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EX-32.1 - EXHIBIT 32.1 - CUMULUS MEDIA INCcmls20180930-exx321.htm
EX-31.2 - EXHIBIT 31.2 - CUMULUS MEDIA INCcmls20180930-exx312.htm
EX-31.1 - EXHIBIT 31.1 - CUMULUS MEDIA INCcmls20180930-exx311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 000-24525
cumulusmediahorizontal2.jpg
 
 
Cumulus Media Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
82-5134717
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
3280 Peachtree Road, NW Suite 2200,
Atlanta, GA
 
30305
(Address of Principal Executive Offices)
 
(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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer
 
¨
  
Accelerated filer
  
¨
 
 
 
 
Non-accelerated filer
 
¨ 
  
Smaller reporting company
 
ý
 
 
 
 
Emerging growth company
 
¨
If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  ý    No  ¨
As of November 7, 2018, the registrant had 16,484,236 outstanding shares of common stock consisting of: (i) 12,901,897 shares of Class A common stock; (ii) 3,582,339 shares of Class B common stock in addition to 2,976,593 Series 1 warrants and 539,180 Series 2 warrants.



CUMULUS MEDIA INC.
INDEX
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

3


CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
 
Successor Company
 
 
Predecessor Company
 
September 30, 2018
 
 
December 31, 2017
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
53,978

 
 
$
102,891

Restricted cash
7,708

 
 
8,999

Accounts receivable, less allowance for doubtful accounts of $1,807 and $4,322 at September 30, 2018 and December 31, 2017, respectively
236,015

 
 
235,247

Trade receivable
4,465

 
 
4,224

Assets held for sale
80,450

 
 

Prepaid expenses and other current assets
37,387

 
 
42,259

Total current assets
420,003

 
 
393,620

Property and equipment, net
235,738

 
 
191,604

Broadcast licenses
935,773

 
 
1,203,809

Other intangible assets, net
201,648

 
 
82,994

Goodwill

 
 
135,214

Other assets
16,226

 
 
20,078

Total assets
$
1,809,388

 
 
$
2,027,319

Liabilities and Stockholders’ Equity (Deficit)
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
$
93,859

 
 
$
36,157

Trade payable
3,019

 
 

Current portion of term loan
13,000

 
 

Total current liabilities
109,878

 
 
36,157

Term loan
1,283,750

 
 

Other liabilities
24,666

 
 
54

Deferred income taxes
46,618

 
 

Total liabilities not subject to compromise

 
 
36,211

Liabilities subject to compromise

 
 
2,687,223

Total liabilities
1,464,912

 
 
2,723,434

Commitments and Contingencies (Note 14)

 
 

Stockholders’ equity (deficit):
 
 
 
 
Predecessor Class A common stock, par value $0.01 per share; 93,750,000 shares authorized; 32,031,054 shares issued, and 29,225,765 shares outstanding at December 31, 2017

 
 
320

Predecessor Class C common stock, par value $0.01 per share; 80,609 shares authorized issued and outstanding at December 31, 2017

 
 
1

Predecessor treasury stock, at cost, 2,806,187 shares at December 31, 2017

 
 
(229,310
)
Predecessor additional paid-in-capital

 
 
1,626,428

Predecessor accumulated deficit

 
 
(2,093,554
)
Successor Class A common stock, par value $0.0000001 per share; 100,000,000 shares authorized; 12,873,697 shares issued and outstanding at September 30, 2018

 
 

Successor Class B common stock, par value $0.0000001 per share; 100,000,000 shares authorized; 3,594,710 shares issued and outstanding at September 30, 2018

 
 

Successor additional paid-in-capital
326,783

 
 

Successor retained earnings
17,693

 
 

Total stockholders’ equity (deficit)
344,476

 
 
(696,115
)
Total liabilities and stockholders’ equity
$
1,809,388

 
 
$
2,027,319

See accompanying notes to the unaudited condensed consolidated financial statements.

4


CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)
(Unaudited)
 
Successor Company
 
 
Predecessor Company
 
Three Months Ended September 30,
 
 
Three Months Ended September 30,
 
2018
 
 
2017
Net revenue
$
282,254

 
 
$
287,240

Operating expenses:
 
 
 
 
Content costs
98,494

 
 
97,924

Selling, general and administrative expenses
114,345

 
 
117,690

Depreciation and amortization
14,142

 
 
15,208

Local marketing agreement fees
1,006

 
 
2,717

Corporate expenses (including stock-based compensation expense of $1,131 and $354, respectively)
10,878

 
 
10,853

Loss (gain) on sale or disposal of assets or stations
34

 
 
(83
)
Total operating expenses
238,899

 
 
244,309

Operating income
43,355

 
 
42,931

Non-operating (expense) income:
 
 
 
 
Interest expense
(22,403
)
 
 
(35,335
)
Interest income
16

 
 
34

Loss on early extinguishment of debt

 
 
(1,063
)
Other expense, net
(3,177
)
 
 
(36
)
Total non-operating expense, net
(25,564
)
 
 
(36,400
)
Income before income tax expense
17,791

 
 
6,531

Income tax expense
(5,078
)
 
 
(5,257
)
Net income
$
12,713

 
 
$
1,274

Basic and diluted earnings per common share (see Note 13, “Earnings (loss) Per Share”):
 
 
 
 
Basic: Earnings per share
$
0.64

 
 
$
0.04

Diluted: Earnings per share
$
0.63

 
 
$
0.04

Weighted average basic common shares outstanding
20,004,736

 
 
29,306,374

Weighted average diluted common shares outstanding
20,069,587

 
 
29,306,374



5


 
Successor Company
 
 
Predecessor Company
 
Period from June 4, 2018 through September 30,
 
 
Period from January 1, 2018 through June 3,
Nine months ended September 30,
 
2018
 
 
2018
2017
Net revenue
$
377,258

 
 
$
453,924

$
841,801

Operating expenses:
 
 
 
 
 
Content costs
127,464

 
 
163,885

295,103

Selling, general and administrative expenses
151,779

 
 
195,278

350,476

Depreciation and amortization
18,521

 
 
22,046

47,610

Local marketing agreement fees
1,364

 
 
1,809

8,137

Corporate expenses (including stock-based compensation expense of $1,783, $231 and $1,422, respectively)
21,003

 
 
17,169

32,281

Loss (gain) on sale or disposal of assets or stations
34

 
 
158

(2,585
)
Total operating expenses
320,165

 
 
400,345

731,022

Operating income
57,093

 
 
53,579

110,779

Non-operating (expense) income:
 
 
 
 
 
Reorganization items, net

 
 
466,201


Interest expense
(28,579
)
 
 
(260
)
(103,742
)
Interest income
20

 
 
50

106

Loss on early extinguishment of debt

 
 

(1,063
)
Other expense, net
(3,157
)
 
 
(273
)
(64
)
Total non-operating (expense) income, net
(31,716
)
 
 
465,718

(104,763
)
Income before income tax (expense) benefit
25,377

 
 
519,297

6,016

Income tax (expense) benefit
(7,684
)
 
 
176,859

(6,465
)
Net income (loss)
$
17,693

 
 
$
696,156

$
(449
)
Basic and diluted earnings per common share (see Note 13, “Earnings Per Share”):
 
 
 
 
 
Basic: Earnings (loss) per share
$
0.88

 
 
$
23.73

$
(0.02
)
Diluted: Earnings (loss) per share
$
0.88

 
 
$
23.73

$
(0.02
)
Weighted average basic common shares outstanding
20,009,463

 
 
29,338,329

29,306,374

Weighted average diluted common shares outstanding
20,051,796

 
 
29,338,329

29,306,374


See accompanying notes to the unaudited condensed consolidated financial statements.

6


CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
For the Periods Ended September 30, 2018 (Successor), June 3, 2018 (Predecessor), and December 31, 2017 (Predecessor)
(Dollars in thousands)
 
Class A
Common Stock
 
Class B
Common Stock
 
Class C
Common Stock
 
Treasury
Stock
 
 
 
 
 
 
 
Number of
Shares
 
Par
Value
 
Number of
Shares
 
Par
Value
 
Number of
Shares
 
Par
Value
 
Number of
Shares
 
Value
 
Additional
Paid-In
Capital
 
(Accumulated
Deficit) Retained Earnings
 
Total
Balance at December 31, 2017 (Predecessor)
32,031,054

 
$
320

 

 
$

 
80,609

 
$
1

 
2,806,187

 
$
(229,310
)
 
$
1,626,428

 
$
(2,093,554
)
 
$
(696,115
)
Net loss

 

 

 

 

 

 

 

 

 
(44,000
)
 
(44,000
)
Other

 

 

 

 

 

 

 

 
247

 

 
247

Stock-based compensation expense

 

 

 

 

 

 

 

 
231

 

 
231

Balance at June 3, 2018 (Predecessor)
32,031,054

 
$
320

 

 
$

 
80,609

 
$
1

 
2,806,187

 
$
(229,310
)
 
$
1,626,906

 
$
(2,137,554
)
 
$
(739,637
)
Implementation of Plan and Application of Fresh Start Accounting:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cancellation of Predecessor equity
(32,031,054
)
 
$
(320
)
 

 
$

 
(80,609
)
 
$
(1
)
 
(2,806,187
)
 
$
229,310

 
$
(1,626,906
)
 
$

 
$
(1,397,917
)
Elimination of accumulated deficit

 

 

 

 

 

 

 

 

 
2,137,554

 
2,137,554

Issuance of Successor common stock
11,052,211

 

 
5,218,209

 

 

 

 

 

 
264,394

 

 
264,394

Issuance of Successor warrants

 

 

 

 

 

 

 

 
60,606

 

 
60,606

Balance at June 4, 2018 (Successor)
11,052,211

 
$

 
5,218,209

 
$

 

 
$

 

 
$

 
$
325,000

 
$

 
$
325,000

Net income

 

 

 

 

 

 

 

 

 
17,693

 
17,693

Stock-based compensation expense

 

 

 

 

 

 

 

 
1,783

 

 
1,783

Conversion of Class B common stock
1,658,463

 

 
(1,658,463
)
 

 

 

 

 

 

 

 

Exercise of warrants
163,023

 

 
34,964

 

 

 

 

 

 

 

 

Balance at September 30, 2018 (Successor)
12,873,697

 
$

 
3,594,710

 
$

 

 
$

 

 
$

 
$
326,783

 
$
17,693

 
$
344,476

See accompanying notes to the unaudited condensed consolidated financial statements.


