-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UdDDh+7L6KgyXBJ42o9rUa3hGy6o4Hp/WBO7Qn2P0BEW9QFJyxrO8We0A2GPWv/u l7OEJsbBg5C6ZrrNA7d1iQ== 0000950128-00-000805.txt : 20000516 0000950128-00-000805.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950128-00-000805 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITADEL BROADCASTING CO CENTRAL INDEX KEY: 0001042742 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 860703641 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-36771 FILM NUMBER: 630567 BUSINESS ADDRESS: STREET 1: CITY CENTER W STE 400 STREET 2: 7201 W LAKE MEAD BLVD CITY: LAS VEGAS STATE: NV ZIP: 89128 BUSINESS PHONE: 7028045200 MAIL ADDRESS: STREET 1: CITY CENTER WEST STE 400 STREET 2: 7201 WEST LAKE MAED BLVD CITY: LAS VEGAS STATE: NV ZIP: 89128 10-Q 1 PERIOD ENDED 3/31/2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ____________ Commission file number: 333-36771 CITADEL BROADCASTING COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 86-0703641 ------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) City Center West, Suite 400, 7201 West Lake Mead Blvd., Las Vegas, Nevada 89128 - -------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (702) 804-5200 -------------- - -------------------------------------------------------------------------------- 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 X No __ - -------------------------------------------------------------------------------- As of May 3, 2000, there were 45,000 shares of common stock, $.001 par value per share, outstanding. 2 Citadel Broadcasting Company Form 10-Q March 31, 2000 Index PAGE ---- Part I Item 1 - Financial Statements 3 Item 2 - Management's Discussion and Analysis of Financial Condition And Results of Operations 9 Item 3 - Qualitative and Quantitative Disclosures about 19 Market Risk Part II Item 5 - Other Information 20 Item 6 - Exhibits and Reports on Form 8-K 20 FORWARD-LOOKING INFORMATION Certain matters in this Form 10-Q, including, without limitation, certain matters discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Quantitative and Qualitative Disclosures about Market Risk, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by the words "believes," "expects," "anticipates," and similar expressions. In addition, any statements that refer to expectations or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and that matters referred to in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of Citadel Broadcasting Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the impact of current or pending legislation and regulation, antitrust considerations and other risks and uncertainties, as well as those matters discussed in this report under the caption "Risk Factors" in Management's Discussion and Analysis of Financial Condition and Results of Operations. Citadel Broadcasting Company undertakes no obligation to publicly update or revise these forward-looking statements because of new information, future events or otherwise. 2 3 CITADEL BROADCASTING COMPANY BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2000 1999 ------------------ ------------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $212,187 $ 17,981 Accounts receivable, less allowance for doubtful accounts of $2,934 in 2000 and $2,443 in 1999 44,738 52,728 Due from related parties 194 236 Income taxes receivable 323 226 Prepaid expenses and other current assets 4,090 2,708 Net assets of discontinued operations 2,861 2,275 -------- -------- Total current assets 264,393 76,154 Property and equipment, net 68,521 68,035 Intangible assets, net 556,140 538,664 Restricted cash 30,055 26,192 Other assets 8,201 7,568 -------- -------- $927,310 $716,613 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable $ 3,126 $ 1,696 Accrued liabilities 14,339 13,344 Current maturities of notes payable -- 5,495 Current maturities of other long-term obligations 834 842 -------- -------- Total current liabilities 18,299 21,377 Note Payable 120,000 132,000 Senior subordinated notes payable, net of discount 210,620 210,509 Other long-term obligations, less current maturities 2,311 2,516 Deferred tax liability 44,794 45,640 Exchangeable preferred stock 88,382 85,362 Shareholders' equity: Common stock, $.001 par value; authorized 136,300 shares, issued and outstanding; 45,000 shares as of March 31, 2000 and December 31, 1999 -- -- Additional paid-in capital 516,695 285,156 Deferred compensation (23,716) (26,924) Accumulated deficit (50,075) (39,023) -------- -------- Total shareholders' equity 442,904 219,209 -------- -------- $927,310 $716,613 ======== ========
See accompanying notes to consolidated financial statements. 3 4 CITADEL BROADCASTING COMPANY STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ----------------------------------- 2000 1999 ------------ ------------ Gross broadcasting revenue $ 50,693 $ 34,420 Less agency commissions (4,556) (3,228) ------------ ------------ Net broadcasting revenue 46,137 31,192 Operating expenses: Station operating expenses 32,831 23,357 Depreciation and amortization 12,605 6,682 Corporate general and administrative 2,027 1,435 Non-cash deferred compensation 3,208 56 ------------ ------------ Operating expenses 50,671 31,530 Operating loss (4,534) (338) Nonoperating expenses (income): Interest expense 8,747 5,744 Interest income (2,007) (819) Other (income) expense, net (51) 157 ------------ ------------ Nonoperating expenses, net 6,689 5,082 Loss from continuing operations before income taxes (11,223) (5,420) Income tax (benefit) (735) (419) ------------ ------------ Net loss from continuing operations (10,488) (5,001) Loss from discontinued operations, net of tax (564) (180) ------------ ------------ Net loss (11,052) (5,181) Dividend requirement for exchangeable preferred stock 2,965 4,013 ------------ ------------ Net loss applicable to common shares $ (14,017) $ (9,194) ============ ============ Basic and diluted net loss per common share $ (311.48) $ (229.85) ============ ============ Weighted average common shares outstanding 45,000 40,000 ============ ============
See accompanying notes to consolidated financial statements. 4 5 CITADEL BROADCASTING COMPANY STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------------------------- 2000 1999 -------- -------- Net loss $(11,052) $ (5,181) Other comprehensive income: Unrealized gain on hedging contract, net of tax -- 47 -------- -------- Comprehensive loss $(11,052) $ (5,134) ======== ========
See accompanying notes to consolidated financial statements. 5 6 CITADEL BROADCASTING COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net loss $ (11,052) $ (5,181) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 12,605 6,682 Amortization of debt issuance costs and debt discounts 361 253 Amortization of deferred revenue (75) -- Bad debt expense 1,540 605 Deferred tax benefit (846) (478) Deferred compensation 3,208 56 Loss/(gain) on sale of assets (52) -- Changes in assets and liabilities, net of acquisitions: (Increase) decrease in accounts receivable and amounts due from related parties 6,382 (443) Increase in prepaid expenses and other current assets (1,382) (906) Increase (decrease) in accounts payable 1,430 (1,840) Increase in accrued liabilities 1,474 3,244 Decrease in net assets of discontinued operations 62 111 --------- --------- Net cash provided by operating activities 13,655 2,103 Cash flows from investing activities: Capital expenditures (1,364) (741) Capitalized acquisition costs (672) (691) Proceeds from sale of assets 92 -- Cash held in escrow for future acquisitions (3,862) -- Cash paid to acquire stations (29,506) (71,741) Other assets, net 4 -- Capital expenditures for discontinued operations (648) (542) --------- --------- Net cash used in investing activities (35,956) (73,715) Cash flows from financing activities: Proceeds received from parent's stock offering 234,840 -- Payment of costs related to parent's stock offering (761) -- Capital contribution from parent company 909 693 Principal payments on notes payable (12,000) -- Principal payments on other long-term obligations (5,683) (92) Payment of debt issuance costs (798) (284) --------- --------- Net cash provided by financing activities 216,507 317 Net increase (decrease) in cash and cash equivalents 194,206 (71,295) Cash and cash equivalents, beginning of period 17,981 102,655 --------- --------- Cash and cash equivalents, end of period $ 212,187 $ 31,360 ========= =========
