CUMULUS MEDIA INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2019
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 000-24525
Cumulus Media Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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82-5134717
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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3280 Peachtree Road, NW Suite 2200,
Atlanta, GA
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30305
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(Address of Principal Executive Offices)
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(ZIP Code)
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(404) 949-0700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Class A common stock, par value $0.0000001 per share
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CMLS
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Nasdaq Global Market
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
ý
No
¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
ý
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer
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¨
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Accelerated filer
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ý
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Non-accelerated filer
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¨
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Smaller reporting company
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ý
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Emerging growth company
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¨
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|||||
If an emerging company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
ý
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
ý
No
¨
As of November 5, 2019, the registrant had
17,556,811
outstanding shares of common stock consisting of: (i)
15,561,739
shares of Class A common stock; (ii)
1,995,072
shares of Class B common stock in addition to 2,224,492 Series 1 warrants and 304,829 Series 2 warrants.
CUMULUS MEDIA INC.
INDEX
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2
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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Successor Company
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|||||||
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in thousands (except share and per share data)
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September 30, 2019
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December 31, 2018
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|||||
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Assets
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|||||||
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Current assets:
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|||||||
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Cash and cash equivalents
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$
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7,751
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$
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27,584
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Restricted cash
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1,392
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2,454
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|||
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Accounts receivable, less allowance for doubtful accounts of $4,671 and $5,483 at September 30, 2019 and December 31, 2018, respectively
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241,946
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250,111
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|||
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Trade receivable
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4,246
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3,390
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|||
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Assets held for sale
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88,165
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80,000
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|||
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Prepaid expenses and other current assets
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33,585
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31,452
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|||
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Total current assets
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377,085
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394,991
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|||
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Property and equipment, net
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228,182
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235,898
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|||
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Operating lease right-of-use assets
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148,321
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—
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|||
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Broadcast licenses
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847,016
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935,652
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|||
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Other intangible assets, net
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169,329
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193,535
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|||
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Other assets
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12,127
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15,076
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|||
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Total assets
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$
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1,782,060
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$
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1,775,152
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Liabilities and Stockholders’ Equity
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|||||||
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Current liabilities:
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|||||||
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Accounts payable and accrued expenses
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$
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115,936
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$
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101,320
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Current portion of operating lease liabilities
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35,371
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—
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|||
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Trade payable
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2,750
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2,578
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|||
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Current portion of term loan due 2022
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—
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13,000
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|||
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Current portion of term loan due 2026
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5,250
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—
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|||
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Total current liabilities
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159,307
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116,898
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|||
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Term loan due 2022
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—
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1,230,299
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|||
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Term loan due 2026, net of debt issuance costs of $5,126
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514,624
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—
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|||
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6.75% senior notes, net of debt issuance costs of $7,109
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492,891
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—
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|||
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Operating lease liabilities
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114,591
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—
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|||
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Other liabilities
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25,791
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25,742
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|||
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Deferred income taxes
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22,742
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12,384
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|||
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Total liabilities
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1,329,946
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1,385,323
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Commitments and contingencies (Note 14)
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|||||
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Stockholders’ equity:
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|||||||
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Class A common stock, par value $0.0000001 per share; 100,000,000 shares authorized; 15,551,068 and 12,995,080 shares issued; 15,483,235 and 12,995,080 shares outstanding at September 30, 2019 and December 31, 2018, respectively
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—
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—
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|||
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Class B common stock, par value $0.0000001 per share; 100,000,000 shares authorized; 2,048,108 and 3,560,604 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
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—
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—
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|||
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Treasury stock, at cost, 67,833 shares at September 30, 2019
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(1,156
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)
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—
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|||
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Additional paid-in-capital
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332,210
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328,404
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|||
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Retained earnings
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121,060
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61,425
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|||
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Total stockholders’ equity
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452,114
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389,829
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|||
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Total liabilities and stockholders’ equity
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$
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1,782,060
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$
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1,775,152
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Successor Company
|
|||||||
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in thousands (except share and per share data)
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Three Months Ended September 30,
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Three Months Ended September 30,
|
|||||
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2019
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2018
|
|||||
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Net revenue
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$
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280,808
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$
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282,254
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Operating expenses:
|
|||||||
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Content costs
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98,335
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98,494
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|
|||
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Selling, general and administrative expenses
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115,289
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114,345
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|
|||
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Depreciation and amortization
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11,885
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14,142
|
|
|||
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Local marketing agreement fees
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902
|
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1,006
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|
|||
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Corporate expenses (including stock-based compensation expense of $1,492, and $1,131, respectively, and restructuring costs of $1,764 and $2,738 respectively)
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11,905
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10,878
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|||
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(Gain) loss on sale or disposal of assets or stations
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(8,188
|
)
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34
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|
|||
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Impairment of assets held for sale
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5,000
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—
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|
|||
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Total operating expenses
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235,128
|
|
238,899
|
|
|||
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Operating income
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45,680
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|
43,355
|
|
|||
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Non-operating (expense) income:
|
|||||||
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Interest expense
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(22,754
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)
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(22,403
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)
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|||
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Interest income
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9
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16
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|||
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Other income (expense), net
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18
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(3,177
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)
|
|||
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Total non-operating expense, net
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(22,727
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)
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(25,564
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)
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|||
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Income before income tax expense
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22,953
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17,791
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|
|||
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Income tax expense
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(6,630
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)
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(5,078
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)
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|||
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Net income
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$
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16,323
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$
|
12,713
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|
Basic and diluted earnings per common share (see Note 12, “Earnings Per Share”):
|
|||||||
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Basic: Earnings per share
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$
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0.81
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$
|
0.64
|
|
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Diluted: Earnings per share
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$
|
0.81
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$
|
0.63
|
|
|
|
Weighted average basic common shares outstanding
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20,164,876
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|
20,004,736
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|
|||
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Weighted average diluted common shares outstanding
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20,216,314
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|
20,069,587
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|
|||
4
|
Successor Company
|
Predecessor Company
|
|||||||||||
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in thousands (except share and per share data)
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Nine Months Ended September 30,
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Period from June 4 through September 30,
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Period from January 1 through June 3,
|
|||||||||
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2019
|
2018
|
2018
|
|||||||||
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Net revenue
|
$
|
827,977
|
|
$
|
377,258
|
|
$
|
453,924
|
|
|||
|
Operating expenses:
|
||||||||||||
|
Content costs
|
295,931
|
|
127,464
|
|
163,885
|
|
||||||
|
Selling, general and administrative expenses
|
344,609
|
|
151,779
|
|
195,278
|
|
||||||
|
Depreciation and amortization
|
40,020
|
|
18,521
|
|
22,046
|
|
||||||
|
Local marketing agreement fees
|
2,383
|
|
1,364
|
|
1,809
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|
||||||
|
Corporate expenses (including stock-based compensation expense of $3,806, $1,783 and $231, respectively and restructuring costs of $17,565, $9,679 and $2,455 respectively)
