<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number: 000-24515
CITADEL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 86-0748219
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
140 South Ash Avenue, Tempe, Arizona 85281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 731-5222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of October 31, 1998, there were 25,725,271 shares of common stock,
$.001 par value per share, outstanding.
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Citadel Communications Corporation
Form 10-Q
September 30, 1998
Index
<TABLE>
<CAPTION>
Part I Page
----
<S> <C>
Item 1 - Financial Statements .......................................... 3
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 9
Part II
Item 1 - Legal Proceedings ............................................. 15
Item 2 - Changes in Securities and Use of Proceeds ..................... 15
Item 6 - Exhibits and Reports on Form 8-K .............................. 17
</TABLE>
2
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CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,684,991 $ 7,406,965
Cash held in escrow 718,561 --
Accounts receivable, less allowance for doubtful
accounts of $808,942 in 1997 and $1,280,553 in 1998 25,744,137 31,808,518
Notes receivable from related parties 246,455 235,906
Prepaid expenses 1,532,227 3,286,852
------------- -------------
Total current assets 35,926,371 42,738,241
Property and equipment, net 35,242,284 36,833,719
Intangible assets, net 268,689,516 290,405,370
Deposits for pending acquisitions 650,000 --
Other assets 3,664,123 3,375,942
------------- -------------
$ 344,172,294 $ 373,353,272
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,001,194 $ 3,032,234
Accrued liabilities 9,060,129 8,367,647
Current maturities of other long-term obligations 271,352 281,617
------------- -------------
Total current liabilities 13,332,675 11,681,498
Notes payable, less current maturities 90,084,059 18,726,126
Senior subordinated notes payable 98,331,117 98,460,823
Other long-term obligations, less current maturities 1,012,649 1,011,050
Deferred tax liability 23,270,338 25,306,162
Exchangeable preferred stock 102,009,531 112,964,761
Shareholders' equity:
Series AA convertible preferred stock; $.001 par value;
issued and outstanding 9,506,561 shares in 1997 9,507 --
Common stock; $.001 par value; issued and outstanding
8,492,066 in 1997 and 25,725,271 shares in 1998 8,492 25,725
Additional paid-in capital 44,865,128 140,804,380
Unrealized loss on hedging contract -- (595,595)
Accumulated deficit (28,751,202) (35,031,658)
------------- -------------
Total shareholders' equity 16,131,925 105,202,852
------------- -------------
$ 344,172,294 $ 373,353,272
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross broadcasting revenue $ 30,508,537 $ 39,551,005 $ 66,516,801 $ 109,240,243
Less agency commissions (2,894,229) (3,653,280) (6,491,983) (10,418,869)
------------- ------------- ------------- -------------
Net broadcasting revenue 27,614,308 35,897,725 60,024,818 98,821,374
Operating expenses:
Station operating expenses 18,993,664 23,972,146 43,305,951 69,411,775
Depreciation and
amortization 4,589,040 7,042,115 9,588,642 20,005,073
Corporate general and
administrative 967,637 1,082,541 2,562,480 3,351,191
------------- ------------- ------------- -------------
Operating expenses 24,550,341 32,096,802 55,457,073 92,768,039
Operating income 3,063,967 3,800,923 4,567,745 6,053,335
Nonoperating expenses (income):
Interest expense 3,736,155 3,548,184 8,469,658 13,590,447
Other income, net (309,562) (14,774) (401,099) (94,149)
------------- ------------- ------------- -------------
Nonoperating expenses,
net 3,426,593 3,533,410 8,068,559 13,496,298
Income (loss) before
income taxes (362,626) 267,513 (3,500,814) (7,442,963)
Income tax (benefit) (35,056) (279,546) (105,168) (1,162,507)
------------- ------------- ------------- -------------
Net income (loss) (327,570) 547,059 (3,395,646) (6,280,456)
Dividend requirement for
exchangeable preferred stock 3,275,693 3,763,345 3,275,693 10,822,375
------------- ------------- ------------- -------------