See accompanying notes to consolidated financial statements. 6 7 CITADEL BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) General Citadel Broadcasting Company was formed August 21, 1991 as a Nevada corporation. Citadel Communications Corporation ("Citadel Communications" or the "Parent") owns all of the outstanding common stock of Citadel Broadcasting Company. Citadel License, Inc. was a wholly-owned subsidiary of Citadel Broadcasting Company. On December 28, 1999, Citadel License, Inc. was merged into Citadel Broadcasting Company. Citadel Broadcasting Company owns and operates radio stations and holds Federal Communication Commission licenses in Arkansas, California, Colorado, Connecticut, Idaho, Indiana, Louisiana, Maine, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Utah and Washington. In addition, Citadel Broadcasting Company owns and operates an internet service provider, offering its subscribers a variety of services, including electronic mail and access to the internet. In December 1999, Citadel Broadcasting Company decided to discontinue its internet operations (see further discussion at Note (6)). (2) Basis of Presentation The accompanying unaudited financial statements of Citadel Broadcasting Company (the "Company" or "Citadel Broadcasting") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and notes thereto included in Citadel Broadcasting Company's Annual Report on Form 10-K for the year ended December 31, 1999. (3) Recent Transactions On January 23, 2000, the Company entered into a stock purchase agreement with Bloomington Broadcasting Holdings, Inc. and its stockholders to purchase all of the issued and outstanding capital stock of Bloomington Broadcasting Holdings for the aggregate purchase price of approximately $176.0 million in cash. This amount includes repayment of indebtedness of Bloomington Broadcasting Holdings that may be outstanding at the time of closing and a deferred obligation relating to a recent radio station purchase by Bloomington Broadcasting Holdings. Through its subsidiaries, Bloomington Broadcasting Holdings is expected to own and operate at closing thirteen FM and seven AM radio stations serving the Grand Rapids, Michigan; Columbia, South Carolina; Chattanooga, Tennessee; Johnson City/Kingsport/Bristol, Tennessee; and Bloomington, Illinois markets. The acquisition will be accounted for using the purchase method of accounting. On January 31, 2000, the Company entered into an asset purchase agreement to acquire one FM radio station and one AM radio station serving the Worcester, Massachusetts market for the purchase price of approximately $0.9 million. The acquisition will be accounted for using the purchase method of accounting. On February 10, 2000, the Company acquired radio station WXLO-FM in Worcester, Massachusetts and entered into a local marketing agreement, to operate radio station WORC-FM, also in Worcester, pending its acquisition. The purchase price for WXLO-FM was $21.0 million and the Company deposited into escrow the purchase price of $3.5 million for WORC-FM. The acquisitions were accounted for using the purchase method of accounting. On March 31, 2000, the Company acquired two FM and two AM radio stations in Lafayette, Louisiana for the purchase price of approximately $8.5 million. The acquisition was accounted for using the purchase method of accounting. (4) Parent Company Stock Offering On February 11, 2000, Citadel Communications sold 4,750,000 shares of its common stock at a price of $51.50 per share. Total proceeds from the offering, net of underwriting discounts and commissions, were approximately $234.8 million. The net proceeds received by Citadel Communications from the stock offering were transferred to the equity of Citadel Broadcasting. Portions of the proceeds were used to repay a portion of the indebtedness under Citadel Broadcasting's credit facility and to fund an acquisition completed in March 2000, and the remainder will be used to fund pending acquisitions. 7 8 (5) Credit Facility On February 10, 2000, the Company's credit facility was amended and restated, increasing the total commitment from $400.0 million to $500.0 million. The $100.0 million increase was allocated $75.0 million to the revolving loans and $25.0 million to the term loans. As of March 31, 2000, $120.0 million in term loans are outstanding under the credit facility. (6) Discontinued Operations In December 1999, the Company's management decided to discontinue the operations of its internet service provider, eFortress. As a result of this decision, the Company has adopted a plan for the disposition by sale of eFortress. This plan includes the sale of subscribers and all related internet service equipment. The Company anticipates finalizing the sale by the end of the second quarter of 2000. eFortress has been accounted for as a discontinued operation and, accordingly, its results of operations and financial position are segregated for all periods in the accompanying financial statements. The Company has recorded approximately $0.6 million in net loss from discontinued operations for the first quarter of 2000. This loss represents the Company's estimate of future losses from eFortress until its disposal. (7) Subsequent Events On April 6, 2000, the Company acquired one AM radio station in Albuquerque, New Mexico in exchange for one AM radio station in Albuquerque owned by the Company and approximately $5.4 million in cash. The assets exchanged consist primarily of the FCC license and radio tower. The acquisition will be accounted for using the purchase method of accounting. On April 6, 2000, the Company repurchased approximately 14,900 shares of its issued and outstanding 13 1/4% Exchangeable Preferred Stock at a price of $112.75 per share for a total of approximately $1.7 million. Available working capital was used to complete the April 6, 2000 repurchase. The Company received a waiver from its lenders under the credit facility to permit the repurchase. On April 7, 2000, the Company completed the acquisition of WORC-FM in Worcester, Massachusetts for approximately $3.5 million and terminated the local marketing agreement under which the Company operated this station pending its acquisition. The acquisition will be accounted for using the purchase method of accounting. On April 15, 2000, the Company completed its acquisition from Broadcasting Partners Holdings, L.P. of a total of 23 FM and 12 AM radio stations serving the markets of Buffalo/Niagara Falls, Syracuse and Ithaca, New York; Atlantic City/Cape May, New Jersey; Tyler/Longview, Texas; Monroe, Louisiana; New London, Connecticut; New Bedford/Fall River, Massachusetts; and Augusta/Waterville, Presque Isle and Dennysville/Calais, Maine, as well as the right to operate an additional FM radio station in Atlantic City/Cape May under a program service and time brokerage agreement and the right to sell advertising in the United States for one FM radio station in Niagara Falls, Ontario under a joint sales agreement. The aggregate purchase price was approximately $189.0 million in cash. The acquisition will be accounted for using the purchase method of accounting. In addition to the stations and operating rights acquired, the Company was assigned the rights under a purchase agreement to acquire one additional AM radio station in Buffalo/Niagara Falls that an affiliate of the seller had entered into an agreement to purchase. The aggregate consideration paid or to be paid for this AM radio station is expected to be approximately $0.8 million. The acquisition will be accounted for using the purchase method of accounting. On April 18, 2000, the Company acquired one AM radio station serving Salt Lake City, Utah for approximately $0.6 million in cash. The acquisition will be accounted for using the purchase method of accounting. On May 9, 2000, the Company entered into a definitive agreement to acquire eight FM radio stations and three AM radio stations and related assets in Nashville and Knoxville, Tennessee and Birmingham, Alabama, as well as the right to operate one additional FM radio station in Knoxville under a long-term local marketing agreement, for approximately $300.0 million in cash. The acquisition will be accounted for using the purchase method of accounting. 8 9 (8) Acquisition Financing The Company has a number of transactions currently pending, which if completed, would result in the purchase of 30 FM and 15 AM radio stations, related assets and the right to operate one station under a long-term local marketing agreement and the sale of one AM radio station. In addition, the Company has entered into a letter of intent to sell two existing radio stations and one station to be acquired for approximately $16.2 million in cash. The total cash required to fund the pending acquisitions is expected to be approximately $603.0 million, which amount does not include 200,000 shares of Citadel Communications' common stock valued at $10.1 million that may be delivered in connection with one acquisition. The remaining borrowing capacity under the committed credit facility, together with working capital funds, the remaining proceeds from the February 11, 2000 stock offering and the approximately $16.2 million of funds from the anticipated sale of three radio stations, will not be sufficient to fund all the pending transactions. If all of the pending transactions are completed and the 200,000 shares of Citadel Communications' common stock are delivered in connection with one acquisition, the Company will require additional funds of approximately $160.2 million. The Company's credit facility allows the Company to request up to $300.0 million in additional loans, which may be made at the sole discretion of the lenders. In addition, the Company may need to obtain an amendment to or a waiver under its credit facility for certain financial ratios due to the additional indebtedness. The Company believes that the lenders under the credit facility will provide the additional term loans to complete the pending transactions and will waive or amend the credit facility with respect to certain financial ratios. However, there can be no assurance that this will be the case. In addition, the Company may consider other financing alternatives, such as selling additional equity or debt securities. Again, there can be no assurance that the Company could obtain such financing on terms favorable to the Company or at all. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain matters in this Form 10-Q, including, without limitation, certain matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations and in Quantitative and Qualitative Disclosures about Market Risk, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the intent, belief or current expectations of Citadel Broadcasting Company ("Citadel Broadcasting" or the "Company"), its directors or its officers with respect to, among other things, future events and financial trends affecting the Company. Forward-looking statements are typically identified by the words "believes," "expects," "anticipates," and similar expressions. In addition, any statements that refer to expectations or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and that matters referred to in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the impact of current or pending legislation and regulation, antitrust considerations and other risks and uncertainties, as well as those matters discussed under the caption "Risk Factors" in this Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company undertakes no obligation to publicly update or revise these forward-looking statements because of new information, future events or otherwise. GENERAL Citadel Broadcasting Company was formed August 21, 1991 as a Nevada corporation. Citadel Communications Corporation, a Nevada corporation ("Citadel Communications"), owns all of the issued and outstanding common stock of Citadel Broadcasting Company. Citadel Broadcasting owns and operates radio stations and holds Federal Communication Commission licenses in Arkansas, California, Colorado, Connecticut, Idaho, Indiana, Louisiana, Maine, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Utah and Washington. In addition, Citadel Broadcasting owns and operates an internet service provider, offering its subscribers a variety of services, including electronic mail and access to the internet. In December 1999, Citadel Broadcasting decided to discontinue its internet operations. 9 10 General economic conditions have an impact on the Company's business and financial results. From time to time the markets in which the Company operates experience weak economic conditions that may negatively affect the revenue of the Company. However, management believes that this impact is somewhat mitigated by the Company's diverse geographical presence. In addition, the Company's financial results are also dependent on a number of factors, including the general strength of the local and national economies, population growth, the ability to provide popular programming, local market and regional competition, relative efficiency of radio broadcasting compared to other advertising media, signal strength and government regulation and policies. In the following analysis, management discusses the Company's broadcast cash flow. The performance of a radio station group is customarily measured by its ability to generate broadcast cash flow. The two components of broadcast cash flow are gross revenue, net of agency commissions, and operating expenses, excluding depreciation and amortization, corporate general and administrative expenses and non-cash and non-recurring charges. Broadcast cash flow assists in comparing performance on a consistent basis across companies without regard to depreciation and amortization, which can vary significantly depending on accounting methods, particularly when acquisitions are involved. Earnings before interest, taxes, depreciation and amortization, or EBITDA, consists of operating income (loss) before depreciation and amortization. Although broadcast cash flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles, management believes that they are useful to an investor in evaluating the Company because they are measures widely used in the broadcasting industry to evaluate a radio company's operating performance. However, broadcast cash flow and EBITDA should not be considered in isolation or as substitutes for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles as a measure of liquidity or profitability. The principal source of the Company's revenue is the sale of broadcasting time on its radio stations for advertising. As a result, the Company's revenue is affected primarily by the advertising rates its radio stations charge. Correspondingly, the rates are based upon a station's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by periodic Arbitron Radio Market Reports. The number of advertisements that can be broadcast without jeopardizing listening levels, and the resulting ratings, is limited in part by the format of a particular station. Each of the Company's stations has a general pre-determined level of on-air inventory that it makes available for advertising, which may be different at different times of the day and tends to remain stable over time. Much of the Company's selling activity is based on demand for its radio stations' on-air inventory and, in general, the Company responds to this demand by varying prices rather than by changing the available inventory. In the broadcasting industry, radio stations often utilize trade or barter agreements to exchange advertising time for goods or services, such as other media advertising, travel or lodging, in lieu of cash. The Company has generally sold over 90% of its advertising time for cash, although this percentage may fluctuate by quarter. Trade or barter amounts are included in the net broadcasting revenue. The Company's revenue varies throughout the year. As is typical in the radio broadcasting industry, the Company's first calendar quarter generally produces the lowest revenue, and the fourth quarter generally produces the highest revenue. The primary operating expenses incurred in the ownership and operation of radio stations include employee salaries and commissions, programming expenses and advertising and promotional expenses. The Company strives to control these expenses by working closely with local station management. The Company also incurs and will continue to incur significant depreciation, amortization and interest expense as a result of completed and anticipated future acquisitions of stations and existing and future borrowings. In December 1999, the Company decided to discontinue the operations of its internet service provider. As a result of this decision, the Company adopted a plan for the disposition by sale of the internet service provider. This plan includes the sale of subscribers and all related internet equipment. The Company anticipates finalizing the sale by the end of the second quarter of 2000. However, there can be no assurance that a sale will be completed as anticipated. The Company's internet service provider recorded a net loss of $0.6 million for the three months ended March 31, 2000 compared to $0.2 million for the three months ended March 31, 1999. The loss for the first quarter of 2000 represents the Company's estimate of future losses from the internet service provider until its disposal. The operations of the internet service provider have been segregated and presented as discontinued operations, net of tax, in the consolidated financial statements. 10 11 RESULTS OF OPERATIONS The Company's unaudited financial statements tend not to be directly comparable from period to period due to acquisition activity. The Company's acquisitions in the first quarter of 2000 and during the year ended 1999, all of which have been accounted for using the purchase method of accounting, and the results of operations of which have been included since the date of acquisition, were as follows: 1999 Acquisitions and Dispositions: WBHT-FM in Wilkes-Barre/Scranton, Pennsylvania was acquired on January 4, 1999. Prior to the acquisition, the Company had operated WBHT-FM under a local marketing agreement since July 3, 1997. On February 9, 1999, the Company acquired the assets of 62nd Street Broadcasting of Saginaw, LLC. The acquisition of these assets included five FM radio stations and one AM radio station in Saginaw/Bay City, Michigan. WHYL-AM/FM in Carlisle, Pennsylvania were acquired on February 17, 1999. On March 17, 1999, the Company acquired all of the outstanding shares of capital stock of Citywide Communications, Inc. and all of the outstanding warrants to acquire shares of capital stock of Citywide. In connection with the acquisition, the Company acquired six FM and three AM radio stations in the Baton Rouge and Lafayette, Louisiana markets. On April 30, 1999, the Company purchased KVOR-AM and KTWK-AM in Colorado Springs, Colorado and KEYF-AM/FM in Spokane, Washington. In addition, the Company exchanged KKLI-FM for KSPZ-FM in Colorado Springs. On May 3, 1999, the Company acquired WKQV-FM in Wilkes-Barre/Scranton, Pennsylvania and KWHK-FM in Spokane. On June 30, 1999, the Company acquired substantially all of the assets of Wicks Broadcast Group Limited Partnership and related entities. The acquisition of these assets included ten FM and six AM radio stations serving the Charleston, South Carolina; Binghamton, New York; Muncie, Indiana and Kokomo, Indiana markets. On August 31, 1999, the Company acquired all of the outstanding shares of capital stock of Fuller-Jeffrey Broadcasting Companies, Inc. In connection with the acquisition, the Company acquired ten FM radio stations in Portsmouth, New Hampshire and Portland, Maine. On November 1, 1999, the Company acquired KOOJ-FM in Baton Rouge, Louisiana and on November 9, 1999, the Company sold substantially all of the assets of its 18 FM and seven AM radio stations in Eugene and Medford, Oregon; Tri-Cities, Washington; Billings, Montana; and Johnstown and State College, Pennsylvania. On December 23, 1999, the Company acquired four FM radio stations and one AM radio station in Oklahoma City, Oklahoma. Brainiac Services, Inc., an internet service provider in Riverside, Rhode Island, was acquired on March 1, 1999. 