|
47,097
|
|
21,003
|
|
17,169
|
|
||||||
|
(Gain) loss on sale or disposal of assets or stations
|
(55,912
|
)
|
34
|
|
158
|
|
||||||
|
Impairment of assets held for sale
|
5,000
|
|
—
|
|
—
|
|
||||||
|
Total operating expenses
|
679,128
|
|
320,165
|
|
400,345
|
|
||||||
|
Operating income
|
148,849
|
|
57,093
|
|
53,579
|
|
||||||
|
Non-operating (expense) income:
|
||||||||||||
|
Reorganization items, net
|
—
|
|
—
|
|
466,201
|
|
||||||
|
Interest expense
|
(66,101
|
)
|
(28,579
|
)
|
(260
|
)
|
||||||
|
Interest income
|
21
|
|
20
|
|
50
|
|
||||||
|
Gain on early extinguishment of debt
|
381
|
|
—
|
|
—
|
|
||||||
|
Other expense, net
|
(44
|
)
|
(3,157
|
)
|
(273
|
)
|
||||||
|
Total non-operating (expense) income, net
|
(65,743
|
)
|
(31,716
|
)
|
465,718
|
|
||||||
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Income before income tax (expense) benefit
|
83,106
|
|
25,377
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|
519,297
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|
||||||
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Income tax (expense) benefit
|
(23,471
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)
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(7,684
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)
|
176,859
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|
||||||
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Net income
|
$
|
59,635
|
|
$
|
17,693
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$
|
696,156
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|
|||
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Basic and diluted earnings per common share (see Note 12, “Earnings Per Share”):
|
||||||||||||
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Basic: Earnings per share
|
$
|
2.96
|
|
$
|
0.88
|
|
$
|
23.73
|
|
|||
|
Diluted: Earnings per share
|
$
|
2.95
|
|
$
|
0.88
|
|
$
|
23.73
|
|
|||
|
Weighted average basic common shares outstanding
|
20,115,868
|
|
20,009,463
|
|
29,338,329
|
|
||||||
|
Weighted average diluted common shares outstanding
|
20,249,682
|
|
20,051,796
|
|
29,338,329
|
|
||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
5
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
For Periods December 31, 2018 through March 31, 2019, March 31, 2019 through June 30, 2019, and June 30, 2019
through September 30, 2019 (Successor Company)
|
|||||||||||||||||||||||||||||||||
|
dollars in thousands
|
Class A
Common Stock
|
Class B
Common Stock |
Treasury
Stock
|
||||||||||||||||||||||||||||||
|
|
Number of
Shares
|
Par
Value
|
Number of
Shares |
Par
Value |
Number of
Shares
|
Value
|
Additional
Paid-In Capital |
Retained Earnings
|
Total
|
||||||||||||||||||||||||
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Balance at December 31, 2018 (Successor)
|
12,995,080
|
|
$
|
—
|
|
3,560,604
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
$
|
328,404
|
|
$
|
61,425
|
|
$
|
389,829
|
|
|||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
451
|
|
451
|
|
|||||||||||||||
|
Shares returned in lieu of tax payments
|
—
|
|
—
|
|
—
|
|
—
|
|
34,704
|
|
(633
|
)
|
—
|
|
—
|
|
(633
|
)
|
|||||||||||||||
|
Conversion of Class B common stock
|
751,633
|
|
—
|
|
(751,633
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Exercise of warrants
|
177,186
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Issuance of common stock
|
68,246
|
|
—
|
|
3,035
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Stock based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,208
|
|
—
|
|
1,208
|
|
|||||||||||||||
|
Balance at March 31, 2019 (Successor)
|
13,992,145
|
|
$
|
—
|
|
2,812,006
|
|
$
|
—
|
|
34,704
|
|
$
|
(633
|
)
|
$
|
329,612
|
|
$
|
61,876
|
|
$
|
390,855
|
|
|||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
42,861
|
|
42,861
|
|
|||||||||||||||
|
Shares returned in lieu of tax payments
|
—
|
|
—
|
|
—
|
|
—
|
|
33,129
|
|
(523
|
)
|
—
|
|
—
|
|
(523
|
)
|
|||||||||||||||
|
Conversion of Class B common stock
|
115,153
|
|
—
|
|
(115,153
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Exercise of warrants
|
170,659
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Issuance of common stock
|
50,581
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Stock based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,106
|
|
—
|
|
1,106
|
|
|||||||||||||
|
Balance at June 30, 2019 (Successor)
|
14,328,538
|
|
$
|
—
|
|
2,696,853
|
|
$
|
—
|
|
67,833
|
|
$
|
(1,156
|
)
|
$
|
330,718
|
|
$
|
104,737
|
|
$
|
434,299
|
|
|||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
16,323
|
|
16,323
|
|
|||||||||||||||
|
Shares returned in lieu of tax payments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Conversion of Class B common stock
|
648,745
|
|
—
|
|
(648,745
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Exercise of warrants
|
494,929
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Issuance of common stock
|
11,023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
||||||||||||||
|
Stock based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,492
|
|
—
|
|
1,492
|
|
|||||||||||||||
|
Balance at September 30, 2019 (Successor)
|
15,483,235
|
|
$
|
—
|
|
2,048,108
|
|
$
|
—
|
|
67,833
|
|
$
|
(1,156
|
)
|
$
|
332,210
|
|
$
|
121,060
|
|
$
|
452,114
|
|
|||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
|
For Periods December 31, 2017 (Predecessor Company) through March 31, 2018 (Predecessor Company), March 31, 2018 (Predecessor Company) through June 3, 2018 (Predecessor Company), June 4, 2018 (Successor Company) through June 30, 2018 (Successor Company), and June 30, 2018 (Successor Company)
through September 30, 2018 (Successor Company) |
|||||||||||||||||||||||||||||||||||||||
|
dollars in thousands
|
Class A
Common Stock
|
Class B Common Stock
|
Class C Common Stock
|
Treasury
Stock
|
|||||||||||||||||||||||||||||||||||
|
|
Number of
Shares
|
Par
Value
|
Number of
Shares |
Par
Value |
Number of
Shares |
Par
Value |
Number of
Shares
|
Value
|
Additional
Paid-In Capital |
Retained Earnings
|
Total
|
||||||||||||||||||||||||||||
|
Balance at December 31, 2017 (Predecessor)
|
32,031,054
|
|
$
|
320
|
|
—
|
|
$
|
—
|
|
80,609
|
|
$
|
1
|
|
2,806,187
|
|
$
|
(229,310
|
)
|
$
|
1,626,428
|
|
$
|
(2,093,554
|
)
|
$
|
(696,115
|
)
|
||||||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,001
|
)
|
(5,001
|
)
|
|||||||||||||||||||
|
Stock-based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
166
|
|
—
|
|
166
|
|
|||||||||||||||||||
|
Balance at March 31, 2018 (Predecessor)
|
32,031,054
|
|
$
|
320
|
|
—
|
|
$
|
—
|
|
80,609
|
|
$
|
1
|
|
2,806,187
|
|
$
|
(229,310
|
)
|
$
|
1,626,594
|
|
$
|
(2,098,555
|
)
|
$
|
(700,950
|
)
|
||||||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(38,999
|
)
|
(38,999
|
)
|
|||||||||||||||||
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
247
|
|
—
|
|
247
|
|
|||||||||||||||||
|
Stock-based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
65
|
|
—
|
|
65
|
|
|||||||||||||||||
|
Balance at June 3, 2018 (Predecessor)
|
32,031,054
|
|
$
|
320
|
|
—
|
|
$
|
—
|
|
80,609
|
|
$
|
1
|
|
2,806,187
|
|
$
|
(229,310
|
)
|
$
|
1,626,906
|
|
$
|
(2,137,554
|
)
|
$
|
(739,637
|
)
|
||||||||||
|
Implementation of Plan and Application of Fresh Start Accounting:
|
|||||||||||||||||||||||||||||||||||||||
|
Cancellation of Predecessor equity
|
(32,031,054
|
)
|
$
|
(320
|
)
|
—
|
|
$
|
—
|
|
(80,609
|
)
|
$
|
(1
|
)
|
(2,806,187
|
)
|
$
|
229,310
|
|
$
|
(1,626,906
|
)
|
$
|
—
|
|
$
|
(1,397,917
|
)
|
||||||||||
|
Elimination of accumulated deficit
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,137,554
|
|
2,137,554
|
|
|||||||||||||||||
|
Issuance of Successor common stock
|
11,052,211
|
|
—
|
|
5,218,209
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
264,394
|
|
—
|
|
264,394
|
|
|||||||||||||||||
|
Issuance of Successor warrants
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
60,606
|
|
—
|
|
60,606
|
|
|||||||||||||||||
|
Balance at June 4, 2018 (Successor)
|
11,052,211
|
|
$
|
—
|
|
5,218,209
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
$
|
325,000
|
|
$
|
—
|
|
$
|
325,000
|
|
||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,980
|
|
$
|
4,980
|
|
||||||||||||||||
|
Stock-based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
652
|
|
—
|
|
652
|
|
|||||||||||||||||
|
Conversion of Class B common stock
|
1,344,184
|
|
—
|
|
(1,344,184
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||||
|
Exercise of warrants
|
—
|
|
—
|
|
34,964
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||||
|
Balance at June 30, 2018 (Successor)
|
12,396,395
|
|
$
|
—
|
|
3,908,989
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
$
|
325,652
|
|
$
|
4,980
|
|
$
|
330,632
|
|
||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12,713
|
|
12,713
|
|
|||||||||||||||||
|
Stock-based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,131
|
|
—
|
|
1,131
|
|
|||||||||||||||||
|
Conversion of Class B common stock
|
314,279
|
|
—
|
|
(314,279
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||||
|
Exercise of warrants
|
163,023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||||
|
Balance at September 30, 2018 (Successor)
|
12,873,697
|
|
$
|
—
|
|
3,594,710
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
$
|
326,783
|
|
$
|
17,693
|
|
$
|
344,476
|
|
||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
7
CUMULUS MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Successor Company
|
Predecessor Company
|
|||||||||||
|
dollars in thousands
|
Nine Months Ended September 30,
|
Period from June 4 through September 30,
|
|
|
Period from January 1 through June 3,
|
|||||||
|
|
2019
|
2018
|
2018
|
|||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$
|
59,635
|
|
$
|
17,693
|
|
$
|
696,156
|
|
|||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
40,020
|
|
18,521
|
|
22,046
|
|
||||||
|
Amortization of right of use assets
|
18,025
|
|
—
|
|
—
|
|
||||||
|
Amortization of debt issuance costs/discounts
|
435
|
|
22
|
|
—
|
|
||||||
|
Provision for doubtful accounts
|
2,687
|
|
2,009
|
|
5,993
|
|
||||||
|
(Gain) loss on sale or disposal of assets or stations
|
(55,912
|
)
|
34
|
|
158
|
|
||||||
|
Non-cash reorganization items, net
|
—
|
|
—
|
|
(523,651
|
)
|
||||||
|
Gain on early extinguishment of debt
|
(381
|
)
|
—
|
|
—
|
|
||||||
|
Impairment of assets held for sale
|
5,000
|
|
—
|
|
—
|
|
||||||
|
Impairment charges - Next Radio investment
|
—
|
|
3,170
|
|
—
|
|
||||||
|
Deferred income taxes
|
10,358
|
|
6,823
|
|
(179,455
|
)
|
||||||
|
Stock-based compensation expense
|
3,806
|
|
1,783
|
|
231
|
|
||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
5,477
|
|
(22,294
|
)
|
12,697
|
|
||||||
|
Trade receivable
|
(1,361
|
)
|
756
|
|
(997
|
)
|
||||||
|
Prepaid expenses and other current assets
|
(2,476
|
)
|
(10,635
|
)
|
(5,831
|
)
|
||||||
|
Operating leases
|
4,329
|
|
—
|
|
—
|
|
||||||
|
Assets held for sale
|
29
|
|
—
|
|
—
|
|
||||||
|
Other assets
|
2,734
|
|
1,763
|
|
(436
|
)
|
||||||
|
Accounts payable and accrued expenses
|
(8,045
|
)
|
(17,534
|
)
|
7,777
|
|
||||||
|
Trade payable
|
250
|
|
(235
|
)
|
190
|
|
||||||
|
Other liabilities
|
(1,547
|
)
|
575
|
|
(5,746
|
)
|
||||||
|
Net cash provided by operating activities
|
83,063
|
|
2,451
|
|
29,132
|
|
||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Proceeds from sale of assets or stations
|
146,519
|
|
—
|
|
—
|
|
||||||
|
Acquisition
|
|
|
(18,000
|
)
|
—
|
|
||||||
|
Capital expenditures
|
(17,399
|
)
|
(7,866
|
)
|
(14,019
|
)
|
||||||
|
Net cash provided by (used in) investing activities
|
129,120
|
|
(25,866
|
)
|
(14,019
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Adequate protection payments on term loan
|
—
|
|
—
|
|
(37,802
|
)
|
||||||
|
Repayment of borrowings under term loan due 2022
|
(1,242,918
|
)
|
(3,250
|
)
|
—
|
|
||||||
|
Borrowings under term loan due 2026
|
525,000
|
|
||||||||||
|
Proceeds from issuance of 6.75% senior notes
|
500,000
|
|
—
|
|
—
|
|
||||||
|
Financing costs
|
(12,790
|
)
|
—
|
|
(850
|
)
|
||||||
|
Shares returned in lieu of tax payments
|
(1,156
|
)
|
—
|
|
—
|
|
||||||
|
Repayments of financing lease obligations
|
(1,214
|
)
|
—
|
|
—
|
|
||||||
|
Net cash used in financing activities
|
(233,078
|
)
|
(3,250
|
)
|
(38,652
|
)
|
||||||
|
Decrease in cash and cash equivalents and restricted cash
|
(20,895
|
)
|
(26,665
|
)
|
(23,539
|
)
|
||||||
|
Cash and cash equivalents and restricted cash at beginning of period
|
30,038
|
|
88,351
|
|
111,890
|
|
||||||
|
Cash and cash equivalents and restricted cash at end of period
|
$
|
9,143
|
|
$
|
61,686
|
|
$
|
88,351
|
|
|||
See accompanying notes to the unaudited condensed consolidated financial statements.
8
1. Nature of Business, Interim Financial Data and Basis of Presentation
Cumulus Media Inc. and its consolidated subsidiaries, except as the context may otherwise require, (“CUMULUS MEDIA,” “we,” “us,” “our,” or the “Company”) is a Delaware corporation, organized in 2018, and successor to a Delaware corporation with the same name that had been organized in 2002.
Nature of Business
CUMULUS MEDIA is a leading audio-first media and entertainment company delivering premium content to over a quarter billion people every month - wherever and whenever they want it. CUMULUS MEDIA engages listeners with high-quality local programming through
428
owned-and-operated stations across
87
markets; delivers nationally-syndicated sports, news, talk, and entertainment programming from iconic brands including the NFL, the NCAA, the Masters, the Olympics, the American Country Music Awards, and many other world-class partners across nearly
8,000
affiliated stations through Westwood One, the largest audio network in America; and inspires listeners through its rapidly growing network of original podcasts that are smart, entertaining and thought-provoking. CUMULUS MEDIA provides advertisers with local impact and national reach through on-air, digital, mobile, and voice-activated media solutions, as well as access to integrated digital marketing services, powerful influencers, and live event experiences.
Basis of Presentation
As previously disclosed, on November 29, 2017 (the “Petition Date”), CM Wind Down Topco Inc. (formerly known as Cumulus Media Inc.), a Delaware corporation (“Old Cumulus”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors’ chapter 11 cases (the "Chapter 11 Cases") were jointly administered under the caption
In re Cumulus Media Inc., et al, Case No. 17-13381.
On May 10, 2018, the Bankruptcy Court entered the
Findings of Fact, Conclusions of Law and Order Confirming the Debtors’ First Amended Joint Chapter 11 Plan of Reorganization
[Docket No. 769] (the “Confirmation Order”), which confirmed the
First Amended Joint Plan of Reorganization of Cumulus Media Inc. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code
[Docket No. 446] (the “Plan”), as modified by the Confirmation Order. On June 4, 2018 (the “Effective Date”), Old Cumulus satisfied the conditions to effectiveness set forth in the Confirmation Order and in the Plan, the Plan was substantially consummated, and Old Cumulus and the other Debtors emerged from Chapter 11. On June 29, 2018, the Bankruptcy Court entered an order closing the Chapter 11 Cases of all the Debtors other than Old Cumulus, whose case will remain open until its estate has been fully administered including resolving outstanding claims and the Bankruptcy Court enters an order closing its case.
In connection with its emergence, Old Cumulus implemented a series of internal reorganization transactions authorized by the Plan pursuant to which it transferred substantially all its remaining assets to an indirectly wholly owned subsidiary of reorganized Cumulus Media Inc. (formerly known as CM Emergence Newco Inc.), a Delaware corporation (“CUMULUS MEDIA” or the “Company”), prior to winding down its business. References to “Successor” or “Successor Company” relate to CUMULUS MEDIA on and subsequent to June 4, 2018. References to “Predecessor,” “Predecessor Company” or “Old Cumulus” refer to Cumulus Media Inc. prior to June 4, 2018.
Upon emergence from Chapter 11 on the Effective Date, the Company applied Accounting Standards Codification (“ASC”)
852 - Reorganizations
(“ASC 852”) in preparing its consolidated financial statements. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, a new entity for financial reporting purposes was created, and consequently the consolidated financial statements on and after June 4, 2018 generally are not comparable to the consolidated financial statements prior to that date.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reporting Segment
The Company historically operated under
two
reportable segments - Cumulus Radio Station Group (“CRSG”) and Westwood One (“WWO”). As a result of changes to its organizational structure and approach to operating the business during the third quarter of 2019, the Company reassessed its reportable segments. Management considered factors including, but not limited to: (i) organizational structure and functional responsibilities of management; (ii) operational aspects including inventory optimization across all sales channels; and (iii) management incentive metrics. These factors impacted how the Chief Operating Decision Maker evaluates performance and how operating decisions are made, which are now performed at the consolidated level.
9
The Company concluded that we have one reportable segment and have presented the comparative periods on a consolidated basis to reflect the one reportable segment.
Interim Financial Data
In the opinion of management, the Company's unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented herein. The results for the interim periods are not necessarily indicative of those for the full year. The condensed consolidated financial statements herein should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("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 significant estimates related to revenue recognition, bad debts, intangible assets, income taxes, stock-based compensation, contingencies, litigation, valuation assumptions for impairment analysis, certain expense accruals, leases and, if applicable, purchase price allocations. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual amounts and results may differ materially from these estimates.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and certain items that are excluded from net income (loss) and recorded as a separate component of stockholders' equity (deficit). During the three and nine months ended September 30, 2019 (Successor Company) and periods from January 1, 2018 through June 3, 2018 (Predecessor Company), and June 4, 2018 through September 30, 2018 (Successor Company) and the three month period ended September 30, 2018 (Successor Company), the Company had no items of other comprehensive income (loss) and, therefore, comprehensive income (loss) does not differ from reported net income (loss).
Assets Held for Sale
During the year ended December 31, 2015, the Company entered into an agreement to sell certain land in the Company's Washington, DC market ("DC Land") to a third party.
On September 18, 2019, the agreement was amended to, among other changes, adjust the purchase price to a total of
$75.0 million
. The Company recorded a
$5.0 million
impairment on the DC Land in the third quarter of 2019 to adjust the carrying value of this asset to fair value. The impairment is included in the Impairment of Assets Held for Sale financial statement line item of the Company's Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2019. The sale is subject to various conditions and approvals, including, without limitation, the receipt by the buyer of certain required permits and approvals for its expected use of the land. There can be no assurance that such sale will be completed at the agreed price or at all.
On June 27, 2019, the Company announced that it had entered into an agreement to sell WABC-AM in New York, NY to Red Apple Media, Inc. ("WABC Sale"). The closing of the WABC Sale is subject to various conditions which remain pending. The Company expects the WABC Sale to close within the next six months.
