61 U.S. markets upon consummation of all our pending acquisitions.

Advertising Revenue and Station Operating Income

     Our primary source of revenue is the sale of advertising time on our radio stations. Our sales of advertising time are primarily affected by the demand for advertising time from local, regional and national advertisers and the advertising rates charged by our radio stations. Advertising demand and rates are based primarily on a station’s ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron on a periodic basis-generally one, two or four times per year. Because audience ratings in local markets are crucial to a station’s financial success, we endeavor to develop strong listener loyalty. We believe that the diversification of formats on our stations helps to insulate them from the effects of changes in the musical tastes of the public with respect to any particular format.

     The Company’s five-year contract with Arbitron, under which the Company receives ratings materials in a majority of our markets, expired on March 31, 2004. In July 2004, the Company reached an agreement with Arbitron and executed a contract which will give the Company access to ratings materials for a five-year period.

     The number of advertisements that can be broadcast without jeopardizing listening levels and the resulting rating is limited in part by the format of a particular station. Our stations strive to maximize revenue by continually managing the number of commercials available for sale and adjusting prices based upon local market conditions. In the broadcasting industry, radio stations sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of for cash. Our use of trade agreements was not significant during the nine months ended September 30, 2004 and 2003. We continually seek to continue to minimize our use of trade agreements.

     Our advertising contracts are generally short-term. We generate most of our revenue from local advertising, which is sold primarily by a station’s sales staff. During the nine months ended September 30, 2004 and 2003, 86% and 85% of our revenues, respectively, were from local advertising. To generate national advertising sales, we engage Interep National Radio Sales, Inc., a national representative company. Our revenues vary throughout the year. As is typical in the radio broadcasting industry, we expect our first calendar quarter will produce the lowest revenues for the year, and the fourth calendar quarter will generally produce the highest revenues for the year, with the exception of certain of our stations such as those in Myrtle Beach, South Carolina, where the stations generally earn higher revenues in the second and third quarters of the year because of the higher seasonal population in those communities.

     Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods, if at all. Our most significant station operating expenses are employee salaries and commissions, programming expenses, advertising and promotional expenditures, technical expenses, and general and administrative expenses. We strive to control these expenses by working closely with local station management. The performance of radio station groups, such as ours, is customarily measured by the ability to generate Station Operating Income. See the definition of this non-GAAP measure, including a description of the reasons for its presentation, as well as a quantitative reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, below.

 


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Results of Operations

     Analysis of Consolidated Statements of Operations. The following analysis of selected data from the Company’s consolidated statements of operations and other supplementary data should be referred to while reading the results of operations discussion that follows:

                         
    For the Three   For the Three    
    Months Ended   Months Ended    
    September 30,   September 30,   Percent Change
    2004
  2004
  2004 vs. 2003
STATEMENT OF OPERATIONS DATA:
                       
Net revenues
  $ 83,976     $ 74,564       12.6 %
Station operating expenses excluding depreciation, amortization and LMA fees
    51,588       46,774       10.3 %
Depreciation and amortization
    5,213       4,848       7.5 %
LMA fees
    762       577       32.1 %
Corporate general and administrative (excluding non-cash stock compensation)
    3,940       3,131       25.8 %
Restructuring charges (credits)
    (21 )     (85 )     -75.3 %
Non-cash stock compensation
    (221 )     (41 )     439.0 %
Operating income
    22,715       19,360       17.3 %
Interest expense, net
    (4,832 )     (4,713 )     2.5 %
Loss on early extinguishment of debt
    (2,074 )     (1,010 )     105.3 %
Other expense, net
    (21 )     (100 )     -79.0 %
Income tax expense
    (6,506 )     (5,862 )     11.0 %
Net income
    9,282       7,675       20.9 %
Net income attributable to common stockholders
  $ 9,282     $ 7,016       32.3 %
 
   
 
     
 
         
OTHER DATA:
                       
Station Operating Income (1)
    32,388       27,790       16.5 %
Station Operating Income Margin (2)
            38.6 %     37.3 %
                         
    For the Nine   For the Nine    
    Months Ended   Months Ended    
    September 30,   September 30,   Percent Change
    2004
  2003
  2004 vs. 2003
STATEMENT OF OPERATIONS DATA:
                       
Net revenues
  $ 235,741     $ 207,060       13.9 %
Station operating expenses excluding depreciation, amortization and LMA fees
    150,503       131,895       14.1 %
Depreciation and amortization
    15,272       14,325       6.6 %
LMA fees
    2,059       1,208       70.4 %
Corporate general and administrative (excluding non-cash stock compensation)
    11,366       9,981       13.9 %
Restructuring charges (credits)
    (42 )     (268 )     -84.3 %
Non-cash stock compensation
    (437 )     218       -300.5 %
Operating income
    57,020       49,701       14.7 %
Interest expense, net
    (14,669 )     (16,987 )     -13.6 %
Loss on early extinguishment of debt
    (2,536 )     (15,243 )     -83.4 %
Other expense, net
    (9 )     (256 )     -96.5 %
Income tax expense
    (19,288 )     (17,072 )     13.0 %
Net income
    20,518       143       * *
Net income (loss) attributable to common stockholders
  $ 20,518     $ (1,765 )     * *
 