2000 First Quarter Acquisitions: WXLO-FM in Worcester, Massachusetts was acquired on February 10, 2000. On March 31, 2000, the Company acquired two FM and two AM radio stations serving Lafayette, Louisiana. THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 NET BROADCASTING REVENUE. Net broadcasting revenue increased $14.9 million or 47.8% to $46.1 million for the three months ended March 31, 2000 from $31.2 million for the three months ended March 31, 1999, primarily due to the inclusion of revenue from radio stations acquired in the second through fourth quarters of 1999. Barter revenue, which is included in net broadcasting revenue, increased $1.0 million to $3.2 million for the three months ended March 31, 2000 from $2.2 million for the same period in 1999. For stations owned and operated over the comparable periods in 2000 and 1999, net broadcasting revenue improved $4.9 million or 18.7% to $31.1 million in 2000 from $26.2 million in 1999, primarily due to increased ratings and improved selling efforts. STATION OPERATING EXPENSES. Station operating expenses increased $9.4 million or 40.2% to $32.8 million for the three months ended March 31, 2000 from $23.4 million for the three months ended March 31, 1999. Barter expenses, which are included in station operating expenses, increased $0.3 million to $2.5 million for the three months ended March 31, 2000 from $2.2 million for the same period in 1999. The increase in station operating expenses was primarily attributable to the inclusion of station operating expenses of the radio stations acquired after March 31, 1999. BROADCAST CASH FLOW. As a result of the factors described above, broadcast cash flow increased $5.5 million or 70.5% to $13.3 million for the three months ended March 31, 2000 from $7.8 million for the three months ended March 31, 1999. For stations owned and operated over the comparable periods in 2000 and 1999, broadcast cash flow increased $2.4 million or 33.3% to $9.6 million in 2000 from $7.2 million in 1999. As a percentage of net broadcasting revenue, broadcast cash flow improved to 28.8% for the three months ended March 31, 2000 compared to 25.1% for the three months ended March 31, 1999. 11 12 CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDES NON-CASH DEFERRED COMPENSATION). Corporate general and administrative expenses increased $3.7 million or 246.7% to $5.2 million for the three months ended March 31, 2000 from $1.5 million for the three months ended March 31, 1999. The increase was due primarily to a $3.2 million increase in non-cash deferred compensation related to stock options. The remaining increase in corporate general and administrative expenses is due to increased staffing and associated costs needed to support the Company's growth. EBITDA. As a result of the factors described above, EBITDA increased $1.8 million or 28.6% to $8.1 million for the three months ended March 31, 2000 from $6.3 million for the three months ended March 31, 1999. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $5.9 million or 88.1% to $12.6 million for the three months ended March 31, 2000 from $6.7 million for the three months ended March 31, 1999, primarily due to radio station acquisitions completed after March 31, 1999. INTEREST EXPENSE. Interest expense increased $3.0 million or 52.6% to $8.7 million for the three months ended March 31, 2000 from $5.7 million for the three months ended March 31, 1999, primarily due to increased interest expense associated with outstanding borrowings and commitment fees under the Company's credit facility during the first quarter of 2000 as compared to the first quarter of 1999. INCOME TAX BENEFIT. The income tax benefit for the three months ended March 31, 2000 and 1999 represents the reversal of deferred tax liabilities established at the date of acquisition due to differences in tax bases and the financial statement carrying amounts of intangibles and fixed assets acquired in stock-based acquisitions, offset by state tax expense. LIQUIDITY AND CAPITAL RESOURCES Liquidity needs have been driven by the Company's acquisition strategy. The Company's principal liquidity requirements are for acquisition financing, debt service, working capital and general corporate purposes, including capital expenditures. The Company's acquisition strategy has required, and is expected to continue in the foreseeable future to require, a significant portion of the Company's capital resources. The Company expects that its debt service obligations within the next twelve months, without regard to further acquisitions, will be approximately $30.6 million, including approximately $21.0 million for interest on its 10-1/4% Senior Subordinated Notes and its 9-1/4% Senior Subordinated Notes and approximately $9.6 million for interest on its credit facility. The Company's 13-1/4% Exchangeable Preferred Stock does not require cash dividends through July 1, 2002. Citadel Broadcasting and Citadel Communications have financed past acquisitions through bank borrowings, sales of equity and debt securities, internally generated funds and proceeds from asset sales. The Company expects that financing for future acquisitions will be provided from the same sources. At March 31, 2000, the Company held approximately $212.2 million in cash and cash equivalents, $30.1 million in restricted cash and had $346.8 million in unborrowed availability under its credit facility. This unborrowed availability has been reduced for outstanding letters of credit of approximately $33.2 million at March 31, 2000. NET CASH PROVIDED BY OPERATING ACTIVITIES. For the three months ended March 31, 2000, net cash provided by operations increased to $13.7 million from $2.1 million for the comparable 1999 period, primarily due to the inclusion of operating activities of the radio stations acquired after March 31, 1999. NET CASH USED IN INVESTING ACTIVITIES. For the three months ended March 31, 2000, net cash used in investing activities, primarily for station acquisitions, decreased to $36.0 million from $73.7 million in the comparable 1999 period. NET CASH PROVIDED BY FINANCING ACTIVITIES. For the three months ended March 31, 2000, net cash provided by financing activities was $216.5 million compared to $0.3 million in the comparable 1999 period. This increase of $216.2 million is the result of the 2000 Stock Offering by Citadel Communications described below reduced by principal payments made on notes payable and other long-term obligations during the first quarter of 2000. 12 13 2000 STOCK OFFERING. On February 11, 2000, Citadel Communications sold 4,750,000 shares of its common stock at $51.50 per share (the "2000 Stock Offering"). The proceeds to Citadel Communications from the offering, net of underwriting discounts and commissions, were approximately $234.8 million. The net proceeds received by Citadel Communications from the 2000 Stock Offering were transferred to the equity of Citadel Broadcasting. A portion of the proceeds was used to repay a portion of the indebtedness under Citadel Broadcasting's credit facility and the remainder has been or will be used to fund acquisitions. See the discussion below under the heading "Pending Acquisitions and Recently Completed Transactions". CREDIT FACILITY. On December 17, 1999, Citadel Broadcasting and Citadel Communications entered into a credit facility with Credit Suisse First Boston, as the lead arranger, administrative agent and collateral agent, and the lenders named therein, which provides for the making to Citadel Broadcasting by the lenders of term loans at any time during the period from December 17, 1999 to December 15, 2000, in an aggregate principal amount not in excess of $250.0 million and revolving loans at any time and from time to time prior to March 31, 2007 (subject to extension to December 31, 2007), in the aggregate principal amount at any one time outstanding not in excess of $150.0 million. Of the $150.0 million which is available in the form of revolving loans under the revolving credit facility, until March 31, 2000, up to $75.0 million of the revolving credit facility may be made available in the form of letters of credit, and after March 31, 2000, up to $50.0 million of the revolving credit facility may be made available in the form of letters of credit. On February 10, 2000, the credit facility was amended to increase the amount of the facility from $400.0 million to $500.0 million. The $100.0 million