The major categories of these assets held for sale are as follows (dollars in thousands):
|
|
September 30, 2019
|
December 31, 2018
|
||||||||||||||
|
WABC Sale
|
DC Land
|
Total
|
DC Land
|
|||||||||||||
|
Property and equipment, net
|
$
|
7,054
|
|
$
|
75,000
|
|
82,054
|
|
$
|
80,000
|
|
|||||
|
Broadcast licenses
|
5,738
|
|
—
|
|
5,738
|
|
—
|
|
||||||||
|
Other intangibles, net
|
373
|
|
—
|
|
373
|
|
—
|
|
||||||||
|
$
|
13,165
|
|
$
|
75,000
|
|
$
|
88,165
|
|
$
|
80,000
|
|
|||||
10
Supplemental Cash Flow Information
The following summarizes supplemental cash flow information to be read in conjunction with the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 (Successor Company) and Periods from January 1, 2018 through June 3, 2018 (Predecessor Company), and June 4, 2018 through September 30, 2018 (Successor Company):
|
Successor Company
|
Predecessor Company
|
|||||||||||
|
|
Nine Months Ended September 30,
|
Period from June 4 through September 30,
|
Period from January 1 through June 3,
|
|||||||||
|
|
2019
|
2018
|
2018
|
|||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Interest paid
|
$
|
51,575
|
|
$
|
27,524
|
|
$
|
—
|
|
|||
|
Income taxes paid
|
17,138
|
|
5,611
|
|
1,992
|
|
||||||
|
Supplemental disclosures of non-cash flow information:
|
||||||||||||
|
Trade revenue
|
$
|
33,388
|
|
$
|
13,870
|
|
$
|
18,973
|
|
|||
|
Trade expense
|
31,614
|
|
13,891
|
|
17,964
|
|
||||||
|
Transfer of deposit from escrow - WKQX acquisition
|
—
|
|
4,750
|
|
—
|
|
||||||
|
Supplemental disclosures of non-cash reorganization items impact on changes in assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
$
|
—
|
|
$
|
—
|
|
$
|
(11
|
)
|
|||
|
Prepaid expenses and other current assets
|
—
|
|
—
|
|
21,077
|
|
||||||
|
Property and equipment
|
—
|
|
—
|
|
(121,732
|
)
|
||||||
|
Other intangible assets, goodwill and other assets
|
—
|
|
—
|
|
283,217
|
|
||||||
|
Accounts payable, accrued expenses and other liabilities
|
—
|
|
—
|
|
(36,415
|
)
|
||||||
|
Cancellation of 7.75% Senior Notes
|
—
|
|
—
|
|
(610,000
|
)
|
||||||
|
Cancellation of Predecessor Company Term Loan
|
—
|
|
—
|
|
(1,684,407
|
)
|
||||||
|
Issuance of Successor Company Term Loan
|
—
|
|
—
|
|
1,300,000
|
|
||||||
|
Cancellation of Predecessor Company stockholders' equity
|
—
|
|
—
|
|
649,620
|
|
||||||
|
Issuance of Successor Company stockholders' equity
|
—
|
|
—
|
|
(325,000
|
)
|
||||||
|
Reconciliation of cash and cash equivalents and restricted cash to the Condensed Consolidated Balance Sheet:
|
||||||||||||
|
Cash and cash equivalents
|
$
|
7,751
|
|
$
|
53,978
|
|
$
|
50,046
|
|
|||
|
Restricted cash
|
1,392
|
|
7,708
|
|
38,305
|
|
||||||
|
Total cash and cash equivalents and restricted cash
|
$
|
9,143
|
|
$
|
61,686
|
|
$
|
88,351
|
|
|||
11
Adoption of New Accounting Standards
ASU 2016-02 - Leases
(“ASU 2016-02”)
.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, which provides updated guidance for the accounting for leases. This update requires lessees to recognize assets and liabilities for the rights and obligations created by leases with a term longer than one year. Leases will be classified as either financing or operating, thereby impacting the pattern of expense recognition in the statement of operations. In July 2018, the FASB issued
ASU 2018-10 - Codification Improvements to Topic 842, Leases ("ASU 2018-10")
and
ASU 2018-11 - Targeted Improvements ("ASU 2018-11"),
which provide technical corrections and clarification to ASU 2016-02. ASU 2016-02 and amendments ASU 2018-10 and ASU 2018-11 became effective for fiscal years beginning after December 15, 2018, and interim periods thereafter. The standard requires the application of a modified retrospective approach by either applying the lease standard to each lease that existed at the beginning of the earliest comparative period presented in the financial statements, as well as leases that commenced after that date and recognizing a cumulative effect adjustment for leases that commenced prior to the beginning of the earliest comparative period presented, or applying the standard to the leases that commenced as of the beginning of the reporting period in which the entity first applies the leases standard with a cumulative effect adjustment as of that date. The Company adopted this standard on January 1, 2019 and elected the "package of practical expedients" and as a result did not recast existing leases prior to January 1, 2019. The new lease standard also provides as a practical expedient and an accounting policy election, the option to not separate non-lease components from the associated lease components and instead account for each separate lease component and its associated non-lease components as a single lease component. The Company elected this option both for leases under which it is the lessor and for leases under which it is the lessee.
In adopting the new standard, the Company aggregated and evaluated lease arrangements, implemented new controls and processes, and installed a lease accounting system. Adoption of the new standard resulted in recording operating lease right-of-use assets and operating lease liabilities of approximately
$156.1 million
and
$154.5 million
on January 1, 2019. See Note 13 Leases for further information.
ASU 2018-07 - Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting
(“ASU 2018-07”). The standard aligns the accounting for share-based payment awards issued to employees and non-employees. Changes to the accounting for non-employee awards include: (1) equity-classified share-based payment awards issued to non-employees will now be measured on the grant date, instead of the previous requirement to re-measure the awards through the performance completion date; (2) for performance conditions, compensation cost associated with the award will be recognized when achievement of the performance condition is probable, rather than upon achievement of the performance condition; and (3) the current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. The guidance should be applied to all new awards granted after the date of adoption. In addition, the modified retrospective approach should be used on all liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established by the adoption date by re-measurement at fair value as of the adoption date with a cumulative effect adjustment to opening retained earnings in the fiscal year of adoption. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted ASU 2018-07 as of January 1, 2019 and there was no material impact to the Condensed Consolidated Financial Statements.
Recent Accounting Standards Updates
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326)
(“ASU 2016-13”). In June 2016, the FASB issued ASU 2016-13 which requires entities to estimate loss of financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition threshold of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts in addition to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures related to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s origination for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of adopting ASU 2016-13 on its Consolidated Financial Statements.
12
ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
(“ASU 2018-13”). In August 2018, the FASB issued ASU 2018-13, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods therein, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company is currently evaluating the potential impact of adopting ASU 2018-13 on its Consolidated Financial Statements.
2. Reorganization Items, Net
In accordance with ASC 852, Reorganization items incurred as a result of the Chapter 11 Cases were presented separately in the Predecessor Company's Condensed Consolidated Statement of Operations prior to the Company's emergence from Chapter 11. For the Predecessor Company periods presented herein, Reorganization items were as follows (in thousands):
|
Predecessor Company
|
|||
|
Period from January 1, 2018 through June 3, 2018
|
|||
|
Gain on settlement of Liabilities Subject to Compromise
(a)
|
$
|
726,831
|
|
|
Fresh start adjustments
(b)
|
(179,291
|
)
|
|
|
Professional fees
(c)
|
(54,386
|
)
|
|
|
Non-cash claims adjustments
(d)
|
(15,364
|
)
|
|
|
Rejected executory contracts
(e)
|
(5,976
|
)
|
|
|
Other
(f)
|
(5,613
|
)
|
|
|
Reorganization Items, net
|
$
|
466,201
|
|
(a) Liabilities Subject to Compromise have been, or will be settled in accordance with the Plan.
(b) Revaluation of certain assets and liabilities upon the adoption of fresh start accounting.
(c) Legal, financial advisory and other professional costs directly associated with the reorganization process.
(d) The carrying value of certain claims were adjusted to the estimated value of the claim that were allowed by the Bankruptcy Court.
(e) Non-cash expenses to record estimated allowed claim amounts related to rejected executory contracts.
(f) Federal Communications Commission filing and United States Trustee fees directly associated with the reorganization process and the write-off of Predecessor director and officer insurance policies.
During the Predecessor Company periods presented herein, the Company made cash payments of approximately
$58.4 million
for Reorganization items. Costs incurred as a result of the Chapter 11 Cases by the Successor Company subsequent to its emergence from Chapter 11 are classified as restructuring costs within Corporate Expenses in the Successor Company's Condensed Consolidated Statement of Operations.
3. Acquisitions and Dispositions
Entercom Asset Exchange
On May 9, 2019, the Company completed its previously announced swap agreement with Entercom ("Entercom Swap"). In connection with the agreement, the Company received WNTR-FM, WXNT- AM, and WZPL-FM in Indianapolis, IN and Entercom received WNSH-FM (New York, NY) and WMAS-FM and WHLL-AM (both in Springfield, MA). During the third quarter of 2019, the Company completed the accounting for the Entercom Swap.
13
The table below summarizes the purchase price allocation for the Entercom Swap (dollars in thousands):
|
Assets Acquired
|
||||
|
Broadcast licenses
|
$
|
20,790
|
|
|
|
Property and equipment, net
|
1,711
|
|
||
|
Total assets acquired
|
$
|
22,501
|
|
|
|
Assets Disposed
|
|
|
||
|
Broadcast licenses
|
$
|
(23,565
|
)
|
|
|
Property and equipment, net
|
(703
|
)
|
||
|
Other intangibles
|
(395
|
)
|
||
|
Total assets disposed
|
$
|
(24,663
|
)
|
|
As a result of changes during the measurement period to the valuation of the assets acquired, the Company recognized a loss on the exchange in the amount of
$2.2 million
as of September 30, 2019 which is included in the (Gain) Loss on Sale or Disposal of Assets or Stations financial statement line item of the Company’s Condensed Consolidated statement of Operations for the three and nine month periods ended September 30, 2019.
Connoisseur Media Asset Exchange
On June 26, 2019, the Company completed its previously announced swap agreement with Connoisseur Media (the "Connoisseur Swap"). In connection with the agreement, the Company received WODE-FM, WWYY-FM, WEEX-AM and WTKZ-AM in and around Allentown, PA and Connoisseur Media received WEBE-FM in Westport, CT, and WICC-AM in Bridgeport, CT.
The carrying value of the assets transferred to Connoisseur Media as part of the Connoisseur Swap was approximately
$3.7 million
. The fair value of assets acquired in the Connoisseur Swap was approximately equal to the carrying value of the assets transferred. During the third quarter of 2019, the Company completed the accounting for the Connoisseur Swap.
No
gain or loss was recognized on the Connoisseur Swap for the three and nine month periods ended September 30, 2019.
Educational Media Foundation Sale
On May 31, 2019, the Company completed its previously announced sale of six radio stations, WYAY-FM (Atlanta, GA), WPLJ-FM (New York, NY), KFFG-FM (San Francisco, CA), WZAT-FM (Savannah, GA), WXTL-FM (Syracuse, NY), and WRQX-FM (Washington, DC) to Educational Media Foundation for
$103.5 million
in cash (the "EMF Sale"). The Company recorded a gain of
$47.6 million
on the sale which is included in the (Gain) Loss on Sale or Disposal of Assets or Stations financial statement line item of the Company's Condensed Consolidated Statements of Operations for the nine month period ended September 30, 2019.
Meruelo Media Sale
On July 15, 2019, the Company completed its previously announced sale of KLOS-FM in Los Angeles, CA to Meruelo Media for
$43.0 million
in cash (the "KLOS Sale"). Prior to the completion of the sale, Meruelo Media began programming KLOS-FM under a Local Marketing Agreement on April 16, 2019. The Company recorded a gain of
$10.5 million
on the sale which is included in the (Gain) Loss on Sale or Disposal of Assets or Stations financial statement line item of the Company’s Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2019.
4. Revenues
Revenue Recognition
Revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
14
The following table presents revenues disaggregated by revenue source (dollars in thousands):
|
Successor Company
|
|||||||
|
Three Months Ended September 30, 2019
|
Three Months Ended September 30, 2018
|
||||||
|
Advertising revenues (broadcast, digital, non-traditional revenue (“NTR”) and trade)
|
$
|
276,230
|
|
$
|
277,070
|
|
|
|
Non-advertising revenues (tower rental and other)
|
4,578
|
|
5,184
|
|
|||
|
Total Revenue
|
$
|
280,808
|
|
$
|
282,254
|
|
|
|
Successor Company
|
Predecessor Company
|
|||||||||||
|
Nine Months Ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
||||||||||
|
Advertising revenues (broadcast, digital, non-traditional revenue (“NTR”) and trade)
|
$
|
813,066
|
|
$
|
370,091
|
|
$
|
445,019
|
|
|||
|
Non-advertising revenues (tower rental and other)
|
14,911
|
|
7,167
|
|
8,905
|
|
||||||
|
Total Revenue
|
$
|
827,977
|
|
$
|
377,258
|
|
$
|
453,924
|
|
|||
Trade and Barter Transactions
The Company provides advertising time in exchange for goods or services such as products, supplies, or services. Trade revenue totaled
$9.4
million and
$33.4
million for the three and nine months ended
September 30, 2019
(Successor Company). Trade revenue totaled
$10.6 million
,
$13.9 million
and
$19.0 million
for the three months ended September 30, 2018 (Successor Company), period from June 4, 2018 through September 30, 2018 (Successor Company), and January 1, 2018 through June 3, 2018 (Predecessor Company), respectively.
Contract Costs
The Company capitalizes certain incremental costs of obtaining contracts with customers which it expects to recover. For contracts with a client whose customer life covers a year or less, the Company uses the practical expedient that allows expensing commissions as they are incurred. For contracts where the new and renewal commission rates are commensurate, management uses the contract life for the amortization period. As such, the Company will continue to expense commissions as incurred for the revenue streams where the new and renewal commission rates are commensurate and the contract life is less than one year. These costs are recorded within Selling, general and administrative expenses. The Company does not apply the practical expedient option to new local revenue contracts, because the commission rates for new and renewal contracts is not commensurate and the customer life is typically in excess of one year. As of
September 30, 2019
, and December 31, 2018, the Company recorded assets of approximately
$7.7 million
and
$6.5 million
related to the unamortized portion of commission expense on new local revenue.
Remaining Performance Obligations
The Company has contracts with customers which the Company believes will produce revenue beyond one year. From these contracts, the Company estimates it will recognize approximately
$11.8 million
of revenue.
5. Restricted Cash
As of
September 30, 2019
, and
December 31, 2018
, the Condensed Consolidated Balance Sheets included approximately
$1.4 million
and
$2.5 million
in restricted cash, respectively. Restricted cash is used primarily to collateralize standby letters of credit for certain leases and insurance policies.
