CMLS 10-Q Quarterly Report Sept. 30, 2014 | Alphaminr
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CMLS 10-Q Quarter ended Sept. 30, 2014

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Income Statement
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CUMULUS MEDIA INC
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10-Q 1 cmls-20140930x10q.htm 10-Q CMLS-2014.09.30-10Q
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, 2014
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
Cumulus Media Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
36-4159663
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
3280 Peachtree Road, NW Suite 2300,
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 and posted on its corporate Website, if any, 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
As of October 21, 2014 , the registrant had 232,200,147 outstanding shares of common stock consisting of: (i) 231,555,276 shares of Class A common stock; and (ii) 644,871 shares of Class C common stock.


CUMULUS MEDIA INC.
INDEX

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for per share data)
(Unaudited)
September 30, 2014
December 31, 2013
Assets
Current assets:
Cash and cash equivalents
$
26,757

$
32,792

Restricted cash
10,346

6,146

Accounts receivable, less allowance for doubtful accounts of $5,043 and $5,306 at September 30, 2014 and December 31, 2013, respectively
239,578

264,805

Trade receivable
3,733

4,419

Assets held for sale
15,007

—

Prepaid expenses and other current assets
47,023

68,893

Total current assets
342,444

377,055

Property and equipment, net
224,720

254,702

Broadcast licenses
1,596,715

1,596,337

Other intangible assets, net
261,405

315,490

Goodwill
1,255,519

1,256,741

Other assets
65,852

70,110

Total assets
$
3,746,655

$
3,870,435

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
$
127,886

$
146,537

Trade payable
4,259

3,846

Current portion of long-term debt
—

5,937

Total current liabilities
132,145

156,320

Long-term debt, excluding 7.75% senior notes
1,923,987

1,985,956

7.75% senior notes
610,000

610,000

Secured loan
—

25,000

Other liabilities
71,756

79,913

Deferred income taxes
475,539

500,506

Total liabilities
3,213,427

3,357,695

Stockholders’ equity:
Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 254,149,893 and 222,399,019 shares issued, and 231,555,276 and 198,193,819 shares outstanding, at September 30, 2014 and December 31, 2013, respectively
2,541

2,223

Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 0 and 15,424,944 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
—

154

Class C common stock, par value $0.01 per share; 644,871 shares authorized, issued and outstanding at both September 30, 2014 and December 31, 2013
6

6

Treasury stock, at cost, 22,594,617 and 24,205,200 shares at September 30, 2014 and December 31, 2013, respectively
(231,517
)
(251,193
)
Additional paid-in-capital
1,595,910

1,603,669

Accumulated deficit
(833,712
)
(842,119
)
Total stockholders’ equity
533,228

512,740

Total liabilities and stockholders’ equity
$
3,746,655

$
3,870,435

See accompanying notes to the unaudited condensed consolidated financial statements.

3

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Net revenue
$
313,885

$
262,535

$
934,176

$
750,680

Operating expenses:
Content costs
106,574

65,559

316,868

189,765

Other direct operating expenses
119,864

99,202

353,588

292,576

Depreciation and amortization
29,143

27,614

87,095

82,814

LMA fees
2,021

609

5,226

2,293

Corporate expenses (including stock-based compensation expense of $4,399, $2,259, $12,645 and $7,393, respectively)
14,756

11,757

53,215

33,517

Gain on sale of assets or stations
(373
)
(5,198
)
(1,271
)
(3,662
)
Loss (gain) on derivative instrument
—

172

—

(2,672
)
Total operating expenses
271,985

199,715

814,721

594,631

Operating income
41,900

62,820

119,455

156,049

Non-operating (expense) income:

Interest expense
(36,647
)
(45,502
)
(109,380
)
(134,221
)
Interest income
352

308

1,024

942

Loss on early extinguishment of debt
—

—

—

(4,539
)
Other income (expense), net
443

(139
)
3,972

(247
)
Total non-operating expense, net
(35,852
)
(45,333
)
(104,384
)
(138,065
)
Income from continuing operations before income taxes
6,048

17,487

15,071

17,984

Income tax expense
(3,508
)
(6,995
)
(6,663
)
(19,043
)
Income (loss) from continuing operations
2,540

10,492

8,408

(1,059
)
(Loss) income from discontinued operations, net of taxes
—

(3,455
)
—

26,207

Net income
2,540

7,037

8,408

25,148

Less: dividends declared and accretion of redeemable preferred stock
—

4,369

—

10,676

Income attributable to common shareholders
$
2,540

$
2,668

$
8,408

$
14,472

Basic and diluted income (loss) per common share (see Note 11, “Earnings (Loss) Per Share”):

Basic: Income (loss) from continuing operations per share
$
0.01

$
0.03

$
0.04

$
(0.07
)
(Loss) income from discontinued operations per share
$
—

$
(0.02
)
$
—

$
0.15

Income per share
$
0.01

$
0.01

$
0.04

$
0.08

Diluted: Income (loss) from continuing operations per share
$
0.01

$
0.03

$
0.04

$
(0.07
)
(Loss) income from discontinued operations per share
$
—

$
(0.02
)
$
—

$
0.15

Income per share
$
0.01

$
0.01

$
0.04

$
0.08

Weighted average basic common shares outstanding
231,885,444

179,669,739

224,074,622

176,994,583

Weighted average diluted common shares outstanding
233,222,153

183,131,260

227,802,636

180,032,349

See accompanying notes to the unaudited condensed consolidated financial statements.

4

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
2014
2013
Cash flows from operating activities:
Net income
$
8,408

$
25,148

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
87,095

86,809

Amortization of debt issuance costs/discounts
7,029

7,515

Provision for doubtful accounts
2,468

2,002

Gain on sale of assets or stations
(1,271
)
(3,556
)
Loss on early extinguishment of debt
—

4,539

Fair value adjustment of derivative instruments
21

(2,657
)
Deferred income taxes
6,663

9,659

Stock-based compensation expense
12,645

7,393

Changes in assets and liabilities:
Accounts receivable
22,759

10,686

Trade receivable
686

(1,717
)
Prepaid expenses and other current assets
(9,206
)
(3,350
)
Other assets
(12,304
)
(69
)
Accounts payable and accrued expenses
(19,085
)
(11,281
)
Trade payable
413

2,304

Other liabilities
(8,232
)
(5,758
)
Net cash provided by operating activities
98,089

127,667

Cash flows from investing activities:
Restricted cash
(4,200
)
2,192

Acquisition less cash acquired
(5,500
)
(52,685
)
Initial payment of Green Bay Option
—

(5,000
)
Proceeds from sale of assets or stations
15,718

6,492

Capital expenditures
(13,401
)
(8,448
)
Net cash used in investing activities
(7,383
)
(57,449
)
Cash flows from financing activities:
Repayment of borrowings under term loans and revolving credit facilities
(106,125
)
(88,931
)
Proceeds from borrowings under term loans and revolving credit facilities
10,000

—

Deferred financing costs
(21
)
(204
)
Tax withholding payments on behalf of employees
(1,320
)
(337
)
Proceeds from exercise of warrants
106

64

Proceeds from exercise of options
619

614

Preferred stock dividends
—

(9,395
)
Redemption of Series A preferred stock
—

(73,150
)
Proceeds from issuance of Series B preferred stock
—

77,241

Net cash used in financing activities
(96,741
)
(94,098
)
Decrease in cash and cash equivalents
(6,035
)
(23,880
)
Cash and cash equivalents at beginning of period
32,792

88,050

Cash and cash equivalents at end of period
$
26,757

$
64,170

Supplemental disclosures of cash flow information:
Interest paid
$
90,533

$
112,716

Income taxes paid
10,406

3,085

Supplemental disclosures of non-cash flow information:
Trade revenue
$
23,735

$
18,661

Trade expense
25,038

20,484

See accompanying notes to the unaudited condensed consolidated financial statements.

5


1. Description of Business, Interim Financial Data and Basis of Presentation:
Description of Business
Cumulus Media Inc. (and its consolidated subsidiaries, except as the context may otherwise require, “Cumulus,” “Cumulus Media,” “we,” “us,” “our,” or the “Company”) is a Delaware corporation, organized in 2002, and successor by merger to an Illinois corporation with the same name that had been organized in 1997.
Nature of Business
The Company combines high-quality local programming with iconic, nationally syndicated media, sports and entertainment brands in order to deliver premium choices for listeners, provide substantial reach for advertisers and create opportunities for shareholders. As the largest pure-play radio broadcaster in the United States, the Company provides exclusive content that is fully distributed through approximately 460 owned and operated stations in 90 U.S. media markets, approximately 9,000 broadcast radio affiliates and numerous digital channels. The Company is well-positioned in the widening digital audio space through a significant stake in the Rdio digital music service, featuring over 30 million songs on-demand in addition to custom playlists and exclusive curated channels. The Company is also the leading provider of country music and lifestyle content through its NASH brand, which will serve country fans through radio programming, NASH magazine, concerts, licensed products and television/video.
Interim Financial Data
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and the notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 . The accompanying unaudited condensed consolidated financial statements include the condensed consolidated accounts of Cumulus and its wholly-owned subsidiaries, with all intercompany balances and transactions eliminated in consolidation. The December 31, 2013 condensed balance sheet data was derived from audited financial statements. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of our results of operations for, and financial condition as of the end of, the interim periods have been made. The results of operations for the three and nine months ended September 30, 2014 , the cash flows for the nine months ended September 30, 2014 and the Company’s financial condition as of September 30, 2014 , 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, 2014 .
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, intangible assets, derivative financial instruments, income taxes, stock-based compensation, contingencies, litigation and purchase price allocations. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts and results may differ materially from these estimates.
Assets Held for Sale
On September 16, 2014, the Company entered into an agreement to sell certain land and buildings to a third party. The agreement is subject to various terms including a 60 day due diligence period. The carrying value of the identified assets have been classified as held for sale in the unaudited condensed consolidated balance sheet at September 30, 2014 . The estimated fair value of the land and buildings is in excess of the carrying value.
Sale of San Francisco Baseball Associates, LLC Interest
On April 15, 2014, the Company sold its Class B Membership Interest of 1.59% in San Francisco Baseball Associates, LLC for $13.0 million , recognizing a gain on the sale of $3.2 million , which is included in other income (expense), net in the condensed consolidated statement of operations for the nine months ended September 30, 2014 .

6

Reclassifications
Certain account balances in the 2013 periods have been reclassified to conform with classifications currently in use.
In the accompanying unaudited condensed consolidated statements of operations the Company separately presents content costs and other direct operating expenses as operating expense categories. In certain of the Company's historical disclosures, those line items were presented on a combined basis within the direct operating expenses line item in the statement of operations. Content costs consist of all costs related to the licensing, acquisition and development of the Company's programming. Other direct operating expenses consist of expenses related to the distribution and monetization of the Company's content across its platform and overhead expenses. There were no other costs included in direct operating expenses in 2013.
These reclassifications had no effect on previously reported results of operations or retained earnings.
Adoption of New Accounting Standards
ASU 2012-02 . In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2012-02. The amendments in this ASU give companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired rather than calculating the fair value of the indefinite-lived intangible asset. The Company adopted this guidance effective January 1, 2013. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
ASU 2013-01 . In January 2013, the FASB issued ASU 2013-01. The amendments in this ASU require companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The Company adopted this guidance effective January 1, 2013. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
ASU 2013-04. In February 2013, the FASB issued ASU 2013-04, which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements where the total obligation is fixed at the reporting date, and for which no specific guidance currently exists. The Company adopted this guidance effective January 1, 2014. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.
ASU 2013-11 . In July 2013, the FASB issued ASU 2013-11. The amendments in this ASU clarify when a liability related to an unrecognized tax benefit should be presented in the financial statements as a reduction to the related deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. The Company adopted this guidance effective January 1, 2014. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.
Recent Accounting Standards Updates
ASU 2014-08 . In April 2014, the FASB issued ASU 2014-08. Under this ASU, only disposals that represent a strategic shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. This ASU (1) expands the disclosure requirements for disposals that meet the definition of a discontinued operation, (2) requires entities to disclose information about disposals of individually significant components, (3) defines “discontinued operations” similarly to how it is defined under International Financial Reporting Standards ("IFRS") 5, and (4) requires entities to expand their disclosures about discontinued operations to include more information about assets, liabilities, income and expenses. In addition, this ASU will also require entities to disclose the pre-tax income attributable to a disposal of “an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements.” The ASU is effective prospectively for all disposals (or classifications as held for sale) that occur within annual periods beginning on or after December 15, 2014 and interim periods within those years. Early adoption is permitted. The Company is currently assessing the expected impact, if any, that this ASU will have on the consolidated financial statements.
ASU 2014-09 . In May 2014, the FASB issued ASU 2014-09. The amended guidance under this ASU outlines a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the single comprehensive revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” Entities have the option of using either a full retrospective or modified approach to adopt the guidance. The ASU is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016 (early adoption is not permitted). The Company is currently assessing the expected impact, if any, that this ASU will have on the consolidated financial statements.

7

ASU 2014-15. In August 2014, the FASB issued ASU 2014-15. The amendments in this update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company is currently assessing the expected impact, if any, that this ASU will have on the consolidated financial statements.

2. Acquisitions and Dispositions

2014 Acquisitions and Dispositions

Wise Brothers Acquisition
On August 1, 2014, the Company completed the purchase of Wise Brother Media, Inc. for $5.5 million in cash (the "Wise Brothers Acquisition"). The total purchase price is subject to an increase if certain future conditions are met as detailed in the purchase agreement. The Company has estimated the fair value of the contingent consideration to be less than $0.2 million as of September 30, 2014 . Any future change in the estimated fair value of the contingent consideration will be recorded in the Company's results of operations in the period of such change.
Revenues attributable to the assets acquired in the Wise Brothers Acquisition were not material to the Company’s condensed consolidated statement of operations for the three or nine months ended September 30, 2014 .
The table below summarizes the preliminary purchase price allocation in the Wise Brothers Acquisition (dollars in thousands):
Allocation
Amount
Property and equipment
$
50

Deferred income taxes
100

Other intangible assets
5,500

Current liabilities
(75
)
Other liabilities
(75
)
Total purchase price
$
5,500

The definite-lived intangible assets acquired in the Wise Brothers Acquisition are being amortized in relation to the expected economic benefits of such assets over their estimated useful lives and consist of the following (dollars in thousands):
Description
Estimated Useful Life in Years
Fair Value
Programming content
4
$
5,500


2013 Acquisitions and Dispositions

Green Bay Purchase
On December 31, 2013, the Company completed the purchase of five radio stations in Green Bay, Wisconsin from Clear Channel Communications, Inc. ("Clear Channel") for $17.6 million in cash (the "Green Bay Purchase"). The Company had been operating these stations under a local marketing agreement ("LMA") with Clear Channel since April 10, 2009.
Revenues attributable to the stations acquired in the Green Bay Purchase were not material to the Company’s consolidated statement of operations for the three or nine months ended September 30, 2014 .

