<PAGE> 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 September 30, 1998
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.)
140 South Ash Avenue, Tempe, Arizona 85281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 731-5222
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 November 10, 1998, there were 40,000 shares of common stock, $.001
par value per share, outstanding.
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Citadel Broadcasting Company
Form 10-Q
September 30, 1998
Index
<TABLE>
<CAPTION>
Part I Page
<S> <C>
Item 1 - Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 10
Part II
Item 1 - Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2 - Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . 16
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
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CITADEL BROADCASTING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,684,991 $ 7,406,965
Cash held in escrow 718,561 --
Accounts receivable, less allowance for doubtful
accounts of $808,942 in 1997 and $1,280,553 in 1998 25,744,137 31,808,518
Notes receivable from related parties 246,455 235,906
Prepaid expenses 1,532,227 3,286,852
------------- -------------
Total current assets 35,926,371 42,738,241
Property and equipment, net 35,242,284 36,833,719
Intangible assets, net 268,689,516 290,405,370
Deposits for pending acquisitions 650,000 --
Other assets 3,664,123 3,375,942
------------- -------------
$ 344,172,294 $ 373,353,272
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 4,001,194 $ 3,032,234
Accrued liabilities 9,060,129 8,367,647
Current maturities of other long-term obligations 271,352 281,617
------------- -------------
Total current liabilities 13,332,675 11,681,498
Notes payable, less current maturities 90,084,059 18,726,126
Senior subordinated notes payable 98,331,117 98,460,823
Other long-term obligations, less current maturities 1,012,649 1,011,050
Deferred tax liability 23,270,338 25,306,162
Exchangeable preferred stock 102,009,531 112,964,761
Shareholder's equity:
Common stock, $.001 par value; authorized 136,300
shares, issued and outstanding 40,000 shares 40 40
Additional paid-in capital 42,296,316 138,243,294
Unrealized loss on hedging contract -- (595,595)
Accumulated deficit (26,164,431) (32,444,887)
------------- -------------
Total shareholder's equity 16,131,925 105,202,852
------------- -------------
$ 344,172,294 $ 373,353,272
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CITADEL BROADCASTING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------------
1997 1998 1997 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Gross broadcasting revenue $ 30,508,537 $ 39,551,005 $ 66,516,801 $ 109,240,243
Less agency commissions (2,894,229) (3,653,280) (6,491,983) (10,418,869)
------------- ------------- ------------- -------------
Net broadcasting revenue 27,614,308 35,897,725 60,024,818 98,821,374
Operating expenses:
Station operating expenses 18,993,664 23,972,146 43,305,951 69,411,775
Depreciation and amortization 4,576,132 7,042,115 9,563,084 20,005,073
Corporate general and
administrative 967,637 1,082,541 2,562,480 3,351,191
------------- ------------- ------------- -------------
Operating expenses 24,537,433 32,096,802 55,431,515 92,768,039
Operating income 3,076,875 3,800,923 4,593,303 6,053,335
Nonoperating expenses
(income):
Interest expense 3,736,155 3,548,184 8,213,550 13,590,447
Other income, net (309,562) (14,774) (401,099) (94,149)
------------- ------------- ------------- -------------
Nonoperating expenses, net 3,426,593 3,533,410 7,812,451 13,496,298
Income (loss) before
income taxes (349,718) 267,513 (3,219,148) (7,442,963)
Income tax (benefit) (35,056) (279,546) (105,168) (1,162,507)
------------- ------------- ------------- -------------
Net income (loss) (314,662) 547,059 (3,113,980) (6,280,456)
Dividend requirement for
exchangeable preferred stock 3,275,693 3,763,345 3,275,693 10,822,375
------------- ------------- ------------- -------------
Net loss applicable to common
shares $ (3,590,355) $ (3,216,286) $ (6,389,673) $ (17,102,831)
============= ============= ============= =============
Basic and diluted net loss per
common share $ (89.76) $ (80.41) $ (159.74) $ (427.57)
============= ============= ============= =============
Weighted average common
shares outstanding 40,000 40,000 40,000 40,000
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CITADEL BROADCASTING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ (314,662) $ 547,059 $(3,113,980) $(6,280,456)
Other comprehensive income:
Unrealized loss on hedging
contract -- (595,595) -- (595,595)
----------- ----------- ----------- -----------
Comprehensive income (loss) $ (314,662) $ (48,536) $(3,113,980) $(6,876,051)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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CITADEL BROADCASTING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1997 1998
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,113,980) $ (6,280,456)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 9,563,084 20,005,073
Amortization of debt issuance costs and debt discounts 138,352 479,620
Bad debt expense 603,558 886,873
Deferred tax benefit (105,168) (1,341,044)
Unrealized loss on interest rate swap -- (595,595)
Changes in assets and liabilities, net of acquisitions:
Increase in accounts receivable and notes receivable from
related parties (5,388,399) (6,940,705)
Increase in prepaid expenses (446,599) (1,751,373)
(Increase) decrease in other assets (266,368) 1,293,436
Increase in accounts payable (215,156) (968,960)
(Decrease) increase in accrued liabilities 3,367,485 (841,172)
------------- -------------
Net cash provided by operating activities 4,136,809 3,945,697
Cash flows from investing activities:
Capital expenditures (1,478,410) (1,746,810)
Capitalized acquisition costs (2,484,066) (1,963,106)
Cash paid to acquire stations (128,187,024) (36,290,411)
Deposits for pending acquisitions (1,200,000) 650,000
------------- -------------
Net cash used in investing activities (133,349,500) (39,350,327)
Cash flows from financing activities:
Capital contribution from parent company 20,008 48,734
Advances from parent company 1,000,000 --
Proceeds from notes payable 12,000,000 34,999,999
Proceeds from senior subordinated notes payable 97,250,000 --
Proceeds from issuance of exchangeable preferred stock 96,850,000 --
Proceeds from initial public offering -- 116,513,904
Cash payment of initial public offering costs -- (9,642,586)
Principal payments on notes payable (39,000,000) (106,357,932)
Principal payments on other long-term obligations (408,840) (346,259)
Principal payments on advances from parent company (12,817,000) --
Payment of debt issuance costs -- (89,256)
Cost of issuance of exchangeable preferred stock (569,997) --
------------- -------------
Net cash provided by financing activities 154,324,171 35,126,604
Net increase (decrease) in cash and cash equivalents 25,111,480 (278,026)
Cash and cash equivalents, beginning of period 1,588,366 7,684,991
------------- -------------
Cash and cash equivalents, end of period $ 26,699,846 $ 7,406,965
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
CITADEL BROADCASTING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Citadel
Broadcasting Company (the "Company") 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 nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997.
(2) 1998 Acquisitions
On January 2, 1998, the Company acquired radio stations WEMR-AM and WEMR-FM in
Wilkes-Barre/Scranton, Pennsylvania for a purchase price of $815,000. The
acquisition was accounted for using the purchase method of accounting.
On February 12, 1998, the Company acquired radio stations KQFC-FM, KKGL-FM and
KBOI-AM and a parcel of land in Boise, Idaho for an aggregate purchase price of
approximately $14,400,000. The acquisition was accounted for using the purchase
method of accounting.
On March 26, 1998, the Company acquired radio stations WSGD-FM, WDLS-FM and
WCDL-AM in Wilkes-Barre/Scranton, Pennsylvania for a purchase price of
$6,000,000. The acquisition was accounted for using the purchase method of
accounting.
On April 21, 1998, the Company acquired radio stations KIZN-FM and KZMG-FM in
Boise, Idaho for an aggregate purchase price of $14,600,000. The acquisition was
accounted for using the purchase method of accounting.
On July 14, 1998, the Company signed an agreement to acquire KAAY-AM in Little
Rock, Arkansas for an aggregate purchase price of $5,000,000. The acquisition
will be accounted for using the purchase method of accounting.
On July 27, 1998, the Company exercised its option to purchase WBHT-FM in
Wilkes-Barre, Pennsylvania, and, on August 13, 1998, the Company entered into a
definitive purchase agreement to purchase WBHT for an approximate purchase price
of $1,200,000. The Company has operated WBHT under a local marketing agreement
since July 3, 1997. The acquisition will be accounted for using the purchase
method of accounting.
On September 18, 1998, the Company acquired an internet service provider,
Digital Planet, in Salt Lake City, Utah for an aggregate purchase price of
$225,000. The acquisition was accounted for using the purchase method of
accounting.
On September 29, 1998, the Company acquired an internet service provider,
Internet Technology Systems, Inc., in Salt Lake City, Utah for an aggregate
purchase price of $1,535,000. The acquisition was accounted for using the
purchase method of accounting.
7
<PAGE> 8
(3) Parent Company Initial Public Offering
On July 7, 1998, the Company's parent, Citadel Communications Corporation
("CCC"), consummated the initial public offering (the "IPO") of 6,880,796 shares
of its common stock at an initial public offering price of $16.00 per share. Of
such shares, 6,250,000 shares were sold by CCC and 630,796 shares were sold by
certain stockholders of CCC. On July 14, 1998, CCC sold an additional 1,032,119
shares of its common stock at the initial public offering price pursuant to the
exercise of the underwriters' over-allotment option. Total proceeds of the IPO,
including the shares issued under the over-allotment option, were $126,606,640,
of which total proceeds to CCC were $108,357,932, total proceeds to the selling
stockholders were $9,386,244 and total underwriting discounts and commissions
were $8,862,466.
(4) Citadel License, Inc. Financial Data
The operations of Citadel License, Inc. ("Citadel License"), a wholly owned
subsidiary of the Company, include holding FCC licenses for all stations owned
by the Company and the amortization of these licenses. Citadel License has
guaranteed the 10-1/4% senior subordinated notes of the Company. The guarantee
is full, unconditional and joint and several. The separate financial statements
of Citadel License have not been presented because management of the Company has
determined they would not be material to investors. There are no costs or
expenses of Citadel License that are borne by Citadel Broadcasting Company.
The following is summary financial data for Citadel License:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- -------------
(unaudited)
<S> <C> <C>
Balance Sheets:
Intangible assets, net (broadcast licenses) $137,073,551 $159,727,372
Other assets 2,048 --
------------ ------------
Total assets $137,075,599 $159,727,372
============ ============
Shareholder's equity 137,075,599 159,727,372
------------ ------------
Total liabilities and shareholder's equity $137,075,599 $159,727,372
============ ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
1997 1998 1997 1998
------------ ------------ ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statements of Operations:
Amortization expense $1,905,340 $2,860,004 $ 2,873,989 $ 8,375,335
Other Income -- -- -- (30,000)
----------- ----------- ----------- ------------
Net loss $1,905,340 $2,860,004 $ 2,873,989 $ 8,345,335
=========== =========== =========== ============
</TABLE>
At present, Citadel License is the only subsidiary of the Company.
(5) Subsequent Events
On October 8, 1998, the Company sold the assets of its one AM and three FM
stations in Quincy, Illinois for $2,250,000. A gain of approximately $0.8
million will be recognized on the sale.
On October 9, 1998, the Company agreed to purchase the assets of 62nd Street
Broadcasting of Saginaw, L.L.C. in Saginaw, Michigan for an approximate purchase
price of $35,000,000. The acquisition will be accounted for using the purchase
method of accounting.
On October 29, 1998, the Company agreed to purchase WHYL-AM and WHYL-FM in
Carlisle, Pennsylvania for an approximate purchase price of $4,250,000. The
acquisition will be accounted for using the purchase method of accounting.
8
<PAGE> 9
On November 5, 1998, the Company agreed to purchase the stock and warrants of
Citywide Communications, Inc., which owns radio stations in Baton Rouge and
Lafayette, Louisiana, for an approximate purchase price of $34,500,000. The
acquisition will be accounted for using the purchase method of accounting.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BASIS OF PRESENTATION
Certain items in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Federal Private Securities Litigation Reform Act of
1995. Forward-looking statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate," and similar
expressions. 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, but are not limited to, risks and uncertainties relating to
leverage, the need for additional funds, consummation of the pending
acquisitions, integration of the recently completed acquisitions, the ability of
the Company to achieve certain cost savings, the management of growth, the
introduction of new technology, changes in the regulatory environment, the
popularity of radio as a broadcasting medium and changing consumer tastes. For
further discussion of these and other factors, refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
RESULTS OF OPERATIONS
The Company's unaudited consolidated financial statements tend not to be
directly comparable from period to period due to acquisition activity. The major
acquisitions in 1997 and in the first, second and third quarters of 1998, 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:
1997 Acquisitions: On January 1, 1997, the Company's parent company,
Citadel Communications Corporation ("CCC"), acquired Deschutes River
Broadcasting, Inc. ("Deschutes"). On June 20, 1997, Deschutes was merged with
and into the Company. The results of operations for the nine months ended
September 30, 1997 reflect nine months of operations of Deschutes. KENZ-FM in
Salt Lake City, Utah was acquired on February 14, 1997. KBER-FM in Salt Lake
City, Utah was acquired on April 10, 1997. On July 3, 1997, the Company acquired
all the issued and outstanding capital stock of Tele-Media Broadcasting Company.
On July 17, 1997, the Company acquired KNHK-FM in Reno, Nevada. On September 25,
1997, the Company acquired KTHK-FM in Tri-Cities, Washington. On September 29,
1997, the Company acquired WDGE-FM and Bear Broadcasting Limited Liability
Company, an internet access provider, both in Providence, Rhode Island. On
October 15, 1997, the Company acquired Snider Broadcasting Corporation, Snider
Corporation and CDB Broadcasting Company, all of which were in Little Rock,
Arkansas. On October 21, 1997, the Company acquired WLEV-FM in Allentown,
Pennsylvania. The Company acquired stations KBEE-FM and KFNZ-AM in Salt Lake
City, Utah on October 24, 1997. On November 4, 1997, the Company acquired
Natural States Communications and GHB of Little Rock, both in Little Rock,
Arkansas. On November 18, 1997, the Company acquired WHKK-FM in Providence,
Rhode Island.
1998 First, Second and Third Quarter Acquisitions: WEMR-AM and WEMR-FM in
Wilkes-Barre/Scranton, Pennsylvania were acquired on January 2, 1998. KQFC-FM,
KKGL-FM and KBOI-AM in Boise, Idaho were acquired on February 12, 1998. WSGD-FM,
WDLS-FM and WCDL-AM in Wilkes-Barre/Scranton, Pennsylvania were acquired on
March 26, 1998. KIZN-FM and KZMG-FM in Boise, Idaho were acquired on April 21,
1998. Digital Planet in Salt Lake City, Utah was acquired on September 18, 1998.
Internet Technology Systems, Inc. in Salt Lake City, Utah was acquired on
September 29, 1998.
10
<PAGE> 11
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net Broadcasting Revenue. Net broadcasting revenue increased $8.3 million
or 30.1% to $35.9 million for the three months ended September 30, 1998 from
$27.6 million for the three months ended September 30, 1997. Net broadcasting
revenue includes $0.9 million in income received under a contract with the
Company's national advertising representative. The inclusion of revenue from the
acquisitions of radio stations and revenue generated from LMAs and JSAs entered
into during 1997 and 1998 provided $5.0 million of the increase. For stations
owned and operated over the comparable period in 1997 and 1998, net broadcasting
revenue improved $3.3 million or 12.0% to $30.9 million in 1998 from $27.6
million in 1997, primarily due to increased ratings and improved selling
efforts.
Station Operating Expenses. Station operating expenses increased $5.0
million or 26.3% to $24.0 million for the three months ended September 30, 1998
from $19.0 million for the three months ended September 30, 1997. The increase
was primarily attributable to the inclusion of station operating expenses of the
completed radio station acquisitions and the LMAs and JSAs entered into during
1997 and 1998.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $3.3 million or 38.4% to $11.9 million for the three months
ended September 30, 1998 from $8.6 million for the three months ended September
30, 1997. As a percentage of net broadcasting revenue, broadcast cash flow
improved to 33.2% for the three months ended September 30, 1998 compared to
31.2% for the three months ended September 30, 1997.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $0.1 million or 10.0% to $1.1 million for the
three months ended September 30, 1998 from $1.0 million for the three months
ended September 30, 1997. The increase was due primarily to an increase in
staffing levels needed to support the Company's growth.
EBITDA. As a result of the factors described above, EBITDA increased $3.2
million or 42.1% to $10.8 million for the three months ended September 30, 1998
from $7.6 million for the three months ended September 30, 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased $2.4 million or 53.0% to $7.0 million for the three months ended
September 30, 1998 from $4.6 million for the three months ended September 30,
1997, primarily due to radio station acquisitions consummated during 1997 and
1998.
Interest Expense. Interest expense decreased approximately $0.2 million or
5.4% to $3.5 million for the three months ended September 30, 1998 from $3.7
million for the three months ended September 30, 1997, primarily due to a
repayment of indebtedness from the proceeds of the CCC IPO.
Net Income (Loss). As a result of the factors described above, net income
increased $0.8 million or 266.7% to $0.5 million for the three months ended
September 30, 1998 from a net loss of $0.3 million for the three months ended
September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net Broadcasting Revenue. Net broadcasting revenue increased $38.8 million
or 64.7% to $98.8 million for the nine months ended September 30, 1998 from
$60.0 million for the nine months ended September 30, 1997. Net broadcasting
revenue includes $0.9 million in income received under a contract with the
Company's national advertising representative. The inclusion of revenue from the
acquisitions of radio stations and revenue generated from LMAs and JSAs entered
into during 1997 and 1998 provided $32.6 million of the increase. For stations
owned and operated over the comparable period in 1997 and 1998, net broadcasting
revenue improved $6.2 million or 12.7% to $54.9 million in 1998 from $48.7
million in 1997, primarily due to increased ratings and improved selling
efforts.
11
<PAGE> 12
Station Operating Expenses. Station operating expenses increased $26.1
million or 60.3% to $69.4 million for the nine months ended September 30, 1998
from $43.3 million for the nine months ended September 30, 1997. The increase
was primarily attributable to the inclusion of station operating expenses of the
completed radio station acquisitions and the LMAs and JSAs entered into during
1997 and 1998.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $12.7 million or 76.0% to $29.4 million for the nine months
ended September 30, 1998 from $16.7 million for the nine months ended September
30, 1997. As a percentage of net broadcasting revenue, broadcast cash flow
improved to 29.8% for the nine months ended September 30, 1998 compared to 27.8%
for the nine months ended September 30, 1997.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $0.8 million or 30.8% to $3.4 million for the
nine months ended September 30, 1998 from $2.6 million for the nine months ended
September 30, 1997. The increase was due primarily to an increase in staffing
levels needed to support the Company's growth.
EBITDA. As a result of the factors described above, EBITDA increased $11.5
million or 78.8% to $26.1 million for the nine months ended September 30, 1998
from $14.2 million for the nine months ended September 30, 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased $10.4 million or 108.3% to $20.0 million for the nine months ended
September 30, 1998 from $9.6 million for the nine months ended September 30,
1997, primarily due to radio station acquisitions consummated during 1997 and
1998.
Interest Expense. Interest expense increased approximately $5.4 million or
65.9% to $13.6 million for the nine months ended September 30, 1998 from $8.2
million for the nine months ended September 30, 1997, primarily due to interest
expense associated with additional borrowings to fund acquisitions consummated
in 1997 and 1998, offset by a repayment of the borrowings in the third quarter
of 1998 from the proceeds of the IPO.
Net Loss. As a result of the factors described above, net loss increased
$3.2 million or 103.2% to $6.3 million for the nine months ended September 30,
1998 from $3.1 million for the nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, net cash provided by
operations decreased to $3.9 million from $4.1 million for the comparable 1997
period primarily due to increases in accounts receivable, prepaid expenses,
accrued liabilities, accounts payable, offset by decreases in other assets.
For the nine months ended September 30, 1998, net cash used in investing
activities, primarily for station acquisitions, decreased to $39.4 million from
$133.3 million in the comparable 1997 period.
For the nine months ended September 30, 1998, net cash provided by
financing activities was $35.1 million compared to $154.3 million in the
comparable 1997 period. This decrease is the result of the proceeds from the
issuance of the 10-1/4% senior subordinated notes payable and exchangeable
preferred stock in 1997 being used for acquisitions and operations, as well as
for the repayment of indebtedness. The decrease was offset by increased
borrowings in the 1998 period.
CCC used the net proceeds from its initial public offering of shares of
its common stock in July 1998 to repay indebtedness under the Company's credit
facility. As of September 30, 1998, the credit facility allowed for borrowings
of up to $140.0 million, and the outstanding principal amount borrowed
thereunder was $18.7 million.
12
<PAGE> 13
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 and revolving
loans under the Company's credit facility 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 additional capital resources may be required
in connection with the further implementation of the Company's acquisition
strategy.
The Company has not received, nor does it anticipate receiving, from
Citadel License, Inc., its wholly owned subsidiary, any dividends or other
payments. The Company is not dependent in any material respect on the receipt of
dividends or other payments from Citadel License, Inc.
YEAR 2000 MATTERS
The Year 2000 computer issue primarily results from the fact that
information technology hardware and software systems and other non-information
technology products containing embedded microchip processors were originally
programmed using a two digit format, as opposed to four digits, to indicate the
year. Such programming will be unable to interpret dates beyond the year 1999,
which could cause a system or product failure or other computer errors and a
disruption in the operation of such systems and products.
The Company's project team has identified its traffic/accounting systems,
satellite delivered programming, digital automation systems and internet service
provider systems as the mission critical systems to evaluate for Year 2000
compliance. In addition, while there are several software programs currently
used throughout the Company which are not Year 2000 compliant, the vendors of
this software have committed to provide Year 2000 compliant updates to the
Company. The Company expects to have all such updates tested and operational by
June 1999.
The Company has identified five phases for the project team to address for
each of the Company's risk areas. These phases are (1) an inventory of the
Company's systems described above, (2) assessment of the systems to determine
the risk and apparent extent of Year 2000 problems, (3) remediation of
identified problems, (4) testing of systems for Year 2000 readiness and (5)
contingency planning for the worst-case scenarios.
Inventories have been completed for all mission critical Company software
applications and hardware systems, and the Company expects to complete an
inventory of at-risk non-information technology systems in the fourth quarter of
1998. The project team is currently assessing compliance issues related to the
Company's information hardware and software, and expects to complete such
assessment in the first quarter of 1999. The Company expects that some amount of
the testing will be performed during this assessment phase.
In each of its markets, the Company employs centralized accounting and
traffic (advertising scheduling) systems for all of its stations in the market.
In September 1998, the Company completed the replacement and upgrading of
software certified as Year 2000 compliant by the software vendor. The Company
intends to complete Year 2000 testing of this software in the first quarter of
1999. The total cost of the software upgrade was $0.3 million. In connection
with the software upgrade, much of the accounting and traffic hardware systems
were also upgraded or replaced. The total cost of the hardware upgrade was $0.1
million. The Company anticipates that evaluation for Year 2000 compliance of the
hardware and the new software used in its accounting and traffic systems will be
completed during the first quarter of 1999.
13
<PAGE> 14
Satellite delivered programs, which are delivered to the Company's radio
stations from outside sources, represent a third party risk to the Company
arising from the Year 2000 issue. The Company is sending questionnaires to each
of the vendors of these programs during the fourth quarter of 1998 asking them
to update the Company on the status of their Year 2000 compliance. Until those
questionnaires are returned and reviewed, the Company is unable to determine the
potential for disruption in its programming arising from this third party risk.
If the Company does not receive reasonable assurances regarding Year 2000
compliance from any vendor of these programs, the Company would then develop
contingency plans for alternative programming.
The Company is currently reviewing a proposal to update and expand the
digital automation systems used in the Company. Although not directly related to
the Year 2000 problem, the Company believes the expansion and replacement of
these systems, which the Company anticipates would be completed by the end of
June 1999, would minimize or eliminate Year 2000 problems associated with these
systems. If the Company elects not to pursue such expansion, it anticipates that
the total cost of replacing the non-compliant digital components in its current
digital automation systems would be approximately $0.5 million and that the
replacement would be completed by the end of June 1999.
The Company recently completed an expansion of its internet service
provider division. All mission critical elements of such division are certified
Year 2000 compliant by the software hardware vendors. The Company expects to
conduct testing of such software and hardware during the first quarter of 1999.
No material expansion is scheduled for this division prior to the year 2000.
In addition to identification of these mission critical systems, the
Company has identified the top 10 advertisers on each of its radio stations.
Questionnaires are being sent to each of these advertisers during the fourth
quarter of 1998 asking them to update the Company on the status of their Year
2000 compliance. In addition, questionnaires are also being sent to various
equipment vendors, banks and other lending institutions that provide substantial
products and services to the Company. Until the questionnaires are returned and
reviewed, the Company is unable to determine the effect of these third party
risks on the Company's operations. There can be no assurance that the Company
will be successful in finding alternative Year 2000 compliant advertisers,
suppliers and service providers, if required.
The Company also intends to solicit information regarding its critical
internal non-information technology systems such as telephones and HVAC prior to
March 31, 1999. Any required remediation and testing of the Company's
non-information technology systems is expected to be completed by June 1999.
Risk of Company's Year 2000 Issues; Contingency Plans
The Company is in the process of determining its contingency plans, which
are expected to include the identification of the Company's most reasonably
likely worst-case scenarios. Preliminary contingency plans are expected to be
completed during the first quarter of 1999 and comprehensive plans are expected
to be completed by the second or third quarter of 1999. At this time, the
Company does not have sufficient information to assess the likelihood of such
worst-case scenarios. Currently, the Company believes that the most reasonably
likely sources of risk to the Company include (i) disruptions in the supply of
satellite delivered programs and (ii) diminished demand for advertising time
arising from Year 2000 problems both specific to the Company's advertisers or
more generally related to the potential for economic disruptions related to the
Year 2000 issues.
14
<PAGE> 15
Based on its current assessment efforts, the Company does not believe that
Year 2000 issues related to its internal systems will have a material adverse
effect on the Company's financial condition or results of operations. However,
as described above, the failure by third parties to be Year 2000 ready could
have a material adverse effect on the Company.
15
<PAGE> 16
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, but the Company is not a party to any
lawsuit or proceeding which, in the opinion of the Company, is likely to have a
material adverse effect on the Company.
The Company has received civil investigative demands ("CIDs") from the
Department of Justice ("DOJ") pursuant to which the DOJ has requested
information from the Company to determine whether the Company has violated
certain antitrust laws. The first CID was issued on September 27, 1996 and
concerns the Company's acquisition of all of the assets of KRST-FM in
Albuquerque, New Mexico on October 9, 1996 (the "KRST Acquisition"). The CID
requested written answers to interrogatories and the production of certain
documents concerning the radio station market in Albuquerque, in general, and
the KRST Acquisition, in particular, to enable the DOJ to determine, among other
things, whether the KRST Acquisition would result in excessive concentration in
the market. The Company has responded to the CID. The DOJ requested supplemental
information on January 27, 1997, to which the Company also responded. There have
been no communications since that time and, at present, the Company has been
given no indication from the DOJ regarding its intended future actions. If the
DOJ were to proceed with and successfully challenge the KRST Acquisition, the
Company may be required to divest one or more radio stations in Albuquerque.
The second investigation was initiated on October 9, 1996 and concerned
the Company's Joint Sales Agreement (the "JSA") relating to a total of eight
radio stations in Spokane, Washington and Colorado Springs, Colorado and which
became effective in January 1996. Pursuant to the investigation, the DOJ has
requested information to determine whether the JSA constituted a de facto merger
or amounted to a combination or contract in restraint of trade. The Company has
provided the requested information and has met with the DOJ concerning this
matter. If the DOJ were to proceed with and successfully challenge the JSA, the
Company may be required to terminate the JSA.
At this time, the Company cannot predict the impact on the Company, if
any, of these proceedings or any future DOJ demands.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 1, 1998, the Company issued 0.46375 share of its 13-1/4% Series A
Exchangeable Preferred Stock to the holders of the 13-1/4% Series A Exchangeable
Preferred Stock in lieu of payment of cash dividends. As no public offering was
involved, the issuance of such shares was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Ninth Amendment to Loan Instruments dated as of
September 15, 1998 among Citadel Communications
Corporation, Citadel Broadcasting Company, Citadel
License, Inc., FINOVA Capital Corporation and the
Lenders party thereto
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
17
<PAGE> 18
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: November 16, 1998 By: /s/ Lawrence R. Wilson
------------------ -----------------------------------
Lawrence R. Wilson
Chairman of the Board
Chief Executive Officer and President
(Principal Executive Officer)
Date: November 16, 1998 By: /s/ Donna L. Heffner
------------------ -----------------------------------
Donna L. Heffner
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Ninth Amendment to Loan Instruments dated as of
September 15, 1998 among Citadel Communications
Corporation, Citadel Broadcasting Company, Citadel
License, Inc., FINOVA Capital Corporation and the
Lenders party thereto
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
NINTH AMENDMENT TO LOAN INSTRUMENTS
THIS NINTH AMENDMENT TO LOAN INSTRUMENTS (this "Ninth Amendment"), dated
as of September 15, 1998, is among CITADEL BROADCASTING COMPANY, CITADEL
LICENSE, INC., CITADEL COMMUNICATIONS CORPORATION, each a Nevada corporation,
FINOVA CAPITAL CORPORATION, a Delaware corporation, in its individual capacity
and as Agent for all Lenders (this and all other capitalized terms used but not
elsewhere defined herein shall have the respective meanings ascribed to such
terms in the Loan Agreement defined below), and the Lenders which are parties
thereto.
RECITALS
A. Borrowers, Agent and Lenders entered into an Amended and Restated Loan
Agreement dated as of July 3, 1997 (such Amended and Restated Loan Agreement, as
amended to the date hereof, hereinafter is referred to as the "Loan Agreement").
B. Borrowers have requested that Lenders amend the Loan Agreement to
provide that Borrower may use the proceeds of Additional Loans to purchase
internet service providers.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AMENDMENT TO LOAN INSTRUMENTS. The Loan Agreement and other Loan
Instruments are amended as follows:
1.1. SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1 of the Loan
Agreement is hereby amended by adding the following definitions in the
appropriate alphabetical order:
"ISP: a business in which the majority of its revenues arise
out of its activities as an internet service provider.
ISP Acquisition: an acquisition of either the Property of an
ISP or the capital stock or other equity interests of the Person or
Persons which own an ISP.
ISP Assets: all Property used in the operations of an ISP."
1.2. SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1 of the Loan
Agreement is hereby amended by deleting the following definitions
contained therein and substituting the following in lieu thereof:
"Acquisition: an Asset Acquisition, an Equity Acquisition or an
ISP Acquisition.
Acquisition Merger: an acquisition merger as defined in
subsection 4.3.1 or an ISP Acquisition Merger.
Asset Acquisition: an acquisition of Station Assets and the
related FCC Licenses, Related Business Assets or ISP Assets.
Disposition: any sale, lease, assignment, transfer or other
disposition of any Property by Borrowers of Station Assets and the
Related FCC Licenses, Related Business Assets or ISP Assets.
Equity Acquisition: an acquisition of the capital stock or
other equity interest of the Person or Persons which own Station
Assets and the related FCC Licenses, Related Business Assets or ISP
Assets.
1
<PAGE> 2
Permitted Acquisition: an Acquisition (i) after the
consummation of which the Adjusted Leverage Ratio will not exceed
the Applicable Ratio as calculated as of the last day of the most
recent month preceding the closing date of such Acquisition for
which Borrowers have delivered to Lenders the financial statements
and other information reasonably necessary to enable Lenders to make
such calculation, provided that such delivery shall occur not less
than 30 days prior to such closing date, (ii) if such Acquisition is
of a Related Business, the aggregate purchase price for such
Acquisitions and any prior Acquisitions of Related Business Assets
shall not exceed $5,000,000, (iii) if such Acquisition is of one or
more Stations, either directly or as a result of an Acquisition
Merger, such Acquisition or Acquisition Merger would not result in
more than 25% of the aggregate of the Operating Cash Flow of CBC
Stations to thereafter be derived from Small Markets, as determined
by Agent in its reasonable discretion, (iv) with respect to which
the conditions of Section 4.3 are satisfied, except in the case of
an Acquisition which is an ISP Acquisition, and (v) if such
Acquisition is an ISP Acquisition, the conditions of Section 4.5 are
satisfied and the aggregate purchase price for such ISP Acquisition
and all prior ISP Acquisitions shall not exceed $10,000,000."
1.3. SECTION 4.5 OF THE LOAN AGREEMENT. The Loan Agreement is hereby
amended by adding the following as Section 4.5:
"4.5. ISP ACQUISITION. The right of any Borrower to make an ISP
Acquisition, whether or not the proceeds of an Additional Loan are used to
consummate such ISP Acquisition, shall be subject to the satisfaction of
all of the following conditions in a manner satisfactory to the Required
Lenders:
4.5.1 CONSUMMATION OF ISP ACQUISITION. Prior or concurrently
with each Acquisition Closing, Agent shall have received evidence
that (ii) such ISP Acquisition is in accordance with the terms of
the applicable Acquisition Instruments, (ii) if such ISP Acquisition
is an Asset Acquisition, CBC will acquire concurrently with the ISP
Acquisition good and marketable title to all of the ISP Assets which
are being purchased pursuant to such Acquisition Instruments, free
and clear of all Liens and Indebtedness except Permitted Liens and
Indebtedness which CBC has agreed to assume or take subject to
pursuant to such Acquisition Instruments, subject to the limitations
set forth in Sections 7.1, 7.2 and 7.4, (iii) if such ISP
Acquisition is an Equity Acquisition, (A) the Property owned by the
Person which owns the capital stock or equity interest which are
subject to such ISP Acquisition shall be free and clear of all Liens
and Indebtedness, except such Liens and Indebtedness as CBC has
agreed to assume or take subject to pursuant to such Acquisition
Instruments, subject to the limitations set forth in Sections 7.1,
7.2 and 7.4, (B) the Required Lenders shall be reasonably satisfied
that adequate provision has been made to protect CBC against the
assumption of material undisclosed liabilities and (C)
simultaneously with the Acquisition Closing such Person is merged
into CBC with CBC being the surviving entity (an "ISP Acquisition
Merger") and (iv) any consent, authorization or approval which is
required from any Governmental Body or other Person as a condition
to the consummation of such ISP Acquisition, the failure to obtain
which would prevent the applicable Borrower from operating the ISP
which is the subject of such ISP Acquisition, has been obtained.
4.5.2 ISP ACQUISITIONS OVER $1,800,000. If the purchase price
of an ISP Acquisition is greater than $1,800,000, Borrower shall
have complied with the requirements set forth in Sections 4.3.2,
4.3.3, 4.3.4, 4.3.5, 4.3.7, 4.3.8, 4.3.9, 4.3.11, 4.3.12 and 4.3.13.
2
<PAGE> 3
4.5.3 ISP ACQUISITIONS $1,800,000 OR LESS. If the purchase
price for an ISP Acquisition is less than $1,800,000, Borrower shall
be required to comply with Sections 4.3.4, 4.3.7, 4.3.8, 4.3.11,
4.3.12 and 4.3.13."
2. CONDITIONS TO EFFECTIVENESS. This Ninth Amendment shall not become
effective with respect unless and until Borrowers shall have paid to Agent a
non-refundable amendment fee of $30,000.
3. FEES AND EXPENSES. Borrowers hereby agree to reimburse Lenders for all
reasonable fees and expenses incurred in connection with the consummation of the
transactions contemplated by this Ninth Amendment.
4. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders to execute
this Ninth Amendment, each Obligor represents and warrants to Lenders that the
representations and warranties made by each such Person in each of the Loan
Instruments to which such Person is a party, as such Loan Instruments have been
amended, are true and correct in all material respects as of the date hereof and
shall be true and correct on the date hereof, except to the extent such
representations and warranties by their nature relate to an earlier date.
5. CONFIRMATION OF EFFECTIVENESS. Guarantor hereby consents to the
execution of this Ninth Amendment. Each Obligor hereby agrees that each Loan
Instrument executed by such Person remains in full force and effect in
accordance with the original terms thereof as amended.
6. COUNTERPARTS. This Ninth Amendment may be executed in one or more
counterparts, each of which counterparts shall be deemed to be an original, but
all such counterparts when taken together shall constitute one and the same
instrument.
[remainder of this page intentionally left blank]
3
<PAGE> 4
IN WITNESS WHEREOF, this Ninth Amendment has been executed and delivered
by each of the parties hereto by a duly authorized officer of each such party on
the date first set forth above.
CITADEL BROADCASTING COMPANY,
CITADEL LICENSE, INC. and
CITADEL COMMUNICATIONS CORPORATION,
each a Nevada corporation
By:__________________________________________
Donna L. Heffner
Vice President of each corporation
FINOVA CAPITAL CORPORATION, a Delaware
corporation, individually and as Agent
By:__________________________________________
Name:________________________________________
Title:_________________________________________
BANKBOSTON, N.A.
By:__________________________________________
Name:________________________________________
Title:_________________________________________
NATIONSBANK OF TEXAS, N.A.
By:__________________________________________
Name:________________________________________
Title:_________________________________________
THE BANK OF NEW YORK
By:__________________________________________
Name:________________________________________
Title:_________________________________________
UNION BANK OF CALIFORNIA, N.A.
By:__________________________________________
Name:________________________________________
Title:_________________________________________
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements in Citadel Broadcasting Company's Form 10-Q for the nine months ended
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,406,965
<SECURITIES> 0
<RECEIVABLES> 33,089,071
<ALLOWANCES> (1,280,553)
<INVENTORY> 0
<CURRENT-ASSETS> 42,738,241
<PP&E> 49,138,530
<DEPRECIATION> (12,304,811)
<TOTAL-ASSETS> 373,353,272
<CURRENT-LIABILITIES> 11,681,498
<BONDS> 118,197,999
112,964,761
0
<COMMON> 40
<OTHER-SE> 105,202,812
<TOTAL-LIABILITY-AND-EQUITY> 373,353,272
<SALES> 0
<TOTAL-REVENUES> 98,821,374<F1>
<CGS> 0
<TOTAL-COSTS> 71,876,093
<OTHER-EXPENSES> 20,005,073
<LOSS-PROVISION> 886,873
<INTEREST-EXPENSE> 13,590,447
<INCOME-PRETAX> (7,442,963)
<INCOME-TAX> (1,162,507)
<INCOME-CONTINUING> (6,280,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,280,456)
<EPS-PRIMARY> (427.57)
<EPS-DILUTED> (427.57)
<FN>
<F1>Comprised of net revenues (gross revenues net of agency commissions).
</FN>
</TABLE>