increase was allocated $75.0 million to the revolving loans and $25.0 million to the term loans. In addition, Citadel Broadcasting may request up to $300.0 million in additional term loans, which term loans may be made at the sole discretion of the lenders. Of such additional $300.0 million amount, at the request of Citadel Broadcasting, up to $100.0 million may be in the form of an increase in the $225.0 million revolving credit commitment. The lenders are under no obligation to make such additional $300.0 million available, whether in the form of term loans, revolving loans or otherwise. Amounts borrowed under the credit facility bear interest at a rate equal to an applicable margin (described below) plus either (a) the greater of the prime rate of interest announced from time to time by Credit Suisse First Boston, New York, New York, and the federal funds effective rate in effect from time to time plus 0.5%, or (b) if Citadel Broadcasting so elects, the LIBO rate divided by one minus the eurocurrency reserve requirements prescribed by the Federal Reserve Board or other governmental body in effect from time to time. The applicable margin is expected to range between 0% and 1.5% for the rate discussed in clause (a) above and between 0.75% and 2.5% for the rate discussed in clause (b) above. The interest rate of borrowings in the first quarter of 2000 has ranged from 7.75% to 9.375%. Draws may be made under the term loan facility solely to finance a portion of certain acquisitions contemplated by Citadel Broadcasting, to finance a portion of future permitted acquisitions and to pay related fees and expenses. The amount of any term loans outstanding on December 17, 2002 must be repaid in varying quarterly installments ranging from 3.75% of the amount on March 31, 2003 to 6.25% of the amount on March 31, 2007. In addition, mandatory prepayments must be made under the term loan facility upon the happening of certain events. Draws may be made under the revolving credit facility, subject to the satisfaction of certain conditions, for general corporate purposes, including for working capital, capital expenditures, and to finance a portion of certain acquisitions contemplated by Citadel Broadcasting and for future permitted acquisitions by Citadel Broadcasting. Any borrowings under the revolving credit facility must be paid in full on or before March 31, 2007 (subject to extension until December 31, 2007). In addition, mandatory prepayments must be made under the revolving credit facility upon the happening of certain events. During the first quarter of 2000, Citadel Broadcasting repaid $132.0 million in revolving loans outstanding under the credit facility with $120.0 million term borrowing, internally generated funds and a portion of the funds received from the 2000 Stock Offering. As of March 31, 2000, Citadel Broadcasting has $120.0 million in term borrowings outstanding and no revolving loans outstanding. The letter of credit facility, which is a sub facility of the revolving credit facility, provides for the issuance of letters of credit to be used by Citadel Broadcasting as security for the obligations of Citadel Broadcasting under agreements entered into in connection with certain radio station acquisitions and for any other purpose related to the business of Citadel Broadcasting. As of May 12, 2000, Citadel Broadcasting has approximately $49.8 million in letters of credit outstanding related to pending acquisitions. Subject to permitted liens, the credit facility is secured by: (a) a first priority pledge on all of Citadel Broadcasting's capital stock other than its exchangeable preferred stock, (b) a first priority security interest in all the existing and after-acquired property of Citadel Communications and Citadel Broadcasting, including, without limitation, accounts, machinery, equipment, inventory, real estate, general intangibles and investment property and (c) all proceeds of the foregoing. The credit facility is also guaranteed by Citadel Communications. The credit facility contains customary events of default. Upon the occurrence of an event of default, with certain limitations, Citadel Broadcasting's obligations under the credit facility, which are at that time outstanding, may become accelerated. 13 14 The credit facility contains customary restrictive covenants, which, among other things, and with certain exceptions, limit Citadel Broadcasting's and Citadel Communications, ability to incur additional indebtedness and liens, enter into transactions with affiliates, make acquisitions other than permitted under the credit facility, pay dividends, redeem or repurchase capital stock, enter into certain sale and leaseback transactions, consolidate, merge or effect asset sales, issue additional equity, make capital expenditures, make investments, loans or prepayments or change the nature of their business. Citadel Broadcasting and Citadel Communications are also required to satisfy financial covenants, which require them to maintain specified financial ratios and to comply with financial tests, including ratios with respect to maximum leverage, minimum interest coverage and minimum fixed charge coverage. As of May 12, 2000, Citadel Broadcasting and Citadel Communications were in compliance with all covenants under the credit facility. SENIOR SUBORDINATED NOTES. On July 3, 1997, Citadel Broadcasting completed the issuance of $101.0 million of 10 1/4% Senior Subordinated Notes due 2007 ("10 1/4% notes"). Interest is payable semi-annually. The 10 1/4% notes may be redeemed at the option of Citadel Broadcasting, in whole or in part, at any time on or after July 1, 2002 at the redemption prices set forth in the indenture governing the 10 1/4% notes. In addition, at any time prior to July 1, 2000, Citadel Broadcasting may, at its option, redeem a portion of the 10 1/4% notes with the net proceeds of one or more Public Equity Offerings (as defined in the indenture governing the 10 1/4% notes), at a redemption price equal to 110.25% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption. On November 19, 1998, Citadel Broadcasting completed the issuance of $115.0 million of 9 1/4% Senior Subordinated Notes due 2008 ("9 1/4% notes"). Interest is payable semi-annually. The 9 1/4% notes may be redeemed at the option of Citadel Broadcasting, in whole or in part, at any time on or after November 15, 2003 at the redemption prices set forth in the indenture governing the 9 1/4% notes. In addition, at any time prior to November 15, 2001, Citadel Broadcasting may, at its option, redeem the 9 1/4% notes with the net proceeds of one or more Public Equity Offerings (as defined in the indenture governing the 9 1/4% notes), at a redemption price equal to 109.25% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of redemption. The indentures governing the 10 1/4% notes and the 9 1/4% notes contain certain restrictive covenants, including limitations which restrict the ability of Citadel Broadcasting to incur additional debt, incur liens, pay cash dividends, or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets. As of May 12, 2000, Citadel Broadcasting was in compliance with all covenants under the indentures. EXCHANGEABLE PREFERRED STOCK. On July 3, 1997, Citadel Broadcasting sold an aggregate of 1,000,000 shares of its 13 1/4% Exchangeable Preferred Stock. Dividends on the exchangeable preferred stock accrue at the rate of 13 1/4% per annum and are payable semi-annually. On or prior to July 1, 2002, dividends are payable in additional shares of exchangeable preferred stock having an aggregate liquidation preference equal to the amount of such dividends, or, at the option of Citadel Broadcasting, in cash. Thereafter, all dividends will be payable only in cash. To date, Citadel Broadcasting has paid all dividends in additional shares of exchangeable preferred stock. Citadel Broadcasting will be required to redeem the exchangeable preferred stock on July 1, 2009, subject to the legal availability of funds therefore, at a redemption price equal to the liquidation preference thereof, plus accumulated and unpaid dividends, if any, to the date of redemption. Citadel Broadcasting may redeem the exchangeable preferred stock, in whole or in part, at the option of Citadel Broadcasting, at any time on or after July 1, 2002, at declining redemption prices ranging from 107.729% to 101.104%, plus accumulated and unpaid dividends, if any, to the date of redemption On August 2, 1999, Citadel Broadcasting redeemed approximately 35% of its issued and outstanding exchangeable preferred stock. Total shares redeemed were approximately 452,000 at a redemption price of $113.25 per share for a total of approximately $51.2 million. On April 6, 2000, Citadel Broadcasting repurchased approximately 14,900 shares of its issued and outstanding exchangeable preferred stock at a price of $112.75 per share for a total of approximately $1.7 million. Available working capital was used to complete the April 6, 2000 repurchase. Citadel Broadcasting received a waiver from its lenders under the credit facility to permit the repurchase. The Certificate of Designation governing the exchangeable preferred stock also contains covenants that restrict Citadel Broadcasting from taking various actions, including, subject to specified exceptions, the incurrence of additional indebtedness, the granting of additional liens, the making of investments, the payment of dividends and other restricted payments, mergers, acquisitions and other fundamental corporate changes, capital expenditures and transactions with affiliates. As of May 12, 2000, Citadel Broadcasting was in compliance with all covenants under the Certificate of Designation. 