15
6. Intangible Assets
The following table presents the Company's intangible assets as of September 30, 2019 and December 31, 2018 (dollars in thousands):
|
Indefinite-Lived
|
Definite-Lived
|
Total
|
|||||||||
|
Balance as of December 31, 2018
|
$
|
956,836
|
|
$
|
172,351
|
|
$
|
1,129,187
|
|
||
|
Assets held for sale (See Note 1)
|
(5,935
|
)
|
(176
|
)
|
(6,111
|
)
|
|||||
|
Dispositions
|
(108,069
|
)
|
(1,119
|
)
|
(109,188
|
)
|
|||||
|
Acquisitions (See Note 3)
|
24,111
|
|
—
|
|
24,111
|
|
|||||
|
Amortization
|
—
|
|
(19,720
|
)
|
(19,720
|
)
|
|||||
|
Other
(a)
|
—
|
|
(1,934
|
)
|
(1,934
|
)
|
|||||
|
Balance as of September 30, 2019
|
$
|
866,943
|
|
$
|
149,402
|
|
$
|
1,016,345
|
|
||
(a) Reclassification of leasehold intangibles to right of use assets related to the adoption of ASC 842.
The Company's indefinite-lived intangible assets consist of broadcasting licenses and trademarks, while the Company's definite-lived intangible assets consist of broadcast advertising and affiliate relationships.
The Company performs impairment testing of its broadcasting licenses annually as of December 31 of each year and on an interim basis if events or circumstances indicate that broadcasting licenses may be impaired. The Company reviews the carrying value of its other intangible assets, primarily trademarks, broadcast advertising and affiliate relationships for recoverability prior to its annual impairment test and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events and circumstances did not necessitate any interim impairment tests during the three and nine months ended
September 30, 2019
.
7. Long-Term Debt
The Company’s long-term debt consisted of the following as of
September 30, 2019
and
December 31, 2018
(dollars in thousands):
|
September 30, 2019
|
December 31, 2018
|
||||||
|
Term Loan due 2022
|
$
|
—
|
|
$
|
1,230,299
|
|
|
|
Plus: current portion of Term Loan due 2022
|
—
|
|
13,000
|
|
|||
|
Less: unamortized debt issuance costs
|
—
|
|
—
|
|
|||
|
Total Term Loan due 2022
|
—
|
|
1,243,299
|
|
|||
|
Term Loan due 2026
|
$
|
519,750
|
|
$
|
—
|
|
|
|
Plus: current portion of Term Loan due 2026
|
5,250
|
|
—
|
|
|||
|
Less: unamortized debt issuance costs
|
(5,126
|
)
|
—
|
|
|||
|
Total Term Loan due 2026
|
519,874
|
|
—
|
|
|||
|
6.75% Senior Notes
|
500,000
|
|
—
|
|
|||
|
Less: unamortized debt issuance costs
|
(7,109
|
)
|
—
|
|
|||
|
Total 6.75% Senior Notes
|
492,891
|
|
—
|
|
|||
|
Long-term debt, net
|
$
|
1,012,765
|
|
$
|
1,243,299
|
|
|
Credit Agreement (Term Loan due 2022)
On the Effective Date pursuant to the terms of the Plan, Cumulus Media New Holdings Inc., a Delaware corporation (“Holdings”) and an indirectly wholly-owned subsidiary of the Company, and certain of the Company’s other subsidiaries, entered into the credit agreement with Wilmington Trust, National Association, as Administrative Agent and the other banks and financial institutions party thereto as Lenders (the "Credit Agreement"), which replaced the Amended and Restated Credit Agreement, dated as of December 23, 2013, by and among Cumulus Media Inc., Cumulus Media Holdings Inc., as borrower, certain lenders, JPMorgan Chase Bank, N.A., as lender and Administrative Agent, Royal Bank of Canada and Macquarie Capital (USA) Inc., as co-syndication
16
agents, and Credit Suisse AG, Cayman Islands Branch, Fifth Third Bank, Goldman Sachs Bank USA and ING Capital LLC, as co-documentation agents (the "Canceled Credit Agreement”), pursuant to which Old Cumulus had outstanding term loans in the amount of
$1.7 billion
(the “Predecessor Term Loan”). Pursuant to the Credit Agreement, the lenders party thereto were deemed to have provided Holdings and its subsidiaries that are party thereto as co-borrowers with a
$1.3 billion
senior secured Term Loan (the “Term Loan due 2022”).
On March 18, 2019, the Company purchased
$25.4 million
of face value of the Term Loan for
$25.0 million
, a discount to par value of
1.50%
. On June 5, 2019, with the proceeds from the EMF Sale (see Note 3 - Acquisitions and Dispositions) and cash on hand, the Company made a
$115.0 million
voluntary prepayment at par on the Term Loan. On June 26, 2019, the Company used the net proceeds from the issuance of the
6.75%
Senior Notes (see below) to make a
$492.7 million
voluntary prepayment at par on the Term Loan. On July 22, 2019, with the proceeds from the KLOS Sale (see Note 3 - Acquisitions and Dispositions) and cash on hand, the Company made a
$50.0 million
voluntary prepayment at par on the Term Loan due 2022. On September 26, 2019, the Company repaid
$28.7 million
via a voluntary prepayment at par in conjunction with the refinancing of the Credit Agreement (see below).
Refinanced Credit Agreement (Term Loan due 2026)
On September 26, 2019, the Company refinanced all of the remaining Term Loan due 2022 under the Credit Agreement (the “Refinanced Credit Agreement”), by and among Holdings, certain other subsidiaries of the Company, Bank of America, N.A., as Administrative Agent, and the other banks and financial institutions party thereto as Lenders. Pursuant to the Refinanced Credit Agreement, the lenders party thereto provided Holdings and its subsidiaries that are party thereto as co-borrowers with a
$525.0 million
senior secured Term Loan (the “Term Loan due 2026”)
Amounts outstanding under the Refinanced Credit Agreement bear interest at a per annum rate equal to (i) the London Inter-bank Offered Rate (“LIBOR”) plus an applicable margin of
3.75%
, subject to a LIBOR floor of
1.00%
, or (ii) the Alternative Base Rate (as defined below) plus an applicable margin of
2.75%
, subject to an Alternative Base Rate floor of
2.00%
. The Alternative Base Rate is defined, for any day, as the per annum rate equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1.0%, (ii) the rate identified by Bank of America, N.A. as its "Prime Rate" and (iii) one-month LIBOR plus
1.0%
. At September 30, 2019, the Term Loan due 2026 bore interest at a rate of
5.80%
per annum.
Amounts outstanding under the Term Loan due 2026 amortize in equal quarterly installments of
0.25%
of the original principal amount of the Term Loan due 2026 with the balance payable on the maturity date. The maturity date of the Term Loan is March 26, 2026.
The Refinanced Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Refinanced 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 Holdings or any of its subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use, any one or more of, any material FCC licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the Refinanced Credit Agreement). Upon the occurrence of an event of default, the Administrative Agent may, with the consent of, or upon the request of, the required lenders, accelerate the Term Loan due 2026 and exercise any of its rights as a secured party under the Refinanced Credit Agreement and the ancillary loan documents provided, that in the case of certain bankruptcy or insolvency events with respect to a borrower, the Term Loan due 2026 will automatically accelerate.
The Refinanced Credit Agreement does not contain any financial maintenance covenants. The Refinanced Credit Agreement provides that Holdings will be permitted to enter into either a revolving credit facility or receivables facility, subject to certain conditions (see below).
The borrowers may elect, at their option, to prepay amounts outstanding under the Refinanced Credit Agreement without premium or penalty. The borrowers may be required to make mandatory prepayments of the Term Loan due 2026 upon the occurrence of specified events as set forth in the Refinanced Credit Agreement, including upon the sale of certain assets and from Excess Cash Flow (as defined in the Refinanced Credit Agreement).
Amounts outstanding under the Refinanced Credit Agreement are guaranteed by Cumulus Media Intermediate Inc. (“Intermediate Holdings”), which is a subsidiary of the Company, and the present and future wholly-owned subsidiaries of Holdings that are not borrowers thereunder, subject to certain exceptions as set forth in the Refinanced Credit Agreement (the “Guarantors”)
17
and secured by a security interest in substantially all of the assets of Holdings, the subsidiaries of Holdings party to the Refinanced Credit Agreement as borrowers, and the Guarantors.
The Refinanced Credit Agreement was evaluated in accordance with ASC 470-50-40 -
Debt-Modifications and Extinguishments-Derecognition
, to determine whether the refinancing transaction should be accounted for as a debt modification or extinguishment of the Term Loan due 2022. Each lender involved in the refinancing transaction was analyzed to determine if its participation was a debt modification or an extinguishment. The exiting lenders who chose not to participate in the Term Loan due 2026 were determined to be accounted for as extinguishments. Debt discounts and costs incurred with third parties for the issuance of the Term Loan due 2026 totaling
$3.6 million
for new lenders were capitalized and amortized over the term of the Term Loan due 2026. An additional
$1.5 million
of debt discount for the issuance of the Term Loan due 2026 were capitalized for continuing lenders deemed to be modified. These capitalized fees associated with new and continuing lenders are presented as cash flows from financing activities on the Consolidated Statements of Cash Flows. Costs incurred with third-parties for the issuance of the Term Loan due 2026 of
$3.5 million
related to modification for continuing lenders were expensed and included in Interest Expense in Consolidated Statements of Operations.
Revolving Credit Agreement
On August 17, 2018, Holdings entered into a
$50.0 million
revolving credit facility (the “Revolving Credit Facility”) pursuant to a credit agreement (the “Revolving Credit Agreement”), dated as of August 17, 2018, with certain subsidiaries of Holdings as borrowers, Intermediate Holdings as a guarantor, certain lenders, and Deutsche Bank AG New York Branch as a lender and Administrative Agent.
The Revolving Credit Facility matures on August 17, 2023. Availability under the Revolving Credit Facility is generally determined by a borrowing base formula that includes 85% of the accounts receivable of the borrowers and the guarantors, subject to customary reserves and eligibility criteria. Under the Revolving Credit Facility, up to
$10.0 million
of availability may be drawn in the form of letters of credit.
Borrowings under the Revolving Credit Facility bear interest, at the option of Holdings, based on (i) LIBOR plus a percentage spread (ranging from
1.25
% to
1.75
%) based on the average daily excess availability under the Revolving Credit Facility or (ii) the Alternative Base Rate (as defined below) plus a percentage spread (ranging from
0.25
% to
0.75
%) based on the average daily excess availability under the Revolving Credit Facility. The Alternative Base Rate is defined, for any day, as the per annum rate equal to the highest of (i) the federal funds rate plus 1/2 of 1.0%, (ii) the rate identified as the “Prime Rate” and normally published in the Money Rates section of the Wall Street Journal, and (iii) one-month LIBOR plus
1.0
%. In addition, the unused portion of the Revolving Credit Facility is subject to a commitment fee ranging from
0.250
% to
0.375
% based on the utilization of the facility.
The Revolving Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Revolving Credit Agreement include, among others: (a) the failure to pay when due the obligations owing thereunder; (b) the failure to 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 Holdings or any of its subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use, any one or more of, any material Federal Communications Commission licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the Revolving Credit Agreement). Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans then outstanding and exercise any of their rights under the Revolving Credit Agreement and the ancillary loan documents as a secured party.
The Revolving Credit Agreement does not contain any financial maintenance covenants with which the Company must comply. However, if average excess availability under the Revolving Credit Facility is less than the greater of (a)
12.50
% of the total commitments thereunder or (b)
$5.0 million
, the Company must comply with a fixed charge coverage ratio of not less than
1
.0:1.0.
Amounts outstanding under the Revolving Credit Agreement are guaranteed by Intermediate Holdings and the present and future wholly-owned subsidiaries of Holdings that are not borrowers thereunder, subject to certain exceptions as set forth in the Revolving Credit Agreement (the “Revolver Guarantors”) and secured by a security interest in substantially all of the assets of Holdings, the subsidiaries of Holdings party to the Credit Agreement and Refinanced Credit Agreement as borrowers, and the Revolver Guarantors.
18
As of
September 30, 2019
, and December 31, 2018,
$3.4 million
and
$2.8 million
were outstanding in the form of letters of credit under the Revolving Credit Facility, respectively. As of September 30, 2019, the Company was in compliance with all required covenants under the Revolving Credit Agreement.
6.75%
Senior Notes
On June 26, 2019, Holdings (the “Issuer”), and certain of the Company's other subsidiaries, entered into an indenture, dated as of June 26, 2019 (the “Indenture”) with U.S. Bank National Association, as trustee, governing the terms of the Issuer’s
$500,000,000
aggregate principal amount of
6.75%
Senior Secured First-Lien Notes due 2026 (the “
6.75%
Senior Notes”). The
6.75%
Senior Notes were issued on June 26, 2019. The net proceeds from the issuance of the
6.75%
Senior Notes were applied to partially repay existing indebtedness under the Term Loan due 2022 (see above).
Interest on the
6.75%
Senior Notes is payable on January 1 and July 1 of each year, commencing on January 1, 2020. The
6.75%
Senior Notes mature on July 1, 2026.
The Issuer may redeem some or all of the
6.75%
Senior Notes at any time, or from time to time, on or after July 1, 2022, at the following prices:
|
Year
|
Price
|
||
|
2022
|
103.7500
|
%
|
|
|
2023
|
101.6875
|
%
|
|
|
2024 and thereafter
|
100.0000
|
%
|
|
Prior to July 1, 2022, the Issuer may redeem all or part of the
6.75%
Senior Notes upon not less than 30 nor more than 60 days' prior notice, at
100%
of the principal amount of the
6.75%
Notes redeemed plus a "make whole" premium.
The
6.75%
Senior Notes are fully and unconditionally guaranteed by Intermediate Holdings and the present and future wholly-owned subsidiaries of Holdings (the "Senior Notes Guarantors"), subject to the terms of the Indenture. Other than certain assets secured on a first priority basis under the Revolving Credit Facility (as to which the
6.75%
Senior Notes are secured on a second-priority basis), the
6.75%
Senior Notes and related guarantees are secured on a first-priority basis pari passu with the Term Loan due 2026 (subject to certain exceptions) by liens on substantially all of the assets of the Issuer and the Senior Notes Guarantors.
