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8-K - FORM 8-K - CUMULUS MEDIA INC | g27876e8vk.htm |
EX-99.2 - EX-99.2 - CUMULUS MEDIA INC | g27876exv99w2.htm |
Table of Contents
EXHIBIT
99.1
CUMULUS MEDIA PARTNERS, LLC
Financial Statements
As of June 30, 2011 and December 31, 2010 and
For Each of the Three and Six Months
Ended June 30, 2011 and 2010
As of June 30, 2011 and December 31, 2010 and
For Each of the Three and Six Months
Ended June 30, 2011 and 2010
CUMULUS MEDIA PARTNERS, LLC
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1 | ||||
2 | ||||
3 | ||||
4 |
Table of Contents
CUMULUS MEDIA PARTNERS, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(Dollars in thousands)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 16,133 | $ | 21,953 | ||||
Restricted cash |
600 | 601 | ||||||
Accounts receivable, less allowance for doubtful accounts
of $400 and $449 in 2011 and 2010, respectively |
37,297 | 35,846 | ||||||
Prepaid expenses and other current assets |
6,390 | 7,002 | ||||||
Deferred tax asset |
| 807 | ||||||
Total current assets |
60,420 | 66,209 | ||||||
Property and equipment, net |
22,765 | 26,538 | ||||||
Intangible assets, net |
242,919 | 243,144 | ||||||
Goodwill |
79,700 | 79,700 | ||||||
Deferred financing costs, net (including accumulated amortization
of $13,976 and $12,709 in 2011 and 2010, respectively) |
3,935 | 5,202 | ||||||
Other assets |
324 | | ||||||
Long-term investment |
4,000 | 4,000 | ||||||
Total assets |
$ | 414,063 | $ | 424,793 | ||||
Liabilities and Members Deficit |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,202 | $ | 130 | ||||
Accrued interest |
10,431 | 7,363 | ||||||
Accrued state income taxes |
52 | 1,118 | ||||||
Derivative instrument |
| 3,252 | ||||||
Current portion of long-term debt |
93,228 | 109,786 | ||||||
Other current liabilities |
12,233 | 12,355 | ||||||
Total current liabilities |
117,146 | 134,004 | ||||||
Long-term debt |
612,234 | 615,734 | ||||||
Other liabilities |
7,536 | 8,476 | ||||||
Deferred income taxes |
85,839 | 83,620 | ||||||
Total liabilities |
822,755 | 841,834 | ||||||
Members deficit |
||||||||
Additional paid-in capital |
310,850 | 310,850 | ||||||
Accumulated deficit |
(787,019 | ) | (795,368 | ) | ||||
Total Cumulus Media Partners, LLC members deficit |
(476,168 | ) | (484,518 | ) | ||||
Non-controlling interest |
67,477 | 67,477 | ||||||
Total members deficit |
(408,692 | ) | (417,041 | ) | ||||
Total liabilities and members deficit |
$ | 414,063 | $ | 424,793 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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CUMULUS MEDIA PARTNERS, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
(Dollars in thousands)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net revenues |
$ | 48,864 | $ | 52,706 | $ | 88,007 | $ | 90,624 | ||||||||
Operating expenses: |
||||||||||||||||
Station operating expenses (excluding depreciation
and amortization and including local marketing agreement
(LMA) fees) |
26,285 | 27,091 | 50,042 | 49,828 | ||||||||||||
Depreciation and amortization |
1,782 | 2,138 | 3,899 | 4,272 | ||||||||||||
Corporate general and administrative expenses |
2,788 | 2,141 | 5,269 | 3,912 | ||||||||||||
Loss on disposals of assets or stations |
11 | 3 | 5 | 3 | ||||||||||||
Total operating expenses |
30,866 | 31,373 | 59,215 | 58,015 | ||||||||||||
Operating income |
17,998 | 21,333 | 28,792 | 32,609 | ||||||||||||
Non-operating expense: |
||||||||||||||||
Interest expense, net |
(5,945 | ) | (6,867 | ) | (12,165 | ) | (14,617 | ) | ||||||||
Income before income taxes |
12,053 | 14,466 | 16,627 | 17,992 | ||||||||||||
Income tax expense |
(5,800 | ) | (6,138 | ) | (8,279 | ) | (8,251 | ) | ||||||||
Net income |
$ | 6,253 | $ | 8,328 | $ | 8,348 | $ | 9,741 | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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CUMULUS MEDIA PARTNERS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 8,349 | $ | 9,741 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
3,899 | 4,272 | ||||||
Amortization of debt issuance costs |
1,268 | 1,311 | ||||||
Provision for doubtful accounts |
(8 | ) | 191 | |||||
Loss on disposals of assets or stations |
4 | 3 | ||||||
Fair value adjustment of derivative instruments |
(3,252 | ) | (1,637 | ) | ||||
Deferred income taxes |
3,026 | 8,086 | ||||||
Changes in assets and liabilities: |
||||||||
Restricted cash |
| 57 | ||||||
Accounts receivable |
(1,443 | ) | (4,253 | ) | ||||
Prepaid expenses and other current assets |
612 | (11 | ) | |||||
Other assets |
103 | | ||||||
Accounts payable and accrued expenses |
2,953 | (6,372 | ) | |||||
Other liabilities |
(941 | ) | (849 | ) | ||||
Net cash provided by operating activities |
14,570 | 10,539 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(324 | ) | (436 | ) | ||||
Purchase of intangible assets |
(8 | ) | | |||||
Net cash used in investing activities |
(332 | ) | (436 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayments of borrowings from bank credit facilities |
(20,058 | ) | (45,549 | ) | ||||
Net cash used in financing activities |
(20,058 | ) | (45,549 | ) | ||||
Decrease in cash and cash equivalents |
(5,820 | ) | (35,446 | ) | ||||
Cash and cash equivalents at beginning of period |
21,953 | 80,223 | ||||||
Cash and cash equivalents at end of period |
$ | 16,133 | $ | 44,777 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Interest paid |
$ | 11,081 | $ | 12,338 | ||||
Income taxes paid |
6,871 | 2,029 | ||||||
Trade revenue |
1,809 | 2,252 | ||||||
Trade expense |
1,824 | 2,214 |
See accompanying notes to the unaudited condensed consolidated financial statements.