   
 
     
 
         
OTHER DATA:
                       
Station Operating Income (1)
    85,238       75,165       13.4 %
Station Operating Income Margin (2)
            36.2 %     36.3 %
Cash flows related to:
                       
Operating activities
  $ 51,525     $ 32,285       59.6 %
Investing activities
    (24,405 )     (135,154 )     -81.9 %
Financing activities
    (32,422 )     47,681       * *
Capital expenditures
  $ 8,761     $ 6,756       29.7 %


**   Calculation is not meaningful.

 


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(1)   Station Operating Income consists of operating income (loss) before depreciation, amortization, LMA fees, corporate general and administrative expenses, non-cash stock compensation and restructuring charges. Although Station Operating Income is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company’s operating performance. Further, we use Station Operating Income, as defined above, as one of the key measurements of operating efficiency and profitability. More specifically, Station Operating Income measures the amount of income generated each period solely from the operations of the Company’s stations to be used to service debt, pay taxes, fund capital expenditures and fund acquisitions. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company’s operating performance or liquidity that is calculated in accordance with GAAP. As Station Operating Income is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies. See the quantitative reconciliation of Station Operating Income to operating income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, below.

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

Three Months Ended September 30, 2004 Versus the Three Months Ended September 30, 2003.

     Net Revenues. Net revenues increased $9.4 million, or 12.6%, to $84.0 million for the three months ended September 30, 2004 from $74.6 million for the three months ended September 30, 2003. This increase was primarily attributable to net revenues associated with radio station acquisitions consummated subsequent to September 30, 2003 (approximately $5.0 million of the increase), net revenues associated with stations operated under local marketing agreements subsequent to September 30, 2003 (approximately $2.2 million of the increase) and increases in local and national advertising revenue in the current year as compared with the prior year (approximately $2.2 million of the increase).

     In addition, on a same station basis, net revenue for the 260 stations in 53 markets operated for at least a full year increased $2.6 million or 3.8% to $71.4 million for the three months ended September 30, 2004, compared to same station net revenues of $68.7 million for the three months ended September 30, 2003. The increase in same station net revenue was primarily attributable to a 2.9% increase in local same station advertising revenue.

     Station Operating Expenses, Excluding Depreciation, Amortization and LMA Fees. Station operating expenses excluding depreciation, amortization and LMA fees increased $4.8 million, or 10.3%, to $51.6 million for the three months ended September 30, 2004 from $46.8 million for the three months ended September 30, 2003. This increase was primarily attributable to station operating expenses associated with radio station acquisitions consummated subsequent to September 30, 2003 (approximately $3.2 million of the increase) and station operating expenses associated with stations operated under local marketing agreements subsequent to September 30, 2003 (approximately $1.3 million of the increase). The provision for doubtful accounts was $1.3 million for the three months ended September 30, 2004 as compared to $0.7 million during the three months ended September 30, 2003. As a percentage of net revenues, the provision for doubtful accounts was 1% for the three months ended September 30, 2004 and was consistent with the prior year.

     On a same station basis, for the 260 stations in 53 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees increased $0.4 million, or 1.0%, to $43.1 million for the three months ended September 30, 2004 compared to $42.7 million for the three months ended September 30, 2003. The increase in same station operating expenses excluding depreciation, amortization and LMA fees is primarily attributable to higher variable selling costs associated with revenue growth.

     Depreciation and Amortization. Depreciation and amortization increased $0.4 million, or 7.5%, to $5.2 million for the three months ended September 30, 2004 compared to $4.8 million for the three months ended September 30, 2003. This increase was primarily attributable to depreciation and amortization associated with radio station acquisitions consummated subsequent to September 30, 2003.

 


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     LMA Fees. LMA fees totaled $0.8 million for the three months ended September 30, 2004, from $0.6 million for the three months ended September 30, 2003, and were comprised of fees associated with stations operated under LMAs in Columbia, Missouri, Jefferson City, Missouri, Beaumont, Texas, Melbourne, Florida and Lake Charles, LA.

     Corporate, General and Administrative Expenses. Corporate, general and administrative expenses increased $0.8 million, or 25.8%, to $3.9 million for the three months ended September 30, 2004 compared to $3.1 million for the three months ended September 30, 2003. This increase is primarily attributable to an increase in professional fees and other administrative costs incurred in connection with the Company’s Sarbanes-Oxley compliance efforts (approximately $0.4 million of the increase).