Net loss applicable to common
shares $ (3,603,263) $ (3,216,286) $ (6,671,339) $ (17,102,831)
============= ============= ============= =============
Basic and diluted net loss per
common share $ (1.13) $ (0.20) $ (2.09) $ (2.22)
============= ============= ============= =============
Weighted average common shares
outstanding 3,198,985 16,468,645 3,195,402 7,690,114
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (327,570) $ 547,059 $(3,395,646) $(6,280,456)
Other comprehensive income:
Unrealized loss on hedging
contract -- (595,595) -- (595,595)
----------- ----------- ----------- -----------
Comprehensive income $ (327,570) $ (48,536) $(3,395,646) $(6,876,051)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,395,646) $ (6,280,456)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 9,588,642 20,005,073
Amortization of debt issuance costs and debt discounts 138,352 479,620
Bad debt expense 603,558 886,873
Deferred tax benefit (105,168) (1,341,044)
Unrealized loss on interest rate swap -- (595,595)
Changes in assets and liabilities, net of acquisitions:
Increase in accounts receivable and notes receivable from
related parties (5,388,399) (6,940,705)
Increase in prepaid expenses (446,599) (1,751,373)
(Increase) decrease in other assets (266,368) 1,293,436
Increase in accounts payable (215,156) (968,960)
(Decrease) increase in accrued liabilities 3,367,485 (841,172)
------------- -------------
Net cash provided by operating activities 3,880,701 3,945,697
Cash flows from investing activities:
Capital expenditures (1,478,410) (1,746,810)
Capitalized acquisition costs (2,484,066) (1,963,106)
Cash paid to acquire stations (128,187,024) (36,290,411)
Deposits for pending acquisitions (1,200,000) 650,000
------------- -------------
Net cash used in investing activities (133,349,500) (39,350,327)
Cash flows from financing activities:
Proceeds from notes payable 13,000,000 34,999,999
Proceeds from senior subordinated notes payable 97,250,000 --
Proceeds from issuance of exchangeable preferred stock 96,280,003 --
Proceeds from initial public offering -- 116,513,904
Cash payment of initial public offering costs -- (9,642,586)
Principal payments on notes payable (51,560,892) (106,357,932)
Principal payments on other long-term obligations (408,840) (346,259)
Exercise of stock options 20,008 48,734
Payment of debt issuance costs -- (89,256)
------------- -------------
Net cash provided by financing activities 154,580,279 35,126,604
Net increase (decrease) in cash and cash equivalents 25,111,480 (278,026)
Cash and cash equivalents, beginning of period 1,588,366 7,684,991
------------- -------------
Cash and cash equivalents, end of period $ 26,699,846 $ 7,406,965
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Citadel
Communications Corporation and Subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto included in Citadel Communications
Corporation's Registration Statement on Form S-1 which became effective on June
30, 1998.
(2) 1998 Acquisitions
On January 2, 1998, the Company's wholly owned subsidiary, Citadel Broadcasting
Company ("CBC"), acquired radio stations WEMR-AM and WEMR-FM in
Wilkes-Barre/Scranton, Pennsylvania for a purchase price of $815,000. The
acquisition was accounted for using the purchase method of accounting.
On February 12, 1998, CBC acquired radio stations KQFC-FM, KKGL-FM and KBOI-AM
and a parcel of land in Boise, Idaho for an aggregate purchase price of
approximately $14,400,000. The acquisition was accounted for using the purchase
method of accounting.
On March 26, 1998, CBC acquired radio stations WSGD-FM, WDLS-FM and WCDL-AM in
Wilkes-Barre/Scranton, Pennsylvania for a purchase price of $6,000,000. The
acquisition was accounted for using the purchase method of accounting.
On April 21, 1998, CBC acquired radio stations KIZN-FM and KZMG-FM in Boise,
Idaho for an aggregate purchase price of $14,600,000. The acquisition was
accounted for using the purchase method of accounting.
On July 14, 1998, CBC signed an agreement to acquire KAAY-AM in Little Rock,
Arkansas for an aggregate purchase price of $5,000,000. The acquisition will be
accounted for using the purchase method of accounting.