7


CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Successor Company
 
 
Predecessor Company
 
Period from June 4, 2018 through September 30,


Period from January 1, 2018 through June 3,
 
Nine months ended September 30,
 
2018
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
 
 
Net income (loss)
$
17,693

 
 
$
696,156

 
$
(449
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
18,521

 
 
22,046

 
47,610

Amortization of debt issuance costs/discounts
22

 
 

 
7,661

Provision for doubtful accounts
2,009

 
 
5,993

 
4,770

Loss (gain) on sale or disposal of assets or stations
34

 
 
158

 
(2,585
)
  Non-cash reorganization items, net

 
 
(523,651
)
 

Impairment charges - cost method investment in Next Radio
3,170

 
 

 

Deferred income taxes
6,823

 
 
(179,455
)
 
6,463

Stock-based compensation expense
1,783

 
 
231

 
1,422

Changes in assets and liabilities:
 
 
 
 
 
 
Accounts receivable
(22,294
)
 
 
12,697

 
(4,815
)
Trade receivable
756

 
 
(997
)
 
306

Prepaid expenses and other current assets
(10,635
)
 
 
(5,831
)
 
(23,536
)
Other assets
1,763

 
 
(436
)
 
1,036

Accounts payable and accrued expenses
(17,534
)
 
 
7,777

 
285

Trade payable
(235
)
 
 
190

 
(910
)
Other liabilities
575

 
 
(5,746
)
 
(4,196
)
Net cash provided by operating activities
2,451

 
 
29,132

 
34,125

Cash flows from investing activities:
 
 
 
 
 
 
Acquisition
(18,000
)
 
 

 

Proceeds from sale of assets or stations

 
 

 
6,090

Capital expenditures
(7,866
)
 
 
(14,019
)
 
(20,645
)
Net cash used in investing activities
(25,866
)
 
 
(14,019
)
 
(14,555
)
Cash flows from financing activities:
 
 
 
 
 
 
Adequate protection payments on term loan

 
 
(37,802
)
 
(81,652
)
Repayment of borrowings under term loan
(3,250
)
 
 

 

Deferred financing costs

 
 
(850
)
 
(91
)
Net cash used in financing activities
(3,250
)
 
 
(38,652
)
 
(81,743
)
Decrease in cash and cash equivalents and restricted cash
(26,665
)
 
 
(23,539
)
 
(62,173
)
Cash and cash equivalents and restricted cash at beginning of period
88,351

 
 
111,890

 
139,284

Cash and cash equivalents and restricted cash at end of period
$
61,686

 
 
$
88,351

 
$
77,111

See accompanying notes to the unaudited condensed consolidated financial statements.

8



1. Nature of Business, Interim Financial Data and Basis of Presentation:

Cumulus Media Inc. (and its consolidated subsidiaries, except as the context may otherwise require, “CUMULUS MEDIA,” “we,” “us,” “our,” or the “Company”) is a Delaware corporation, organized in 2018, and successor to a Delaware corporation with the same name that had been organized in 2002.
Nature of Business

A leader in the radio broadcasting industry, CUMULUS MEDIA combines high-quality local programming with iconic, nationally syndicated media, sports and entertainment brands to deliver premium content choices to the 245 million people reached each week through its 440 owned-and-operated stations broadcasting in 90 U.S. media markets (including eight of the top 10), approximately 8,000 broadcast radio stations affiliated with its Westwood One network and numerous digital channels. Together, the Cumulus Radio Station Group and Westwood One platforms make CUMULUS MEDIA one of the few media companies that can provide advertisers with national reach and local impact. The Cumulus Radio Station Group and Westwood One are the exclusive radio broadcast partners to some of the largest brands in sports, entertainment, news, and talk, including the NFL, the NCAA, the Masters, the Olympics, the GRAMMYs, the Academy of Country Music Awards, the American Music Awards, the Billboard Music Awards, and more. Additionally, the Company is the nation's leading provider of country music and lifestyle content through its NASH brand, which serves country fans nationwide through radio programming, exclusive digital content, and live events.

Basis of Presentation
As previously disclosed, on November 29, 2017 (the “Petition Date”), CM Wind Down Topco Inc. (formerly known as Cumulus Media Inc.), a Delaware corporation (“Old Cumulus”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors’ chapter 11 cases (the "Chapter 11 Cases") were jointly administered under the caption In re Cumulus Media Inc., et al, Case No. 17-13381. On May 10, 2018, the Bankruptcy Court entered the Findings of Fact, Conclusions of Law and Order Confirming the Debtors’ First Amended Joint Chapter 11 Plan of Reorganization [Docket No. 769] (the “Confirmation Order”), which confirmed the First Amended Joint Plan of Reorganization of Cumulus Media Inc. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 446] (the “Plan”), as modified by the Confirmation Order. On June 4, 2018 (the “Effective Date”), Old Cumulus satisfied the conditions to effectiveness set forth in the Confirmation Order and in the Plan, the Plan was substantially consummated, and Old Cumulus and the other Debtors emerged from Chapter 11. On June 29, 2018, the Bankruptcy Court entered an order closing the Chapter 11 Cases of all of the Debtors other than Old Cumulus, whose case will remain open until its estate has been fully administered including resolving outstanding claims and the Bankruptcy Court enters an order closing its case.
In connection with its emergence, Old Cumulus implemented a series of internal reorganization transactions authorized by the Plan pursuant to which it transferred substantially all of its remaining assets to an indirectly wholly owned subsidiary of reorganized Cumulus Media Inc. (formerly known as CM Emergence Newco Inc.), a Delaware corporation (“CUMULUS MEDIA” or the “Company”), prior to winding down its business. References to “Successor” or “Successor Company” relate to the balance sheet and results of operations of CUMULUS MEDIA on and subsequent to June 4, 2018. References to “Predecessor”, “Predecessor Company” or “Old Cumulus” refer to the balance sheet and results of operations of Old Cumulus prior to June 4, 2018.
Upon emergence from Chapter 11 on the Effective Date, the Company has applied Accounting Standards Codification (“ASC”) 852 - Reorganizations (“ASC 852”) in preparing its consolidated financial statements (see Note 2, “Emergence from Chapter 11” and Note 3 “Fresh Start Accounting”). As a result of the application of fresh start accounting and the effects of the implementation of the Plan, a new entity for financial reporting purposes was created, and consequently the consolidated financial statements on and after June 4, 2018 are not comparable to the consolidated financial statements prior to that date. Refer to Note 3, “Fresh Start Accounting” for additional information.
Subsequent to the Petition Date and before the Effective Date, all expenses, gains and losses directly associated with the reorganization proceedings are reported as Reorganization items, net, in the accompanying Condensed Consolidated Statements of Operations. In addition, liabilities subject to compromise during the pendency of the Chapter 11 Cases are distinguished from liabilities of the Company that are not expected to be compromised, including post-petition liabilities, in the accompanying Condensed Consolidated Balance Sheets.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

9



Interim Financial Data
In the opinion of management, all adjustments, other than bankruptcy related adjustments as described in Note 3, "Fresh Start Accounting", consist of normal, recurring adjustments, necessary for a fair statement of the Company’s results of operations for, and financial condition as of the end of, the interim periods have been made. The results of operations and cash flows of the Successor for the period from June 4, 2018 through September 30, 2018 and of the Predecessor for the period from January 1, 2018 through June 3, 2018 and the Company’s financial condition as of September 30, 2018, are not necessarily indicative of the results of operations or cash flows that can be expected for, or the Company’s financial condition that can be expected as of the end of, any other interim period or for the fiscal year ending December 31, 2018. These consolidated interim financial statements should be read in conjunction with CUMULUS MEDIA’s Annual Report on Form 10-K for the year ended December 31, 2017.

Revision of Previously Issued Financial Statements

During the third quarter of 2018, the Company determined that it had an error in the classification of certain content related costs in the Condensed Consolidated Statement of Operations in previous periods. The Company should have presented the amounts within Content costs rather than within Selling, general and administrative costs. In the accompanying Condensed Consolidated Statement of Operations, the previous periods have been revised to correct this misclassification. This reclassification resulted in an increase in Content costs of $1.3 million, $1.9 million, $3.1 million, $1.6 million and $3.7 million and a corresponding decrease in Selling, general and administrative costs for the Successor Company Period from June 4, 2018 through June 30, 2018, the Predecessor Company Period from April 1, 2018 through June 3, 2018, the Predecessor Company Period from January 1, 2018 through March 30, 2018 and the Predecessor Company three and nine months ended September 30, 2017, respectively. For the Predecessor Company years ended December 31, 2017 and 2016, the reclassification is $6.2 million and $4.3 million, respectively. The correction was not material to the Predecessor or Successor results.
    