14 15 PENDING ACQUISITIONS AND RECENTLY COMPLETED TRANSACTIONS. The Company has a number of transactions currently pending, which if completed, would result in the purchase of 30 FM and 15 AM radio stations, related assets and the right to operate one station under a long-term local marketing agreement and the sale of one AM radio station. In addition, the Company has entered into a letter of intent to sell two existing radio stations and one station to be acquired for approximately $16.2 million in cash. The total cash required to fund the pending acquisitions is expected to be approximately $603.0 million, which amount does not include 200,000 shares of Citadel Communications' common stock valued at $10.1 million that may be delivered in connection with one acquisition. The consummation of each of the pending transactions is subject to certain conditions, including the approval of the FCC and, in the case of the sale transaction that is the subject of the letter of intent, the execution of a definitive agreement. Although the Company believes these closing conditions will be satisfied in each case, there can be no assurance that this will be the case. The remaining borrowing capacity under the committed credit facility, together with working capital funds, the remaining proceeds from the 2000 Stock Offering and the approximately $16.2 million of funds from the anticipated sale of three radio stations will not be sufficient to fund all of the pending transactions. If all of the pending transactions are completed and the 200,000 shares of Citadel Communications' common stock are delivered in connection with one acquisition, the Company will require additional funds of approximately $160.2 million. The Company's credit facility allows the Company to request up to $300.0 million in additional loans, which may be made at the sole discretion of the lenders. In addition, the Company may need to obtain an amendment to or a waiver under its credit facility for certain financial ratios due to the additional indebtedness. The Company believes that the lenders under the credit facility will provide the additional term loans to complete the pending transactions and will waive or amend the credit facility with respect to certain financial ratios. However, there can be no assurance that this will be the case. In addition, the Company may consider other financing alternatives, such as selling additional equity or debt securities. Again, there can be no assurance that the Company could obtain such financing on terms favorable to the Company or at all. Subsequent to March 31, 2000, the Company completed the following transactions: (a) acquisition of one AM radio station in Albuquerque, New Mexico in exchange for one AM radio station owned by the Company and approximately $5.4 million in cash, (b) acquisition of one FM radio station in Worcester, Massachusetts for approximately $3.5 million in cash and termination of the local marketing agreement under which the Company operated this station pending its acquisition and (c) acquisition from Broadcasting Partners Holdings, L.P. of a total of 23 FM and 12 AM radio stations serving various markets, as well as the right to operate an additional FM radio station under a program service and time brokerage agreement and the right to sell advertising in the United States for one FM radio station in Niagara Falls, Ontario under a joint sales agreement, for approximately $189.0 million in cash. These acquisitions were funded with the proceeds of the 2000 Stock Offering, funds held as restricted cash received from the Company's November 9, 1999 sale of 18 FM and seven AM radio stations and working capital. CAPITAL EXPENDITURES. The Company had capital expenditures of approximately $1.4 million for the three months ended March 31, 2000. The Company's equipment purchases consist primarily of broadcasting equipment and transmission tower upgrades. In addition to acquisitions and debt service, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures, which are not expected to be material in amount. Management believes that cash from operating activities, revolving loans and term loans under the Company's credit facility and any remaining proceeds from the 2000 Stock Offering should be sufficient to permit the Company to meet its financial obligations and to fund its operations for at least the next 12 months, although, as discussed above under the heading "Pending Transactions and Recently Completed Transactions," additional capital resources will be required to complete all of the pending acquisitions and in connection with any further implementation of the Company's acquisition strategy. RISK FACTORS Unless the context otherwise requires, the words "we", "our", and "us" in this section refer to the Company. Any of the following risks could have a material adverse effect on our business, financial condition or results of operations. These risks and uncertainties are no the only ones facing us or which may adversely affect of business. SUBSTANTIAL INDEBTEDNESS. - Our debt service consumes a substantial portion of the cash we generate and reduces the cash available to invest in our operations. We have a significant amount of indebtedness. Our large amount of debt could significantly impact our business because, among other things, it: o requires us to dedicate a substantial portion of our operating cash flow to pay interest expense, which reduces funds available for operations, future business opportunities and other purposes, 15 16 o limits our ability to obtain additional financing, if we need it, for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, o inhibits our ability to compete with competitors who are less leveraged than we are, and o restrains our ability to react to changing market conditions, changes in our industry and economic downturns. As of March 31, 2000, we had: o outstanding total debt of approximately $339.1 million, excluding the discount on our 10 1/4% notes and its 9 1/4% notes, o our exchangeable preferred stock with an aggregate liquidation preference of approximately $88.4 million, and o shareholders' equity of approximately $442.9 million. We anticipate that we will incur a substantial amount of additional indebtedness in connection with our pending acquisitions. For more information about our indebtedness, see the discussion above under the heading "Liquidity and Capital Resources." ABILITY TO SERVICE DEBT--In order to service our debt, we require a significant amount of cash. However, our ability to generate cash depends on many factors, which are beyond our control. Prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to satisfy our debt obligations. If in the future we cannot generate sufficient cash flow from operations to meet our obligations, we may need to refinance our debt, obtain additional financing, delay planned acquisitions and capital expenditures or sell assets. Any of these actions could adversely affect the value of our common stock. We cannot assure you that we will generate sufficient cash flow or be able to obtain sufficient funding to satisfy our debt service requirements. RESTRICTIONS IMPOSED ON US BY OUR DEBT INSTRUMENTS--Our existing debt instruments contain restrictions and limitations that could significantly impact our ability to operate our business. The covenants in our credit facility and the agreements governing our other outstanding debt and preferred stock restrict, among other things, our ability to incur additional debt, make particular types of investments or other restricted payments, swap or sell assets or merge or consolidate. A breach of any of the covenants contained in the credit facility could allow the lenders to declare all amounts outstanding under the credit facility to be immediately due and payable. In addition, the lenders under the credit facility could proceed against the collateral granted to them to secure that indebtedness. Citadel Communications has pledged the outstanding shares of our common stock owned by it to secure its guarantee of the credit facility. If the amounts outstanding under the credit facility are accelerated, we cannot assure you that our assets will be sufficient to repay amounts due under the credit facility and other outstanding debt obligations. The credit facility requires us to obtain our banks' consent before making acquisitions or capital expenditures that exceed the amount permitted by the credit facility and before making the acquisitions that do not meet applicable tests under the credit facility. The credit facility also requires us to maintain specific financial ratios and satisfy financial condition tests. Events beyond our control could affect our ability to meet those financial ratios and condition tests, and we cannot assure you that we will do so. The indentures governing our 9 1/4% notes and 10 1/4% notes and our credit facility restrict, with certain exceptions, our ability to pay dividends on or to repurchase, redeem or otherwise acquire any shares of our capital stock. In the event that, after July 1, 2002, cash dividends on our exchangeable preferred stock are in arrears and unpaid for two or more semi-annual dividend periods, whether or not consecutive, holders of the exchangeable preferred stock will be entitled to elect two directors of Citadel Broadcasting. For more information about our indebtedness, see the discussion above under the heading "Liquidity and Capital Resources." 