On July 27, 1998, CBC exercised its option to purchase WBHT-FM in Wilkes-Barre,
Pennsylvania, and, on August 13, 1998, CBC entered into a definitive purchase
agreement to purchase WBHT for an approximate purchase price of $1,200,000. CBC
has operated WBHT under a local marketing agreement since July 3, 1997. The
acquisition will be accounted for using the purchase method of accounting.
On September 18, 1998, CBC acquired an internet service provider, Digital
Planet, in Salt Lake City, Utah for an aggregate purchase price of $225,000. The
acquisition was accounted for using the purchase method of accounting.
On September 29, 1998, CBC acquired an internet service provider, Internet
Technology Systems, Inc., in Salt Lake City, Utah for an aggregate purchase
price of $1,535,000. The acquisition was accounted for using the purchase method
of accounting.
7
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(3) Initial Public Offering
On July 7, 1998, the Company consummated the initial public offering (the "IPO")
of 6,880,796 shares of its common stock at an initial public offering price of
$16.00 per share. Of such shares, 6,250,000 shares were sold by the Company and
630,796 shares were sold by certain stockholders of the Company. On July 14,
1998, the Company sold an additional 1,032,119 shares of its common stock at the
initial public offering price pursuant to the exercise of the underwriters'
over-allotment option. Total proceeds of the IPO, including the shares issued
under the over-allotment option, were $126,606,640, of which total proceeds to
the Company were $108,357,932, total proceeds to the selling stockholders were
$9,386,244, and total underwriting discounts and commissions were $8,862,466.
(4) Subsequent Events
On October 8, 1998, CBC sold the assets of its one AM and three FM stations in
Quincy, Illinois for $2,250,000. A gain of approximately $0.8 million will be
recognized on the sale.
On October 9, 1998, CBC agreed to purchase the assets of 62nd Street
Broadcasting of Saginaw, L.L.C. in Saginaw, Michigan for an approximate purchase
price of $35,000,000. The acquisition will be accounted for using the purchase
method of accounting.
On October 29, 1998, CBC agreed to purchase WHYL-AM and WHYL-FM in Carlisle,
Pennsylvania for an approximate purchase price of $4,250,000. The acquisition
will be accounted for using the purchase method of accounting.
On November 5, 1998, CBC agreed to purchase the stock and warrants of Citywide
Communications, Inc., which owns radio stations in Baton Rouge and Lafayette,
Louisiana, for an approximate purchase price of $34,500,000. The acquisition
will be accounted for using the purchase method of accounting.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BASIS OF PRESENTATION
Certain items in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Federal Private Securities Litigation Reform Act of
1995. Forward-looking statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate," and similar
expressions. Readers are cautioned that any such forward-looking statements are
not guarantees of future performance and that matters referred to in such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, risks and uncertainties relating to
leverage, the need for additional funds, consummation of the pending
acquisitions, integration of the recently completed acquisitions, the ability of
the Company to achieve certain cost savings, the management of growth, the
introduction of new technology, changes in the regulatory environment, the
popularity of radio as a broadcasting medium and changing consumer tastes. For
further discussion of these and other factors, refer to the Company's
Registration Statement on Form S-1 which became effective on June 30, 1998. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
RESULTS OF OPERATIONS
The Company's unaudited consolidated financial statements tend not to
be directly comparable from period to period due to acquisition activity. The
major acquisitions in 1997 and in the first, second and third quarters of 1998,
all of which have been accounted for using the purchase method of accounting,
and the results of operations of which have been included since the date of
acquisition, were as follows:
1997 Acquisitions: On January 1, 1997, the Company acquired Deschutes
River Broadcasting, Inc. ("Deschutes"). On June 20, 1997, Deschutes was merged
with and into Citadel Broadcasting Company ("CBC"). The results of operations
for the nine months ended September 30, 1997 reflect nine months of operations
of Deschutes. KENZ-FM in Salt Lake City, Utah was acquired on February 14, 1997.