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CUMULUS MEDIA PARTNERS, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Interim Financial Data and Basis of Presentation:
Description of Business
Cumulus Media Partners, LLC and subsidiaries (CMP or the Company) is a radio broadcasting
company organized in the state of Delaware, focused on operating and developing commercial radio
stations in the top 50 radio markets in the United States. At
June 30, 2011, the Company held its radio
broadcasting assets through two indirect wholly-owned subsidiaries, CMP Susquehanna Corp.
(CMPSC) and CMP KC, LLC (KC LLC), both of
which it owns indirectly through its direct wholly-owned subsidiary
CMP Susquehanna Holdings Corp. (Holdings). See
Note 12.
Interim Financial Data
The accompanying unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements of CMP and accompanying notes included in
CMPs audited financial statements for the year ended December 31, 2010. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP) for interim financial information. Accordingly, they do not
include all of the information and notes required by GAAP for complete financial statements. In the
opinion of CMPs management, all adjustments necessary for a fair statement 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 three and six months ended June 30, 2011 are not necessarily
indicative of the results of operations or cash flows that can be expected for any other interim
period or for the fiscal year ending December 31, 2011.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to bad debts, intangible assets,
derivative financial instruments, income taxes, and contingencies and litigation. The Company bases
its estimates on historical experience and on various assumptions that are believed to be
reasonable and appropriate under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under different
assumptions or conditions.
Recent Accounting Pronouncements
ASU 2010-28. In December 2010, the Financial Accounting Standards Board (FASB) provided
additional guidance for performing Step 1 of the test for goodwill impairment when an entity has
reporting units with zero or negative carrying values. This Accounting Standards Update (ASU)
updates Accounting Standards Codification (ASC) 350, Intangibles Goodwill and Other, to amend
the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or
negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is
more likely than not that a goodwill impairment exists. The Company adopted this guidance effective
on January 1, 2011. The update did not have a material impact on the Companys consolidated
financial statements.
ASU 2010-29. In December 2010, the FASB issued clarification of the accounting guidance
related to disclosure of pro forma information for business combinations that occur in the current
reporting period. The guidance requires companies to present pro forma information in their
comparative financial statements as if the acquisition date for any business combination taking
place in the current reporting period had occurred at the beginning of the prior year reporting
period. The Company adopted this guidance effective January 1, 2011. The guidance did not have a
material impact on the Companys financial statements.
ASU
2011-04. In May 2011, the FASB issued an amendment to
existing guidance relating to measuring fair value. The
amendment clarifies the FASBs intent about the application of existing fair value measurement
requirements and expands the required disclosures for fair value measurements. Expanded disclosures are
required for fair value measurements categorized within Level 3 of the fair value hierarchy.
Additional disclosures are also required for nonfinancial assets that differ from the assets
highest and best use when measured at fair value or when its fair value is measured on the basis of
its highest and best use as well as the categorization by level of the fair value hierarchy for
items that are not measured at fair value but for which the fair value is required to be disclosed.
The amendments are effective for
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interim and annual periods beginning after December 15, 2011 and are not expected to have a
material impact on the Companys financial statements.
2. Acquisition of CMP by Cumulus Media Inc.
On
August 1, 2011, Cumulus Media Inc. (Cumulus) completed its previously announced acquisition of the
75.0% of the equity interests of CMP that it did not own. For additional information about
this acquisition, see Note 12.