16 17 HISTORY OF NET LOSSES--We have a history of net losses which we expect to continue through at least 2000. We had a net loss of $8.9 million for the year ended December 31, 1999 and $11.1 million for the three months ended March 31, 2000. The primary reasons for these losses are significant charges for depreciation and amortization relating to the acquisition of radio stations, interest charges on our outstanding debt and non-cash deferred compensation related to stock options. If we acquire additional stations, these charges will probably increase. We expect to continue to experience net losses through at least 2000. LIMITATIONS ON ACQUISITION STRATEGY--Our strategy to expand our business and increase revenue through acquisitions may fail due to a number of risks involved in implementing this strategy. We intend to grow by acquiring radio stations in mid-sized markets. However, our acquisition strategy may not increase our cash flow or yield other anticipated benefits because this strategy is subject to a number of other risks, including: o failure or unanticipated delays in completing acquisitions due to difficulties in obtaining regulatory approval, o failure of certain of our acquisitions to prove profitable or for the station or stations acquired to generate cash flow, o difficulty in integrating the operations, systems and management of our acquired stations, o diversion of management's attention from other business concerns, o loss of key employees of acquired stations, o increases in prices for radio stations due to increased competition for acquisition opportunities, and o inability to obtain any required financing for acquisitions on terms favorable to us or at all. We compete and expect to continue to compete with other buyers for the acquisition of radio stations. Some of those competitors have greater financial and other resources than we do. In addition, we may find fewer acceptable acquisition opportunities in the future. In addition, our credit facility permits us to make acquisitions of radio stations without the consent of the banks under the credit facility only if we maintain the financial ratios and financial condition tests specified in the credit facility. Consequently, we may experience difficulties in pursuing our acquisition strategy. POTENTIAL DIFFICULTIES IN COMPLETING PENDING AND FUTURE TRANSACTIONS DUE TO GOVERNMENTAL REVIEW--Antitrust law and other regulatory considerations could prevent or delay our strategy to expand our business and increase revenue. The completion of several of our pending transactions is, and future transactions we may consider will likely be, subject to the notification filing requirements, applicable waiting periods and possible review by the United States Department of Justice or the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. All of our pending and future radio station acquisitions and dispositions will be subject to the license transfer approval process of the Federal Communications Commission. Review by the Department of Justice or the Federal Trade Commission may cause delays in completing transactions and, in some cases, result in attempts by these agencies to prevent completion of transactions or negotiate modifications to the proposed terms. Review by the FCC, particularly review of concentration of market revenue share, may also cause delays in completing transactions. Any delay, prohibition or modification could adversely affect the terms of a proposed transaction or could require us to abandon an otherwise attractive opportunity. 17 18 The closings of several of our recent and pending transactions have been delayed by the FCC's analysis of market revenue share in various markets. The closing of our pending acquisition of stations in Michigan from Liggett Broadcast, Inc. and certain of its affiliates has been delayed as we received a request for additional information and documents from the Department of Justice relating to stations in Saginaw/Bay City/Midland, Michigan. To resolve the Department of Justice's concerns, we expect to sell two of our existing stations and one station to be acquired serving Saginaw/Bay City/Midland in connection with our acquisition of stations from Liggett Broadcast, Inc. and its affiliates. For a discussion of one antitrust proceeding in which we are currently involved, see the next risk factor relating to the importance of certain markets. IMPORTANCE OF CERTAIN MARKETS--A downturn in any of our significant markets could adversely affect our revenue and cash flow. Our Albuquerque, Providence, Salt Lake City, Modesto and Colorado Springs markets are particularly important for our financial well being. A significant decline in net broadcasting revenue from our stations in these markets could have a material adverse effect on our operations and financial condition. To illustrate, our radio stations in these markets generated the following percentages of our total net broadcasting revenue and broadcast cash flow for the three months ended March 31, 2000: % OF NET % OF BROADCAST MARKET BROADCASTING REVENUE CASH FLOW ------ -------------------- --------- Albuquerque 11.2% 12.8% Providence 9.2% 10.5% Salt Lake City 8.6% 7.6% Modesto 5.5% 9.0% Colorado Springs 5.5% 8.1% In 1996, we received a civil investigative demand from the Department of Justice concerning our acquisition of all of the assets of KRST-FM in Albuquerque, New Mexico on October 9, 1996. The demand requested written answers to interrogatories and the production of documents concerning the radio station market in Albuquerque, in general, and the KRST acquisition, in particular, to enable the Department of Justice to determine, among other things, whether the KRST acquisition would result in excessive concentration in the market. We responded to the demand. The Department of Justice requested supplemental information in 1997, to which we also responded. This matter remains open. If the Department of Justice were to proceed with and successfully challenge the KRST acquisition, we may be required to divest one or more radio stations in Albuquerque. SIGNIFICANT COMPETITION IN OUR INDUSTRY--Because the radio broadcasting industry is highly competitive, we may lose audience share and advertising revenue. Our radio stations face heavy competition from other radio stations in each market for audience share and advertising revenue. We also compete with other media such as television, newspapers, direct mail and outdoor advertising for advertising revenue. A decrease in either audience share or advertising revenue could result in decreased cash flow, which could impair our ability to, among other things, service our debt obligations. The radio broadcasting industry is also facing competition from new media technologies that are being developed such as the following: o audio programming by cable television systems, direct broadcasting satellite systems and other digital audio broadcasting formats, o satellite-delivered digital audio radio service, which could result in the introduction of several new satellite radio services with sound quality equivalent to that of compact discs, and o in-band-on-channel digital radio, which could provide digital radio services in the same frequency range currently occupied by traditional AM and FM radio services. We cannot predict either the extent to which such competition will materialize or, if such competition materializes, the extent of its effect on our business. The internet has also created a new form of competition. 18 19 EXTENSIVE REGULATION OF OUR INDUSTRY--The Federal Communications Commission's extensive regulation of the radio broadcasting industry limits our ability to own and operate radio stations and other media outlets. LICENSES. The radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act of 1934, as amended. Issuance, renewal or transfer of radio broadcast station operating licenses requires FCC approval, and we cannot operate our radio stations without FCC licenses. The failure to renew our licenses could prevent us from operating the affected stations and generating revenue from them. If the FCC decides to include conditions or qualifications in any of our licenses, we may be limited in the manner in which we may operate the affected station. OWNERSHIP. The Communications Act and FCC rules impose specific limits on the number of stations and other media outlets an entity can own in a single market. The FCC attributes interests held by, among others, an entity's officers, directors and stockholders to that entity for purposes of applying these ownership limitations. The existing ownership rules or proposed new rules could affect our acquisition strategy because they may prevent us from acquiring additional stations in a particular market. We may also be prevented from engaging in a swap transaction if the swap would cause the other company to violate these rules. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK. During the normal course of business the Company is routinely subjected to a variety of market risks, examples of which include, but are not limited to, interest rate movements and collectibility of accounts receivable. The Company constantly assesses these risks and has established policies and practices to protect against the adverse effects of these and other potential exposures. Although the Company does not anticipate any material losses in these risk areas, no assurance can be made that material losses will not be incurred in these areas in the future. INTEREST RATE RISK. The Company may be exposed to interest rate changes under its credit facility, which the Company maintains to provide liquidity and to fund capital expenditures and acquisitions. Management constantly monitors interest rate changes to determine the impact any change will have on the Company's business, financial condition or results of operations. The Company does not consider its cash and cash equivalents to be subject to interest rate risk due to their short term maturities. Notwithstanding these efforts to manage interest rate risks, there can be no assurance that the Company will be adequately protected against the risks associated with interest rate fluctuations. The Company's credit facility bears interest equal to an applicable margin plus a variable rate. For further discussion of The Company's interest rate under the credit facility, see Item 2, Managements' Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Liquidity and Capital Resources - Credit Facility". The Company's credit facility consists of revolving loans and term loans. The revolving loans mature on March 31, 2007 (subject to extension until December 31, 2007). The term loans are subject to quarterly principle repayments stating in March 2003 and ending December 2007. The quarterly repayments are based on a percentage of the term loan borrowings and the percentage ranges from 3.75% in 2003 to 6.25% in 2007. At March 31, 2000, there was $120.0 million outstanding under the term loan facility at an interest rate of 7.75%. Assuming a hypothetical increase in the interest rate of 10%, the impact on future earnings for the next year would be approximately $0.9 million of increased interest expense based on the $120.0 million of outstanding variable debt. In addition, the credit facility requires that no less than 50% of the Company's long-term indebtedness be subject to fixed interest rates. If the Company's total variable debt under the credit facility exceeds this 50% threshold, the Company will be required to enter into a hedging contract that will convert a portion of the variable rate into a fixed rate. At March 31, 2000, the Company's fixed rate debt is greater than 50% of its outstanding indebtedness and therefore the Company has not entered into any interest rate hedging contract. However, the Company does expect to enter into a hedging contract sometime in the second or third quarter of 2000 upon the completion of certain of the pending transactions which will require additional borrowings under the credit facility. 19 20 PART II ITEM 5. OTHER INFORMATION On May 9, 2000, Citadel Broadcasting entered into an asset purchase agreement with Dick Broadcasting Company, Inc. of Tennessee, Dick Broadcasting Company, Inc. of Alabama and various other entities and individuals to acquire eight FM and three AM radio stations and related assets in Nashville and Knoxville, Tennessee and Birmingham, Alabama, as well as the right to operate one additional FM radio station in Knoxville under a long-term local marketing agreement. The aggregate purchase price is approximately $300.0 million in cash, subject to various adjustments specified in the asset purchase agreement. Citadel Broadcasting has delivered an irrevocable letter of credit in favor of the sellers, issued by Credit Suisse First Boston, in the amount of $28.0 million and has delivered $2.0 million into escrow, in each case to secure its obligations under the asset purchase agreement. In its discretion, Citadel Broadcasting may elect to replace the escrow amount with an additional $2.0 million letter of credit in favor of the sellers. Any amounts remaining in escrow at the time of closing will be applied to the purchase price. The asset purchase agreement contains customary representations and warranties of the parties, and completion of the acquisition of the stations is subject to conditions including (1) the receipt of FCC consent to the assignment of the station license for the stations to be acquired to Citadel Broadcasting, (2) the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (3) the receipt of consents to the assignment to Citadel Broadcasting of certain contracts relating to the stations. For a discussion of financing for this transaction, see Item 2 of this report, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Liquidity and Capital Resources." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.1 Global Assignment Agreement dated as of February 10, 2000 among Citadel Broadcasting Company, Citadel Communications Corporation, Credit Suisse First Boston, as Administrative Agent, Collateral Agent and Issuing Bank, and the lenders named therein (incorporated by reference to Exhibit 4.5 to Citadel Communications Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 4.2 Amended and Restated Credit Agreement dated as of February 10, 2000 among Citadel Broadcasting Company, Citadel Communications Corporation, Credit Suisse First Boston, as lead Arranger, Administrative Agent and Collateral Agent, FINOVA Capital Corporation, as Syndication Agent, First Union National Bank and Fleet National Bank, as Co-Documentation Agents, and the lenders named therein (incorporated by reference to Exhibit 4.6 to Citadel Communications Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 27 Financial Data Schedule (b) Reports on Form 8-K - During the quarter ended March 31, 2000, Citadel Broadcasting Company filed the following report on Form 8-K. Form 8-K filed on January 6, 2000 reporting (i) Citadel Broadcasting's December 23, 1999 acquisition of all the equity interests of Caribou Communications Co. from CAT Communications, Inc. and Desert Communications III, the two former equity holders of Caribou Communications, for approximately $61.5 million in cash and (ii) the new $400.0 million credit facility signed on December 17, 1999 by and among Citadel Broadcasting Company, Citadel Communications Corporation and Credit Suisse First Boston, as Lead Arranger, Administrative Agent and Collateral Agent and the Lenders named therein. 20 21 Financial Statements - The following financial Statements of Caribou Communications Co. were included in this report: Balance Sheets as of September 30, 1999 and 1998 (unaudited) Statements of Operations for the nine months ended September 30, 1999 and 1998 (unaudited) Statements of Changes in Partners' Equity for the nine months ended September 30, 1999 and 1998 (unaudited) Statements of Cash Flows for the nine months ended September 30, 1999 and 19998 (unaudited) Notes to Unaudited Financial Statements Pro Form Financial Information - The following pro forma financial information of Citadel Broadcasting Company was reported: Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1999 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 1999 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the twelve months ended December 31, 1998 21 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITADEL BROADCASTING COMPANY Date: May 12, 2000 By: /s/ LAWRENCE R. WILSON ------------ ------------------------------- Lawrence R. Wilson Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: May 12, 2000 By: /s/ DONNA L. HEFFNER ------------ ------------------------------- Donna L. Heffner Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 22 23 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.1 Global Assignment Agreement dated as of February 10, 2000 among Citadel Broadcasting Company, Citadel Communications Corporation, Credit Suisse First Boston, as Administrative Agent, Collateral Agent and Issuing Bank, and the lenders named therein (incorporated by reference to Exhibit 4.5 to Citadel Communications Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 4.2 Amended and Restated Credit Agreement dated as of February 10, 2000 among Citadel Broadcasting Company, Citadel Communications Corporation, Credit Suisse First Boston, as lead Arranger, Administrative Agent and Collateral Agent, FINOVA Capital Corporation, as Syndication Agent, First Union National Bank and Fleet National Bank, as Co-Documentation Agents, and the lenders named therein (incorporated by reference to Exhibit 4.6 to Citadel Communications Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS IN CITADEL BROADCASTING COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 212,187 0 47,672 (2,934) 0 264,393 89,353 (20,832) 927,310 18,299 332,931 88,382 0 0 442,904 927,310 0 46,137 0 36,526 12,605 1,540 8,747 (11,223) (735) (11,488) (564) 0 0 (11,052) (311.48) (311.48)
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