Going Concern
In accordance with the requirements of Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40), and ASC 205-40, the Company has the responsibility to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations. In its evaluation for this report, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due within one year following the date of issuance of this Quarterly Report on Form 10-Q.
During the pendency of the Chapter 11 Cases, the Company’s ability to continue as a going concern was contingent upon a variety of factors, including the Bankruptcy Court’s approval of the Plan and the Company’s ability to successfully implement the Plan. As a result of the effectiveness of the Plan and the expectation that it will continue to generate positive cash flows from operating activities, the Company believes it has the ability to meet its obligations for at least one year from the date of issuance of this Form 10-Q.
Assets Held for Sale
During the year ended December 31, 2015, the Company entered into an agreement to sell certain land in the Company's Washington, DC market to a third party. The closing of the transaction is subject to various conditions and approvals which remain pending. The asset was classified as held for sale in the Consolidated Balance Sheet at December 31, 2016. At December 31, 2017, the sale of this asset was subject to Bankruptcy Court approval, and consequently, the asset no longer met the definition of held for sale and was classified on the Consolidated Balance Sheet as Property and Equipment, net. As a result of the Company's emergence from Chapter 11 and as of September 30, 2018, the asset again met the criteria to be classified as held for sale. During the three months ended September 30, 2018, the Company entered into an agreement to sell the fixed assets and FCC licenses related to the Blacksburg, VA market to a third party. As of September 30, 2018, the identified assets have been classified as held for sale at fair value less estimated selling costs in the Condensed Consolidated Balance Sheet.




10


Supplemental Cash Flow Information
    
The following summarizes supplemental cash flow information to be read in conjunction with the Condensed Consolidated Statements of Cash Flows for the Period from June 4, 2018 through September 30, 2018 (Successor), Period from January 1, 2018 through June 3, 2018 (Predecessor) and the Nine Months Ended September 30, 2017 (Predecessor):
 
Successor Company
 
 
Predecessor Company
 
Period from June 4, 2018 through September 30,
 
 
Period from January 1, 2018 through June 3,
 
Nine Months Ended September 30,
 
2018
 
 
2018
 
2017
Supplemental disclosures of cash flow information:
 
 
 
 
 
 
Interest paid
$
27,524

 
 
$

 
$
82,844

Income taxes paid
5,611

 
 
1,992

 
3,444

Supplemental disclosures of non-cash flow information:
 
 
 
 
 
 
Trade revenue
$
13,870

 
 
$
18,973

 
$
28,926

Trade expense
13,891

 
 
17,964

 
27,847

Transfer of deposit from escrow - WKQX acquisition
4,750

 
 

 

Supplemental disclosures of non-cash reorganization items impact on changes in assets and liabilities:
 
 
 
 
 
 
Accounts receivable
$

 
 
$
(11
)
 
$

Prepaid expenses and other current assets

 
 
21,077

 

Property and equipment

 
 
(121,732
)
 

Other intangible assets, goodwill and other assets

 
 
283,217

 

Accounts payable, accrued expenses and other liabilities

 
 
(36,415
)
 

Long-term debt
 
 
 
(994,407
)
 

Stockholders' equity

 
 
324,620

 

Reconciliation of cash and cash equivalents and restricted cash to the Condensed Consolidated Balance Sheet:
 
 
 
 
 
 
Cash and cash equivalents
$
53,978

 
 
$
50,046

 
$
69,431

Restricted cash
7,708

 
 
38,305

 
7,680

     Total cash and cash equivalents and restricted cash
$
61,686

 
 
$
88,351

 
$
77,111


Recent Accounting Standards Updates

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). In June 2016, the FASB issued ASU 2016-13 which requires entities to estimate loss of financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition threshold of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts in addition to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures related to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s origination for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-13 on its Condensed Consolidated Financial Statements.

ASU 2016-02 - Leases (“ASU 2016-02”). In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, which provides updated guidance for the accounting for leases. This update requires lessees to recognize assets and liabilities for the rights and obligations created by leases with a term longer than one year. Leases will be classified as either financing or operating, thereby impacting the pattern of expense recognition in the statement of operations. In July 2018, the FASB issued ASU 2018-10 - Codification Improvements to Topic 842, Leases ("ASU

11


2018-10) and ASU 2018-11 - Targeted Improvements ("ASU 2018-11"), which provides technical corrections and clarification to ASU 2016-02. ASU 2016-02 and amendments ASU 2018-10 and ASU 2018-11 will be effective for fiscal years beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted. The standard permits two approaches, one requiring retrospective application of the new guidance with restatement of prior years, and one requiring prospective application of the new guidance. The Company plans to adopt the new guidance effective January 1, 2019 and apply it prospectively. The impact of new guidance could be material to our Consolidated Balance Sheets resulting from the recognition of operating lease right-of-use assets and liabilities. The new guidance is also expected to impact the measurement and presentation of certain expenses and cash flows related to leasing arrangements. The Company continues to assess the potential impacts of the new standard, including in the areas described above, and anticipates this standard could have a material impact on our consolidated financial statements; however, the Company cannot reasonably estimate quantitative information related to the impact of the new standard on our financial statements at this time.

ASU 2018-02 - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). In February 2018, the FASB issued ASU 2018-02 which ASU 2018-02 provides the option to reclassify stranded tax effects related to the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”) in accumulated other comprehensive income to retained earnings. The adjustment relates to the change in the U.S. corporate income tax rate. The adoption of this ASU did not impact the Company's Condensed Consolidated Financial Statements.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company has applied the new SEC disclosure requirements in its Condensed Consolidated Financial Statements.

ASU 2018-07 - Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting (“ASU 2018-07”). The standard aligns the accounting for share-based payment awards issued to employees and non-employees. Changes to the accounting for non-employee awards include: (1) equity-classified share-based payment awards issued to non-employees will now be measured on the grant date, instead of the previous requirement to re-measure the awards through the performance completion date; (2) for performance conditions, compensation cost associated with the award will be recognized when achievement of the performance condition is probable, rather than upon achievement of the performance condition; and (3) the current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. The guidance should be applied to all new awards granted after the date of adoption. In addition, the modified retrospective approach should be used on all liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established by the adoption date by re-measurement at fair value as of the adoption date with a cumulative effect adjustment to opening retained earnings in the fiscal year of adoption. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption of ASC 606. The Company is currently evaluating the impact of adopting ASU 2018-07 on its Condensed Consolidated Financial Statements.

ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). In August 2018, the FASB issued ASU 2018-13, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The update eliminates the following disclosure requirements for all entities: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the entity’s policy for the timing of transfers between levels of the fair value hierarchy, and the entity’s valuation processes for Level 3 fair value measurements. ASU 2018-13 adds the following disclosure requirements: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and for recurring and nonrecurring Level 3 fair value measurements, the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated.  ASU 2018-13 will be effective for fiscal years beginning after December 15, 2019, and interim periods thereafter. Early adoption is permitted for any removed or modified disclosures. The Company plans to implement the updated disclosure requirements in its consolidated financial statements effective January 1, 2020.

    

12


Adoption of New Accounting Standards
ASU 2014-09 and related updates - Revenue from Contracts with Customers ("ASU 2014-09") or ("ASC 606"). On January 1, 2018, the Company adopted ASC 606, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services and satisfaction of performance obligations to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company applied the modified retrospective method to contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported under the previous accounting standards. There was not a material impact to revenues as a result of the recognition of revenue in accordance with ASC 606 for the three and nine months ended September 30, 2018, and there have not been significant changes to the Company's business processes, systems, or internal controls as a result of implementing the standard. See Note 4, "Revenues" for further details.
ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). In January 2016, the FASB issued ASU 2016-01 which enhances the reporting model for financial instruments including aspects of recognition, measurement, presentation and disclosure. This ASU revises the accounting requirements related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. This ASU also changes certain disclosure requirements associated with the fair value of financial instruments. These changes require an entity to measure, at fair value, investments in equity securities and other ownership interests in an entity - including investments in partnerships, unincorporated joint ventures and limited liability companies that do not result in consolidation and are not accounted for under the equity method - and recognize the changes in fair value within net income. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, and interim periods thereafter. In February 2018, the FASB issued ASU 2018-03 - Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2018-03") which provides an option for a company to "un-elect" the measurement alternative and elect to account for the changes in the fair value of investments through current earnings for certain equity investments that do not have readily determinable fair values. However, once a company makes this election for a particular investment, it must apply the fair value through current earnings model to all identical investments and/or similar investments from the same issuer. Further, a company cannot elect the measurement alternative for future purchases of identical or similar investments of the same issuer. The Company adopted ASU 2016-01 as of January 1, 2018 on a prospective basis and un-elected the measurement alternative and will continue to account for the changes in the fair value of joint venture investments through current earnings. As such, there was no impact to the Condensed Consolidated Financial Statements.
ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). In August 2016, the FASB issued ASU 2016-15 which provides guidance for several new and/or revised disclosures pertaining to the classification of certain cash receipts and cash payments on the statement of cash flows, including contingent consideration payments made after a business acquisition. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods thereafter. The Company adopted ASU 2016-15 as of January 1, 2018 and there was no impact to the Condensed Consolidated Financial Statements.
ASU 2016-18 - Restricted Cash ("ASU 2016-18"). In November 2016, the FASB issued ASU 2016-18 which provides guidance for the accounting for the disclosure of restricted cash on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods thereafter. The Company adopted ASU 2016-18 as of January 1, 2018. Upon adoption of ASU 2016-18 on January 1, 2018, the Company included restricted cash balances along with cash and cash equivalents as of the end of the period and beginning of the period, respectively, in its Condensed Consolidated Cash Flows for all periods presented. Additionally, separate line items showing changes in restricted cash balances have been eliminated from the Condensed Consolidated Statement of Cash Flows.