3. Derivative Financial Instruments
CMPSC entered into an interest rate swap agreement on June 12, 2008 (the 2008 Swap). The
2008 Swap became effective as of June 12, 2008 and expired on June 12, 2011. The 2008 Swap changed
the variable-rate cash flow exposure on $200.0 million of CMPSCs long-term bank borrowings to
fixed-rate cash flows. Under the 2008 Swap, CMPSC received LIBOR-based variable interest rate
payments and made fixed interest rate payments, thereby creating fixed-rate, long-term debt. The
2008 Swap was not accounted for as a cash flow hedge instrument. Accordingly, the changes in its
fair value are reflected within interest expense in the statement of operations.
The fair value of the 2008 Swap
was determined using observable market based inputs (a Level 2 fair
value
measurement). The fair value represented an estimate of the net amount that CMP would receive if the
2008 Swap was transferred to another party or canceled as of the date of the valuation. During the
three and six months ended June 30, 2011 and 2010, the Company
charged $1.6 million and $3.3 million, and
$1.7 million and $3.3 million, respectively, to interest
income within interest expense, net
in the statement of operations related to yield adjustment payments on the 2008 Swap.
The location and fair value amounts of derivatives in the condensed consolidated balance
sheets are shown in the following table:
Information on the Location and Amount of the Derivative Fair Value in the
Condensed Consolidated Balance Sheets (Dollars in thousands)
Condensed Consolidated Balance Sheets (Dollars in thousands)
Fair Value at | ||||||||||||
June 30, | December 31, | |||||||||||
Balance Sheet Location | 2011 | 2010 | ||||||||||
Derivative not designated as hedging instrument: | ||||||||||||
2008 Swap | Other current liabilities |
$ | | $ | 3,252 | |||||||
Total |
$ | | $ | 3,252 | ||||||||
The location and effect of the derivative in the condensed consolidated statements of
operations is shown in the following table:
Information on the Location and Amount of the Derivative Fair Value in the
Condensed Consolidated Statements of Operations (Dollars in thousands)
Condensed Consolidated Statements of Operations (Dollars in thousands)
Amount of Income Recognized on the Derivative | ||||||||||||||||||||
Derivative | for the Three Months Ended | for the Six Months Ended | ||||||||||||||||||
Instrument | Statement of Operations Location | June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | |||||||||||||||
2008 Swap |
Interest expense, net |
$ | 1,666 | $ | 1,387 | $ | 3,252 | $ | 1,637 | |||||||||||
Total |
$ | 1,666 | $ | 1,387 | $ | 3,252 | $ | 1,637 | ||||||||||||
4. Fair Value Measurements
The three levels of the fair value hierarchy to be applied to financial instruments when
determining fair value are described below:
Level 1 Valuations based on quoted prices in active markets for identical assets or
liabilities that the entity has the ability to access;
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Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices
in markets that are not active, or other inputs that are observable or can be corroborated by
observable data for substantially the full term of the assets or liabilities; and
Level 3 Valuations based on inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
A financial instruments level within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement. The Companys financial assets and
liabilities are measured at fair value on a recurring basis.
The carrying values of receivables, payables, and accrued expenses approximate fair value due
to the short maturity of these instruments.
The following table shows the gross amount and fair value of the term loan facilities and
revolving credit facilities that constitute the senior secured credit facilities of each of CMPSC
and KC LLC (see Note 5, Long-Term Debt):
June 30, 2011 | December 31, 2010 | |||||||||||||||
CMPSC | KC LLC | CMPSC | KC LLC | |||||||||||||
Term loan: |
||||||||||||||||
Carrying value |
$ | 593,073 | $ | 69,228 | $ | 613,131 | $ | 69,228 | ||||||||
Fair value |
$ | 585,682 | $ | 8,654 | $ | 576,077 | $ | 8,654 | ||||||||
Revolving credit facility: |
||||||||||||||||
Carrying value |
$ | | $ | 17,000 | $ | | $ | 17,000 | ||||||||
Fair value (1) |
$ | | $ | 2,131 | $ | | $ | 2,131 |
(1) | The KC LLC revolving credit facility was not actively traded during the three or six months ended June 30, 2011 or 2010. |
The fair values of the term loan facilities and revolving credit facilities are estimated
using a discounted cash flow analysis, based on the marginal borrowing rates.
To estimate the fair values of the term loan facilities, the Company used quoted trading
prices and an industry standard cash valuation model, which utilizes a discounted cash flow
approach. The significant inputs for the valuation model include the following:
| discounted cash flow rate of 3.7%; | ||
| interest rate of 2.2%; and | ||
| credit spread of 2.7%. |
The use of different analyses, estimates, data points or methodologies could result in
materially different values.
5. Long-Term Debt
Each of CMPSC and KC LLC have entered into various separate senior secured credit facilities,
pursuant to which each entity, and its respective subsidiaries, have certain rights and
obligations. Neither CMPSC nor KC LLC, nor any of their respective subsidiaries, have any rights or
obligations pursuant to the others senior secured credit facilities.