KBER-FM in Salt Lake City, Utah was acquired on April 10, 1997. On July 3, 1997,
CBC acquired all the issued and outstanding capital stock of Tele-Media
Broadcasting Company. On July 17, 1997, CBC acquired KNHK-FM in Reno, Nevada. On
September 25, 1997, CBC acquired KTHK-FM in Tri-Cities, Washington. On September
29, 1997, CBC acquired WDGE-FM and Bear Broadcasting Limited Liability Company,
an internet access provider, both in Providence, Rhode Island. On October 15,
1997, CBC acquired Snider Broadcasting Corporation, Snider Corporation and CDB
Broadcasting Corporation, all of which were in Little Rock, Arkansas. On October
21, 1997, CBC acquired WLEV-FM in Allentown, Pennsylvania. CBC acquired stations
KBEE-FM and KFNZ-AM in Salt Lake City, Utah on October 24, 1997. On November 4,
1997, CBC acquired Natural States Communications and GHB of Little Rock, both in
Little Rock, Arkansas. On November 18, 1997, CBC acquired WHKK-FM in Providence,
Rhode Island.
1998 First, Second and Third Quarter Acquisitions: WEMR-AM and WEMR-FM
in Wilkes-Barre/Scranton, Pennsylvania were acquired on January 2, 1998.
KQFC-FM, KKGL-FM and KBOI-AM in Boise, Idaho were acquired on February 12, 1998.
WSGD-FM, WDLS-FM and WCDL-AM in Wilkes-Barre/Scranton, Pennsylvania were
acquired on March 26, 1998. KIZN-FM and KZMG-FM in Boise, Idaho were acquired on
April 21, 1998. Digital Planet in Salt Lake City, Utah was acquired on September
18, 1998. Internet Technology Systems, Inc. in Salt Lake City, Utah was acquired
on September 29, 1998.
9
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THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Net Broadcasting Revenue. Net broadcasting revenue increased $8.3
million or 30.1% to $35.9 million for the three months ended September 30, 1998
from $27.6 million for the three months ended September 30, 1997. Net
broadcasting revenue includes $0.9 million in income received under a contract
with the Company's national advertising representative. The inclusion of revenue
from the acquisitions of radio stations and revenue generated from LMAs and JSAs
entered into during 1997 and 1998 provided $5.0 million of the increase. For
stations owned and operated over the comparable period in 1997 and 1998, net
broadcasting revenue improved $3.3 million or 12.0% to $30.9 million in 1998
from $27.6 million in 1997, primarily due to increased ratings and improved
selling efforts.
Station Operating Expenses. Station operating expenses increased $5.0
million or 26.3% to $24.0 million for the three months ended September 30, 1998
from $19.0 million for the three months ended September 30, 1997. The increase
was primarily attributable to the inclusion of station operating expenses of the
completed radio station acquisitions and the LMAs and JSAs entered into during
1997 and 1998.
Broadcast Cash Flow. As a result of the factors described above,
broadcast cash flow increased $3.3 million or 38.4% to $11.9 million for the
three months ended September 30, 1998 from $8.6 million for the three months
ended June 30, 1997. As a percentage of net broadcasting revenue, broadcast cash
flow improved to 33.2% for the three months ended September 30, 1998 compared to
31.2% for the three months ended September 30, 1997.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $0.1 million or 10.0% to $1.1 million for the
three months ended September 30, 1998 from $1.0 million for the three months
ended September 30, 1997. The increase was due primarily to an increase in
staffing levels needed to support the Company's growth.
EBITDA. As a result of the factors described above, EBITDA increased
$3.2 million or 42.1% to $10.8 million for the three months ended September 30,
1998 from $7.6 million for the three months ended September 30, 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased $2.4 million or 52.2% to $7.0 million for the three months ended
September 30, 1998 from $4.6 million for the three months ended September 30,
1997, primarily due to radio station acquisitions consummated during 1997 and
1998.
Interest Expense. Interest expense decreased approximately $0.2 million
or 5.4% to $3.5 million for the three months ended September 30, 1998 from $3.7
million for the three months ended September 30, 1997, primarily due to a
repayment of indebtedness from the proceeds of the IPO.