13


ASU 2017-01 - Clarifying the Definition of a Business ("ASU 2017-01"). In January 2017, the FASB issued guidance that clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The new standard is effective for fiscal years, and interim periods within fiscal years, beginning after December 15, 2017. The Company adopted ASU 2017-01 as of January 1, 2018 on a prospective basis and there was no material impact to the Condensed Consolidated Financial Statements.
ASU 2017-09 - Scope of Modification Accounting ("ASU 2017-09"). In May 2017, the FASB issued an update to guidance on Topic 718, Compensation—Stock Compensation that clarifies when changes to the terms or conditions of a share-based award must be accounted for as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award, as equity or liability, changes as a result of the change in terms or conditions. ASU 2017-09 is effective for annual periods, and interim periods within annual periods, beginning after December 15, 2017. The Company adopted ASU 2017-09 as of January 1, 2018 on a prospective basis and there was no material impact to the Condensed Consolidated Financial Statements.

2. Emergence from Chapter 11
On May 10, 2018, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, the Plan became effective and the Debtors emerged from Chapter 11.
Plan of Reorganization
A plan of reorganization determines the rights and satisfaction of claims of various creditors and security holders, but the ultimate settlement of certain claims is subject to the uncertain outcome of any litigation, negotiations and bankruptcy court decisions for a period of time after a plan of reorganization is confirmed.
Cancellation of Certain Prepetition Obligations
In connection with the effectiveness of and pursuant to the terms of the Plan, on the Effective Date, the obligations of Old Cumulus and its subsidiaries under the following agreements were satisfied and discharged:
Amended and Restated Credit Agreement, dated as of December 23, 2013, by and among Cumulus Media Inc., Cumulus Media Holdings Inc., as borrower, certain lenders, JPMorgan Chase Bank, N.A., as lender and Administrative Agent, Royal Bank of Canada and Macquarie Capital (USA) Inc., as co-syndication agents, and Credit Suisse AG, Cayman Islands Branch, Fifth Third Bank, Goldman Sachs Bank USA and ING Capital LLC, as co-documentation agents (“the Canceled Credit Agreement”), pursuant to which Old Cumulus had outstanding term loans in the amount of $1.7 billion (the “Predecessor Term Loan”);
Indenture, dated as of May 13, 2011, among Cumulus Media Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee, as supplemented (“7.75% Senior Notes”), pursuant to which Old Cumulus had outstanding senior notes with a face value of $610.0 million; and
Rights Agreement, dated as of June 5, 2017, between Cumulus Media Inc. and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agreement”).

    Additional Matters Contemplated by the Plan

In accordance with the Plan, on the Effective Date each share of Old Cumulus’s Class A common stock, par value $0.01 per share (the “old Class A common stock”), Class B common stock, par value $0.01 per share (the “old Class B common stock”), and Class C common stock, par value $0.01 per share (the "old Class C common stock" and together with the old Class A common stock and the old Class B common stock, the “old common stock”) outstanding immediately prior to the Effective Date, including all stock options, warrants or other rights, including rights issued under the Rights Agreement, to purchase such old common stock, were extinguished, canceled and discharged, and each such share, option or warrant has no further force or effect. Furthermore, all of Old Cumulus’s equity award agreements under prior incentive plans, and the awards granted pursuant thereto, were extinguished, canceled and discharged and have no further force or effect;
On the Effective Date, the Company’s certificate of incorporation was amended and restated to authorize the issuance of up to 100,000,000 shares of Class A common stock, par value $0.0000001 per share (“new Class A common stock”),100,000,000 shares of Class B common stock, par value $0.0000001 per share (“new Class B common stock” and, together with the new Class A common stock, the “new common stock”) and 100,000,000 shares of preferred stock (see Note 11, “Stockholders’ Equity”);
On the Effective Date, the Company issued 11,052,211 shares of new Class A common stock and 5,218,209 shares of new Class B common stock;
On the Effective Date, the Company issued 3,016,853 Series 1 warrants to purchase shares of new common stock;

14


After the Effective Date, the Company also issued or will issue 712,736 Series 2 warrants (the “Series 2 warrants” and, together with the Series 1 warrants, the “Warrants”) to purchase shares of new common stock;
The Company entered into a $1.3 billion credit agreement (the “Credit Agreement” or “Term Loan”) with Wilmington Trust, N.A., as administrative agent (the “Agent”) and the lenders named therein (see Note 8, “Long-Term Debt”);
The holders of claims with respect to the Predecessor Term Loan received the following in full and complete satisfaction of their respective claims thereunder: (i) a pro rata share of the Term Loan and (ii) a pro rata share of 83.5% of the new common stock and warrants issued, subject to dilution by certain issuances under the Long-Term Incentive Plan (the “Incentive Plan”) (see Note 11, “Stockholders’ Equity”);
The holders of unsecured claims against Old Cumulus including claims arising from the 7.75% Senior Notes received, in the aggregate, 16.5% of the new common stock and warrants issued, subject to dilution by certain issuances under the Incentive Plan;
The Company’s board of directors was reconstituted to consist of the Company’s President and Chief Executive Officer and six independent directors selected by the holders of the Predecessor Term Loan; and
Intercompany Claims and Interests (as defined in the Plan) were canceled without any distribution on account of such Intercompany Claims and Interests.
The foregoing description of certain matters effected pursuant to the Plan and the transactions related to and contemplated thereunder, is not intended to be a complete description of, or a substitute for, a full and complete reading of the Plan.

3. Fresh Start Accounting

In connection with the Company’s emergence from Chapter 11 on the Effective Date, the Company qualified for fresh start accounting under ASC 852 because (i) the holders of voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. ASC 852 requires that fresh start accounting be applied when the Bankruptcy Court enters a confirmation order confirming a plan of reorganization, or as of a later date when all material conditions precedent to the effectiveness of a plan of reorganization are resolved, which for CUMULUS MEDIA was the Effective Date.

Upon the application of fresh start accounting, CUMULUS MEDIA allocated the reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, Business Combinations (“ASC 805”). Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities. Liabilities existing as of the Effective Date, other than deferred taxes, were recorded at the present value of amounts expected to be paid using appropriate risk adjusted discount rates. Deferred taxes were determined in conformity with applicable accounting standards. Predecessor Company accumulated depreciation, accumulated amortization, and accumulated deficit were eliminated. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Company’s consolidated financial statements after June 3, 2018 are not comparable to the Company’s consolidated financial statements as of or prior to that date.

Reorganization Value

As set forth in the Plan, the enterprise value of the Successor Company was estimated to be between $1.5 billion and $1.7 billion. Based on the estimates and assumptions discussed below, CUMULUS MEDIA estimated the enterprise value to be $1.675 billion, which was confirmed by the Bankruptcy Court.

Management estimated the enterprise value of the Successor Company utilizing the guideline public company method and discounted cash flow method (“DCF”). The use of each approach provides corroboration for the other approach. To estimate enterprise value utilizing the guideline public company method, management applied valuation multiples, derived from the operating data of publicly-traded benchmark companies, to the same operating data of CUMULUS MEDIA. The guideline public company analysis identified a group of comparable companies giving consideration to lines of business and markets served, size and geography. The valuation multiples were derived based on projected financial measures of revenue and earnings before interest, taxes, depreciation and amortization and applied to projected operating data of CUMULUS MEDIA.

To estimate enterprise value utilizing the discounted cash flow method, management established an estimate of future cash flows for the period 2018 to 2024 with a terminal value and discounted the estimated future cash flows to present value. The expected cash flows for the period 2018 to 2024 with a terminal value were based upon certain financial projections and assumptions provided to the Bankruptcy Court. The expected cash flows for the period 2018 to 2024 were derived from

15


earnings forecasts and assumptions regarding revenue growth and margin projections, as applicable. A terminal value was included, calculated using the constant growth method, based on the cash flows of the final year of the forecast period.

The Company’s enterprise value represents the fair value of its interest-bearing debt and equity capital, while the reorganization value is derived from the enterprise value by adding back non-interest-bearing liabilities. The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date (dollars in thousands):

Enterprise value
$
1,675,000

Less: Cash balance difference (1)
(20,000
)
Less: Effect of deferred tax liability (2)
(30,000
)
Plus: Fair value of non-debt current liabilities
114,573

Plus: Fair value of non-debt long term liabilities
63,921

Reorganization value
$
1,803,494


(1) Difference in the estimated cash balance in the reorganization value versus the actual cash on hand as of June 3, 2018.
(2) Difference in the assumed effect of deferred taxes in the reorganization value versus the actual deferred taxes as of June 3, 2018.

