Cumulus Radio

Cumulus Media  (Website) is the 2nd largest radio broadcasting company in the United States (based on number of stations).   Cumulus is headquartered in Atlanta, Georgia and has about 2,700 employees as of the end of 2008.

Unlike Clear Channel, Cumulus only operates radio stations.  They don’t syndicate programming, haven’t ever owned TV stations or concert venues, billboard advertising, etc…  As of 2009, Cumulus owns about  89 AM and 236 FM radio stations and operates several others under terms of LMAs.  Similar to the original Citadel Radio, Cumulus operates mostly in medium and small radio markets.

History

Cumulus was founded in 1997 in Milwaukee by Richard Weening a venture capitalist and Lewis Dickey, Jr., a young radio consultant.    Cumulus  “pounced” on the medium sized radio markets when the FCC removed the national ownership limit caps in 1996.  Richard Weening sold his interests in Cumulus in 2002 and Lewis Dickey (and his family) now run Cumulus.

The company performed its  IPO of Class A stock in July 1998

In 2006, Cumulus acquired control of Susquehanna Radio which owns 33 radio stations, mostly in major markets – with the backing of 3 venture capital firms (Bain Capital Partners LLC, The Blackstone Group and Thomas H. Lee Partners, L.P. – the same folks who took Clear Channel Private) at a cost of $1.2 Billion. The Susquehanna stations are privately held in a separate partnership called CMP (Cumulus Media Partners), that is the subject of an equity for debt swap transaction as of May 2009 in an attempt to avoid defaulting on the terms of the CMP lending agreements.

While Cumulus operates the CMP stations, they hold only a minority 25% ownership interest in CMP.   Cumulus has completely written off the investment in CMP as worthless (the final $22 million in 2008).

In July 2007, the company announced its intention to “go private”, however on May 11th 2008, the company announced it was unable to come to terms with the parties involved and the merger/acquisition agreement was terminated.

Like all of the major U.S. Radio Station owners, Cumulus has been forced to write down the value of its radio station licenses, resulting in large “Mark to Market” non-cash losses – $498.9 million in 2008, $230.6 million and 63.4 million in 2006.

Major Stations – top 25 markets

+-------------+-----------+---------------+

|  Callsign   | Market    | License City  |
+-------------+-----------+---------------+
| KNBR AM     |         4 | SAN FRANCISCO |
| KTCT AM/HD  |         4 | SAN MATEO     |
| KFOG FM/HD1 |         4 | SAN FRANCISCO |
| KSAN FM/HD1 |         4 | SAN MATEO     |
| KTCK AM/HD  |         5 | DALLAS        |
| KDBN FM/HD1 |         5 | HALTOM CITY   |
| KRBE FM/HD1 |         7 | HOUSTON       |
| KIKR AM     |         7 | BEAUMONT      |
| WNNX FM/HD1 |        10 | COLLEGE PARK  |
| WWWQ FM/HD1 |        10 | ATLANTA       |
+-------------+-----------+---------------+

KIKR-AM is the only major market station actually owned by Cumulus Media. The remainder are the former Susquehanna stations owned by CMP, but operated by Cumulus radio on their behalf.

Ownership

Cumlulus Media has 3 classes of stock:

  • 37 million shares of Class A publicly traded Voting stock (NASDAQ CMLS) – held by 1,207 investors (not counting stock held in street name at a broker)
  • 5.8 million shares of Class B non-voting Convertible Stock – owned by 2 lenders
  • 644,000 shares of Class C (one owner) non-public stock owned by the Dickey Family Each share of Class C Stock has 10 votes and is convertible 1:1 into Class A stock at the option of the owner.

Class A Stock:

The company performed its  IPO of Class A stock in July 1998 .   The Dickey Family (Lewis Dickey Jr., his brother John and their father Lewis Dickey Sr.) own 33.8% of the Class A Common Stock.  Bank of America (through BA Capital) owns 4.9% of the Class A stock.  The rest is publicly traded.

There have been a series of stock buybacks where the company has repurchased some of its stock.

Class B Stock

100% of the Class B Convertible Stock  is owned by Bank of America, which would own an 18% control of the Class A stock if they choose to convert their Class B stock into voting common stock and the FCC consented.

Class C Stock

The Class C Stock is not publicly traded and is 100% controlled by the Dickey Family.