     Nonoperating Income (Expense). Interest Expense, Net. Interest expense, net of interest income, increased by $0.1 million, or 2.5%, to $4.8 million for the three months ended September 30, 2004 compared to $4.7 million for the three months ended September 30, 2003. The following summary details the components of the Company’s interest expense, net of interest income (dollars in thousands):

                         
    Three Months   Three Months    
    Ended   Ended   Increase/
    September 30, 2004
  September 30, 2003
  (Decrease)
Bank Borrowings — term loan and revolving credit facilities
  $ 3,946     $ 4,325     $ (379 )
10 3/8% Senior Subordinated Notes due 2008 (the “Notes”)
          8       (8 )
Bank Borrowings yield adjustment — interest rate swap arrangement
    395       684       (289 )
Change in fair value of interest rate option agreement
    187       (471 )     658  
Other interest expense
    500       277       223  
Interest income
    (196 )     (110 )     86  
 
   
 
     
 
     
 
 
Interest expense, net
  $ 4,832     $ 4,713     $ 119  
 
   
 
     
 
     
 
 

     Loss on Early Extinguishments of Debt. The Company recognized losses on the early extinguishments of debt of $2.1 million for the three months ended September 30, 2004, compared with $1.0 million of losses in the prior year. Losses in the current year relate to the completion of an amendment and restatement of the Company’s credit agreement and the related retirement and replacement of its existing term loans. Losses in the prior year relate to the redemption of $13.7 million of the in July 2003.

     Income Taxes. Income tax expense increased by $0.6 million, to $6.5 million for the three months ended September 30, 2004 compared to income tax expense of $5.9 million for the three months ended September 30, 2003. Tax expense in the current and prior year is comprised entirely of deferred tax expense and relates primarily to the establishment of valuation allowances against net operating loss carry-forwards generated during the periods.

     Station Operating Income. As a result of the factors described above, Station Operating Income increased $4.6 million, or 16.5%, to $32.4 million for the three months ended September 30, 2004 compared to $27.8 million for the three months ended September 30, 2003. Station Operating Income consists of operating income (loss) before depreciation, amortization, LMA fees, corporate general and administrative expenses, non-cash stock compensation and restructuring charges. Although Station Operating Income is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company’s operating performance. Further, we use Station Operating Income, as defined above, as one of the key measurements of operating efficiency and profitability. More specifically, Station Operating Income measures the amount of income generated each period solely from the operations of the Company’s stations to be used to service debt, pay taxes, fund capital expenditures and fund acquisitions. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company’s operating performance or liquidity that is calculated in accordance with GAAP. As Station Operating Income is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies.

 


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     Reconciliation of Non-GAAP Financial Measure. Operating income (loss) is the most directly comparable financial measure calculated in accordance with GAAP to Station Operating Income. The following table reconciles operating income (loss) from the accompanying consolidated statements of operations to Station Operating Income:

                 
    Three Months Ended
    September 30, 2004
  September 30, 2003
Operating income
  $ 22,715     $ 19,360  
Non cash stock compensation
    (221 )     (41 )
Restructuring charges (credits)
    (21 )     (85 )
LMA fees
    762       577  
Depreciation and amortization
    5,213       4,848  
Corporate general and administrative
    3,940       3,131  
 
   
 
     
 
 
Station Operating Income
  $ 32,388     $ 27,790  
 
   
 
     
 
 

Nine Months Ended September 30, 2004 versus the Nine Months Ended September 30, 2003.

     Net Revenues. Net revenues increased $28.7 million, or 13.9%, to $235.7 million for the nine months ended September 30, 2004 from $207.1 million for the nine months ended September 30, 2003, primarily as a result of net revenues associated with station acquisitions completed subsequent to September 30, 2003 (approximately $11.2 million of the increase), net revenues associated with stations operated under the terms of local marketing agreements during periods subsequent to September 30, 2003 (approximately $5.0 million of the increase) and increases in local and national advertising revenue in the current year as compared with the prior year (approximately $10.5 million of the increase).

     In addition, on a same station basis, net revenue for the 260 stations in 53 markets operated for at least a full year increased $9.9 million or 5.1% to $203.5 million for the nine months ended September 30, 2004, compared to same station net revenues of $193.6 million for the nine months ended September 30, 2003. The increase in same station net revenue was primarily attributable to a 4.8% increase in same station local sales.

     Station Operating Expenses, excluding Depreciation, Amortization and LMA Fees. Station operating expenses excluding depreciation, amortization and LMA fees increased $18.6 million, or 14.1%, to $150.5 million for the nine months ended September 30, 2004, from $131.9 million for the nine months ended September 30, 2003. This increase was primarily a result of expenses associated with station acquisitions completed subsequent to September 30, 2003 (approximately $8.1 million of the increase) and stations operated under the terms of local marketing agreements during periods subsequent to September 30, 2003 (approximately $3.2 million of the increase). The provision for doubtful accounts was $2.9 million for the nine months ended September 30, 2004, compared to $2.1 million during the nine months ended September 30, 2003. As a percentage of net revenues, the provision for doubtful accounts was 1% for the nine months ended September 30, 2004 and was consistent with the prior year.