16


Unaudited Condensed Consolidated Balance Sheet

The adjustments set forth in the following unaudited Condensed Consolidated Balance Sheet reflect the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs (dollars in thousands).
 
 
Predecessor Company As of June 3, 2018
 
Reorganization Adjustments
 
Fresh Start Adjustments
 
Successor Company As of June 4, 2018
Assets
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
     Cash and cash equivalents
 
$
108,480

 
$
(58,434
)
(1)
$

 
$
50,046

     Restricted cash
 
13,720

 
24,585

(2)

 
38,305

     Accounts receivable
 
215,724

 

 

 
215,724

     Trade receivable
 
5,221

 

 

 
5,221

     Prepaid expenses and other current assets
 
49,912

 
(19,990
)
(3)

 
29,922

          Total current assets
 
393,057

 
(53,839
)
 

 
339,218

Property and equipment, net
 
193,574

 

 
121,732

(12)
315,306

Broadcast licenses
 
1,203,809

 

 
(285,309
)
(13)
918,500

Other intangible assets
 
75,056

 

 
137,402

(13)
212,458

Goodwill
 
135,214

 

 
(135,214
)
(14)

Other assets
 
18,012

 

 

 
18,012

          Total assets
 
$
2,018,722

 
$
(53,839
)
 
$
(161,389
)
 
$
1,803,494

Liabilities and Stockholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
     Accounts payable and accrued expenses
 
$
108,448

 
$
6,253

(4)
$
(128
)
(15)
114,573

     Current portion of Term Loan
 

 
13,000

(5)

 
13,000

          Total current liabilities
 
108,448

 
19,253

 
(128
)
 
127,573

     Term Loan
 

 
1,268,983

(5)
18,017

(16)
1,287,000

     Other liabilities
 
2,801

 
21,312

(6)
13

(17)
24,126

     Deferred income taxes
 

 
50,437

(7)
(10,642
)
(18)
39,795

          Total non-current liabilities
 
2,801

 
1,340,732

 
7,388

 
1,350,921

Liabilities subject to compromise
 
2,647,110

 
(2,647,110
)
(8)

 

          Total liabilities
 
2,758,359

 
(1,287,125
)
 
7,260

 
1,478,494

Stockholder's (deficit) equity:
 
 
 
 
 
 
 
 
    Predecessor Class A common stock
 
320

 
(320
)
(9)

 

    Predecessor Class C common stock
 
1

 
(1
)
(9)

 

    Predecessor treasury stock
 
(229,310
)
 
229,310

(9)

 

    Predecessor additional-paid-in-capital
 
1,626,906

 
(1,626,906
)
(9)

 

    Successor Class A common stock
 

 

 

 

    Successor Class B common stock
 

 

 

 

    Successor additional-paid-in-capital
 

 
325,000

(10)

 
325,000

    (Accumulated deficit) retained earnings
 
(2,137,554
)
 
2,306,203

(11)
(168,649
)
(19)

     Total stockholders' (deficit) equity
 
(739,637
)
 
1,233,286

 
(168,649
)
 
325,000

          Total liabilities and stockholders’ equity (deficit)
 
$
2,018,722

 
$
(53,839
)
 
$
(161,389
)
 
$
1,803,494



17


Reorganization adjustments
1.
Reflects cash payments and the funding of professional fee escrow account from the implementation of the Plan as follows (dollars in thousands):
Payment of professional fees
$
3,118

Adequate protection payment
1,326

Payment of contract cure claims
20,341

Funding of professional fee escrow amount
32,517

Other fees and expenses
1,132

Net cash payments
$
58,434


2. Reflects net additions to restricted cash giving effect to the funding of professional fee escrow account for professional fees accrued and the payment of restructuring fees (dollars in thousands):
    
Funding of professional fee escrow account
$
32,517

Payment of restructuring fees
(7,932
)
Net changes to restricted cash
$
24,585



3.
Reflects the reclassification of $17.8 million debt issuance costs from prepaid expense to offset the Term Loan as well as the write-off of $2.2 million of certain assets which do not benefit the Successor Company.
4.
Represents the reinstatement of certain accounts payable and accrued expenses that were previously classified as Liabilities subject to compromise as well as accrued state income taxes.
5.
Represents the current and non-current portion, net of debt issuance costs of $18.0 million, of the Term Loan.
6.
Represents the reinstatement of tax liabilities, lease liabilities and long-term deposits from Liabilities subject to compromise.
7.
Represents the partial reinstatement of the deferred tax liability of $50.4 million of the original $237.2 million that was included in Liabilities subject to compromise.
8.
Liabilities subject to compromise immediately prior to the Effective Date consisted of the following (dollars in thousands):
    
Accounts payable and accrued expenses
 
$
66,515

Other liabilities
 
21,364

Deferred tax liability
 
237,247

     Accounts payable, accrued expenses and other liabilities
 
325,126

Predecessor Term Loan
 
1,684,407

7.75% Senior Notes
 
610,000

Accrued interest
 
27,577

     Long-term debt and accrued interest
 
2,321,984

          Total Liabilities subject to compromise
 
$
2,647,110



18


Liabilities subject to compromise have been, or will be settled as follows in accordance with the Plan (dollars in thousands):
    
Liabilities subject to compromise
 
 
$
2,647,110

Cash payments at the Effective Date
 
 
(33,657
)
Liabilities reinstated at the Effective Date:
 
 
 
Accounts payable
(3,215
)
 
 
Other liabilities
(21,160
)
 
 
Deferred tax liability
(50,437
)
 
 
     Total liabilities reinstated at the Effective Date
 
 
(74,812
)
Adjustment for deferred tax liability impact
 
 
(186,810
)
Fair value of common stock issued to Predecessor Term Loan holders,
  7.75% Senior Notes holders and unsecured creditors

 
 
(264,394
)
Fair value of warrants issued to Predecessor Term Loan
  holders, 7.75% Senior Notes holders and unsecured creditors

 
 
(60,606
)
Fair value of Term Loan provided by Predecessor Term Loan holders
 
 
(1,300,000
)
     Gain on settlement of Liabilities subject to compromise
 
 
$
726,831


Refer to Note 11, “Stockholders’ Equity” for the determination of fair value of equity issued to unsecured creditors.

9.
Pursuant to the Plan, all equity interests of the Predecessor that were issuable or issued and outstanding immediately prior to the Effective Date were cancelled. The elimination of the carrying value of the canceled equity interests was recorded as an offset to retained earnings (accumulated deficit).
10.
In settlement of the Predecessor Term Loan, 7.75% Senior Notes, and other general unsecured claims, the Company issued new common stock and Successor warrants.
11.
Adjustment made to accumulated deficit consisted of the following (dollars in thousands):

Cancellation of Predecessor equity
 
$
1,397,917

Gain on settlement of Liabilities subject to compromise
 
726,831

Income tax benefit
 
184,005

Other items
 
(2,550
)
Total adjustment to retained earnings
 
$
2,306,203



19


Fresh Start adjustments

12.
Reflects the increase in net book value of property and equipment to the estimated fair value as of the Effective Date. The following table summarizes the components of property and equipment, net as of June 4, 2018, and the fair value as of the Effective Date (dollars in thousands):
    
 
Estimated Useful Life
 
Successor Company
Predecessor Company
Land
N/A
 
$
159,464

$
86,287

Broadcasting and other equipment
3 to 30 years
 
58,369

248,607

Computer and capitalized software costs
1 to 3 years
 
11,791

34,924

Furniture and fixtures
5 years
 
4,432

15,571

Leasehold improvements
5 years
 
24,089

46,471

Buildings
9 to 20 years
 
26,964

51,994

Construction in progress
N/A
 
30,197

30,197

 
 
 
315,306

514,051

Less: accumulated depreciation
 
 

(320,477
)
Property and equipment, net
 
 
$
315,306

$
193,574


To estimate the fair value of personal property such as broadcasting and other equipment, with the assistance of third party valuation specialists, the Company utilized a combination of the cost approach and market approach. With the assistance of third party valuation specialists, the Company recognized the contributory value associated with the necessary installation, engineering, and set-up costs related to the installed component of equipment by using the cost approach. The market approach was used for assets where a viable, transparent secondary market existed, such as motor vehicle assets.

To estimate the fair value of real property, with the assistance of third party valuation specialists, the Company considered the cost approach and sales comparison approach. Buildings were primarily valued using the cost approach and with the assistance of valuation specialists, the Company developed a replacement cost new for the improvements and applied deductions for physical depreciation based on the age of the assets. Land was valued under the sales comparison approach, whereby with the assistance of third party valuation specialists, the Company researched transactions involving comparable parcels to provide an indication of the fair value of the various subject parcels.

13.
The Company recorded an adjustment to intangible assets of $147.9 million as follows (dollars in thousands):

 
Successor Company
 
Predecessor Company
 
Difference
Broadcast licenses
$
918,500

 
$
1,203,809

 
$
(285,309
)
Other intangible assets
212,458

 
75,056

 
137,402

 
$
1,130,958

 
$
1,278,865

 
$
(147,907
)

The fair values of broadcasting licenses and other intangible assets were determined as follows:
a.
Broadcast licenses ($918.5 million as of June 4, 2018): The fair value of broadcast licenses was determined using the Greenfield approach, a derivation of the income approach that isolates the income that is properly attributable to the license alone. It is based upon modeling a hypothetical “Greenfield” build-up to a normalized enterprise that, by design, lacks inherent goodwill and has other assets that have essentially been paid for or added as part of the build-up process.

b.
Other intangible assets ($212.5 million as of June 4, 2018):
i.
Broadcasting, affiliate and producer relationships ($162.0 million as of June 4, 2018): The customer relationship intangibles including broadcasting and affiliate and producer relationships were valued utilizing the excess earning method, a derivation of the income approach that considers cash flows related to the customers after accounting for a fair return to the other supporting assets of the business.