The Indenture contains representations, covenants and events of default customary for financing transactions of this nature. At September 30, 2019, the Issuer was in compliance with all required covenants under the Indenture. A default under the
6.75%
Senior Notes could cause a default under the Refinanced Credit Agreement.
The
6.75%
Senior Notes have not been and will not be registered under the federal securities laws or the securities laws of any state or any other jurisdiction. The Company is not required to register the
6.75%
Senior Notes for resale under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any other jurisdiction and is not required to exchange the
6.75%
Senior Notes for notes registered under the Securities Act or the securities laws of any other jurisdiction and has no present intention to do so. As a result, Rule 3-10 of Regulation S-X promulgated by the Securities and Exchange Commission is not applicable and no separate financial statements are required for the guarantor subsidiaries.
19
8. Fair Value Measurements
The following table shows the gross amount and fair value of the Term Loan due 2022, Term Loan due 2026 and
6.75%
Senior Notes (dollars in thousands):
|
September 30, 2019
|
December 31, 2018
|
||||||
|
Term Loan due 2022:
|
|
||||||
|
Gross value
|
$
|
—
|
|
$
|
1,243,299
|
|
|
|
Fair value - Level 2
|
—
|
|
1,182,688
|
|
|||
|
Term Loan due 2026:
|
|||||||
|
Gross value
|
$
|
525,000
|
|
—
|
|
||
|
Fair value - Level 2
|
525,656
|
|
—
|
|
|||
|
6.75% Senior Notes:
|
|||||||
|
Gross value
|
$
|
500,000
|
|
$
|
—
|
|
|
|
Fair value - Level 2
|
523,595
|
|
—
|
|
|||
As of
September 30, 2019
, the Company used trading prices from a third party of
100.13%
and
104.72%
to calculate the fair value of the Term Loan due 2026 and the
6.75%
Senior Notes, respectively.
As of
December 31, 2018
, the Company used trading prices from a third party of
95.13%
to calculate the fair value of the Term Loan due 2022.
9. Income Taxes
For the three months ended September 30, 2019 the Company recorded income tax expense of
$6.6 million
on pre-tax book income of
$23.0 million
, resulting in an effective tax rate of approximately
28.9%
. For the three months ended September 30, 2018, the Company recorded income tax expense of
$5.1 million
on pre-tax book income of
$17.8 million
, resulting in an effective tax rate of approximately
28.5%
.
For the nine months ended September 30, 2019 the Successor Company recorded income tax expense of
$23.5 million
on pre-tax book income of
$83.1 million
, resulting in an effective tax rate of approximately
28.2%
. For the Successor Company period June 4, 2018 through September 30, 2018, the Company recorded income tax expense of
$7.7 million
on pre-tax book income of
$25.4 million
, resulting in an effective tax rate of approximately
30.3%
. For the Predecessor Company period January 1, 2018 through June 3, 2018, the Predecessor Company recorded an income tax benefit of
$176.9 million
on pre-tax book income of
$519.3 million
, resulting in an effective tax rate of approximately
(34.1)%
.
The difference between the effective tax rate and the federal statutory rate of 21.0% for the three months and nine months ended September 30, 2019 primarily relates to state and local income taxes, the effect of certain statutory non-deductible expenses, excess tax benefits related to share-based compensation awards, and the tax effect of changes in uncertain tax positions.
The difference between the effective tax rate and the federal statutory rate of 21.0% for the three months ended September 30, 2018 and the Successor Company period June 4, 2018 through September 30, 2018 was attributable to state and local income taxes, the tax effect of certain statutory non-deductible expenses, changes in valuation allowance, and the tax effect of certain changes in uncertain tax positions.
The difference between the effective tax rate and the federal statutory rate of 21.0% for the Predecessor Company period January 1, 2018 through June 3, 2018 primarily related to the income tax exclusion of cancellation of indebtedness income, the Company's elections to increase the tax basis in certain assets, statutory state and local income taxes, the impact of non-deductible expenses, and changes to the valuation allowance.
The Company recognizes the benefits of deferred tax assets only as its assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740,
Income Taxes
("ASC 740"). The Company reviews the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize existing deferred tax assets. As of September 30, 2019, the Company has not recorded a valuation allowance since the Company continues to believe, on the basis of its evaluation, that its deferred tax assets meet the more likely than not recognition standard for recovery. The Company will continue to monitor the valuation of deferred tax assets, which requires judgment in
20
assessing the likely future tax consequences of events that are recognized in the Company's financial statements or tax returns as well as judgment in projecting future profitability.
10. Stockholders' Equity
Common Stock
Pursuant to the Company’s amended and restated certificate of incorporation (the “Charter”), the Company is authorized to issue an aggregate of
300,000,000
shares of stock divided into three classes consisting of: (i)
100,000,000
shares of new Class A common stock; (ii)
100,000,000
shares of new Class B common stock; and (iii)
100,000,000
shares of preferred stock.
As of
September 30, 2019
, the Successor Company had
17,599,176
aggregate issued shares of common stock, and
17,531,343
outstanding shares consisting of: (i)
15,551,068
issued shares and
15,483,235
outstanding shares designated as Class A common stock; and (ii)
2,048,108
issued and outstanding shares designated as Class B common stock.
Stock Purchase Warrants
On the Effective Date, the Company entered into a warrant agreement (the “Warrant Agreement”) with Computershare Inc., a Delaware corporation, and its wholly-owned subsidiary, Computershare Trust Company, N.A., a federally chartered trust company, as warrant agent. In accordance with the Plan and pursuant to the Warrant Agreement, on the Effective Date, the Company (i) issued
3,016,853
Series 1 warrants (the “Series 1 warrants”) to purchase shares of new Class A common stock or new Class B common stock, on a one-for-one basis with an exercise price of
$0.0000001
per share, to certain claimants with claims against the Predecessor Company and (ii) issued or will issue
712,736
Series 2 warrants (the “Series 2 warrants” and, together with the Series 1 warrants the “Warrants”) to purchase shares of new Class A common stock or new Class B common stock on a one-for-one basis with an exercise price of
$0.0000001
per share, to other claimants. The Warrants expire on June 4, 2038.
11. Stock-Based Compensation Expense
In accordance with the Plan and with the approval of the Board, the Long-Term Incentive Plan (the “Incentive Plan”) became effective as of the Effective Date. The Incentive Plan is intended to, among other things, help attract, motivate and retain key employees and directors and to reward them for making major contributions to the success of the Company. The Incentive Plan permits awards to be made to employees, directors, or consultants of the Company or an affiliate of the Company.
On or about the Effective Date and pursuant to the Plan, the Company granted
562,217
restricted stock units (“RSUs”) and
562,217
stock options (“Options”) under the Incentive Plan and the terms of the relevant restricted stock unit agreements (the “Restricted Stock Unit Agreements”) and stock option agreements (the “Option Agreements”), as applicable, to certain employees, including its executive officers (collectively, “Management”), representing an aggregate of
1,124,434
shares of new Class A common stock (collectively, the “Management Emergence Awards”). The Company granted to Management an additional
200,600
RSUs on February 1, 2019 and an additional
10,000
RSUs on May 1, 2019.
In addition, on or about the Effective Date and pursuant to the Plan, the Company granted each non-employee director certain RSUs and Options under the Incentive Plan and the terms of the relevant Restricted Stock Unit Agreements and Option Agreements, as applicable, representing an aggregate of
56,721
shares of new Class A common stock (the “Director Emergence Awards”). On April 30, 2019, the Company granted an additional
37,555
RSUs to its non-employee directors.
The following table discloses the total grants awarded for the Successor Company and Predecessor Company periods presented below:
|
Successor Company
|
Predecessor Company
|
|||||||||||
|
Three Months Ended September 30, 2019
|
Nine Months Ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
|||||||||
|
Stock option grants
|
—
|
|
—
|
|
581,124
|
|
—
|
|
||||
|
Restricted stock unit grants
|
—
|
|
248,155
|
|
600,031
|
|
—
|
|
||||
|
Total grants
|
—
|
|
248,155
|
|
1,181,155
|
|
—
|
|
||||
21
The following tables disclose total share-based compensation expense included in “Corporate expenses” in the accompanying Condensed Consolidated Statements of Operations for the Successor Company and Predecessor Company periods presented below (in thousands):
|
Three Months Ended September 30, 2019
|
Three Months Ended September 30, 2018
|
||||||
|
Stock option grants
|
$
|
315
|
|
$
|
134
|
|
|
|
Restricted stock unit grants
|
1,177
|
|
997
|
|
|||
|
Total expense
|
$
|
1,492
|
|
$
|
1,131
|
|
|
|
Successor Company
|
Predecessor Company
|
|||||||||||
|
Nine Months Ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
||||||||||
|
Stock option grants
|
$
|
930
|
|
$
|
466
|
|
$
|
231
|
|
|||
|
Restricted stock unit grants
|
2,876
|
|
1,317
|
|
—
|
|
||||||
|
Total expense
|
$
|
3,806
|
|
$
|
1,783
|
|
$
|
231
|
|
|||
12. Earnings Per Share
The Company calculates basic earnings per share by dividing net income by the weighted average number of common shares outstanding, excluding unvested restricted shares. The Company calculates diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of all outstanding share-based awards, including stock options and restricted stock awards. Warrants generally are included in basic and diluted shares outstanding because there is little or no consideration paid upon exercise of the Warrants. Antidilutive instruments are not considered in this calculation. The Company applies the two-class method to calculate earnings per share. Because both classes share the same rights in dividends and earnings, earnings per share (basic and diluted) are the same for both classes.
22
The following table presents the basic and diluted earnings per share, and the reconciliation of basic to diluted weighted average common shares (in thousands):
|
|
Three Months Ended September 30, 2019
|
Three Months Ended September 30, 2018
|
||||||
|
Basic Earnings Per Share
|
||||||||
|
Numerator:
|
||||||||
|
Undistributed net income from operations
|
$
|
16,323
|
|
$
|
12,713
|
|
||
|
Basic net income attributable to common shares
|
$
|
16,323
|
|
$
|
12,713
|
|
||
|
Denominator:
|
||||||||
|
Basic weighted average shares outstanding
|
20,165
|
|
20,005
|
|
||||
|
Basic undistributed net income per share attributable to common shares
|
$
|
0.81
|
|
$
|
0.64
|
|
||
|
|
|
|||||||
|
Diluted Earnings Per Share
|
||||||||
|
Numerator:
|
||||||||
|
Undistributed net income from operations
|
$
|
16,323
|
|
$
|
12,713
|
|
||
|
Diluted net income attributable to common shares
|
$
|
16,323
|
|
$
|
12,713
|
|
||
|
Denominator:
|
||||||||
|
Basic weighted average shares outstanding
|
20,165
|
|
20,005
|
|
||||
|
Effect of dilutive options and restricted share units
|
51
|
|
65
|
|
||||
|
Diluted weighted average shares outstanding
|
20,216
|
|
20,070
|
|
||||
|
Diluted undistributed net income per share attributable to common shares
|
$
|
0.81
|
|
$
|
0.63
|
|
||
|
Successor Company
|
Predecessor Company
|
|||||||||||
|
|
Nine Months Ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
|||||||||
|
Basic Earnings Per Share
|
||||||||||||
|
Numerator:
|
||||||||||||
|
Undistributed net income from operations
|
$
|
59,635
|
|
$
|
17,693
|
|
$
|
696,156
|
|
|||
|
Basic net income attributable to common shares
|
$
|
59,635
|
|
$
|
17,693
|
|
$
|
696,156
|
|
|||
|
Denominator:
|
||||||||||||
|
Basic weighted average shares outstanding
|
20,116
|
|
20,009
|
|
29,338
|
|
||||||
|
Basic undistributed net income per share attributable to common shares
|
$
|
2.96
|
|
$
|
0.88
|
|
$
|
23.73
|
|
|||
|
Diluted Earnings Per Share
|
||||||||||||
|
Numerator:
|
||||||||||||
|
Undistributed net income from operations
|
$
|
59,635
|
|
$
|
17,693
|
|
$
|
696,156
|
|
|||
|
Diluted net income attributable to common shares
|
$
|
59,635
|
|
$
|
17,693
|
|
$
|
696,156
|
|
|||
|
Denominator:
|
||||||||||||
|
Basic weighted average shares outstanding
|
20,116
|
|
20,009
|
|
29,338
|
|
||||||
|
Effect of dilutive options and restricted share units
|
134
|
|
42
|
|
—
|
|
||||||
|
Diluted weighted average shares outstanding
|
20,250
|
|
20,051
|
|
29,338
|
|
||||||
|
Diluted undistributed net income per share attributable to common shares
|
$
|
2.95
|
|
$
|
0.88
|
|
$
|
23.73
|
|
|||
23
13. Leases
As described in Note 1, the Company adopted ASU 2016-02 ("ASC 842") effective January 1, 2019 using a modified retrospective approach and elected the practical expedients allowed under the standard.
The Company has entered into various lease agreements both as the lessor and lessee. The leases have been classified as either operating or finance leases in accordance with ASC 842, and primarily consist of leases for land, tower space, office space, certain office equipment and vehicles. The Company also has sublease arrangements that provide a nominal amount of income. A right-of-use asset and lease liability have been recorded on the balance sheet for all leases except those with an original lease term of twelve months or less. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As a lessor, we reserve the rights to the underlying assets in our agreements and do not expect to derive any amounts at the end of the lease terms.
The Company's leases typically have lease terms between
five
to
ten years
. Most of these leases include one or more renewal options for periods ranging from
one
to
ten years
. At lease commencement, the Company assesses whether it is reasonably certain to exercise a renewal option. Options that are reasonably certain of being exercised are factored into the determination of the lease term, and related payments are included in the calculation of the right-of-use asset and lease liability. The Company assumes that certain tower and land leases will be renewed for one additional term.
The Company estimates the discount rate used to determine the present value of lease payments based on information available at lease commencement.