     On a same station basis, for the 260 stations in 53 markets operated for at least a full year, station operating expenses excluding depreciation, amortization and LMA fees increased $3.7 million, or 3.0%, to $127.8 million for the nine months ended September 30, 2004, compared to $124.1 million for the nine months ended September 30, 2003. The increase in same station operating expenses excluding depreciation, amortization and LMA fees is primarily attributable to higher variable costs of sales associated with increased revenues (approximately $1.2 million of the increase) and increased general and administrative costs (approximately $1.1 million of the increase).

     Depreciation and Amortization. Depreciation and amortization increased $0.9 million, or 6.6%, to $15.3 million for the nine months ended September 30, 2004, compared to $14.3 million for the nine months ended September 30, 2003. This increase is the result of station assets acquired and related depreciation expense incurred related to station acquisitions completed during the nine months ended September 30, 2003 and subsequent to September 30, 2003.

     LMA Fees. LMA fees increased $0.9 million, or 70.4%, to $2.1 million for the nine months ended September 30, 2004, from $1.2 million for the nine months ended September 30, 2003. This increase was primarily attributable to higher LMA fees associated with the current year operation of stations under local marketing agreements in Columbia, Missouri, Jefferson City, Missouri, Beaumont, Texas, Melbourne, Florida and Lake Charles, LA.

 


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     Corporate, General and Administrative Expenses. Corporate, general and administrative expenses increased $1.4 million, or 13.9%, to $11.4 million for the nine months ended September 30, 2004, compared to $10.0 million for the nine months ended September 30, 2003. This increase was primarily attributable to increased professional fees and other administrative costs incurred in connection with the Company’s Sarbanes-Oxley compliance efforts (approximately $0.7 million of increase).

     Nonoperating Income (Expense). Interest Expense, Net. Interest expense, net of interest income, decreased by $2.3 million, or 13.7%, to $14.7 million for the nine months ended September 30, 2004, compared to $17.0 million for the nine months ended September 30, 2003. The following summary details the components of the Company’s interest expense, net of interest income (dollars in thousands):

                         
    Nine Months Ended   Nine Months Ended   Increase/
    September 30, 2004
  September 30, 2003
  (Decrease)
Bank Borrowings — term loan and revolving credit facilities
  $ 12,032     $ 11,524     $ 508  
10 3/8% Senior Subordinates Notes due 2008
          3,764       (3,764 )
Bank Borrowings yield adjustment — interest rate swap arrangement
    1,757       1,314       443  
Change in fair value of interest rate option agreement
    (203 )     (351 )     148  
Other interest expense
    1,576       1,237       339  
Interest income
    (493 )     (501 )     (8 )
 
   
 
     
 
     
 
 
Interest expense, net
  $ 14,669     $ 16,987     $ (2,318 )
 
   
 
     
 
     
 
 

     Loss on Early Extinguishments of Debt. Losses on early extinguishments of debt totaled $2.5 million for the nine months ended September 30, 2004 as compared with $15.2 million for the nine months ended September 30, 2003. Losses in the current year relate to 1) the completion of an amendment and restatement of the Company’s Credit Agreement in January 2004 and the related retirement and replacement of its then existing eight year term loan facility, and 2) the completion of an amendment and restatement of the Company’s Credit Agreement in July 2004 and the related retirement and replacement of its existing term loans. Losses in the prior year relate to the repurchase of $30.1 million of the Notes on the open market in the first quarter of 2003, the repurchase of $88.8 million of the Notes as part of a tender offer and consent solicitation completed in April 2003 and the retirement of the Company’s existing $175.0 million eight-year term loan facility in connection with refinancing activities also completed in April 2003.

     Income Taxes. Income tax expense totaled $19.3 million for the nine months ended September 30, 2004, compared to $17.1 million for the nine months ended September 30, 2003. Tax expense incurred in the current and prior year, comprised entirely of deferred tax expense, was recorded to establish valuation allowances against net operating loss carry-forwards generated during the periods.

     Station Operating Income. As a result of the factors described above, Station Operating Income increased $10.1 million, or 13.4%, to $85.2 million for the nine months ended September 30, 2004 compared to $75.2 million for the nine months ended September 30, 2003. Station Operating Income consists of operating income (loss) before depreciation, amortization, LMA fees, corporate general and administrative expenses, non-cash stock compensation and restructuring charges. Although Station Operating Income is not a financial measure that is calculated in accordance with GAAP, management believes that it is a measure of performance that is useful to an investor in evaluating the Company because it is a measure widely used in the broadcasting industry to evaluate a radio company’s operating performance. Further, we use Station Operating Income, as defined above, as one of the key measurements of operating efficiency and profitability. More specifically, Station Operating Income measures the amount of income generated each period solely from the operations of the Company’s stations to be used to service debt, pay taxes, fund capital expenditures and fund acquisitions. Nevertheless, it should not be considered in isolation or as a substitute for net income, operating income (loss), cash flows from operating activities or any other measure for determining the Company’s operating performance or liquidity that is calculated in accordance with GAAP. As Station Operating Income is not a measure calculated in accordance with GAAP, this measure may not be compared to similarly titled measures employed by other companies.