20


ii.
Trademarks and trade names ($21.2 million as of June 4, 2018): In estimating the fair value of trademarks and trade names, management used the relief from royalty method, a derivation of the income approach, for analyzing the trade names.
iii.
Tower income contracts ($15.1 million as of June 4, 2018): The fair value of these were determined utilizing a discounted cash flow analysis.
iv.
Advertiser backlog ($12.0 million as of June 4, 2018): The fair value of advertiser backlog was analyzed using the multi-period excess earning method. Estimated duration of advertiser backlog as of the Effective Date was used as a point of recognition for net sales attributable to that backlog.
v.
Leasehold intangible asset, net ($2.2 million as of June 4, 2018): The fair value of leasehold interests was determined utilizing a discounted cash flow analysis, wherein leases for real property were assessed for favorable or unfavorable contract rental rates.

14.
Reflects the elimination of the Predecessor goodwill balance of $135.2 million.
15.
Reflects the elimination of the carrying value of short-term deferred rent to adjust accounts payable and accrued expenses to estimated fair value.
16.
Represents the fair value adjustment of the Term Loan including the elimination of debt issuance costs of $18.0 million incurred prior to and upon emergence from bankruptcy. The fair value of debt is comprised of $13.0 million of short-term debt and $1,287.0 million of long-term debt. The fair value of the Term Loan was determined based on a market approach utilizing market yields and was estimated to be 100% of par value.
17.
Represents the increase of a liability related to a failed sale leaseback transaction and elimination of the carrying value of long-term deferred rent in accordance with fresh start reporting to adjust net book value to estimated fair value.
18.
Reflects the impact of fresh start adjustments on deferred taxes.
19.
Reflects the cumulative impact of the fresh start accounting adjustments discussed above on accumulated deficit as follows (dollars in thousands):
    
Property and equipment fair value adjustment
$
121,732

Intangible assets fair value adjustment
(147,907
)
Goodwill adjustment
(135,214
)
Term Loan fair value adjustment
(18,017
)
Other assets and liabilities fair value adjustments
115

Net loss on fresh start adjustments
$
(179,291
)
Tax impact on fresh start adjustments
10,642

Net impact on retained earnings
$
(168,649
)

21



Reorganization Items, Net

Reorganization items incurred as a result of the Chapter 11 Cases are presented separately in the accompanying Condensed Consolidated Statement of Operations as follows (dollars in thousands):
    
 
Predecessor Company
 
Period from April 1, 2018 through June 3, 2018
 
Period from January 1, 2018 through June 3, 2018
Gain on settlement of Liabilities subject to compromise (a)
$
726,831

 
$
726,831

Fresh start adjustments (b)
(179,291
)
 
(179,291
)
Professional fees (c)
(29,560
)
 
(54,386
)
Non-cash claims adjustments (d)
(15,364
)
 
(15,364
)
Rejected executory contracts (e)
(2,936
)
 
(5,976
)
Other (f)
(3,312
)
 
(5,613
)
Reorganization items, net
$
496,368

 
$
466,201

    
(a) Liabilities subject to compromise have been, or will be settled in accordance with the Plan.
(b) Revaluation of certain assets and liabilities upon the adoption of fresh start accounting.
(c) Legal, financial advisory and other professional costs directly associated with the reorganization process.
(d) The carrying value of certain claims were adjusted to the estimated value of the claim that will be allowed by the Bankruptcy Court.
(e) Non-cash expenses to record estimated allowed claim amounts related to rejected executory contracts.
(f) Federal Communications Commission filing and United States Trustee fees directly associated with the reorganization process and the write-off of Predecessor director and officer insurance policies.    
    
4. Revenues

Adoption of ASC Topic 606 - Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented in accordance with ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company's historic accounting under ASC 605 - Revenue Recognition ("ASC 605").

Revenue Recognition

Under current and prior revenue guidance, revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

The following table presents revenues disaggregated by revenue source (dollars in thousands):


22


 
Successor Company
 
 
Predecessor Company
 
Three Months Ended September 30, 2018
 
 
Three Months Ended September 30, 2017
Cumulus Radio Station Group
 
 
 
 
Advertising revenues (broadcast, digital, non-traditional revenue (“NTR”) and trade)
$
195,364

 
 
$
201,792

Non-advertising revenues (tower rental and other)
993

 
 
1,060

Total Cumulus Radio Station Group revenue
$
196,357

 
 
$
202,852

 
 
 
 
 
Westwood One
 
 
 
 
Advertising revenues (broadcast, digital and trade)
$
81,783

 
 
$
76,782

Non-advertising revenues (license fees and other)
3,444

 
 
6,996

Total Westwood One revenue
$
85,227

 
 
$
83,778

 
 
 
 
 
Other (1)
$
670

 
 
$
610

Total Revenue
$
282,254

 
 
$
287,240


 
Successor Company
 
 
Predecessor Company
 
Period from June 4, 2018 through September 30, 2018
 
 
Period from January 1, 2018 through June 3, 2018
Nine Months Ended September 30, 2017
Cumulus Radio Station Group
 
 
 
 
 
Advertising revenues (broadcast, digital, NTR and trade)
$
263,322

 
 
$
301,804

$
582,294

Non-advertising revenues (tower rental and other)
1,392

 
 
1,513

2,756

Total Cumulus Radio Station Group revenue
$
264,714

 
 
$
303,317

$
585,050

 
 
 
 
 
 
Westwood One
 
 
 
 
 
Advertising revenues (broadcast, digital and trade)
$
106,769

 
 
$
143,215

$
239,043

Non-advertising revenues (license fees and other)
4,814

 
 
6,500

15,824

Total Westwood One revenue
$
111,583

 
 
$
149,715

$
254,867

 
 
 
 
 
 
Other (1)
$
961

 
 
$
892

$
1,884

Total Revenue
$
377,258

 
 
$
453,924

$
841,801


(1)
Other is comprised of revenue from certain digital commerce and broadcast software sales and services.


23


Advertising Revenues

Substantially all of the Company’s revenues are from advertising, primarily generated through (i) the sale of broadcast radio advertising time and advertising and promotional opportunities across digital audio networks to local, regional, and national advertisers and (ii) remote/event revenue. The Company considers each advertising element a separate contract, and thus a separate performance obligation, as a result of both the customer’s and the Cumulus Radio Station Group or Westwood One’s respective ability to stop transferring promised goods or services during the contract term without notice or penalty. Thus, revenue associated with these contracts is recognized at the time advertising or other services, for example hosting an event, is delivered.
The Company’s payment terms vary by the type and location of customer and the products or services offered. The term between invoicing and when payment is due is not significant. There are no further obligations for returns, refunds or similar obligations related to the contracts. The Company records deferred revenues when cash payments are received in advance of performance, including amounts which are refundable.

Non-Advertising Revenues
Non-advertising revenue does not constitute a material portion of the Company’s revenue and primarily consists of licensing content and tower rental agreements, and to a lesser degree, sublease income, and satellite rental income. Rental agreements typically range from one to five years with renewal clauses. Such agreements typically contain a stated recurring monthly amount due, which is recognized upon delivery of services or passage of time. These agreements contain a single performance obligation.
Trade and Barter Transactions
The Company provides advertising time in exchange for goods or services such as products, supplies, or services. Trade revenue totaled $10.6 million, $19.0 million and $13.9 million for the three months ended September 30, 2018, for the period from January 1, 2018 through June 3, 2018, and for the period June 4, 2018 through September 30, 2018. Trade revenue of approximately $8.7 million and $28.9 million was recognized for the three and nine months ended September 30, 2017, respectively.

Programming barter revenue is derived from an exchange of programming content, to be broadcast on the Company’s airwaves, for commercial inventory, usually in the form of commercial placements inside of the show exchanged. The revenue is recognized as the commercial spots are aired, in the same pattern as the Company’s normal cash spot revenue is recognized. Trade and barter value is based upon management’s estimate of the fair value of the products, supplies or services received.
Variable Consideration
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and reduces revenue recognized accordingly. The Company has not had, nor does it believe that there will be, significant changes to its estimates of variable consideration. In addition, variable consideration has not historically been material to the Company’s financial statements.
Customer Options that Provide a Material Right
ASC 606 requires the allocation of a portion of a transaction price of a contract to additional goods or services transferred to a customer that are considered to be a separate performance obligation and provide a material right to the customer.
To satisfy the requirement of accounting for the material right, the Company considers both the transaction price associated with each spot as well as the timing of revenue recognition for the spots. Customers are often provided bonus spots, which are radio advertising spots, free of charge, explicitly within the contract terms or implicitly agreed upon with the customer consistent with industry standard practices. The Company typically runs these bonus spots concurrent with paid spots. As the delivery and revenue recognition for both paid and bonus spots generally occur within the same period, the time of delivery and recognition of revenue is insignificant.