CMPs long-term debt consisted of the following at June 30, 2011 and December 31, 2010
(dollars in thousands):
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June 30, 2011 | December 31, 2010 | |||||||
Term loan facilities |
$ | 662,301 | $ | 682,359 | ||||
Revolving credit facilities |
17,000 | 17,000 | ||||||
9.875% senior subordinated notes |
12,130 | 12,130 | ||||||
Variable rate senior subordinated
secured second lien notes |
14,031 | 14,031 | ||||||
Total debt |
705,462 | 725,520 | ||||||
Less: Current portion of long-term debt |
(93,228 | ) | (109,786 | ) | ||||
Long-term portion of debt |
$ | 612,234 | $ | 615,734 | ||||
CMPSC
Credit Facilities and Senior Notes
In May 2006, CMPSC entered into a $700.0 million term loan facility and a $100.0 million
revolving credit facility, which together comprise the CMPSC
Credit Facilities, and issued $250.0
million in 9.875% senior subordinated notes due 2014 (the
9.875% Notes), as described below. At the closing of these transactions, CMPSC drew on
only the $700.0 million term loan, plus $3.3 million in letters of credit to cover pre-existing
workers compensation claims, reducing availability on the revolving credit facility to $96.7
million. CMPSC is charged a commitment fee of 0.5% on the unused portion of the revolving credit
facility. As of June 30, 2011, CMPSC had approximately $95.4 million of availability
under its revolving credit facility.
Obligations under
the credit agreement governing the
CMPSC Credit Facilities (the CMPSC Credit Agreement) are collateralized on a first-priority lien basis
by substantially all of CMPSCs assets in which a security interest may lawfully be granted
(including Federal Communications Commission (FCC) licenses held by its subsidiaries) including, without limitation, intellectual
property and all of the capital stock of CMPSCs direct and indirect subsidiaries. In addition,
obligations under the CMPSC Credit Facilities are guaranteed by CMPSCs subsidiaries.
The term loan has a repayment schedule that has required quarterly principal payments of 0.25%
of the original loan since September 30, 2006. Any unpaid balance on the revolving credit facility
is due in May 2012 and the term loan is due in May 2013.
The representations,
covenants and events of default in the CMPSC Credit Agreement are customary for financing transactions of
this nature. Events of default in the CMPSC Credit Agreement include, among others, (i) the failure
to pay when due the obligations owing under the CMPSC Credit Facilities; (ii) the failure to comply
with (and not timely remedy, if applicable) certain covenants; (iii) certain cross defaults and
cross accelerations; (iv) the occurrence of bankruptcy or insolvency events; (v) certain judgments
against CMPSC or any of its subsidiaries; (vi) the loss, revocation or suspension of, or any
material impairment in the ability to use any of CMPSCs material FCC licenses; (vii) any
representation or warranty made, or report, certificate or financial statement delivered, to the
lenders subsequently proven to have been incorrect in any material respect; (viii) the occurrence
of a Change in Control (as defined in the CMPSC Credit Agreement); and (ix) violation of certain
financial covenants. Upon the occurrence of an event of default, the lenders may terminate the loan
commitments, accelerate all outstanding loans and exercise any of their rights under the CMPSC
Credit Agreement and the ancillary loan documents as a secured party.
As mentioned above, the CMPSC Credit Agreement contains certain customary financial covenants
including:
| a maximum total leverage ratio; | ||
| a minimum interest coverage ratio; and | ||
| a limit on annual capital expenditures. |
The maximum total leverage ratio in the CMPSC Credit Agreement becomes more restrictive over
the remaining term of the CMPSC Credit Agreement.
As of June 30, 2011, CMPSC was in compliance with all of its required covenants.
In accordance with the terms of the CMPSC Credit Agreement an excess cash flow payment of
$16.6 million was made in the first quarter of 2011.
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2008 Swap
On June 12, 2008, CMP entered into the 2008 Swap, which effectively fixed the interest rate,
based on LIBOR, on $200.0 million of CMPSCs floating rate borrowings for a three-year period. The
2008 Swap expired on June 12, 2011.
The interest rate for the term loan is 2.0% above LIBOR (2.2% at June 30, 2011) or 1.0% above
the alternate base rate. The revolving credit facility rate is variable based on the levels of
leverage of CMPSC, and ranges from 1.8% to 2.3% above LIBOR and from 0.8% to 1.3% above the
alternate base rate.
Amendment to CMPSC Credit Agreement
On May 11, 2009, CMPSC entered into an amendment to the CMPSC Credit Agreement. This amendment
maintained the preexisting term loan facility under the CMPSC Credit Facilities, but reduced
availability under the revolving credit facility thereunder from $100.0 million to $95.4 million
(after giving effect to a repayment and permanent reduction in available credit of approximately
$4.6 million).