 


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     Reconciliation of Non-GAAP Financial Measures. The following table reconciles operating income, the most directly comparable financial measure calculated and presented in accordance with GAAP from the accompanying consolidated statements of operations, to Station Operating Income:

                 
    Nine Months Ended
    September 30, 2004
  September 30, 2003
Operating income
  $ 57,020     $ 49,701  
Non-cash stock compensation
    (437 )     218  
Restructuring charges (credits)
    (42 )     (268 )
LMA fees
    2,059       1,208  
Depreciation and amortization
    15,272       14,325  
Corporate general and administrative
    11,366       9,981  
 
   
 
     
 
 
Station Operating Income
  $ 85,238     $ 75,165  
 
   
 
     
 
 

     Intangible Assets. Intangible assets, net of amortization, were $1.4 billion and $1.3 billion as of September 30, 2004 and December 31, 2003, respectively. These intangible asset balances primarily consist of broadcast licenses and goodwill, although the Company possesses certain other intangible assets obtained in connection with our acquisitions, such as non-compete agreements. The increase in intangible assets, net during the nine months ended September 30, 2004 is attributable to acquisitions completed during the first nine months of 2004. Specifically identified intangible assets, including broadcasting licenses, are recorded at their estimated fair value on the date of the related acquisition. Goodwill represents the excess of purchase price over the fair value of tangible assets and specifically identified intangible assets. Although intangible assets are recorded in the Company’s financial statements at acquired fair value, we believe that such assets, especially broadcast licenses, can significantly appreciate in value by successfully executing the Company’s operating strategies. During 2002, 2001 and 2000, the Company recognized gains from the sale of stations. We believe these gains indicate that certain internally generated intangible assets, which are not recorded for accounting purposes, can significantly increase the value of our portfolio of stations over time. The Company’s strategic initiative to focus on its core radio business is designed to enhance the overall value of our stations and maximize the value of the related broadcast licenses.

Liquidity and Capital Resources

     Our principal need for funds has been to fund the acquisition of radio stations and, to a lesser extent, working capital needs, capital expenditures, repurchases of our securities and interest and debt service payments. Our principal sources of funds for these requirements have been cash flows from financing activities, such as the proceeds from the offering of our debt and equity securities and borrowings under credit facilities, and cash flows from operations. Our principal need for funds in the future are expected to include the need to fund pending and future acquisitions, interest and debt service payments, working capital needs and capital expenditures, as well as any further repurchases of our common stock under our stock repurchase plan. We believe that our presently projected cash flow from operations and present financing arrangements, including availability under our existing credit facilities, or borrowings that would be available from future financing arrangements, will be sufficient to meet our future capital needs, including the funding of pending acquisitions, operations and debt service. However, our cash flow from operations is subject to such factors as shifts in population, station listenership, demographics or audience tastes, and borrowings under financing arrangements are subject to financial covenants that can restrict our financial flexibility. Further, our ability to obtain additional equity or debt financing is also subject to market conditions and operating performance. As such, there can be no assurance that we will be able to obtain such financing at terms, and on the timetable, that may be necessary to meet our future capital needs.

     For the nine months ended September 30, 2004, net cash provided by operating activities increased $19.2 million to $51.5 million from net cash provided by operating activities of $32.3 million for the nine months ended September 30, 2003. This increase was primarily attributable to a 14.7% increase in operating income versus the prior year and a 13.3% decrease in interest expense versus the prior year. The year-over-year comparison of cash provided by operating activities was also affected by the timing of interest payments made on the Notes. Interest on the Notes that accrued for the six month period ended December 31, 2002, totaling $6.5 million, was paid on January 2, 2003 and, as a result, deflated net cash provided by operating activities during the nine months ended September 30, 2003.

 


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     For the nine months ended September 30, 2004, net cash used in investing activities decreased $110.7 million to $24.4 million from net cash used in investing activities of $135.1 million for the nine months ended September 30, 2003. This decrease was primarily attributable to the timing and funding of acquisitions. The Company completed several acquisitions of radio stations during both the current and prior year periods, as described below. However, acquisitions completed during the current year have been funded primarily with shares of the Company’s Class A Common Stock and required only a nominal cash outlay. Acquisitions completed during the prior year were funded primarily in cash.

     For the nine months ended September 30, 2004, net cash used in financing activities totaled $32.4 million, compared with net cash provided by financing activities in the prior year during the same period of $47.7 million. Net cash used during the current year was utilized primarily to repay outstanding borrowings under the Company’s Credit Facility and to repay an acquisition related promissory note. Net cash provided during the prior year was primarily due to borrowings under the Company’s Credit Facility and proceeds from the exercise of certain warrants issued in acquisitions, offset by repayments of borrowings under the Credit Facility, the repurchase of shares of the Company’s 13 3/4% Series A Preferred Stock and the repurchase of the Notes.

