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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
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NEVADA 86-0703641
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CITY CENTER WEST, SUITE 400 89128
7201 WEST LAKE MEAD BOULEVARD, LAS VEGAS, NEVADA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (702) 804-5200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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The aggregate market value of the registrant's common stock held by
non-affiliates is zero.
As of March 15, 1999, there were 40,000 shares of common stock, $.001 par
value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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CITADEL BROADCASTING COMPANY
FORM 10-K
DECEMBER 31, 1998
INDEX
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PAGE
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PART I
Item 1 - Business...................................... 4
Item 2 - Properties.................................... 34
Item 3 - Legal Proceedings............................. 34
Item 4 - Submission of Matters to a Vote of Security 35
Holders...............................................
PART II
Item 5 - Market For Registrant's Common Equity and 35
Related Stockholder Matters...........................
Item 6 - Selected Financial Data....................... 36
Item 7 - Management's Discussion and Analysis of 37
Financial Condition and Results of
Operations....................................
Item 7A - Quantitative and Qualitative Disclosures 47
About Market Risk............................
Item 8 - Financial Statements and Supplementary Data... 47
Item 9 - Changes In and Disagreements With Accountants 48
on Accounting and Financial Disclosure........
PART III
Item 10 - Directors and Executive Officers of the 48
Registrant............................................
Item 11 - Executive Compensation....................... 50
Item 12 - Security Ownership of Certain Beneficial 54
Owners and Management.................................
Item 13 - Certain Relationships and Related 56
Transactions..........................................
PART IV
Item 14 - Exhibits, Financial Statement Schedules and 58
Reports on Form 8-K...................................
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FORWARD-LOOKING INFORMATION
Certain matters in this Form 10-K, including, without limitation, certain
matters discussed under Item 1, Business, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Item 7A,
Qualitative and Quantitative 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, its directors or its
officers with respect to, among other things:
- the realization of Citadel Broadcasting Company's business strategy,
- the sufficiency of cash flow to fund Citadel Broadcasting Company's debt
service requirements and working capital needs,
- restrictions imposed on Citadel Broadcasting Company by its debt
instruments,
- anticipated trends in the radio broadcasting industry,
- the impact of Year 2000 issues,
- potential acquisitions by Citadel Broadcasting Company and the successful
integration of both completed and future acquisitions, and
- government regulation.
Forward-looking statements are typically identified by the words
"believes," "expects," "anticipates," "intends," "estimates," 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
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 discussed in Item 1, Business, under the captions "Competition,"
"Federal Regulation of Radio Broadcasting" and "Certain Investment
Considerations," Item 3, Legal Proceedings, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Item 7A,
Qualitative and Quantitative Disclosures about Market Risk. Citadel Broadcasting
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements to reflect any future events or
circumstances.
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PART I
ITEM 1. BUSINESS
GENERAL
Citadel Broadcasting Company is a radio broadcasting company that focuses
on acquiring, developing and operating radio stations in mid-sized markets. Upon
completion of the transactions described below under the caption "The Pending
Transactions," Citadel Broadcasting will own or operate 72 FM and 35 AM radio
stations in 20 markets, including clusters of four or more stations in 15
markets, and will have the right to construct one additional FM station. Citadel
License, Inc., a wholly owned subsidiary of Citadel Broadcasting Company, holds
Citadel Broadcasting's radio broadcast licenses and does not conduct any
independent business operations. Unless the context otherwise requires,
references in this report to Citadel Broadcasting includes Citadel License.
Unless the context otherwise requires, the term operate, as used in connection
with Citadel Broadcasting's radio station activities, includes providing
programming and selling advertising under local marketing agreements or selling
advertising under joint sales agreements.
Citadel Broadcasting's primary strategy is to secure and maintain a
leadership position in the markets it serves and to expand into additional
mid-sized markets where it believes a leadership position can be obtained. Upon
entering a market, Citadel Broadcasting seeks to acquire stations which, when
integrated with its existing operations, allow it to reach a wider range of
demographic groups that appeal to advertisers, increase revenue and achieve
substantial cost savings.
Citadel Broadcasting believes that mid-sized markets represent attractive
opportunities because, as compared to the 50 largest markets in the United
States, they are generally characterized by:
- lower radio station purchase prices as a multiple of broadcast cash flow,
- fewer sophisticated and well-capitalized competitors, including both
radio and competing advertising media such as newspapers and television,
and
- less direct format competition due to the smaller number of stations in
any given market.
Citadel Broadcasting believes that the attractive operating characteristics
of mid-sized markets coupled with the opportunity to establish or expand
in-market radio station groups create the potential for substantial revenue
growth and cost efficiencies. As a result, management seeks to achieve broadcast
cash flow margins that are comparable to the higher margins that historically
were generally achievable only in the 50 largest markets.
Citadel Broadcasting's portfolio of stations is diversified in terms of
format, target demographics and geographic location. Because of the size of its
portfolio and its individual radio station groups, Citadel Broadcasting believes
it is not unduly reliant upon the performance of any single station. Citadel
Broadcasting also believes that the diversity of its portfolio of radio stations
helps insulate Citadel Broadcasting from downturns in specific markets and
changes in format preferences.
Citadel Broadcasting's principal executive offices are located at City
Center West, Suite 400, 7201 West Lake Mead Boulevard, Las Vegas, Nevada, 89128,
and its telephone number is (702) 804-5200.
CORPORATE HISTORY AND RECENTLY COMPLETED TRANSACTIONS
Citadel Broadcasting was incorporated in Nevada in 1991, and in 1992 it
acquired all of the radio stations then owned or operated by Citadel Associates
Limited Partnership and Citadel Associates Montana Limited Partnership and
certain other radio stations. Lawrence R. Wilson, Chief Executive Officer of
Citadel Broadcasting, was a co-founder and one of the two general partners of
Citadel Associates Limited Partnership and Citadel Associates Montana Limited
Partnership. In 1993, Citadel Communications Corporation was incorporated and
Citadel Broadcasting was reorganized as a wholly owned subsidiary of Citadel
Communications. Citadel Communications currently owns all of the issued and
outstanding common stock of Citadel
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Broadcasting. Citadel License was incorporated in Nevada in 1996. Citadel
Broadcasting acquired ownership of additional radio stations in each of 1993,
1994, 1996, 1997, 1998 and 1999.
In various transactions completed since January 1, 1997, Citadel
Broadcasting has acquired ownership of, or the right to operate, in 19 markets
an aggregate of 93 stations, the right to construct an additional station and
certain related assets, including various internet access service providers, for
an aggregate purchase price of approximately $345.2 million, including amounts
paid by Citadel Communications. Citadel Broadcasting has sold in three markets
an aggregate of six stations for an aggregate sale price of approximately $3.0
million.
On July 3, 1997, Citadel Broadcasting sold $101.0 million principal amount
of its 10-1/4% Senior Subordinated Notes due 2007 and 1.0 million shares of its
13-1/4% Exchangeable Preferred Stock which, subject to various conditions, at
the option of Citadel Broadcasting, are exchangeable into Citadel Broadcasting's
13-1/4% Subordinated Exchange Debentures due 2009.
On July 7, 1998, Citadel Communications completed an initial public
offering of 6,880,796 shares of its common stock, at $16.00 per share. Of such
shares, Citadel Communications sold 6,250,000 shares and several stockholders of
Citadel Communications sold 630,796 shares. On July 14, 1998, Citadel
Communications sold 1,032,119 additional shares when the underwriters exercised
their over-allotment option. The aggregate net proceeds to Citadel
Communications were approximately $106.6 million, which were used to repay a
portion of the outstanding indebtedness under Citadel Broadcasting's credit
facility. Citadel Communications did not receive any of the proceeds from the
sale of shares by the selling stockholders.
On November 19, 1998, Citadel Broadcasting sold $115.0 million principal
amount of its 9-1/4% Senior Subordinated Notes due 2008 in order to finance
several acquisitions, repay indebtedness under the credit facility and provide
cash for working capital purposes.
THE PENDING TRANSACTIONS
There are several transactions currently pending which, if completed, would
result in Citadel Broadcasting purchasing 14 FM and 10 AM radio stations and
selling 18 FM and 7 AM radio stations.
THE CHARLESTON/BINGHAMTON/MUNCIE/KOKOMO ACQUISITION. WSSX-FM, WWWZ-FM,
WMGL-FM, WSUY-FM, WNKT-FM, WTMA-AM, WTMZ-AM and WXTC-AM, Charleston, South
Carolina, WHWK-FM, WYOS-FM, WAAL-FM, WNBF-AM and WKOP-AM, Binghamton, New York,
WMDH-FM and WMDH-AM, Muncie, Indiana and WWKI-FM, Kokomo, Indiana. On November
23, 1998, Citadel Broadcasting entered into an Asset Purchase Agreement with
Wicks Broadcast Group Limited Partnership and related entities to acquire
substantially all of the assets of WSSX-FM, WWWZ-FM, WMGL-FM, WSUY-FM, WNKT-FM,
WTMA-AM, WTMZ-AM and WXTC-AM, Charleston, South Carolina, WHWK-FM, WYOS-FM,
WAAL-FM, WNBF-AM and WKOP-AM, Binghamton, New York, WMDH-FM and WMDH-AM, Muncie,
Indiana and WWKI-FM, Kokomo, Indiana, for an aggregate purchase price of
approximately $77.0 million in cash. Citadel Broadcasting has delivered an
irrevocable letter of credit in favor of the sellers, issued by BankBoston,
N.A., in the amount of $5.0 million to secure Citadel Broadcasting's obligations
under the asset purchase agreement.
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 the consent of the Federal
Communications Commission, which is referred to in this report as the FCC, to
the assignment of the station licenses 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, which is
referred to in this report as the Hart-Scott-Rodino Act, and (3) the receipt of
consents to the assignment to Citadel Broadcasting of certain contracts relating
to the stations. An application seeking FCC approval was filed with the FCC on
December 2, 1998. A petition to deny the application was filed in February 1999
by a Binghamton radio broadcasting competitor. Citadel Broadcasting received
early termination of the applicable Hart-Scott-Rodino Act waiting period on
December 18, 1998. Citadel Broadcasting anticipates that if the acquisition of
these stations closes, it will close in the second quarter of 1999. Citadel
Broadcasting does not own any other radio stations in these markets.
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THE WILKES-BARRE/SCRANTON ACQUISITION. WKQV-FM and WKQV-AM,
Wilkes-Barre/Scranton, Pennsylvania. On January 11, 1999, Citadel Broadcasting
entered into an Asset Purchase Agreement with Monroe and Delaware Holdings, Inc.
under which Citadel Broadcasting has agreed to acquire certain assets used or
useful in the operation of radio station WKQV-FM serving the
Wilkes-Barre/Scranton market for an aggregate purchase price of approximately
$1.0 million. On January 11, 1999, Citadel Broadcasting also entered into an
Asset Purchase Agreement with Robert C. Cordaro, Inc. under which Citadel
Broadcasting has agreed to acquire certain assets used or useful in the
operation of radio station WKQV-AM serving the Wilkes-Barre/Scranton market for
an aggregate purchase price of approximately $0.4 million. Citadel Broadcasting
has operated WKQV-FM and WKQV-AM under a local marketing agreement and a joint
sales agreement, respectively, since July 1997.
Each of the asset purchase agreements contains customary representations
and warranties of the parties, and completion of each station acquisition is
subject to conditions including (1) the receipt of FCC consent to the assignment
of the station license to Citadel Broadcasting and (2) the receipt of consents
to the assignment to Citadel Broadcasting of certain contracts relating to the
station. The closing of each acquisition is not contingent upon the closing of
the other. Applications seeking FCC approval were filed with the FCC on January
19, 1999, and grants of the applications were received on March 8, 1999. Citadel
Broadcasting anticipates that if the acquisitions of WKQV-FM and WKQV-AM close,
they will close in the second quarter of 1999. If these transactions are
completed, Citadel Broadcasting will own seven FM and five AM radio stations in
Wilkes-Barre/Scranton.
THE MARATHON DISPOSITION. KKTT-FM, KEHK-FM and KUGN-AM, Eugene, Oregon,
KAKT-FM, KBOY-FM, KCMX-FM, KTMT-FM, KCMX-AM and KTMT-AM, Medford, Oregon,
KEYW-FM, KORD-FM, KXRX-FM, KTHK-FM and KFLD-AM, Tri-Cities, Washington, KCTR-FM,
KKBR-FM, KBBB-FM, KMHK-FM and KBUL-AM, Billings, Montana, WQKK-FM and WGLU-FM,
Johnstown, Pennsylvania and WQWK-FM, WNCL-FM, WRSC-AM and WBLF-AM, State
College, Pennsylvania. On January 13, 1999, Citadel Broadcasting entered into an
Asset Purchase Agreement with Marathon Media, L.P. under which Marathon has
agreed to acquire substantially all of the assets of Citadel Broadcasting's 18
FM radio stations and 7 AM radio stations serving the Eugene, Oregon, Medford,
Oregon, Tri-Cities, Washington, Billings, Montana, Johnstown, Pennsylvania and
State College, Pennsylvania markets for an aggregate purchase price of
approximately $26.0 million, consisting of $25.5 million in cash and a $500,000
promissory note. Of the cash portion, $1.0 million has been deposited into
escrow to secure Marathon Media's obligations under the asset purchase
agreement. The promissory note will bear no interest unless a payment default
occurs, and the principal is to be paid in $100,000 installments on each of the
first through fifth anniversaries of the closing of the transaction. The note
will also provide for a mandatory prepayment upon the occurrence of certain
events and will permit optional prepayment.
The asset purchase agreement contains customary representations and
warranties of the parties, and consummation of the acquisition of the stations
is subject to conditions including (1) the receipt of FCC consent to the
assignment of the station licenses to Marathon Media, (2) the expiration or
termination of the applicable waiting periods under the Hart-Scott-Rodino Act
and (3) the receipt of consents to the assignment to Marathon of certain
contracts relating to the stations. An application seeking FCC approval was
filed with the FCC on February 8, 1999. On March 5, 1999, Citadel Communications
received a request for additional information and documents from the Department
of Justice relating, Citadel Broadcasting believes, primarily to stations in
Billings. Under the applicable rules, this request extends the waiting period
under the Hart-Scott-Rodino Act for a period of 20 days after receipt by the
Department of Justice of the information and documents requested from all
parties from whom such information and documents have been requested. Citadel
Broadcasting anticipates that if the sale of these stations closes, it will
close in the second quarter of 1999. If the transaction is completed, Citadel
Broadcasting expects to use the cash proceeds to repay debt under its credit
facility expected to be outstanding at that time. Citadel Broadcasting does not
own any other radio stations serving these markets.
COLORADO SPRINGS AND SPOKANE TRANSACTIONS. KKLI-FM, KSPZ-FM, KVOR-AM and
KTWK-AM, Colorado Springs, Colorado and KEYF-FM and KEYF-AM, Spokane,
Washington. On February 24, 1999, Citadel Broadcasting entered into an Asset
Purchase Agreement with Capstar Acquisition Company, Inc.
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under which Citadel Broadcasting has agreed to acquire from Capstar radio
station KSPZ-FM in Colorado Springs in exchange for Citadel Broadcasting's radio
station KKLI-FM in Colorado Springs. On February 24, 1999, Citadel Broadcasting
entered into a second Asset Purchase Agreement with Capstar under which Citadel
Broadcasting has agreed to acquire radio stations KVOR-AM and KTWK-AM in
Colorado Springs and radio stations KEYF-FM and KEYF-AM in Spokane for the
aggregate purchase price of approximately $10.0 million in cash.
Capstar is acquiring the five stations to be sold to Citadel Broadcasting
in connection with the merger of Capstar and Triathlon Broadcasting Company.
Citadel Broadcasting and Triathlon Broadcasting Company are currently parties to
a joint sales agreement under which Citadel Broadcasting sells advertising for
radio stations KSPZ-FM, KVOR-AM and KTWK-AM as well as one other FM radio
station in Colorado Springs and radio stations KEYF-FM and KEYF-AM and one other
FM and one other AM radio station in Spokane. If the transactions contemplated
with Capstar are completed, the joint sales agreement will be terminated.
Completion of the acquisition and disposition of the stations is subject to
conditions including (1) the receipt of FCC consent to the assignment of the
station licenses to Citadel Broadcasting and to Capstar, as applicable, (2) the
closing of Capstar's merger with Triathlon Broadcasting Company and (3) the
termination of the joint sales agreement. An application seeking FCC approval
was filed with the FCC on February 8, 1999, the parties having entered into a
letter of intent on February 2, 1999 with respect to these transactions.
The parties intend to complete the foregoing transactions concurrently and
prior to receipt of final orders from the FCC. Until the orders become final,
third parties may file a request for reconsideration or judicial review or the
FCC may reconsider an initial grant on its own motion. Such action could expose
Citadel Broadcasting to a modification or set aside of the initial approval.
There can be no assurance that a modification or set aside will not occur. See
the discussion below under the caption "Federal Regulation of Radio
Broadcasting" and the subcaption "Ownership Matters."
KNJY-FM, Spokane, Washington. On February 2, 1999, Citadel Broadcasting
entered into an Asset Purchase Agreement with AGM-Nevada, L.L.C. under which
Citadel Broadcasting has agreed to acquire substantially all of the assets of
radio station KNJY-FM serving the Spokane market for the purchase price of
approximately $4.2 million. Citadel Broadcasting has delivered an irrevocable
letter of credit in favor of the seller, issued by BankBoston, N.A., in the
amount of $225,000 to secure Citadel Broadcasting's obligations under the asset
purchase agreement.
The asset purchase agreement contains customary representations and
warranties of the parties, and completion of the acquisition is subject to
conditions including (1) the receipt of FCC consent to the assignment of the
station license to Citadel Broadcasting, (2) the closing of the Spokane
transactions with Capstar discussed above and (3) the receipt of consents to the
assignment to Citadel Broadcasting of contracts relating to the station. An
application seeking FCC approval was filed with the FCC on February 8, 1999.
If the KNJY-FM acquisition and the transactions with Capstar are completed,
Citadel Broadcasting will own four FM and three AM radio stations in Spokane and
three FM and two AM radio stations in Colorado Springs.
INFORMATION ABOUT STATION AND MARKET DATA
Unless otherwise indicated in this report:
- All metropolitan statistical area rank information and information
concerning the number of stations in a market for all markets and market
revenue information, station group market share and rank information for
the Allentown/Bethlehem, Harrisburg/Carlisle, York, Baton Rouge,
Charleston, Lafayette, Saginaw and Binghamton markets have been obtained
from Investing in Radio 1998 Market Report (4th ed.) published by BIA
Publications, Inc.
- Market revenue, station group market revenue share and rank information
for the Providence, Salt Lake City, Wilkes-Barre/Scranton, Albuquerque,
Little Rock, Spokane, Colorado Springs, Modesto,
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Boise and Reno markets has been obtained from the December 31, 1998 Miller,
Kaplan Market Revenue Report, a publication of Miller, Kaplan, Arase & Co.,
Certified Public Accountants.
- All market revenue, station group market revenue share and rank
information is given for 1998.
- All audience share and primary demographic share and rank information is
given for 1998 and has been obtained from the Fall 1998 Radio Market
Report published by The Arbitron Company.
- Information concerning the number of viable stations in a market has been
obtained from Duncan's Radio Market Guide (1997 ed.) compiled by Duncan's
American Radio, Inc. This guide defines viable stations as stations which
are active and viable competitors for advertising dollars in the market.
If the total number of viable AM or viable FM stations within a market
was not a whole number, that number has been rounded up to the nearest
whole number. A viable AM/FM combination has been counted as one viable
FM station.
A radio station's designated market may be different from its community of
license. If a radio station's call letters have changed during the time Citadel
Broadcasting has owned or operated the station, the station is described by its
call letters currently in use, unless otherwise indicated.
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. Although broadcast cash flow is not a measure of
performance calculated in accordance with generally accepted accounting
principles, management believes that it is useful to an investor in evaluating
Citadel Broadcasting because it is widely used in the broadcasting industry to
evaluate a radio company's operating performance. However, broadcast cash flow
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.
OPERATING STRATEGY
In order to maximize its radio stations' appeal to advertisers, and thus
its revenue and cash flow, Citadel Broadcasting has implemented the strategies
described below. Citadel Broadcasting intends to continue to expand its existing
strategies and to develop new methods to enhance revenue and reduce costs.
OWNERSHIP OF STRONG STATION GROUPS. Citadel Broadcasting seeks to secure
and maintain a leadership position in the markets it serves by owning multiple
stations in those markets. By strategically coordinating programming,
promotional and selling strategies among a group of local stations, Citadel
Broadcasting attempts to capture a wide range of demographic listener groups
which appeal to advertisers. Citadel Broadcasting believes that the
diversification of its programming formats and its collective inventory of
available advertising time strengthen relationships with advertisers and
increase Citadel Broadcasting's ability to maximize the value of its inventory.
Citadel Broadcasting believes that having multiple stations in a market also
enhances its ability to market the advantages of radio advertising versus other
advertising media, such as newspapers and television, thus potentially
increasing radio's share of the total advertising dollars spent in a given
market.
Citadel Broadcasting believes that its ability to leverage the existing
programming and sales resources of its station groups enables it to enhance the
growth potential of both new and underperforming stations while reducing the
risks associated with undertaking means of improving station performance,
including launching new formats. Citadel Broadcasting also believes that
operating leading station groups allows it to attract and retain talented local
management teams, on-air personalities and sales personnel, which it believes
are essential to operating success. Furthermore, Citadel Broadcasting seeks to
achieve substantial cost savings through the consolidation in each of its
markets of facilities, management, sales and administrative personnel and
operating resources, such as on-air talent, programming and music research, and
through the reduction of other redundant expenses.
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AGGRESSIVE SALES AND MARKETING. Citadel Broadcasting seeks to maximize its
share of local advertising revenue in each of its markets through various sales
and marketing initiatives. Citadel Broadcasting provides extensive training for
its sales personnel through in-house sales and time management programs, and it
retains various independent consultants who hold frequent seminars for, and are
available for consultation with, its sales personnel. Citadel Broadcasting also
emphasizes regular, informal exchanges of ideas among its management and sales
personnel across its various markets. Because advertising time is perishable,
Citadel Broadcasting seeks to maximize its revenue by utilizing sophisticated
inventory management techniques that allow it to provide its sales personnel
with frequent price adjustments based on regional and local market conditions.
To further strengthen its relationship with advertisers, Citadel Broadcasting
also offers and markets its ability to create customer traffic through on-site
events staged at, and broadcast from, the advertisers' business locations.
Citadel Broadcasting believes that, prior to their acquisition by Citadel
Broadcasting, many of its acquired stations had underperformed in sales, due
primarily to undersized sales staffs responsible for selling inventory on
multiple stations. Accordingly, Citadel Broadcasting has significantly expanded
the sales forces of many of its acquired stations.
TARGETED PROGRAMMING. To maintain or improve its position in each market,
Citadel Broadcasting conducts extensive market research and competitive analyses
in order to identify significant and sustainable target audiences. Citadel
Broadcasting then tailors the programming, marketing and promotion of each
station to maximize its appeal to its target audience. Citadel Broadcasting
attempts to build strong markets by:
- creating distinct, highly visible profiles for its on-air personalities,
particularly those broadcasting during morning drive time traditionally
between 6:00 a.m. and 10:00 a.m.,
- formulating recognizable brand names for select stations such as the
"Bull" and "Cat Country," and
- actively participating in community events and charities.
DECENTRALIZED OPERATIONS. Citadel Broadcasting believes that radio is
primarily a local business and that much of its success is the result of the
efforts of regional and local management and staff. Accordingly, Citadel
Broadcasting decentralizes much of its operations to these levels. Each of
Citadel Broadcasting's regional and local station groups is managed by a team of
experienced broadcasters who understand the musical tastes, demographics and
competitive opportunities of the particular market. Regional and local managers
are responsible for preparing annual operating budgets, and a portion of their
compensation is linked to meeting or surpassing their operating targets.
Corporate management approves each station group's annual operating budget and
imposes strict financial reporting requirements to track station performance.
Corporate management is responsible for long range planning, establishing
corporate policies and serving as a resource to local management. Citadel
Broadcasting has implemented local sales reporting systems at each station to
provide local and corporate management with daily sales information.
ACQUISITION STRATEGY
In February 1996, as a result of the passage of the Telecommunications Act
of 1996, which is referred to in this report as the Telecommunications Act,
radio broadcasting companies were permitted to increase their ownership of
stations within a single market from four to a maximum of between five and eight
stations, depending on market size. The Telecommunications Act also eliminated
the national ownership restriction that generally had limited companies to the
ownership of no more than 40 stations (20 AM and 20 FM) throughout the United
States.
Citadel Broadcasting's acquisition strategy is focused on acquiring
additional radio stations in both its existing markets and in new markets in
which Citadel Broadcasting believes it can effectively use its operating
strategies. Citadel Broadcasting anticipates that it will continue to focus on
mid-sized markets rather than attempt to expand into larger markets. Although
competition among potential purchasers for suitable radio station acquisitions
is intense throughout the United States, Citadel Broadcasting believes that less
competition exists, particularly from the larger radio operators, in mid-sized
markets. This affords Citadel Broadcasting relatively more attractive
acquisition opportunities in these markets. There can be no assurance, however,
that Citadel Broadcasting will be able to identify suitable and available
acquisition opportunities or that it will
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be able to complete any such acquisition opportunities. Additional risks and
uncertainties related to Citadel Broadcasting's acquisition strategy are
discussed below under the captions "Federal Regulation of Radio Broadcasting"
and "Certain Investment Considerations."
In evaluating acquisition opportunities in new markets, Citadel
Broadcasting assesses its potential to build leading radio station groups in
those markets over time. Citadel Broadcasting believes that the creation of
strong station groups in local markets is essential to its operating success and
generally will not consider entering a new market unless it believes it can
acquire multiple stations in the market. Citadel Broadcasting also analyzes a
number of additional factors which it believes are important to its success,
including the number and quality of commercial radio signals broadcasting in the
market, the nature of the competition in the market, Citadel Broadcasting's
ability to improve the operating performance of the radio station or stations
under consideration and the general economic conditions of the market.
Citadel Broadcasting believes that its acquisition strategy, if properly
implemented, could have a number of benefits, including:
- diversified revenue and broadcast cash flow across a greater number of
stations and markets,
- improved broadcast cash flow margins through the consolidation of
facilities and the elimination of redundant expenses,
- broadened range of advertising packages to offer advertisers,
- improved leverage in various key vendor negotiations,
- enhanced appeal to top industry management talent, and
- increased overall scale which should facilitate Citadel Broadcasting's
capital raising activities.
RADIO INDUSTRY OVERVIEW
Radio stations generate the majority of their revenue from the sale of
advertising time to local and national spot advertisers and national network
advertisers. Radio serves primarily as a medium for local advertising. From 1987
to 1996, local advertising revenue as a percentage of total radio advertising
revenue has ranged from approximately 74% to 78%, as reported in Veronis Suhler
Industry Forecasts (11th ed.). The growth in total radio advertising revenue
tends to be fairly stable. Total radio advertising revenue in 1998 of $15.4
billion represented a 11.7% increase over 1997, as reported by the Radio
Advertising Bureau.
Radio is considered to be an efficient means of reaching specifically
identified demographic groups. Stations are typically classified by their on-air
format, such as country, adult contemporary, oldies or news/talk. A station's
format and style of presentation enable it to target particular demographic and
psychographic groups. By capturing a specific listening audience share of a
market's radio audience, with particular concentration in a targeted demographic
group, a station is able to market its broadcasting time to advertisers seeking
to reach a specific audience. Advertisers and stations utilize data published by
audience measuring services, such as The Arbitron Company, to estimate how many
people within particular geographical markets and demographic groups listen to
specific stations.
Stations determine the number of advertisements broadcast hourly that will
maximize available revenue dollars without jeopardizing listening levels.
Although the number of advertisements broadcast during a given time period may
vary, the total number of advertisements broadcast on a particular station
generally does not vary significantly from year to year.
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station
typically will engage a firm that specializes in soliciting radio advertising
sales on a national level. National sales representatives obtain advertising
principally from advertising agencies located outside the station's market and
receive commissions based on the revenue from the advertising obtained.
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<PAGE> 11
STATION PORTFOLIO
If all of the pending transactions described under the caption "Pending
Transactions" above are completed, Citadel Broadcasting will own 71 FM and 35 AM
radio stations in 20 mid-sized markets, operate one additional FM radio station
in Reno pursuant to a local marketing agreement and have the right to construct
one additional FM radio station in Little Rock. The following table sets forth
information about stations owned or operated by Citadel Broadcasting after
giving effect to its pending transactions.
As you review the information in the following table, you should note the
following:
- The year acquired shown in the table below includes acquisitions made by
Citadel Broadcasting's predecessors, Citadel Associates Limited
Partnership and Citadel Associates Montana Limited Partnership,
- The abbreviation "MSA" in the MSA Rank column means metropolitan
statistical area, the abbreviation "LMA" in the Year Acquired/LMA column
means local marketing agreement and the abbreviation "JSA" in the Year
Acquired/LMA column means joint sales agreement,
- The symbol "*" indicates a station which is the subject of one of Citadel
Broadcasting's pending transactions. The completion of each of the
pending transactions is subject to conditions to closing. Although
Citadel Broadcasting believes these conditions are customary for
transactions of this type and will be satisfied, there can be no
assurance that such closing conditions will be satisfied. See the
discussion above under the caption "The Pending Transactions,"
- The letter "t" in the Station Rank in Primary Demographic Target column
in the table denotes that a station tied with one or more other radio
stations,
- The letters "NA" denotes that information is not available,
- A dash in either the Station Rank in Primary Demographic Target or Radio
Group Market Revenue Share columns in the table denotes that information
is not meaningful,
- The letter "A" designates adults, the letter "W" designates women, the
letter "M" designates men and the letter "C" designates children. The
numbers following each letter designate the range of ages included within
the demographic group,
- Combined stations are simulcast. Rank and audience share information is
given on a combined basis,
- The generally accepted method of measuring the relative size of a radio
station's audience is by reference to total persons, within specific
demographic groups, Monday--Sunday, 6:00 a.m-12:00 midnight average
quarter hour shares, as published by The Arbitron Company. Arbitron
periodically samples radio listeners in defined market areas, principally
through the use of diaries returned by selected listeners. A station's
average quarter hour share is a percentage computed by dividing the
average number of persons listening to a particular station for at least
five minutes during an average quarter hour in a given time period by the
average number of such persons for all stations in the market area.
Station Rank in Primary Demographic Target in the table is the ranking of
a station among all stations in its target demographic group based upon
the station's average quarter hour shares. Arbitron compiles ratings data
for various demographic groups. All information concerning ratings and
audience listening information used in this report is given in accordance
with the method described above and derived from the Arbitron Reports,
- Radio Group Market Revenue Share in the table was derived for each radio
group by summing the market share of revenue of each station included
within the group. Radio Group Rank in Market Revenue in the table is the
ranking, by radio group market revenue, of each of Citadel Broadcasting's
radio groups in its market among all other radio groups in that market,
- Pending their acquisition by Citadel Broadcasting, Citadel Broadcasting
operates WKQV-FM and WKQV-AM in Wilkes-Barre/Scranton under a local
marketing agreement and a joint sales agree-
11
<PAGE> 12
ment, respectively, and KEYF-AM and KEYF-FM in Spokane and KSPZ-FM, KVOR-AM and
KTWK-AM in Colorado Springs under a joint sales agreement,
- Citadel Broadcasting operates KXXL-FM in Reno under a local marketing
agreement,
- Three of the stations listed as Little Rock stations serve the
surrounding communities outside of Little Rock, and
- KATM-FM, KHKK-FM/KDJK-FM and KHOP-FM, listed under Modesto, California,
also broadcast in the adjacent Stockton, California market where, in the
Fall 1998 Arbitron Report, they ranked first, third and seventh in their
primary demographic targets, respectively.
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<PAGE> 13
<TABLE>
<CAPTION>
STATION STATION
RANK AUDIENCE
IN SHARE IN RADIO
PRIMARY PRIMARY PRIMARY GROUP RADIO
STATION DEMO- DEMO- DEMO- MARKET GROUP RANK
RADIO GROUP/ MSA PROGRAMMING YEAR GRAPHIC GRAPHIC GRAPHIC REVENUE IN MARKET
STATION CALL LETTERS RANK FORMAT ACQUIRED/LMA TARGET TARGET TARGET SHARE REVENUE
-------------------- ---- ------------------- ---------------- --------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROVIDENCE, RI............ 32 40.4% 1
Owned
WPRO-AM................... News/Talk 1997 A 25-54 11 2.4
WPRO-FM................... Contemporary Hits 1997 A 18-49 2 8.7
WWLI-FM................... Adult Contemporary 1997 W 25-54 1 13.8
WSKO-AM................... Sports 1997 M 25-54 13 2.2
WXEX-FM................... Rock 1997 M 18-34 11t 2.7
WHKK-FM................... Rock Oldies 1997/1997 A 25-54 13 2.2
SALT LAKE CITY, UT........ 36 24.1% 2
Owned
KUBL-FM................... Country 1988 A 25-54 6 5.1
KCNR-AM................... Children's 1988 C 4-11 -- --
KFNZ-AM................... Sports 1997/1992 M 25-54 8t 4.0
KBEE-FM................... Adult Contemporary 1997/1992 W 18-49 10t 4.1
KBER-FM................... Album Oriented Rock 1997/1996 A 18-34 7 6.0
KENZ-FM................... Rock Alternative 1997/1996(JSA) A 18-34 1 9.0
WILKES-BARRE/
SCRANTON, PA............. 64 29.4% 2
Owned
WMGS-FM................... Adult Contemporary 1997 W 25-54 1 17.2
WARM-AM................... News/Talk 1997 A 35-64 11t 1.4
WZMT-FM................... Album Oriented Rock 1997 M 18-34 2 13.5
WAZL-AM................... Nostalgia 1997 A 35-64 35t 0.2
WEMR-FM................... Contemporary Hits 1998/1997 W 18-34 20t .00
WCTP-FM/WCTD-FM........... Country 1998/1997 A 35-64 10 2.1
WCDL-AM................... Country 1998/1997 A 35-64 -- --
WBHT-FM................... Country 1999/1997 A 35-64 11t 1.9
WEMR-AM................... Simulcast with 1998/1997 A 35-64 36t .00
WBHT-FM
*WKQV-AM.................. Sports pending/1997(JSA) M 25-54 -- --
*WKQV-FM.................. Simulcast with pending/1997 M 18-34 7 4.7
WZMT-FM
ALLENTOWN/
BETHLEHEM, PA............ 67 26.5% 2
Owned
WCTO-FM................... Country 1997 A 25-54 1 13.4
WLEV-FM................... Adult Contemporary 1997/1997 W 25-54 1 17.6
ALBUQUERQUE, NM........... 71 55.7% 1
Owned
KKOB-AM................... News/Talk 1994 A 25-54 2t 7.8
KKOB-FM................... Adult Contemporary 1994 W 25-54 6 5.4
KMGA-FM................... Adult Contemporary 1994 W 25-54 7 5.0
KHTL-AM................... News/Talk 1994 A 35-64 23t 0.7
KTBL-FM................... Country 1996/1995(JSA) A 25-54 9 4.1
KHFM-FM................... Classical 1996 A 25-54 12t 2.7
KNML-AM................... Sports 1996 M 25-54 18t 1.6
KRST-FM................... Country 1996/1996 A 25-54 1 8.2
HARRISBURG/
CARLISLE, PA............. 74 22.5% 3
Owned
WRKZ-FM................... Country 1997 A 25-54 8 4.5
WQXA-FM................... Rock 1997 M 18-34 1 20.7
WHYL-FM................... Simulcast with 1999/1998 A 25-54 13 1.9
WRKZ-FM
WHYL-AM................... Nostalgia 1999/1998 A 35-64 26t 0.2
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
STATION STATION
RANK AUDIENCE
IN SHARE IN RADIO
PRIMARY PRIMARY PRIMARY GROUP RADIO
STATION DEMO- DEMO- DEMO- MARKET GROUP RANK
RADIO GROUP/ MSA PROGRAMMING YEAR GRAPHIC GRAPHIC GRAPHIC REVENUE IN MARKET
STATION CALL LETTERS RANK FORMAT ACQUIRED/LMA TARGET TARGET TARGET SHARE REVENUE
-------------------- ---- ------------------- ---------------- --------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BATON ROUGE, LA........... 82 27.4% 2
Owned
KQXL-FM................... Urban Adult 1999 A 25-54 3 7.5
Contemporary
WXOK-AM................... Gospel 1999 A 35-64 6 6.8
WEMX-FM................... Urban 1999 A 18-34 1 16.8
WKJN-FM................... Country 1999 A 25-54 14t 2.2
WIBR-AM................... Sports 1999 M 25-54 -- --
LITTLE ROCK, AR........... 83 38.2% 2
Owned
KARN-AM/KARN-FM/
KKRN-FM................... News/Talk/Sports 1997/1997 A 25-54 7 5.7
KIPR-FM................... Urban 1997/1997 A 18-49 2t 8.9
KOKY-FM................... Urban Adult 1997/1997 A 25-54 10 4.1
Contemporary
KLAL-FM................... Modern Adult 1997 A 18-49 11t 3.7
Contemporary
KAFN-FM................... Not yet operational 1997 NA NA NA
KLIH-AM................... Gospel 1997 A 25-54 18 1.3
KURB-FM................... Adult Contemporary 1997 A 25-54 4t 6.5
KVLO-FM................... Soft Adult 1997 W 25-54 3 7.7
Contemporary
KAAY-AM................... Religious 1998 A 25-54 20t 0.8
SPOKANE, WA............... 87 53.5% 1
Owned
KGA-AM.................... News/Talk 1992 A 25-54 10 3.6
KDRK-FM................... Country 1992 A 25-54 2 10.0
KAEP-FM................... Rock Alternative 1993 A 18-34 2 12.2
KJRB-AM................... Talk/Sports 1993/1993 A 35-64 18t 0.6
*KEYF-AM/FM............... Oldies pending/1996(JSA) A 25-54 5 7.5
*KNJY-FM.................. Rock pending M 18-34 3t 12.4
COLORADO SPRINGS, CO...... 94 59.7% 1
Owned
KKFM-FM................... Classic Rock 1986 M 25-54 1 13.5
KKMG-FM................... Contemporary Hits 1994/1990 W 18-34 1 22.2
*KSPZ-FM.................. Oldies pending/1996(JSA) A 25-54 8 5.5
*KVOR-AM.................. News/Talk pending/1996(JSA) A 35-64 2t 7.9
*KTWK-AM.................. Nostalgia pending/1996(JSA) A 35-64 13t 1.7
CHARLESTON, SC............ 97 44.5% 1
Owned.....................
*WSSX-FM.................. Hot Adult pending A 25-54 5t 5.7
Contemporary
*WWWZ-FM.................. Urban pending A 18-34 1 15.2
*WMGL-FM.................. Urban Adult pending A 25-54 9t 4.4
Contemporary
*WSUY-FM.................. Soft Adult pending W 25-54 5t 6.0
Contemporary
*WNKT-FM.................. Country pending A 25-54 4 6.2
*WTMA-AM.................. News/Talk pending A 25-54 11t 4.1
*WTMZ-AM.................. News pending A 25-54 25t 0.3
*WXTC-AM.................. Urban Gospel pending A 25-54 13t 2.8
LAFAYETTE, LA............. 98 14.2% 4
Owned
KFXZ-FM................... Gospel 1999 A 35-64 6t 4.4
KNEK-FM................... Urban Adult 1999 A 25-54 8 4.7
Contemporary
KNEK-AM................... Urban Adult 1999 A 25-54 -- --
Contemporary
KRRQ-FM................... Urban 1999 A 18-34 1 15.3
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
STATION STATION
RANK AUDIENCE
IN SHARE IN RADIO
PRIMARY PRIMARY PRIMARY GROUP RADIO
STATION DEMO- DEMO- DEMO- MARKET GROUP RANK
RADIO GROUP/ MSA PROGRAMMING YEAR GRAPHIC GRAPHIC GRAPHIC REVENUE IN MARKET
STATION CALL LETTERS RANK FORMAT ACQUIRED/LMA TARGET TARGET TARGET SHARE REVENUE
-------------------- ---- ------------------- ---------------- --------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YORK, PA.................. 103 1.2% 5
Owned
WQXA-AM................... Nostalgia 1997 A 35-64 22t 0.6
MODESTO, CA............... 121 67.8% 1
Owned
KATM-FM................... Country 1992 A 25-54 1 15.7
KANM-AM................... Sports 1992 M 25-54 11t 2.2
KHKK-FM/KDJK-FM........... Rock Oldies 1993/1993(KHKK) A 25-54 2 11.1
KHOP-FM................... Album Oriented Rock 1996 A 18-34 1 12.3
SAGINAW/ BAY
CITY, MI.................. 124 47.1% 1
Owned
WKQZ-FM................... Rock 1999 M 18-49 1 18.4
WMJK-FM/WMJA-FM........... Classic Rock 1999 M 25-54 12t 2.1
WIOG-FM................... Hot Adult 1999 A 25-54 4 8.9
Contemporary
WGER-FM................... Soft Adult 1999 W 25-54 3t 10.2
Contemporary
WSGW-AM................... News/Talk 1999 A 25-54 6t 5.9
BOISE, ID................. 126 44.3% 2
Owned
KIZN-FM................... Country 1998/1997 A 25-54 4 7.5
KZMG-FM................... Contemporary Hits 1998/1997 W 18-34 2 12.7
KKGL-FM................... Classic Rock 1998/1997 M 25-54 6t 5.4
KQFC-FM................... Country 1998/1997 A 25-54 3 7.9
KBOI-AM................... News/Talk 1998/1997 A 35-64 6 4.8
RENO, NV.................. 130 50.2% 1
Owned
KBUL-FM................... Country 1992 A 25-54 3 9.3
KKOH-AM................... News/Talk 1992 A 25-54 4 6.9
KNEV-FM................... Adult Contemporary 1993/1993 W 18-49 4 9.4
KNHK-FM................... Rock Oldies 1997/1997 A 25-54 11 4.0
Operated
KXXL-FM................... Country 1998(LMA) A 25-54 -- --
BINGHAMTON, NY............ 165 63.1% 1
Owned
*WHWK-FM.................. Country pending A 25-54 1 16.6
*WYOS-FM.................. Oldies pending A 25-54 3 9.6
*WAAL-FM.................. Album Oriented Rock pending M 25-54 1 20.4
*WNBF-AM.................. News/Talk pending A 25-54 9 2.7
*WKOP-AM.................. Nostalgia pending A 35-64 -- --
MUNCIE, IN................ NA NA NA
Owned
*WMDH-FM.................. Country pending A 25-54 NA NA
*WMDH-AM.................. News/Talk pending A 25-54 NA NA
KOKOMO, IN................ NA NA NA
Owned
*WWKI-FM.................. Country pending A 25-54 NA NA
</TABLE>
The following is a description of the markets served by Citadel
Broadcasting's radio stations and those stations which Citadel Broadcasting has
entered into agreements to acquire. The description gives effect to the pending
radio station sales described above under the caption "Pending Transactions."
PROVIDENCE, RHODE ISLAND. Citadel Broadcasting owns four FM and two AM
radio stations in Providence. Providence has a metropolitan statistical area
rank of 32, and had market revenue of approximately $43.2 million in 1998, an
approximate 5.8% increase over 1997. There are 37 stations in the Providence
market, including ten viable FM and three viable AM stations. The six stations
owned by Citadel Broadcasting
15
<PAGE> 16
rank first in the market in terms of their combined gross revenue, with
approximately 40.4% of the market revenue in 1998.
SALT LAKE CITY, UTAH. Citadel Broadcasting owns four FM and two AM radio
stations in Salt Lake City. Salt Lake City has a metropolitan statistical area
rank of 36, and had market revenue of approximately $69.4 million in 1998, an
approximate 12.9% increase over 1997. There are 43 stations in the Salt Lake
City market, including 16 viable FM and four viable AM stations. The six
stations owned by Citadel Broadcasting rank second in the market in terms of
their combined gross revenue, with approximately 24.1% of the market revenue in
1998.
WILKES-BARRE/SCRANTON, PENNSYLVANIA. Citadel Broadcasting owns six FM and
four AM radio stations and operates one FM radio station and one AM radio
station under a local marketing agreement and a joint sales agreement,
respectively, in Wilkes-Barre/Scranton. Citadel Broadcasting has exercised its
options to purchase the one FM radio station and the one AM radio station it
currently operates. See the discussion above under the caption "The Pending
Transactions." Wilkes-Barre/Scranton has a metropolitan statistical area rank of
64, and had market revenue of approximately $21.6 million in 1998, an
approximate 1.9% increase over 1997. There are 40 stations in the
Wilkes-Barre/Scranton market, including ten viable FM and four viable AM
stations. The ten stations owned by Citadel Broadcasting together with the two
stations it has entered into agreements to acquire rank second in the market in
terms of their combined gross revenue, with approximately 29.4% of market
revenue in 1998.
ALLENTOWN/BETHLEHEM, PENNSYLVANIA. Citadel Broadcasting owns two FM radio
stations in Allentown/ Bethlehem. Allentown/Bethlehem has a metropolitan
statistical area rank of 67, and had market revenue of approximately $25.9
million in 1998, an approximate 6.6% increase over 1997. There are 19 stations
in the Allentown market, including six viable FM and three viable AM stations.
The two stations owned by Citadel Broadcasting rank second in the market in
terms of their combined gross revenue, with approximately 26.5% of market
revenue in 1998.
ALBUQUERQUE, NEW MEXICO. Citadel Broadcasting owns five FM and three AM
radio stations in Albuquerque. Albuquerque has a metropolitan statistical area
rank of 71, and had market revenue of approximately $39.1 million in 1998, an
approximate 10.4% increase over 1997. There are 37 stations in the Albuquerque
market, including 17 viable FM and three viable AM stations. The eight stations
owned by Citadel Broadcasting rank first in the market in terms of their
combined gross revenue, with approximately 55.7% of the market revenue in 1998.
HARRISBURG/CARLISLE, PENNSYLVANIA AND YORK, PENNSYLVANIA. Citadel
Broadcasting owns three FM radio stations and one AM radio station in Harrisburg
and one AM radio station in York. Harrisburg/Carlisle and York are adjacent
markets with numerous overlapping radio signals. Citadel Broadcasting expects to
continue operating these stations as a single station group.
Harrisburg/Carlisle has a metropolitan statistical area rank of 74, and had
market revenue of approximately $28.1 million in 1998, an approximate 6.0%
increase from 1997. There are 23 stations in the Harrisburg/Carlisle market,
including eight viable FM and three viable AM stations. The four stations owned
by Citadel Broadcasting rank third in the market in terms of gross revenue, with
approximately 22.5% of the market revenue in 1998.
York has a metropolitan statistical area rank of 103, and had market
revenue of approximately $17.5 million in 1998, an approximate 5.1% increase
over 1997. There are 16 stations in the York market, including seven viable FM
stations and one viable AM station. The station owned by Citadel Broadcasting
ranks fifth in the market in terms of its gross revenue, with approximately 1.2%
of the market revenue in 1998.
BATON ROUGE, LOUISIANA. Citadel Broadcasting owns three FM and two AM
radio stations in Baton Rouge. Baton Rouge has a metropolitan statistical area
rank of 82, and had market revenue of approximately $24.1 million in 1998, an
approximate 6.6% increase over 1997. There are 21 stations in the Baton Rouge
market, including nine viable FM and two viable AM stations. The five stations
owned by Citadel Broadcasting rank second in the market in terms of their
combined gross revenue, with approximately 27.4% of the market revenue in 1998.
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<PAGE> 17
LITTLE ROCK, ARKANSAS. Citadel Broadcasting owns seven FM and three AM
radio stations and has the right to construct and operate one additional FM
radio station in Little Rock. Little Rock has a metropolitan statistical area
rank of 83, and had market revenue of approximately $21.8 million in 1998, an
approximate 3.4% increase over 1997. There are 33 stations in the Little Rock
market, including 13 viable FM stations and one viable AM station. The ten
operating stations owned by Citadel Broadcasting rank second in the market in
terms of their combined gross revenue, with approximately 38.2% of market
revenue in 1998.
Citadel Broadcasting also owns the Arkansas Radio Network, which was
established in 1968 and is a state-wide news network with affiliates in nearly
every county in Arkansas. The Arkansas Radio Network feeds hourly newscasts in
addition to agricultural programs, market reports, weather and special events.
SPOKANE, WASHINGTON. Citadel Broadcasting owns two FM and two AM radio
stations in Spokane and has entered into agreements to acquire two FM radio
stations and one AM radio station in this market. See the discussion above under
the caption "The Pending Transactions." Citadel Broadcasting currently operates
under a joint sales agreement two of the stations it has entered into an
agreement to acquire. Spokane has a metropolitan statistical area rank of 87,
and had market revenue of approximately $16.1 million in 1998, an approximate
10.3% increase over 1997. There are 28 stations in the Spokane market, including
12 viable FM and four viable AM stations. The four stations owned by Citadel
Broadcasting together with the three stations it has entered into agreements to
acquire rank first in the market in terms of their combined gross revenue, with
approximately 53.5% of the market revenue in 1998.
COLORADO SPRINGS, COLORADO. Citadel Broadcasting owns two FM radio
stations in Colorado Springs and has entered into an agreement to acquire one FM
radio station and two AM radio stations in this market. See the discussion above
under the caption "The Pending Transactions." Citadel Broadcasting currently
operates under a joint sales agreement the three stations it has entered into an
agreement to acquire. Colorado Springs has a metropolitan statistical area rank
of 94, and had market revenue of approximately $21.5 million in 1998, an
approximate 16.1% increase over 1997. There are 21 stations in the Colorado
Springs market, including 11 viable FM and two viable AM stations. The two
stations owned by Citadel Broadcasting together with the three stations it has
entered into agreements to acquire rank first in the market in terms of their
combined gross revenue, with approximately 59.7% of the market revenue in 1998.
CHARLESTON, SOUTH CAROLINA. Citadel Broadcasting has entered into an
agreement to purchase five FM and three AM radio stations in Charleston.
Charleston has a metropolitan statistical area rank of 97 and had market revenue
of approximately $19.2 million in 1998, an approximate 6.7% increase over 1997.
There are 27 stations in the Charleston market, including 12 viable FM stations
and one viable AM station. The eight stations to be acquired by Citadel
Broadcasting rank first in the market in terms of their combined gross revenue,
with approximately 44.5% of the market revenue in 1998. See the discussion above
under the caption "The Pending Transactions."
LAFAYETTE, LOUISIANA. Citadel Broadcasting owns three FM radio stations
and one AM radio station in Lafayette. Lafayette has a metropolitan statistical
area rank of 98, and had market revenue of approximately $12.3 million in 1998,
an approximate 7.0% increase over 1997. There are 33 stations in the Lafayette
market, including 12 viable FM stations and one viable AM station. The four
stations owned by Citadel Broadcasting rank fourth in the market in terms of
their combined gross revenue, with approximately 14.2% of the market revenue in
1998.
MODESTO, CALIFORNIA. Citadel Broadcasting owns four FM radio stations and
one AM radio station in Modesto. Modesto has a metropolitan statistical area
rank of 121, and had market revenue of approximately $15.7 million in 1998, an
approximate 8.8% increase over 1997. There are 22 stations in the Modesto
market, including nine viable FM and two viable AM stations. The five stations
owned by Citadel Broadcasting rank first in the market in terms of their
combined gross revenue, with approximately 67.8% of the market revenue in 1998.
SAGINAW/BAY CITY, MICHIGAN. Citadel Broadcasting owns five FM radio
stations and one AM radio station in Saginaw/Bay City. Saginaw/Bay City has a
metropolitan statistical area rank of 124, and had market revenue of
approximately $19.5 million in 1998, an approximate 4.3% increase over 1997.
There are 20
17
<PAGE> 18
stations in the Saginaw/Bay City market, including ten viable FM and three
viable AM stations. The six stations owned by Citadel Broadcasting rank first in
the market in terms of their combined gross revenue, with approximately 41.7% of
the market revenue in 1998.
BOISE, IDAHO. Citadel Broadcasting owns four FM radio stations and one AM
radio station in Boise. Boise has a metropolitan statistical area rank of 126,
and had market revenue of approximately $17.8 million in 1998, an approximate
9.8% increase over 1997. There are 26 stations in the Boise market, including 11
viable FM and three viable AM stations. The five stations owned by Citadel
Broadcasting rank second in the market in terms of their combined gross revenue,
with approximately 44.3% of market revenue in 1998.
RENO, NEVADA. Citadel Broadcasting owns three FM radio stations and one AM
radio station in Reno. Citadel Broadcasting also operates an additional FM radio
station in Reno under a local marketing agreement. Reno has a metropolitan
statistical area rank of 130, and had market revenue of approximately $17.5
million in 1998, an approximate 10.4% increase over 1997. There are 25 stations
in the Reno market, including 13 viable FM and two viable AM stations. The four
stations owned by Citadel Broadcasting together with the station it operates
under a local marketing agreement rank first in the market in terms of their
combined gross revenue, with approximately 50.2% of the market revenue in 1998.
BINGHAMTON, NEW YORK. Citadel Broadcasting has entered into an agreement
to purchase three FM and two AM radio stations in Binghamton. Binghamton has a
metropolitan statistical area rank of 165, and had market revenue of
approximately $9.2 million in 1998, an approximate increase of 4.5% over 1997.
There are 16 stations in the Binghamton market, including seven viable FM
stations and three viable AM stations. The five stations to be acquired by
Citadel Broadcasting rank first in the market in terms of their combined gross
revenue, with approximately 63.1% of the market revenue in 1998. See the
discussion above under the caption "The Pending Transactions."
MUNCIE, INDIANA. Citadel Broadcasting has entered into an agreement to
purchase one FM and one AM radio station in Muncie. Metropolitan statistical
area rank, market revenue, the number of stations and viable station data are
not available for the Muncie market. See the discussion above under the caption
"The Pending Transactions."
KOKOMO, INDIANA. Citadel Broadcasting has entered into an agreement to
purchase one FM radio station in Kokomo. Metropolitan statistical rank, market
revenue, the number of stations and viable station data are not available for
the Kokomo market. See the discussion above under the caption "The Pending
Transactions."
ADVERTISING SALES
Virtually all of Citadel Broadcasting's revenue is generated from the sale
of local, regional and national advertising for broadcast on its radio stations.
In 1998, approximately 83.0% of Citadel Broadcasting's net broadcasting revenue
was generated from the sale of local and regional advertising. Additional
broadcasting revenue is generated from the sale of national advertising, network
compensation payments and other miscellaneous transactions. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption "General." The major categories of Citadel
Broadcasting's advertisers include telephone companies, restaurants, fast food,
automotive and grocery. Each station's local sales staff solicits advertising
either directly from the local advertiser or indirectly through an advertising
agency. Citadel Broadcasting pays a higher commission rate to the sales staff
for generating direct sales because Citadel Broadcasting believes that through
direct advertiser relationships it can better understand the advertiser's
business needs and more effectively design an advertising campaign to help the
advertiser sell its product. Citadel Broadcasting employs personnel in each of
its markets to produce commercials for the advertisers. National sales are made
by a firm specializing in radio advertising sales on the national level in
exchange for a commission from Citadel Broadcasting that is based on Citadel
Broadcasting's gross revenue from the advertising obtained. Regional sales,
which Citadel Broadcasting defines as sales in regions surrounding Citadel
Broadcasting's markets to companies that advertise in Citadel Broadcasting's
markets, are generally made by Citadel Broadcasting's local sales staff.
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<PAGE> 19
Depending on the programming format of a particular station, Citadel
Broadcasting estimates the optimum number of advertisements available for sale.
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. Citadel Broadcasting's stations strive to maximize revenue
by managing their on-air inventory of advertising time and adjusting prices
based on local market conditions and on Citadel Broadcasting's ability, through
its marketing efforts, to provide advertisers with an effective means of
reaching a targeted demographic group. Each of Citadel Broadcasting's stations
has a general target level of on-air inventory that it makes available for
advertising. This target level of inventory for sale may be different at
different times of the day but tends to remain stable over time. Much of Citadel
Broadcasting's selling activity is based on demand for its radio stations'
on-air inventory and, in general, Citadel Broadcasting responds to this demand
by varying prices rather than by varying its target inventory level for a
particular station. Therefore, most changes in revenue are explained by
demand-driven pricing changes rather than by changes in the available inventory.
Citadel Broadcasting believes that radio is one of the most efficient and
cost-effective means for advertisers to reach specific demographic groups.
Advertising rates charged by radio stations are based primarily on:
- a station's share of audiences in the demographic groups targeted by
advertisers, as measured by ratings surveys estimating the number of
listeners tuned to the station at various times,
- the number of stations in the market competing for the same demographic
groups,
- the supply of, and demand for, radio advertising time, and
- certain qualitative factors.
Rates are generally highest during morning and afternoon commuting hours.
A station's listenership is reflected in ratings surveys that estimate the
number of listeners tuned to the station and the time they spend listening. Each
station's ratings are used by its advertisers and advertising representatives to
consider advertising with the station and are used by Citadel Broadcasting to
chart audience growth, set advertising rates and adjust programming. The radio
broadcast industry's principal ratings service is The Arbitron Company, which
publishes periodic ratings surveys for significant domestic radio markets. These
surveys are Citadel Broadcasting's primary source of ratings data.
COMPETITION
The radio broadcasting industry is highly competitive. The success of each
of Citadel Broadcasting's stations depends largely upon its audience ratings and
its share of the overall advertising revenue within its market. Citadel
Broadcasting's audience ratings and advertising revenue are subject to change,
and any adverse change in a particular market affecting advertising expenditures
or an adverse change in the relative market positions of the stations located in
a particular market could have a material adverse effect on the revenue of
Citadel Broadcasting's radio stations located in that market. There can be no
assurance that any one of Citadel Broadcasting's radio stations will be able to
maintain or increase its current audience ratings or advertising revenue market
share.
Citadel Broadcasting's stations compete for listeners and advertising
revenue directly with other radio stations within their respective markets.
Radio stations compete for listeners primarily on the basis of program content
that appeals to a particular demographic group. By building a strong listener
base consisting of a specific demographic group in each of its markets, Citadel
Broadcasting is able to attract advertisers seeking to reach those listeners.
Companies that operate radio stations must be alert to the possibility of
another station changing its format to compete directly for listeners and
advertisers. Another station's decision to convert to a format similar to that
of one of Citadel Broadcasting's radio stations in the same geographic area may
result in lower ratings and advertising revenue, increased promotion and other
expenses and, consequently, lower broadcast cash flow for Citadel Broadcasting.
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<PAGE> 20
Factors that are material to a radio station's competitive position include
management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. Citadel Broadcasting attempts to improve its competitive position
in each market by extensively researching its stations' programming, by
implementing advertising campaigns aimed at the demographic groups for which its
stations program and by managing its sales efforts to attract a larger share of
advertising dollars. However, Citadel Broadcasting competes with some
organizations that have greater financial resources than Citadel Broadcasting.
Recent changes in FCC policies and rules permit increased ownership and
operation of multiple local radio stations. Management believes that radio
stations that elect to take advantage of joint arrangements such as local
marketing agreements or joint sales agreements may in certain circumstances have
lower operating costs and may be able to offer advertisers more attractive rates
and services. Although Citadel Broadcasting currently operates multiple stations
in each of its markets and intends to pursue the creation of additional multiple
station groups, Citadel Broadcasting's competitors in certain markets include
operators of multiple stations or operators who already have entered into local
marketing agreements or joint sales agreements. Citadel Broadcasting also
competes with other radio station groups to purchase additional stations. Some
of these groups are owned or operated by companies that have substantially
greater financial and other resources than Citadel Broadcasting.
Although the radio broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC, and the number of radio stations that can operate in a
given market is limited by the availability of FM and AM radio frequencies
allotted by the FCC to communities in that market, as well as by the FCC's
multiple ownership rules regulating the number of stations that may be owned and
controlled by a single entity. The FCC's multiple ownership rules have changed
significantly as a result of the Telecommunications Act. For more information
about FCC regulation and the provisions of the Telecommunications Act, see the
discussion below under the caption "Federal Regulation of Radio Broadcasting."
Citadel Broadcasting's stations also compete for advertising revenue with
other media, including newspapers, broadcast television, cable television,
magazines, direct mail, coupons and outdoor advertising. In addition, the radio
broadcasting industry is subject to competition from new media technologies that
are being developed or introduced, such as the delivery of audio programming by
cable television systems, by satellite and by digital audio broadcasting.
Digital audio broadcasting may deliver by satellite to nationwide and regional
audiences, multi-channel, multi-format, digital radio services with sound
quality equivalent to compact discs. The delivery of information through the
internet also could create a new form of competition. The radio broadcasting
industry historically has grown despite the introduction of new technologies for
the delivery of entertainment and information. A growing population and greater
availability of radios, particularly car and portable radios, have contributed
to this growth. There can be no assurance, however, that the development or
introduction in the future of any new media technology will not have an adverse
effect on the radio broadcasting industry.
The FCC has recently authorized spectrum for the use of a new technology,
satellite digital audio radio services, to deliver audio programming. Digital
audio radio services may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and
national audiences. It is not known at this time whether this digital technology
also may be used in the future by existing radio broadcast stations either on
existing or alternate broadcasting frequencies. There are proposals before the
FCC to permit a new low power radio service which could open up opportunities
for low cost neighborhood service on frequencies which would not interfere with
existing stations. No FCC action has been taken on this proposal to date.
Citadel Broadcasting cannot predict what other matters might be considered
in the future by the FCC, nor can it assess in advance what impact, if any, the
implementation of any of these proposals or changes might have on its business.
See the discussion below under the caption "Federal Regulation of Radio
Broadcasting."
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<PAGE> 21
FEDERAL REGULATION OF RADIO BROADCASTING
INTRODUCTION. The ownership, operation and sale of broadcast stations,
including those licensed to Citadel Broadcasting, are subject to the
jurisdiction of the FCC, which acts under authority derived from the
Communications Act of 1934, as amended, which is referred to in this report as
the Communications Act. The Communications Act was amended in 1996 by the
Telecommunications Act to make changes in several broadcast laws. Among other
things, the FCC:
- assigns frequency bands for broadcasting,
- determines whether to approve changes in ownership or control of station
licenses,
- regulates equipment used by stations,
- adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment practices of
stations, and
- has the power to impose penalties for violations of its rules under the
Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including fines, the grant of short (less than the maximum)
license renewal terms or, for particularly egregious violations, the denial of a
license renewal application, the revocation of a license or the denial of FCC
consent to acquire additional broadcast properties. Reference should be made to
the Communications Act, FCC rules and the public notices and rulings of the FCC
for further information concerning the nature and extent of federal regulation
of broadcast stations.
LICENSE GRANT AND RENEWAL. Until recently, radio broadcast licenses were
granted for maximum terms of seven years, but acting under the authority of the
Telecommunications Act, the FCC recently revised its rules to extend the maximum
term for future renewals to eight years. Licenses may be renewed through an
application to the FCC. Prior to the Telecommunications Act, during certain
periods when a renewal application was pending, competing applicants could file
for the radio frequency being used by the renewal applicant. The
Telecommunications Act prohibits the FCC from considering such competing
applications if the FCC finds that the station has served the public interest,
convenience and necessity, that there have been no serious violations by the
licensee of the Communications Act or the rules and regulations of the FCC, and
that there have been no other violations by the licensee of the Communications
Act or the rules and regulations of the FCC that, when taken together, would
constitute a pattern of abuse.
Petitions to deny license renewals can be filed by interested parties,
including members of the public. These petitions may raise various issues before
the FCC. The FCC is required to hold hearings on renewal applications if the FCC
is unable to determine that renewal of a license would serve the public
interest, convenience and necessity, or if a petition to deny raises a
substantial and material question of fact as to whether the grant of the renewal
application would be prima facie inconsistent with the public interest,
convenience and necessity. Also, during certain periods when a renewal
application is pending, the transferability of the applicant's license is
restricted. A petition to deny renewal has been filed against four of Citadel
Broadcasting's Salt Lake City stations, alleging that they failed to comply with
FCC equal opportunity employment rules, and FCC processing of that petition has
delayed action on those license renewals. Except for that case, Citadel
Broadcasting is not currently aware of any facts that would prevent the timely
renewal of its licenses to operate its radio stations, although there can be no
assurance that Citadel Broadcasting's licenses will be renewed.
The FCC classifies each AM and FM station. An AM station operates on
either a clear channel, regional channel or local channel. A clear channel is
one on which AM stations are assigned to serve wide areas. Clear channel AM
stations are classified as either: Class A stations, which operate on an
unlimited time basis and are designated to render primary and secondary service
over an extended area; Class B stations, which operate on an unlimited time
basis and are designed to render service only over a primary service area; or
Class D stations, which operate either during daytime hours only, during limited
times only or on an unlimited time basis with low nighttime power. A regional
channel is one on which Class B and Class D AM
21
<PAGE> 22
stations may operate and serve primarily a principal center of population and
the rural areas contiguous to it. A local channel is one on which AM stations
operate on an unlimited time basis and serve primarily a community and the
suburban and rural areas immediately contiguous thereto. Class C AM stations
operate on a local channel and are designed to render service only over a
primary service area that may be reduced as a consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial FM
stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.
The following table sets forth the market, call letters, FCC license
classification, antenna height above average terrain (HAAT), power and frequency
of each of the stations owned or operated by Citadel Broadcasting, assuming the
completion of the pending transactions described above under the caption "The
Pending Transactions," and the date on which each station's FCC license expires.
As you review the information in the following table, you should note the
following:
- The symbol "*" indicates a station which is the subject of one of Citadel
Broadcasting's pending transactions. The completion of each of the
pending transactions is subject to conditions to closing. Although
Citadel Broadcasting believes these conditions are customary for
transactions of this type and will be satisfied, there can be no
assurance that the closing conditions will be satisfied. See the
discussion above under the caption "The Pending Transactions."
- A station's actual city of license may be different from the shown
metropolitan market served. Three of the stations listed as Little Rock
stations serve the surrounding communities outside of Little Rock.
- Pursuant to FCC rules and regulations, many AM radio stations are
licensed to operate at a reduced power during nighttime broadcasting
hours, which results in reducing the radio station's coverage during
those hours of operation. Both power ratings are shown, where applicable.
- License renewal applications have been filed for the listed stations
showing a license expiration date of October 1, 1997 or August 1, 1998,
and the expiration of the licenses is stayed during the pendency of these
renewal proceedings. A petition to deny the renewal applications for four
of Citadel Broadcasting's Salt Lake City stations has been filed with the
FCC, citing alleged violations of the FCC's policies concerning equal
employment opportunities. In September 1998, the U.S. Court of Appeals
for the District of Columbia Circuit, in Lutheran Church-Missouri Synod
v. FCC, held most aspects of the FCC's equal employment opportunity rules
to be unconstitutional, thus invalidating them. The status of pending
petitions to deny license renewals based on alleged equal employment
opportunity violations was rendered uncertain by the Court's decision.
The FCC is currently considering how to deal with such petitions, and has
proposed adoption of new equal employment opportunity rules that address
the Court's concerns. Should the FCC find that these Citadel Broadcasting
Salt Lake City stations lacked equal employment opportunity policies and
procedures that were effective, the FCC could penalize the stations in
the form of fines, generally $10,000 to $15,000, reporting conditions
(the stations would be required to file with the FCC periodic equal
employment opportunity documentation), and/or renewal of licenses for
less than the standard 8-year period. In rare cases, the FCC may order
hearings on equal employment opportunity violations.
- KAFN-FM in Little Rock is under construction and has not yet commenced
operations. WYOS-FM in Binghamton operates pursuant to a construction
permit. An application for a license to cover the construction permit has
been filed with the FCC. Expiration of the construction permit is stayed
during the pendency of that application.
- Pending their acquisition by Citadel Broadcasting, Citadel Broadcasting
provides sales and marketing services to stations KSPZ-FM, KVOR-AM and
KTWK-AM in Colorado Springs, Colorado, stations KEYF-AM and KEYF-FM in
Spokane, Washington and station WKQV-AM in Wilkes-Barre/ Scranton,
Pennsylvania, under joint sales agreements. Citadel Broadcasting provides
sales, program-
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<PAGE> 23
ming and marketing services to station KXXL-FM in Reno, Nevada and,
pending its acquisition by Citadel Broadcasting, WKQV-FM in
Wilkes-Barre/Scranton, Pennsylvania, under local marketing agreements.
<TABLE>
<CAPTION>
EXPIRATION
HAAT DATE OF
FCC IN POWER IN FCC
MARKET STATION CLASS METERS KILOWATTS FREQUENCY LICENSE
- ------ -------- ----- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Providence, RI............ WPRO-AM B NA 5.0 630 kHz 04-01-06
WPRO-FM B 168 39.0 92.3 MHz 04-01-06
WSKO-AM B NA 5.0 790 kHz 04-01-06
WWLI-FM B 152 50.0 105.1 MHz 04-01-06
WXEX-FM A 163 2.3 99.7 MHz 04-01-06
WHKK-FM A 90 4.2 100.3 MHz 04-01-06
Salt Lake City, UT........ KCNR-AM B NA 10.0/0.195 860 kHz 10-01-97
KUBL-FM C 1140 26.0 93.3 MHz 10-01-97
KENZ-FM C 869 45.0 107.5 MHz 10-01-97
KBER-FM C 1140 25.0 101.1 MHz 10-01-97
KFNZ-AM B NA 5.0 1320 kHz 10-01-05
KBEE-FM C 894 40.0 98.7 MHz 10-01-05
Wilkes-Barre/Scranton,
PA...................... WAZL-AM C NA 1.0 1490 kHz 08-01-06
WZMT-FM B 222 19.5 97.9 MHz 08-01-06
WARM-AM B NA 5.0 590 kHz 08-01-06
WMGS-FM B 422 5.3 92.9 MHz 08-01-06
WBHT-FM A 336 0.50 97.1 MHz 08-01-06
*WKQV-AM B NA 10.0/0.5 1550 kHz 08-01-06
*WKQV-FM A 308 0.30 95.7 MHz 08-01-06
WCTP-FM A 235 0.52 94.3 MHz 08-01-06
WCTD-FM A 207 1.45 93.7 MHz 08-01-06
WCDL-AM B NA 5.0/.037 1440 kHz 08-01-98
WEMR-AM B NA 5.0/1.0 1460 kHz 08-01-06
WEMR-FM A 354 0.24 107.7 MHz 08-01-06
Allentown/Bethlehem, PA... WCTO-FM B 152 50.0 96.1 MHz 08-01-06
WLEV-FM B 327 10.9 100.7 MHz 08-01-06
Albuquerque, NM........... KKOB-AM B NA 50.0 770 kHz 10-01-05
KKOB-FM C 1265 20.2 93.3 MHz 10-01-97
KHTL-AM B NA 1.0/0.5 920 kHz 10-01-05
KMGA-FM C 1259 22.5 99.5 MHz 10-01-97
KTBL-FM C 1276 20.4 103.3 MHz 10-01-97
KHFM-FM C 1260 20.0 96.3 MHz 10-01-97
KRST-FM C 1268 22.0 92.3 MHz 10-01-97
KNML-AM B NA 1.0/0.5 1050 kHz 10-01-05
Harrisburg/Carlisle and
York, PA................ WRKZ-FM B 283 14.1 106.7 MHz 08-01-06
WHYL-FM A 100 H3.0/V2.75 102.3 MHz 08-01-06
WHYL-AM B NA 5.0 960 kHz 08-01-06
WQXA-AM B NA 1.0 1250 kHz 08-01-06
WQXA-FM B 215 25.1 105.7 MHz 08-01-06
Baton Rouge, LA........... KQXL-FM C2 148 50.0 106.5 MHz 06-01-04
WXOK-AM B NA 5.0/1.0 1460 kHz 06-01-04
WEMX-FM C1 299 100.0 94.1 MHz 06-01-04
WKJN-FM C 306 100.0 103.3 MHz 06-01-04
WIBR-AM B NA 5.0/1.0 1300 kHz 06-01-04
</TABLE>
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<PAGE> 24
<TABLE>
<CAPTION>
EXPIRATION
HAAT DATE OF
FCC IN POWER IN FCC
MARKET STATION CLASS METERS KILOWATTS FREQUENCY LICENSE
- ------ -------- ----- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Little Rock, AR........... KARN-FM A 100 3.0 102.5 MHz 06-01-04
KARN-AM B NA 5.0 920 kHz 06-01-04
KKRN-FM A 100 6.0 101.7 MHz 06-01-04
KIPR-FM C1 286 100.0 92.3 MHz 06-01-04
KOKY-FM A 118 4.10 102.1 MHz 06-01-04
KLAL-FM C2 95 50.0 107.7 MHz 06-01-04
KAFN-FM A 100 6.0 102.5 MHz 06-01-04
KLIH-AM B NA 2.0/1.2 1250 kHz 06-01-04
KURB-FM C 392 100.0 98.5 MHz 06-01-04
KVLO-FM C2 150 50.0 102.9 MHz 06-01-04
KAAY-AM A NA 50.0 1090 kHz 06-01-04
Spokane, WA............... KGA-AM A NA 50.0 1510 kHz 02-01-06
KDRK-FM C 725 56.0 93.7 MHz 02-01-06
KJRB-AM B NA 5.0 790 kHz 02-01-06
KAEP-FM C 582 100.0 105.7 MHz 02-01-06
*KEYF-AM B NA 5.0 1050 kHz 02-01-06
*KEYF-FM C 490 100.0 101.1 MHz 02-01-06
*KNJY-FM C2 432 5.5 103.9 MHz 02-01-06
Colorado Springs, CO...... KKFM-FM C 698 71.0 98.1 MHz 04-01-05
KKMG-FM C 695 57.0 98.9 MHz 04-01-05
*KSPZ-FM C 649 72.0 92.9 MHz 04-01-05
*KVOR-AM B NA 5.0/1.0 1300 kHz 04-01-05
*KTWK-AM B NA 3.3/1.5 740 kHz 04-01-05
Charleston, SC............ *WSSX-FM C 317 100.0 95.1 MHz 12-01-03
*WWWZ-FM C2 150 50.0 93.3 MHz 12-01-03
*WMGL-FM C3 128.9 6.5 101.7 MHz 12-01-03
*WSUY-FM C 539.5 100.0 96.9 MHz 12-01-03
*WNKT-FM C 299.9 100.0 107.5 MHz 12-01-03
*WTMA-AM B NA 5.0/1.0 1250 kHz 12-01-03
*WTMZ-AM B NA 0.50 910 kHz 12-01-03
*WXTC-AM B NA 5.0 1390 kHz 12-01-03
Lafayette, LA............. KFXZ-FM A 151 2.6 106.3 MHz 06-01-04
KNEK-FM C3 100 25.0 104.7 MHz 06-01-04
KNEK-AM B NA 0.25 1190 kHz 06-01-04
KRRQ-FM C2 135 50.0 95.5 MHz 06-01-04
Modesto, CA............... KANM-AM B NA 1.0 970 kHz 12-01-05
KATM-FM B 152 50.0 103.3 MHz 12-01-05
KHKK-FM B 152 50.0 104.1 MHz 12-01-05
KDJK-FM A 624 0.071 103.9 MHz 12-01-05
KHOP-FM B 193 29.5 95.1 MHz 12-01-05
Saginaw/Bay City, MI...... WKQZ-FM C2 169 39.2 93.3 MHz 10-01-04
WMJK-FM A 151 2.6 100.9 MHz 10-01-04
WIOG-FM B 244 86 102.5 MHz 10-01-04
WMJA-FM A 126 2.9 104.5 MHz 10-01-04
WGER-FM A 116 2.05 106.3 MHz 10-01-04
WSGW-AM B NA 5.0/1.0 790 kHz 10-01-04
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
EXPIRATION
HAAT DATE OF
FCC IN POWER IN FCC
MARKET STATION CLASS METERS KILOWATTS FREQUENCY LICENSE
- ------ -------- ----- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Boise, ID................. KIZN-FM C 762 44.0 92.3 MHz 10-01-05
KZMG-FM C 802 50.0 93.1 MHz 10-01-05
KKGL-FM C 768 44.0 96.9 MHz 10-01-05
KQFC-FM C 762 47.0 97.9 MHz 10-01-05
KBOI-AM B NA 50.0 960 kHz 10-01-05
Reno, NV.................. KKOH-AM B NA 50.0 780 kHz 10-01-05
KNEV-FM C 695 60.0 95.5 MHz 10-01-05
KBUL-FM C 699 72.0 98.1 MHz 10-01-05
KNHK-FM C 809 44.7 92.9 MHz 10-01-05
KXXL-FM A 129 3.6 93.7 MHz 10-01-05
Binghamton, NY............ *WHWK-FM B 292.6 10.0 98.1 MHz 06-01-06
*WYOS-FM A 254 0.93 104.1 MHz 11-26-96
*WAAL-FM B 332 7.1 99.1 MHz 06-01-06
*WNBF-AM B NA 5.0 1290 kHz 06-01-06
*WKOP-AM B NA 5.0/0.5 1360 kHz 06-01-06
Muncie, IN................ *WMDH-FM B 152.4 50.0 102.5 MHz 08-01-04
*WMDH-AM B NA 0.25 1550 kHz 08-01-04
Kokomo, IN................ *WWKI-FM B 143.3 50.0 100.5 MHz 08-01-04
</TABLE>
OWNERSHIP MATTERS. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast license without the
prior approval of the FCC. In determining whether to assign, transfer, grant or
renew a broadcast license, the FCC considers a number of factors pertaining to
the licensee, including compliance with various rules limiting common ownership
of media properties, the character of the licensee and those persons holding
attributable interests therein, and compliance with the Communications Act's
limitation on alien ownership, as well as compliance with other FCC policies,
including equal employment opportunity requirements.
Once a station purchase agreement has been signed, an application for FCC
consent to assignment of license or transfer of control, depending upon whether
the underlying transaction is an asset purchase or stock acquisition, is filed
with the FCC. Approximately 10 to 15 days after this filing, the FCC normally
publishes a notice assigning a file number to the application and advising that
the application has been accepted for filing. This notice begins a 30-day
statutory waiting period, which provides the opportunity for third parties to
file formal petitions to deny the transaction. Informal objections may be filed
any time prior to grant of an application. The FCC staff will normally review
the application in this period and seek further information and amendments to
the application if it has questions.
Once the 30-day public notice period ends, the staff will complete its
processing, assuming that no petitions or informal objections were received and
that the application is otherwise consistent with FCC rules and policies. The
staff often grants the application by delegated authority approximately 10 to 20
days after the public notice period ends. At this point, the parties are legally
authorized to close the purchase, although the FCC action is not legally a final
order. If there is a backlog of applications, the processing period can extend
to 30 days or more.
Public notice of the FCC staff grant is usually issued about a week after
the grant is made, stating that the grant was effective when the staff made the
grant. On the date of this notice, another 30-day period begins, within which
time interested parties can file petitions seeking either staff reconsideration
or full FCC review of the staff action. During this time the grant can still be
modified, set aside or stayed, and is not a final order. In the absence of a
stay, however, the seller and buyer are not prevented from closing despite the
absence of a final order. Also, within 40 days after the public notice of the
grant, the full FCC can review and reconsider the staff's grant on its own
motion. Thus, during the additional 10 days beyond the 30-day period available
to third parties, the grant is still not final. In the event that review by the
full FCC is requested and the FCC
25
<PAGE> 26
subsequently affirms the staff's grant of the application, interested parties
may thereafter seek judicial review in the United States Court of Appeals for
the District of Columbia Circuit within 30 days of public notice of the full
FCC's action. In the event the Court affirms the FCC's action, further judicial
review may be sought by seeking rehearing en banc from the Court of Appeals or
by certiorari from the United States Supreme Court.
In the absence of the submission of a timely request for reconsideration,
administrative review or judicial review, the FCC staff's grant of an
application becomes final by operation of law. Upon the occurrence of that
event, counsel is able to deliver an opinion that the FCC's grant is no longer
subject to administrative or judicial review, although such action can
nevertheless be set aside in rare circumstances, such as fraud on the agency by
a party to the application.
The pendency of a license renewal application can alter the aforementioned
timetables because the FCC normally will not issue an unconditional assignment
grant if the station's license renewal is pending.
Under the Communications Act, a broadcast license may not be granted to or
held by a corporation that has more than one-fifth of its capital stock owned or
voted by aliens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations. Under the Communications Act, a
broadcast license also may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than
one-fourth of whose capital stock is owned or voted by aliens or their
representatives, by foreign governments or their representatives, or by non-U.S.
corporations. These restrictions apply in modified form to other forms of
business organizations, including partnerships. Each of Citadel Broadcasting and
Citadel Communications therefore may be restricted from having more than
one-fourth of its stock owned or voted by aliens, foreign governments or
non-U.S. corporations. The Certificate of Incorporation of Citadel Broadcasting
and the Certificate of Incorporation of Citadel Communications contain
provisions which permit Citadel Broadcasting and Citadel Communications to
prohibit alien ownership and control consistent with the prohibitions contained
in the Communications Act.
The Communications Act and FCC rules also generally restrict the common
ownership, operation or control of radio broadcast stations serving the same
local market, of a radio broadcast station and a television broadcast station
serving the same local market, and of a radio broadcast station and a daily
newspaper serving the same local market. Under these cross-ownership rules,
absent waivers, neither Citadel Broadcasting nor Citadel Communications would be
permitted to acquire any daily newspaper or television broadcast station (other
than low power television) in a local market where it then owned any radio
broadcast station. The FCC's rules provide for the liberal grant of a waiver of
the rule prohibiting common ownership of radio and television stations in the
same geographic market in the top 25 television markets if certain conditions
are satisfied. The Telecommunications Act extends this waiver policy to stations
in the top 50 television markets, although the FCC has not yet implemented this
change.
In response to the Telecommunications Act, the FCC amended its multiple
ownership rules to eliminate the national limits on ownership of AM and FM
stations. The FCC's broadcast multiple ownership rules restrict the number of
radio stations one person or entity may own, operate or control on a local
level. These limits are:
- In a market with 45 or more commercial radio stations, an entity may own
up to eight commercial radio stations, not more than five of which are in
the same service (FM or AM),
- In a market with more than 29 but less than 45 commercial radio stations,
an entity may own up to seven commercial radio stations, not more than
four of which are in the same service,
- In a market with more than 14 but less than 30 commercial radio stations,
an entity may own up to six commercial radio stations, not more than four
of which are in the same service, and
- In a market with 14 or fewer commercial radio stations, an entity may own
up to five commercial radio stations, not more than three of which are in
the same service, except that an entity may not own more than 50% of the
stations in such market.
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None of these multiple ownership rules requires any change in Citadel
Broadcasting's current ownership of radio broadcast stations. However, these
rules will limit the number of additional stations which Citadel Broadcasting
may acquire in the future in certain of its markets.
Because of these multiple and cross-ownership rules, a purchaser of voting
stock of either Citadel Broadcasting or Citadel Communications which acquires an
attributable interest in Citadel Broadcasting or Citadel Communications may
violate the FCC's rule if it also has an attributable interest in other
television or radio stations, or in daily newspapers, depending on the number
and location of those radio or television stations or daily newspapers. Such a
purchaser also may be restricted in the companies in which it may invest, to the
extent that these investments give rise to an attributable interest. If an
attributable shareholder of Citadel Broadcasting or Citadel Communications
violates any of these ownership rules, Citadel Broadcasting or Citadel
Communications may be unable to obtain from the FCC one or more authorizations
needed to conduct its radio station business and may be unable to obtain FCC
consents for particular future acquisitions.
The FCC generally applies its television/radio/newspaper cross-ownership
rules and its broadcast multiple ownership rules by considering the
"attributable," or cognizable, interests held by a person or entity. A person or
entity can have an interest in a radio station, television station or daily
newspaper by being an officer, director, partner or shareholder of a company
that owns that station or newspaper. Whether that interest is cognizable under
the FCC's ownership rules is determined by the FCC's attribution rules. If an
interest is attributable, the FCC treats the person or entity who holds that
interest as the owner of the radio station, television station or daily
newspaper in question, and therefore subject to the FCC's ownership rules.
With respect to a corporation, officers and directors and persons or
entities that directly or indirectly can vote 5% or more of the corporation's
stock, or 10% or more of the corporation's stock in the case of insurance
companies, investment companies, bank trust departments and certain other
passive investors that hold the stock for investment purposes only, generally
are attributed with ownership of whatever radio stations, television stations
and daily newspapers the corporation owns.
With respect to a partnership, the interest of a general partner is
attributable, as is the interest of any limited partner who is materially
involved in the media-related activities of the partnership. Debt instruments,
nonvoting stock, options and warrants for voting stock that have not yet been
exercised, limited partnership interests where the limited partner is not
materially involved in the media-related activities of the partnership, and
minority (under 5%) voting stock, generally do not subject their holders to
attribution. However, the FCC is currently reviewing its rules on attribution of
broadcast interests, and it may adopt stricter criteria. See the discussion
below under the caption "Proposed Changes."
In addition, the FCC has a cross-interest policy that under certain
circumstances could prohibit a person or entity with an attributable interest in
a broadcast station or daily newspaper from having a "meaningful"
nonattributable interest in another broadcast station or daily newspaper in the
same local market. Among other things, meaningful interests could include
significant equity interests, including non-voting stock, voting stock and
limited partnership interests, and significant employment positions. This policy
may limit the permissible investments a purchaser of Citadel Broadcasting's or
Citadel Communications' voting stock may make or hold.
The FCC has also been more aggressive in examining issues of market revenue
share concentration when considering radio station acquisitions. The FCC has
delayed its approval of several pending radio station purchases by various
parties because of market concentration concerns. Moreover, in recent months the
FCC has followed an informal policy of giving specific public notice of its
intention to conduct additional ownership concentration analyses and soliciting
public comment on the issue of concentration and its effect on competition and
diversity in connection with certain applications for consent to radio station
acquisitions. Citadel Broadcasting cannot determine at this time the impact that
this policy may have on its business and its operating and acquisition
strategies.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the public interest. Since 1981, the FCC gradually has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of types of programming responsive to the needs of a station's
community
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of license. However, licensees continue to be required to present programming
that is responsive to community problems, needs and interests and to maintain
records demonstrating such responsiveness. Complaints from listeners concerning
a station's programming will be considered by the FCC when it evaluates the
licensee's renewal application, but such complaints may be filed and considered
at any time.
Stations also must pay regulatory and application fees and follow various
FCC rules that regulate, among other things, political advertising, the
broadcast of obscene or indecent programming, sponsorship identification and
technical operations, including limits on radio frequency radiation. In
addition, licensees must develop and implement programs designed to promote
equal employment opportunities and must submit reports to the FCC on these
matters annually and in connection with a renewal application. The broadcast of
contests and lotteries also is regulated by FCC rules.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short (less than the maximum) renewal terms or, for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
In 1985, the FCC adopted rules regarding human exposures to levels of radio
frequency (RF) radiation. These rules require applicants for new broadcast
stations, renewals of broadcast licenses or modifications of existing licenses
to inform the FCC at the time of filing such applications whether a new or
existing broadcast facility would expose people to RF radiation in excess of FCC
guidelines. In August 1996, the FCC adopted more restrictive radiation limits.
These limits became effective on September 1, 1997 and govern applications filed
after that date. Citadel Broadcasting anticipates that such regulations will not
have a material effect on its business.
LOCAL MARKETING AGREEMENTS. Over the past five years, a number of radio
stations, including several of Citadel Broadcasting's stations, have entered
into what commonly are referred to as "local marketing agreements" or "time
brokerage agreements." These agreements take various forms. Separately-owned and
licensed stations may agree to function cooperatively in terms of programming,
advertising sales and other matters, subject to compliance with the antitrust
laws and the FCC's rules and policies, including the requirement that the
licensee of each station maintains independent control over the programming and
other operations of its own station. The FCC has held that such agreements do
not violate the Communications Act as long as the licensee of the station that
is being substantially programmed by another entity maintains complete
responsibility for, and control over, operations of its broadcast stations and
otherwise ensures compliance with applicable FCC rules and policies.
A station that brokers substantial time on another station in its market or
engages in a local marketing agreement with a station in the same market will be
considered to have an attributable ownership interest in the brokered station
for purposes of the FCC's ownership rules, discussed above. As a result, a
broadcast station may not enter into a local marketing agreement that allows it
to program more than 15% of the broadcast time, on a weekly basis, of another
local station that it could not own under the FCC's local multiple ownership
rules. FCC rules also prohibit the broadcast licensee from simulcasting more
than 25% of its programming on another station in the same broadcast service
(that is, AM-AM or FM-FM) where the two stations serve substantially the same
geographic area, whether the licensee owns the stations or owns one and programs
the other through a local marketing agreement arrangement.
Another example of a cooperative agreement between differently owned radio
stations in the same market is a joint sales agreement, whereby one station
sells advertising time in combination, both on itself and on a station under
separate ownership. In the past, the FCC has determined that issues of joint
advertising sales should be left to antitrust enforcement. Citadel Broadcasting
has entered into several joint sales agreements whereby it sells time on behalf
of other local stations. Currently, joint sales agreements are not deemed by the
FCC to be attributable. However, the FCC has outstanding a notice of proposed
rulemaking, which, if adopted, would require Citadel Broadcasting to terminate
any joint sales agreement it might have with a radio station with which Citadel
Broadcasting could not have a local marketing agreement. Currently, the only
Citadel Broadcasting groups that would be so affected are its groups in Spokane
and Colorado Springs. See the discussion above under the captions "The Pending
Transactions" and "Station Portfolio" and in Item 3, Legal Proceedings.
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PROPOSED CHANGES. In December, 1994, the FCC initiated a proceeding to
solicit comment on whether it should revise its radio and television ownership
"attribution" rules by, among other proposals:
- raising the basic benchmark for attributing ownership in a corporate
licensee from 5% to 10% of the licensee's voting stock,
- increasing from 10% to 20% of the licensee's voting stock the attribution
benchmark for passive investors in corporate licensees,
- restricting the availability of the attribution exemption when a single
party controls more than 50% of the voting stock, and
- considering local marketing agreements, joint sales agreements, debt and
non-voting stock interests to be attributable under certain
circumstances.
No decision has been made by the FCC in these matters. At this time, no
determination can be made as to what effect, if any, this proposed rulemaking
will have on Citadel Broadcasting. However, if the FCC changes its rules so that
certain cross-interests arising from non-voting stock ownership would be counted
as attributable ownership interests, the interests of ABRY Broadcast Partners
II, L.P., a significant stockholder of Citadel Communications, could be
attributed to Citadel Broadcasting. This attribution could preclude Citadel
Broadcasting from acquiring stations in markets where ABRY Broadcast Partners
II, L.P. already has attributable broadcast interests.
Congress and the FCC from time to time have under consideration, and may in
the future consider and adopt, new laws, regulations and policies regarding a
wide variety of matters that could, directly or indirectly, affect the
operation, ownership and profitability of Citadel Broadcasting's radio stations,
result in the loss of audience share and advertising revenue for Citadel
Broadcasting's radio stations, and affect the ability of Citadel Broadcasting to
acquire additional radio stations or finance such acquisitions. Such matters
include:
- proposals to impose spectrum use or other fees on FCC licensees, the
FCC's equal employment opportunity rules and matters relating to
political broadcasting,
- technical and frequency allocation matters,
- proposals to restrict or prohibit the advertising of beer, wine and other
alcoholic beverages on radio
- changes in the FCC's cross-interest, multiple ownership and
cross-ownership policies,
- changes to broadcast technical requirements,
- proposals to allow telephone or cable television companies to deliver
audio and video programming to the home through existing phone or other
communication lines,
- proposals to limit the tax deductibility of advertising expenses by
advertisers, and
- proposals to auction the right to use the radio broadcast spectrum to the
highest bidder, instead of granting FCC licenses and subsequent license
renewals without such bidding.
The FCC, on April 2, 1997, awarded two licenses for the provision of
satellite digital audio radio services. Under rules adopted for this service,
licensees must begin construction of their space stations within one year, begin
operating within four years, and be operating their entire system within six
years. Citadel Broadcasting cannot predict whether the service will be
subscription or advertiser supported. Digital technology also may be used in the
future by terrestrial radio broadcast stations either on existing or alternate
broadcasting frequencies, and the FCC has stated that it will consider making
changes to its rules to permit AM and FM radio stations to offer digital sound
following industry analysis of technical standards. In addition, the FCC has
authorized an additional 100 kHz of bandwidth for the AM band and on March 17,
1997, adopted an allotment plan for the expanded band which identified the 88 AM
radio stations selected to move into the band. At the end of a five-year
transition period, those licensees will be required to return to the FCC either
the license for their existing AM band station or the license for the expanded
AM band station.
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Citadel Broadcasting cannot predict whether any proposed changes will be
adopted or what other matters might be considered in the future, nor can it
judge in advance what impact, if any, the implementation of any of these
proposals or changes might have on its business.
The foregoing is a brief summary of certain provisions of the
Communications Act and of specific FCC rules and policies. This description does
not purport to be comprehensive and reference should be made to the
Communications Act, the FCC's rules and the public notices and rulings of the
FCC for further information concerning the nature and extent of federal
regulation of radio broadcast stations.
FEDERAL ANTITRUST CONSIDERATIONS. Citadel Broadcasting is aware that the
Federal Trade Commission and the United States Department of Justice, which
evaluate transactions to determine whether those transactions should be
challenged under the federal antitrust laws, have been increasingly active
recently in their review of radio station acquisitions, particularly where an
operator proposes to acquire additional stations in its existing markets.
For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino
Act and the rules promulgated thereunder require the parties to file
Notification and Report Forms with the Federal Trade Commission and the
Department of Justice and to observe specified waiting period requirements
before consummating the acquisition. During the initial 30-day period after the
filing, the agencies decide which of them will investigate the transaction. If
the investigating agency determines that the transaction does not raise
significant antitrust issues, then it will either terminate the waiting period
or allow it to expire after the initial 30 days. On the other hand, if the
agency determines that the transaction requires a more detailed investigation,
then, at the conclusion of the initial 30-day period, it will issue a formal
request for additional information. The issuance of a formal request extends the
waiting period until the twentieth calendar day after the date of substantial
compliance by all parties to the acquisition. Thereafter, such waiting period
may only be extended by court order or with the consent of the parties. In
practice, complying with a formal request can take a significant amount of time.
In addition, if the investigating agency raises substantive issues in connection
with a proposed transaction, then the parties frequently engage in lengthy
discussions or negotiations with the investigating agency concerning possible
means of addressing those issues, including but not limited to persuading the
agency that the proposed acquisition would not violate the antitrust laws,
restructuring the proposed acquisition, divestiture of other assets of one or
more parties, or abandonment of the transaction. Such discussions and
negotiations can be time consuming, and the parties may agree to delay
completion of the acquisition during their pendency.
At any time before or after the completion of a proposed acquisition, the
Federal Trade Commission or the Department of Justice could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition or seeking divestiture of
the business acquired or other assets of Citadel Broadcasting. Acquisitions that
are not required to be reported under the Hart-Scott-Rodino Act may be
investigated by the Federal Trade Commission or the Department of Justice under
the antitrust laws before or after completion. In addition, private parties may
under certain circumstances bring legal action to challenge an acquisition under
the antitrust laws.
Citadel Broadcasting has received early termination of the applicable
waiting period under the Hart-Scott-Rodino Act in regard to the pending
acquisition of stations in Charleston, South Carolina, Binghamton, New York and
Muncie and Kokomo, Indiana and is awaiting termination of the applicable waiting
period in regard to its sale of stations in Eugene and Medford, Oregon,
Tri-Cities, Washington, Billings, Montana and Johnstown and State College,
Pennsylvania. On March 5, 1999, Citadel Communications received a request for
additional information and documents from the Department of Justice relating,
Citadel Broadcasting believes, to stations in Billings. As discussed above, this
request extends the waiting period under the Hart-Scott-Rodino Act for a period
of 20 days after receipt by the Department of Justice of the information and
documents requested from all parties from whom information and documents had
been requested. No other pending transaction is subject to the Hart-Scott-Rodino
Act. See discussion above under the caption "The Pending Transactions".
As part of its increased scrutiny of radio station acquisitions, the
Department of Justice has stated publicly that it believes that commencement of
operations under local marketing agreements, joint sales
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agreements and other similar agreements customarily entered into in connection
with radio station transfers prior to the expiration of the waiting period under
the Hart-Scott-Rodino Act could violate the Hart-Scott-Rodino Act. In connection
with acquisitions subject to the waiting period under the Hart-Scott-Rodino Act,
Citadel Broadcasting will not commence operation of any affected station to be
acquired under a local marketing agreement or similar agreement until the
waiting period has expired or been terminated.
Citadel Broadcasting has received civil investigative demands from the
Antitrust Division of the Department of Justice. One demand addresses Citadel
Broadcasting's acquisition of KRST-FM in Albuquerque, New Mexico, and the second
investigation addresses Citadel Broadcasting's joint sales agreement relating to
stations in Spokane, Washington and Colorado Springs, Colorado. See Item 3,
Legal Proceedings.
SEASONALITY
Seasonal revenue fluctuations are common in the radio broadcasting industry
and are primarily the result of fluctuations in advertising expenditures by
retailers. Citadel Broadcasting's revenue is typically lowest in the first
quarter and highest in the second and fourth quarters. See the discussion in
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operation, under the caption "General."
TRADEMARKS
Citadel Broadcasting owns a number of trademarks and service marks,
including the federally registered marks Cat Country, Supertalk and the Cat
Country logo. Citadel Broadcasting also owns a number of marks registered in
various states. Citadel Broadcasting considers such trademarks and service marks
to be important to its business. See the discussion above under the caption
"Operating Strategy" and the subcaption "Targeted Programming."
ON-LINE SERVICES
Citadel Broadcasting also provides on-line services to the subscribers of
its internet service provider, including electronic mail and access to the
internet. Citadel Broadcasting began providing these services in late 1997.
Although this line of business has grown since late 1997, radio broadcasting
remains Citadel Broadcasting's dominant business. In 1997 and 1998, on-line
services accounted for less than 2% of Citadel Broadcasting's net broadcasting
revenue in each of those years.
EMPLOYEES
At March 1, 1999, Citadel Broadcasting employed 1,566 persons. None of
these employees are covered by collective bargaining agreements, and Citadel
Broadcasting considers its relations with its employees to be good.
Citadel Broadcasting employs several on-air personalities with large loyal
audiences in their respective markets. Citadel Broadcasting generally enters
into employment agreements with these personalities to protect its interests in
those relationships that it believes to be valuable. The loss of one of these
personalities could result in a short-term loss of audience share, but Citadel
Broadcasting does not believe that any such loss would have a material adverse
effect on Citadel Broadcasting's financial condition or results of operations.
CERTAIN INVESTMENT CONSIDERATIONS
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT. Citadel Broadcasting is
highly leveraged. At December 31, 1998, Citadel Broadcasting had outstanding
total debt of approximately $217.3 million, excluding the discount on its
10 1/4% Senior Subordinated Notes due 2007 and its 9 1/4% Senior Subordinated
Notes due 2008. At December 31, 1998 the Citadel Broadcasting 13 1/4%
Exchangeable Preferred Stock had an aggregate liquidation preference of $121.1
million. At December 31, 1998 Citadel Broadcasting had
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shareholder's equity of approximately $104.0 million. Citadel Broadcasting's
high degree of leverage will have important consequences, including the
following:
- A substantial portion of the cash flow of Citadel Broadcasting will be
used to pay interest expense, which will reduce the funds which would
otherwise be available to fund operations and future business
opportunities,
- The ability of Citadel Broadcasting to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes, if needed, may be impaired,
- Citadel Broadcasting may be more highly leveraged than its competitors
which may place it at a competitive disadvantage,
- Citadel Broadcasting's high degree of leverage will make it more
vulnerable to a downturn in its business or in the economy in general,
and
- Certain of Citadel Broadcasting's borrowings will be at variable rates of
interest (including the borrowings under its credit facility) which will
expose Citadel Broadcasting to the risks associated with fluctuating
interest rates.
Citadel Broadcasting's ability to satisfy its debt obligations and to pay
cash dividends on, and to satisfy the redemption obligations in respect of, the
exchangeable preferred stock, will depend upon its future financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and financial, business and other factors, certain of which are
beyond its control. If Citadel Broadcasting's cash flow and capital resources
are insufficient to fund its debt service obligations, Citadel Broadcasting may
be forced to reduce or delay planned acquisitions and capital expenditures, sell
assets, obtain additional equity capital or restructure its debt. There can be
no assurance that Citadel Broadcasting's cash flow and capital resources will be
sufficient for payment of its debt service and other obligations in the future,
and there can be no assurance that Citadel Broadcasting would be able to obtain
sufficient funding to satisfy its debt service and other obligations.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS. The covenants in Citadel
Broadcasting's credit facility and in the agreements governing other outstanding
debt and its exchangeable preferred stock restrict, among other things, Citadel
Broadcasting's ability to incur additional debt, incur liens on non-senior debt,
pay dividends or make certain other restricted payments, purchase its capital
stock, 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. In addition, Citadel Broadcasting's credit facility contains limits on
future acquisitions and capital expenditures without lender consent. This may
adversely affect Citadel Broadcasting's ability to pursue its acquisition
strategy. Citadel Broadcasting's credit facility also requires Citadel
Broadcasting to maintain specific financial ratios and to satisfy certain
financial condition tests. The ability of Citadel Broadcasting to meet those
financial ratios and financial conditions can be affected by events beyond its
control, and there can be no assurance that those tests will be met. A breach of
any of these covenants could result in a default under the credit facility
and/or the agreements governing Citadel Broadcasting's other outstanding debt
and its exchangeable preferred stock. In the event of a default under Citadel
Broadcasting's credit facility, the lenders thereunder could elect to declare
all amounts outstanding thereunder, together with accrued interest, to be
immediately due and payable. If Citadel Broadcasting were unable to repay those
amounts, the lenders under the credit facility could proceed against the
collateral granted to them to secure that indebtedness. If the maturity of
borrowings under the credit facility were to be accelerated, there can be no
assurance that the assets of Citadel Broadcasting would be sufficient to repay
in full indebtedness under the credit facility and other indebtedness of Citadel
Broadcasting. Substantially all of the assets of Citadel Broadcasting are
pledged as collateral under the credit facility. All of the outstanding common
stock of Citadel Broadcasting is pledged to secure Citadel Communications'
obligations under its guaranty of Citadel Broadcasting's credit facility.
HISTORY OF NET LOSSES. Citadel Broadcasting had a net loss of $3.9 million
and $4.7 million for the years ended December 31, 1998 and December 31, 1997,
respectively. The primary reason for these losses are
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significant charges for depreciation and amortization relating to the
acquisition of radio stations and interest charges on outstanding debt. If
Citadel Broadcasting continues to acquire additional stations, these charges
will probably increase. Citadel Broadcasting expects to continue to experience
net losses through at least 1999.
LIMITATIONS ON ACQUISITION STRATEGY. Although Citadel Broadcasting
believes that its acquisition strategies are reasonable, there can be no
assurance that it will be able to implement its plans without delay or that,
when implemented, its efforts will result in the increased broadcast cash flow
or other benefits currently anticipated by Citadel Broadcasting's management. In
addition, there can be no assurance that Citadel Broadcasting will not encounter
unanticipated problems or liabilities in connection with acquired stations. The
consummation of each of the pending transactions is subject to certain
conditions, including the approval of the FCC. Although Citadel Broadcasting
believes these closing conditions will be satisfied in each case, there can be
no assurance thereof. See Item 1, Business, under the caption "Pending
Transactions".
Citadel Broadcasting's acquisition strategy involves numerous other risks,
including:
- difficulties in the integration of operations and systems and the
management of a large and geographically diverse group of stations,
- the diversion of management's attention from other business concerns, and
- the potential loss of key employees of acquired stations.
There can be no assurance that Citadel Broadcasting's management will be
able to manage effectively the resulting business or that such acquisitions will
benefit Citadel Broadcasting. Depending upon the nature, size and timing of
future acquisitions, Citadel Broadcasting may be required to raise additional
financing. There can be no assurance that Citadel Broadcasting's credit
facility, the agreements governing Citadel Broadcasting's other outstanding debt
and its exchangeable preferred stock or any other loan agreements to which
Citadel Broadcasting may become a party or subject to will permit such
additional financing or that such additional financing will be available to
Citadel Broadcasting or Citadel Communications on terms acceptable to its
management or at all.
Citadel Broadcasting competes and expects to continue to compete with many
other buyers for the acquisition of radio stations. Many of those competitors
have greater financial and other resources than those of Citadel Broadcasting.
In addition, Citadel Broadcasting may find fewer acceptable acquisition
opportunities in the future.
Additional limitations on Citadel Broadcasting's acquisition strategy are
discussed above under the caption "Federal Regulation of Radio Broadcasting."
IMPORTANCE OF CERTAIN MARKETS. The Albuquerque, Salt Lake City, Modesto
and Providence markets are particularly important for Citadel Broadcasting's
financial well-being. A significant decline in net broadcasting revenue from its
stations in these markets, as a result of a ratings decline or otherwise, could
have a material adverse effect on its operations and financial condition. To
illustrate, Citadel Broadcasting's radio stations in these markets generated the
following percentages of Citadel Broadcasting's total net broadcasting revenue
and broadcast cash flow in 1998:
<TABLE>
<CAPTION>
MARKET % OF NET BROADCASTING REVENUE % OF BROADCAST CASH FLOW
------ ----------------------------- ------------------------
<S> <C> <C>
Albuquerque................... 15.1% 18.3%
Providence.................... 11.6% 15.2%
Salt Lake City................ 11.3% 11.6%
Modesto....................... 7.0% 10.5%
</TABLE>
IMPACT OF THE YEAR 2000 PROBLEM. Citadel Broadcasting is in the process of
assessing and remediating potential risks to its business related to the Year
2000 problem. Although Citadel Broadcasting believes that, as a result of these
efforts, its critical systems are or will be substantially Year 2000 ready,
there can be no assurance that this will be the case. If Citadel Broadcasting
experiences significant problems as a result of the
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Year 2000 problem, its operations, revenue, cash flow and other important
aspects of its business and financial well-being may be adversely affected.
Citadel Broadcasting believes that its greatest potential Year 2000 risk is
that third parties with whom it deals will fail to be Year 2000 ready. For
example, Citadel Broadcasting's operations and revenue may be adversely affected
if its programming suppliers or key advertisers experience significant
disruptions in their businesses because of the Year 2000 problem.
For more information concerning the Year 2000 problem and its potential
impact on Citadel Broadcasting's business, see Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, under the caption
"Liquidity and Capital Resources."
ITEM 2. PROPERTIES
The types of properties required to support each of Citadel Broadcasting's
radio stations include offices, studios, transmitter sites and antenna sites. A
station's studios are generally housed with its offices in business districts.
The transmitter sites and antenna sites are generally located so as to provide
maximum market coverage.
Citadel Broadcasting currently owns studio facilities in Spokane,
Washington; Billings, Montana; Tri-Cities, Washington; East Providence, Rhode
Island; Little Rock, Arkansas; Boise, Idaho; Patton Township (State College),
Lower Yoder Township (Johnstown), South Middleton Township (Carlisle), Williams
Township (Allentown) and Tunkhannock (Wilkes-Barre/Scranton), Pennsylvania;
Carrollton Township (Saginaw), Michigan; and St. Landry Parish (Lafayette),
Louisiana. Citadel Broadcasting owns transmitter and antenna sites in Reno,
Nevada; Salt Lake City, Utah; Spokane and Tri-Cities, Washington; Tracy
(Modesto), California; Billings, Montana; Santa Fe and Albuquerque, New Mexico;
Medford, Oregon; East Providence and Johnston, Rhode Island; Little Rock,
Arkansas; Patton Township (State College), Croyle Township (Johnstown), Mt. Joy
Township (Harrisburg/York), Middlesex Township (Carlisle), Williams Township and
Salisbury Township (Allentown), and Hanover Township, Plymouth Township,
Carbondale and Tunkhannock (Wilkes-Barre/Scranton), Pennsylvania; Carrollton
Township and Blumfield Township (Saginaw) and Mt. Forest Township (Bay City),
Michigan; and East Feliciana Parish and Livingston Parish (Baton Rouge) and St.
Landry Parish (Lafayette), Louisiana. Citadel Broadcasting expects to acquire
additional real estate and to dispose of certain real estate in connection with
the pending transactions. Citadel Broadcasting leases its remaining studio and
office facilities, including office space in Las Vegas, Nevada which is not
related to the operations of a particular station, and it leases its remaining
transmitter and antenna sites. Citadel Broadcasting does not anticipate any
difficulties in renewing any facility leases or in leasing alternative or
additional space, if required. Citadel Broadcasting owns substantially all of
its other equipment, consisting principally of transmitting antennae,
transmitters, studio equipment and general office equipment.
No one property is material to Citadel Broadcasting's operations. Citadel
Broadcasting believes that its properties are generally in good condition and
suitable for its operations; however, Citadel Broadcasting continually looks for
opportunities to upgrade its properties and intends to upgrade studios, office
space and transmission facilities in several markets.
Substantially all of Citadel Broadcasting's properties and equipment serve
as collateral for Citadel Broadcasting's obligations under its credit facility.
See Item 1, Business, under the caption "Certain Investment Considerations," and
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations, under the caption "Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS
Citadel Broadcasting currently and from time to time is involved in
litigation incidental to the conduct of its business, but it is not a party to
any lawsuit or proceeding which, in the opinion of Citadel Broadcasting, is
likely to have a material adverse effect on Citadel Broadcasting.
Citadel Broadcasting received civil investigative demands from the
Department of Justice pursuant to which the Department of Justice requested
information from Citadel Broadcasting to determine whether
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Citadel Broadcasting violated particular antitrust laws. The first investigative
demand was issued on September 27, 1996 and concerns Citadel Broadcasting's
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. Citadel Broadcasting responded
to the demand. The Department of Justice requested supplemental information on
January 27, 1997, to which Citadel Broadcasting also responded. There have been
no communications since that time and, at present, Citadel Broadcasting has
received no indication from the Department of Justice regarding its intended
future actions. If the Department of Justice were to proceed with and
successfully challenge the KRST acquisition, Citadel Broadcasting may be
required to divest one or more radio stations in Albuquerque.
The second investigation was initiated on October 9, 1996 and concerned
Citadel Broadcasting's joint sales agreement 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 Department of
Justice requested information to determine whether the joint sales agreement
constituted a de facto merger, resulting in a combination or contract in
restraint of trade. Citadel Broadcasting provided the requested information and
met with the Department of Justice concerning this matter. If the Department of
Justice were to proceed with and successfully challenge the joint sales
agreement, Citadel Broadcasting may be required to terminate the joint sales
agreement. At this time, Citadel Broadcasting cannot predict the impact on
Citadel Broadcasting, if any, of these proceedings or any future Department of
Justice demands.
However, Citadel Broadcasting entered into two asset purchase agreements
with Capstar Acquisition Company, Inc. on February 24, 1999 regarding the
exchange of certain radio stations in Colorado Springs and the purchase by
Citadel Broadcasting of other stations in Spokane and Colorado Springs. If
completed, the transactions would result in the termination of the
Spokane/Colorado Springs joint sales agreement. There can be no assurance,
however, that the transactions will be completed. See Item 1, Business, under
the caption "The Pending Transactions."
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The only authorized common equity of Citadel Broadcasting is its common
stock, par value $.001 per share. There is no established public trading market
for Citadel Broadcasting's common stock. All shares of such common stock which
are currently issued and outstanding are owned by Citadel Communications
Corporation, Citadel Broadcasting's parent.
Citadel Broadcasting has never paid any cash dividends on its common stock.
Citadel Broadcasting's credit facility prohibits the payment of cash dividends
on the common stock. The indenture governing the 10-1/4% Senior Subordinated
Notes due 2007, the indenture governing the 9-1/4% Senior Subordinated Notes due
2008, the Certificate of Designation governing the 13-1/4 % Exchangeable
Preferred Stock and the indenture governing the 13-1/4% Exchange Debentures, if
and when issued, each contain certain covenants that restrict Citadel
Broadcasting from taking various actions, including, subject to specified
exceptions, the payment of cash dividends on its common stock. The credit
facility restricts the ability of Citadel Broadcasting's wholly-owned
subsidiary, Citadel License, Inc., to pay cash dividends or make other
distributions in respect of its capital stock owned by Citadel Broadcasting.
Citadel Broadcasting is not dependent in any material respect on the receipt of
dividends or other payments from Citadel License.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated historical financial data presented below as of
and for each of the years ended December 31, 1994, 1995, 1996, 1997 and 1998 are
derived from the consolidated financial statements of Citadel Broadcasting.
These consolidated financial statements have been audited by KPMG LLP,
independent certified public accountants. The consolidated financial statements
of Citadel Broadcasting as of December 31, 1997 and 1998 and for each of the
years in the three-year period ended December 31, 1998 and the independent
auditors' report on those consolidated financial statements, are included
elsewhere in this report. The financial results of Citadel Broadcasting are not
comparable from year to year because of the acquisition and disposition of
various radio stations by Citadel Broadcasting. As you review the information
contained in the following table, you should note the following:
- Interest Expense. Interest expense includes debt issuance costs and debt
discount amortization of approximately $287,000, $132,000, $163,000,
$441,000 and $717,000 for the years ended December 31, 1994, 1995, 1996,
1997 and 1998, respectively.
- Extraordinary Loss. On October 9, 1996, Citadel Broadcasting repaid its
long-term debt of $31.3 million, payable to a financial institution, and
a note payable to a related party of $7.0 million. The early retirement
of the long-term debt resulted in a $1.8 million extraordinary loss due
to prepayment premiums and the write-off of debt issuance costs.
- Cash Dividends. Citadel Broadcasting has never declared cash dividends on
its common stock.
- Net Loss Per Common Share. Basic and diluted net loss per common share
are the same for all periods presented due to Citadel Broadcasting's net
losses.
- Other income, net. Other income includes gain/(loss) on sales of radio
stations and property and equipment of approximately $620,068, $707,286,
$(1,749), $0 and $1,044,880 for the years ended December 31, 1994, 1995,
1996, 1997 and 1998 respectively.
The selected consolidated historical financial data below should be read in
conjunction with, and is qualified by reference to, Citadel Broadcasting's
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this report.
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net broadcasting revenue............... $32,998 $34,112 $45,413 $ 89,803 $135,426
Station operating expenses............. 24,331 26,832 33,232 65,245 93,485
Depreciation and amortization.......... 7,435 4,891 5,158 14,636 26,414
Corporate general and administrative... 2,504 2,274 3,248 3,530 4,369
------- ------- ------- -------- --------
Operating income (loss)................ (1,272) 115 3,775 6,392 11,158
Interest expense....................... 4,866 5,242 6,155 12,304 18,126
Other income, net...................... 657 781 414 451 1,651
------- ------- ------- -------- --------
Loss before income taxes and
extraordinary item................... (5,481) (4,346) (1,966) (5,461) (5,317)
Income tax benefit..................... -- -- -- (770) (1,386)
------- ------- ------- -------- --------
Loss before extraordinary item......... (5,481) (4,346) (1,966) (4,691) (3,931)
Extraordinary loss..................... -- -- (1,769) -- --
------- ------- ------- -------- --------
Net loss............................... $(5,481) $(4,346) $(3,735) $ (4,691) $ (3,931)
Dividend requirement for exchangeable
preferred stock...................... -- -- -- 6,633 14,586
------- ------- ------- -------- --------
Net loss applicable to common shares... $(5,481) $(4,346) $(3,735) $(11,324) $(18,517)
======= ======= ======= ======== ========
Net loss per common share.............. $ (137) $ (109) $ (93) $ (283) $ (463)
Shares used in per share calculation... 40,000 40,000 40,000 40,000 40,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 1,538 $ 1,005 $ 1,588 $ 7,685 $102,842
Working capital (deficiency).......... 3,382 2,928 (4,195) 22,593 149,601
Intangible assets, net................ 20,080 15,093 51,802 268,690 268,790
Total assets.......................... 46,397 37,372 102,244 344,172 472,261
Long-term debt (including current
portion)............................ 47,805 43,046 91,072 189,699 211,419
Exchangeable preferred stock.......... -- -- -- 102,010 116,775
Shareholder's equity (deficit)........ (4,782) (9,249) 5,999 16,132 103,963
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the information contained in Item 6, Selected Financial Data, and Citadel
Broadcasting Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this report. Except for the historical information
contained in this report, the discussions in this report contain forward-looking
statements that involve risks and uncertainties. Citadel Broadcasting's actual
results could differ materially from those discussed in this report. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed under the caption "Forward-Looking Information" at the
beginning of this report and in Item 1, Business, under the caption "Certain
Investment Considerations," as well as those discussed elsewhere in this report.
Citadel Broadcasting undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements to reflect any future events
or circumstances.
General economic conditions have an impact on Citadel Broadcasting's
business and financial results. From time to time the markets in which Citadel
Broadcasting operates experience weak economic conditions
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that may negatively affect the revenue of Citadel Broadcasting. However,
management believes that this impact is somewhat mitigated by Citadel
Broadcasting's diverse geographical presence. In addition, Citadel
Broadcasting'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 Citadel Broadcasting'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 Citadel
Broadcasting 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 Citadel Broadcasting's revenue is the sale of
broadcasting time on its radio stations for advertising. As a result, Citadel
Broadcasting'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 Citadel Broadcasting'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
Citadel Broadcasting's selling activity is based on demand for its radio
stations' on-air inventory and, in general, Citadel Broadcasting 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. In order to
preserve most of its on-air inventory for cash advertising, Citadel Broadcasting
generally enters into trade agreements only if the goods or services bartered to
it will be used in its business. Citadel Broadcasting has minimized its use of
trade agreements and has generally sold over 90% of its advertising time for
cash. In addition, it is Citadel Broadcasting's general policy not to preempt
advertising spots paid for in cash with advertising spots paid for in trade.
Citadel Broadcasting's revenue varies throughout the year. As is typical in
the radio broadcasting industry, Citadel Broadcasting'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. Citadel Broadcasting strives to
control these expenses by working closely with local station management. Citadel
Broadcasting also incurs and will continue to incur significant depreciation,
amortization and interest expense as a result of completed and future
acquisitions of stations and existing and future borrowings.
Citadel Broadcasting also provides on-line services, offering its
subscribers a variety of services, including electronic mail and access to the
internet. For the year ended December 31, 1998, Citadel Broadcasting's internet
service provider recorded gross revenue, operating income and net income of $2.1
million, $0.5 million
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and $0.1 million, respectively. The revenue generated from the internet service
provider has been included in broadcasting revenue as the amounts are not
considered material to understanding the changes in the results of operations
for the year ended December 31, 1998 as compared to prior years.
In 1998, Citadel Broadcasting's radio stations derived approximately 83.0%
of their net broadcasting revenue from local and regional advertising in the
markets in which they operate, and the remainder resulted principally from the
sale of national advertising. Local and regional advertising is sold primarily
by each station's sales staff. To generate national advertising sales, Citadel
Broadcasting engages a national advertising representative firm. Citadel
Broadcasting believes that the volume of national advertising revenue tends to
adjust to shifts in a station's audience share position more rapidly than does
the volume of local and regional advertising revenue. Therefore, Citadel
Broadcasting focuses on sales of local and regional advertising. During the year
ended December 31, 1998, no single advertiser accounted for more than 10% of net
broadcasting revenue of Citadel Broadcasting.
The advertising revenue of Citadel Broadcasting is typically collected
within 120 days of the date on which the related advertisement is aired. Most
accrued expenses, however, are paid within 45 to 60 days. As a result of this
time lag, working capital requirements have increased as Citadel Broadcasting
has grown and will likely increase in the future.
Historically, Citadel Broadcasting has generated net losses primarily as a
result of significant charges for depreciation and amortization relating to the
acquisition of radio stations and interest charges on outstanding debt. Citadel
Broadcasting amortizes FCC licenses and goodwill attributable to the acquisition
of radio stations over a 15-year period. Based upon the large number of
acquisitions that were consummated within the last two years, Citadel
Broadcasting anticipates that depreciation and amortization charges will
continue to be significant for several years. To the extent that Citadel
Broadcasting completes additional acquisitions, its depreciation and
amortization charges are likely to increase. Citadel Broadcasting expects that
it will continue to incur net losses through at least 1999.
Citadel Broadcasting consolidates the operations of stations operated under
local marketing agreements. The Emerging Issues Task Force, a division of the
Financial Accounting Standards Board, is reviewing the accounting method for
contractual management arrangements and may determine that consolidation is
appropriate only if certain requirements for controlling financial interest are
met. Because the provisions of Citadel Broadcasting's existing local marketing
agreements do not meet the proposed control requirements, if the Emerging Issues
Task Force proposal is approved as drafted, consolidation of stations operated
under local marketing agreements may no longer be appropriate.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Net Broadcasting Revenue. Net broadcasting revenue increased $45.6 million
or 50.8% to $135.4 million for the year ended December 31, 1998 from $89.8
million for the year ended December 31, 1997. The inclusion of revenue from the
acquisitions of radio stations and revenue generated from local marketing
agreements entered into during 1998 provided $6.3 million of the increase. For
stations owned and operated over the comparable period in 1998 and 1997, net
broadcasting revenue improved $39.3 million or 64.3% to $100.4 million in 1998
from $61.1 million in 1997, primarily due to increased ratings and improved
selling efforts.
Station Operating Expenses. Station operating expenses increased $28.3
million or 43.4% to $93.5 million for the year ended December 31, 1998 from
$65.2 million for the year ended December 31, 1997. The increase was primarily
attributable to the inclusion of station operating expenses of the radio station
acquisitions and the local marketing agreements entered into during 1998.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $17.3 million or 70.3% to $41.9 million for the year ended
December 31, 1998 from $24.6 million for the year ended December 31, 1997. As a
percentage of net broadcasting revenue, broadcast cash flow improved to 30.9%
for the year ended December 31, 1998 compared to 27.4% for the year ended
December 31, 1997.
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<PAGE> 40
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $0.9 million or 25.7% to $4.4 million for the
year ended December 31, 1998 from $3.5 million for the year ended December 31,
1997. The increase was due primarily to an increase in staffing levels needed to
support Citadel Broadcasting's growth.
EBITDA. As a result of the factors described above, EBITDA increased $16.4
million or 77.7% to $37.5 million for the year ended December 31, 1998 from
$21.1 million for the year ended December 31, 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased $11.8 million or 80.8% to $26.4 million for the year ended December
31, 1998 from $14.6 million for the year ended December 31, 1997, primarily due
to radio station acquisitions completed during 1998 and late 1997.
Interest Expense. Interest expense increased approximately $5.8 million or
47.2% to $18.1 million for the year ended December 31, 1998 from $12.3 million
for the year ended December 31, 1997, primarily due to interest expense
associated with additional borrowings completed in 1998 and 1997, offset by a
repayment of the borrowings in the third quarter of 1998 from the net proceeds
of Citadel Communications' initial public offering of its common stock in July
1998.
Loss (Gain) on Sale of Assets. The gain on sale of assets in 1998 resulted
primarily from the gain on the sale of four radio stations in Quincy, Illinois
aggregating approximately $1.3 million, offset by certain other dispositions of
assets resulting in losses.
Income Tax Benefit. The income tax benefit in 1998 and 1997 represents the
reversal of deferred tax liabilities established at the date of acquisition due
to differences in the tax bases and the financial statement carrying amounts of
intangibles and fixed assets acquired in stock-based acquisitions, offset by
federal alternative minimum tax and state tax expense in 1998. For the year
ended December 31, 1997, Citadel Broadcasting generated a net loss for both
financial reporting and income tax purposes; therefore no current tax provision
was recorded.
Net Loss. As a result of the factors described above, net loss decreased
$0.8 million or 17.0% to $3.9 million for the year ended December 31, 1998 from
$4.7 million for the year ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Broadcasting Revenue. Net broadcasting revenue increased $44.4 million
or 97.8% to $89.8 million for the year ended December 31, 1997 from $45.4
million for the year ended December 31, 1996. The inclusion of net revenue from
the acquisitions of radio stations and net revenue generated from local
marketing agreements and joint sales agreements entered into during 1997
provided $41.8 million of the increase. For stations owned and operated over the
comparable period in 1997 and 1996, net broadcasting revenue improved
approximately $2.5 million or 6.7% to $40.7 million in 1997 from $38.2 million
in 1996 primarily due to increased ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased $32.0
million or 96.4% to $65.2 million for the year ended December 31, 1997 from
$33.2 million for the year ended December 31, 1996. The increase was primarily
attributable to the inclusion of station operating expenses of the radio station
acquisitions and the local marketing agreements and joint sales agreements
entered into during 1997.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $12.4 million or 101.6% to $24.6 million for the year ended
December 31, 1997 from $12.2 million for the year ended December 31, 1996. As a
percentage of net broadcasting revenue, broadcast cash flow increased to 27.4%
for the year ended December 31, 1997 from 26.9% for the year ended December 31,
1996.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $0.3 million or 9.4% to $3.5 million for the
year ended December 31, 1997 from $3.2 million for the year ended December 31,
1996. The increase is due primarily to an increase in staffing levels required
to support Citadel Broadcasting's growth through acquisitions.
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EBITDA. As a result of the factors described above, EBITDA increased $12.1
million or 134.4% to $21.1 million for the year ended December 31, 1997 from
$9.0 million for the year ended December 31, 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased $9.4 million or 180.8% to $14.6 million for the year ended December
31, 1997 from $5.2 million for the year ended December 31, 1996, primarily due
to radio station acquisitions completed during 1997.
Interest Expense. Interest expense increased $6.1 million or 98.4% to
$12.3 million for the year ended December 31, 1997 from $6.2 million for the
year ended December 31, 1996, primarily due to interest expense associated with
additional borrowings to fund acquisitions completed during 1997.
Income Tax Benefit. The income tax benefit for the year ended December 31,
1997 represents the reversal of deferred tax liabilities established at the date
of acquisition due to differences in the tax bases and the financial statement
carrying amounts of intangibles and fixed assets acquired in stock-based
acquisitions. For the years ended December 31, 1997 and 1996, Citadel
Broadcasting generated a net loss for both financial reporting and income tax
purposes; therefore, no current tax provision was recorded.
Net Loss. As a result of the factors described above, net loss increased
$1.0 million or 27.0% to $4.7 million for the year ended December 31, 1997 from
$3.7 million for the year ended December 31, 1996. Included in the net loss for
1996 is $0.4 million of interest earned on loans advanced by Citadel
Broadcasting to Deschutes River Broadcasting, Inc. prior to the acquisition of
Deschutes by Citadel Broadcasting and a $1.8 million extraordinary loss related
to the repayment of long-term debt.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Broadcasting Revenue. Net broadcasting revenue increased $11.3 million
or 33.1% to $45.4 million for the year ended December 31, 1996 from $34.1
million for the year ended December 31, 1995. The inclusion of revenue from the
acquisitions of radio stations and revenue generated from local marketing
agreements and joint sales agreements entered into during 1996 provided $7.8
million of the increase. For stations owned and operated over the comparable
period in 1996 and 1995, net broadcasting revenue improved $3.6 million or 11.8%
to $34.2 million in 1996 from $30.6 million in 1995 primarily due to increased
ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased $6.4
million or 23.9% to $33.2 million for the year ended December 31, 1996 from
$26.8 million for the year ended December 31, 1995. The increase was primarily
attributable to the inclusion of station operating expenses of the radio station
acquisitions and the local marketing agreements and joint sales agreements
entered into during 1996.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $4.9 million or 67.1% to $12.2 million for the year ended
December 31, 1996 from $7.3 million for the year ended December 31, 1995. As a
percentage of net broadcasting revenue, broadcast cash flow increased to 26.9%
in 1996 from 21.4% in 1995.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $0.9 million or 39.1% to $3.2 million for the
year ended December 31, 1996 from $2.3 million for the year ended December 31,
1995. Substantially all of the increase was due to professional expenses
incurred in 1996 related to Citadel Broadcasting's capital raising activities
and a lawsuit between Citadel Broadcasting and Tele-Media Broadcasting Company
and certain of its shareholders and officers which arose in connection with
Tele-Media's decision not to complete a sale of its radio stations to Citadel
Broadcasting pursuant to a 1995 agreement. In connection with Citadel
Broadcasting's acquisition of Tele-Media, the litigation was settled.
EBITDA. As a result of the factors described above, EBITDA increased $4.0
million or 80.0% to $9.0 million for the year ended December 31, 1996 from $5.0
million for the year ended December 31, 1995.
Depreciation and Amortization. Depreciation and amortization expense
increased $0.3 million or 6.1% to $5.2 million for the year ended December 31,
1996 from $4.9 million for the year ended December 31, 1995, primarily due to
radio station acquisitions completed during 1996.
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Interest Expense. Interest expense increased $1.0 million or 19.2% to $6.2
million for the year ended December 31, 1996 from $5.2 million for the year
ended December 31, 1995, primarily due to interest expense associated with
additional borrowings to fund acquisitions completed during 1996.
Net Loss. As a result of the factors described above, net loss decreased
$0.6 million or 14.0% to $3.7 million for the year ended December 31, 1996 from
$4.3 million for the year ended December 31, 1995. Included in the net loss for
1996 is $0.4 million of interest earned on loans advanced by Citadel
Broadcasting to Deschutes River Broadcasting, Inc. prior to the acquisition of
Deschutes by Citadel Broadcasting and a $1.8 million extraordinary loss related
to the repayment of long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
Overview. Recent liquidity needs have been driven by Citadel
Broadcasting's acquisition strategy. Citadel Broadcasting's principal liquidity
requirements are for acquisition financing, debt service, working capital and
general corporate purposes, including capital expenditures. Citadel
Broadcasting's acquisition strategy has required, and is expected to continue in
the foreseeable future to require, a significant portion of Citadel
Broadcasting's capital resources. Citadel Broadcasting expects that its debt
service and capital expenditure obligations within the next twelve months,
without regard to further acquisitions, will include approximately $21.0 million
for interest on its 10 1/4% Senior Subordinated Notes due in 2007 and its 9 1/4%
Senior Subordinated Notes due in 2008 and approximately $2.7 million for capital
expenditures. Citadel Broadcasting's 13 1/4% Exchangeable Preferred Stock does
not require cash dividends through July 1, 2002.
Citadel Broadcasting and Citadel Communications have financed Citadel
Broadcasting's past acquisitions through bank borrowings, sales of equity and
debt securities, internally generated funds and proceeds from asset sales.
Citadel Broadcasting expects that financing for future acquisitions will be
provided through bank borrowings, the sale of debt and equity securities and
internally generated funds.
An important factor in management financing decisions includes the
maintenance of leverage ratios consistent with Citadel Broadcasting's long-term
growth strategy. Management recognizes that Citadel Broadcasting may require
additional resources or may need to consider modifications to its expansion
plans. To the extent Citadel Broadcasting is unable to obtain additional
funding, as needed, management has contingency plans which include curtailing
capital expenditure activities and reducing infrastructure costs associated with
expansion and development plans. No assurance can be given that Citadel
Broadcasting will be successful in raising additional capital, as needed,
achieving profitable results or entering into new markets.
At December 31, 1998, Citadel Broadcasting held approximately $102.8
million in cash and cash equivalents and had $137.5 million in unborrowed
availability under its credit facility. In addition, at December 31, 1998,
Citadel Broadcasting had working capital of $149.6 million, an increase of
approximately $127.0 million from December 31, 1997, which increase is due
principally to the net proceeds from the November 1998 offering of the 9 1/4%
notes and assets held for sale.
Management believes that the remaining net proceeds from the offering of
the 9 1/4% notes, together with cash from operating activities and borrowings
under the credit facility, should be sufficient to permit Citadel Broadcasting
to meet its financial obligations and to fund its present operations for the
next twelve months.
Net Cash Provided By Financing Activities. For the year ended December 31,
1998, net cash provided by financing activities was $127.4 million compared to
$212.2 million in the year ended December 31, 1997. The decrease primarily
resulted from the repayment of the outstanding balance under the credit
facility, offset by the net proceeds of Citadel Communications' initial public
offering, and the November 1998 offering of the 9 1/4% notes. The net cash
provided by financing activities in 1997 of $212.2 million was primarily the
result of the proceeds from the 1997 offerings of the 10 1/4% notes and the
exchangeable preferred stock.
Citadel Communications Equity Offering. On July 7, 1998, Citadel
Broadcasting's parent, Citadel Communications, consummated an initial public
offering 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 Citadel
Communications and 630,796 shares were sold by certain stockholders of Citadel
Communications. On July 14, 1998, Citadel Communications sold an additional
1,032,119 shares of its common stock at the initial public offering
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price pursuant to the exercise of the underwriters' over-allotment option. The
aggregate net proceeds to Citadel Communications were $106.6 million, which were
used to repay a portion of the outstanding indebtedness under Citadel
Broadcasting's credit facility.
Credit Facility. On July 3, 1997, Citadel Broadcasting and Citadel License
entered into an amended and restated financing agreement which originally
allowed for revolving loan borrowings up to a maximum of $150.0 million.
Pursuant to the agreement, this amount began to reduce quarterly on December 31,
1997. The maximum available loan commitment at December 31, 1998 was $137.5
million. At December 31, 1998, no amounts were outstanding under the credit
facility. Citadel Broadcasting must pay, on a quarterly basis, an unused
commitment fee equal to the maximum revolving loan commitment less the average
of the outstanding principal balance for the preceding quarter, multiplied by
.125% or, if the total leverage ratio, determined in accordance with the
agreement, calculated as of the last day of the preceding quarter was less than
4.5, the multiplier for the commitment fee is reduced to .09375%.
The credit facility restricts the ability of Citadel Broadcasting's wholly
owned subsidiary Citadel License, Inc. to pay cash dividends or make other
distributions in respect of its capital stock. Citadel Broadcasting is not
dependent in any material respect on the receipt of dividends or other payments
from Citadel License. The credit facility also contains other customary
restrictive covenants, which, among other things, and with certain exceptions,
limit the ability of Citadel Broadcasting and Citadel License to incur
additional indebtedness and liens, enter into transactions with affiliates,
consolidate, merge or effect asset sales, issue additional stock, make capital
or overhead expenditures, make investments, loans or prepayments or change the
nature of their business. Citadel Broadcasting and Citadel License are also
required to satisfy financial covenants, which require Citadel Broadcasting and
Citadel License to maintain specified financial ratios and to comply with
financial tests, such as ratios for maximum leverage, senior debt leverage,
minimum interest coverage and minimum fixed charges.
- Maximum Leverage Test. The maximum leverage test requires that Citadel
Broadcasting and Citadel License not permit the ratio of total debt as of
the last day of any month to operating cash flow, as adjusted for
permitted acquisitions and dispositions, for the twelve-month period
ending as of the last day of that month to be greater than the applicable
ratio on that date. The applicable ratio at December 31, 1998 is 6.50.
- Senior Debt Leverage Test. The senior debt leverage test requires that
Citadel Broadcasting and Citadel License not permit the ratio of the
unpaid principal balance of the credit facility or any specified portion
thereof outstanding from time to time as of the last day of any month to
operating cash flow, as adjusted for permitted acquisitions and
dispositions, for the twelve-month period ending on that date to be
greater than 4.50 for the period through May 1999. For each six-month
period after May 1999 through maturity, the maximum ratio shall decrease
by 0.25.
- Minimum Interest Coverage Test. The minimum interest coverage test
requires that Citadel Broadcasting and Citadel License not permit the
ratio of their consolidated operating cash flow for any four-quarter
period to interest expense and cash dividends on Citadel Broadcasting's
exchangeable preferred stock for the same four-quarter period to be less
than 1.75.
- Minimum Fixed Charges Test. The minimum fixed charges test requires that
Citadel Broadcasting and Citadel License not permit the ratio of their
consolidated operating cash flow for any four-quarter period to fixed
charges for the same four-quarter period to be less than 1.1 to 1.0.
Citadel Broadcasting and Citadel License are in compliance with the
financial ratios and financial condition tests in their debt obligations.
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.
Interest is payable semi-annually. The 10-1/4% notes will be redeemable 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, subject to
certain conditions, 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
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<PAGE> 44
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. 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 redemption date.
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. At December 31, 1998, 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. Citadel Broadcasting will be required to redeem the exchangeable
preferred stock on July 1, 2009, subject to the legal availability of funds
therefor, at a redemption price equal to the liquidation preference thereof,
plus accumulated and unpaid dividends, if any, to the date of redemption. The
Certificate of Designation governing the exchangeable preferred stock also
contain 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. At December 31, 1998, Citadel Broadcasting was in
compliance with all covenants under the Certificate of Designation.
Net Cash Used in Investing Activities. For the year ended December 31,
1998, net cash used in investing activities decreased to $45.8 million from
$212.3 million in the year ended December 31, 1997. The decrease is primarily
due to the acquisition of 61 radio stations in 1997, whereas 11 radio stations
were acquired in 1998.
Net cash used in investing activities in 1997 was $212.3 million, compared
to $61.1 million in 1996. Net cash used in investing activities was used
primarily to acquire radio stations and property and equipment in 1997.
Pending Acquisitions and Dispositions. There are several transactions
currently pending which, if completed, would result in Citadel Broadcasting
purchasing 14 FM and 10 AM radio stations and selling 18 FM and 7 AM radio
stations. The total cash required to fund the pending acquisitions is expected
to be approximately $92.5 million. Citadel Broadcasting expects to receive $26.0
million, $25.5 million in cash and a $0.5 million promissory note, from the
pending disposition. The consummation of the pending transactions is subject to
certain conditions, including the approval of the FCC. Although Citadel
Broadcasting believes these closing conditions will be satisfied in each case,
there can be no assurance thereof. See Item 1, Business, under the caption "The
Pending Transactions" for a complete description of the pending transactions.
Recently Completed Acquisitions. Subsequent to December 31, 1998, Citadel
Broadcasting acquired at total of 13 FM and 5 AM radio stations and one internet
service provider for an aggregate purchase price of approximately $72.3 million.
Proceeds from the November 1998 offering of the 9-1/4% notes were used to pay
substantially all of the aggregate purchase price.
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<PAGE> 45
Capital Expenditures. Citadel Broadcasting had capital expenditures of
$2.0 million, $2.1 million and $4.5 million for the years ended December 31,
1996, 1997, and 1998, respectively. Citadel Broadcasting's equipment purchases
consist primarily of broadcasting equipment and transmission tower upgrades.
Net Cash Provided By Operations. Net cash provided by operations increased
by approximately $7.3 million or 117.7% to $13.5 million for the year ended
December 31, 1998 from $6.2 million for the year ended December 31, 1997. The
increase in cash provided by operations can be primarily attributed to the
inclusion of radio stations acquired in 1998 and a full year of operations of
stations acquired in 1997. Net cash provided by operations in 1998 was
approximately $13.5 million resulting primarily from a net loss of $3.9 million
less depreciation and amortization of $26.4 million, offset by an increase in
accounts receivable of approximately $9.6 million. Net cash provided by
operations in 1997 was approximately $6.2 million resulting primarily from a net
loss of $4.7 million less depreciation and amortization of $14.6 million and an
increase in accrued liabilities of $5.3 million offset by an increase in
accounts receivable of $10.2 million.
Net cash provided by operations increased by approximately $7.6 million or
542.9% to $6.2 million for the year ended December 31, 1997 from net cash used
in operations of $1.4 million for the year ended December 31, 1996. The increase
in cash provided by operations can be primarily attributed to the inclusion of
radio stations acquired in 1997. Net cash used in operations in 1996 was $1.4
million resulting primarily from a net loss of $3.7 million less an
extraordinary loss of $1.8 million and depreciation and amortization of $5.2
million, offset by an increase in accounts receivable of $5.3 million.
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 system and product failure, other computer
errors and a disruption in the operation of such systems and products.
Citadel Broadcasting's project team has identified its accounting and
traffic 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 Citadel Broadcasting's operations which are not Year
2000 compliant, the vendors of this software have committed to provide Year 2000
compliant updates to Citadel Broadcasting. Citadel Broadcasting expects to have
all such updates tested and operational by June 1999.
Citadel Broadcasting has identified five phases for the project team to
address for each of Citadel Broadcasting's risk areas. These phases are:
(1) an inventory of Citadel Broadcasting'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 Citadel Broadcasting has substantially
completed an inventory of at-risk non-information technology systems and expects
to complete the inventory in the second quarter of 1999. The project team is
currently assessing compliance issues related to Citadel Broadcasting's
information hardware and software, and expects to complete such assessment in
the first quarter of 1999. Citadel Broadcasting expects that some amount of the
testing will be performed during this assessment phase.
In each of its markets, Citadel Broadcasting employs centralized accounting
and traffic (advertising scheduling) systems for all of its stations in the
market. In September 1998, Citadel Broadcasting completed the replacement and
upgrading of software certified as Year 2000 compliant by the software vendor.
Citadel Broadcasting intends to complete Year 2000 testing of this software in
the second quarter of 1999. The total
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<PAGE> 46
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. Citadel
Broadcasting anticipates that evaluation for Year 2000 compliance of the
hardware and the new software used in its accounting and traffic systems for the
stations currently owned by Citadel Broadcasting will be completed during the
second quarter of 1999. Citadel Broadcasting expects that the accounting and
traffic systems for stations that it may acquire will be converted to the
software used for its other stations. The cost of any necessary hardware
upgrades for these systems for stations acquired cannot be quantified at this
time.
Satellite delivered programs, which are delivered to Citadel Broadcasting's
radio stations from outside sources, represent a third party risk to Citadel
Broadcasting arising from the Year 2000 issue. Citadel Broadcasting sent
questionnaires to a majority of the vendors of these programs during the fourth
quarter of 1998 asking them to update Citadel Broadcasting on the status of
their Year 2000 compliance. Citadel Broadcasting anticipates that it will send
such questionnaires to the significant vendors of satellite delivered programs
to stations it acquires. Until those questionnaires are returned and reviewed,
Citadel Broadcasting is unable to determine the potential for disruption in its
programming arising from this third party risk. If Citadel Broadcasting does not
receive reasonable assurances regarding Year 2000 compliance from any vendor of
these programs, it would then develop contingency plans for alternative
programming.
Citadel Broadcasting is currently reviewing a proposal to update and expand
the digital automation systems used in Citadel Broadcasting's operations.
Although not directly related to the Year 2000 problem, Citadel Broadcasting
believes the expansion and replacement of these systems, which it anticipates
would be completed by the end of December 1999, would minimize or eliminate Year
2000 problems associated with these systems. If Citadel Broadcasting 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 October 1999. The cost of replacing non-compliant digital components at
stations that may be acquired by Citadel Broadcasting cannot be quantified at
this time.
Citadel Broadcasting 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 and hardware vendors. No material
expansion is scheduled for this division prior to the Year 2000.
In addition to identification of these mission critical systems, Citadel
Broadcasting has identified the top 10 advertisers on each of its radio stations
owned or operated at December 31, 1998. Questionnaires were sent to each of
these advertisers during the fourth quarter of 1998 asking them to update
Citadel Broadcasting on the status of their Year 2000 compliance. Citadel
Broadcasting intends to send such questionnaires to the top 10 advertisers on
each of the radio stations it acquires. In addition, questionnaires are also
being sent to various equipment vendors, banks and other lending institutions
that provide substantial products and services to Citadel Broadcasting. The
Company has received varying information from such third parties on the state of
compliance or expected compliance. Until the questionnaires returned to date are
fully reviewed and others are returned and reviewed, Citadel Broadcasting is
unable to determine the effect of these third party risks on Citadel
Broadcasting's operations. There can be no assurance that Citadel Broadcasting
will be successful in finding alternative Year 2000 compliant advertisers,
suppliers and service providers, if required.
Citadel Broadcasting also intends to solicit information regarding its
critical internal non-information technology systems such as telephones and HVAC
in the second quarter of 1999. Any required remediation and testing of Citadel
Broadcasting's non-information technology systems at its current stations is
expected to be completed by June 1999. Citadel Broadcasting intends to promptly
extend this inquiry to stations it acquires.
Citadel Broadcasting is in the process of determining its contingency
plans, which are expected to include the identification of Citadel
Broadcasting's most reasonably likely worst-case scenarios. Preliminary
contingency plans are expected to be completed during the second quarter of 1999
and comprehensive plans are expected to be completed by the second or third
quarter of 1999. At this time, Citadel Broadcasting does not have sufficient
information to assess the likelihood of such worst-case scenarios. Currently,
Citadel Broadcast-
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ing believes that the most reasonably likely sources of risk to it include (1)
disruptions in the supply of satellite delivered programs and (2) diminished
demand for advertising time arising from Year 2000 problems both specific to
Citadel Broadcasting's advertisers or more generally related to the potential
for economic disruptions related to the Year 2000 issues.
Based on its current assessment efforts, Citadel Broadcasting does not
believe that Year 2000 issues related to its internal systems will have a
material adverse effect on Citadel Broadcasting'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 Citadel Broadcasting.
Recently Issued Accounting Pronouncements. In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This pronouncement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management does not
believe the implementation of this accounting pronouncement will have a material
effect on its consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk. During the normal course of business Citadel Broadcasting 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. Citadel Broadcasting constantly assesses these risks and has
established policies and practices to protect against the adverse effects of
these and other potential exposures. Although Citadel Broadcasting 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. Citadel Broadcasting may be exposed to interest rate
changes under its credit facility which it maintains to provide liquidity and to
fund capital expenditures and acquisitions. Citadel Broadcasting's interest rate
risk management objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing costs. To achieve its
objectives, Citadel Broadcasting has entered into an interest rate swap
agreement to hedge the effects of fluctuations in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Citadel Broadcasting Company's Consolidated Financial Statements, including
the notes thereto, and supplementary financial information are listed in Part
IV, Item 14, of this report are included after the signature page beginning at
page F-2.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
directors and executive officers of Citadel Broadcasting Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lawrence R. Wilson 53 Chief Executive Officer and Chairman
Donna L. Heffner 39 Vice President, Chief Financial
Officer and Secretary
D. Robert Proffitt 46 President and Chief Operating Officer
Stuart R. Stanek 43 Vice President; President - East Region
Peter J. Benedetti 35 Vice President; President - Central Region
Edward T. Hardy 50 Vice President; President - West Region
Patricia Diaz Dennis 52 Director
Scott E. Smith 43 Director
Ted L. Snider, Sr. 70 Director
John E. von Schlegell 44 Director
</TABLE>
Lawrence R. Wilson co-founded and was a general partner of Citadel
Broadcasting's predecessor, Citadel Associates Limited Partnership and Citadel
Associates Montana Limited Partnership, from 1984 to July 1992 and has been the
Chief Executive Officer and Chairman of the Board of Citadel Broadcasting since
it was incorporated in 1991 and Chief Executive Officer, President and Chairman
of Citadel Communications since it was incorporated in 1993. Mr. Wilson also
served as President of Citadel Broadcasting from 1991 to October 1998. From 1974
to 1979, Mr. Wilson was Executive Vice President and General Counsel of Combined
Communications Corporation, a national media company, where he handled all
acquisitions and mergers and oversaw the broadcast, newspaper and outdoor
billboard divisions as a part of a five person management committee. From 1979
to 1986, he was engaged in the private practice of law.
Donna L. Heffner joined Citadel Associates Limited Partnership and Citadel
Associates Montana Limited Partnership in 1988 as Controller. Ms. Heffner has
served as Secretary of Citadel Broadcasting since it was incorporated in 1991
and of Citadel Communications since it was incorporated in 1993. She has served
as Chief Financial Officer of Citadel Broadcasting and Citadel Communications
since 1992 and 1993, respectively. In January 1997, Ms. Heffner became Vice
President of Citadel Broadcasting and Citadel Communications. Ms. Heffner also
served as Treasurer of Citadel Broadcasting from 1991 to 1999 and as a director
of Citadel Broadcasting from 1992 to 1993. She served as Treasurer of Citadel
Communications from 1993 to 1999 and as a director of Citadel Communications for
several months in 1993. From 1982 to 1985 and in 1987, she was employed by Price
Waterhouse, and in 1986, she was employed by Lowrimore, Warwick & Company as an
accountant.
D. Robert Proffitt joined Citadel Associates Limited Partnership and
Citadel Associates Montana Limited Partnership in 1988 as Vice
President - General Manager of KKFM-FM in Colorado Springs. In 1991, he was
appointed Vice President of Citadel Broadcasting, and in 1993, he was appointed
Vice President of Citadel Communications, Mr. Proffitt took over as General
Manager of Citadel Broadcasting's Albuquerque operations in 1994. Mr. Proffitt
served as President of Central Region for Citadel Broadcasting from June 1997 to
October 1998, and he became President and Chief Operating Officer of Citadel
Broadcasting in October 1998.
Stuart R. Stanek joined Citadel Associates Limited Partnership and Citadel
Associates Montana Limited Partnership in 1986 as a General Manager of KKFM-FM
in Colorado Springs. In 1988, he became General Manager of KCNR-AM/KUBL-FM in
Salt Lake City, in 1991, he was appointed Vice President of Citadel
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Broadcasting, in 1992 he was elected to the Board of Directors of Citadel
Broadcasting and in 1993, he was appointed Vice President and elected to the
Board of Directors of Citadel Communications. He served as a Director of Citadel
Broadcasting and Citadel Communications until August 1996. Mr. Stanek became
President of East Region for Citadel Broadcasting in June 1997.
Peter J. Benedetti joined Citadel Broadcasting in April 1995 as Sales
Manager for KMGA-FM in Albuquerque and also became Sales Manager for KHFM-FM in
Albuquerque upon Citadel Broadcasting's acquisition of that station in June
1996. From January 1997 to July 1997, Mr. Benedetti was Director of Sales of
Citadel Broadcasting's Salt Lake City radio station group, and from July 1997 to
October 1998, he served as Vice President and General Manager of that radio
station group. In October 1998 Mr. Benedetti became Vice President and President
of the Central Region for Citadel Broadcasting and Vice President of Citadel
Communications. Prior to joining Citadel Broadcasting, he served as an account
executive for Jacor Communications' KBPI-FM in Denver, Colorado. Mr. Benedetti
currently serves on the Board of Directors of the Utah Broadcasters Association
and the Salt Lake City Radio Broadcasters Association.
Edward T. Hardy founded and was elected President and Chief Executive
Officer of Deschutes River Broadcasting, Inc. in 1994. Mr. Hardy joined Citadel
Communications in January 1997 as President of Deschutes following Citadel
Communications' acquisition of Deschutes. Mr. Hardy became President of West
Region for Citadel Broadcasting and Vice President of Citadel Broadcasting and
Citadel Communications in June 1997 when Deschutes was merged with and into
Citadel Broadcasting. From 1984 to 1993, Mr. Hardy was Vice President--General
Manager of KUPL AM/FM in Portland.
Patricia Diaz Dennis became a director of Citadel Broadcasting and Citadel
Communications in November 1997. Since November 1998, Ms. Dennis serves as
Senior Vice President--Regulatory and Public Affairs of SBC Communications Inc.,
a company which provides telecommunications products and services, and from
September 1995, she served as Senior Vice President and Assistant General
Counsel for regulation and public policy of SBC Communications Inc. From March
1993 until joining SBC Communications Inc., Ms. Dennis served as special counsel
for communications matters for the law firm of Sullivan & Cromwell. Ms. Dennis
served as a commissioner of the FCC from June 1986 to September 1989 and as
Assistant Secretary of State for Human Rights and Humanitarian Affairs in the
United States Department of State from August 1992 to January 1993. Ms. Dennis
also serves as director for various entities, including Massachusetts Mutual
Life Insurance Company and National Public Radio.
Scott E. Smith has served as a member of the Board of Directors of Citadel
Broadcasting since 1992 and of Citadel Communications since 1993. He is an
Executive Vice President of Baker, Fentress & Company. Since 1989, Mr. Smith has
managed the private placement portfolio of Baker Fentress.
Ted L. Snider, Sr. became a director of Citadel Broadcasting and Citadel
Communications in November 1997 following Citadel Broadcasting's October 1997
acquisition of Snider Corporation. Mr. Snider had been Chairman of Snider
Corporation since its incorporation in 1971. Snider Corporation owned two FM and
two AM radio stations, the right to construct an additional FM radio station and
the Arkansas Radio Network.
John E. von Schlegell has served as a member of the Board of Directors of
Citadel Broadcasting and Citadel Communications since January 1997. He
co-founded and, since 1991, has managed, Endeavour Capital Fund Limited
Partnership, a firm that invests equity capital in privately held businesses
throughout the northwest. Prior to 1991, Mr. von Schlegell was a general partner
at Golder, Thoma & Cressey, a private equity firm based in Chicago.
BOARD COMPOSITION
The five persons presently constituting the Board of Directors of Citadel
Broadcasting were initially elected under the terms of a Fourth Amended and
Restated Voting Agreement dated as of October 15, 1997, by and among Citadel
Communications, the voting trustee under the Amended and Restated Voting Trust
Agreement dated October 15, 1997 and certain other stockholders of Citadel
Communications. In connection with Citadel Communications' initial public
offering, the Fourth Amended and Restated Voting Agreement
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<PAGE> 50
and a related stockholders agreement among Citadel Communications and certain of
its stockholders were terminated. The Amended and Restated Voting Trust
Agreement will continue in effect until terminated in accordance with its terms.
Each director of Citadel Broadcasting holds office until the next annual
meeting of stockholders and until his or her successor has been elected and
qualified. Officers are elected by the Board of Directors and serve at its
discretion.
In the event that, after July 1, 2002, two or more semi-annual dividends
payable on Citadel Broadcasting's 13-1/4% Exchangeable Preferred Stock are in
arrears and unpaid, or upon the occurrence of certain other events, including
failure to comply with certain covenants and failure to pay the mandatory
redemption price when due, then the holders of a majority of the then
outstanding shares of the exchangeable preferred stock, voting separately as a
class, will be entitled to elect two additional directors of Citadel
Broadcasting, who shall serve until such time as all dividends in arrears or any
other failure, breach or default giving rise to such voting rights is remedied
or waived.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid to Citadel Broadcasting's Chief Executive Officer and each of the other
four most highly compensated executive officers of Citadel Broadcasting during
1998. Information with respect to 1996 compensation is not given for Mr.
Proffitt as he did not begin service as an executive officer of Citadel
Broadcasting until 1997. Information with respect to 1996 and 1997 compensation
is not given for Mr. Benedetti as he did not begin service as an executive
officer of Citadel Broadcasting until 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------------
-------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
------------------ ---- -------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence R. Wilson............. 1998 $358,319 $214,370(2) -0- 60,000 $3,046(3)
Chairman and Chief 1997 341,256 120,000(4) -0- -0 - 3,278(3)
Executive Officer 1996 325,000 81,250(5) $412,041 (6) 450,000 2,786(3)
Donna L. Heffner............... 1998 $175,000 $ 80,000(2) -0- 12,000 $4,537(7)
Vice President and Chief 1997 140,535 50,000(4) -0- -0- 3,086(7)
Financial Officer 1996 120,000 20,000(5) -0- 66,000 2,505(7)
D. Robert Proffitt............. 1998 $200,000 $ 40,000(2) -0- 12,000 $3,161(8)
President and Chief 1997 192,211 15,000(4) -0- -0- 2,541(8)
Operating Officer
Stuart R. Stanek............... 1998 $210,000 $ 50,000(2) -0- 12,000 $2,635(9)
Vice President and President 1997 190,007 30,000(4) -0- -0- 2,529(9)
of the East Region 1996 165,000 35,000(5) -0- 72,000 2,553(9)
Peter J. Benedetti............. 1998 $150,000 $ 65,000(2) -0- 21,005 $2,093(10)
Vice President and President
of the Central Region
</TABLE>
- ---------------
(1) In accordance with applicable regulations, the amounts set forth in this
column do not include perquisites and other personal benefits received by
the executive officers unless the aggregate value of such perquisites and
other benefits exceeded the lesser of $50,000 or 10% of the total salary and
bonus reported for the executive officer.
(2) Bonuses were earned in 1998 and paid in 1998 or will be paid in 1999. Does
not reflect bonuses earned in 1997 but paid in 1998.
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(3) Represents Citadel Broadcasting's contribution of $2,986, $3,200 and $2,708
in 1998, 1997 and 1996, respectively, to Citadel Broadcasting's 401(k)
Plan, which contributions vest over five years, and Citadel Broadcasting's
payment of $60 in 1998 and $78 in each of 1997 and 1996 of premiums for
term life insurance.
(4) Bonuses were earned in 1997 and paid in 1997 and 1998. Does not reflect
bonuses earned in 1996 but paid in 1997.
(5) Bonuses were earned in 1996, but paid in 1997. Does not reflect bonuses
earned in 1995 but paid in 1996.
(6) Represents $3,404 for personal use of company-provided vehicle and for
goods and services received through Citadel Broadcasting's trade
agreements, and the forgiveness of $408,637 of indebtedness in 1996.
(7) Represents Citadel Broadcasting's contribution of $4,477, $3,008 and $2,427
in 1998, 1997 and 1996, respectively, to Citadel Broadcasting's 401(k)
Plan, which contributions vest over five years, and Citadel Broadcasting's
payment of $60 in 1998 and $78 in each of 1997 and 1996 of premiums for
term life insurance.
(8) Represents Citadel Broadcasting's contribution of $3,101 and $2,463 in 1998
and 1997, respectively, to Citadel Broadcasting's 401(k) Plan, which
contribution vests over five years, and Citadel Broadcasting's payment of
$60 in 1998 and $78 in 1997 of premiums for term life insurance.
(9) Represents Citadel Broadcasting's contribution of $2,575, $2,451 and $2,475
in 1998, 1997 and 1996, respectively, to Citadel Broadcasting's 401(k)
Plan, which contributions vest over five years, and Citadel Broadcasting's
payment of $60 in 1998 and $78 in each of 1997 and 1996 of premiums for
term life insurance.
(10) Represents Citadel Broadcasting's contribution of $2,033 to Citadel
Broadcasting's 401(k) Plan, which contribution vests over five years, and
Citadel Broadcasting's payment of $60 of premiums for term life insurance.
The following table summarizes individual grants of options to purchase
shares of common stock of Citadel Communications to the executive officers
listed in the Summary Compensation Table during the year ended December 31,
1998:
OPTIONS GRANTED IN FISCAL 1998
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL EXERCISE MARKET POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES OPTIONS OR PRICE ON RATES OF STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE DATE OF OPTION TERM(2)
OPTIONS EMPLOYEES PRICE GRANT EXPIRATION ---------------------------------------
NAME GRANTED IN 1998 ($/SH) ($/SH)(1) DATE 0%($) 5%($) 10%($)
---- ---------- ---------- -------- --------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence R. Wilson(3)..... 60,000 29.4% $16.00 $25.813 9/09/08 $588,780 $1,562,820 $3,057,120
Donna L. Heffner(3)....... 12,000 5.9 16.00 25.813 9/09/08 117,756 312,564 611,424
D. Robert Proffitt(3)..... 12,000 5.9 16.00 25.813 9/09/08 117,756 312,564 611,424
Stuart R. Stanek(3)....... 12,000 5.9 16.00 25.813 9/09/08 117,756 312,564 611,424
Peter J. Benedetti(3)..... 16,005 7.8 16.00 16.000 6/30/08 -0- 161,042 408,128
Peter J. Benedetti(3)..... 5,000 2.5 16.00 25.813 9/09/08 49,065 130,235 254,760
</TABLE>
- ---------------
(1) For options granted on September 9, 1998, the indicated market price on the
date of the grant was the closing market price of the common stock. For the
option granted on June 30, 1998, the indicated market price on the date of
the grant was the initial public offering price in Citadel Communications'
initial public offering.
(2) The potential realizable value is based on the term of the option at the
time of grant, which is ten years for each of the options set forth in the
table. An assumed stock price appreciation of 0%, 5% and 10% is used
pursuant to rules promulgated by the Securities and Exchange Commission. The
potential realizable value is calculated by assuming that the market price
on the date of grant appreciates at the indicated rate, compounded annually,
for
51
<PAGE> 52
the entire term of the option and that the option is exercised and sold on
the last day of its term at this appreciated stock price. The potential
realizable value is not intended to forecast the future appreciation of the
common stock.
(3) Options vest 20% on each of the first through fifth anniversaries of the
date of grant. Vesting accelerates in the event of a change in control of
Citadel Communications, as provided for in the relevant option agreements.
The following table shows the number and value of unexercised stock options
to purchase shares of common stock of Citadel Communications (rounded to the
nearest whole share) held by the executive officers listed in the Summary
Compensation Table as of December 31, 1998. No options were exercised by these
executive officers in 1998:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS(1)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
Lawrence R. Wilson(2)...................... 479,636/322,312 $10,982,914/$5,878,524
Donna L. Heffner........................... 139,243/79,811 3,283,559/1,604,401
D. Robert Proffitt......................... 106,420/77,606 2,469,932/1,532,262
Stuart R. Stanek........................... 140,827/83,207 3,315,737/1,678,070
Peter J. Benedetti......................... 1,800/28,205 28,575/321,724
</TABLE>
- ---------------
(1) These values have been calculated on the basis of the December 31, 1998
closing price per share of $25.875, less the applicable exercise price.
(2) Includes options held by Rio Bravo Enterprise Associates, L.P. Mr. Wilson
owns all of the capital stock of Rio Bravo, Inc., the sole general partner
of Rio Bravo Enterprise Associates, L.P.
EMPLOYMENT AGREEMENT
In June 1996, Citadel Broadcasting entered into an employment agreement
with Lawrence R. Wilson which has an initial term ending in June 2001. Mr.
Wilson's current annual base salary under the agreement is $376,234 which is to
be increased by 5% in January of each year during the term of the agreement. The
agreement also provides for an annual bonus calculated as a percentage of Mr.
Wilson's base salary in effect at the end of the year and based on annual
performance criteria of Citadel Broadcasting.
Mr. Wilson's employment with Citadel Broadcasting will terminate upon Mr.
Wilson's becoming permanently disabled or upon (1) a liquidation or dissolution
of Citadel Communications, (2) a sale, transfer or other disposition of all of
the assets of Citadel Broadcasting on a consolidated basis or (3) any
transaction or series of transactions whereby any person or entity other than
ABRY Broadcast Partners II, L.P. or its affiliates or affiliates of Citadel
Broadcasting, becomes the direct or indirect beneficial owner of securities of
Citadel Broadcasting or Citadel Communications representing 50% or more of the
combined voting power of Citadel Broadcasting's or Citadel Communications' then
outstanding securities. In such event, Mr. Wilson or his beneficiary will be
entitled to receive Mr. Wilson's then base salary through the end of the month
in which the termination occurs. In addition, upon the affirmative vote or
written consent of not less than 66-2/3% of the members of the Citadel
Communications Board of Directors, Mr. Wilson's employment may be terminated
with or without cause. If any such termination is without cause, Mr. Wilson will
be entitled to receive his then current base salary through the end of the then
current term of the employment agreement.
1996 EQUITY INCENTIVE PLAN
Citadel Communications has adopted the 1996 Equity Incentive Plan under
which all employees of Citadel Broadcasting are eligible to receive awards in
the form of non-qualified options and incentive options to purchase common stock
of Citadel Communications, stock appreciation rights, restricted securities and
52
<PAGE> 53
other stock-based awards as determined by the Board of Directors. The Equity
Incentive Plan is administered by the Board of Directors of Citadel
Communications, which determines the price and type of awards granted and the
key managerial employees eligible to receive awards and the terms thereof,
including vesting, all in a manner consistent with the plan. The Citadel
Communications Board may delegate responsibility for administration of the plan
to a committee of the Citadel Communications Board. At December 31, 1998, not
including shares subject to then outstanding grants, the total number of shares
of common stock of Citadel Communications that remained reserved and available
for issuance under the Equity Incentive Plan (or which may be used to provide a
basis of measurement for an award) was 222,569 shares. Shares subject to any
option which terminates or expires unexercised will be available for subsequent
grants. The exercise price of incentive stock options granted under the plan is
to be at least 100% of the fair market value of the common stock on the date of
grant (110% of the fair market value of the common stock in the case of an
incentive stock option to an individual who at the time of the grant owns more
than 10% of the combined voting power of Citadel Communications' capital stock).
The Citadel Communications Board may provide that an optionee may pay for shares
upon exercise of an option in cash or by check or by such other medium or by any
combination of media as authorized by the Citadel Communications Board. The
grant of an option may be accompanied by a reload option, which gives an
optionee who pays the exercise price of an option with shares of common stock an
additional option to acquire the same number of shares that was used to pay for
the original option at an exercise price of not less than the fair market value
of common stock as of the reload option grant date. An unexercised option may
expire upon termination of employment, or the Citadel Communications Board may
permit the holder of the option to exercise it during the 90 days following
termination. Under certain circumstances, including termination of employment
upon retirement, disability or death, the option may be exercised during an
extended period. In the event of termination of employment under certain
circumstances following certain change in control events, an option generally
may be exercised in full during the 90 days following termination. The Equity
Incentive Plan also provides for the grant of performance units and shares of
restricted stock, none of which have been granted.
401(K) PLAN
Effective in 1993, Citadel Broadcasting adopted a 401(k) Savings Plan for
the purpose of providing, at the option of the employee, retirement benefits to
full-time employees of Citadel Broadcasting and its subsidiaries who have been
employed for a period of one year or longer. Contributions to the 401(k) plan
are made by the employee and, on a voluntary basis, by Citadel Broadcasting.
Citadel Broadcasting currently matches 100% of that part of the employee's
deferred compensation which does not exceed 2% of such employee's salary.
A contribution to the 401(k) plan of $0.4 million was made by Citadel
Broadcasting during the year ended December 31, 1998.
DIRECTOR COMPENSATION
Ms. Dennis receives an annual fee of $20,000 for her services as a director
of Citadel Broadcasting and Citadel Communications and the other non-employee
directors of Citadel Broadcasting and Citadel Communications receive an annual
fee of $12,000 for their services as directors of Citadel Broadcasting and
Citadel Communications. Directors who are also employees of Citadel Broadcasting
will not receive additional consideration for serving as directors, except that
all directors will be reimbursed for travel and out-of-pocket expenses in
connection with their attendance at Board and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Scott E. Smith, John E. von Schlegell and Patricia Diaz Dennis
were members of the Compensation Committee of the Citadel Communications Board
of Directors, which determines compensation matters for Citadel Broadcasting.
Such persons are also directors of Citadel Broadcasting.
Registration Rights Agreement. Citadel Communications is a party to a
Registration Rights Agreement, dated June 28, 1996, as amended, with Lawrence R.
Wilson, Rio Bravo Enterprise Associates, L.P., ABRY
53
<PAGE> 54
Broadcast Partners II, L.P., ABRY Citadel Investment Partners, L.P., Baker,
Fentress & Company, Oppenheimer & Co., Inc. (now CIBC Oppenheimer Corp.), Edward
T. Hardy, Endeavour Capital Fund Limited Partnership, Ted L. Snider, Sr. and
others, which requires Citadel Communications to register their shares of its
common stock under the Securities Act of 1933, as amended, for offer and sale to
the public (including by way of an underwritten public offering), upon a demand
by such stockholders, and which entitles such parties to join in any
registration of equity securities of Citadel Communications. Royce Yudkoff, a
former director of Citadel Broadcasting and Citadel Communications, is President
of ABRY Holdings, Inc., the general partner of ABRY Capital, L.P., the general
partner of ABRY Broadcast Partners II, L.P., a significant stockholder of
Citadel Communications, and ABRY Citadel Investment Partners, L.P., formerly a
significant stockholder of Citadel Communications. See Item 12, Security
Ownership of Certain Beneficial Owners and Management. Mr. Wilson owns all of
the capital stock of Rio Bravo, Inc., the sole general partner of Rio Bravo
Enterprise Associates, L.P.
Deschutes Transactions. In connection with the acquisition of Deschutes
River Broadcasting, Inc., Citadel Communications entered into an Agreement Not
to Compete with DVS Management, Inc., the general partner of Endeavour Capital
Fund, a shareholder of Deschutes prior to its acquisition by Citadel
Communications, pursuant to which DVS agreed not to compete in radio
broadcasting in any geographic area or market served or competed in by one or
more of Citadel Broadcasting's stations. In consideration for such agreement not
to compete with Citadel Broadcasting's stations, Citadel Broadcasting paid DVS
$100,000 in each of 1997 and 1998. John E. von Schlegell, a director of Citadel
Broadcasting, is President and a shareholder of DVS. This agreement has now
expired.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Citadel Communications owns all of the currently issued and outstanding
common stock of Citadel Broadcasting and has pledged such common stock to secure
its guaranty of indebtedness under Citadel Broadcasting's credit facility. The
only other outstanding capital stock of Citadel Broadcasting is its 13-1/4%
Exchangeable Preferred Stock.
The only outstanding capital stock of Citadel Communications is its common
stock. The following table sets forth information with respect to the beneficial
ownership of Citadel Communications' common stock as of March 16, 1999 by (1)
each person, entity or group known to Citadel Broadcasting to beneficially own
more than five percent of the common stock, (2) each director of Citadel
Broadcasting, (3) each executive officer listed in the Summary Compensation
Table in Item 11 and (4) all directors and executive officers of Citadel
Broadcasting as a group.
Except as indicated below, the persons named have sole voting and
investment power with respect to the shares shown as beneficially owned by them.
The percentages are rounded to the nearest tenth of a percent. Holders of the
common stock are entitled to one vote per share on all matters submitted to a
vote of stockholders generally.
The number of shares and percentages are calculated in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended, on a stockholder by
stockholder basis, assuming that each stockholder converted all securities owned
by such stockholder that are convertible into common stock at the option of the
holder within 60 days of March 16, 1999, and that no other stockholder so
converts. The numbers and percentages of shares owned assume that outstanding
options have been exercised by such respective stockholders as follows: Lawrence
R. Wilson - 479,636 shares (including options held by Rio Bravo Enterprise
Associates, L.P.); D. Robert Proffitt - 115,300 shares; Donna L.
Heffner - 149,527 shares; Stuart R. Stanek - 152,107 shares; Peter J.
Benedetti - 1,800 shares; Patricia Diaz Dennis - 7,500 shares; Rio Bravo
Enterprise Associates, L.P. - 441,194 shares; and all directors and executive
officers as a group - 1,043,159 shares.
54
<PAGE> 55
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF
COMMON STOCK
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ --------- -------
<S> <C> <C>
Lawrence R. Wilson(1)....................................... 2,748,311 10.5%
City Center West
Suite 400
7201 West Lake Mead Boulevard
Las Vegas, NV 89128
Donna L. Heffner(2)......................................... 187,686 *
D. Robert Proffitt(3)....................................... 187,229 *
Stuart R. Stanek(4)......................................... 219,342 *
Peter J. Benedetti(5)....................................... 7,427 *
Patricia Diaz Dennis........................................ 7,500 *
Scott E. Smith(6)........................................... 1,907,011 7.4
John E. von Schlegell(7).................................... 1,095,836 4.2
Ted L. Snider, Sr.(8)....................................... 342,504 1.3
Rio Bravo Enterprise Associates, L.P.(1).................... 2,709,869 10.3
City Center West
Suite 400
7201 West Lake Mead Boulevard
Las Vegas, NV 89128
Baker, Fentress & Company................................... 1,907,011 7.4
200 West Madison
Suite 3510
Chicago, IL 60602
ABRY Broadcast Partners II, L.P.(9)......................... 8,460,839 32.8
18 Newbury Street
Boston, MA 02116
Harlan A. Levy(10).......................................... 8,460,839 32.8
1585 Broadway
19th Floor
New York, NY 10036
ABRY Capital, L.P.(11)...................................... 8,468,436 32.8
18 Newbury Street
Boston, MA 02116
Putnam Investments, Inc.(12)................................ 2,079,763 8.1
One Post Office Square
Boston, MA 02109
All directors and executive officers as a group (10 6,877,313 25.6
persons)(13)..............................................
</TABLE>
- ---------------
* Less than 1%
(1) Includes 2,268,675 shares of outstanding common stock and 441,194 shares of
common stock which may be acquired upon exercise of options that are
currently exercisable or that are exercisable within 60 days of March 16,
1999, which shares and options are owned by Rio Bravo Enterprise Associates,
L.P. Mr. Wilson owns all of the capital stock of Rio Bravo, Inc., the sole
general partner of Rio Bravo Enterprise Associates, L.P.
(2) Ms. Heffner's shares are jointly owned by Ms. Heffner and her spouse.
(3) Mr. Proffitt's shares are jointly owned by Mr. Proffitt and his spouse.
55
<PAGE> 56
(4) Mr. Stanek's shares are jointly owned by Mr. Stanek and his spouse.
(5) Mr. Benedetti's shares are jointly owned by Mr. Benedetti and his spouse.
(6) Represents shares held by Baker, Fentress & Company, as described in the
table. Mr. Smith is an Executive Vice President of Baker Fentress and,
since 1989, has managed its private placement portfolio.
(7) Represents shares held by Endeavour Capital Fund Limited Partnership, as
described in the table. Mr. von Schlegell, a director of Citadel
Broadcasting, is the Managing Partner of Endeavour Capital Fund and the
President and a shareholder of the General Partner of Endeavour Capital
Fund.
(8) Does not include 121,713 shares owned by Mr. Snider's spouse.
(9) These shares are held under an Amended and Restated Voting Trust Agreement
dated October 15, 1997. By its terms, the Amended and Restated Voting Trust
Agreement shall continue in effect until terminated upon the written
agreement of Citadel Communications and the holders of voting trust
certificates which represent a majority of the shares held in the voting
trust as determined in accordance with the Amended and Restated Voting
Trust Agreement. The voting trust also terminates with respect to any
shares upon transfer of such shares to a person who is not an affiliate of
ABRY Broadcast Partners II, L.P. or ABRY Citadel Investment Partners, L.P.
or upon a distribution of shares by ABRY Broadcast Partners II, L.P. or
ABRY Citadel Investment Partners, L.P. to its partners. ABRY Citadel
Investment Partners, L.P. has sold or has distributed all of its shares to
its partners. During the term of the Amended and Restated Voting Trust
Agreement, the voting trustee has the right to vote the shares of stock
subject to that agreement and to take part in any shareholders' meetings,
including the right to vote the shares for the election of directors of
Citadel Communications. The voting trustee may assign his rights and
delegate his obligations to a successor voting trustee, who shall be a
back-up trustee or other person appointed in the manner provided under the
terms of the Amended and Restated Voting Trust Agreement. Dispositive power
with respect to these shares is held by Royce Yudkoff, the President of
ABRY Holdings, Inc., the general partner of ABRY Capital, L. P., the
general partner of ABRY Broadcast Partners II, L.P..
(10) Represents shares held by Mr. Levy as voting trustee under the Amended and
Restated Voting Trust Agreement. See footnote (9).
(11) Includes 8,460,839 shares beneficially owned by ABRY Broadcast Partners II,
L.P. and held by Harlan A. Levy as voting trustee under the Amended and
Restated Voting Trust Agreement. See footnotes (9) and (10).
(12) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 4, 1999 (dated January 26, 1999) by Putnam
Investments, Inc. on behalf of itself and Marsh & McLennan Companies, Inc.,
Putnam Investment Management, Inc. and Putnam Advisory Company, Inc., the
shares indicated are under shared voting and dispositive power among Putnam
Investments, Inc., Putnam Investment Management, Inc. and Putnam Advisory
Company, Inc. Putnam Investment Management, Inc. and Putnam Advisory
Company, Inc. are subsidiaries of Putnam Investments, Inc., and Putnam
Investments, Inc. is a subsidiary of Marsh & McLennan Companies, Inc. The
number of shares shown assume that there has been no change in the number
of shares beneficially owned since the filing of the Schedule 13G. Pursuant
to Rule 13d-4 under the Securities Exchange Act, Marsh & McLennan
Companies, Inc. and Putnam Investments, Inc. declared that their filing of
the Schedule 13G shall not be deemed to be an admission of beneficial
ownership of the shares reported.
(13) Includes shares discussed in footnotes (1), (6) and (7).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
SALE AND LEASEBACK OF AIRPLANE
In December 1995, Citadel Broadcasting sold to Wilson Aviation, L.L.C., a
company then owned by Mr. Wilson and his spouse and currently owned by Rio Bravo
Enterprise Associates, L.P., an airplane formerly owned by Citadel Broadcasting,
for a cash purchase price of approximately $1.3 million. Contemporaneously with
the sale of the airplane, Citadel Broadcasting entered into an agreement to
lease the airplane from Wilson
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<PAGE> 57
Aviation, L.L.C. from December 29, 1995 to December 31, 2001. The parties
subsequently amended the lease to extend through December 31, 2003. Under the
terms of the lease, as amended, Citadel Broadcasting paid monthly rent in the
amount of $17,250 through December 31, 1998 and is required to pay monthly rent
in the amount of $21,000 thereafter. In addition, Citadel Broadcasting bears all
of the costs of the maintenance, repair and operation of the airplane during the
term of the lease. The sale and leaseback were not independently established in
an arm's length transaction; however, the original transaction was reviewed and
approved by Citadel Broadcasting's senior lender and Citadel Broadcasting
believes, based upon such review, that the terms of the transaction are
reasonable and at least as favorable to Citadel Broadcasting as could be
obtained generally from unaffiliated parties. Citadel Broadcasting's Board of
Directors approved the amendment to this lease. Mr. Wilson owns all of the
capital stock of Rio Bravo, Inc., the sole general partner of Rio Bravo
Enterprise Associates, L.P.
CORPORATE EVENT COSTS
During 1998, Citadel Broadcasting paid an aggregate of $75,964 in respect
of accommodation and activity costs in connection with three corporate events
held at a facility owned indirectly by Rio Bravo Enterprise Associates, L.P.
Citadel Broadcasting's Board of Directors approved the charges. Citadel
Broadcasting believes that these charges are reasonable and reflect terms at
least as favorable to it as could be obtained generally from unaffiliated
providers of similar services.
See also Item 11 under the caption "Compensation Committee Interlocks and
Insider Participation" for a description of various other transactions involving
the directors and executive officers of Citadel Broadcasting and significant
stockholders of Citadel Communications
57
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements -- The following Consolidated Financial
Statements of Citadel Broadcasting Company and subsidiary are filed
as part of Item 8 of this report and are included after the
signature page:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and
1998 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 F-4
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1996, 1997 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
(a)(2) Financial Statement Schedules --
Schedule II: Valuation and Qualifying Accounts. Information required
by Schedule II is included in the Notes to Citadel Broadcasting's
Consolidated Financial Statements as Note 13.
(a)(3) Exhibits -- The Exhibits listed in the accompanying Exhibit Index
are filed as part of this report.
(b) Reports on Form 8-K -- During the quarter ended December 31, 1998,
Citadel Broadcasting Company filed the following reports on Form
8-K:
Form 8-K dated November 19, 1998 (filed November 30, 1998) and Form
8-K/A dated November 19, 1998 (filed December 16, 1998) reporting
under Item 5 Citadel Broadcasting's private placement of $115.0
million aggregate principal amount of its 9 1/4% Senior Subordinated
Notes due 2008 and Citadel Broadcasting's agreement with Wicks
Broadcast Group Limited Partnership and certain related entities
(collectively, "Wicks") to acquire certain radio stations in South
Carolina, New York and Indiana. The following financial information
of Wicks was filed with the report on Form 8-K/A:
Independent Auditors' Report
Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited)
Statements of Operations and Changes in Division Equity for the
year ended December 31, 1997 and the nine months ended September
30, 1998 (unaudited)
Statements of Cash Flows for the year ended December 31, 1997
and for the nine months ended September 30, 1998 (unaudited)
Notes to Financial Statements
The following pro forma financial information of Citadel Broadcasting and
Subsidiary was filed with the report on Form 8-K/A:
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
nine months ended September 30, 1998
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
nine months ended September 30, 1997
58
<PAGE> 59
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30,
1998
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
59
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Citadel Broadcasting Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CITADEL BROADCASTING COMPANY
Date: March 30, 1999 By: /s/ LAWRENCE R. WILSON
------------------------------------
Lawrence R. Wilson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Citadel
Broadcasting Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LAWERENCE R. WILSON Chairman of the Board and Chief Executive Officer March 30, 1999
- ------------------------------------ (Principal Executive Officer)
Lawerence R. Wilson
/s/ DONNA L. HEFFNER Vice President and Chief Financial Officer March 30, 1999
- ------------------------------------ (Principal Financial and Accounting Officer)
Donna L. Heffner
/s/ PATRICIA DIAZ DENNIS Director March 30, 1999
- ------------------------------------
Patricia Diaz Dennis
/s/ SCOTT E. SMITH Director March 30, 1999
- ------------------------------------
Scott E. Smith
/s/ JOHN E. VON SCHLEGELL Director March 30, 1999
- ------------------------------------
John E. von Schlegell
/s/ TED L. SNIDER, SR. Director March 30, 1999
- ------------------------------------
Ted L. Snider, Sr.
</TABLE>
60
<PAGE> 61
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report to security holders covering Citadel Broadcasting
Company's last fiscal year other than this Form 10-K and no proxy statement,
form of proxy or other proxy soliciting material relating to an annual or other
meeting of security holders has been sent or is expected to be sent to Citadel
Broadcasting Company's security holders.
61
<PAGE> 62
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1996, 1997 and 1998.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Citadel Broadcasting Company:
We have audited the accompanying consolidated balance sheets of Citadel
Broadcasting Company (a wholly-owned subsidiary of Citadel Communications
Corporation) and subsidiary as of December 31, 1997 and 1998 and the related
consolidated statements of operations, shareholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Citadel
Broadcasting Company and subsidiary as of December 31, 1997 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Phoenix, Arizona
March 5, 1999, except as to the last two paragraphs of
Note 19, which are as of March 17, 1999
F-2
<PAGE> 64
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,684,991 $102,841,800
Cash held in escrow....................................... 718,561 --
Accounts receivable, less allowance for doubtful accounts
of $808,942 in 1997, and $1,186,546 in 1998............ 25,744,137 34,196,857
Notes receivable from related parties..................... 246,455 214,726
Prepaid expenses.......................................... 1,532,227 1,956,290
Assets held for sale...................................... -- 25,938,227
------------ ------------
Total current assets.............................. 35,926,371 165,147,900
Property and equipment, net................................. 35,242,284 34,084,790
Intangible assets, net...................................... 268,689,516 268,790,120
Deposits for pending acquisitions........................... 650,000 --
Other assets................................................ 3,664,123 4,238,119
------------ ------------
$344,172,294 $472,260,929
============ ============
LIABILITIES, EXCHANGEABLE PREFERRED STOCK AND SHAREHOLDER'S
EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,001,194 $ 4,359,667
Accrued liabilities....................................... 9,060,129 10,900,197
Current maturities of other long-term obligations......... 271,352 287,414
------------ ------------
Total current liabilities......................... 13,332,675 15,547,278
Note payable................................................ 90,084,059 --
Senior subordinated notes payable, net of unamortized
discount.................................................. 98,331,117 210,091,437
Other long-term obligations, less current maturities........ 1,012,649 1,040,436
Deferred tax liability...................................... 23,270,338 24,843,549
------------ ------------
Total liabilities................................. 226,030,838 251,522,700
------------ ------------
Exchangeable preferred stock................................ 102,009,531 116,775,393
------------ ------------
Commitments and contingencies (Note 18)
Shareholder's equity:
Common stock, $.001 par value; authorized 136,300 shares,
issued and outstanding 40,000 shares................... 40 40
Additional paid-in capital................................ 42,296,316 135,338,200
Deferred compensation..................................... -- (1,044,103)
Accumulated deficit....................................... (26,164,431) (30,095,467)
Accumulated other comprehensive loss...................... -- (235,834)
------------ ------------
Total shareholder's equity........................ 16,131,925 103,962,836
------------ ------------
$344,172,294 $472,260,929
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 65
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Gross broadcasting revenue........................ $50,824,384 $ 99,469,550 $149,305,406
Less agency commissions......................... 5,411,578 9,666,280 13,879,145
----------- ------------ ------------
Net broadcasting revenue..................... 45,412,806 89,803,270 135,426,261
----------- ------------ ------------
Operating expenses:
Station operating expenses...................... 33,232,485 65,245,095 93,484,646
Depreciation and amortization................... 5,158,206 14,635,534 26,414,242
Corporate general and administrative............ 3,247,579 3,530,067 4,369,376
----------- ------------ ------------
Operating expenses........................... 41,638,270 83,410,696 124,268,264
----------- ------------ ------------
Operating income............................. 3,774,536 6,392,574 11,157,997
----------- ------------ ------------
Nonoperating expenses (income):
Interest expense................................ 6,155,472 12,303,981 18,126,262
Interest income................................. (407,581) (439,229) (821,777)
Loss (gain) on sale of assets................... 1,749 -- (1,044,880)
Other, net...................................... (8,124) (11,944) 215,647
----------- ------------ ------------
Nonoperating expenses, net................... 5,741,516 11,852,808 16,475,252
----------- ------------ ------------
Loss before income taxes and extraordinary
item....................................... (1,966,980) (5,460,234) (5,317,255)
Income tax (benefit).............................. -- (769,573) (1,386,219)
----------- ------------ ------------
Loss before extraordinary item............... (1,966,980) (4,690,661) (3,931,036)
Extraordinary loss on extinguishment of debt...... (1,769,000) -- --
----------- ------------ ------------
Net loss..................................... (3,735,980) (4,690,661) (3,931,036)
Dividend requirement for exchangeable preferred
stock........................................... -- 6,632,939 14,585,842
----------- ------------ ------------
Net loss applicable to common shares......... $(3,735,980) $(11,323,600) $(18,516,878)
=========== ============ ============
Basic and diluted net loss per common share....... $ (93) $ (283) $ (463)
=========== ============ ============
Weighted average common shares outstanding........ 40,000 40,000 40,000
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 66
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE SHAREHOLDER'S
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT LOSS EQUITY
------ ------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1995.................... 40,000 $40 $ 8,488,557 $ -- $(17,737,790) $ -- $ (9,249,193)
Net loss.................. -- -- -- -- (3,735,980) -- (3,735,980)
Capital contribution from
Parent, net............. -- -- 18,983,823 -- -- -- 18,983,823
------ --- ------------ ------------ ------------ ---------- ------------
Balances at December 31,
1996.................... 40,000 40 27,472,380 -- (21,473,770) -- 5,998,650
Net loss.................. -- -- (4,690,661) (4,690,661)
Capital contribution from
Parent, net............. -- -- 21,456,875 -- -- -- 21,456,875
Exchangeable preferred
stock dividend
requirement............. -- -- (6,632,939) -- -- -- (6,632,939)
------ --- ------------ ------------ ------------ ---------- ------------
Balances at December 31,
1997.................... 40,000 40 42,296,316 -- (26,164,431) -- 16,131,925
Comprehensive loss:
Net loss................ -- -- -- -- (3,931,036) -- (3,931,036)
Unrealized loss on
hedging contract, net
of tax................ -- -- -- -- -- (235,834) (235,834)
------------
Total comprehensive
loss............. -- -- -- -- -- -- (4,166,870)
------------
Proceeds of initial public
offering of Parent...... -- -- 116,513,904 -- -- -- 116,513,904
Cash payments of initial
public offering costs... -- -- (9,876,726) -- -- -- (9,876,726)
Deferred compensation..... -- -- 1,118,682 (1,044,103) -- -- 74,579
Capital contribution from
Parent, net............. -- -- 51,886 -- -- -- 51,886
Accretion of exchangeable
preferred stock costs... -- -- (180,020) -- -- -- (180,020)
Exchangeable preferred
stock dividend
requirement............. -- -- (14,585,842) -- -- -- (14,585,842)
------ --- ------------ ------------ ------------ ---------- ------------
Balances at December 31,
1998.................... 40,000 $40 $135,338,200 $ (1,044,103) $(30,095,467) $ (235,834) $103,962,836
====== === ============ ============ ============ ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 67
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (3,735,980) $ (4,690,661) $ (3,931,036)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Extraordinary loss............................. 1,769,000 -- --
Depreciation and amortization.................. 5,158,206 14,635,534 26,414,242
Deferred income tax benefit.................... -- (769,573) (1,806,234)
Deferred compensation expense.................. -- -- 74,579
Amortization of debt issuance costs and debt
discounts................................... 370,652 441,334 716,897
Bad debt expense............................... 421,378 1,016,375 1,201,341
Loss/(gain) on sale of assets.................. 1,749 -- (1,044,880)
Changes in assets and liabilities, net of
acquisitions:
Increase in accounts receivable and notes
receivable from related parties........... (5,257,849) (10,214,907) (9,585,988)
Increase in prepaid expenses................ (175,058) (230,070) (424,063)
Increase in accounts payable................ 94,017 707,945 358,473
Increase (decrease) in accrued
liabilities............................... (81,801) 5,323,678 1,565,129
------------ ------------- -------------
Net cash provided by (used in) operating
activities................................ (1,435,686) 6,219,655 13,538,460
------------ ------------- -------------
Cash flows from investing activities:
Capital expenditures................................ (2,037,840) (2,070,223) (4,511,507)
Capitalized acquisition costs....................... (1,144,699) (2,928,956) (1,242,238)
Cash paid to acquire stations....................... (38,805,036) (205,973,171) (42,108,647)
Other assets, net................................... 41,303 (676,946) (389,766)
Deposits for pending acquisitions................... (930,000) (650,000) --
Notes receivable, net............................... (18,251,402) -- --
Proceeds from sales of assets....................... 1,115 -- 2,440,345
------------ ------------- -------------
Net cash used in investing activities....... (61,126,559) (212,299,296) (45,811,813)
------------ ------------- -------------
Cash flows from financing activities:
Principal payments on notes payable................. (50,970,385) (39,000,000) (125,084,059)
Proceeds from notes payable......................... 86,244,059 52,499,999 35,000,000
Proceeds from senior subordinated notes payable..... -- 97,250,000 111,550,000
Proceeds from issuance of exchangeable preferred
stock............................................ -- 95,376,592 --
Proceeds from initial public offering of Parent..... -- -- 116,513,904
Cash payments of initial public offering costs...... -- -- (9,876,726)
Payment of debt issuance costs...................... (2,283,124) (1,855,123) (689,054)
Principal payments on other long-term obligations... (776,107) (735,077) (442,390)
Proceeds from other obligations..................... -- -- 406,601
Prepayment premium.................................. (420,000) -- --
Advances from (payments to) parent company.......... 12,367,070 (12,817,000) --
Capital contribution from parent company............ 18,983,823 21,456,875 51,886
------------ ------------- -------------
Net cash provided by financing activities... 63,145,336 212,176,266 127,430,162
------------ ------------- -------------
Net increase in cash and cash equivalents... 583,091 6,096,625 95,156,809
Cash and cash equivalents, beginning of year.......... 1,005,275 1,588,366 7,684,991
------------ ------------- -------------
Cash and cash equivalents, end of year................ $ 1,588,366 $ 7,684,991 $ 102,841,800
============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 68
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
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. ("Citadel License") is a wholly-owned subsidiary
of Citadel Broadcasting Company. Citadel Broadcasting Company and its subsidiary
(collectively referred to as the "Company") own and operate radio stations and
hold Federal Communications Commission ("FCC") licenses in Arkansas, California,
Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Pennsylvania, Rhode
Island, Utah and Washington. In addition, the Company is a provider of on-line
services, offering its subscribers a variety of services including electronic
mail and access to the internet.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include Citadel
Broadcasting Company and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Derivative Financial Instruments
The Company uses an interest rate swap agreement to hedge the effects of
fluctuations in interest rates. Amounts receivable or payable due to settlement
of the interest rate swap agreement are recognized as interest expense or income
on a monthly basis. A mark-to-market adjustment is recorded as a component of
shareholder's equity to reflect the fair value of the interest rate swap
agreement.
Property and Equipment
Assets acquired in business combinations are accounted for using the
purchase method of accounting and are recorded at their estimated fair value
upon acquisition as determined by management or by independent appraisal.
Property and equipment additions are recorded at cost. Depreciation of property
and equipment is determined using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are capitalized and
depreciated straight-line over the shorter of the lease terms or the estimated
useful lives of the assets. Maintenance and repairs are expensed.
Intangible Assets
Intangible assets with determinable lives have been allocated among various
categories of customer-based or market-based intangibles at their estimated fair
value upon acquisition as determined by management or by independent appraisal.
Goodwill represents the excess of cost over the fair value of tangible assets
and
F-7
<PAGE> 69
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
intangible assets with determinable lives. Amortization is provided on the
straight-line method over the estimated useful lives of the related assets.
Other intangible assets are comprised of acquisition costs, agreements not to
compete, broadcast licenses, subscriber lists, premium lease space and
subcarrier antenna income. Pending acquisition costs are deferred and
capitalized as part of completed acquisitions or expensed in the period in which
the pending acquisition is terminated. The Company's policy is to write-off
intangible assets once they have become fully amortized. The useful lives and
recoverability of intangible assets are evaluated at least annually. This
evaluation encompasses the undiscounted historical broadcast cash flow of each
station and existing broadcast cash flow multiples for sales of similar radio
properties to estimate the potential selling price for the station and,
therefore, recoverability of the assets.
Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the lives of the
related debt.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes as if it were a separate taxpayer. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company is included in the
consolidated tax returns of its parent company, Citadel Communications.
Income (Loss) Per Share of Common Stock
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"). This statement establishes standards for computing and presenting
earnings per share ("EPS"), and supersedes APB Opinion No. 15. The Statement
replaces primary EPS with basic EPS and requires dual presentation of basic and
diluted EPS. All prior period EPS data has been restated to conform to SFAS No.
128. The basic and diluted per share effect of the extraordinary loss on
extinguishment of debt in 1996 was $(44).
Revenue Recognition
Broadcasting operations derive revenue from the sale of program time and
commercial announcements to local, regional and national advertisers. Revenue is
recognized when the programs and commercial announcements are broadcast. On-line
service revenue derived from the internet service provider is recognized over
the period in which the services are provided. Revenue generated from the
internet service provider is included in gross broadcasting revenue in the
accompanying consolidated statement of operations.
Barter Transactions
Barter contracts are agreements entered into under which the Company
provides commercial airtime in exchange for goods and services used principally
for promotional, sales and other business activities. An asset and liability are
recorded at the fair market value of the goods or services received. Revenue is
recorded and the liability is relieved when commercials are broadcast and
expense is recorded and the asset is relieved when goods or services are used.
F-8
<PAGE> 70
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comprehensive Loss
As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting of
comprehensive loss and its components; however, the adoption of SFAS No. 130 had
no impact on the Company's net loss or shareholder's equity. SFAS No. 130
requires the reporting of a mark-to-market adjustment pertaining to a hedging
contract which is recorded in shareholder's equity as a component of
comprehensive loss.
Local Marketing Agreements
Fees earned or incurred pursuant to various local marketing agreements
("LMA") are recognized as gross broadcasting revenue or station operating
expenses, respectively, in the period that the services performed or received
occur. The Company's consolidated financial statements include broadcasting
revenues and station operating expenses of stations marketed under LMAs.
Joint Sales Agreements
Fees earned or incurred pursuant to various joint sales agreements ("JSA")
are recognized pursuant to the terms in the various agreements under one of two
methods: (a) the JSA fee is recognized as a reduction to sales expense (included
in station operating expenses in the Company's consolidated statements of
operations), or (b) the Company is allocated a percentage of the JSA stations'
net revenue and operating expenses and these amounts are recognized as
broadcasting revenue and station operating expenses, respectively, in the period
earned or incurred.
Business and Credit Concentrations
In the opinion of management, credit risk with respect to receivables is
limited due to the large number of customers and the geographic diversification
of the Company's customer base. The Company performs credit evaluations of its
customers and believes that adequate allowances for any uncollectible
receivables are maintained. At December 31, 1997 and 1998, no receivable from
any customer exceeded five percent of gross accounts receivable nor did any
customer's account exceed more than ten percent of net broadcasting revenue for
any of the periods presented.
Impairment Recognition
Management evaluates the carrying value of all long-lived assets to
determine recoverability based on an analysis of nondiscounted future cash flows
in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". Based on its most recent
analysis, management believes that no material impairment in the value of
long-lived assets existed at December 31, 1998.
Reclassifications
Certain 1996 and 1997 balances have been reclassified to conform to the
1998 presentation.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This pronouncement is effective for all fiscal
F-9
<PAGE> 71
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
quarters of fiscal years beginning after June 15, 1999. Management does not
believe the implementation of this accounting pronouncement will have a material
effect on its consolidated financial statements.
(2) ACQUISITIONS AND DISPOSITIONS
1997 Acquisitions
During 1997, the Company acquired the assets of 44 FM and 17 AM radio
stations and related assets from various parties as follows:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
- ---------------- ----------------- ------------------- ------------
<S> <C> <C> <C>
January 1, 1997.................. KCTR-FM/KDWG-AM/ Billings, MT $ 26,008,357
KKBR-FM/KBBB-FM/
KMHK-FM
KUGN-AM/KUGN-FM/ Eugene, OR
KEHK-FM
KAKT-FM/KBOY-FM/ Medford, OR
KCMX-AM/KCMX-FM/
KTMT-AM/KTMT-FM
KEYW-FM/KFLD-AM/ Tri-Cities, WA
KORD-FM/KXRX-FM
February 14, 1997................ KENZ-FM Salt Lake City, UT $ 5,590,119
April 10, 1997................... KBER-FM Salt Lake City, UT $ 7,760,000
July 3, 1997..................... WPRO-AM/WPRO-FM/ Providence, RI $115,795,216
WSKO-AM/WWLI-FM
WQCY-FM/WMOS-FM/ Quincy, IL
WTAD-AM/WBRJ-FM
WQWK-FM/WIKN-FM/ State College, PA
WRSC-AM/WBLF-AM
WGLU-FM/WQKK-FM Johnstown, PA
WRKZ-FM Harrisburg, PA
WQXA-AM/WQXA-FM York, PA
WCTO-FM/WEST-AM Allentown, PA
WMGS-FM/WARM-AM/ Wilkes-Barre, PA
WZMT-FM/WAZL-AM
July 17, 1997.................... KNHK-FM Reno, NV $ 1,300,000
September 25, 1997............... KTHK-FM Tri-Cities, WA $ 600,500
September 29, 1997............... WXEX-FM, Edgenet Providence, RI $ 4,250,000
October 15, 1997................. KARN-AM/KARN-FM/ Little Rock, AR $ 9,000,000
KKRN-FM/KRNN-AM/
KAFN-FM
October 15, 1997................. KIPR-FM Little Rock, AR $ 5,544,506
October 15, 1997................. Land and Little Rock, AR $ 3,001,537
Buildings
October 15, 1997................. KOKY-FM Little Rock, AR $ 7,354,860
October 21, 1997................. WLEV-FM Allentown, PA $ 23,000,000
</TABLE>
F-10
<PAGE> 72
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
- ---------------- ----------------- ------------------- ------------
<S> <C> <C> <C>
October 24, 1997................. KBEE-FM/KFNZ-AM Salt Lake City, UT $ 2,867,092
November 4, 1997................. KLAL-FM Little Rock, AR $ 1,500,000
November 4, 1997................. KURB-FM/KVLO-FM/ Little Rock, AR $ 12,000,000
KLIH-FM
November 18, 1997................ WHKK-FM Providence, RI $ 3,999,310
</TABLE>
The acquisitions were accounted for by the purchase method of accounting
and, accordingly, the purchase price was allocated to current assets as well as
noncurrent tangible and intangible assets based on their fair values as
determined by management or by independent appraisal. The acquisitions were
funded with the proceeds from debt, the issuance of Exchangeable Preferred Stock
of the Company and the issuance of capital stock of Citadel Communications. The
purchase price, including acquisition costs of $2,928,956, was allocated as
follows:
<TABLE>
<S> <C>
Cash........................................................ $ 877,693
Accounts receivable......................................... 4,473,441
Prepaid expenses............................................ 706,402
Property and equipment...................................... 21,203,071
Intangible assets........................................... 208,964,226
Other assets................................................ 10,100
Accounts payable and accrued liabilities.................... (3,084,549)
Current maturities of other long-term obligations........... (649,931)
------------
$232,500,453
============
</TABLE>
1998 Acquisitions and Dispositions
1998 Acquisitions
During 1998, the Company acquired the assets of 7 FM and 4 AM radio
stations and 5 internet service providers from various parties as follows:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
- ---------------- --------------------------------- ------------------------- -----------
<S> <C> <C> <C>
RADIO STATIONS:
January 2, 1998........ WEMR-AM/WEMR-FM Wilkes-Barre/Scranton, PA $ 815,000
February 12, 1998...... KQFC-FM/KKGL-FM/ Boise, ID $14,400,000
KBOI-AM
March 26, 1998......... WSGD-FM/WDCS-FM/ Wilkes-Barre/Scranton, PA $ 6,000,000
WCDL-AM
April 21, 1998......... KIZN-FM/KAMG-FM Boise, ID $14,506,177
November 17, 1998...... KAAY-AM Little Rock, AK $ 5,107,589
INTERNET SERVICE
PROVIDERS:
September 18, 1998..... Digital Planet Salt Lake City, UT $ 225,000
Internet Technology Systems,
September 30, 1998. Inc.............................. Salt Lake City, UT $ 1,535,000
October 15, 1998....... In Quo Salt Lake City, UT $ 335,000
October 26, 1998....... The Johnson Connection LLC Salt Lake City, UT $ 320,000
December 8, 1998....... The Friendly Net LLC Salt Lake City, UT $ 92,997
</TABLE>
F-11
<PAGE> 73
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The acquisitions were accounted for by the purchase method of accounting
and, accordingly, the purchase price was allocated to current assets as well as
noncurrent tangible and intangible assets based on their fair values as
determined by management. The acquisitions were funded with the proceeds from
debt. The purchase price, including acquisition costs of $1,242,238, was
allocated as follows:
<TABLE>
<S> <C>
Property and equipment...................................... $ 3,476,618
Intangible assets........................................... 41,031,169
Other assets................................................ 71,214
-----------
$44,579,001
===========
</TABLE>
1998 Dispositions
In October 1998, the Company sold the assets of WQCY-FM, WTAD-AM, WMOS-FM
and WBJR-FM in Quincy, Illinois for $2,250,000. A gain of approximately
$1,280,000 was recognized on the sale.
In November 1998, the Company sold the assets of KRNN-AM in Little Rock,
Arkansas for $190,345. A loss of approximately $5,400 was recognized on the
sale.
In October 1997, the Company entered into an agreement in which the Company
acquired WFMZ-FM in exchange for $23,000,000 in cash and the FCC license and
studio equipment of WEST-AM. Pending FCC approval, the disposition of WEST-AM
was not recorded until the third quarter of 1998. The disposition of WEST-AM was
recorded as a purchase price adjustment aggregating approximately $463,000.
Pro Forma
The following summary, prepared on a pro forma basis, presents the results
of operations as if all the above acquisitions and dispositions had been
completed as of January 1, 1997.
<TABLE>
<CAPTION>
UNAUDITED
----------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Net broadcasting revenue........................ $119,753,000 $135,194,000
Operating income................................ 6,267,000 11,783,000
Net loss........................................ (6,042,000) (1,897,000)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the radio stations had been owned for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
Pending Acquisitions
On November 23, 1998, the Company entered into an Asset Purchase Agreement
with Wicks Broadcast Group Limited Partnership and related entities to acquire
substantially all of the assets of 10 FM and 6 AM radio stations in Charleston,
South Carolina; Binghamton, New York and Muncie and Kokomo, Indiana for an
aggregate purchase price of approximately $77,000,000 in cash. Citadel
Broadcasting has delivered an irrevocable letter of credit in favor of the
sellers, issued by BankBoston, N.A., in the amount of $5,000,000 to secure the
Company's obligations under the agreement. Closing of this transaction is
subject to various conditions at closing, including FCC approval.
F-12
<PAGE> 74
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) ASSETS HELD FOR SALE
On January 13, 1999, the Company entered into an asset purchase agreement
to sell substantially all of the assets of the Company's 18 FM and 7 AM radio
stations serving the markets of Eugene, Oregon; Medford, Oregon; Tri-Cities,
Washington; Billings, Montana; Johnstown, Pennsylvania and State College,
Pennsylvania for an aggregate purchase price of approximately $26,000,000,
consisting of $25,500,000 in cash and a $500,000 promissory note. The
disposition is subject to conditions to closing, including FCC approval. The
Company believes that any gain or loss resulting from the disposition will not
have a material effect on its financial position.
The net assets of the radio stations are presented in the accompanying
consolidated balance sheet as "Assets held for sale", and are carried at the
lower of cost or net realizable value.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998 consists of the
following:
<TABLE>
<CAPTION>
ESTIMATED
1997 1998 USEFUL LIFE
----------- ------------ -----------
<S> <C> <C> <C>
Land................................ $ 3,269,025 $ 3,890,767 --
Buildings and improvements.......... 5,726,701 6,925,691 5-30 years
Transmitters, towers and
equipment......................... 29,053,049 28,533,871 5-15 years
Office furniture and equipment...... 5,615,833 6,308,077 3-5 years
Construction in progress............ 736,620 1,077,853 --
----------- ------------
44,401,228 46,736,259
Less accumulated depreciation and
amortization...................... (9,158,944) (12,651,469)
----------- ------------
$35,242,284 $ 34,084,790
=========== ============
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
1997 1998 USEFUL LIFE
------------ ------------ -----------
<S> <C> <C> <C>
Goodwill........................... $119,226,136 $129,239,260 15 years
Broadcast licenses................. 162,626,295 168,522,982 15 years
Subscriber lists................... -- 2,553,955 3 years
Noncompetition agreements.......... 1,858,593 2,064,667 3-5 years
Premium lease space................ 161,787 49,552 1-13 years
Subcarrier antenna income.......... 103,878 103,878 1-4 years
------------ ------------
283,976,689 302,534,294
Less accumulated amortization...... (15,287,173) (33,744,174)
------------ ------------
$268,689,516 $268,790,120
============ ============
</TABLE>
F-13
<PAGE> 75
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Interest........................................... $5,118,735 $ 6,417,273
Music license fees................................. 209,734 169,466
Compensation and commissions....................... 2,082,492 3,104,357
Other.............................................. 1,649,168 1,209,101
---------- -----------
$9,060,129 $10,900,197
========== ===========
</TABLE>
(7) NOTE PAYABLE
On July 3, 1997, the Company entered into an amended and restated financing
agreement ("Senior Credit Facility") which allows for revolving loan borrowings
up to a maximum of $150,000,000. Pursuant to the agreement, this amount is
subject to reduction starting December 31, 1997 and continuing quarterly
thereafter. The maximum available loan commitment at December 31, 1998 was
$137,500,000. The Company must pay, on a quarterly basis, an unused commitment
fee equal to the maximum revolving loan commitment less the average of the
outstanding principal balance for the preceding quarter, multiplied by .125% or
if the total leverage ratio (as defined in the agreement) calculated as of the
last day of the preceding quarter was less than 4.5, the multiplier for the
commitment fee is reduced to .09375%. Commitment fees paid in 1996, 1997 and
1998 were $74,931, $380,295 and $412,898, respectively. The agreement requires
that the Company enter into an interest rate swap agreement for a period of at
least two years. See Note 16 for information on the interest rate swap
agreement. Principal payments are not scheduled to commence until the
outstanding principal balance exceeds the maximum loan commitment adjusted by
quarterly mandatory commitment reductions (as defined in the agreement).
At December 31, 1997, the Company's outstanding balance under the Senior
Credit Facility was $90,084,059. Interest was payable at the LIBOR rate (5.72%
at December 31, 1997), plus 2.75%. As of December 31, 1998, the Company did not
have an outstanding balance under the Senior Credit Facility.
The Senior Credit Facility is secured by a pledge of property and equipment
and the common stock of the Company. Various debt covenants place restrictions
on, among other things, indebtedness, acquisitions, dividends, capital
expenditures and the sale or transfer of assets and provide for certain minimum
operating cash flows for the Company. The debt covenant provisions also include
certain financial ratio covenants, the most restrictive in nature being; initial
total debt to adjusted operating cash flow less than 6.5 times, initial total
senior debt to adjusted operating cash flow less than 4.5 times and consolidated
operating cash flow to interest expense and cash dividends on the Exchangeable
Preferred Stock greater than 1.75 times. At December 31, 1998, the Company was
in compliance with all debt covenant provisions.
(8) SENIOR SUBORDINATED NOTES PAYABLE
On July 3, 1997, the Company completed the issuance of $101,000,000 of its
10 1/4% Senior Subordinated Notes ("1997 Notes") due 2007. Interest is payable
semi-annually. The 1997 Notes will be redeemable at the
F-14
<PAGE> 76
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
option of the Company, in whole or in part, at any time on or after July 1, 2002
at a redemption price as stated in the following percentages:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
----------
<S> <C>
2002........................................................ 105.125%
2003........................................................ 104.100%
2004........................................................ 103.075%
2005........................................................ 102.050%
2006........................................................ 101.025%
</TABLE>
In addition, at any time prior to July 1, 2000, subject to certain
conditions, the Company may, at its option, redeem a portion of the 1997 Notes
with the net proceeds of one or more Public Equity Offerings (as defined in the
indenture governing the 1997 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. The 1997 Notes are shown net of unamortized discount of
$2,493,853 at December 31, 1998.
The indenture governing the 1997 Notes contains certain restrictive
covenants, including limitations which restrict the ability of the Company to
incur additional debt, incur liens, pay 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. At December 31, 1998, the Company was in
compliance with all debt covenants.
On November 19, 1998, the Company completed the issuance of $115,000,000 of
its 9 1/4% Senior Subordinated Notes ("1998 Notes") due in 2008. The 1998 Notes
may be redeemed at the option of the Company, in whole or in part, at any time
on or after November 15, 2003 at a redemption price as stated in the following
percentages:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
----------
<S> <C>
2003........................................................ 104.625%
2004........................................................ 103.083%
2005........................................................ 101.541%
2006........................................................ 100.000%
</TABLE>
In addition, at any time prior to November 15, 2001, the Company may, at
its option, redeem a portion of the 1998 Notes with the net proceeds of one or
more Public Equity Offerings (as defined in the indenture governing the 1998
Notes), at a redemption price equal to 109.25% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the redemption date. The
1998 Notes are shown net of unamortized discount of $3,414,710 at December 31,
1998.
The indenture governing the 1998 Notes contains certain restrictive
covenants, including limitations which restrict the ability of the Company to
incur additional debt, incur liens, pay cash dividends, purchase the Company's
common stock 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. At December 31, 1998, the
Company was in compliance with all debt covenants.
F-15
<PAGE> 77
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate Senior Subordinated Notes payable at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1997 Notes.................................................. $101,000,000
1998 Notes.................................................. 115,000,000
------------
216,000,000
Less unamortized discount................................... (5,908,563)
------------
$210,091,437
============
</TABLE>
(9) OTHER LONG-TERM OBLIGATIONS
Other long-term obligations at December 31, 1997 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Various noncompetition and consulting agreements
with the sellers of radio stations acquired, due
at various dates through July 2003, face amount of
$437,503 and $579,459 at December 31, 1997 and
1998, respectively, non-interest bearing with
interest imputed at 8.5% to 9.0%, net of discount
of $29,640 and $76,617 in 1997 and 1998,
respectively...................................... $ 407,863 $ 502,842
Prepayment premium on extinguishment of debt (a).... 770,779 683,286
Capital leases...................................... 105,359 141,722
---------- ----------
1,284,001 1,327,850
Less current maturities............................. (271,352) (287,414)
---------- ----------
Long-term portion................................... $1,012,649 $1,040,436
========== ==========
</TABLE>
- ---------------
(a) The prepayment premium on the Senior Credit Facility can be reduced on a
quarterly basis depending on the outstanding balance and is due upon the
termination of the Senior Credit Facility.
On October 9, 1996, the Company extinguished its long-term debt of
$31,310,385, payable to a financial institution, and its note payable to a
related party of $7,000,000. The early retirement of the long-term debt resulted
in approximately $1,769,000 extraordinary loss due to prepayment premiums and
the write-off of debt issuance costs.
The required aggregate principal payments as of December 31, 1998,
excluding the amortization of debt discount are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 287,414
2000........................................................ 149,109
2001........................................................ 90,615
2002........................................................ 93,542
2003........................................................ 707,170
----------
$1,327,850
==========
</TABLE>
(10) SHAREHOLDER'S EQUITY
On July 7, 1998, the Company's parent, Citadel Communications, consummated
an 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 Citadel Communications and 630,796 shares were
sold by certain
F-16
<PAGE> 78
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stockholders of Citadel Communications. On July 14, 1998, Citadel Communications
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 proceeds for the shares issued upon
the exercise of the over-allotment option, were $126,606,640, of which total net
proceeds to Citadel Communications were $106,637,178, total proceeds to the
selling stockholders, net of costs of $706,492 were $9,386,244 and total
underwriting discounts, commissions and costs were $9,876,726.
In September 1998, Citadel Communications entered into stock option award
agreements with several key employees. The terms of the agreements provide for
114,000 options to purchase common stock at an exercise price of $16.00 per
share which vest over a five-year period. The fair market value on the date of
grant was $25.813 per share. Accordingly, the Company is amortizing to
compensation expense $1,118,682 ratably over the five year vesting period, which
represents the difference between the exercise price and fair market value. The
Company recognized compensation expense under the agreements of $74,579 for the
year ended December 31, 1998.
Net capital contributions to the Company from Citadel Communications are
shown in the accompanying consolidated statements of shareholder's equity, and
represent the net contributions received by the Company for (i) the issuance and
redemption of preferred stock, the redemption of warrants, the cost of equity
issuance and the payment of preferred stock dividends in 1996, (ii) the issuance
of preferred stock and the exercise of common stock options in 1997, and (iii)
the exercise of common stock options in 1998.
(11) EXCHANGEABLE PREFERRED STOCK
On July 3, 1997, the Company completed the sale of 1,000,000 shares of
13 1/4% Exchangeable Preferred Stock ("Exchangeable Preferred Stock") for
$100,000,000. The Exchangeable Preferred Stock has a liquidation preference of
$100 per share, plus accumulated and unpaid dividends. Dividends on the
Exchangeable Preferred Stock accrue at the rate of 13 1/4% per annum, and are
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1998. 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 the Company, in cash.
Thereafter, all dividends will be payable only in cash. The Company will be
required to redeem the Exchangeable Preferred Stock on July 1, 2009 (subject to
the legal availability of funds therefor) at a redemption price equal to the
liquidation preference thereof, plus accumulated and unpaid dividends, if any,
to the date of redemption.
The Exchangeable Preferred Stock is presented net of unamortized issuance
costs of $4,541,737 and $4,361,717 at December 31, 1997 and 1998, respectively.
The Exchangeable Preferred Stock includes accrued dividends at December 31, 1998
of $7,526,690, which were paid in 75,267 additional shares of Exchangeable
Preferred Stock on January 1, 1999. During 1998, dividends were paid in 65,514
additional shares on January 1, 1998 and 70,590 additional shares on July 1,
1998. At December 31, 1997 and 1998, 1,000,000 and 1,136,104 shares were issued
and outstanding, respectively.
The Certificate of Designation for the Exchangeable Preferred Stock
contains certain covenants, which, among other things, restrict the ability of
the Company with respect to: (i) the incurrence of additional debt; (ii)
restricted payments; (iii) issuances and sales of stock of certain subsidiaries;
and (iv) consolidations, mergers or sales of assets. The Company was in
compliance with these covenants at December 31, 1998.
(12) INCOME TAXES
The Company is included in the consolidated tax returns of Citadel
Communications and calculates its tax provision or benefit as though it filed a
separate return. For the years ended December 31, 1996 and 1997, the Company
generated a net loss for both financial reporting and income tax purposes;
therefore, no current
F-17
<PAGE> 79
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
tax provision has been recorded. The income tax benefit in 1997 and 1998
represents the reversal of deferred tax liabilities established at the date of
acquisition due to differences in the tax bases and the financial statement
carrying amounts of intangibles and fixed assets acquired in stock-based
acquisitions offset by federal alternative minimum tax and state tax expense in
1998. At December 31, 1998, Citadel Communications has net operating loss
carryforwards for federal income tax purposes of approximately $24,200,000 which
begin to expire in 2011.
On June 28, 1996, Citadel Communications underwent an ownership change in
accordance with Section 382 of the Internal Revenue Code. Due to this change,
the net operating losses of the acquired Company generated prior to the
acquisition are subject to limitation in future years. The approximate amount of
the net operating losses which are limited at December 31, 1998 is $7,100,000,
of which $4,400,000 may be used in any one year.
The components of the Company's income tax benefit for the year ended
December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Current tax expense:
Federal.......................................... $ -- $ 95,790
State............................................ -- 324,225
--------- -----------
-- 420,015
--------- -----------
Deferred tax benefit:
Federal.......................................... (654,137) (1,535,299)
State............................................ (115,436) (270,935)
--------- -----------
(769,573) (1,806,234)
--------- -----------
Total income tax benefit........................... $(769,573) $(1,386,219)
========= ===========
</TABLE>
A reconciliation of the Company's income tax benefit as compared to the tax
benefit calculated by applying the federal statutory rate (34%) to the loss
before income taxes for the years ended December 31, 1996, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate applied to the
loss before income taxes and
extraordinary item................. $(679,046) $(1,856,480) $(1,807,867)
State tax, net of federal benefit.... -- -- 213,989
Amortization of goodwill............. 186,844 425,344 777,809
Nondeductible meals and
entertainment...................... 31,601 51,495 87,573
Effect of the ability to utilize net
operating loss carryforwards....... 458,101 680,040 (666,752)
Other................................ 2,500 (69,972) 9,029
--------- ----------- -----------
$ -- $ (769,573) $(1,386,219)
========= =========== ===========
</TABLE>
F-18
<PAGE> 80
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets, liabilities and the valuation allowance are
as follows:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Receivables, principally due to allowance for
doubtful accounts.......................... $ 323,577 $ 474,618
Net operating loss carryforwards.............. 9,926,882 9,666,703
Accrued liabilities not currently
deductible................................. 193,423 123,922
Unrealized loss on hedging contract........... -- 157,222
------------ ------------
Total deferred tax assets............. 10,443,882 10,422,465
Valuation allowance........................... (7,515,364) (6,272,469)
------------ ------------
Net deferred tax assets............... 2,928,518 4,149,996
------------ ------------
Deferred tax liabilities:
Property and equipment, principally due to
accelerated depreciation................... (2,928,218) (3,423,460)
Intangible assets; differences in book and tax
amortization............................... (300) (726,536)
Differences between the tax basis and fair
value of intangibles and fixed assets
acquired in stock-based acquisitions....... (23,270,338) (24,843,549)
------------ ------------
Total deferred tax liabilities........ (26,198,856) (28,993,545)
------------ ------------
Net deferred tax liability...................... $(23,270,338) $(24,843,549)
============ ============
</TABLE>
The valuation allowance has increased (decreased) by $2,320,699, $755,172
and $(1,242,895) for the years ended December 31, 1996, 1997 and 1998,
respectively. Management has considered certain tax planning strategies as
permitted under SFAS No. 109, "Accounting for Income Taxes." Management has
determined that the tax benefits associated with the recorded deferred tax
assets, net of valuation allowance, are more likely than not realizable through
future taxable income and future reversals of existing taxable temporary
differences.
At December 31, 1998, the Company has an alternative minimum tax credit
(AMT) carryforward of approximately $30,000. AMT credits are available to be
carried forward indefinitely and may be utilized against regular federal tax to
the extent they do not exceed computed AMT calculations.
(13) SUPPLEMENTAL FINANCIAL INFORMATION
The Company paid cash of $7,065,546, $6,703,052 and $16,110,827 for
interest for the years ended December 31, 1996, 1997 and 1998, respectively.
Barter revenue included in gross broadcasting revenue and barter expenses
included in station operating expenses amounted to $3,335,024, $7,388,471 and
$11,014,507, and $3,029,665, $7,062,822 and $9,492,453, for the years ended
December 31, 1996, 1997 and 1998, respectively.
F-19
<PAGE> 81
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of additions and deductions related to the allowance for doubtful
accounts for the years ended December 31, 1996, 1997 and 1998 follows:
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996............... $514,533 $ 421,378 $(314,857) $ 621,054
Year ended December 31, 1997............... 621,054 1,016,375 (828,487) 808,942
Year ended December 31, 1998............... 808,942 1,201,341 (823,737) 1,186,546
</TABLE>
The following supplemental information is related to the consolidated
statements of cash flows. The Company recorded the following significant
non-cash items for the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Difference between tax basis and fair value of
intangible assets and fixed assets acquired in
stock-based acquisitions........................... $1,640,000 $22,399,911 $ 3,445,090
========== =========== ===========
Dividends for exchangeable preferred stock........... $ -- $ 6,551,389 $14,585,842
========== =========== ===========
Note payable issued for property and equipment....... $ -- $ -- $ 120,000
========== =========== ===========
Transfer of fixed assets and intangible assets, to
assets held for sale for pending disposition....... $ -- $ -- $25,938,227
========== =========== ===========
Unrealized loss on hedging contract, net of tax...... $ -- $ -- $ 235,834
========== =========== ===========
Accretion of exchangeable preferred stock issuance
costs.............................................. $ -- $ 81,550 $ 180,020
========== =========== ===========
</TABLE>
(14) CITADEL COMMUNICATIONS FINANCIAL DATA
The following is summary consolidated financial data for Citadel
Communications and its subsidiary, the Company.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Consolidated Balance Sheets:
Current assets................................ $ 35,926,371 $165,147,900
Property and equipment, net................... 35,242,284 34,084,790
Intangible assets, net........................ 268,689,516 268,790,120
Other assets.................................. 4,314,123 4,238,119
------------ ------------
Total assets.......................... $344,172,294 $472,260,929
============ ============
</TABLE>
F-20
<PAGE> 82
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Current liabilities........................... $ 13,332,675 $ 15,547,278
Notes payable, less current maturities........ 90,084,059 --
Senior subordinated notes payable............. 98,331,117 210,091,437
Other liabilities............................. 24,282,987 25,883,985
------------ ------------
Total liabilities..................... 226,030,838 251,522,700
Exchangeable preferred stock.................. 102,009,531 116,775,393
Shareholders' equity.......................... 16,131,925 103,962,836
------------ ------------
Total liabilities and shareholders'
equity.............................. $344,172,294 $472,260,929
============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Consolidated Statements of Operations:
Net broadcasting revenue...................... $ 89,803,270 $135,426,261
Operating income.............................. 6,367,016 11,157,997
Interest expense.............................. 12,872,515 18,126,262
Other income, net............................. (451,173) (1,651,010)
------------ ------------
Loss before income taxes...................... (6,054,326) (5,317,255)
Deferred income tax (benefit)................. (769,573) (1,386,219)
------------ ------------
Net loss.............................. $ (5,284,753) $ (3,931,036)
============ ============
Dividend requirement for exchangeable preferred
stock......................................... $ 6,632,939 $ 14,585,842
============ ============
</TABLE>
(15) CITADEL LICENSE FINANCIAL DATA
The operations of 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 1997
Notes and the 1998 Notes (see Note 8). 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. Citadel License is the only
subsidiary of the Company.
The following is summary financial data for Citadel License:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Balance Sheets:
Assets held for sale.......................... -- 9,482,164
Intangible assets, net (broadcast licenses)... $137,073,551 $150,450,798
Other assets.................................. 2,048 --
------------ ------------
Total assets.......................... $137,075,599 $159,932,962
============ ============
Shareholder's equity.................. $137,075,599 $159,932,962
============ ============
Statements of Operations:
Amortization expense.......................... 5,267,872 12,036,236
------------ ------------
Net loss.............................. $ (5,267,872) $(12,036,236)
============ ============
</TABLE>
F-21
<PAGE> 83
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary presents a description of the methodologies and
assumptions used to determine the estimated fair values for the Company's
financial instruments as required by SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments".
Limitations
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are subjective in nature and involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular instrument. Changes in assumptions
could significantly affect these estimates.
Since the fair value is estimated as of December 31, 1998, the amounts that
will actually be realized or paid at settlement or maturity of the instruments
could be significantly different.
Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued Liabilities
The carrying amount is assumed to be the fair value because of the
liquidity or short-term maturity of these instruments.
Notes Receivable from Related Parties
The fair value of the Company's notes receivable from related parties
approximate the terms in the marketplace at which they could be replaced.
Therefore, the fair value approximates the carrying value of these financial
instruments.
Senior Subordinated Notes, Exchangeable Preferred Stock and Other Long-Term
Obligations
The fair value of the Company's Senior Subordinated Notes, Exchangeable
Preferred Stock and other long-term obligations approximate the terms in the
marketplace at which they could be replaced. Therefore, the fair value
approximates the carrying value of these financial instruments.
In 1996, the Company entered into an interest rate swap agreement with a
financial institution in accordance with the terms of its Senior Credit
Facility. The fair value of the interest rate swap as of December 31, 1997 and
1998 was $3,700 and $(393,056), respectively, as determined by the financial
institution, and represents an unrealized gain (loss). The fair value of the
interest rate swap is the estimated amount that the financial institution would
receive or pay to terminate the swap agreement at the reporting date, taking
into account current interest rates and the current creditworthiness of the swap
counterparties.
(17) TRANSACTIONS WITH RELATED PARTIES
Notes Receivable from Related Parties
Notes receivable from related parties represent advances made to employees
of the Company. Interest rates range from 8.5% to 10.0%. The notes are due at
various dates through July 2003.
Leaseback
On December 29, 1995, the Company entered into a sale-leaseback transaction
with an entity owned by a principal shareholder of Citadel Communications. The
Company sold an airplane for its fair value of
F-22
<PAGE> 84
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$1,275,000 to the entity resulting in a loss of $74,327. The operating lease
commenced on December 29, 1995 with monthly payments ranging from $17,250 to
$21,000, due through December 31, 2003.
Indebtedness
In October 1996, the Company repaid its indebtedness to an entity whose
Executive Vice-President is also a director of the Company. The repayment
consisted of $7,000,000 in principal amount, $20,534 in accrued and unpaid
interest and a $420,000 prepayment penalty.
Forgiveness of Note Receivable
In 1996, the Company forgave a note receivable from a principal shareholder
of Citadel Communications aggregating $408,637, which consisted of principal and
accrued interest outstanding.
Consulting Services
During the year ended December 31, 1996, a director of the Company provided
consulting services for which he was paid $83,520. In addition, the director was
granted an option to purchase 12,000 shares of common stock of Citadel
Communications at an exercise price of $5.72.
Legal Services
During the year ended December 31, 1996, the Company retained a law firm
with a shareholder who was then also a director of the Company to represent the
Company on various matters.
Noncompetition Agreement
In connection with an acquisition, the Company entered into a
noncompetition agreement with an entity whose president is also a director of
the Company. In consideration for such noncompetition agreement, the Company
paid the entity $100,000 in 1997 and 1998. The agreement expired during 1998.
Corporate Events
During 1998, the Company paid an aggregate of $75,964 in respect of
accommodations and activity costs in connection with corporate events held at a
facility controlled by a separate entity, which is owned by a principal
shareholder of Citadel Communications.
(18) COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, or other sources are recorded when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated.
Litigation
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes that such litigation and claims
will be resolved without a material effect on the Company's financial position.
The Company has received two civil investigative demands ("CIDs") from the
Antitrust Division of the U.S. Department of Justice. One CID addresses the
Company's acquisition of station KRST in Albuquerque, New Mexico and the second
CID addresses the joint sales agreement for stations in Spokane, Washington and
Colorado Springs, Colorado. The Company has provided the requested information
in response to each CID,
F-23
<PAGE> 85
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and at present has been given no indication from the Department of Justice
regarding its intended future actions.
Local Marketing Agreements
At December 31, 1998, the Company has local marketing agreements with
WBHT-FM and WKQV-FM in Wilkes-Barre/Scranton, Pennsylvania, WHYL-FM/AM in
Harrisburg/Carlisle, Pennsylvania, and KXXL-FM in Reno, Nevada. The agreements
principally provide for the Company to supply specified programming to the
brokered stations and enable the sales staff of the Company to sell advertising
time on the stations for fixed fees to be paid by the Company. Certain of the
agreements also provide the Company with the option to purchase the stations.
The Company's consolidated financial statements include the broadcasting revenue
and station operating expenses of the brokered stations.
Certain of the local marketing agreements enable the Company to extend or
terminate the agreements at the Company's option at various dates through
October 2003. The fees paid under local marketing agreements amounted to
$1,414,527, $1,936,139 and $784,749 for the years ended December 31, 1996, 1997
and 1998, respectively.
Joint Sales Agreements
On January 15, 1996, the Company entered into a joint sales agreement to
sell advertising for radio stations KEYF-AM/FM, KUDY-AM and KKZX-FM, in Spokane,
Washington and radio stations KVOR-AM, KSPZ-FM, KTWK-AM and KVUU-FM in Colorado
Springs, Colorado. As stated in the JSA, the JSA revenue is calculated as 60% of
the broadcast cash flows of these radio stations and all Company owned radio
stations in these markets, with the exception of KKLI-FM in Colorado Springs
which is not included in the JSA calculation.
On April 22, 1996, the Company entered into a JSA for radio station KENZ-FM
in Salt Lake City, Utah. The Company's consolidated financial statements include
all sales expenses for the stations as well as revenue for the JSA fee
calculated at 30% of net revenue of the station. On February 14, 1997, the
Company acquired KENZ-FM.
On July 3, 1997, the Company acquired all of the issued and outstanding
capital stock of Tele-Media Broadcasting Company ("Tele-Media"). As a result of
this acquisition, the Company assumed a Tele-Media JSA for radio station WKQV-AM
in Wilkes-Barre/Scranton, Pennsylvania. As stated in the JSA, JSA revenue is
calculated as the sum of (i) a base monthly payment of $5,000, and (ii) an
additional monthly fee ranging from 5% to 8% of revenues (as defined in the JSA)
based on monthly revenues of WKQV-AM and of its simulcast station, WARM-AM.
Lease Commitments
The Company leases certain tower sites, transmitters and equipment,
automobiles, office equipment and an airplane. The following is a schedule by
year of future minimum rental payments required under operating
F-24
<PAGE> 86
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
leases that have an initial or remaining noncancelable lease term in excess of
one year as of December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 2,853,984
2000........................................................ 2,589,119
2001........................................................ 2,651,869
2002........................................................ 2,320,241
2003........................................................ 1,960,155
Thereafter.................................................. 3,467,957
-----------
$15,843,325
===========
</TABLE>
Total rental expense was $1,101,237, $1,971,774 and $2,670,248 for the
years ended December 31, 1996, 1997 and 1998, respectively.
Defined Contribution Plan
The Company has a defined contribution 401(k) plan for all employees who
are at least 21 years of age and have worked at least 1,000 hours in the year.
Under the 401(k) plan, employees can contribute up to 20% of their compensation,
subject to the maximum contribution allowed by the Internal Revenue Code.
Participants vest immediately in their contributions. The Company may make
discretionary contributions as approved by the Board of Directors. Participants'
rights to amounts contributed by the Company vest on a graded schedule over a
five-year period. During 1996, 1997 and 1998 the Company contributed $143,192,
$298,623 and $448,155, respectively, which represented a two percent matching of
employee contributions to the 401(k) plan.
Impact of the Year 2000 Issue
In 1998, the Company implemented a Year 2000 plan ("Year 2000 Plan") to
identify, assess, and remediate Year 2000 issues within each of its significant
computer programs and certain equipment which may contain micro-processors. The
Year 2000 Plan is addressing the issue of computer programs and embedded
computer chips being unable to distinguish between the year 1900 and the year
2000, if a program or chip uses only two digits rather than four to define the
applicable year. The Company expects to complete the assessment phase of the
Year 2000 Plan in the second quarter of 1999. The Company expects that some
amount of testing will be performed during this phase. Additional testing is
expected to continue throughout the third quarter of 1999. Systems which have
been or may be determined not to be Year 2000 compliant are being or will be
either replaced or reprogrammed, and the Company expects thereafter to test such
systems for Year 2000 compliance. The Company anticipates that by late 1999, the
remediation and testing phases will be completed. The current budget for the
total cost of remediation, including replacement software and hardware, is
approximately $400,000 (unaudited).
The Company is in the process of identifying and contacting critical
suppliers and customers whose computerized systems interface with the Company's
systems, regarding their plans and progress in addressing their Year 2000
issues. The Company has received varying information from such third parties on
the state of compliance or expected compliance. Contingency plans are being
developed in the event that any critical supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
operations, liquidity and financial condition. 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
F-25
<PAGE> 87
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's financial condition or the results of operations. However, as
described above, the failure by third parties to be Year 2000 ready could have a
material adverse effect on Citadel Broadcasting.
(19) SUBSEQUENT EVENTS
On January 4, 1999, the Company acquired radio station WBHT-FM in
Wilkes-Barre, Pennsylvania for an aggregate purchase price of $1,263,000. The
acquisition will be accounted for using the purchase method of accounting. Prior
to the acquisition, the Company had operated WBHT-FM under a local marketing
agreement since July 3, 1997.
On January 11, 1999, the Company exercised its options to purchase WKQV-FM
and WKQV-AM in Wilkes-Barre/Scranton, Pennsylvania and agreed to purchase such
stations for approximate purchase prices of $998,000 and $365,000, respectively.
The Company has operated WKQV-FM and WKQV-AM under a local marketing agreement
and a joint sales agreement, respectively, since July 3, 1997. The acquisitions
will be accounted for using the purchase method of accounting.
On January 13, 1999, the Company entered into an asset purchase agreement
to sell substantially all of the assets of its 18 FM and 7 AM radio stations in
Eugene and Medford, Oregon, Tri-Cities, Washington, Billings, Montana and
Johnstown and State College, Pennsylvania for an approximate sale price of
$26,000,000.
On February 2, 1999, the Company agreed to purchase KNJY-FM in Spokane,
Washington for an approximate purchase price of $4,150,000. The acquisition will
be accounted for using the purchase method of accounting.
On February 9, 1999, the Company acquired 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 of these assets includes 5 FM radio
stations and 1 AM radio station in Saginaw/Bay City. The acquisition will be
accounted for using the purchase method of accounting.
On February 17, 1999, the Company acquired radio stations WHYL-AM/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. In
conjunction with this acquisition, the Company acquired real estate used in the
operation of WHYL-AM/FM for a purchase price of approximately $250,000.
On February 24, 1999, the Company entered into an asset purchase agreement
with Capstar Acquisition Company, Inc. ("Capstar") under which the Company has
agreed to acquire from Capstar, radio station KSPZ-FM in Colorado Springs in
exchange for the Company's radio station KKLI-FM in Colorado Springs. The
Company also entered into an Asset Purchase agreement with Capstar on February
24, 1999 under which the Company has agreed to acquire radio stations KVOR-AM
and KTWK-AM in Colorado Springs and radio stations KEYF-AM/FM in Spokane for the
aggregate purchase price of approximately $10,000,000. The acquisitions will be
accounted for using the purchase method of accounting.
On March 2, 1999, the Company acquired Brainiac Services, Inc., an internet
service provider, in Riverside, Rhode Island for an approximate purchase price
of $288,000. The acquisition will be accounted for by the purchase method of
accounting.
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. The aggregate purchase
price was approximately $31,500,000. This amount includes the repayment of
outstanding debt of Citywide and $1,332,000 in payments related to
noncompetition agreements entered into in connection with the acquisition, but
is net of the $970,000 in positive working capital that Citywide had at the
closing of the acquisition. In connection with the acquisition the Company
acquired 6 FM and 3 AM radio stations in
F-26
<PAGE> 88
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Baton Rouge and Lafayette, Louisiana markets. The acquisition will be
accounted for using the purchase method of accounting.
For the year ended December 31, 1998, the Company's net broadcasting
revenue would have been approximately $152,850,000 (unaudited) on a pro forma
basis. This amount reflects net broadcasting revenue as if all the completed and
pending acquisitions and dispositions had been completed as of January 1, 1997.
F-27
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(1)
- ------- -------------------------
<S> <C>
2.1 Asset Purchase Agreement dated November 23, 1998 by and
among Wicks Broadcast Group Limited Partnership, WBG License
Co., L.L.C., Butternut Broadcasting Company, Inc., WBG
Binghamton License Co., Inc. and Citadel Broadcasting
Company (incorporated by reference to Exhibit 2.1 to Citadel
Broadcasting Company's Amendment No. 1 to Current Report on
Form 8-K/A filed December 16, 1998).
3(i)(a) Restated Articles of Incorporation of Citadel Broadcasting
Company (incorporated by reference to Exhibit 3(i)(a) to
Citadel Broadcasting Company's Registration Statement No.
333-36771 on Form S-4).
3(i)(b) Amendment to Certificate of the Designations, Voting Powers
Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations or
Restrictions of the 13% Series A Exchangeable Preferred
Stock and the 13% Series B Exchangeable Preferred Stock of
Citadel Broadcasting Company (incorporated by reference to
Exhibit 3(i)(b) to Citadel Broadcasting Company's
Registration Statement No. 333-36771 on Form S-4).
3(ii) Bylaws of Citadel Broadcasting Company, as amended
(incorporated by reference to Exhibit 3(ii)(a) to Citadel
Broadcasting Company's Registration Statement No. 333-36771
on Form S-4).
4.1 Indenture dated as of July 1, 1997 among Citadel
Broadcasting Company, Citadel License, Inc. and The Bank of
New York, as Trustee, with the forms of 10% Senior
Subordinated Notes due 2007 and 10% Series B Senior
Subordinated Notes due 2007 included therein (incorporated
by reference to Exhibit 4.1 to Citadel Broadcasting
Company's Registration Statement No. 333-36771 on Form S-4).
4.2 Indenture dated as of July 1, 1997 among Citadel
Broadcasting Company, Citadel License, Inc. and The Bank of
New York, as Trustee, with the forms of 13% Exchange
Debentures due 2009 and 13% Series B Exchange Debentures due
2009 included therein (incorporated by reference to Exhibit
4.2 to Citadel Broadcasting Company's Registration Statement
No. 333-36771 on Form S-4).
4.3 Amendment to Certificate of the Designations, Voting Powers
Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations or
Restrictions of the 13% Series A Exchangeable Preferred
Stock and the 13% Series B Exchangeable Preferred Stock of
Citadel Broadcasting Company (incorporated by reference to
Exhibit 3(i)(b) to Citadel Broadcasting Company's
Registration Statement No. 333-36771 on Form S-4).
4.4 Indenture dated as of November 19, 1998 among Citadel
Broadcasting Company, Citadel License, Inc. and The Bank of
New York, as Trustee, with the form of 9% Senior
Subordinated Notes due 2008 included therein (incorporated
by reference to Exhibit 4.1 to Citadel Broadcasting
Company's Current Report on Form 8-K filed November 30,
1998).
9 Amended and Restated Voting Trust Agreement dated as of
October 15, 1997 among Citadel Communications Corporation,
ABRY Broadcast Partners II, L.P., ABRY/Citadel Investment
Partners, L.P., Harlan Levy as Trustee, and J. Walter
Corcoran and Christopher Hall (incorporated by reference to
Exhibit 9 to Citadel Broadcasting Company's Registration
Statement No. 333-36771 on Form S-4).
10.1* Employment Agreement dated as of June 28, 1996 among
Lawrence R. Wilson, Citadel Broadcasting Company and Citadel
Communications Corporation (incorporated by reference to
Exhibit 10.1 to Citadel Broadcasting Company's Registration
Statement No. 333-36771 on Form S-4).
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(1)
- ------- -------------------------
<S> <C>
10.2* Citadel Communications Corporation 1996 Equity Incentive
Plan, as amended (incorporated by reference to Exhibit 10.2
to Citadel Broadcasting Company's Registration Statement No.
333-36771 on Form S-4).
10.3* Citadel Communications Corporation Nonqualified Stock Option
Agreement made and entered into as of June 28, 1996 between
Citadel Communications Corporation and Lawrence R. Wilson
(incorporated by reference to Exhibit 10.3 to Citadel
Broadcasting Company's Registration Statement No. 333-36771
on Form S-4).
10.4* Form of Citadel Communications Corporation Stock Option
Agreement for grants effective as of December 21, 1994
(incorporated by reference to Exhibit 10.4 to Citadel
Broadcasting Company's Registration Statement No. 333-36771
on Form S-4).
10.5* Form of Citadel Communications Corporation Stock Option
Agreement for grants effective as of February 21, 1994
(incorporated by reference to Exhibit 10.5 to Citadel
Broadcasting Company's Registration Statement No. 333-36771
on Form S-4).
10.6 Joint Sales Agreement dated as of December 15, 1995 among
Pourtales Radio Partnership, Pourtales Holdings, Inc.,
Springs Radio, Inc., KVUU/KSSS, Inc. and Citadel
Broadcasting Company (incorporated by reference to Exhibit
10.6 to Citadel Broadcasting Company's Registration
Statement No. 333-36771 on Form S-4).
10.7 Amended and Restated Loan Agreement dated as of July 3, 1997
among Citadel Broadcasting Company, Citadel License, Inc.,
FINOVA Capital Corporation and the Lenders party thereto
(incorporated by reference to Exhibit 10.18 to Citadel
Broadcasting Company's Registration Statement No. 333-36771
on Form S-4).
10.8 First Amendment to Loan Instruments dated July 15, 1997
among Citadel Broadcasting Company, Citadel License, Inc.,
Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.28 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
10.9 Second Amendment to Loan Instruments dated September 25,
1997 among Citadel Broadcasting Company, Citadel License,
Inc., Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.29 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
10.10 Third Amendment to Loan Instruments dated October 15, 1997
among Citadel Broadcasting Company, Citadel License, Inc.,
Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.30 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
10.11 Fourth Amendment to Loan Instruments dated November 4, 1997
among Citadel Broadcasting Company, Citadel License, Inc.,
Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.31 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
10.12 Fifth Amendment to Loan Instruments dated December 24, 1997
among Citadel Broadcasting Company, Citadel License, Inc.,
Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.32 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(1)
- ------- -------------------------
<S> <C>
10.13 Sixth Amendment to Loan Instruments dated February 12, 1998
among Citadel Broadcasting Company, Citadel License, Inc.,
Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.33 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
10.14 Seventh Amendment to Loan Instruments dated March 24, 1998
among Citadel Broadcasting Company, Citadel License, Inc.,
Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.34 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
10.15 Eighth Amendment to Loan Instruments dated April 21, 1998
among Citadel Broadcasting Company, Citadel License, Inc.,
Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.35 to Citadel Communications
Corporation's Amendment No. 1 to Registration Statement No.
333-51011 on Form S-1).
10.16 Ninth Amendment to Loan Instruments dated September 15, 1998
among Citadel Communications, Citadel Broadcasting Company,
Citadel License, Inc., FINOVA Capital Corporation and the
Lenders party thereto (incorporated by reference to Exhibit
10.1 to Citadel Broadcasting Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1998).
10.17 Tenth Amendment to Loan Instruments dated November 3, 1998
among Citadel Communications Corporation, Citadel
Broadcasting Company, Citadel License, Inc., FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.1 to Citadel Broadcasting Company's
Current Report on Form 8-K filed November 30, 1998).
10.18 Eleventh Amendment to Loan Instruments dated November 17,
1998 among Citadel Communications Corporation, Citadel
Broadcasting Company, Citadel License, Inc., FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.2 to Citadel Broadcasting Company's
Current Report on Form 8-K filed November 30, 1998).
10.19 Twelfth Amendment to Loan Instruments dated November 19,
1998 among Citadel Communications Corporation, Citadel
Broadcasting Company, Citadel License, Inc., FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.3 to Citadel Broadcasting Company's
Current Report on Form 8-K filed November 30, 1998).
10.20 Thirteenth Amendment to Loan Instruments dated as of January
4, 1999 among Citadel Broadcasting Company, Citadel License,
Inc., Citadel Communications Corporation, FINOVA Capital
Corporation and the Lenders party thereto (incorporated by
reference to Exhibit 10.32 to Citadel Broadcasting Company's
Amendment No. 1 to Registration Statement No. 333-69009 on
Form S-4).
10.21 Fourteenth Amendment to Loan Instruments dated as of
February 9, 1999 among Citadel Broadcasting Company, Citadel
License, Inc., Citadel Communications Corporation, FINOVA
Capital Corporation and the Lenders party thereto
(incorporated by reference to Exhibit 10.33 to Citadel
Broadcasting Company's Amendment No. 3 to Registration
Statement No. 333-69009 on Form S-4).
10.22 Fifteenth Amendment to Loan Instruments dated as of March
17, 1999 among Citadel Broadcasting Company, Citadel
License, Inc., Citadel Communications Corporation, FINOVA
Capital Corporation and the Lenders party thereto.
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(1)
- ------- -------------------------
<S> <C>
10.23 Purchase Agreement dated November 12, 1998 by and among
Citadel Broadcasting Company, Citadel Communications
Corporation, Prudential Securities Incorporated and BT Alex.
Brown Incorporated (incorporated by reference to Exhibit
10.30 to Citadel Broadcasting Company's Registration
Statement No. 333-69009 on Form S-4).
10.24 Registration Rights Agreement dated as of November 19, 1998
among Citadel Broadcasting Company, Citadel License, Inc.,
Prudential Securities Incorporated and BT Alex. Brown
Incorporated (incorporated by reference to Exhibit 10.31 to
Citadel Broadcasting Company's Registration Statement No.
333-69009 on Form S-4).
10.25* Deschutes Option Exchange Agreement dated as of December 31,
1996 by and between Citadel Communications Corporation and
Edward T. Hardy (incorporated by reference to Exhibit 10.24
to Citadel Broadcasting Company's Amendment No. 1 to
Registration Statement No. 333-36771 on Form S-4).
10.26* Deschutes Option Exchange Agreement dated as of December 31,
1996 by and between Citadel Communications Corporation and
Edward T. Hardy (incorporated by reference to Exhibit 10.25
to Citadel Broadcasting Company's Amendment No. 1 to
Registration Statement No. 333-36771 on Form S-4).
10.27* Form of Citadel Communications Corporation Stock Option
Agreement for grants effective as of January 1, 1996
(incorporated by reference to Exhibit 10.26 to Citadel
Broadcasting Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
21 Subsidiaries of Citadel Broadcasting Company (incorporated
by reference to Exhibit 21 to Citadel Broadcasting Company's
Registration Statement No. 333-36771 on Form S-4).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Management contract or management compensatory plan or arrangement
(1) In the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act of 1934, as amended, the Registrant's file
333-36771.
<PAGE> 1
Exhibit 10.22
FIFTEENTH AMENDMENT TO LOAN INSTRUMENTS
THIS FIFTEENTH AMENDMENT TO LOAN INSTRUMENTS (this "Fifteenth
Amendment"), dated as of March 17, 1999, 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 described below, as amended), and
the Lenders which are parties hereto.
R E C I T A L S
A. Borrowers, Agent and Lenders entered into an Amended and Restated
Loan Agreement dated as of July 3, 1997 (as amended to the date hereof, the
"Loan Agreement").
B. Borrowers have requested the consent of Lenders to the acquisition
by Borrowers of the Property and FCC Licenses of Citywide Communications, Inc.
used in the operation of radio stations KQXL-FM, WXOK(AM), WEMX-FM, WKJN-FM,
WIBR(AM), KFXZ-FM, KNEK-FM, KNEK(AM) and KRRQ-FM (the "Fifteenth Amendment
Acquisition"). Lenders have agreed to give such consent, subject to the
execution of this Fifteenth Amendment and the performance of the terms and
conditions set forth below.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CONSENT TO ACQUISITION AND TRANSFER OF FCC LICENSES. Borrowers
represent that attached hereto as Schedule 1 is a true and correct calculation
of the Adjusted Leverage Ratio described in subsection 4.3.4 of the Loan
Agreement, after giving effect to the Fifteenth Amendment Acquisition. Based on
the attached Schedule 1, Lenders hereby consent to the Fifteenth Amendment
Acquisition, subject to the satisfaction of the conditions contained in this
Fifteenth Amendment.
2. AMENDMENT TO LOAN INSTRUMENTS. The Loan Agreement and other Loan
Instruments are amended as follows:
2.1 EXHIBITS TO LOAN INSTRUMENTS. Upon the consummation of the
Fifteenth Amendment Acquisition (i) Borrowers shall deliver to Agent
amendments to the Exhibits attached to each Loan Instrument (the
"Exhibit Amendments") which require modification due to the Fifteenth
Amendment Acquisition and (ii) the Exhibit Amendments applicable to the
Fifteenth Amendment Acquisition shall be deemed to be part of the
applicable Loan Instrument.
<PAGE> 2
2.2 USE AGREEMENT. Upon the consummation of the Fifteenth
Amendment Acquisition, Borrowers shall deliver to Agent a Use
Agreement, in a form substantially similar to the Amended and Restated
Use Agreement, reflecting the use by CBC of the FCC Licenses acquired
in the Fifteenth Amendment Acquisition.
3. CONDITIONS TO EFFECTIVENESS. This Fifteenth Amendment shall not
become effective with respect to the Fifteenth Amendment Acquisition unless and
until all of the conditions set forth in Section 4.3 of the Loan Agreement are
satisfied with respect to the Fifteenth Amendment Acquisition in a manner
satisfactory to Agent.
4. 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 Fifteenth Amendment.
5. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders to
execute this Fifteenth 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, except to the extent such representations and warranties by
their nature relate to an earlier date.
6. CONFIRMATION OF EFFECTIVENESS. Guarantor hereby consents to the
execution of this Fifteenth 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.
7. COUNTERPARTS. This Fifteenth 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]
-2-
<PAGE> 3
IN WITNESS WHEREOF, this 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: /s/ Donna L. Heffner
------------------------------------------------
Name: Donna L. Heffner
----------------------------------------------
Title: Vice President/Chief Financial Officer
---------------------------------------------
FINOVA CAPITAL CORPORATION, a Delaware corporation,
individually and as Agent
By: /s/ Andrew J. Pluta
------------------------------------------------
Name: Andrew J. Pluta
----------------------------------------------
Title: Vice President
---------------------------------------------
BANKBOSTON, N.A.
By: /s/ Daniel M. Kortick
------------------------------------------------
Name: Daniel M. Kortick
----------------------------------------------
Title: Director
---------------------------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ Roselyn Drake
------------------------------------------------
Name: Roselyn Drake
----------------------------------------------
Title: Vice President
---------------------------------------------
<PAGE> 4
THE BANK OF NEW YORK
By: /s/ Geoffrey C. Brooks
------------------------------------------------
Name: Geoffrey C. Brooks
----------------------------------------------
Title: Vice President
---------------------------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Sonia L. Isaacs
------------------------------------------------
Name: Sonia L. Isaacs
----------------------------------------------
Title: Vice President
---------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS IN CITADEL BROADCASTING COMPANY'S FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 102,841,800
<SECURITIES> 0
<RECEIVABLES> 35,383,403
<ALLOWANCES> (1,186,546)
<INVENTORY> 0
<CURRENT-ASSETS> 165,147,900
<PP&E> 46,736,259
<DEPRECIATION> (12,651,469)
<TOTAL-ASSETS> 472,260,929
<CURRENT-LIABILITIES> 15,547,278
<BONDS> 210,091,437
116,775,393
0
<COMMON> 40
<OTHER-SE> 103,962,796
<TOTAL-LIABILITY-AND-EQUITY> 472,260,929
<SALES> 0
<TOTAL-REVENUES> 135,426,261<F1>
<CGS> 0
<TOTAL-COSTS> 96,652,681
<OTHER-EXPENSES> 26,414,242
<LOSS-PROVISION> 1,201,341
<INTEREST-EXPENSE> 18,126,262
<INCOME-PRETAX> (5,317,255)
<INCOME-TAX> (1,386,219)
<INCOME-CONTINUING> (18,516,878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,516,878)
<EPS-PRIMARY> (462.92)
<EPS-DILUTED> (462.92)
<FN>
<F1>Comprised of net revenues (gross revenues net of agency commissions).
</FN>
</TABLE>