The amendment also increased certain pre-existing restrictions, including with respect to
acquisitions, which per the amendment are limited to an aggregate of $20.0 million unless such
acquired entities are added as loan parties, and the ability to undertake certain corporate
actions.
9.875% Notes
In May 2006, CMPSC issued $250.0 million in 9.875% Notes. The 9.875% Notes have an interest
rate of 9.875% per annum and mature in May 2014. CMP Susquehanna
Radio Holdings Corp. (Radio Holdings) and certain of its subsidiaries are
guarantors under the 9.875% Notes.
2014 Notes
Interest
on CMPSCs variable rate senior subordinated secured second lien
notes due 2014 (the 2014 Notes) accrues at a floating rate equal to LIBOR plus 3.0%
and is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2009. The
2014 Notes mature on May 15, 2014.
The 2014 Notes are secured by second-priority liens on tangible and intangible assets of CMPSC
and its subsidiaries to the extent they can be perfected by the filing of financing statements or
other similar registrations and are permitted under agreements governing CMPSCs other
indebtedness, including the CMPSC Credit Agreement. Pledged assets do not include shares of capital
stock of CMPSC or any of its subsidiaries or debt securities held by CMPSC or any of its
subsidiaries.
The 2014 Notes are (i) general obligations of CMPSC; (ii) secured on a second-priority basis
by a security interest in substantially all of CMPSCs existing and future assets to the extent
pledged and assigned to the 2014 Notes trustee pursuant to the security agreement in favor of the
holders of the 2014 Notes, subject and subordinate certain permitted priority liens; (iii)
subordinated to all first-priority senior secured indebtedness of CMPSC (including the CMPSC Credit
Facilities); (iv) effectively senior to all unsecured indebtedness of CMPSC; and (v) initially
guaranteed on a second-priority senior secured subordinated basis by CMPSCs direct parent, Radio Holdings and each subsidiary of CMPSC that guarantees
the senior secured credit facilities. Each guarantee of the 2014 Notes is a second-priority senior
subordinated secured obligation of the guarantor and is subordinated in right of payment to all
existing and future first-priority senior indebtedness of such guarantor, including each
guarantors guarantee of CMPSCs obligations under the CMPSC Credit Facilities and structurally
subordinated to all existing and future indebtedness of non-guarantor subsidiaries of CMPSC.
The indenture governing the 2014 Notes (the 2014 Notes Indenture) contains covenants that
limit CMPSCs ability and the ability of its restricted subsidiaries to, among other things, (i)
incur additional indebtedness or issue certain preferred shares; (ii) pay dividends on or make
distributions in respect of CMPSCs capital stock or make other restricted payments; (iii) make
certain investments; (iv) sell certain assets; (v) create liens on certain assets to secure debt;
(vi) consolidate, merge, sell or otherwise dispose of all or substantially all of CMPSCs assets;
and (vii) designate CMPSCs subsidiaries as unrestricted subsidiaries. The 2014 Notes Indenture
also contains a covenant providing that, to the extent required to permit holders of 2014 Notes
(other than affiliates of CMPSC) to sell their 2014 Notes without registration under the Securities
Act of 1933 (the Securities Act), CMPSC or Radio Holdings will make publicly available the information concerning CMPSC or Radio
Holdings as specified in Rule 144(c)(2) under the Securities Act.
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CMPSC may redeem some or all of the 2014 Notes at any time after the issue date at a
redemption price equal to 100% of their principal amount, plus any accrued and unpaid interest
through the redemption date.
Upon the occurrence of a Change of Control (as defined in 2014 Notes Indenture), each
holder of 2014 Notes will have the right to require CMPSC to repurchase all of such holders
2014 Notes at a repurchase price equal to 101% of the aggregate principal amount, plus any accrued
and unpaid interest through the repurchase date.
The 2014 Notes Indenture contains events of default that are customary for agreements of this
type, including failure to make required payments, failure to comply with certain agreements or
covenants, failure to pay certain other indebtedness and the occurrence of certain events of
bankruptcy and insolvency and certain judgment defaults.
KC LLC
In May 2006, KC LLC entered into a $72.4 million term loan facility and a $26.0 million
revolving credit facility under the KC LLCs credit facility
(the CMP KC LLC Credit Facility). At the closing of the transactions, by
which the Company was formed, KC LLC drew on the $72.4 million term loan, plus $5.0 million in
letters of credit, reducing availability on the revolving credit facility to $21.0 million. KC LLC
is charged a commitment fee of 0.5% on the unused portion of the revolving credit facility.
The
term loan had a repayment schedule that requires principal payments payable at the end of
each quarter equal to 0.25% of the original loan. The unpaid balance on the revolving credit
facility became due in May 2010 and the term loan became due in May 2011.
Obligations under the CMP KC LLC Credit Facility are collateralized by substantially all of KC
LLCs assets in which a security interest may lawfully be granted (including FCC licenses held by
its subsidiaries), including, without limitation, intellectual property and all of the capital
stock of KC LLCs direct and indirect subsidiaries.
The representations, covenants and events of default in the credit agreement governing the CMP
KC LLC Credit Facility (the KC LLC Credit Agreement) are customary for financing transactions of
this nature.
On January 21, 2010, KC LLC received a notice of default pertaining to the KC LLC Credit
Agreement from the administrative agent thereunder (the Agent). The notice of default referenced
the failure of KC LLC to make the scheduled principal and interest payments that were due and
payable under the KC LLC Credit Agreement on December 31, 2009. Under the notice of default and
pursuant to the KC LLC Credit Agreement, the Agent accelerated all obligations under the KC LLC
Credit Agreement, declaring the unpaid principal amount of all outstanding loans, accrued and
unpaid interest, and all amounts due under the KC LLC Credit Agreement to be immediately due and
payable.
Accordingly, the Company classified all amounts due under the KC LLC Credit Agreement as
current (approximately $86.2 million).
Furthermore, under the terms of the KC LLC Credit Agreement, interest on the outstanding loans
thereunder, all accrued interest and any other amounts due began to accrue interest on December 31,
2009 at a default rate. Such default rate provides for interest at 2.0% per year in excess of the
rate of interest generally provided for in the KC LLC Credit Agreement. Under the terms of the KC
LLC Credit Agreement, the Agent may, and at the request of a majority of the lenders thereunder
shall, exercise all rights and remedies available to the Agent and the lenders under law. These
remedies include but are not limited to seeking a judgment from KC LLC for the monies owed and
enforcing the liens granted to the lenders commencing foreclosure proceedings relative to the
assets of KC LLC. The Company has held preliminary discussions with the Agent and certain of the
lenders, who to date have not commenced any remedial actions.
Neither the default under the KC LLC Credit Agreement, the acceleration of all sums due
thereunder, nor the exercise of any of the remedies in respect thereof by the Agent or the lenders,
constitute a default under the CMPSC Credit Agreement, nor provide the lenders thereunder any
contractual right or remedy. Further, neither CMPSC nor any of its subsidiaries has provided any
guarantee with respect to the CMP KC LLC Credit Facility.
On February 4, 2011, the Company entered into a restructuring support agreement (the KC
Restructuring Agreement) along with Radio Holdco and KC LLC regarding the restructuring of KC
LLCs debt with the lenders under the CMP KC LLC Credit Facility
(the KC Restructuring). The KC
Restructuring is expected to be implemented through a pre-packaged plan of reorganization filed
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with the United States Bankruptcy Court for the District of Delaware (the Pre-packaged
Bankruptcy Proceeding). The Company expects the Pre-packaged Bankruptcy Proceeding will occur, and
the KC Restructuring will be completed, during the
second half of 2011. If the KC Restructuring is
completed in accordance with the terms and conditions of the KC Restructuring Agreement: (1) Radio
Holdco will distribute all of the outstanding common stock of Radio Holdco to the Company; (2) KC
LLCs outstanding debt and interest of $96.4 million at June 30, 2011 will be reduced to $20.0
million; (3) all of the equity of Radio Holdco will be transferred to the lenders under the CMP KC
LLC Credit Facility or their nominee; and (4) Cumulus will continue to manage the radio stations of
KC LLC in 2011, subject to annual renewal of the management arrangement thereafter. As a result,
the Company will no longer have an ownership interest in KC LLC. The KC Restructuring is expected
to have certain tax implications for Radio Holdco in 2011 related to the cancelation of
indebtedness but as a result of the loss attributes of Radio Holdco, the Company does not expect to pay a
significant amount of income tax related to this transaction.
6. Intangible Assets and Goodwill
The following tables present the changes in intangible assets and goodwill during the periods
ended December 31, 2010 and June 30, 2011 and balances as of such dates (dollars in thousands):
Indefinite Lived | Definite Lived | Total | ||||||||||
Intangible Assets: |
||||||||||||
Balance as of December 31, 2009 |
$ | 243,023 | $ | 3,937 | $ | 246,960 | ||||||
Amortization |
| (520 | ) | (520 | ) | |||||||
Impairment |
(3,296 | ) | | (3,296 | ) | |||||||
Balance as of December 31, 2010 |
$ | 239,727 | $ | 3,417 | $ | 243,144 | ||||||
Acquisition |
| 8 | 8 | |||||||||
Amortization |
| (233 | ) | (233 | ) | |||||||
Balance as of June 30, 2011 |
$ | 239,727 | $ | 3,192 | $ | 242,919 | ||||||
Goodwill | ||||
Goodwill: |
||||
Balance as of December 2009 |
$ | 79,700 | ||
Impairment |
| |||
Balance as of December 2010 |
$ | 79,700 | ||
Impairment |
| |||
Balance as of June 30, 2011 |
$ | 79,700 | ||
Favorable leases and pre-sold advertising contracts are amortized using the straight-line
method over their respective terms. Amortization expense related to intangible assets was $0.1
million and $0.2 million for the three and six months ended June 30, 2011 and 2010, respectively.