8

The table below summarizes the purchase price allocation in the Green Bay Purchase (dollars in thousands):
Allocation
Amount
Property and equipment
$
1,111

Broadcast licenses
4,354

Goodwill
2,637

Fair value of exercised put option
9,534

Total purchase price
$
17,636

The material assumptions utilized in the valuation of intangible assets acquired and liabilities assumed include expected overall future market revenue growth rates for the residual year of approximately 2.5% and a weighted average cost of capital of 10.0% . Goodwill is equal to the difference between the purchase price and the value assigned to the tangible and intangible assets acquired and liabilities assumed. All of the acquired goodwill balance is deductible for tax purposes.
During the nine months ended September 30, 2014 , the Company recorded a $2.6 million purchase accounting adjustment to reflect the Company's final determination of the fair value of broadcast licenses upon the date of acquisition.
WestwoodOne Acquisition
On December 12, 2013, Cumulus completed the acquisition of WestwoodOne, Inc. (formerly known as Dial Global, Inc., "WestwoodOne"), an independent, full-service radio network company offering news, sports, formats, prep services, talk and music programming, jingles and imaging, and special events, as well as national advertising sales representation (the "WestwoodOne Acquisition"). The WestwoodOne Acquisition added sports, news, talk, music and programming services content - enabling the Company to provide an even broader array of programming content to approximately 10,000 U.S. radio stations, other media platforms and international platforms. Content acquired through the WestwoodOne Acquisition included NFL, NCAA basketball, NASCAR, CBS News and other popular programming.
In connection with the WestwoodOne Acquisition, all of the issued and outstanding shares of capital stock of WestwoodOne were automatically canceled and converted into the right to receive an aggregate of approximately $45.0 million in cash, and WestwoodOne repaid all of its outstanding indebtedness. The payment of the purchase price to complete the WestwoodOne Acquisition (including the cash used to repay approximately $215.0 million of WestwoodOne’s outstanding indebtedness) was funded from cash on hand, which included $235.0 million in cash proceeds from the Townsquare Transaction (defined below). As a result of the WestwoodOne Acquisition, WestwoodOne became a wholly owned subsidiary of the Company.
Although the WestwoodOne Acquisition was not subject to the pre-closing notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act, the Antitrust Division of the Department of Justice (“DOJ”) is conducting a review of the transaction. Pursuant to an agreement entered into at the closing of the WestwoodOne Acquisition, $22.5 million of the purchase price was placed in escrow (the “Escrow Fund”) pending the completion of the DOJ investigation. The Escrow Fund will be available to compensate Cumulus for expenses in defending the investigation and to the extent Cumulus incurs any loss as a result of any final remedial action taken by the DOJ with respect to its investigation.
Revenues of $56.5 million and $190.5 million attributable to WestwoodOne were included in the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2014 , respectively.
Net income attributable to WestwoodOne has not been presented due to the impracticability of obtaining detailed data for the three and nine months ended September 30, 2014 .
The table below summarizes the purchase price allocation in the WestwoodOne Acquisition (dollars in thousands):

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Allocation
Amount
Current assets
$
91,171

Property and equipment
23,714

Other intangibles
150,900

Goodwill
104,912

Other assets
4,946

Current liabilities
(69,144
)
Other liabilities
(46,499
)
Total purchase price
$
260,000

The material assumptions utilized in the valuation of intangible assets acquired and liabilities assumed include expected overall future market revenue growth rates for the residual year of approximately 2.0% and a weighted average cost of capital of 10% . Goodwill is equal to the difference between the purchase price and the value assigned to the tangible and intangible assets acquired and liabilities assumed. The Company is treating the acquisition as a taxable asset acquisition pursuant to Internal Revenue Code Section 338(g). As such, all of the acquired goodwill balance is deductible for income tax purposes.
The definite-lived intangible assets acquired in the WestwoodOne Acquisition are being amortized in relation to the expected economic benefits of such assets over their estimated useful lives and consist of the following (dollars in thousands):
Description
Estimated Useful Life in Years
Fair Value
Affiliate relationships
9
$
150,900

Townsquare Transaction
On November 14, 2013, the Company completed the sale to Townsquare Media, LLC (“Townsquare”) of 53 radio stations in 12 small and mid-sized markets for $235.0 million in cash and the swap with Townsquare of 15 radio stations in two small and mid-sized markets in exchange for five radio stations in Fresno, California (together, the "Townsquare Transaction"). The Company used the cash proceeds from the Townsquare Transaction to fund a portion of the purchase price payable to complete the WestwoodOne Acquisition.
Revenues attributable to the assets acquired in the Townsquare Transaction were not material to the Company’s condensed consolidated statement of operations for the three or nine months ended September 30, 2014 .
The table below summarizes the purchase price allocation in the Townsquare Transaction (dollars in thousands):
Allocation
Amount
Current assets
$
1,860

Property and equipment
6,345

Broadcast licenses
13,500

Goodwill
10,200

Other assets
246

Other intangibles
552

Current liabilities
(520
)
Total purchase price
32,183

Less: Carrying value of stations transferred
(159,053
)
Add: Cash received
235,028

Gain on asset exchange
$
108,158

The material assumptions utilized in the valuation of intangible assets acquired and liabilities assumed included overall future market revenue growth rates for the residual year of approximately 2.0% and a weighted average cost of capital of 10% . Goodwill is equal to the difference between the purchase price and the value assigned to the tangible and intangible assets acquired and liabilities assumed. All of the acquired goodwill balance is deductible for tax purposes.

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During the nine months ended September 30, 2014 , the Company recorded a $3.6 million purchase accounting adjustment to reflect the Company's final determination of the fair value of broadcast licenses upon the date of acquisition.
The definite-lived intangible assets acquired in the Townsquare Transaction are being amortized in relation to the expected economic benefits of such assets over their estimated useful lives and consist of the following (dollars in thousands):
Description
Estimated Useful Life in Years
Fair Value
Advertising relationships
5
$
552

WFME Asset Exchange
On January 8, 2013, the Company completed its previously announced asset exchange (the “WFME Asset Exchange”) with Family Stations, Inc., pursuant to which it exchanged its WDVY station in New York plus $40.0 million in cash for Family Stations’ WFME station in Newark, New Jersey. This asset exchange provided Cumulus with a radio station in the United States’ largest media market, for the national NASH entertainment brand based on the country music lifestyle. The total purchase price is subject to an increase of up to $10.0 million if certain future conditions are met as detailed in the purchase agreement. The Company has estimated the fair value of the contingent consideration to be less than $0.1 million as of each of September 30, 2014 and December 31, 2013. Any future change in the estimated fair value of the contingent consideration will be recorded in the Company’s results of operations in the period of such change.
The table below summarizes the purchase price allocation in the WFME Asset Exchange (dollars in thousands):
Allocation
Amount
Other assets
$
1,460

Goodwill
11,461

Broadcast licenses
27,100

Plant, property, and equipment, net
62

Total purchase price
40,083

Less: Cash consideration
(40,000
)
Less: Carrying value of station transferred
(52
)
Less: Contingent consideration
(31
)
Gain on asset exchange
$
—

The material assumptions utilized in the valuation of intangible assets included overall future market revenue growth rates for the residual year of approximately 2.0% and a weighted average cost of capital of 10.0% . Goodwill was equal to the difference between the purchase price and the value assigned to tangible and intangible assets acquired. All of the goodwill is deductible for tax purposes.
Pamal Broadcasting Asset Purchase
On January 17, 2013, the Company completed the acquisition of WMEZ-FM and WXBM-FM from Pamal Broadcasting Ltd. for a purchase price of $6.5 million (the "Pamal Broadcasting Asset Purchase"). The transaction was part of the Company’s ongoing efforts to focus on radio stations in larger markets and geographically strategic regional clusters.
Revenues attributable to the assets acquired in the Pamal Broadcasting Asset Purchase were not material to the Company’s condensed consolidated statement of operations for the three or nine months ended September 30, 2014 .
The table below summarizes the purchase price allocation in the Pamal Broadcasting Asset Purchase (dollars in thousands):
Allocation
Amount
Plant, property, and equipment, net
$
783

Broadcast licenses
5,700

Total purchase price
$
6,483

Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information assumes the WestwoodOne Acquisition and the Townsquare Transaction occurred as of January 1, 2013. This unaudited pro forma financial information has been prepared based on

11

estimates and assumptions, which management believes are reasonable, and is not necessarily indicative of the consolidated financial position or results of operations that Cumulus would have achieved had either the WestwoodOne Acquisition or the Townsquare Transaction actually occurred on January 1, 2013 or on any other historical date, nor is it reflective of the Company’s expected actual financial position or results of operations for any future period (dollars in thousands):
Unaudited Supplemental
As Reported / Pro Forma Data
Unaudited Supplemental
Pro Forma Data
Three Months Ended September 30,
Nine Months Ended September 30,
Three Months Ended September 30,

Nine Months Ended September 30,
Description
2014
2013
Net revenue
$
313,885

$
934,176

$
313,968

$
917,451

Net income (loss)
2,540

8,408

4,909

(19,432
)
The unaudited pro forma financial information set forth above for the three and nine months ended September 30, 2013 includes adjustments to reflect: (i) depreciation and amortization expense based on the fair value of long-lived assets acquired in the WestwoodOne Acquisition and the Townsquare Transaction; (ii) the elimination of interest expense and the loss on extinguishment of debt in connection with the WestwoodOne Acquisition, as all of WestwoodOne's outstanding indebtedness (including preferred stock) was repaid in connection therewith, and (iii) certain other unaudited pro forma adjustments that would be required to be made to prepare unaudited pro forma financial information under Accounting Standards Codification ("ASC") Topic 805, Business Combinations .
Unaudited pro forma financial information for the Green Bay Purchase, WFME Asset Exchange, Pamal Broadcasting Asset Purchase, and Wise Brothers Acquisition is not required, as such information is not material to the Company's financial statements.

3. Discontinued Operations
On November 14, 2013, the Company completed the Townsquare Transaction. The results of operations associated with the stations disposed of in that transaction have been separately reported within discontinued operations, net of the related tax impact, in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2013 .
For the three and nine months ended September 30, 2013 , (loss) income from discontinued operations was as follows (dollars in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013
Discontinued operations:
Net revenue
$
18,538

$
52,940

Income from discontinued operations before taxes
7,914

21,252

Income tax (expense) benefit
(11,369
)
4,955

(Loss) income from discontinued operations
(3,455
)
26,207

4. Restricted Cash
As of September 30, 2014 and December 31, 2013 , the Company’s balance sheet included approximately $10.3 million and $6.1 million , respectively, in restricted cash, of which $0.6 million relates to securing the maximum exposure generated by automated clearinghouse transactions in the Company's operating bank accounts and as dictated by the Company's bank's internal policies with respect to cash. At September 30, 2014 and December 31, 2013 , the Company held $9.7 million and $5.5 million , respectively, relating to collateralizing standby letters of credit pertaining to certain leases and insurance policies.


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5. Intangible Assets and Goodwill
The following table presents the changes in intangible assets, other than goodwill, during the periods from January 1, 2013 to December 31, 2013 and January 1, 2014 to September 30, 2014 , and balances as of such dates (dollars in thousands):
Indefinite-Lived
Definite-Lived
Total
Intangible Assets:
Balance as of January 1, 2013
$
1,602,373

$
258,303

$
1,860,676

Acquisition
61,730

152,522

214,252

Disposition
(67,766
)
(8,627
)
(76,393
)
Amortization
—

(86,708
)
(86,708
)
Balance as of December 31, 2013
1,596,337

315,490

1,911,827

Purchase price allocation adjustments
963

—

963

Acquisition
—

6,066

6,066

Disposition
(585
)
(70
)
(655
)
Amortization
—

(60,081
)
(60,081
)
Balance as of September 30, 2014
$
1,596,715

$
261,405

$
1,858,120

The following table presents the changes in goodwill and accumulated impairment losses during the periods from January 1, 2014 to September 30, 2014 and January 1, 2013 to September 30, 2013 , and balances as of such dates (dollars in thousands):
Goodwill:
2014
2013
Balance as of January 1:
Goodwill
$
1,586,482

$
1,525,335

Accumulated impairment losses
(329,741
)
(329,741
)
Subtotal
1,256,741

1,195,594

Acquisition
—

11,461

Purchase price allocation adjustments
(606
)
(1,889
)
Disposition
(616
)
(213
)
Balance as of September 30:
Goodwill
1,585,260

1,534,694

Accumulated impairment losses
(329,741
)
(329,741
)
Total
$
1,255,519

$
1,204,953

The Company has significant intangible assets recorded comprised primarily of broadcast licenses and goodwill acquired through acquisitions. The Company performs its annual impairment testing of broadcast licenses and goodwill during the fourth quarter and on an interim basis if events or circumstances indicate that broadcast licenses or goodwill may be impaired. The calculation of the fair value of each reporting unit is prepared using an income approach and discounted cash flow methodology. If the carrying value exceeds the estimate of fair value, the Company calculates impairment as the excess of the carrying value of goodwill over its estimated fair value and charges the impairment to results of operations in the period in which the impairment occurred. The Company reviews the carrying value of its definite-lived intangible assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no triggering events as of September 30, 2014 to necessitate the test as fair value exceeded carrying value.