The following table presents the Company's total right-of-use assets and lease liabilities as of September 30, 2019 (dollars in thousands):
|
Balance Sheet Location
|
September 30, 2019
|
|||||
|
Right-of-Use Assets
|
||||||
|
Operating
|
Operating lease right-of-use assets
|
$
|
148,321
|
|
||
|
Finance, net of accumulated amortization of $267
|
Other assets
|
412
|
|
|||
|
Total Assets
|
$
|
148,733
|
|
|||
|
Liabilities
|
||||||
|
Current
|
||||||
|
Operating
|
Current portion of operating lease liabilities
|
$
|
35,371
|
|
||
|
Finance
|
Accounts payable and accrued liabilities
|
269
|
|
|||
|
Noncurrent
|
||||||
|
Operating
|
Operating lease liabilities
|
114,591
|
|
|||
|
Finance
|
Other liabilities
|
144
|
|
|||
|
Total Liabilities
|
$
|
150,375
|
|
|||
The following table presents the total lease cost for the three and nine months ended September 30, 2019 (dollars in thousands):
|
Statement of Operations Location
|
Three Months Ended September 30, 2019
|
Nine Months Ended September 30, 2019
|
||||||||
|
Operating Lease Cost
|
Selling, general and administrative expenses; Corporate expenses
|
$
|
9,041
|
|
$
|
28,836
|
|
|||
|
Finance Lease Cost
|
||||||||||
|
Amortization of right-of-use assets
|
Depreciation and amortization
|
99
|
|
322
|
|
|||||
|
Interest on lease liabilities
|
Interest expense
|
10
|
|
34
|
|
|||||
|
Total Lease Cost
|
$
|
9,150
|
|
$
|
29,192
|
|
||||
Total lease income related to our lessor arrangements was
$0.7 million
and
$2.1 million
for the three and nine months ended September 30, 2019.
24
Other Supplementary Data
|
Three Months Ended September 30, 2019
|
Nine Months Ended September 30, 2019
|
|||||||
|
Cash paid for amounts included in the measurement of lease liabilities
|
||||||||
|
Operating cash flows from operating leases
|
$
|
5,911
|
|
$
|
16,412
|
|
||
|
Operating cash flows from finance leases
|
10
|
|
34
|
|
||||
|
Financing cash flows from finance leases
|
97
|
|
320
|
|
||||
|
Financing cash flows from failed sale leaseback
|
298
|
|
894
|
|
||||
|
Right-of-use assets obtained in exchange for lease obligations:
|
||||||||
|
Operating leases
|
$
|
5,980
|
|
$
|
21,203
|
|
||
|
September 30, 2019
|
|||
|
Weighted Average Remaining Lease Term (in years)
|
|||
|
Operating leases
|
8.06
|
|
|
|
Finance leases
|
2.21
|
|
|
|
Weighted Average Discount Rate
|
|||
|
Operating leases
|
7.47
|
%
|
|
|
Finance leases
|
7.50
|
%
|
|
As of September 30, 2019, future minimum lease payments, as defined under ASC 842, for the following five fiscal years and thereafter were as follows (dollars in thousands):
|
Operating Leases
|
Finance Leases
|
Total
|
||||||||||
|
2019
|
$
|
8,540
|
|
$
|
96
|
|
$
|
8,636
|
|
|||
|
2020
|
32,753
|
|
206
|
|
32,959
|
|
||||||
|
2021
|
26,474
|
|
99
|
|
26,573
|
|
||||||
|
2022
|
24,300
|
|
38
|
|
24,338
|
|
||||||
|
2023
|
22,530
|
|
6
|
|
22,536
|
|
||||||
|
Thereafter
|
88,158
|
|
—
|
|
88,158
|
|
||||||
|
Total lease payments
|
$
|
202,755
|
|
$
|
445
|
|
$
|
203,200
|
|
|||
|
Less: imputed interest
|
(52,794
|
)
|
(31
|
)
|
(52,825
|
)
|
||||||
|
Total
|
$
|
149,961
|
|
$
|
414
|
|
$
|
150,375
|
|
|||
25
As of December 31, 2018, future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840,
Leases
, under non-cancelable operating leases for the following five fiscal years and thereafter were as follows (dollars in thousands):
|
Year Ending December 31:
|
Future Minimum Rent Under Operating Leases
|
Future Minimum Sublease Income
|
Future Minimum Commitments Under Failed Sale Leaseback Agreement
|
Net Commitments
|
||||||||||||
|
2019
|
$
|
34,356
|
|
$
|
(1,719
|
)
|
$
|
1,193
|
|
$
|
33,830
|
|
||||
|
2020
|
29,242
|
|
(1,719
|
)
|
1,557
|
|
29,080
|
|
||||||||
|
2021
|
22,717
|
|
—
|
|
1,603
|
|
24,320
|
|
||||||||
|
2022
|
19,885
|
|
—
|
|
1,650
|
|
21,535
|
|
||||||||
|
2023
|
16,280
|
|
—
|
|
1,701
|
|
17,981
|
|
||||||||
|
Thereafter
|
45,959
|
|
—
|
|
2,052
|
|
48,011
|
|
||||||||
|
$
|
168,439
|
|
$
|
(3,438
|
)
|
$
|
9,756
|
|
$
|
174,757
|
|
|||||
Future minimum payments related to the Company's failed sale-leaseback as of September 30, 2019 were as follows (dollars in thousands):
|
Total
|
||||
|
2019
|
$
|
298
|
|
|
|
2020
|
1,557
|
|
||
|
2021
|
1,603
|
|
||
|
2022
|
1,650
|
|
||
|
2023
|
1,701
|
|
||
|
Thereafter
|
2,052
|
|
||
|
Total lease payments
|
$
|
8,861
|
|
|
Future minimum payments to be received under the Company's lessor arrangements as of September 30, 2019 were as follows (dollars in thousands):
|
Operating Leases
|
||||
|
2019
|
$
|
764
|
|
|
|
2020
|
2,785
|
|
||
|
2021
|
2,225
|
|
||
|
2022
|
1,940
|
|
||
|
2023
|
1,503
|
|
||
|
Thereafter
|
2,559
|
|
||
|
Total lease receivables
|
$
|
11,776
|
|
|
14. Commitments and Contingencies
Future Commitments
The radio broadcast industry’s principal ratings service is Nielsen Audio (“Nielsen”), which publishes surveys for domestic radio markets. Certain of the Company’s subsidiaries have agreements with Nielsen under which they receive programming ratings information. The remaining aggregate obligation under the agreements with Nielsen is approximately
$114.0 million
, as of
September 30, 2019
, and is expected to be paid in accordance with the agreements through December 2021.
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, based upon a formula set forth in the contract.
The Company is committed under various contractual agreements to pay for broadcast rights that include sports and news content and to pay for talent, executives, research, weather and traffic information and other content and 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. As of September 30, 2019, the Company believes that it will meet all such material minimum obligations.
Legal Proceedings
In August 2015, the Company was named as a defendant in two separate putative class action lawsuits relating to its use and public performance of certain sound recordings fixed prior to February 15, 1972 (the "Pre-1972 Recordings"). The first suit, ABS Entertainment, Inc., et. al. v, Cumulus Media Inc., was filed in the United States District Court for the Central District of California and alleged, among other things, copyright infringement under California state law, common law conversion, misappropriation and unfair business practices. On December 11, 2015, this suit was dismissed without prejudice. The second suit, ABS Entertainment, Inc., v. Cumulus Media Inc., was filed in the United States District Court for the Southern District of New York and claimed, among other things, common law copyright infringement and unfair competition. The New York lawsuit was stayed pending an appeal before the Second Circuit involving unrelated third parties over whether the owner of a Pre-1972 Recording holds an exclusive right to publicly perform that recording under New York common law. On December 20, 2016, the
26
New York Court of Appeals held that New York common law does not recognize a right of public performance for owners of pre-1972 Recordings. As a result of that case (to which Cumulus Media Inc. was not a party) the New York case against Cumulus Media Inc., was voluntarily dismissed by the plaintiffs on April 3, 2017. On October 11, 2018, President Trump signed the Orrin G. Hatch-Bob Goodlatte Music Modernization Act into law, which, among other things, provides new federal rights going forward for owners of pre-1972 Recordings. The question of whether public performance rights existed for Pre-1972 recordings under state law prior to the enactment of the new Music Modernization Act is still being litigated in the Ninth Circuit as a result of a case filed in California. Cumulus is not a party to that case, and the Company is not yet able to determine what effect that proceeding will have, if any, on its financial position, results of operations or cash flows.
The Company currently is, and expects that from time to time in the future it will be, party to, or a defendant in, various other claims or lawsuits that are generally incidental to its business. The Company expects that it will vigorously contest any such claims or lawsuits and believes that the ultimate resolution of any such known claim or lawsuit will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion of our financial condition and results of operations should be read in conjunction with the other information contained in this Form 10-Q, including our unaudited Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q, as well as our audited Consolidated Financial Statements and notes thereto contained in our Annual Report on Form 10-K for the year ended
December 31, 2018
filed with the SEC. This discussion, as well as various other sections of this Form 10-Q, contain and refer 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 are any statements other than those of historical fact and 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. For more information, see “Cautionary Statements Regarding Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.
Emergence from Chapter 11
See "Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 1 — Nature of Business, Interim Financial Data and Basis of Presentation", for a discussion of our Emergence from Chapter 11.
Non-GAAP Financial Measure
From time to time we utilize certain financial measures that are not prepared or calculated in accordance with GAAP to assess our financial performance and profitability. Consolidated adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”) is the financial metric by which management and the chief operating decision maker allocate resources of the Company and analyze the performance of the Company as a whole. Management also uses this measure to determine the contribution of our core operations to the funding of our corporate resources utilized to manage our operations and the funding of our non-operating expenses including debt service and acquisitions.
In determining Adjusted EBITDA, the Company excludes from net income items not related to core operations and those that are non-cash including: interest, taxes, depreciation, amortization, stock-based compensation expense, gain or loss on the exchange, sale, or disposal of any assets or stations or on the early extinguishment of debt, local marketing agreement fees, expenses relating to acquisitions, divestitures, restructuring costs, reorganization items and non-cash impairments of assets, if any.
Management believes that Adjusted EBITDA, although not a measure that is calculated in accordance with GAAP, is commonly employed by the investment community as a measure for determining the market value of a media company and comparing the operational and financial performance among media companies. Management has also observed that Adjusted EBITDA is routinely utilized to evaluate and negotiate the potential purchase price for media companies. 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 (loss), operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with GAAP. In addition, Adjusted EBITDA may be defined or calculated differently by other companies, and comparability may be limited.
27
Consolidated Results of Operations
Analysis of Consolidated Results of Operations
The Company's operating results and key operating performance measures were not materially impacted by our emergence from Chapter 11. We believe the results of operations and cash flows from January 1, 2018 through June 3, 2018 (the "2018 Predecessor Period") when combined with our consolidated operating results for the period from June 4, 2018 through September 30, 2018 (the "2018 Successor Period," and together with the 2018 Predecessor Period, the "Combined 2018 Predecessor Period and Successor Period") are comparable to certain operating results from the current year Successor Company nine months ended September 30, 2019. The three month period ended September 30, 2019 compared to the three month period ended September 30, 2018 are both Successor Company and are not impacted by the emergence from Chapter 11. For items that are not comparable, we have included additional analysis to supplement the discussion.