7. Members Deficit
On October 31, 2005, the Company entered into a capital contribution agreement with Cumulus,
affiliates of Bain Capital Partners, LLC (Bain), The
Blackstone Group L.P. (Blackstone) and Thomas H. Lee
Partners (THL and together with Bain and Blackstone, the
CMP Sellers). Bain, Blackstone and THL each contributed $75.0 million in cash in
exchange for 75.0 Class A voting units of the Company. Cumulus contributed $75.0 million of assets
(the KC LLC Contribution) in exchange for 75.0 Class B voting units of the Company. Cumulus also
received 25.0 units each of Class C1, C2, and C3 non-voting units of the Company. The KC LLC
Contribution consisted of four radio stations in Kansas City, Missouri and Houston, Texas. The CMP
Sellers and Cumulus each contributed an additional $6.3 million in cash for 6.25 Class AA
non-voting units. In connection with this transaction, the Company paid $14.2 million to the CMP
Sellers and Cumulus for their equity raising efforts; these payments were netted against the
contributed capital of the CMP Sellers and Cumulus. The CMP Sellers and Cumulus, as the four
members of the Company, each received a 25.0% interest in the Company. To
the extent distributions are made, the distributions are based on each members allocable
portion of the Distributable Assets, as defined by the capital contribution agreement.
For the three and six months ended June 30, 2011 and 2010, CMP did not make distributions to
any of its members.
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On
March 26, 2009, in connection with CMPSCs 2009 exchange offer
relating to $175.5 million aggregate principal amount of its 9.875% Notes
(the 2009 Exchange Offer), Radio Holdings issued 3,273,633
shares of preferred stock and warrants exercisable for 3,740,893 shares of Radio Holdings common
stock. With respect to the payment of dividends and the amounts to be paid upon liquidation, the
preferred stock ranks:
| senior to the common stock of Radio Holdings and all other equity securities designated as ranking junior to the preferred stock; | ||
| on a parity with all equity securities designated as ranking on a parity with the preferred stock; and | ||
| junior to all equity securities designated as ranking senior to the preferred stock. |
On January 1, 2009, CMP adopted additional authoritative guidance relating to consolidations
in accordance with ASC 810, Consolidations. The additional guidance required that non-controlling
interests be reported as a separate component of equity on the Companys consolidated statements of
financial position. In conjunction with the 2009 Exchange Offer, Radio Holdings issued
approximately $67.5 million in non-controlling equity interest related to the preferred stock and
warrants.
Dividends on the preferred stock are payable semiannually in arrears, only when, as, and if
declared by the board of directors of Radio Holdings from funds legally available, payable in
additional shares of the preferred stock, at an annual rate equal to 9.875% on, (i) the stated
value per share of preferred stock and (ii) the amount of accrued and unpaid dividends (including
dividends thereon, at an annual rate of 9.875% to the date of payment). Dividends are calculated
and compounded semiannually and will be cumulative from the date of first issuance. Any dividends
are calculated, based on a 360-day year consisting of twelve 30-day months, and actual days elapsed
over a 30-day month. CMP has not declared any dividends on the preferred stock.
Subsequent
to June 30, 2011, Cumulus completed the acquisition of the 75.0%
of the Company that it did not own. See Note 12.
8. Commitments and Contingencies
CMPSC is a limited partner in San Francisco Baseball Associates L.P. CMPSC owns rights to
broadcast San Francisco Giants Major League Baseball games for the 2009 through 2012 baseball
seasons. CMP is required to pay rights fees of $5.6 million each year. The carrying value of CMPs
investment in San Francisco Baseball Associates L.P. is $4.0 million as of June 30, 2011 and 2010.
CMP accounts for this investment under the cost method and elected not to calculate the fair value
of the investment as CMPs management determined it would not be practicable due to excessive
costs.
CMPSC owns rights to broadcast Kansas City Chiefs National Football League professional
football games during the 2010 through 2013 football seasons. The contract requires minimum rights
payments of $2.9 million, $2.8 million and $2.9 million for the 2011, 2012 and 2013 football
seasons, respectively. CMP expensed rights payments of $2.3 million for the 2010 football season in the second half of 2010.
The radio broadcast industrys principal ratings service is Arbitron, which publishes surveys
for domestic radio markets. CMPSC and KC LLC have five-year agreements with Arbitron under which
they receive programming ratings materials in a majority of their respective markets. The remaining
aggregate obligation of CMPSC and KC LLC under their agreements with
Arbitron was $6.8 million as
of June 30, 2011 and will be paid in accordance with the agreements through June 2013.