6. Derivative Financial Instruments
The Company’s derivative financial instruments consist of the following:
Interest Rate Cap
On December 8, 2011, the Company entered into an interest rate cap agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), to limit the Company’s exposure to interest rate risk. The interest rate cap has an aggregate notional amount of $71.3 million . The agreement caps the LIBOR-based variable interest rate component of the Company’s long-term debt at a maximum of 3.0% on an equivalent amount of the Company’s term loans. The unaudited condensed consolidated balance
sheets as of September 30, 2014 and December 31, 2013 include long term-assets of less than $0.1 million attributable to the fair value of the interest rate cap. The Company reported interest expense of less than $0.1 million during the three months ended September 30, 2014 and 2013 , respectively, attributed to the change in fair value adjustment. The interest rate cap matures on December 8, 2015 .
The Company does not utilize financial instruments for trading or other speculative purposes.
Green Bay Option
On April 10, 2009, Clear Channel and the Company entered into an LMA pursuant to which the Company was responsible for operating ( i.e ., programming, advertising, etc.) five radio stations in Green Bay, Wisconsin, for a monthly fee payable to Clear Channel of approximately $0.2 million , in exchange for the Company retaining the operating profits from managing the radio stations. In 2013, Clear Channel exercised the put option contained in this LMA, which required the Company to purchase the five Green Bay radio stations subject to the LMA for $17.6 million (the fair value of those radio stations at the time of execution of the LMA) ("the Green Bay Option"). On December 31, 2013, the Company completed this acquisition (See Note 2 "Acquisitions and Dispositions").
The Company accounted for the Green Bay Option as a derivative contract. Accordingly, the fair value of the Green Bay Option was recorded as a liability with subsequent changes in the fair value recorded through earnings through the closing of the acquisition. The fair value of the Green Bay Option was determined using inputs that were supported by little or no market activity (a “Level 3” measurement). The fair value represented an estimate of the amount that the Company would have been required to pay if the option were transferred to another party as of the date of the valuation.
The location and fair value of derivatives in the unaudited condensed consolidated balance sheets are shown in the following table (dollars in thousands):
Fair Value
Derivative Instruments
Balance Sheet Location
September 30, 2014
December 31, 2013
Derivatives not designated as hedging instruments:
Interest Rate Cap
Other assets
$
—

$
22

Total
$
—

$
22

The location and effect of derivatives in the unaudited condensed consolidated statements of operations are shown in the following table (dollars in thousands):
Recognized as Derivatives
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
Derivative Instruments
Statement of Operations Location
2014
2013
2014
2013
Interest Rate Cap
Interest expense
$
—

$
42

$
21

$
15

Green Bay Option
Loss (gain) on derivative instrument
—

172

—

(2,672
)
Total
$
—

$
214

$
21

$
(2,657
)

7. Long-Term Debt
The Company’s long-term debt consisted of the following as of September 30, 2014 and December 31, 2013 (dollars in thousands):
September 30, 2014
December 31, 2013
Term Loan and Securitization Facility:
Term loan
$
1,953,875

$
2,025,000

Securitization facility
—

25,000

Less: term loan discount
(29,888
)
(33,107
)
Total Term Loan and Securitization Facility
1,923,987

2,016,893

7.75% senior notes
610,000

610,000

Less: Current portion of long-term debt
—

(5,937
)
Long-term debt, net
$
2,533,987

$
2,620,956

Amended and Restated Credit Agreement
On December 23, 2013, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), among the Company, Cumulus Media Holdings Inc., a direct wholly-owned subsidiary of the Company (“Cumulus Holdings”), as borrower, and certain lenders and agents. The Credit Agreement consists of a $2.025 billion term loan (the “Term Loan”) maturing in December 2020 and a $200.0 million revolving credit facility (the “Revolving Credit Facility”) maturing in December 2018. Under the Revolving Credit Facility, up to $30.0 million of availability may be drawn in the form of letters of credit.
Term Loan borrowings and borrowings under the Revolving Credit Facility bear interest, at the option of Cumulus Holdings, based on the Base Rate (as defined below) or the London Interbank Offered Rate (“LIBOR”), in each case plus 3.25% on LIBOR-based borrowings and 2.25% on Base Rate-based borrowings. LIBOR-based borrowings are subject to a LIBOR floor of 1.0% under the Term Loan. Base Rate-based borrowings are subject to a Base Rate Floor of 2.0% under the Term Loan. Base Rate is defined, for any day, as the fluctuating rate per annum equal to the highest of the (i) Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1.0% , (ii) prime commercial lending rate of JPMorgan Chase Bank, N.A., as established from time to time, and (iii) 90 day LIBOR plus 1.0% . Amounts outstanding under the Term Loan amortize at a rate of 1.0% per annum of the original principal amount of the Term Loan, payable quarterly, commencing March 31, 2014, with the balance payable on the maturity date.

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At September 30, 2014 , the Term Loan bore interest at 4.25% per annum.
The representations, covenants and events of default in the Credit Agreement 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 comply with (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 the Company or any of its restricted subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use one or more of, any material Federal Communications Commission ("FCC") licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the 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 Credit Agreement and the ancillary loan documents as a secured party.
In the event amounts are outstanding under the Revolving Credit Facility or any letters of credit are outstanding that have not been collateralized by cash, the Credit Agreement requires compliance with a consolidated first lien net leverage ratio covenant as of the end of each quarter. The required ratio at September 30, 2014 was 5.75 to 1. The ratio periodically decreases until it reaches 4.00 to 1 on March 31, 2018. As of September 30, 2014 , the Company was in compliance with all of its covenants under the Credit Agreement.
Certain mandatory prepayments on the Term Loan are required upon the occurrence of specified events, including upon the incurrence of certain additional indebtedness, upon the sale of certain assets and upon the occurrence of certain condemnation or casualty events, and from excess cash flow.
The Company’s, Cumulus Holdings’ and their respective restricted subsidiaries’ obligations under the Credit Agreement are collateralized by a first priority lien on substantially all of the Company’s, Cumulus Holdings’ and their respective restricted subsidiaries’ assets (excluding the Company’s accounts receivable collateralizing the Company's revolving accounts receivable securitization facility (the “Securitization Facility”) with General Electric Capital Corporation (“GE”) as described below) in which a security interest may lawfully be granted, including, without limitation, intellectual property and substantially all of the capital stock of the Company’s direct and indirect domestic wholly-owned subsidiaries and 66% of the capital stock of any future first-tier foreign subsidiaries. In addition, Cumulus Holdings’ obligations under the Credit Agreement are guaranteed by the Company and substantially all of its restricted subsidiaries, other than Cumulus Holdings.
At September 30, 2014 , the Company had $1.954 billion outstanding under the Term Loan and no amounts outstanding under the Revolving Credit Facility.
7.75% Senior Notes
On May 13, 2011, the Company issued $610.0 million aggregate principal amount of its 7.75% Senior Notes due 2019 (the " 7.75% Senior Notes"). Proceeds from the sale of the 7.75% Senior Notes were used to, among other things, repay the $575.8 million outstanding under the term loan facility under the Company's prior credit agreement.
On September 16, 2011, the Company and Cumulus Holdings 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 Cumulus Holdings of all obligations of the Company; (ii) substitution of Cumulus Holdings for the Company as issuer; (iii) release of the Company from all obligations as original issuer; and (iv) Company’s guarantee of all of Cumulus Holdings’ obligations, in each case under the indenture and the 7.75% Senior Notes.
Interest on the 7.75% Senior Notes is payable on each May 1 and November 1 of each year. The 7.75% Senior Notes mature on May 1, 2019 .
Cumulus Holdings, as issuer of the 7.75% Senior Notes, may redeem all or part of the 7.75% Senior Notes at any time on or after May 1, 2015. At any time prior to May 1, 2014, Cumulus Holdings may redeem up to 35.0% of the 7.75% Senior Notes using the proceeds from certain equity offerings. At any time prior to May 1, 2015, Cumulus Holdings may redeem some or all of the 7.75% Senior Notes at a price equal to 100% of the principal amount, plus a “make-whole” premium. If Cumulus Holdings sells certain assets or experiences specific kinds of changes in control, it will be required to make an offer to purchase the 7.75% Senior Notes.
In connection with the substitution of Cumulus Holdings as the issuer of the 7.75% Senior Notes, the Company has also guaranteed the 7.75% Senior Notes. In addition, each existing and future domestic restricted subsidiary that guarantees the Company’s indebtedness, Cumulus Holdings’ indebtedness or indebtedness of the Company’s subsidiary guarantors (other than the Company’s subsidiaries that hold the licenses for the Company’s radio stations) guarantees, or will guarantee, the 7.75% Senior Notes. The 7.75% Senior Notes are senior unsecured obligations of Cumulus Holdings and rank equally in right of

14

payment to all existing and future senior unsecured debt of Cumulus Holdings and senior in right of payment to all future subordinated debt of Cumulus Holdings. The 7.75% Senior Notes guarantees are the Company’s and the other guarantors’ senior unsecured obligations and rank equally in right of payment to all of the Company’s and the other guarantors’ existing and future senior debt and senior in right of payment to all of the Company’s and the other guarantors’ future subordinated debt. The 7.75% Senior Notes and the guarantees are effectively subordinated to any of Cumulus Holdings’, the Company’s or the guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt. In addition, the 7.75% Senior Notes and the guarantees are structurally subordinated to all indebtedness and other liabilities, including preferred stock, of the Company’s non-guarantor subsidiaries, including all of the liabilities of the Company’s and the guarantors’ foreign subsidiaries and the Company’s subsidiaries that hold the licenses for the Company’s radio stations.
For the three and nine months ended September 30, 2014 , the Company recorded an aggregate of $2.3 million and $7.0 million , respectively, of amortization of debt discount and debt issuance costs related to its Term Loan, Securitization Facility and 7.75% Senior Notes. For the three and nine months ended September 30, 2013 , the Company recorded an aggregate of $2.3 million and $7.5 million of amortization of debt discount and debt issuance costs related to its first lien term loan and second lien term loan under the Company's prior credit agreement and 7.75% Senior Notes.
Accounts Receivable Securitization Facility
On December 6, 2013, the Company entered into a 5 -year, $50.0 million Securitization Facility with GE, as a lender, as swingline lender and as administrative agent (together with any other lenders party thereto from time to time, the “Lenders”).
In connection with the entry into the Securitization Facility, pursuant to a Receivables Sale and Servicing Agreement, dated as of December 6, 2013 (the “Sale Agreement”), certain subsidiaries of the Company (collectively, the “Originators”) may sell and/or contribute their existing and future accounts receivable (representing all of the Company’s accounts receivable) to a special purpose entity and wholly owned subsidiary of the Company (the “SPV”). The SPV may thereafter make borrowings from the Lenders, which borrowings will be secured by those receivables, pursuant to a Receivables Funding and Administration Agreement, dated as of December 6, 2013 (the “Funding Agreement”). Cumulus Holdings services the accounts receivable on behalf of the SPV.
Advances available under the Funding Agreement at any time are subject to a borrowing base determined based on advance rates relating to the value of the eligible receivables held by the SPV at that time. The Securitization Facility matures on December 6, 2018, subject to earlier termination at the election of the SPV. Advances bear interest based on either LIBOR plus 2.50% or the Index Rate (as defined in the Funding Agreement) plus 1.00% . The SPV is also required to pay a monthly fee based on any unused portion of the Securitization Facility. The Securitization Facility contains representations and warranties, affirmative and negative covenants, and events of default that are customary for financings of this type.
At September 30, 2014 , there were no amounts outstanding under the Securitization Facility.
8. Fair Value Measurements
The three levels of the fair value hierarchy to be applied to financial instruments when determining fair value are described below:
Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access;
Level 2 — Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and
Level 3 — Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s financial assets and liabilities are measured at fair value on a recurring basis and non-financial assets and liabilities are measured at fair value on a non-recurring basis. Fair values as of September 30, 2014 and December 31, 2013 were as follows (dollars in thousands):
Fair Value Measurements at September 30, 2014 Using
Total Fair
Value
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial assets:
Equity interest in Pulser Media (2)
$
10,105

$
—

$
—

$
10,105

Total assets
$
10,105

$
—

$
—

$
10,105

Financial liabilities:
Other current liabilities
Contingent consideration (3)
$
(181
)
$
—

$
—

$
(181
)
Total liabilities
$
(181
)
$
—

$
—

$
(181
)
Fair Value Measurements at December 31, 2013 Using
Total Fair
Value
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial assets:
Interest Rate Cap (1)
$
22

$
—

$
22

$
—

Equity interest in Pulser Media (2)
104

—

—

104

Total assets
$
126

$
—

$
22

$
104

Financial liabilities:
Other current liabilities
Contingent consideration (3)
$
(31
)
$
—

$
—

$
(31
)
Total liabilities
$
(31
)
$
—

$
—

$
(31
)
(1)
Pursuant to the Interest Rate Cap, the Company pays a fixed interest rate on a $71.3 million notional amount of its term loan. The fair value of the Interest Rate Cap is determined based on a discounted cash flow analysis of the expected future cash flows using observable inputs, including interest rates and yield curves. Derivative valuations incorporate adjustments that are necessary to reflect the credit risk.
(2)
On September 13, 2013, the Company and Pulser Media (the parent company of Rdio) ("Pulser"), entered into a five year strategic promotional partnership and sales arrangement (the "Rdio Agreement"). In exchange for $75 million of promotional commitments over five years, Cumulus will receive a 15% equity interest in Pulser, with the opportunity to earn additional equity, see Note 13 "Commitments and Contingencies". The fair value of the equity interest in Pulser was determined using inputs that are supported by little or no market activity (a Level 3 measurement). At September 30, 2014 the fair value of the equity interest in Pulser approximated its cost basis and the Company determined that the investment was not impaired.
(3)
The fair value of the contingent consideration was determined using inputs that are supported by little or no market activity (a Level 3 measurement). Contingent consideration represents the fair value of the additional cash consideration potentially payable as part of the WFME Asset Exchange and Wise Brothers Acquisition. See Note 2 “Acquisitions and Dispositions”.
The assets associated with the Company’s Interest Rate Cap are measured within Level 2 of the fair value hierarchy. To estimate the fair value of the Interest Rate Cap, the Company used an industry standard cash valuation model, which utilizes a discounted cash flow approach, with all significant inputs derived from or corroborated by observable market data. See Note 6, “Derivative Financial Instruments.”

16

The reconciliation below contains the components of the change in fair value associated with the equity interest in Pulser from January 1, 2014 to September 30, 2014 (dollars in thousands):
Description
Equity Interest in Pulser
Fair value balance at January 1, 2014
$
104

Add: Additions to equity interest in Pulser
10,001

Fair value balance at September 30, 2014
$
10,105

The reconciliation below contains the components of the change in continuing contingency associated with the contingent consideration from January 1, 2014 to September 30, 2014 (dollars in thousands):
Description
Contingent Consideration
Fair value balance at January 1, 2014
$
(31
)
Add: Wise Brothers Acquisition
(150
)
Fair value balance at September 30, 2014
$
(181
)
Quantitative information regarding the significant unobservable inputs related to the WFME Asset Exchange contingent consideration as of September 30, 2014 was as follows (dollars in thousands):
Fair Value
Valuation Technique
Unobservable Inputs
$
31

Income Approach
Total term
5 years

Conditions
3

Bond equivalent yield discount rate
0.1
%
Significant increases (decreases) in any of the inputs in isolation would result in a lower (higher) fair value measurement.
Quantitative information regarding the significant unobservable inputs related to the Wise Brothers Acquisition contingent consideration as of September 30, 2014 was as follows (dollars in thousands):
Fair Value
Valuation Technique
Unobservable Inputs
$
150

Income Approach
Total term
2 years

Conditions
4

Significant increases (decreases) in any of the inputs in isolation would result in a lower (higher) fair value measurement.
The following table shows the gross amount and fair value of the Company’s Term Loan, Securitization Facility and 7.75% Senior Notes (dollars in thousands):
September 30, 2014
December 31, 2013
Term Loan:
Carrying value
$
1,953,875

$
2,025,000

Fair value - Level 2
1,914,798

2,025,000

Securitization Facility:
Carrying value
$
—

$
25,000

Fair value - Level 2
—

25,000

7.75% Senior Notes:
Carrying value
$
610,000

$
610,000

Fair value - Level 2
620,675

641,598

As of September 30, 2014 , the Company used trading prices of 98.00% to calculate the fair value of the Term Loan, and 101.75% to calculate the fair value of the 7.75% Senior Notes.
As of December 31, 2013 , the Company used trading prices of 100.00% to calculate the fair value of the Term Loan and the Securitization Facility, and 105.18% to calculate the fair value of the 7.75% Senior Notes.