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, 2019
|
Three Months Ended September 30, 2018
|
2019 vs 2018 Change
|
|||||||||||||
|
$
|
%
|
||||||||||||||
|
STATEMENT OF OPERATIONS DATA:
|
|||||||||||||||
|
Net revenue
|
$
|
280,808
|
|
$
|
282,254
|
|
$
|
(1,446
|
)
|
(0.5
|
)%
|
||||
|
Content costs
|
98,335
|
|
98,494
|
|
(159
|
)
|
(0.2
|
)%
|
|||||||
|
Selling, general and administrative expenses
|
115,289
|
|
114,345
|
|
944
|
|
0.8
|
%
|
|||||||
|
Depreciation and amortization
|
11,885
|
|
14,142
|
|
(2,257
|
)
|
(16.0
|
)%
|
|||||||
|
Local marketing agreement fees
|
902
|
|
1,006
|
|
(104
|
)
|
(10.3
|
)%
|
|||||||
|
Corporate expenses (including stock-based compensation expense and restructuring costs)
|
11,905
|
|
10,878
|
|
1,027
|
|
9.4
|
%
|
|||||||
|
(Gain) loss on sale or disposal of assets or stations
|
(8,188
|
)
|
34
|
|
(8,222
|
)
|
N/A
|
|
|||||||
|
Impairment of assets held for sale
|
5,000
|
|
—
|
|
5,000
|
|
N/A
|
|
|||||||
|
Operating income
|
45,680
|
|
43,355
|
|
2,325
|
|
5.4
|
%
|
|||||||
|
Interest expense
|
(22,754
|
)
|
(22,403
|
)
|
(351
|
)
|
1.6
|
%
|
|||||||
|
Interest income
|
9
|
|
16
|
|
(7
|
)
|
(43.8
|
)%
|
|||||||
|
Other income (expense), net
|
18
|
|
(3,177
|
)
|
3,195
|
|
(100.6
|
)%
|
|||||||
|
Income before income taxes
|
22,953
|
|
17,791
|
|
5,162
|
|
29.0
|
%
|
|||||||
|
Income tax expense
|
(6,630
|
)
|
(5,078
|
)
|
(1,552
|
)
|
30.6
|
%
|
|||||||
|
Net income
|
$
|
16,323
|
|
$
|
12,713
|
|
$
|
3,610
|
|
28.4
|
%
|
||||
|
KEY FINANCIAL METRIC:
|
|
|
|
|
|||||||||||
|
Adjusted EBITDA
|
$
|
58,707
|
|
$
|
62,104
|
|
$
|
(3,397
|
)
|
(5.5
|
)%
|
||||
28
|
Successor Company
|
Predecessor Company
|
Non-GAAP
|
|||||||||||||||||||||||
|
Nine Months Ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
Combined Period
Nine Months Ended September 30, 2018
|
2019 vs 2018 Change
|
|||||||||||||||||||||
|
$
|
%
|
||||||||||||||||||||||||
|
STATEMENT OF OPERATIONS DATA:
|
|||||||||||||||||||||||||
|
Net revenue
|
$
|
827,977
|
|
$
|
377,258
|
|
$
|
453,924
|
|
$
|
831,182
|
|
$
|
(3,205
|
)
|
(0.4
|
)%
|
||||||||
|
Content costs
|
295,931
|
|
127,464
|
|
163,885
|
|
291,349
|
|
4,582
|
|
1.6
|
%
|
|||||||||||||
|
Selling, general and administrative expenses
|
344,609
|
|
151,779
|
|
195,278
|
|
347,057
|
|
(2,448
|
)
|
(0.7
|
)%
|
|||||||||||||
|
Depreciation and amortization
|
40,020
|
|
18,521
|
|
22,046
|
|
40,567
|
|
(547
|
)
|
(1.3
|
)%
|
|||||||||||||
|
Local marketing agreement fees
|
2,383
|
|
1,364
|
|
1,809
|
|
3,173
|
|
(790
|
)
|
(24.9
|
)%
|
|||||||||||||
|
Corporate expenses (including stock-based compensation expense and restructuring costs)
|
47,097
|
|
21,003
|
|
17,169
|
|
38,172
|
|
8,925
|
|
23.4
|
%
|
|||||||||||||
|
(Gain) loss on sale or disposal of assets or stations
|
(55,912
|
)
|
34
|
|
158
|
|
192
|
|
(56,104
|
)
|
N/A
|
|
|||||||||||||
|
Impairment of assets held for sale
|
5,000
|
|
—
|
|
—
|
|
—
|
|
5,000
|
|
N/A
|
|
|||||||||||||
|
Operating income
|
148,849
|
|
57,093
|
|
53,579
|
|
110,672
|
|
38,177
|
|
34.5
|
%
|
|||||||||||||
|
Reorganization items, net
|
—
|
|
—
|
|
466,201
|
|
466,201
|
|
(466,201
|
)
|
N/A
|
|
|||||||||||||
|
Interest expense
|
(66,101
|
)
|
(28,579
|
)
|
(260
|
)
|
(28,839
|
)
|
(37,262
|
)
|
129.2
|
%
|
|||||||||||||
|
Interest income
|
21
|
|
20
|
|
50
|
|
70
|
|
(49
|
)
|
(70.0
|
)%
|
|||||||||||||
|
Gain on early extinguishment of debt
|
381
|
|
—
|
|
—
|
|
—
|
|
381
|
|
N/A
|
|
|||||||||||||
|
Other expense, net
|
(44
|
)
|
(3,157
|
)
|
(273
|
)
|
(3,430
|
)
|
3,386
|
|
(98.7
|
)%
|
|||||||||||||
|
Income before income taxes
|
83,106
|
|
25,377
|
|
519,297
|
|
544,674
|
|
(461,568
|
)
|
(84.7
|
)%
|
|||||||||||||
|
Income tax (expense) benefit
|
(23,471
|
)
|
(7,684
|
)
|
176,859
|
|
169,175
|
|
(192,646
|
)
|
(113.9
|
)%
|
|||||||||||||
|
Net income
|
$
|
59,635
|
|
$
|
17,693
|
|
$
|
696,156
|
|
$
|
713,849
|
|
$
|
(654,214
|
)
|
(91.6
|
)%
|
||||||||
|
KEY FINANCIAL METRIC:
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Adjusted EBITDA
|
$
|
162,325
|
|
$
|
88,219
|
|
$
|
80,512
|
|
$
|
168,731
|
|
$
|
(6,406
|
)
|
(3.8
|
)%
|
||||||||
Three Months Ended September 30, 2019 compared to the Three Months Ended September 30, 2018
Net Revenue
Net revenue for the three months ended September 30, 2019 compared to net revenue for the three months ended September 30, 2018 decreased primarily as a result of lost revenue associated with the station dispositions that occurred in 2019 and a decrease in local broadcast advertising revenue, partially offset by increases in digital and national broadcast advertising revenue.
Content Costs
Content costs consist of all costs related to the licensing, acquisition and development of our programming. Content costs for the three months ended September 30, 2019 compared to Content costs for the three months ended September 30, 2018 remained relatively unchanged as lower content costs resulting from station dispositions in 2019 were largely offset by higher costs associated with higher digital revenue.
29
Selling, General & Administrative Expenses
Selling, general and administrative expenses consist of expenses related to our sales efforts and distribution of our content across our platform and overhead in our markets. Selling, general and administrative expenses for the three months ended September 30, 2019 compared to Selling, general and administrative expenses for the three months ended September 30, 2018 increased slightly primarily as a result of increases in bad debt expense, increased national commissions, higher amortization of new local commissions, and higher healthcare costs, largely offset by lower expenses resulting from the station dispositions in 2019.
Depreciation and Amortization
Depreciation and amortization for the three months ended September 30, 2019 as compared to Depreciation and amortization for the three months ended September 30, 2018 decreased slightly because certain definite-lived intangibles were fully amortized in the second quarter of 2019.
Local Marketing Agreement Fees
Local marketing agreements ("LMA") are those agreements under which we program a radio station on behalf of another party. LMA fees for the three months ended September 30, 2019 compared to LMA fees for the three months ended September 30, 2018 decreased as a result of fees received from Meruelo Media under our LMA for KLOS-FM.
Corporate Expenses, Including Stock-based Compensation Expense and Restructuring Costs
Corporate expenses consist primarily of compensation and related costs for our executive, accounting, finance, human resources, information technology and legal personnel, and fees for professional services. Professional services are principally comprised of audit, consulting and outside legal services. Corporate expenses also include restructuring costs and stock-based compensation expense. Corporate expenses for the three months ended September 30, 2019 compared to Corporate expenses for the three months ended September 30, 2018 increased primarily as a result of higher personnel, franchise tax and stock compensation expenses, partially offset by lower restructuring costs.
Impairment of Assets Held for Sale
The impairment of assets held for sale for the three months ended September 30, 2019 of $5.0 million resulted from an adjustment of the purchase price related to DC Land resulting in impairment. See "Item 1 - Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 1 - “Nature of Business, Interim Financial Data and Basis of Presentation,” for further discussion of the DC Land impairment.
(Gain) Loss on Sale or Disposal of Assets or Stations
The Gain on sale or disposal of assets or stations for the three months ended September 30, 2019 of $8.2 million was primarily the result of a $10.5 million gain on the sale of KLOS-FM in Los Angeles, CA to Meruelo Media in July 2019 partially offset by a $2.2 million loss related to the swap agreement with Entercom. See "Item 1 - Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 3 - Acquisitions and Dispositions", for further discussion of the KLOS Sale and Entercom Swap.
Interest Expense
Total interest expense for the three months ended September 30, 2019 increased slightly as compared to the total interest expense for the three months ended September 30, 2018 as a result of refinancing the Term Loan.
The below table details the components of our interest expense by debt instrument (dollars in thousands):
|
Three Months Ended September 30, 2019
|
Three Months Ended September 30, 2018
|
$ Change
|
|||||||||
|
Term Loan due 2022
|
$
|
9,250
|
|
$
|
22,140
|
|
$
|
(12,890
|
)
|
||
|
Term Loan due 2026
|
338
|
|
—
|
|
338
|
|
|||||
|
6.75% Senior Notes
|
8,438
|
|
—
|
|
8,438
|
|
|||||
|
Other, including debt issuance cost amortization
|
4,728
|
|
263
|
|
4,465
|
|
|||||
|
Interest expense
|
$
|
22,754
|
|
$
|
22,403
|
|
$
|
351
|
|
||
30
Income Tax Expense
For the three months ended September 30, 2019 the Company recorded income tax expense of
$6.6 million
on pre-tax book income of
$23.0 million
, resulting in an effective tax rate of approximately
28.9%
. For the three months ended September 30, 2018, the Company recorded income tax expense of
$5.1 million
on pre-tax book income of $17.8 million, resulting in an effective tax rate of approximately
28.5%
.
The difference between the effective tax rate and the federal statutory rate of 21.0% for the three months ended September 30, 2019 primarily related to state and local income taxes, the effect of certain statutory non-deductible expenses, excess tax benefits related to share-based compensation awards, and the tax effect of changes in uncertain tax positions.
The difference between the effective tax rate and the federal statutory rate of 21.0% for the three months ended September 30, 2018 was attributable to state and local income taxes, the tax effect of certain statutory non-deductible expenses, changes in valuation allowance, and the tax effect of certain changes in uncertain tax positions.
The Company recognizes the benefits of deferred tax assets only as its assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740, Income Taxes ("ASC 740"). The Company reviews the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize existing deferred tax assets. As of September 30, 2019, the Company has not recorded a valuation allowance since the Company continues to believe, on the basis of its evaluation, that its deferred tax assets meet the more likely than not recognition standard for recovery. The Company will continue to monitor the valuation of deferred tax assets, which requires judgment in assessing the likely future tax consequences of events that are recognized in the Company's financial statements or tax returns as well as judgment in projecting future profitability.
Adjusted EBITDA
As a result of the factors described above, Adjusted EBITDA for the three months ended September 30, 2019 compared to the Adjusted EBITDA for the three months ended September 30, 2018 decreased.
Successor Company Nine Months Ended September 30, 2019 compared to the Combined 2018
Predecessor
Period and Successor Period
Net Revenue
Net revenue for the Successor Company nine months ended September 30, 2019 compared to net revenue for the Combined 2018 Predecessor Period and Successor Period decreased primarily as a result of lost revenue associated with the station dispositions that occurred during the nine months ended September 30, 2019, as well as declines in local broadcast and political advertising revenue, partially offset by increases in digital and national broadcast advertising revenue.
Content Costs
Content costs for the Successor Company nine months ended September 30, 2019 compared to Content costs for the Combined 2018 Predecessor Period and Successor Period increased as a result of higher digital costs associated with higher digital revenue partially offset by reductions associated with the station dispositions that occurred during the nine months ended September 30, 2019.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the Successor Company nine months ended September 30, 2019 compared to Selling, general and administrative expenses for the Combined 2018 Predecessor Period and Successor Period decreased primarily as a result of reductions associated with the station dispositions that occurred during the nine months ended September 30, 2019 and a decrease in bad debt expense partially offset by higher amortization of new local commissions, increased rent expense resulting from fresh start accounting and implementation of the new lease accounting standard, and sales commissions associated with increased national and digital revenue. During the Combined 2018 Predecessor Period and Successor Period, the Company recognized $4.1 million bad debt expense related to receivables from United States Traffic Networks (“USTN”).”
31
Depreciation and Amortization
Depreciation and amortization for the Successor Company nine months ended September 30, 2019 is not comparable to Depreciation and amortization of the Combined 2018 Predecessor Period and Successor Period because of fresh start accounting.
Local Marketing Agreement Fees
LMA fees for the Successor Company nine months ended September 30, 2019 compared to LMA fees for the Combined 2018 Predecessor Period and Successor Period decreased primarily because the Company and Merlin Media, LLC (“Merlin”) ended their local marketing agreement under which the Company programmed two FM radio stations owned by Merlin. The Company ceased programming one of the stations (WLUP) on March 9, 2018 and on June 15, 2018, the Company purchased the other station (WKQX).
Corporate Expenses, Including Stock-based Compensation Expense and Restructuring Costs
Corporate expenses for the Successor Company nine months ended September 30, 2019 compared to Corporate expenses for the Combined 2018 Predecessor Period and Successor Period increased primarily as a result of higher restructuring costs incurred related to our station disposal and swap transactions, increased stock compensation, personnel and franchise tax expenses, partially offset by lower bankruptcy related expenses in the nine months ended September 30, 2019.
Impairment of Assets Held for Sale
The impairment of assets held for sale for the Successor Company nine months ended September 30, 2019 of $5.0 million resulted from an adjustment of the purchase price related to DC Land. See "Item 1 - Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 1 - “Nature of Business, Interim Financial Data and Basis of Presentation,” for further discussion of the DC Land impairment.
(Gain) Loss on Sale or Disposal of Assets or Stations
The Gain on sale or disposal of assets or stations for the Successor Company nine months ended September 30, 2019 of $55.9 million included a $47.6 million gain on the EMF Sale and a $10.5 million gain on the KLOS-FM Sale partially offset by a $2.2 million loss related to the Entercom Swap. See "Item 1 - Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 3 - Acquisitions and Dispositions", for further discussion of the EMF Sale, KLOS-FM Sale and Entercom Swap.
Interest Expense
Total interest expense for the Successor Company nine months ended September 30, 2019 is not comparable to total interest expense of the Combined 2018 Predecessor Period and Successor Period as we did not pay certain interest expenses during the 2018 Predecessor Period. During the 2018 Predecessor Period, we made adequate protection payments on the Predecessor Term Loan in lieu of interest payments. In accordance with ASC 852, we recognized the adequate protection payments as reductions in the principal balance of the Predecessor Term Loan. Also, we did not make any interest payments on the 7.75% Senior Notes during the 2018 Predecessor Period.
The below table details the components of our interest expense by debt instrument (dollars in thousands):
|
Successor Company
|
Predecessor Company
|
Non-GAAP
|
|||||||||||||||||||
|
Nine Months Ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
Combined Period
Nine Months Ended September 30, 2018
|
$ Change
|
|||||||||||||||||
|
Term Loan due 2022
|
$
|
51,345
|
|
$
|
28,280
|
|
$
|
—
|
|
$
|
28,280
|
|
$
|
23,065
|
|
||||||
|
Term Loan due 2026
|
338
|
|
—
|
|
—
|
|
—
|
|
338
|
|
|||||||||||
|
6.75% Senior Notes
|
8,906
|
|
—
|
|
—
|
|
—
|
|
8,906
|
|
|||||||||||
|
Other, including debt issuance cost amortization
|
5,512
|
|
299
|
|
260
|
|
559
|
|
4,953
|
|
|||||||||||
|
Interest expense
|
$
|
66,101
|
|
$
|
28,579
|
|
$
|
260
|
|
$
|
28,839
|
|
$
|
37,262
|
|
||||||
32
Income Tax Expense
For the nine months ended September 30, 2019, the Successor Company recorded income tax expense of $23.5 million on pre-tax book income of
$83.1 million
, resulting in an effective tax rate of approximately 28.2%. For the Successor Company period June 4, 2018 through September 30, 2018, the Company recorded income tax expense of $7.7 million on pre-tax book income of $25.4 million, resulting in an effective tax rate of approximately 30.3%. For the Predecessor Company period January 1, 2018 through June 3, 2018, the Company recorded an income tax benefit of $176.9 million on pre-tax book income of $519.3 million, resulting in an effective tax rate of approximately (34.1%).