     Historical Acquisitions. During the nine months ended September 30, 2004, the Company completed 7 acquisitions of 22 radio stations across 6 markets having an aggregate purchase price of $91.3 million. The Company also purchased a tract of land for a tower site with an aggregate purchase price of $1.6 million. Of the $92.9 million required to fund the acquisitions, $71.3 million was provided in shares of Class A Common Stock and $11.0 million was funded in cash, $4.6 million had been previously funded in the form of escrow deposits, $0.5 million represented capitalizable acquisition costs and $5.5 million was deferred beyond the closing of the transaction.

     Pending Acquisitions. As of September 30, 2004, the Company was a party to various agreements to acquire 13 stations across 7 markets. The aggregate purchase price of those pending acquisitions is expected to be approximately $81.6 million, of which the Company is contractually obligated to pay $9.6 million in cash and, at the Company’s option, may fund the remaining $72.0 million in cash or shares of the Company’s Class A Common Stock. As of September 30, 2004, $4.9 million of escrow deposits were outstanding related to pending transactions. In the event that the Company is unable to obtain financing necessary to consummate those remaining pending acquisitions, the Company could forfeit the deposit amounts. We intend to finance the cash portion of the pending acquisitions with cash on hand, cash flows from operations, the proceeds of borrowings under our Credit Facility or future credit facilities and other sources. If we choose to finance our pending acquisitions entirely in cash drawn from our Credit Facility, we will increase the principal amount outstanding under the Credit Facility by approximately $81.6 million. This would impact the availability of funds under the Credit Facility for use in financing future acquisitions. We would then be dependent on our ability to obtain additional equity or debt financing on favorable terms, if at all. There can be no assurance that we will be able to obtain such financing on favorable terms, if at all.

     We expect to consummate most of our pending acquisitions during 2004 and the first quarter of 2005, although there can be no assurance that the transactions will be consummated within that time frame, or at all. In addition, from time to time the Company completes acquisitions following the initial grant of an assignment application by the FCC staff but before such grant becomes a final order and a petition to review such a grant may be filed. There can be no assurance that such grants may not ultimately be reversed by the FCC or an appellate court as a result of such petitions, which could result in the Company being required to divest the assets it has acquired.

     Acquisition Shelf Registration Statement. We have registered an aggregate of 20,000,000 shares of our Class A Common Stock, pursuant to registration statements on Form S-4, for issuance from time to time in connection with our acquisition of other businesses, properties or securities in business combination transactions utilizing a “shelf” registration process. As of September 30, 2004, we had issued 5,666,553 of the 20,000,000 shares registered in connection with various acquisitions. Further, as of September 30, 2004, of the 14,333,447 shares remaining available under the registration statements, based upon the closing price of our Class A Common Stock on the NASDAQ National Market on that date, we have entered into agreements pursuant to which we have the option to issue, in lieu of cash, approximately 3,109,798 shares in connection with various acquisitions we expect to complete during 2004 and 2005.

 


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     Sources of Liquidity. We financed the cash components of our 2004 acquisitions primarily with cash flows from operations.

     On April 28, 2003 the Company completed an amendment and restatement of its then-existing Credit Agreement, which, among other things, increased the aggregate principal borrowing availability from $400.0 million to $550.0 million. Under the amended and restated agreement, we received financing in the form of a new eight-year term loan facility of $325.0 million. We used the proceeds from the eight-year term loan to pay the consideration pursuant to a tender offer and consent solicitation relating to our outstanding Notes and to repay the existing eight-year term loan facility of $175 million outstanding and $30.0 million of outstanding revolving loan borrowings, under our existing credit facilities.

     On January 29, 2004 the Company completed an amendment and restatement of its existing Credit Agreement, which reduced the margin applicable to both Alternate Base Rate and Adjusted LIBO Rate borrowings under its $325.0 million eight-year term loan facility. The January 29, 2004 amendment and restatement did not change any other material terms or restrictive covenants under the Credit Agreement.

     On July 15, 2004 the Company completed an amendment and restatement of its existing Credit Agreement. Under the terms of the amendment and restatement, $100.0 million of principal outstanding under the eight-year term loan facility was retired and simultaneously redrawn under the seven-year term loan facility. In the aggregate there were no changes in amounts outstanding under the Credit Facility as a result of the amendment and restatement. The amendment and restatement also reduced by 0.5% the margin applicable to both Alternate Base Rate and Adjusted LIBO Rate borrowings under both the seven-year and eight-year term loan facilities. In addition, certain financial restrictive covenants were amended as a part of the amendment and restatement, which generally give the Company greater flexibility during fiscal years 2004 and 2005. The terms of the seven-year revolving commitment were not amended.