24


Principal versus Agent Considerations
In those instances in which the Company functions as the principal in the transaction, the revenue and associated operating costs are presented on a gross basis. In those instances where the Company functions solely as an agent or sales representative, the Company’s effective commission is presented as revenue on a net basis with no corresponding operating expenses.
Westwood One maintains revenue sharing agreements and inventory representation agreements with various radio companies. For all revenue sharing and inventory representation agreements, the Company performs an analysis in accordance with ASC 606 to determine if the amounts should be recorded on a gross or net basis. Consistent with the prior revenue recognition guidance, Westwood One continues to record all revenue sharing agreements on a gross basis with the shared revenue amount recorded within Content costs in the Consolidated Statements of Operations and inventory representation agreements on a net basis.
Practical Expedients
The Company applied the completed contract practical expedient guidance under ASC 606 to contracts that were not considered completed as of January 1, 2018.

The Company capitalizes certain incremental costs of obtaining contracts with customers which it expects to recover.
For contracts with a client whose customer life covers a year or less, companies may use a practical expedient that allows the option to expense commissions as they are incurred. For contracts where the new and renewal commission rates are commensurate, the amortization period assessed by management was the contract life. As such, the Company will continue to expense commissions as incurred for the revenue streams where the new and renewal commission rates are commensurate and the contract life is less than one year. These costs are recorded within Sales, General and Administrative expense. The Company does not apply the practical expedient option to new local direct contracts, as the commission rates for new and renewal contracts is not commensurate and the customer life is typically in excess of one year. As of September 30, 2018, the Company recorded an asset of approximately $5.1 million related to the unamortized portion of commission expense on new local direct revenue. Under ASC 605, commission expense on new local direct revenue would have been expensed as incurred.
Under certain practical expedients elected, the Company did not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for reporting periods presented before January 1, 2018.

Results for reporting periods beginning after January 1, 2018 are presented under the amended accounting guidance, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting guidance.

The Company has elected to apply the practical expedient which allows it to not disclose information about remaining performance obligations that have original expected durations of one year or less. The Company has contracts with customers which the Company believes will produce revenue beyond one year. From these contracts, the Company estimates it will recognize approximately $6.2 million of revenue in 2019.

5. Restricted Cash
As of September 30, 2018 and December 31, 2017, the Condensed Consolidated Balance Sheets included approximately $7.7 million and $9.0 million, respectively, in restricted cash. Restricted cash is used primarily for collateralizing standby letters of credit for certain leases and insurance policies and securing certain transactions as dictated by the financial institutions used by the Company.


25


6. Property and Equipment, net

 
 
 
Successor Company
Predecessor Company
(dollars in thousands)
Estimated Useful Life
 
As of September 30, 2018
As of December 31, 2017
Land
N/A
 
$
79,464

$
86,308

Broadcasting and other equipment
3 to 30 years
 
69,282

240,740

Computer and capitalized software costs
1 to 3 years
 
13,966

29,793

Furniture and fixtures
5 years
 
4,983

15,278

Leasehold improvements
5 years
 
24,953

42,504

Buildings
9 to 20 years
 
27,969

51,549

Construction in progress
N/A
 
22,805

32,463

 
 
 
243,422

498,635

Less: accumulated depreciation
 
 
(7,684
)
(307,031
)
Property and equipment, net
 
 
$
235,738

$
191,604


In connection with the application of fresh start accounting on June 3, 2018, the Company recorded fair value adjustments disclosed in Note 3, “Fresh Start Accounting.” Accumulated depreciation was therefore eliminated as of that date.

The table presented above does not reflect certain assets in the Company's Washington, DC and Blacksburg, VA markets which have been classified as held for sale in the accompanying unaudited Condensed Consolidated Balance Sheet at September 30, 2018 as disclosed in Note 1, "Nature of Business, Interim Financial Data and Basis of Presentation."


26


7. Intangible Assets and Goodwill

The carrying value of goodwill by reportable segments is as follows (dollars in thousands):
 
Cumulus Radio Station Group
 
Westwood One
 
Consolidated
Balance as of January 1, 2018 (Predecessor Company)
 
 
 
 
 
   Goodwill
$
1,278,526

 
$
304,280

 
$
1,582,806

   Accumulated impairment losses
(1,278,526
)
 
(169,066
)
 
(1,447,592
)
     Balance as of January 1, 2018 (Predecessor Company)
$

 
$
135,214

 
$
135,214

Balance as of June 3, 2018 (Predecessor Company)
 
 
 
 
 
   Goodwill
$
1,278,526

 
$
304,280

 
$
1,582,806

   Accumulated impairment losses
(1,278,526
)
 
(169,066
)
 
(1,447,592
)
     Balance as of June 3, 2018 (Predecessor Company)
$

 
$
135,214

 
$
135,214

Impact of fresh start accounting

 
(135,214
)
 
(135,214
)
Balance as of June 4, 2018 (Successor Company)
$

 
$

 
$


Prior to the application of fresh start accounting, goodwill represented the excess of the amount paid to acquire businesses over the fair value of their net assets at the date of the acquisition. The Company eliminated goodwill upon application of fresh start accounting (see Note 3, “Fresh Start Accounting”).

Intangible Assets
In connection with the Company’s adoption of fresh start accounting on the Effective Date, intangible assets and related accumulated amortization of the Predecessor Company were eliminated. Intangible assets of the Successor Company were identified and valued at their fair value, as determined by valuation specialists. The Company’s intangible assets are as follows (dollars in thousands):
    
Intangible Assets:
FCC Licenses
 
Definite-Lived
 
Total
Balance as of January 1, 2018 (Predecessor Company)
$
1,203,809

 
$
82,994

 
$
1,286,803

Dispositions

 

 

Amortization

 
(7,938
)
 
(7,938
)
Balance as of June 3, 2018 (Predecessor Company)
$
1,203,809

 
$
75,056

 
$
1,278,865

Impact of fresh start accounting
(285,309
)
 
137,402

 
(147,907
)
Balance as of June 4, 2018 (Successor Company)
$
918,500

 
$
212,458

 
$
1,130,958

Transfer to assets held for sale
(203
)
 
(39
)
 
(242
)
Amortization

 
(10,771
)
 
(10,771
)
Acquisition
17,476

 

 
17,476

Balance as of September 30, 2018 (Successor Company)
$
935,773

 
$
201,648

 
$
1,137,421

    
    
As part of fresh start accounting, the Company removed existing intangibles and accumulated amortization and recorded an adjustment of $147.9 million to reflect the fair value of intangibles. (See Note 3, “Fresh Start Accounting").

27



The Company performs impairment testing of its Federal Communications Commission (“FCC”) licenses and goodwill annually as of December 31 of each year and on an interim basis if events or circumstances indicate that FCC licenses or goodwill may be impaired. The Company reviews the carrying value of its definite-lived intangible assets, primarily broadcast advertising and affiliate relationships for recoverability prior to its annual impairment test of goodwill and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events and circumstances did not necessitate any interim impairment tests during the three months ended September 30, 2018, nor did the Company have goodwill as of September 30, 2018.


8. Long-Term Debt
The Company’s long-term debt consisted of the following as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
Successor Company
Predecessor Company
 
September 30, 2018
December 31, 2017
Predecessor Term Loan
$

$
1,722,209

7.75% Senior Notes:

610,000

Long-term debt, net subject to compromise
$

$
2,332,209

Less: Amounts reclassified to Liabilities subject to compromise

(2,332,209
)
Term Loan
$
1,296,750

$

Less: Current portion
13,000


Long-term debt, net
$
1,283,750

$


In connection with the filing of the Bankruptcy Petitions, all amounts outstanding under the Predecessor Term Loan and the 7.75% Senior Notes had been reclassified to Liabilities subject to compromise in the Condensed Consolidated Balance Sheet as of December 31, 2017.
Credit Agreement

On the Effective Date, Cumulus Media New Holdings Inc., a Delaware corporation (“Holdings”) and an indirectly wholly-owned subsidiary of the Company, and certain of the Company’s other subsidiaries, entered into the Credit Agreement with the holders of claims with respect to the Predecessor Term Loan under the Canceled Credit Agreement, as term loan lenders. Pursuant to the Credit Agreement, the lenders party thereto were deemed to have provided Holdings and its subsidiaries that are party thereto as co-borrowers with a $1.3 billion senior secured Term Loan.

Amounts outstanding under the Credit Agreement bear interest at a per annum rate equal to (i) the London Inter-bank Offered Rate (“LIBOR”) plus an applicable margin of 4.50%, subject to a LIBOR floor of 1.00%, or (ii) the Alternative Base Rate (as defined below) plus an applicable margin of 3.50%, subject to an Alternative Base Rate floor of 2.00%. The Alternative Base Rate is defined, for any day, as the per annum rate equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1.0%, (ii) the rate identified as the “Prime Rate” and normally published in the Money Rates section of the Wall Street Journal, and (iii) one-month LIBOR plus 1.0%. At September 30, 2018, the Term Loan bore interest at 6.58% per annum.

Amounts outstanding under the Term Loan amortize in equal quarterly installments of 0.25% of the original principal amount of the Term Loan with the balance payable on the maturity date. The maturity date of the Term Loan is May 15, 2022.

The Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Credit Agreement include, among others: (a) the failure to pay when due the obligations owing thereunder; (b) the failure to perform (and not timely remedy, if applicable) certain covenants; (c) certain defaults and accelerations under other indebtedness; (d) the occurrence of bankruptcy or insolvency events; (e) certain judgments against Holdings or any of its subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use, any one or more of, any material FCC licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in Credit Agreement). Upon the occurrence of an event of default, the Agent

28


may, with the consent of, or upon the request of, the required lenders, accelerate the Term Loan and exercise any of its rights as a secured party under the Credit Agreement and the ancillary loan documents provided, that in the case of certain bankruptcy or insolvency events with respect to a borrower, the Term Loan will automatically accelerate.

The Credit Agreement does not contain any financial maintenance covenants. The Credit Agreement provides that Holdings will be permitted to enter into either a revolving credit facility or receivables facility providing commitments of up to $50.0 million, subject to certain conditions.

The borrowers may elect, at their option, to prepay amounts outstanding under the Credit Agreement without premium or penalty (except that any prepayment during the period of six months following the closing of the Credit Agreement would require a premium equal to 1.00% of the prepaid principal amount). The borrowers may be required to make mandatory prepayments of the Term Loan upon the occurrence of specified events as set forth in the Credit Agreement, including upon the sale of certain assets and from Excess Cash Flow (as defined in the Credit Agreement). On October 11, 2018, the Company completed a discounted prepayment of a portion of the Term Loan. The Company purchased $50.2 million of face value of the Term Loan for $50.0 million, a discount to par value of 0.40%.

Amounts outstanding under the Credit Agreement are guaranteed by Cumulus Media Intermediate Inc. (“Intermediate Holdings”), which is a subsidiary of the Company, and the present and future wholly-owned subsidiaries of Holdings that are not borrowers thereunder, subject to certain exceptions as set forth in the Credit Agreement (the “Guarantors”) and secured by a security interest in substantially all of the assets of Holdings, the subsidiaries of Holdings party to the Credit Agreement as borrowers, and the Guarantors.

Revolving Credit Agreement

On August 17, 2018, Holdings entered into a $50.0 million revolving credit facility (the “Revolving Credit Facility”) pursuant to a Credit Agreement (the “Revolving Credit Agreement”), dated as of August 17, 2018, with certain subsidiaries of Holdings as borrowers, certain lenders, Intermediate Holdings as a guarantor, and Deutsche Bank AG New York Branch as a lender and Administrative Agent.

The Revolving Credit Facility matures on August 17, 2023. Availability under the Revolving Credit Facility is tied to a borrowing base formula that is based on 85% of the accounts receivable of the borrowers and the guarantors, subject to customary reserves and eligibility criteria. Under the Revolving Credit Facility, up to $10.0 million of availability may be drawn in the form of letters of credit.

Borrowings under the Revolving Credit Facility bear interest, at the option of Holdings, based on (i) LIBOR plus a percentage spread (ranging from 1.25% to 1.75%) based on the average daily excess availability under the Revolving Credit Facility or (ii) the Alternative Base Rate (as defined below) plus a percentage spread (ranging from 0.25% to 0.75%) based on the average daily excess availability under the Revolving Credit Facility. The Alternative Base Rate is defined, for any day, as the per annum rate equal to the highest of (i) the federal funds rate plus 1/2 of 1.0%, (ii) the rate identified as the “Prime Rate” and normally published in the Money Rates section of the Wall Street Journal, and (iii) one-month LIBOR plus 1.0%. In addition, the unused portion of the Revolving Credit Facility will be subject to a commitment fee ranging from 0.250% to 0.375% based on the utilization of the facility. As of September 30, 2018 and on October 11, 2018, following the $50.0 million prepayment of the Term Loan, no amounts were outstanding under the Revolving Credit Facility.

The Revolving Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Revolving Credit Agreement include, among others: (a) the failure to pay when due the obligations owing thereunder; (b) the failure to perform (and not timely remedy, if applicable) certain covenants; (c) certain defaults and accelerations under other indebtedness; (d) the occurrence of bankruptcy or insolvency events; (e) certain judgments against Holdings or any of its subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use, any one or more of, any material Federal Communications Commission licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in Credit Agreement). Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Revolving Credit Agreement and the ancillary loan documents as a secured party.

The Revolving Credit Agreement does not contain any financial maintenance covenants with which the Company must comply. However, if average excess availability under the Revolving Credit Facility is less than the greater of (a) 12.50% of the total commitments thereunder or (b) $5.0 million, the Company must comply with a fixed charge coverage ratio of not less than 1.0:1.0.

29



Amounts outstanding under the Revolving Credit Agreement are guaranteed by Intermediate Holdings and the present and future wholly-owned subsidiaries of Holdings that are not borrowers thereunder, subject to certain exceptions as set forth in the Revolving Credit Agreement (the “Revolver Guarantors”) and secured by a security interest in substantially all of the assets of Holdings, the subsidiaries of Holdings party to the Credit Agreement as borrowers, and the Revolver Guarantors.
Canceled Credit Agreement
The Canceled Credit Agreement consisted of a term loan with a stated maturity date in December 2020. At December 31, 2017, there was $1.7 billion outstanding under the Predecessor Term Loan.

Amounts outstanding under the Predecessor Term Loan amortized at a rate of 1.0% per annum of the original principal amount of the Predecessor Term Loan, payable quarterly, with the balance payable on the maturity date. Borrowings under the Predecessor Term Loan bore interest based on the Base Rate (as defined below) or LIBOR, plus 3.25% on LIBOR-based borrowings and 2.25% on Base Rate-based borrowings. LIBOR-based borrowings were subject to a LIBOR floor of 1.0%. Base Rate-based borrowings were subject to a Base Rate floor of 2.0%. Base Rate was defined, for any day, as the rate per annum equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 0.5%, (ii) the prime commercial lending rate of JPMorgan Chase Bank, N.A., as established from time to time, and (iii) 30 day LIBOR plus 1.0%.

As a result of the filing of the Bankruptcy Petitions, Old Cumulus was required to make adequate protection payments on the Predecessor Term Loan. The amounts of these payments were calculated under the same terms as the interest and at the rates described above. During the pendency of Bankruptcy Petitions, ASC 852 required Old Cumulus to recognize the adequate protection payments as reductions in the principal balance of the Predecessor Term Loan. As a result, Old Cumulus applied adequate protection payments of approximately $37.8 million to the principal balance of the Predecessor Term Loan for the period from January 1, 2018 through June 3, 2018, which in turn, caused interest expense to be lower by approximately $37.1 million than it would have been absent the filing of the Bankruptcy Petitions.

On the Effective Date, the Predecessor Term Loan was canceled and all liabilities thereunder were discharged.

7.75% Senior Notes

On May 13, 2011, Old Cumulus issued the 7.75% Senior Notes. On September 16, 2011, Old Cumulus and one of its subsidiaries entered into a supplemental indenture with the trustee under the indenture governing the 7.75% Senior Notes which provided for, among other things, the (i) assumption by such subsidiary of all obligations of Old Cumulus related to the 7.75% Senior Notes; (ii) substitution of that subsidiary for Old Cumulus as issuer; (iii) release of Old Cumulus from all obligations as original issuer; and (iv) guarantee by Old Cumulus of all of the subsidiary issuer's obligations, in each case under the indenture and the 7.75% Senior Notes.
Interest on the 7.75% Senior Notes was payable May 1 and November 1 of each year. The 7.75% Senior Notes were scheduled to mature on May 1, 2019. While under bankruptcy protection, Old Cumulus did not make interest payments or recognize interest expense on the 7.75% Senior Notes. As a result, Old Cumulus's interest expense for the period from January 1, 2018 through June 3, 2018, was approximately $22.1 million lower than it would have been absent the filing of the voluntary petitions for reorganization.
On the Effective Date, the 7.75% Senior Notes were canceled and all liabilities thereunder were discharged.


30


9. Fair Value Measurements

The following table shows the gross amount and fair value of the Term Loan, the Predecessor Term Loan and the 7.75% Senior Notes (dollars in thousands):
 
Successor Company
Predecessor Company
 
September 30, 2018
December 31, 2017
Term Loan:

 
Gross value
$
1,296,750

$

Fair value - Level 2
$
1,281,319

$

Predecessor Term Loan:
 
 
Gross value
$

$
1,722,209

Fair value - Level 2
$

$
1,481,100

7.75% Senior Notes:
 
 
Gross value
$

$
610,000

Fair value - Level 2
$

$
105,988

As of September 30, 2018, the Company used trading prices from a third party of 98.81% to calculate the fair value of the Term Loan.
As of December 31, 2017, Old Cumulus used trading prices from a third party of 86.0% to calculate the fair value of the Predecessor Term Loan and 17.40% to calculate the fair value of the 7.75% Senior Notes.

10. Income Taxes

The Company’s income tax provision and effective tax rate were as follows:
 
Successor Company
Predecessor Company
 
Successor Company
 
Predecessor Company
(in thousands, except percentages)
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2017
 
Period from June 4, 2018 through September 30, 2018
 
Period from January 1, 2018 through June 3, 2018
 
Nine Months Ended September 30, 2017
Income before income taxes
$
17,791

 
$
6,531

 
$
25,377

 
$
519,297

 
$
6,016

Effective tax rate
28.5
%
 
80.5
%
 
30.3
%
 
(34.1
)%
 
107.5
%
Provision (benefit) for income taxes
$
5,078

 
$
5,257

 
$
7,684

 
$
(176,859
)