17

9. Stockholders’ Equity
The Company is authorized to issue an aggregate of 1,450,644,871 shares of stock divided into four classes consisting of: (i) 750,000,000 shares designated as Class A common stock, (ii) 600,000,000 shares designated as Class B common stock, (iii) 644,871 shares designated as Class C common stock and (iv) 100,000,000 shares of preferred stock, each with a par value of $0.01 per share.
On October 16, 2013, the Company issued and sold 18,860,000 shares of its Class A common stock in an underwritten public offering, which included the full exercise of the underwriter’s over allotment option to purchase 2,460,000 shares, at a price of $5.00 per share. The Company received net proceeds after underwriting discounts and commissions and estimated offering expenses of $89.8 million and used approximately $78.0 million of the net proceeds from the offering to redeem all then-outstanding shares of the Company’s Series B preferred stock, including accrued and unpaid dividends. The remaining net proceeds from the offering were placed in the Company’s corporate treasury for general corporate purposes, and are being used from time to time for, among other things, repayment of debt, capital expenditures, the financing of possible business expansions and acquisitions, increasing the Company’s working capital and the financing of ongoing operating expenses and overhead.
Common Stock
Except with regard to voting and conversion rights, shares of Class A, Class B and Class C common stock are identical in all respects. The preferences, qualifications, limitations, restrictions, and the special or relative rights in respect of the common stock and the various classes of common stock are as follows:

•
Voting Rights. The holders of shares of Class A common stock are entitled to one vote per share on any matter submitted to a vote of the stockholders of the Company, and the holders of shares of Class C common stock are entitled to ten votes for each share of Class C common stock held. Generally, the holders of shares of Class B common stock are not entitled to vote on any matter. However, holders of Class B common stock and Class C common stock are entitled to a separate class vote on any amendment or modification of any specific rights or obligations of the holders of Class B common stock or Class C common stock, respectively, that does not similarly affect the rights or obligations of the holders of Class A common stock. The holders of Class A common stock and of Class C common stock vote together, as a single class, on all matters submitted to a vote to the stockholders of the Company.

•
Conversion. Each holder of Class B common stock and Class C common stock is entitled to convert at any time all or any part of such holder’s shares into an equal number of shares of Class A common stock; provided, however, that to the extent that such conversion would result in the holder holding more than 4.99% of the Class A common stock following such conversion, the holder will first be required to deliver to the Company an ownership certification to enable the Company to (a) determine that such holder does not have an attributable interest in another entity that would cause the Company to violate applicable FCC rules and regulations and (b) obtain any necessary approvals from the FCC or the Department of Justice. During the nine months ended September 30, 2014 , all of the approximately 3.3 million shares of outstanding Class B common stock were converted into shares of Class A common stock.
After payment of dividends to the holders of any outstanding shares of Series B Preferred Stock, the holders of all classes of common stock are entitled to share ratably in any dividends that may be declared by the board of directors of the Company.
2009 Warrants
In June 2009, in connection with the execution of an amendment to the Company's then-outstanding credit agreement, the Company issued warrants to the lenders thereunder that allow them to acquire up to 1.3 million shares of Class A common stock at an exercise price of $1.17 per share (the “2009 Warrants”). The 2009 Warrants expire on June 29, 2019. The number of shares of Class A common stock issuable upon exercise of the 2009 Warrants is subject to adjustment in certain circumstances, including upon the payment of a dividend in shares of Class A common stock. At September 30, 2014 , 0.5 million 2009 Warrants remained outstanding.

18

Equity Held in Reserve
Pursuant to the agreement governing the Company's acquisition of Citadel Broadcasting Company ("Citadel") in 2011 (the "Citadel Merger"), warrants to purchase 2.4 million shares of the Company’s common stock were reserved for potential future issuance in connection with the settlement of certain remaining allowed, disputed or not reconciled claims related to Citadel's bankruptcy. As part of the June 2014 completion of proceedings related to the Citadel Bankruptcy, the 2.4 million shares were issued for $25.0 million from treasury stock. The equity held in reserve was included in additional paid-in-capital on the accompanying unaudited condensed consolidated balance sheet at December 31, 2013.
Company Warrants
As a component of the Citadel Merger and the related financing transactions, the Company issued warrants to purchase an aggregate of 71.7 million shares of Class A common stock (the "Company Warrants") under a warrant agreement dated September 16, 2011 (the "Warrant Agreement"). The Company Warrants are exercisable at any time prior to June 3, 2030 at an exercise price of $0.01 per share. The exercise price of the Company Warrants is not subject to any anti-dilution protection, other than standard adjustments in the case of stock splits, dividends and the like. Pursuant to the terms and conditions of the Warrant Agreement, upon the request of a holder, the Company has the discretion to issue, upon exercise of the Company Warrants, shares of Class B common stock in lieu of an equal number of shares of Class A common stock and, upon request of a holder and at the Company’s discretion, the Company has the right to exchange such warrants to purchase an equivalent number of shares of Class B common stock for outstanding warrants to purchase shares of Class A common stock.
Conversion of the Company Warrants is subject to compliance with applicable FCC regulations, and the Company Warrants are exercisable provided that ownership of the Company’s securities by the holder does not cause the Company to violate applicable FCC rules and regulations relating to foreign ownership of broadcasting licenses.
Holders of Company Warrants are entitled to participate ratably in any distributions on the Company’s common stock on an as-exercised basis. No distribution will be made to holders of Company Warrants or common stock if (i) an FCC ruling, regulation or policy prohibits such distribution to holders of Company Warrants or (ii) the Company’s FCC counsel opines that such distribution is reasonably likely to cause (a) the Company to violate any applicable FCC rules or regulations or (b) any holder of Company Warrants to be deemed to hold an attributable interest in the Company.
During the three months ended September 30, 2014 , approximately 0.3 million Company Warrants were converted into shares of Class A common stock. At September 30, 2014 , 2.2 million Company Warrants remained outstanding.
Crestview Warrants
Also on September 16, 2011, but pursuant to a separate warrant agreement, the Company issued warrants to purchase 7.8 million shares of Class A common stock with an exercise price, as adjusted to date, of $4.34 per share (the "Crestview Warrants"). The Crestview Warrants are exercisable until September 16, 2021, and the per share exercise price is subject to standard weighted average adjustments in the event that the Company issues additional shares of common stock or common stock derivatives for less than the fair market value per share, as defined in the Crestview Warrants, as of the date of such issuance. In addition, the number of shares of Class A common stock issuable upon exercise of the Crestview Warrants, and the exercise price of the Crestview Warrants, are subject to adjustment in the, case of stock splits, dividends and the like. As of September 30, 2014 , all 7.8 million Crestview Warrants remained outstanding.


19

10. Stock-Based Compensation Expense
On February 16, 2012, the Company granted 161,724 shares of time-vesting restricted Class A common stock, with an aggregate grant date fair value of $0.6 million , to the non-employee directors of the Company with a cliff vesting term of one year. In addition, on February 16, 2012, the Company granted time-vesting stock options to purchase 1.4 million shares of Class A common stock to certain employees, with an aggregate grant date fair value of $3.3 million . The options have an exercise price of $4.34 per share, with 30% of the awards having vested on each of September 16, 2012 and February 16, 2013, and 20% having vested on February 16, 2014 and the final 20% vesting on February 16, 2015.
On December 27, 2012, the Company issued stock options to an officer of the Company exercisable for 0.8 million shares of Class A common stock with an aggregate grant date fair value of $1.1 million . The options have an exercise price of $4.34 per share, and provide for vesting on each of the first four anniversaries of the date of grant, with 30% of the award vesting on each of the first two anniversaries thereof, and 20% of the award vesting on each of the next two anniversaries thereof.
On May 9, 2013, the Company granted 168,540 shares of time-vesting restricted Class A common stock, with an aggregate grant fair value of $0.6 million , to the non-employee directors of the Company with a cliff vesting term of one year.
On May 22, 2014, the Company granted 93,312 shares of time-vesting restricted Class A common stock, with an aggregate grant fair value of $0.6 million , to the non-employee directors of the Company with a cliff vesting term of one year.
During the three months ended September 30, 2014 , the Company granted 0.3 million stock options with an aggregate grant date fair value of $1.0 million . During the nine months ended September 30, 2014 , the Company granted 0.7 million stock options with an aggregate grant date fair value of $2.7 million . The options range in exercise price from $5.56 to $7.74 per share, and provide for vesting on each of the first four anniversaries of the date of grant, with 30% of the award vesting on each of the first two anniversaries thereof, and 20% of the award vesting on each of the next two anniversaries thereof.
For the three and nine months ended September 30, 2014 , and 2013 , the Company recognized approximately $4.4 million , $12.6 million , $2.3 million and $7.4 million , respectively, in stock-based compensation expense related to equity awards.
As of September 30, 2014 , unrecognized stock-based compensation expense of approximately $30.4 million related to equity awards is expected to be recognized over a weighted average remaining life of 2.42 years. Unrecognized stock-based compensation expense for equity awards will be adjusted for future changes in estimated forfeitures.
The total fair value of restricted stock awards that vested during the three and nine months ended September 30, 2014 was $0.0 million and $2.1 million , respectively. The total fair value of restricted stock awards that vested during each of the three and nine months ended September 30, 2013 was $0.0 million and $1.6 million , respectively. 1.3 million and 0.1 million stock options were exercised during the nine months ended September 30, 2014 and 2013 , respectively.

11. Earnings (Loss) Per Share
For all periods presented, the Company has disclosed basic and diluted earnings (loss) per common share utilizing the two-class method. Basic earnings (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. In accordance with the terms of the Company's certificate of incorporation, the Company allocates undistributed net income (loss) from continuing operations after any allocation for preferred stock dividends between each class of common stock on an equal basis.
Non-vested restricted shares of Class A common stock and the Company Warrants are considered participating securities for purposes of calculating basic weighted average common shares outstanding in periods in which the Company records net income. Diluted earnings (loss) per share is computed in the same manner as basic earnings (loss) per share after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes stock options and certain other warrants to purchase common stock. Antidilutive instruments are not considered in this calculation. Under the two-class method, net income (loss) is allocated to common stock and participating securities to the extent that each security may share in earnings (loss), as if all of the earnings (loss) for the period had been distributed. Earnings (loss) are allocated to each participating security and common shares equally, after deducting dividends declared or accretion on preferred stock. The following table sets forth the computation of basic and diluted earnings (loss) per common share for the three and nine months ended September 30, 2014 and 2013 (amounts in thousands, except per share data):

20

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014
2013
2014
2013
Basic Income (Loss) Per Share
Numerator:
Undistributed net income (loss) from continuing operations
$
2,540

$
10,492

$
8,408

$
(1,059
)
Less:
Dividends declared on redeemable preferred stock
—

4,091

—

9,395

Accretion of redeemable preferred stock
—

486

—

2,474

Participation rights of the Company Warrants in undistributed earnings
25

896

318

—

Participation rights of unvested restricted stock in undistributed earnings
2

12

9

—

Basic undistributed net income (loss) from continuing operations attributable to common shares
$
2,513

$
5,007

$
8,081

$
(12,928
)
Denominator:
Basic weighted average shares outstanding
231,885

179,700

224,075

176,995

Basic undistributed net income (loss) from continuing operations per share--attributable to common shares
$
0.01

$
0.03

$
0.04

$
(0.07
)
Diluted Income (Loss) Per Share:
Numerator:
Undistributed net income (loss) from continuing operations
$
2,540

$
10,492

$
8,408

$
(1,059
)
Less:
Dividends declared on redeemable preferred stock
—

4,091

—

9,395

Accretion of redeemable preferred stock
—

486

—

2,474

Participation rights of the Company Warrants in undistributed net earnings
25

881

313

—

Participation rights of unvested restricted stock in undistributed earnings
2

12

9

—

Basic undistributed net income (loss) from continuing operations attributable to common shares
$
2,513

$
5,022

$
8,086

$
(12,928
)
Denominator:
Basic weighted average shares outstanding
231,885

179,700

224,075

176,995

Effect of dilutive stock options and warrants
1,337

3,432

3,728

—

Diluted weighted average shares outstanding
233,222

183,132

227,803

176,995

Diluted undistributed net income (loss) from continuing operations attributable to common shares
$
0.01

$
0.03

$
0.04

$
(0.07
)
12. Income Taxes
For the three months ended September 30, 2014 , the Company recorded income tax expense of $3.5 million on pre-tax income from continuing operations of $6.0 million , resulting in an effective tax rate for the three months ended September 30, 2014 of approximately 58.3% . For the three months ended September 30, 2013 , the Company recorded income tax expense of $7.0 million on pre-tax income from continuing operations of $17.5 million , resulting in an effective tax rate for the three months ended September 30, 2013 of approximately 40.0% .
The difference between the effective tax rate and the federal statutory rate of 35.0% for the three months ended September 30, 2014 primarily relates to state and local income taxes and changes in the valuation allowance on certain separate company filing jurisdiction net operating losses. For the three months ended September 30, 2013 , the primary differences

21

between the effective tax rate and federal statutory rate of 35.0% relate to state and local income taxes and tax amortization of broadcast licenses and goodwill as well as an allocation of the total tax provision to discontinued operations.
For the nine months ended September 30, 2014 , the Company recorded income tax expense of $6.7 million on pre-tax income from continuing operations of $15.1 million , resulting in an effective tax rate for the nine months ended September 30, 2014 of approximately 44.4% . For the nine months ended September 30, 2013 , the Company recorded an income tax expense of $19.0 million on pre-tax income from continuing operations of $18.0 million , resulting in an effective tax rate for the nine months ended September 30, 2013 of approximately 105.6% .
The difference between the effective tax rate and the federal statutory rate of 35.0% for the nine months ended September 30, 2014 primarily relates to state and local income taxes and changes in the valuation allowance on certain separate company filing jurisdiction net operating losses. For the nine months ended September 30, 2013 , the primary differences between the effective tax rate and federal statutory rate of 35.0% relate to state and local income taxes, tax amortization of broadcast licenses and an allocation of a tax benefit to discontinued operations.
The Company continually reviews the adequacy of the valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740. As of September 30, 2014 , the Company continues to maintain a partial valuation allowance on certain state net operating loss carryforwards for which the Company does not believe they will be able to meet the more likely than not recognition standard for recovery. As of September 30, 2013 , the Company maintained a full valuation allowance on its net deferred tax assets excluding deferred tax liabilities associated with the Company's indefinite lived intangible assets and deferred cancellation of debt income for which no estimated amount of deferred tax assets were available to satisfy. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns as well as future profitability.
We believe our annual effective tax rate before discrete items for fiscal year 2014 will be approximately 47.3% . The difference between the annual estimated effective tax rate and the federal statutory rate of 35% primarily relates to the valuation allowance on certain separate company net operating losses incurred in 2014.
13. Commitments and Contingencies
Future Commitments
Effective December 31, 2009, the Company’s radio music license agreements with the two largest performance rights organizations, The American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”), expired. In January 2010, the Radio Music License Committee (the “RMLC”), which negotiates music licensing fees for most of the radio industry with ASCAP and BMI, filed motions in the New York courts against these organizations on behalf of the radio industry, seeking interim fees and a determination of fair and reasonable industry-wide license fees. During 2010, the courts approved reduced interim fees for ASCAP and BMI. On January 27, 2012, the Federal District Court for the Southern District of New York approved a settlement between the RMLC and ASCAP concerning the fees payable covering the period January 1, 2010 through December 31, 2016. Included in the agreement is a $75.0 million industry fee credit against fees previously paid in 2010 and 2011, with such fees to be credited over the remaining period of the contract. The Company began recognizing the ASCAP credits as a reduction in direct operating expenses on January 1, 2012. On August 28, 2012, the Federal District Court for the Southern District of New York approved a settlement between the RMLC and BMI concerning the fees payable covering the period January 1, 2010 through December 31, 2016. Included in the agreement was a $70.5 million industry fee credit against fees previously paid in 2010 and 2011, with such fees having been made immediately available to the industry.
The radio broadcast industry’s principal ratings service is Nielsen Audio, which publishes surveys for domestic radio markets. Certain of the Company’s subsidiaries have agreements with Nielsen Audio under which they receive programming ratings materials in a majority of their respective markets. The remaining aggregate obligation under the agreements with

22

Nielsen Audio is approximately $136.4 million and is expected to be paid in accordance with the agreements through December 2017.
The Company engages Katz Media Group, Inc. (“Katz”) as its national advertising sales agent. The national advertising agency contract with Katz contains termination provisions that, if exercised by the Company during the term of the contract, would obligate the Company to pay a termination fee to Katz, calculated based upon a formula set forth in the contract.
On September 13, 2013, the Company and Pulser entered into the Rdio Agreement which provides that Cumulus will act as the exclusive promotional agent for Rdio ad products, including display, mobile, in-line audio, synced banners and other digital inventory that may become available from time to time. In exchange for $75.0 million of promotional commitments over five years, Cumulus will receive 15% of the equity interests of Pulser, with the opportunity to earn additional equity in the form of warrants based on the achievement of certain performance milestones over the term of the Rdio Agreement. The Company will record the equity received for services at fair value and will evaluate the investment for impairment in subsequent periods.
The Company is committed under various contractual agreements to pay for broadcast rights that include news services and to pay for executives, talent, research, weather and other services.
The Company from time to time enters into radio network contractual obligations to guarantee a minimum amount of revenue share to contractual counterparties on certain programming in future years. Generally, these guarantees are subject to decreases dependent on clearance targets achieved. As of September 30, 2014 , the Company believes that it will meet such minimum obligations.
On January 2, 2014 (the "Commencement Date”), Merlin Media, LLC (“Merlin”) and the Company entered into an LMA. Under this LMA, the Company is responsible for operating two FM radio stations in Chicago, Illinois, for monthly fees payable to Merlin of approximately $0.3 million , $0.4 million , $0.5 million and $0.6 million in the first, second, third and fourth years following the Commencement Date, respectively, in exchange for the Company retaining the operating profits from these radio stations.
In connection therewith, the Company and Merlin also entered into an agreement pursuant to which the Company has the right to purchase these two FM radio stations until October 4, 2017, for an amount in cash equal to the greater of (i) $70.0 million minus the aggregate amount of monthly fees paid by the Company on or prior to the earlier of the closing date or the date that is four years after the Commencement Date; or (ii) $50.0 million , and Merlin has the right to require the Company to purchase these two FM radio stations at any time during a ten -day period commencing October 4, 2017 for $71.0 million , minus the aggregate amount of monthly fees paid by the Company on or prior to the earlier of the closing date and the date that is four years after the Commencement Date.
The Company determined through its review of the requirements of ASC Topic 810, Consolidation ("ASC 810") that the Company is not the primary beneficiary of the LMA with Merlin, and, therefore consolidation of the stations is not required.
On April 1, 2014, the Company initiated an exit plan for a lease due to a restructuring in connection with the acquisition of WestwoodOne (the "Exit Plan"), which includes charges related to terminated contract costs. In connection with the Exit Plan, the Company recorded restructuring costs of $0.1 million and $5.2 million for the three and nine months ended September 30, 2014 , respectively, which costs are included in corporate expenses in the condensed consolidated statement of operations. As of September 30, 2014 , liabilities related to the Exit Plan of $0.4 million were included in accounts payable and accrued expenses and are expected to be paid within one year and $4.4 million of non-current liabilities are included in other liabilities in the condensed consolidated balance sheet. We anticipate no additional future charges for the Exit Plan other than true-ups to closed facilities lease charges and accretion expense.
On April 25, 2014, the Company entered into an LMA with Universal Media Access, LLC “(Universal”) pursuant to which the Company will be responsible for operating one FM radio station serving San Jose and San Francisco, California for a fixed fee to Universal of approximately $1.4 million each year for two years in exchange for the Company retaining the operating profits from this radio station.
In connection therewith, the Company and Universal also entered into an agreement pursuant to which the Company has the right to purchase the radio station at any time from April 25, 2014 until April 5, 2016 for $14.8 million minus the aggregate amount of monthly LMA fees paid by the Company on or prior to the earlier of the closing date or the date that is 18 months after April 25, 2014. In addition, Universal has the right to require the Company to purchase the station at any time during a ten -day period commencing April 5, 2016 for $14.8 million , minus the aggregate amount of fees paid by the Company on or prior to the earlier of the closing date and the date that is two years after April 25, 2014.

23

The Company determined through its review of the requirements of ASC 810 that the Company is not the primary beneficiary of the LMA with Universal, and, therefore consolidation of the station is not required.
As described in Note 2, “Acquisitions and Dispositions”, the Company may be required to pay additional cash consideration for the acquisitions of WFME in New York and Wise Brothers.
Legal Proceedings
We are currently party to, or a defendant in, various claims or lawsuits that are generally incidental to our business. We also expect that from time to time in the future we will be party to, or a defendant in, various claims or lawsuits that are generally incidental to our business. We expect that we will vigorously contest any such claims or lawsuits and believe that the ultimate resolution of any known claim or lawsuit will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

14. Supplemental Condensed Consolidating Financial Information
At September 30, 2014 , Cumulus (the "Parent Guarantor") and certain of its 100% owned subsidiaries (such subsidiaries, the “Subsidiary Guarantors”) provided guarantees of the obligations of Cumulus Holdings (the "Subsidiary Issuer") under the 7.75% Senior Notes. These guarantees are full and unconditional (subject to customary release provisions) as well as joint and several. Certain of the Subsidiary Guarantors may be subject to restrictions on their respective ability to distribute earnings to Cumulus Holdings or the Parent Guarantor. Not all of the subsidiaries of Cumulus and Cumulus Holdings guarantee the 7.75% Senior Notes (such non-guaranteeing subsidiaries, collectively, the “Subsidiary Non-guarantors”).
The following tables present (i) unaudited condensed consolidating statements of operations for the three and nine months ended September 30, 2014 and 2013 , (ii) unaudited condensed consolidating balance sheets as of September 30, 2014 and December 31, 2013 , and (iii) unaudited condensed consolidating statements of cash flows for the nine months ended September 30, 2014 and 2013 , of each of the Parent Guarantor, Cumulus Holdings, the Subsidiary Guarantors, and the Subsidiary Non-guarantors. The results have been adjusted for discontinued operations (see Note 3 "Discontinued Operations").
Investments in consolidated subsidiaries are held primarily by the Parent Guarantor in the net assets of its subsidiaries and have been presented using the equity method of accounting. The “Eliminations” entries in the following tables primarily eliminate investments in subsidiaries and intercompany balances and transactions. The columnar presentations in the following tables are not consistent with the Company’s business groups; accordingly, this basis of presentation is not intended to present the Company’s financial condition, results of operations or cash flows on a consolidated basis.
Revision to Prior Period Financial Statements
During the fourth quarter of 2013, Cumulus Media Inc. determined that it did not properly classify certain intercompany transactions in its supplemental condensed consolidating financial information footnote in previous 2013 interim periods. Specifically, the Company should have presented the changes in assets and liabilities within operating activities for the Parent Guarantor as intercompany transactions, net within financing activities. There was no impact on the condensed consolidated balance sheet or statement of income.
In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 99, Materiality ), the Company assessed the materiality of the errors and concluded that the errors were not material to any of the Company’s previously issued financial statements. As permitted by the accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ), the Company has presented a revised condensed consolidated statement of cash flows for the nine months ended September 30, 2013 and will revise the interim condensed consolidated statements of cash flows in future quarterly filings.
Reclassifications
Certain account balances in the 2013 periods have been reclassified to conform with classifications currently in use.
In the accompanying unaudited condensed consolidating statements of operations the Company separately presents content costs and other direct operating expenses as operating expense categories. In certain of the Company's historical disclosures, those line items were presented on a combined basis within the direct operating expenses line item in the statement of operations. Content costs consist of all costs related to the licensing, acquisition and development of the Company's programming. Other direct operating expenses consist of expenses related to the distribution and monetization of the Company's content across its platform and overhead expenses. There were no other costs included in direct operating expenses in 2013.

24

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2014
(Dollars in thousands)
(Unaudited)
Cumulus
Media Inc.
(Parent
Guarantor)
Cumulus
Media
Holdings Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Net revenue
$
—

$
125

$
313,760

$
—

$
—

$
313,885

Operating expenses:
Content costs
—

—

106,574

—

—

106,574

Other direct operating expenses
—

—

119,455

409

—

119,864

Depreciation and amortization
—

428

28,715

—

—

29,143

LMA fees
—

—

2,021

—

—

2,021

Corporate expenses (including stock-based compensation expense of $4,399)
—

14,756

—

—

—

14,756

Gain on sale of assets or stations
—

—

(373
)
—

—

(373
)
Total operating expenses
—

15,184

256,392

409

—

271,985

Operating (loss) income
—

(15,059
)
57,368

(409
)
—

41,900

Non-operating (expense) income:
Interest expense
(2,184
)
(34,416
)
—

(47
)
—

(36,647
)
Interest income
—

—

352

—

—

352

Other income, net
—

—

443

—

—

443

Total non-operating (expense) income, net
(2,184
)
(34,416
)
795

(47
)
—

(35,852
)
(Loss) income before income taxes
(2,184
)
(49,475
)
58,163

(456
)
—

6,048

Income tax benefit (expense)
1,427

31,750

(37,008
)
323



(3,508
)
(Loss) income from continuing operations
(757
)
(17,725
)
21,155

(133
)
—

2,540

Earnings (loss) from consolidated subsidiaries
3,297

21,022

(133
)
—

(24,186
)
—

Net income (loss)
$
2,540

$
3,297

$
21,022

$
(133
)
$
(24,186
)
$
2,540












25

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2014
(Dollars in thousands)
(Unaudited)
Cumulus
Media Inc.
(Parent
Guarantor)
Cumulus
Media
Holdings Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Net revenue
$
—

$
354

$
933,822

$
—

$
—

$
934,176

Operating expenses:
Content costs
—

—

316,868

—

—

316,868

Other direct operating expenses
—

—

352,036

1,552

—

353,588

Depreciation and amortization
—

1,346

85,749

—

—

87,095

LMA fees
—

—

5,226

—

—

5,226

Corporate expenses (including stock-based compensation expense of $12,645)
—

53,215

—

—

—

53,215

Gain on sale of assets or stations
—

—

(1,271
)
—

—

(1,271
)
Total operating expenses
—

54,561

758,608

1,552

—

814,721

Operating (loss) income
—

(54,207
)
175,214

(1,552
)
—

119,455

Non-operating (expense) income:
Interest expense
(7,165
)
(101,999
)
—

(216
)
—

(109,380
)
Interest income
—

—

1,024

—

—

1,024

Other income, net
—

—

3,972

—

—

3,972

Total non-operating (expense) income, net
(7,165
)
(101,999
)
4,996

(216
)
—

(104,384
)
(Loss) income before income taxes
(7,165
)
(156,206
)
180,210

(1,768
)
—

15,071

Income tax benefit (expense)
3,168

69,064

(79,677
)
782



(6,663
)
(Loss) income from continuing operations
(3,997
)
(87,142
)
100,533

(986
)
—

8,408

Earnings (loss) from consolidated subsidiaries
12,405

99,547

(986
)
—

(110,966
)
—

Net income (loss)
$
8,408

$
12,405

$
99,547

$
(986
)
$
(110,966
)
$
8,408












26

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2013
(Dollars in thousands)
(Unaudited)
Cumulus
Media Inc.
(Parent
Guarantor)
Cumulus
Media
Holdings
Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Net revenue
$
—

$
917

$
261,618

$
—

$
—

$
262,535

Operating expenses:


Content costs
—

—

65,559

—

—

65,559

Other direct operating expenses
—

—

98,674

528

—

99,202

Depreciation and amortization
—

471

27,143

—

—

27,614

LMA fees
—

—

609

—

—

609

Corporate expenses (including stock-based compensation expense of $2,259)
—

11,757

—

—

—

11,757

Loss on sale of assets or stations
—

—

(5,198
)
—

—

(5,198
)
Gain on derivative instrument
—

—

172

—

—

172

Total operating expenses
—

12,228

186,959

528

—

199,715

Operating (loss) income
—

(11,311
)
74,659

(528
)
—

62,820

Non-operating (expense) income:


Interest expense
(2,378
)
(43,124
)
—

—

—

(45,502
)
Interest income
—

—

308

—

—

308

Other expense, net
—

—

(139
)
—

—

(139
)
Total non-operating (expense) income, net
(2,378
)
(43,124
)
169

—

—

(45,333
)
(Loss) income before income taxes
(2,378
)

(54,435
)
74,828


(528
)
—

17,487

Income tax benefit (expense)
—

—

49,113

(56,108
)
—

(6,995
)
(Loss) income from continuing operations
(2,378
)
(54,435
)
123,941

(56,636
)
—

10,492

(Loss) income from discontinued operations, net of taxes
—

—

(44,094
)
40,639

—

(3,455
)
Earnings (loss) from consolidated subsidiaries
9,415

63,850

(15,997
)
—

(57,268
)
—

Net income (loss)
$
7,037

$
9,415

$
63,850

$
(15,997
)
$
(57,268
)
$
7,037










27

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2013
(Dollars in thousands)
(Unaudited)
Cumulus
Media Inc.
(Parent
Guarantor)
Cumulus
Media
Holdings
Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Net revenue
$
—

$
917

$
749,763

$
—

$
—

$
750,680

Operating expenses:
Content costs
—

—

189,765

—

—

189,765

Other direct operating expenses
—

—

291,035

1,541

—

292,576

Depreciation and amortization
—

1,451

81,363

—

—

82,814

LMA fees
—

—

2,293

—

—

2,293

Corporate expenses (including stock-based compensation expense of $7,393)
—

33,517

—

—

—

33,517

Loss on sale of assets or stations
—

—

(3,662
)
—

—

(3,662
)
Gain on derivative instrument
—

—

(2,672
)
—

—

(2,672
)
Total operating expenses
—

34,968

558,122

1,541

—

594,631

Operating (loss) income
—

(34,051
)
191,641

(1,541
)
—

156,049

Non-operating (expense) income:


Interest expense
(8,186
)
(126,035
)
—

—

—

(134,221
)
Interest income
—

—

942

—

—

942

Loss on early extinguishment of debt
—

(4,539
)
—

—

—

(4,539
)
Other expense, net
—

—

(247
)
—

—

(247
)
Total non-operating (expense) income, net
(8,186
)
(130,574
)
695

—

—

(138,065
)
(Loss) income before income taxes
(8,186
)
(164,625
)
192,336

(1,541
)
—

17,984

Income tax benefit (expense)
—

—

13,276

(32,319
)
—

(19,043
)
(Loss) income from continuing operations
(8,186
)
(164,625
)
205,612

(33,860
)
—

(1,059
)
Income from discontinued operations, net of taxes
—

—

17,795

8,412

—

26,207

Earnings (loss) from consolidated subsidiaries
33,334

197,959

(25,448
)
—

(205,845
)
—

Net income (loss)
$
25,148

$
33,334

$
197,959

$
(25,448
)
$
(205,845
)
$
25,148










28

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2014
(Dollars in thousands, except for share and per share data)
(Unaudited)
Cumulus
Media Inc.
(Parent
Guarantor)
Cumulus
Media
Holdings  Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Assets
Current assets:
Cash and cash equivalents
$
—

$
26,489

$
268

$
—

$
—

$
26,757

Restricted cash
—

10,346

—

—

—

10,346

Accounts receivable, less allowance for doubtful accounts of $5,043
—

—

—

239,578

—

239,578

Trade receivable
—

—

3,733

—

—

3,733

Asset held for sale

—

15,007

—

—

15,007

Prepaid expenses and other current assets
—

24,820

22,203

—

—

47,023

Total current assets
—

61,655

41,211

239,578

—

342,444

Property and equipment, net
—

2,060

222,660

—

—

224,720

Broadcast licenses
—

—

—

1,596,715

—

1,596,715

Other intangible assets, net
—

—

261,405

—

—

261,405

Goodwill
—

—

1,255,519

—

—

1,255,519

Investment in consolidated subsidiaries
616,828

4,160,697

1,121,176

—

(5,898,701
)
—

Intercompany receivables, net
—

84,391

1,399,949

—

(1,484,340
)
—

Other assets
—

44,502

20,559

791

—

65,852

Total assets
$
616,828

$
4,353,305

$
4,322,479

$
1,837,084

$
(7,383,041
)
$
3,746,655

Liabilities and Stockholders’ Equity (Deficit)


Current liabilities:


Accounts payable and accrued expenses
$
—

$
31,689

$
96,197

$
—

$
—

$
127,886

Trade payable
—

—

4,259

—

—

4,259

Total current liabilities
—

31,689

100,456

—

—

132,145

Long-term debt, excluding 7.75% Senior Notes
—

1,923,987

—

—

—

1,923,987

7.75% Senior Notes
—

610,000

—

—

—

610,000

Other liabilities
—

10,430

61,326

—

—

71,756

Intercompany payables, net
83,600

1,160,371

—

240,369

(1,484,340
)
—

Deferred income taxes
—

—

—

475,539

—

475,539

Total liabilities
83,600

3,736,477

161,782

715,908

(1,484,340
)
3,213,427

Stockholders’ equity (deficit):


Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 254,149,893 shares issued and 231,555,276 shares outstanding
2,541

—

—

—

—

2,541

Class C common stock, par value $0.01 per share; 644,871 shares authorized, issued and outstanding
6

—

—

—

—

6

Treasury stock, at cost, 22,594,617 shares
(231,517
)
—

—

—

—

(231,517
)
Additional paid-in-capital
1,595,910

238,672

4,219,656

2,095,935

(6,554,263
)
1,595,910

Accumulated (deficit) equity
(833,712
)
378,156

(58,959
)
(974,759
)
655,562

(833,712
)
Total stockholders’ equity (deficit)
533,228

616,828

4,160,697

1,121,176

(5,898,701
)
533,228

Total liabilities and stockholders’ equity (deficit)
$
616,828

$
4,353,305

$
4,322,479

$
1,837,084

$
(7,383,041
)
$
3,746,655


29

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2013
(Dollars in thousands, except for share and per share data)
(Unaudited)
Cumulus
Media Inc.
(Parent
Guarantor)
Cumulus
Media
Holdings Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Assets
Current assets:
Cash and cash equivalents
$
11,804

$
20,988

$
—

$
—

$
—

$
32,792

Restricted cash
—

6,146

—

—

—

6,146

Accounts receivable, less allowance for doubtful accounts of $5,306
—

—

—

264,805

—

264,805

Trade receivable
—

—

4,419

—

—

4,419

Prepaid expenses and other current assets
—

5,948

62,945

—

—

68,893

Total current assets
11,804

33,082

67,364

264,805

—

377,055

Property and equipment, net
—

3,272

251,430

—

—

254,702

Broadcast licenses
—

—

—

1,596,337

—

1,596,337

Other intangible assets, net
—

—

315,490

—

—

315,490

Goodwill
—

—

1,256,741

—

—

1,256,741

Investment in consolidated subsidiaries
589,163

3,824,690

1,118,952

—

(5,532,805
)
—

Intercompany receivables, net
—

88,227

1,011,218

24,090

(1,123,535
)
—

Other assets
—

46,774

22,440

896

—

70,110

Total assets
$
600,967

$
3,996,045

$
4,043,635

$
1,886,128

$
(6,656,340
)
$
3,870,435

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

$
24,966

$
121,521

$
50

$
—

$
146,537

Trade payable
—

—

3,846

—

—

3,846

Current portion of long-term debt
—

5,937

—

—

—

5,937

Total current liabilities
—

30,903

125,367

50

—

156,320

Long-term debt, excluding 7.75% Senior Notes
—

1,985,956

—

—

—

1,985,956

7.75% Senior Notes
—

610,000

—

—

—

610,000

Secured loan
—

—

—

25,000

—

25,000

Other liabilities
—

10,430

69,483

—

—

79,913

Intercompany payables, net
88,227

769,593

—

265,715

(1,123,535
)
—

Deferred income taxes
—

—

24,095

476,411

—

500,506

Total liabilities
88,227

3,406,882

218,945

767,176

(1,123,535
)
3,357,695

Stockholders’ equity (deficit):
Class A common stock, par value $0.01 per share; 750,000,000 shares authorized; 222,399,019 shares issued and 198,193,819 shares outstanding
2,223

—

—

—

—

2,223

Class B common stock, par value $0.01 per share; 600,000,000 shares authorized; 15,424,944 shares issued and outstanding
154

—

—

—

—

154

Class C common stock, par value $0.01 per share; 644,871 shares authorized, issued and outstanding
6

—

—

—

—

6

Treasury stock, at cost, 24,205,200 shares
(251,193
)
—

—

—

—

(251,193
)
Additional paid-in-capital
1,603,669

223,412

3,983,196

2,092,725

(6,299,333
)
1,603,669

Accumulated (deficit) equity
(842,119
)
365,751

(158,506
)
(973,773
)
766,528

(842,119
)
Total stockholders’ equity (deficit)
512,740

589,163

3,824,690

1,118,952

(5,532,805
)
512,740

Total liabilities, redeemable preferred stock and stockholders’ equity (deficit)
$
600,967

$
3,996,045

$
4,043,635

$
1,886,128

$
(6,656,340
)
$
3,870,435


30

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2014
(Dollars in thousands)
(Unaudited)
Cumulus
Media Inc.
(Parent
Guarantor)
Cumulus Media
Holdings Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Cash flows from operating activities:
Net income (loss)
$
8,408

$
12,405

$
99,547

$
(986
)
$
(110,966
)
$
8,408

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization
—

1,346

85,749

—

—

87,095

Amortization of debt issuance costs/discounts
—

6,886

—

143

—

7,029

Provision for doubtful accounts
—

—

2,468

—

—

2,468

Gain on sale of assets or stations
—

—

(1,271
)
—

—

(1,271
)
Fair value adjustment of derivative instruments
—

21

—

—

—

21

Deferred income taxes
(3,168
)
(69,064
)
79,677

(782
)
—

6,663

Stock-based compensation expense
—

12,645

—

—

—

12,645

(Earnings) loss from consolidated subsidiaries
(12,405
)
(99,547
)
986

—

110,966

—

Changes in assets and liabilities
—

258,974

(275,568
)
(8,375
)
—

(24,969
)
Net cash (used in) provided by operating activities
(7,165
)
123,666

(8,412
)
(10,000
)
—

98,089

Cash flows from investing activities
Proceeds from sale of assets or stations
—

—

15,718

—

—

15,718

Restricted cash
—

(4,200
)
—

—

—

(4,200
)
Acquisition less cash required
—

—

(5,500
)
—

—

(5,500
)
Capital expenditures
—

(134
)
(13,267
)
—

—

(13,401
)
Net cash used in investing activities
—

(4,334
)
(3,049
)
—

—

(7,383
)
Cash flows from financing activities:
Intercompany transactions, net
(5,364
)
(41,365
)
11,729

35,000

—

—

Repayments of borrowings under term loans and revolving credit facilities
—

(71,125
)
—

(35,000
)
—

(106,125
)
Proceeds from borrowings under term loans and revolving credit facilities
—

—

—

10,000

—

10,000

Tax withholding payments on behalf of employees
—

(1,320
)
—

—

—

(1,320
)
Proceeds from exercises of warrants
106

—

—

—

—

106

Proceeds from exercises of options
619

—

—

—

—

619

Deferred financing costs
—

(21
)
—

—

—

(21
)
Net cash (used in) provided by financing activities
(4,639
)
(113,831
)
11,729

10,000

—

(96,741
)
(Decrease) increase in cash and cash equivalents
(11,804
)
5,501

268

—

—

(6,035
)
Cash and cash equivalents at beginning of period
11,804

20,988

—

—

—

32,792

Cash and cash equivalents at end of period
$
—

$
26,489

$
268

$
—

$
—

$
26,757


31

CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2013
(Dollars in thousands)
(Unaudited)
Cumulus Media
Inc.
(Parent
Guarantor)
Cumulus Media
Holdings Inc.
(Subsidiary
Issuer)
Subsidiary
Guarantors
Subsidiary
Non-guarantors
Eliminations
Total
Consolidated
Cash flows from operating activities:
Net income (loss)
$
25,148

$
33,334

$
197,959

$
(25,448
)
$
(205,845
)
$
25,148

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization
—

1,451

85,358

—

—

86,809

Amortization of debt issuance costs/discount
—

7,515

—

—

—

7,515

Provision for doubtful accounts
—

—

2,002

—

—

2,002

Loss on sale of assets or stations
—

—

(3,556
)
—

—

(3,556
)
Loss on early extinguishment of debt
—

4,539

—

—

—

4,539

Fair value adjustment of derivative instruments
—

(27
)
(2,630
)
—

—

(2,657
)
Deferred income taxes
—

—

(14,249
)
23,908

—

9,659

Stock-based compensation expense
—

7,393

—

—

—

7,393

(Earnings) loss from consolidated subsidiaries
(33,334
)
(197,959
)
25,448

—

205,845

—

Changes in assets and liabilities
—

22,787

(33,512
)
1,540

—

(9,185
)
Net cash (used in) provided by operating activities
(8,186
)
(120,967
)
256,820

—

—

127,667

Cash flows from investing activities:
Proceeds from sale of assets or stations
—

—

6,492

—

—

6,492

Restricted cash
—

2,192

—

—

—

2,192

Initial payment of Green Bay Option
—

—

(5,000
)
—

—

(5,000
)
Proceeds from exchange of asset or stations
—

—

(52,685
)
—

—

(52,685
)
Capital expenditures
—

(441
)
(8,007
)
—

—

(8,448
)
Net cash provided by (used in) investing activities
—

1,751

(59,200
)
—

—

(57,449
)
Cash flows from financing activities:
Intercompany transactions, net
(68,787
)
272,658

(203,871
)
—

—

—

Repayments of borrowings under term loans and revolving credit facilities
—

(88,931
)
—

—

—

(88,931
)
Tax withholding payments on behalf of employees
—

(337
)
—

—

—

(337
)
Redemption of Series A preferred stock
(73,150
)
—

—

—

—

(73,150
)
Proceeds from issuance of Series B preferred stock
77,241

—

—

—

—

77,241

Series A Preferred stock dividends
(9,395
)
—

—

—

—

(9,395
)
Proceeds from exercises of warrants
614

—

—

—

—

614

Proceeds from exercise options
64

—

—

—

—

64

Deferred financing costs
—

(204
)
—

—

—

(204
)
Net cash (used in) provided by financing activities
(73,413
)
183,186

(203,871
)
—

—

(94,098
)
(Decrease) increase in cash and cash equivalents
(81,599
)
63,970

(6,251
)
—

—

(23,880
)
Cash and cash equivalents at beginning of period
81,599

—

6,451

—

—

88,050

Cash and cash equivalents at end of period
$
—

$
63,970

$
200

$
—

$
—

$
64,170


32

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

In the following Management's Discussion and Analysis, we provide information regarding the following areas:
l
General Overview;
l
Results of Operations; and
l
Liquidity and Capital Resources.
General
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report. This discussion, as well as various other sections of this quarterly report, contains and refers to statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such statements relate to our intent, belief or current expectations primarily with respect to our future operating, financial and strategic performance. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those contained in or implied by the forward-looking statements as a result of various factors, including, but not limited to, risks and uncertainties relating to the need for additional funds to execute our business strategy, our inability to renew one or more of our broadcast licenses, changes in interest rates, our ability to complete any acquisitions pending from time to time, the timing, costs and synergies resulting from the integration of any completed acquisitions, our ability to eliminate certain costs, our ability to manage rapid growth, the popularity of radio as a broadcasting and advertising medium, changing consumer tastes, any material changes from the preliminary to final purchase price allocations in completed acquisitions, the impact of general economic conditions in the United States or in specific markets in which we currently do, or expect to do, business, industry conditions, including existing competition and future competitive technologies, cancellation, disruptions or postponements of advertising schedules in response to national or world events, our ability to generate revenue from new sources, including technology-based initiatives, the impact of regulatory rules or proceedings that may affect our business, or any acquisitions, from time to time, and other risk factors described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2013 and subsequently filed Quarterly Reports Forms 10-Q. Many of these risks and uncertainties are beyond our control, and the unexpected occurrence or failure to occur of any such events or matters could significantly alter our actual results of operations or financial condition.
For additional information about certain of the matters discussed and described in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, including certain defined terms used herein, see the notes to the accompanying unaudited condensed consolidated financial statements included elsewhere in this quarterly report.
Our Business
We combine high-quality local radio programming with iconic, nationally syndicated media, sports and entertainment brands in order to deliver premium choices for listeners, provide substantial reach for advertisers and create opportunities for shareholders. We believe we are well-positioned in the widening digital audio space through a significant stake in the Rdio digital music service, featuring over 30 million songs on-demand in addition to custom playlists and exclusive curated channels. We are also the leading provider of country music and lifestyle content through our NASH brand, which serves country fans through radio programming, NASH magazine, concerts, licensed products and television/video. Our recent acquisition of WestwoodOne gives us additional scale and an iconic radio industry brand to further syndicate our proprietary content and programming rights onto non-owned radio stations, satellite radio, and new online platforms. WestwoodOne also serves as our brand identity to reach national advertisers, complementing hundreds of well-known Cumulus Radio local sales brands.
We generate revenue through monetization of this programming content and other sources across four major product lines. These are broadcast advertising, digital advertising, political advertising, and non-advertising based license fees.
Broadcast advertising revenue. We generate most of our overall revenue through the sale of commercial advertising time to local, national and network clients across our 460 owned and operated radio stations and approximately 9,000 affiliated radio stations. Local spot advertising is sold by approximately 900 Cumulus employed sales executives across 90 U.S. media markets (including eight of the top ten). National spot advertising for our owned and operated stations is outsourced to Katz Media, which markets itself to advertisers as WestwoodOne Media Sales. Network advertising airing across our owned and operated and affiliated stations is sold by Cumulus employed executives in major regional hubs across the United States under the WestwoodOne Networks brand.

33

Digital advertising revenue. We also generate revenue from the sale of advertising and promotional opportunities  across our streaming audio network, digital commerce platform, websites and mobile applications. We operate the fourth largest streaming audio advertising network in the United States, including owned and operated internet radio simulcast stations, Rdio.com, and other third party internet companies with whom we have advertising reseller agreements. Our digital commerce platform utilizes couponing and discount daily deals to create promotional opportunities for local and national merchants under our Sweetjack, SweetDeals and Incentrev brands. We also sell banner and other display ads across more than 400 local radio station websites, mobile applications, and ancillary custom client microsites.
Political advertising revenue. We generate political advertising revenue across all of our broadcast and digital assets, but highlight it as a separate category to distinguish its highly cyclical nature versus core revenue. Political advertising is generally strongest during even-numbered years, especially in the fourth quarter of such years, when most national and state elections are conducted. In addition to candidate advertising revenue, we also receive orders from special interest and advocacy groups.
License Fees & Other. All other non-advertising based revenue types where the Company participates are aggregated in our License Fee & Other revenue category. This includes cash based fees we receive for content licensing, third party network compensation, proprietary software licensing, subleases and rents, and all other revenue.
Operating Overview
We believe that we have created a leading national audio advertising platform that allows us to leverage and expand upon our strengths, market presence and programming. Specifically we have an extensive radio station portfolio, including a presence in eight of the top 10 markets, and broad diversity in format, listener base, geography, advertiser base and revenue stream, designed to reduce our dependence on any single demographic, region or industry. As the largest pure-play radio broadcaster in the United States, the Company provides exclusive content that is fully distributed through approximately 460 owned and operated stations in 90 U.S. media markets, approximately 9,000 broadcast radio affiliates and numerous digital channels. Our nationwide platform generates premium content distributable through both broadcast and digital platforms, and our scale allows larger, significant investments in the local digital media marketplace enabling us to leverage our local digital platforms and strategies, including our social commerce initiatives, across additional markets. Our websites average over 13.7 million page views from approximately 13.2 million unique users on a monthly basis and stream music to approximately 4.2 million unique users each month. We believe our national platform perspective allows us to optimize our available advertising inventory while providing holistic and comprehensive solutions for our customers.
We further believe that our capital structure provides adequate liquidity and scale for us to operate and grow our current business, as well as pursue and finance potential strategic acquisitions in the future.
Liquidity Considerations
Historically, our principal needs for funds have been for acquisitions, expenses associated with our station, network advertising and corporate operations, capital expenditures, and interest and debt service payments. We believe that our funding needs in the future will be for substantially similar matters.
Our principal sources of funds have primarily been cash flow from operations and borrowings under credit facilities in existence from time to time. Our cash flow from operations is subject to factors such as changes in demand due to shifts in population, station listenership, demographics, audience tastes, and fluctuations in preferred advertising media. In addition, customers may not be able to pay, or may delay payment of, accounts receivable that are owed to us, which risks may be exacerbated in challenging economic periods. In recent periods, management has taken steps to mitigate this risk through heightened collection efforts and enhancements to our credit approval process, although no assurances as to the longer-term success of these efforts can be provided. In addition, we believe that our national platform and extensive station portfolio representing a broad diversity in format, listener base, geography, and advertiser base helps us maintain a more stable revenue stream by reducing our dependence on any single demographic, region or industry. We continually monitor our capital structure and from time to time have evaluated, and expect that we will continue to evaluate future opportunities to obtain, other public or private capital from the divestiture of radio stations or other assets that are not a part of, or do not complement, our strategic operations, as well as the issuance of equity and/or debt securities, in each case subject to market and other conditions in existence at the appropriate time. No assurances can be provided that any source of funds would be available when needed on terms acceptable to the Company, or at all.
In furtherance of our strategy, we have recently undertaken a number of transactions to further strengthen our balance sheet and improve our cash flows. On December 23, 2013, we entered into the Amended and Restated Credit Agreement (the "Credit Agreement"). The Credit Agreement consists of a $2.025 billion term loan (the “Term Loan”) maturing in December 2020 and a $200.0 million revolving credit facility (the "Revolving Credit Facility") maturing in December 2018. Under the

34

Revolving Credit Facility, up to $30.0 million of availability may be drawn in the form of letters of credit. Upon entry into the Credit Agreement, we used Term Loan borrowings of $2.025 billion to repay in full all amounts outstanding under the first lien term loan and second lien term loan under our pre-existing credit agreements.
In the event amounts are outstanding under the Revolving Credit Facility or any letters of credit are outstanding that have not been collateralized by cash as of the end of each quarter, the Credit Agreement requires compliance with a consolidated first lien net leverage ratio covenant. The required ratio at September 30, 2014 was 5.75 to 1. The ratio periodically decreases until it reaches 4.00 to 1 on March 31, 2018. As of September 30, 2014 , we were in compliance with all of our covenants under the Credit Agreement.
On December 6, 2013, we entered into a 5-year, $50.0 million revolving accounts receivable securitization facility (the “Securitization Facility”) with General Electric Capital Corporation, as a lender, as swing line lender and as administrative agent (together with any other lenders party thereto from time to time, the “Lenders”). In connection with the entry into the Securitization Facility, pursuant to a Receivables Sale and Servicing Agreement, dated as of December 6, 2013 (the “Sale Agreement”), certain subsidiaries of the Company (collectively, the "Originators") may sell and/or contribute their existing and future accounts receivable to a special purpose entity and wholly owned subsidiary of the Company (the “SPV”). The SPV may thereafter make borrowings from the Lenders, which borrowings are secured by those receivables, pursuant to a Receivables Funding and Administration Agreement, dated as of December 6, 2013 (the “Funding Agreement”).
At September 30, 2014 , our long-term debt consisted of $1.954 billion outstanding under the Term Loan and $610.0 million in 7.75% Senior Notes.
We have assessed the current and expected business climate, our current and expected needs for funds and our current and expected sources of funds and determined, based on our financial condition as of September 30, 2014 , that cash on hand, cash expected to be generated from operating activities and cash expected to be available from various financing sources will be sufficient to satisfy our anticipated financing needs for working capital, capital expenditures, interest and debt service payments, and any repurchases of securities and other debt obligations for at least the next twelve months.
We have significant intangible assets recorded comprised primarily of broadcast licenses and goodwill acquired through acquisitions. We evaluate on an interim basis if events or circumstances indicate that broadcast licenses or goodwill may be impaired. The Company performs its annual impairment testing of broadcast licenses and goodwill during the fourth quarter. This evaluation will encompass a detailed preparation of future projected operating results which will incorporate the consideration of a challenging advertising market being experienced by radio operators in our industry as well as increased macroeconomic volatility in the market that began at the end of the third quarter. Although we did not record any impairment charges during the nine months ended September 30, 2014 we cannot make any assurances that there will not be any impairment charges in any future periods.
Advertising Revenue and Adjusted EBITDA
Our primary source of revenue is the sale of advertising time. Our sales of advertising time are primarily affected by the demand from local, regional and national advertisers which impacts the advertising rates charged by us. Advertising demand and rates are based primarily on the ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by various ratings agencies on a periodic basis. We endeavor to develop strong listener loyalty and we believe that the diversification of our formats and programs helps to insulate us from the effects of changes in the musical tastes of the public with respect to any particular format as a substantial portion of our revenue comes from non-music format and proprietary content. In addition, we believe that the platform that we own and operate, which has increased diversity in terms of format, listener base, geography, advertiser base and revenue stream as a result of our acquisitions and the development of our strategy to focus on radio stations in larger markets and geographically strategic regional clusters, will further reduce our revenue dependence on any single demographic, region or industry.
We strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices up or down based on supply and demand. The optimal number of advertisements available for sale depends on the programming format of a particular radio program. Each sales vehicle has a general target level of on-air inventory available for advertising. This target level of advertising inventory may vary at different times of the day but tends to remain stable over time. We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across each cluster of stations, thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group. In the broadcasting industry, we sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging, instead of for cash. Trade revenue totaled $23.7 million and $18.7 million for the nine months ended September 30, 2014 and 2013 , respectively. Our advertising contracts are generally short-term. We generate most

35

of our revenue from local and regional advertising, which is sold primarily by a station’s sales staff. Local and regional advertising typically represents a majority of our net revenues.
In addition to local advertising revenues, we monetize our available inventory in both national spot and network sales marketplaces using our national platform. To effectively deliver our network advertising for our customers, we distribute content and programming through third party affiliates in order to achieve a broader national audience. Typically, in exchange for the right to broadcast radio network programming, third party affiliates remit a portion of their advertising time, which is then aggregated into packages focused on specific demographic groups and sold by us to our advertiser clients that want to reach the listeners who comprise those demographic groups on a national basis.
Our advertising revenues vary by quarter throughout the year. As is typical with advertising revenue supported businesses, our first calendar quarter typically produces the lowest revenues of a last twelve month period, as advertising generally declines following the winter holidays. The second and fourth calendar quarters typically produce the highest revenues for the year. We continually evaluate opportunities to increase revenues through new platforms, including technology-based initiatives. As a result of those revenue increasing opportunities through new platforms, accelerated by our acquisition of WestwoodOne, our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods, if at all. In addition, as part of this evaluation and our acquisition of WestwoodOne, we also have reorganized and discontinued certain redundant and/or unprofitable content vehicles across our platform which will impact our broadcast revenues in the future.
Adjusted EBITDA is the financial metric utilized by management to analyze the cash flow generated by our business. This measure isolates the amount of income generated by our core operations after the incurrence of corporate, general and administrative expenses. Management also uses this measure to determine the contribution of our core operations, including the corporate resources employed to manage the operations, to the funding of our other operating expenses and to the funding of debt service and acquisitions. In addition, Adjusted EBITDA is a key metric for purposes of calculating and determining our compliance with certain covenants contained in our credit facility.
In deriving this measure, management excludes depreciation, amortization, and stock-based compensation expense, as these do not represent cash payments for activities directly related to our core operations. Management excludes any gain or loss on the exchange or sale of any assets as it does not represent a cash transaction. Management also excludes any gain or loss on derivative instruments as it does not represent a cash transaction nor are they associated with core operations. Expenses relating to acquisitions and restructuring costs are also excluded from the calculation of Adjusted EBITDA as they are not directly related to our core operations. Management excludes any impairment of goodwill and intangible assets as they do not require a cash outlay.
Management believes that Adjusted EBITDA, although not a measure that is calculated in accordance with GAAP, nevertheless is commonly employed by the investment community as a measure for determining the market value of a media company. Management has also observed that Adjusted EBITDA is routinely employed to evaluate and negotiate the potential purchase price for media companies and is a key metric for purposes of calculating and determining compliance with certain covenants in our credit facility. Given the relevance to our overall value, management believes that investors consider the metric to be extremely useful.
Adjusted EBITDA should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure for determining the Company’s operating performance or liquidity that is calculated in accordance with GAAP.
A quantitative reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, follows in this section.

36


Results of Operations
The following selected data from our unaudited condensed consolidated statements of operations and other supplementary data should be referred to while reading the results of operations discussion that follows (dollars in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
% Change
Three Months
Ended
% Change
Nine Months
Ended
2014

2013
2014
2013
STATEMENT OF OPERATIONS DATA:
Net revenue
$
313,885

$
262,535

$
934,176

$
750,680

19.6
%
24.4
%
Content costs
106,574

65,559

316,868

189,765

62.6
%
67.0
%
Other direct operating expenses
119,864

99,202

353,588

292,576

20.8
%
20.9
%
Depreciation and amortization
29,143

27,614

87,095

82,814

5.5
%
5.2
%
LMA fees
2,021

609

5,226

2,293

231.9
%
127.9
%
Corporate expenses (including stock-based compensation expense)
14,756

11,757

53,215

33,517

25.5
%
58.8
%
Gain on sale of assets or stations
(373
)
(5,198
)
(1,271
)
(3,662
)
(92.8
)%
(65.3
)%
Loss (gain) on derivative instrument
—

172

—

(2,672
)
**
**
Operating income
41,900

62,820

119,455

156,049

(33.3
)%
(23.5
)%
Interest expense
(36,647
)
(45,502
)
(109,380
)
(134,221
)
(19.5
)%
(18.5
)%
Interest income
352

308

1,024

942

14.3
%
8.7
%
Loss on early extinguishment of debt
—

—

—

(4,539
)
**
**
Other income (expense), net
443

(139
)
3,972

(247
)
**
**
Income from continuing operations before income taxes
6,048

17,487

15,071

17,984

(65.4
)%
(16.2
)%
Income tax expense
(3,508
)
(6,995
)
(6,663
)
(19,043
)
(49.8
)%
(65.0
)%
Income (loss) from continuing operations
2,540

10,492

8,408

(1,059
)
(75.8
)%
894.0
%
(Loss) income from discontinued operations, net of taxes
—

(3,455
)
—

26,207

**
**
Net income
$
2,540

$
7,037

$
8,408

$
25,148

(63.9
)%
(66.6
)%
KEY FINANCIAL METRIC:


Adjusted EBITDA
$
79,837

$
89,909

$
239,106

$
246,393

(11.2
)%
(3.0
)%
** Calculation is not meaningful.
Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013
Net Revenue
Net revenue consists of gross revenue less agency commissions, third party producer revenue shares and other direct costs. Agency commissions are variable as they are based upon a stated percentage of the Company’s gross billings.
Net revenue for the three months ended September 30, 2014 increased $51.4 million , or 19.6% , to $313.9 million , compared to $262.5 million for the three months ended September 30, 2013 . The increase resulted from increases of $39.1 million , $7.3 million , $3.1 million and $1.9 million in broadcast advertising, digital advertising, political advertising and license fees and other revenue, respectively. These increases were primarily attributable to the addition of the operations of WestwoodOne. The increases were partially offset by decreases in local spot and national spot revenue. The increase in political advertising revenue was due to additional activity associated with mid-term and gubernatorial elections in the current period.
Content Costs
Content costs consist of all costs related to the licensing, acquisition and development of our programming.

37

The following table presents our content costs as a percentage of total net revenue:
Three Months Ended September 30,
2014
2013
Content costs
34.0
%
25.0
%
Content costs for the three months ended September 30, 2014 increased $41.0 million , or 62.6% , to $106.6 million , compared to $65.6 million for the three months ended September 30, 2013 . This increase was primarily attributable to the addition of the operations of WestwoodOne.
Other Direct Operating Expenses
Other direct operating expenses consist of expenses related to the distribution and monetization of our content across our platform and overhead expenses.
Other direct operating expenses for the three months ended September 30, 2014 increased $20.7 million , or 20.8% , to $119.9 million , compared to $99.2 million for the three months ended September 30, 2013 . This increase was primarily attributable to the addition of the operations of WestwoodOne and the LMAs in the Chicago, Dallas and San Jose markets.
Depreciation and Amortization
Depreciation and amortization for the three months ended September 30, 2014 increased $1.5 million , or 5.5% , to $29.1 million , compared to $27.6 million for the three months ended September 30, 2013 . This increase was due to a $2.0 million increase in depreciation expense which was primarily attributable to expense related to the assets of WestwoodOne, offset by a $0.5 million decrease in amortization expense on our definite lived intangible assets, which resulted from the accelerated amortization methodology we have applied since acquisition of these assets that is based on the expected pattern in which the underlying assets' economic benefits are consumed.
Corporate Expenses, Including Stock-based Compensation Expense
Corporate expenses consist primarily of compensation and related costs for our executive, finance, human resources, information technology and legal personnel, and fees for professional services. Professional services are principally comprised of outside legal, audit and consulting services.
Corporate expenses, including stock-based compensation expense, for the three months ended September 30, 2014 increased $3.0 million , or 25.5% , to $14.8 million , compared to $11.8 million for the three months ended September 30, 2013 . This increase was primarily due to a $2.1 million increase in stock-based compensation expense partially driven by stock options granted to employees of WestwoodOne and a $0.9 million increase in other overhead costs.
Interest Expense
Total interest expense for the three months ended September 30, 2014 decreased $8.9 million , or 19.5% , to $36.6 million compared to $45.5 million for the three months ended September 30, 2013 . Interest expense associated with outstanding debt decreased by $8.2 million to $33.5 million as compared to $41.7 million in the prior year period. This decrease was due to lower average indebtedness outstanding resulting from principal repayments and a lower weighted average cost of debt due to the entry into the Credit Agreement in December 2013.
The following summary details the components of our interest expense (dollars in thousands):
Three Months Ended September 30,
2014 vs 2013
2014
2013
$ Change
% Change
7.75% Senior Notes
$
11,819

$
11,819

$
—

—
%
Bank borrowings – term loans and revolving credit facilities
21,651

29,853

(8,202
)
(27.5
)%
Other including debt cost amortization
3,177

3,788

(611
)
(16.1
)%
Change in fair value of interest rate cap
—

42

(42
)
(100.0
)%
Interest expense
$
36,647

$
45,502

$
(8,855
)
(19.5
)%


38

Income Taxes
For the three months ended September 30, 2014 , the Company recorded income tax expense of $3.5 million on pre-tax income from continuing operations of $6.0 million , resulting in an effective tax rate for the three months ended September 30, 2014 of approximately 58.3% . For the three months ended September 30, 2013 , the Company recorded income tax expense of $7.0 million on pre-tax income from continuing operations of $17.5 million , resulting in an effective tax rate for the three months ended September 30, 2013 of approximately 40.0% .
The difference between the effective tax rate and the federal statutory rate of 35.0% for the three months ended September 30, 2014 primarily relates to state and local income taxes and changes in the valuation allowance on certain separate company filing jurisdiction net operating losses. For the three months ended September 30, 2013 , the primary differences between the effective tax rate and federal statutory rate of 35.0% relate to state and local income taxes and tax amortization of broadcast licenses and goodwill as well as an allocation of the total tax provision to discontinued operations.
The Company continually reviews the adequacy of the valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740. As of September 30, 2014 , the Company continues to maintain a partial valuation allowance on certain state net operating loss carryforwards for which the Company does not believe they will be able to meet the more likely than not recognition standard for recovery. As of September 30, 2013 , the Company maintained a full valuation allowance on its net deferred tax assets excluding deferred tax liabilities associated with the Company's indefinite lived intangible assets and deferred cancellation of debt income for which no estimated amount of deferred tax assets were available to satisfy. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns as well as future profitability.
We believe our annual effective tax rate before discrete items for fiscal year 2014 will be approximately 47.3% . The difference between the annual estimated effective tax rate and the federal statutory rate of 35% primarily relates to the valuation allowance on certain separate company net operating losses incurred in 2014.
Adjusted EBITDA
As a result of the factors described above, on an as reported basis, Adjusted EBITDA for the three months ended September 30, 2014 decreased $10.1 million to $79.8 million from $89.9 million for the three months ended September 30, 2013 .
Reconciliation of Non-GAAP Financial Measure
The following table reconciles Adjusted EBITDA to net income (the most directly comparable financial measure calculated and presented in accordance with GAAP) as presented in the accompanying consolidated statements of operations (dollars in thousands):

39

Three Months Ended September 30,
Nine Months Ended September 30,
% Change
Three Months
Ended
% Change
Nine Months
Ended
2014
2013
2014
2013
Net income
$
2,540

$
7,037

$
8,408

$
25,148

(63.9
)%
(66.6
)%
Income tax expense
3,508

6,995

6,663

19,043

(49.8
)%
(65.0
)%
Non-operating expenses, including interest expense
35,852

45,333

104,384

138,065

(20.9
)%
(24.4
)%
LMA fees
2,021

609

5,226

2,293

231.9
%
127.9
%
Depreciation and amortization
29,143

27,614

87,095

82,814

5.5
%
5.2
%
Stock-based compensation expense
4,399

2,259

12,645

7,393

94.7
%
71.0
%
Gain on sale of assets or stations
(373
)
(5,198
)
(1,271
)
(3,662
)
(92.8
)%
(65.3
)%
Loss (gain) on derivative instrument
—

172

—

(2,672
)
**
**
Acquisition-related and restructuring costs
2,773

1,457

15,434

3,652

90.3
%
322.6
%
Franchise and state taxes
(26
)
176

522

526

(114.8
)%
(0.8
)%
Discontinued operations:

Loss (income) from discontinued operations, net of tax
—


3,455

—

(26,207
)
**
**
Adjusted EBITDA
$
79,837

$
89,909

$
239,106


$
246,393

(11.2
)%
(3.0
)%
** Calculation is not meaningful.

Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013
Net Revenue
Net revenue for the nine months ended September 30, 2014 increased $183.5 million , or 24.4% , to $934.2 million , compared to $750.7 million for the nine months ended September 30, 2013 . The increase resulted from increases of $147.1 million , $19.5 million , $7.1 million and $9.8 million in broadcast advertising, digital advertising, political advertising and license fees and other revenue, respectively. These increases were primarily attributable to the addition of the operations of WestwoodOne. The increases were partially offset by decreases in local spot and national spot revenue. The increase in political advertising revenue was due to additional activity associated with mid-term and gubernatorial elections in the current period.
Content Costs
The following table presents our content costs as a percentage of total net revenues for the periods presented:
Nine Months Ended September 30,
2014
2013
Content costs
33.9
%
25.3
%
Content costs for the nine months ended September 30, 2014 increased $127.1 million , or 67.0% , to $316.9 million , compared to $189.8 million for the nine months ended September 30, 2013 . This increase was primarily attributable to the addition of the operations of WestwoodOne. Content costs in the prior period also included credits related to music publishing royalty reductions, which increased the period over period difference.
Other Direct Operating Expenses
Other direct operating expenses for the nine months ended September 30, 2014 increased $61.0 million , or 20.9% , to $353.6 million , compared to $292.6 million for the nine months ended September 30, 2013 . This increase was primarily attributable to the addition of expenses related to the operations of WestwoodOne in addition to expenses related to the new LMAs in the Chicago, Dallas and San Jose markets.



40

Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 2014 increased $4.3 million , or 5.2% , to $87.1 million , compared to $82.8 million for the nine months ended September 30, 2013 . This increase was due to a $5.7 million increase in depreciation expense which was primarily attributable to increased expense related to the assets of WestwoodOne, in addition to a $1.4 million decrease in amortization expense on our definite lived intangible assets, which resulted from the accelerated amortization methodology we have applied since acquisition of these assets that is based on the expected pattern in which the underlying assets' economic benefits are consumed.
Corporate Expenses, Including Stock-based Compensation Expense
Corporate expenses, including stock-based compensation expense, for the nine months ended September 30, 2014 increased $19.7 million , or 58.8% , to $53.2 million , compared to $33.5 million for the nine months ended September 30, 2013 . This increase was primarily due to an increase of $11.8 million in acquisition related restructuring expenses and legal costs related to the WestwoodOne acquisition, a $5.2 million increase in stock-based compensation expense partially driven by stock options granted to employees of WestwoodOne and a $2.7 million increase in other overhead costs.
Interest Expense
Total interest expense for the nine months ended September 30, 2014 decreased $24.8 million , or 18.5% , to $109.4 million compared to $134.2 million for the nine months ended September 30, 2013 . Interest expense associated with outstanding debt decreased by $24.1 million to $100.4 million as compared to $124.5 million in the prior year period.
The following summary details the components of our interest expense (dollars in thousands):
Nine Months Ended September 30,
2014 vs 2013
2014
2013
$ Change
% Change
7.75% Senior Notes
$
35,457

$
35,457

$
—

—
%
Bank borrowings – term loans and revolving credit facilities
64,925

89,067

(24,142
)
(27.1
)%
Other including debt cost amortization
8,991

9,682

(691
)
(7.1
)%
Change in fair value of interest rate cap
7

15

(8
)
(53.3
)%
Interest expense
$
109,380

$
134,221

$
(24,841
)
(18.5
)%
Income Taxes
For the nine months ended September 30, 2014 , the Company recorded income tax expense of $6.7 million on pre-tax income from continuing operations of $15.1 million , resulting in an effective tax rate for the nine months ended September 30, 2014 of approximately 44.4% . For the nine months ended September 30, 2013 , the Company recorded an income tax expense of $19.0 million on pre-tax income from continuing operations of $18.0 million , resulting in an effective tax rate for the nine months ended September 30, 2013 of approximately 105.6% .
The difference between the effective tax rate and the federal statutory rate of 35.0% for the nine months ended September 30, 2014 primarily relates to state and local income taxes and changes in the valuation allowance on certain separate company filing jurisdiction net operating losses. For the nine months ended September 30, 2013 , the primary differences between the effective tax rate and federal statutory rate of 35.0% relate to state and local income taxes, tax amortization of broadcast licenses and an allocation of a tax benefit to discontinued operations.
The Company continually reviews the adequacy of the valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740. As of September 30, 2014 , the Company continues to maintain a partial valuation allowance on certain state net operating loss carryforwards for which the Company does not believe they will be able to meet the more likely than not recognition standard for recovery. As of September 30, 2013 , the Company maintained a full valuation allowance on its net deferred tax assets excluding deferred tax liabilities associated with the Company's indefinite lived intangible assets and deferred cancellation of debt income for which no estimated amount of deferred tax assets were available to satisfy. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns as well as future profitability.

41

We believe our annual effective tax rate before discrete items for fiscal year 2014 will be approximately 47.3% . The difference between the annual estimated effective tax rate and the federal statutory rate of 35% primarily relates to the valuation allowance on certain separate company net operating losses incurred in 2014.
Adjusted EBITDA
As a result of the factors described above, Adjusted EBITDA for the nine months ended September 30, 2014 decreased $7.3 million to $239.1 million from $246.4 million for the nine months ended September 30, 2013 .

Liquidity and Capital Resources

Cash Flows Provided by Operating Activities
Nine Months Ended September 30,
(Dollars in thousands)
2014
2013
Net cash provided by operating activities
$
98,089

$
127,667

For the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 , net cash provided by operating activities decreased $29.6 million . The decrease was primarily due to a decrease in working capital driven by the timing of payments on our accounts receivable.
Cash Flows Used in Investing Activities
Nine Months Ended September 30,
(Dollars in thousands)
2014
2013
Net cash used in investing activities
$
(7,383
)
$
(57,449
)
For the nine months ended September 30, 2014 , net cash used in investing activities was $7.4 million as compared to $57.4 million for the nine months ended September 30, 2013 . This decrease was primarily due to the use of $52.2 million to complete acquisitions during the nine months ended September 30, 2013 . Capital expenditures for the nine months ended September 30, 2014 totaled $13.4 million , the majority of which related to one time investments at WestwoodOne. Capital expenditures during the nine months ended September 30, 2013 were $8.4 million .
Cash Flows Used in Financing Activities
Nine Months Ended September 30,
(Dollars in thousands)
2014
2013
Net cash used in financing activities
$
(96,741
)
$
(94,098
)
For the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 , net cash used in financing activities increased $2.6 million . The increase in cash used in financing activities was primarily attributable to a $7.2 million increase in net repayments on borrowings, partially offset by a $5.9 million decrease in cash related to activity associated with our preferred stock which was retired in the fourth quarter of 2013.
For additional detail regarding the Company’s material liquidity considerations, see “Liquidity Considerations” above.

42

Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2013 (the “ 2013 Annual Report”).

Item 4. Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, the “Exchange Act”) designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Such disclosure controls and procedures are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chairman, President and Chief Executive Officer (“CEO”) and Senior Vice President and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives. Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and not be detected.
At the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2014 .
There were no changes to our internal control over financial reporting during the fiscal quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
We are currently party to, or a defendant in, various claims or lawsuits that are generally incidental to our business. We also expect that from time to time in the future we will be party to, or a defendant in, various claims or lawsuits that are generally incidental to our business. We expect that we will vigorously contest any such claims or lawsuits and believe that the ultimate resolution of any known claim or lawsuit will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors
Please refer to Part I, Item 1A, “Risk Factors,” in our 2013 Annual Report for information regarding known material risks that could affect our results of operations, financial condition and liquidity. In addition to these risks, other risks that we presently do not consider material, or other unknown risks, could materially adversely impact our business, financial condition and results of operations in a future period.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 21, 2008, our Board of Directors authorized the purchase, from time to time, of up to $75.0 million of our Class A Common Stock, subject to the terms and limitations obtained in any applicable agreements and compliance with other applicable legal requirements. During the three months ended September 30, 2014 , we did not purchase any shares of our Class A Common Stock .



43



Item 6. Exhibits
10.1 —
First Amendment to Employment Agreement with John Dickey dated as of September 4, 2014.
31.1 —
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 —
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 —
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 —
The following materials from Cumulus Media Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2014 and 2013, (ii) Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (iii) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2014 and 2013, and (iv) Notes to Condensed Consolidated Financial Statements.


44

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CUMULUS MEDIA INC.
Date: November 10, 2014
By:
/s/ Joseph P. Hannan
Joseph P. Hannan
Senior Vice President, Treasurer and Chief
Financial Officer

EXHIBIT INDEX
10.1 —
First Amendment to Employment Agreement with John Dickey dated as of September 4, 2014.
31.1 —
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 —
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 —
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 —
The following materials from Cumulus Media Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2014 and 2013, (ii) Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (iii) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2014 and 2013, and (iv) Notes to Condensed Consolidated Financial Statements.



45
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