The combined voting power of the Class A and Class C stock gives the Dickey Family approximately 50% control of the voting rights of the company.  (And you thought buying stock on NASDAQ made you a proportional owner of a company!)

Management

Lewis Dickey Jr. is the President and CEO.   His brother John is one of two Chief Operating Officers (COO).

The other(!) COO is Jonathan  G.  Pinch – he joined Cumulus in 2000 after having worked previously for Clear Channel International, which operates Clear Channel’s stations outside of the United States.

The CFO is Martin  R.  Gausvik, who had worked for Jacor, which was acquired by Clear Channel.  He joined Cumulus in 2000.  Mr Guasvik resigned on July 1st, 2009 to “pursue other interests”.

Institutional Owners:

Class A Owner Location Approx
# Shares
to do    
   
   
   
   

Financial Condition as of 2008 (10-K)

Key Balance Sheet Items: (2008)

Note that CMP (Susquehanna) is an investment that Cumulus Media has completely written off, so this data relates only to the original medium market company operations.

Total Assets:  $534  Million

  • Value of Radio Station licenses: $325 million
  • Goodwill and other intangible Assets:  $58 Million
  • Cash:  $53 Million
  • Accounts Receivable: $44 Million  (51 days of revenue)
  • Land, Buildings, Equipment (net) $55 Million

Debt:

  • Current Liabilities:  $28 million
  • Long Term Debt:  $688 Million

Stockholder Equity:  $248 Million

Credit Facility

The company has a credit facility of $750 million managed by Bank of America (major TARP recipient), of which it owed $696 Miolion at the end of 2008.    The cost of the borrowed money is 4.88%, including their derivative positions.    They also have an older $100 million revolving credit facility.   In 2008, the company had a net interest expense of about $47 million.

The $750 million credit facility balloons in 2014, at which time the company will have to refinance (or pay off) the loan.  The interest rate is LIBOR + 1.75% or Bank of America’s Prime Rate + 0.75%

On December 11th, 2008 the company borrowed an additional $75 million from the credit facility, which triggered provisions that tightened the leverage ratio limits of the facility (which increases the likelihood the company will fail to stay within its terms).

Swap transactions

The company had hedged $400 million of their credit facility to limit the upside interest rate risk on their floating rate LIBOR facility.  That swap expired in March of 2009.   Bank of America had an option to extend the term of the Interest Rate Swap for an additional 2 years, which they have exercised.

Essentially Cumulus pays the costs, and the swap protects Bank of America.  It would have been a condition of the terms of getting the Credit Facility in the first place in 2007 at a low interest rate.  In the event of default of the credit facility, the holder of the Swap (Bank of America) could demand payment of the entire value of the swap at the then current rates, which is currently about $17 million.

10-k Notes

Cumulus fired its auditor in 2008 – replacing KPMG with Price Waterhouse Coopers.

The company has stipulated that their own financial people did not understand the financial implications of the Interest Rate Swap contract and did not correctly report its actual cost on their financial statements.  Their auditors have given a qualified opinion that they believe the company lacks having people with the required skills to accurately maintain controls over the company’s financial reporting.

Portions of the 10-k relating to Corporate Governance, Executive Compensation, Ownership Interests of management, Transactions by the company with management were NOT filed with the 10-K, with a statement that the 10-K will be amended within 120 day to provide the information.

BIG RED FLAG, [The dog ate our homework].

Profitability

All numbers in $million 2008 2007 2006 2005 2004
Radio Revenue 311 328 334 327 320
License Impairment 499 230 63 264
Operating Income
(Without Impairment)
71 79 0 59 78
Long Term Debt Balance 696 736 751 569 482
Debt Service Cost 47 60 42 23 19

(10-K incorrectly shows 2004 as a $78 million loss)

Stock Performance

The IPO of Class A stock occurred in July 1999 at a price of $17 5/8ths.  ($17.625).  The stock hit its peak at $50 3/8  ($50.375) on January 21, 2000.  A year later in January 2001, the stock was below $5/share.   On November 20, 2008, the stock hit its record low close of $0.33/share.  As of May 14th, the stock closed at $1.14/share.  (Cumulus has been buying back its own stock to support the price)

If you had purchased the stock at the IPO price, your investment has lost 93.5% of its value.  Cumulus has never paid a cash dividend.   If you purchased the stock at its peak, your loss is 97.8% of your investment.

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