The difference between the effective tax rate and the federal statutory rate of 21.0% for the Successor Company period nine months ended September 30, 2019 and the Successor Company period June 4, 2018 through September 30, 2018 primarily related to state and local income taxes, the effect of certain statutory non-deductible expenses, excess tax benefits related to share-based compensation awards, and the tax effect of changes in uncertain tax positions.
The difference between the effective tax rate and the federal statutory rate of 21.0% for the Predecessor Company period January 1, 2018 through June 3, 2018 primarily related to the income tax exclusion of cancellation of indebtedness income, the Company's elections to increase the tax basis in certain assets, statutory state and local income taxes, the impact of non-deductible expenses, and changes to the valuation allowance.
Adjusted EBITDA
As a result of the factors described above, Adjusted EBITDA for the Successor Company nine months ended September 30, 2019 compared to the Combined 2018 Predecessor Period and Successor Period decreased.
Reconciliation of Non-GAAP Financial Measure
The following tables reconcile Adjusted EBITDA to net income (the most directly comparable financial measure calculated and presented in accordance with GAAP) as presented in the accompanying unaudited consolidated Statements of Operations (dollars in thousands):
|
Three Months Ended September 30, 2019
|
Three Months Ended September 30, 2018
|
|||||||
|
GAAP net income
|
$
|
16,323
|
|
$
|
12,713
|
|
||
|
Income tax expense
|
6,630
|
|
5,078
|
|
||||
|
Non-operating expenses, including net interest expense
|
22,727
|
|
25,564
|
|
||||
|
Local marketing agreement fees
|
902
|
|
1,006
|
|
||||
|
Depreciation and amortization
|
11,885
|
|
14,142
|
|
||||
|
Stock-based compensation expense
|
1,492
|
|
1,131
|
|
||||
|
(Gain) loss on sale of assets or stations
|
(8,188
|
)
|
34
|
|
||||
|
Impairment of assets held for sale
|
5,000
|
|
—
|
|
||||
|
Restructuring costs
|
1,764
|
|
2,738
|
|
||||
|
Franchise taxes
|
172
|
|
(302
|
)
|
||||
|
Adjusted EBITDA
|
$
|
58,707
|
|
$
|
62,104
|
|
||
33
|
Successor Company
|
Predecessor Company
|
Non-GAAP
|
||||||||||||||||
|
Nine Months Ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
Combined Period
Nine Months Ended September 30, 2018
|
|||||||||||||||
|
GAAP net income
|
$
|
59,635
|
|
$
|
17,693
|
|
$
|
696,156
|
|
$
|
713,849
|
|
||||||
|
Income tax expense (benefit)
|
23,471
|
|
7,684
|
|
(176,859
|
)
|
(169,175
|
)
|
||||||||||
|
Non-operating expenses, including net interest expense
|
66,124
|
|
31,716
|
|
483
|
|
32,199
|
|
||||||||||
|
Local marketing agreement fees
|
2,383
|
|
1,364
|
|
1,809
|
|
3,173
|
|
||||||||||
|
Depreciation and amortization
|
40,020
|
|
18,521
|
|
22,046
|
|
40,567
|
|
||||||||||
|
Stock-based compensation expense
|
3,806
|
|
1,783
|
|
231
|
|
2,014
|
|
||||||||||
|
(Gain) loss on sale of assets or stations
|
(55,912
|
)
|
34
|
|
158
|
|
192
|
|
||||||||||
|
Impairment of assets held for sale
|
5,000
|
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Gain on early extinguishment of debt
|
(381
|
)
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Reorganization items, net
|
—
|
|
—
|
|
(466,201
|
)
|
(466,201
|
)
|
||||||||||
|
Restructuring costs
|
17,565
|
|
9,679
|
|
2,455
|
|
12,134
|
|
||||||||||
|
Franchise taxes
|
614
|
|
(255
|
)
|
$
|
234
|
|
$
|
(21
|
)
|
||||||||
|
Adjusted EBITDA
|
$
|
162,325
|
|
$
|
88,219
|
|
$
|
80,512
|
|
$
|
168,731
|
|
||||||
Liquidity and Capital Resources
As of September 30, 2019, we had
$9.1 million
of cash and cash equivalents including restricted cash. The Successor Company generated cash from operating activities of
$83.1 million
for the nine months ended September 30, 2019,
$2.5 million
for the period from June 4, 2018 through September 30, 2018 and the Predecessor Company generated cash from operating activities of
$29.1 million
, for the period from January 1, 2018 through June 3, 2018, respectively. Since our emergence from Chapter 11, we have reduced the total principal of our long-term debt from
$1.3 billion
to approximately
$1.0 billion
at September 30, 2019.
Historically, our principal sources of funds have been cash flow from operations and borrowings under credit facilities in existence from time to time. Our cash flow from operations remains subject to factors such as fluctuations in advertising media preferences and changes in demand caused by shifts in population, station listenership, demographics and audience tastes. In addition, our cash flows may be affected if customers are not able to pay, or delay payment of, accounts receivable that are owed to us, which risks may be exacerbated in challenging or otherwise uncertain economic periods. In certain periods, the Company has experienced reductions in revenue and profitability from prior historical periods because of market revenue pressures and cost escalations built into certain contracts. Notwithstanding this, 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. Future reductions in revenue or profitability are possible and could have a material adverse effect on the Company’s results of operations, financial condition or liquidity.
We continually monitor our capital structure, and from time to time we have evaluated, and expect that we will continue to evaluate, opportunities to obtain additional capital from the divestiture of radio stations or other assets where the net value accretion realized in a sale exceeds the value that management believes could be realized over time by continuing to operate the assets, or that are not consistent with, or do not complement, our strategic objectives as well as from the issuance of equity and/or debt securities, in each case, subject to market and other conditions in existence at that time.
Credit Agreement and Refinanced Credit Agreement
On the Effective Date we entered into the Credit Agreement. Pursuant to the Credit Agreement, the lenders party thereto were deemed to have provided us with a $1.3 billion senior secured Term Loan. On September 26, 2019 we entered into a new Refinanced Credit Agreement to refinance the principal balance outstanding on the Term Loan due 2022. See "Item 1 — Financial
34
Statements — Notes to Condensed Consolidated Financial Statements — Note 7 — Long-Term Debt," for further discussion of the Refinanced Credit Agreement.
Revolving Credit Agreement
On August 17, 2018, we entered into a $50.0 million Revolving Credit Facility pursuant to a Revolving Credit Agreement. See "Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 7 — Long-Term Debt," for further discussion of our Revolving Credit Agreement.
6.75% Senior Notes
On June 26, 2019, we entered into an Indenture under which the 6.75% Senior Notes were issued. See "Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 7 — Long-Term Debt," for further discussion of the Indenture and the 6.75% Senior Notes.
Cash Flows Provided by Operating Activities
|
Successor Company
|
Predecessor Company
|
Non-GAAP
|
|||||||||||||||
|
Nine months ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
Combined Period Nine Months Ended September 30, 2018
|
||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||
|
Net cash provided by operating activities
|
$
|
83,063
|
|
$
|
2,451
|
|
$
|
29,132
|
|
$
|
31,583
|
|
|||||
Net cash provided by operating activities for the Successor Company nine months ended September 30, 2019 compared to the Combined 2018 Predecessor Period and Successor Period increased primarily because of an increase in cash collections and the timing of payments of prepaid expenses, accounts payable and accrued expenses as a result of the impact of Chapter 11 during the Predecessor Company period.
Cash Flows Provided by (Used in) Investing Activities
|
Successor Company
|
Predecessor Company
|
Non-GAAP
|
||||||||||||||
|
Nine months ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
Combined Period Nine Months Ended September 30, 2018
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Net cash provided by (used in) investing activities
|
$
|
129,120
|
|
(25,866
|
)
|
$
|
(14,019
|
)
|
$
|
(39,885
|
)
|
|||||
Net cash provided by investing activities for the Successor Company nine months ended September 30, 2019 compared to the Combined 2018 Predecessor Period and Successor Period increased primarily because of proceeds received from the EMF and KLOS-FM Sales in 2019, payment for the acquisition of WKQX in the Combined 2018 Predecessor Period and Successor Period and lower capital expenditures in 2019. See "Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 3 — Acquisitions and Dispositions," for further discussion of the EMF Sale and KLOS-FM Sale.
35
Cash Flows Used in Financing Activities
|
Successor Company
|
Predecessor Company
|
Non-GAAP
|
|||||||||||||||
|
Nine months ended September 30, 2019
|
Period from June 4, 2018 through September 30, 2018
|
Period from January 1, 2018 through June 3, 2018
|
Combined Period Nine Months Ended September 30, 2018
|
||||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||
|
Net cash used in financing activities
|
$
|
(233,078
|
)
|
$
|
(3,250
|
)
|
$
|
(38,652
|
)
|
$
|
(41,902
|
)
|
|||||
For the Successor Company nine months ended September 30, 2019 net cash used in financing activities reflects our repayment of the outstanding balance on the Term Loan due 2022 from proceeds received from new debt issuances (Term Loan due 2026 of $525.0 million and 6.75% Senior Notes of $500.0 million), the EMF and KLOS-FM Sales and cash generated from operations. See "Item 1 - Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 7 - Long-Term Debt," for further discussion of the new debt issuances. We also paid $12.8 million in deferred financing costs.
During the Combined 2018 Predecessor Period and Successor Period the Company made $37.8 million in adequate protection payments on the Predecessor Term Loan in lieu of interest payments, which was recorded as a reduction to the principal balance of the Predecessor Term Loan.
36
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As of September 30, 2019, $525.0 million of our long-term debt bore interest at a variable rate. Accordingly, our earnings and after-tax cash flow are subject to change based on changes in interest rates and could be materially affected, depending on the timing and amount of any interest rate changes. Assuming the current level of borrowings outstanding at September 30, 2019 at variable interest rates and assuming a one percentage point increase (decrease) in the current rate, it is estimated on an annual basis interest expense would increase (decrease) and pre-tax net income would decrease (increase) by $5.3 million.
Item 4.
Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-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 President and Chief Executive Officer (“CEO”) and Executive Vice President and Chief Financial Officer (“CFO”) the principal executive and principal financial officers, respectively, as appropriate, to allow timely decisions regarding required disclosure. 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, 2019
.
There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) during the three months ended
September 30, 2019
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
In August 2015, the Company was named as a defendant in two separate putative class action lawsuits relating to its use and public performance of certain sound recordings fixed prior to February 15, 1972 (the "Pre-1972 Recordings"). The first suit, ABS Entertainment, Inc., et. al. v, Cumulus Media Inc., was filed in the United States District Court for the Central District of California and alleged, among other things, copyright infringement under California state law, common law conversion, misappropriation and unfair business practices. On December 11, 2015, this suit was dismissed without prejudice. The second suit, ABS Entertainment, Inc., v. Cumulus Media Inc., was filed in the United States District Court for the Southern District of New York and claimed, among other things, common law copyright infringement and unfair competition. The New York lawsuit was stayed pending an appeal before the Second Circuit involving unrelated third parties over whether the owner of a Pre-1972 Recording holds an exclusive right to publicly perform that recording under New York common law. On December 20, 2016, the New York Court of Appeals held that New York common law does not recognize a right of public performance for owners of pre-1972 Recordings. As a result of that case (to which Cumulus Media Inc. was not a party) the New York case against Cumulus Media Inc., was voluntarily dismissed by the plaintiffs on April 3, 2017. On October 11, 2018, President Trump signed the Orrin G. Hatch-Bob Goodlatte Music Modernization Act into law, which, among other things, provides new federal rights going forward for owners of pre-1972 Recordings. The question of whether public performance rights existed for Pre-1972 recordings under state law prior to the enactment of the new Music Modernization Act is still being litigated in the Ninth Circuit as a result of a case filed in California. Cumulus is not a party to that case, and the Company is not yet able to determine what effect that proceeding will have, if any, on its financial position, results of operations or cash flows.
The Company currently is, and expects that from time to time in the future it will be, party to, or a defendant in, various other claims or lawsuits that are generally incidental to its business. The Company expects that it will vigorously contest any such claims or lawsuits and believes that the ultimate resolution of any such known claim or lawsuit will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
37
Item 1A.
Risk Factors
Please refer to Part I, Item 1A, “Risk Factors,” in our 2018 Annual Report for information regarding known material risks that could affect our results of operations, financial condition and liquidity. Except with respect to the effectiveness of the Plan and our emergence from bankruptcy, these known risks have not changed materially. 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 future periods.
Item 6.
Exhibits
|
Credit Agreement, dated as of September 26, 2019, among Cumulus Media New Holdings Inc., certain of Cumulus Media New Holding, Inc.’s other subsidiaries, certain lenders, Bank of America, N.A as administrative agent, and Bank of America, N.A., Credit Suisse Loan Funding LLC, Deutsche Bank Securities Inc., Morgan Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A. and Fifth Third Bank as joint lead arrangers and bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 1, 2019)
|
||
|
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
101.INS
|
XBRL Instance Document.
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document.
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
SIGNATURE
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.
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CUMULUS MEDIA INC.
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November 12, 2019
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By:
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/s/ John Abbot
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John Abbot
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Executive Vice President, Treasurer and Chief
Financial Officer
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TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits