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