     As amended, the Credit Facility consists of a seven-year revolving commitment of $112.5 million, a seven-year term loan facility of $202.7 million and an eight-year term loan facility of $220.9 million. As of September 30, 2004, $195.1 million was outstanding under the seven-year term loan facility, $220.4 million was outstanding under the eight-year term loan facility and $39.5 million was outstanding under the seven-year revolver.

     The amount available under the seven-year revolving commitment will be automatically reduced by 7.5% of the initial aggregate principal amount ($112.5 million) in fiscal year 2004, 13.75% in fiscal year 2005, 18.75% in fiscal 2006, 20.0% in fiscal year 2007, 31.25% in fiscal year 2008 and 8.75% in fiscal year 2009.

     As a result of the amendment and restatement completed on July 15, 2004 and the reallocation of amounts outstanding under the seven-year term loan and eight-year term loan, the amounts repayable on a quarterly basis were effectively increased. As of September 30, 2004, the remaining scheduled annual amortization under the seven-year term loan borrowing is $7.6 million for 2004 (October 1, 2004 through December 31, 2004), $38.0 million for fiscal 2005, $40.5 million in each of fiscal years 2006, 2007 and 2008 and $27.9 million for fiscal 2009. As of September 30, 2004, the remaining scheduled annual amortization under the eight-year term loan borrowing is $0.6 million for fiscal 2004, $2.2 million in each of fiscal years 2005, 2006, 2007 and 2008, $156.3 million in fiscal 2009 and $54.7 million in fiscal 2010. We expect to pay these installments using cash from operations.

     The Company’s obligations under the Credit Facility are collateralized by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries), including, without limitation, intellectual property, real property, and all of the capital stock of the Company’s direct and indirect domestic subsidiaries (except the capital stock of BSI) and 65% of the capital stock of any first-tier foreign subsidiary. The obligations under the Credit Facility are also guaranteed by each of the direct and indirect domestic subsidiaries, except BSI, and are required to be guaranteed by any additional subsidiaries acquired by the Company.

     Both the revolving commitment and the term loan borrowings under the Credit Facility bear interest, at the Company’s option, at a rate equal to the Alternate Base Rate (as defined under the terms of our Credit Agreement, 4.75% as of September 30, 2004) plus a margin ranging between 0.50% to 2.0%, or the Adjusted LIBO Rate (as defined under the terms of the Credit Agreement, 1.8% as of September 30, 2004) plus a margin ranging between

 


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1.50% to 3.0% (in each case dependent upon the leverage ratio of the Company). At September 30, 2004 the Company’s effective interest rate, excluding the effects of the interest rate swap agreement discussed below, on loan amounts outstanding under our Credit Facility was 3.5%.

     In March 2003, the Company entered into an interest rate swap agreement that effectively fixed the interest rate, based on LIBOR, on $300.0 million of its current floating rate bank borrowings for a three-year period. As a result and including the fixed component of the swap, at September 30, 2004, the Company’s effective interest rate on loan amounts outstanding under our Credit Facility is 3.7%.

     A commitment fee calculated at a rate ranging from 0.50% to 0.75% per annum (depending upon the Company’s utilization rate) of the average daily amount available under the revolving lines of credit is payable quarterly in arrears, and fees in respect of letters of credit issued under the Credit Agreement equal to the interest rate margin then applicable to Eurodollar Rate loans under the seven-year revolving Credit Facility are payable quarterly in arrears. In addition, a fronting fee of 0.25% is payable quarterly to the issuing bank.

     The amount available under the seven-year revolving commitment will be automatically reduced in quarterly installments as described above and in the Credit Agreement governing the Credit Facility. Certain mandatory prepayments of the term loan facilities and reductions in the availability of the revolving commitment are required to be made including: (i) 100% of the net proceeds from the incurrence of certain indebtedness; and (ii) 100% of the net proceeds from certain asset sales.

     Under the terms of the Credit Agreement, the Company is subject to certain restrictive financial and operating covenants, including but not limited to maximum leverage covenants, minimum interest and fixed charge coverage covenants, limitations on asset dispositions and the payment of dividends. The failure to comply with the covenants would result in an event of default, which in turn would permit acceleration of debt under those instruments. At September 30, 2004, the Company was in compliance with such financial and operating covenants.

     The terms of the Credit Agreement contain events of default after expiration of applicable grace periods, including failure to make payments on the Credit Facility, breach of covenants, breach of representations and warranties, invalidity of the Credit Agreement and related documents, cross default under other agreements or conditions relating to indebtedness of the Company or its restricted subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the Credit Agreement, the majority of the lenders are able to declare all amounts under our Credit Facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under each term loan facility and the majority of the banks under each revolving credit facility may terminate such term loan facility and such revolving credit facility, respectively, upon an event of default.

     On September 28, 2004, the Board of Directors of the Company authorized the purchase, from time to time, of up to $100 million of its Class A Common Stock, subject to the terms of the Credit Agreement. Subsequent to September 30, 2004 and consistent with the Board approved repurchase plan, the Company repurchased 1,004,429 shares of its Class A Common Stock in the open market at an average repurchase price of $14.56 per share. The Company’s Credit Agreement limits the Company’s ability to repurchase shares having an aggregate value in excess of $15.0 million. The Company has commenced negotiations with its lenders to amend that provision of the Credit Agreement, but there can be no assurance as to the timing or terms of such an amendment or whether it will be obtained.

 


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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 September 30, 2004 (dollars in thousands):

                                         
    Payments Due By Period
Contractual Cash           Less Than   1 to 3   4 to 5   After 5
Obligations:
  Total
  1 Year
  Years
  Years
  Years
Long-term debt(1)(2)
  $ 454,942     $ 37,674       85,484       185,682       146,102  
Acquisition obligations (3)
    79,950       79,950                    
Operating leases
    33,733       6,924       10,640       6,468       9,701  
Other operating contracts
    38,781       6,498       17,815       14,468        
 
   
 
     
 
     
 
     
 
     
 
 
Total Contractual Cash Obligations
  $ 607,406     $ 131,046     $ 113,939     $ 206,618     $ 155,803  
 
   
 
     
 
     
 
     
 
     
 
 


(1)   Maturities of our outstanding debt are reflective of the amended annual amortization schedule which became effective, together with other amendments to our Credit Agreement, as of July 15, 2004. Under our Credit Agreement, the maturity of our outstanding debt could be accelerated if we do not maintain certain restrictive financial and operating covenants.
 
(2)   Based on long-term debt amounts outstanding at September 30, 2004, scheduled annual principal amortization and the current effective interest rate on such long-term debt amounts outstanding, the Company would be obligated to pay approximately $62.2 million of interest on borrowings through March 2010 ($15.5 million due in less than 1 year, $26.6 million due in years 2 and 3, $18.7 million due in years 4 and 5 and $1.4 million due after 5 years).
 
(3)   Amount is reflective of the unfunded obligation under agreements to purchase radio stations. Amounts include $72.0 million of purchase price which, at the Company’s option, may be funded in cash or shares of Class A Common Stock.
                                         
            Amount of Commitment Expiration Per Period
Contractual Cash           Less Than   1 to 3   4 to 5   After 5
Obligations:
  Total
  1 Year
  Years
  Years
  Years
Letter of Credit(1)
  $ 3,368     $ 3,368     $     $     $  


(1)   In connection with certain acquisitions, we are obligated to provide an escrow deposit in the form of a letter of credit during the period prior to closing.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company’s borrowings under its Credit Facility bear interest at variable rates. In March 2003, the Company entered into a fixed rate interest rate swap agreement designed to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in interest rates. This swap agreement, which has a total notional amount of $300.0 million, will expire in March 2006.

     In the event of an adverse change in interest rates, management would likely take actions, in addition to the interest rate swap agreement discussed above, to further mitigate its 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. Further, such analysis could not take into account the effects of any change in the level of overall economic activity that could exist in such an environment.

Item 4. Controls and Procedures

     We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Such disclosure controls and procedures are designed to ensure that information required to be disclosed

 


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in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chairman, President and Chief Executive Officer (“CEO”) and our Executive Vice President, Treasurer and Chief Financial Officer (“CFO”). At the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our CEO and CFO, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.

     Our management is required to report on the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year, including disclosure of any material weaknesses in such internal controls identified by management. Management currently is in the process of documenting, testing and assessing our internal controls. Although this process is not yet complete, management has identified, and has discussed with the Audit Committee and our independent auditors, certain internal control deficiencies, including deficiencies in controls relating to segregation of duties and compatibility of responsibilities, as well as in processes relating to accounts payable, payroll processing, information technology, and fixed-asset record-keeping.

     As part of the evaluation process, the Company is taking steps to make necessary improvements and enhance the reliability of its internal control over financial reporting in advance of management’s year-end report. Remediation efforts include improvements in information technology security, access and continuity of systems controls. However, at this time, there is some uncertainty regarding whether management will be able to sufficiently document and test all of the revised internal control procedures for the required testing periods prior to December 31, 2004. Any internal control deficiency that has not been sufficiently remediated prior to year-end could adversely affect management’s ability to conclude that our internal control over financial reporting is effective.

     Aside from the remediation efforts described above, there have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     The Company from time to time is involved in various legal proceedings that are handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of these matters, management does not believe, based upon currently available facts, that the ultimate resolution of any such proceedings would have a material adverse effect on its overall financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Not applicable.

Item 3. Defaults upon Senior Securities

     Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

     Not applicable.

Item 5. Other Information

     Not applicable.

 


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Item 6. Exhibits

         
31.1
    Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
31.2
    Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
32.1
    Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 


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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  CUMULUS MEDIA INC.
 
 
Date: November 9, 2004  By:   /s/ Martin R. Gausvik    
    Executive Vice President, Treasurer and   
    Chief Financial Officer   
 

 


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EXHIBIT INDEX

         
31.1
    Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
31.2
    Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
       
32.1
    Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.