On
January 21, 2010, a former employee of CMPSC filed a purported
class action lawsuit, pending in the United States District Court,
Northern District of California, San Francisco Division (the
Court), against
CMPSC claiming (i) unlawful failure to pay required overtime wages; (ii) late pay and waiting time
penalties; (iii) failure to provide accurate itemized wage
statements; (iv) failure to indemnify
for necessary expenses and losses; and (v) unfair trade practices under Californias Unfair
Competition Act. On September 2, 2011, CMPSC and this former employee entered into a Joint Stipulation re:
Settlement and Release of Class Action Claims (the Settlement) with respect to such lawsuit. The
Settlement, which remains subject to the approval of the Court, provides for the payment by CMPSC
of a maximum of $0.9 million in full and final settlement of all of the claims made in the lawsuit.
In
March 2011, the Company was named as a defendant in a patent infringement suit
brought against it as well as other radio companies, including
Cumulus, Beasley Broadcast Group, Inc., CBS Radio, Inc., Entercom
Communications, Greater Media, Inc. and Townsquare Media, LLC. The
case, Mission Abstract Data L.L.C., d/b/a Digimedia v. Beasley
Broadcast Group, Inc., et al., Civil Action Case No:
1:99-mc-09999, U.S. District Court for the District of Delaware (filed
March 1, 2011), alleges that the defendants are infringing or
have infringed plaintiffs patents entitled Selection and
Retrieval of Music from a Digital Database. Plaintiff is
seeking injunctive relief and unspecified damages. The Company intends
to vigorously defend this lawsuit and has not yet determined
what effect the lawsuit will have, if any, on its financial position,
results of operations or cash flows.
For
all periods presented, CMPSC and KC LLC engaged Katz Media Group,
Inc. (Katz) as their national advertising sales agent. The national
advertising agency contract with Katz contains termination provisions that, if exercised by CMPSC
or KC LLC during the term of the contract, would obligate CMPSC or KC LLC to pay a termination fee
to Katz, based on a formula set forth in the contract.
CMP is currently, and expects that from time to time in the future, it will be party to, or a
defendant in, various claims or lawsuits that are generally incidental to its business. CMP expects
that it will vigorously contest any such claims or lawsuits and believes that the ultimate
resolution of any known claim or lawsuit will not have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
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9. Income Taxes
The
Companys effective income tax
rate for the six months ended June 30, 2011 was 49.8% compared to
45.9% for the six months ended June 30, 2010. The Companys
effective tax rate increased in both
periods as the result of KC LLC losses for which the Company is not able to record a tax benefit.
Due to a history of losses and future inability to utilize such losses, the Company established a
valuation allowance. The Companys effective tax rate is comprised of two consolidated groups, KC
LLC and Radio Holdings, which file separately for federal income tax purposes. As a result, losses
from one consolidated group cannot be utilized to offset taxable income from the other. Prior to
March 26, 2009, KC LLC and Radio Holdings filed one consolidated U.S. federal income tax return.
However as the result of a deconsolidating event that occurred on March 26, 2009, the two
consolidated groups must file separately for federal income tax purposes.
10. Restricted Cash
CMPSC is required to secure the maximum exposure generated by automated clearing house
transactions in its operating bank accounts as dictated by CMPSCs banks internal policies with
cash. As of June 30, 2011 and December 31, 2010, CMPs
balance sheet included approximately $0.6 million in restricted cash related to the automated
clearing house transactions, which funds are held in a
segregated account.
11. Related Party
At
June 30, 2011, Holdings was party to a
management agreement with Cumulus.
Pursuant to the terms of the management agreement, Cumulus
personnel managed the operations of
CMPs subsidiaries. In exchange, Holdings agreed to pay Cumulus an annual management fee of approximately
4.0% of the consolidated EBITDA of CMPs subsidiaries or $4.0 million, whichever is greater, to be
paid in quarterly installments. For each of the three and six month ended June 30, 2011 and 2010,
Holdings paid approximately $1.0 million and $2.0 million, respectively, in management fees to
Cumulus.
On August 1, 2011, Cumulus completed the previously announced acquisition of the remaining
75.0% of the equity interests of CMP that it did not own and the
management agreement was terminated. See Note 12.
12. Subsequent Event
On August 1, 2011, Cumulus completed the previously announced acquisition of the remaining
75.0% of the equity interests of CMP that it did not already own. In connection with this
acquisition, Cumulus issued 9,945,714 shares of its common stock to affiliates of the three private
equity firms that had collectively owned 75.0% of CMP Bain,
Blackstone and THL. Blackstone received
3.3 million shares of Cumulus Class A common stock
and, in accordance with FCC broadcast ownership rules, Bain and THL
each received 3.3 million shares of newly
authorized Class D non-voting common stock of Cumulus. Also in connection with the
acquisition, outstanding warrants to purchase common stock of Radio
Holdings were
amended to instead become exercisable for up to 8,267,968 shares of common stock of Cumulus.
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