Net Income (Loss). As a result of the factors described above, net
income increased $0.8 million or 266.7% to $0.5 million for the three months
ended September 30, 1998 from a net loss of $0.3 million for the three months
ended September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net Broadcasting Revenue. Net broadcasting revenue increased $38.8
million or 64.7% to $98.8 million for the nine months ended September 30, 1998
from $60.0 million for the nine months ended September 30, 1997. Net
broadcasting revenue includes $0.9 million in income received under a contract
with the Company's national advertising representative. The inclusion of revenue
from the acquisitions of radio stations and revenue generated from LMAs and JSAs
entered into during 1997 and 1998 provided $32.6 million of the increase. For
stations owned and operated over the comparable period in 1997 and 1998, net
broadcasting revenue improved $6.2 million or 12.7% to $54.9 million in 1998
from $48.7 million in 1997, primarily due to increased ratings and improved
selling efforts.
10
<PAGE> 11
Station Operating Expenses. Station operating expenses increased $26.1
million or 60.3% to $69.4 million for the nine months ended September 30, 1998
from $43.3 million for the nine months ended September 30, 1997. The increase
was primarily attributable to the inclusion of station operating expenses of the
completed radio station acquisitions and the LMAs and JSAs entered into during
1997 and 1998.
Broadcast Cash Flow. As a result of the factors described above,
broadcast cash flow increased $12.7 million or 76.0% to $29.4 million for the
nine months ended September 30, 1998 from $16.7 million for the nine months
ended September 30, 1997. As a percentage of net broadcasting revenue, broadcast
cash flow improved to 29.8% for the nine months ended September 30, 1998
compared to 27.8% for the nine months ended September 30, 1997.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $0.8 million or 30.8% to $3.4 million for the
nine months ended September 30, 1998 from $2.6 million for the nine months ended
September 30, 1997. The increase was due primarily to an increase in staffing
levels needed to support the Company's growth.
EBITDA. As a result of the factors described above, EBITDA increased
$11.9 million or 83.8% to $26.1 million for the nine months ended September 30,
1998 from $14.2 million for the nine months ended September 30, 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased $10.4 million or 108.3% to $20.0 million for the nine months ended
September 30, 1998 from $9.6 million for the nine months ended September 30,
1997, primarily due to radio station acquisitions consummated during 1997 and
1998.
Interest Expense. Interest expense increased approximately $5.1 million
or 60.0% to $13.6 million for the nine months ended September 30, 1998 from $8.5
million for the nine months ended September 30, 1997, primarily due to interest
expense associated with additional borrowings to fund acquisitions consummated
in 1997 and 1998, offset by a repayment on the borrowings in the third quarter
of 1998 from the proceeds of the IPO.
Net Loss. As a result of the factors described above, net loss
increased $2.9 million or 85.3% to $6.3 million for the nine months ended
September 30, 1998 from $3.4 million for the nine months ended September 30,
1997.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, net cash provided by
operations increased to $3.9 million from $3.8 million for the comparable 1997
period primarily due to increases in accounts receivable, prepaid expenses, and
accounts payable, offset by decreases in other assets and accrued liabilities.
For the nine months ended September 30, 1998, net cash used in
investing activities, primarily for station acquisitions, decreased to $39.4
million from $133.3 million in the comparable 1997 period.
For the nine months ended September 30, 1998, net cash provided by
financing activities was $35.1 million compared to $154.6 million in the
comparable 1997 period. This decrease is the result of the use of proceeds from
the IPO to repay indebtedness in 1998 while the proceeds from the issuance of
the 10-1/4% senior subordinated notes payable and exchangeable preferred stock
in 1997 were used for acquisitions and operations, as well as for the repayment
of indebtedness. The decrease was offset by increased borrowings in the 1998.
The Company used the net proceeds from its initial public offering of
shares of its common stock in July 1998 to repay indebtedness under the credit
facility of CBC. As of September 30, 1998, the credit facility allowed for
borrowings of up to $140.0 million, and the outstanding principal amount
borrowed thereunder was $18.7 million.
11
<PAGE> 12
In addition to acquisitions and debt service, the Company's principal
liquidity requirements will be for working capital and general corporate
purposes, including capital expenditures, which are not expected to be material
in amount. Management believes that cash from operating activities and revolving
loans under the Company's credit facility should be sufficient to permit the
Company to meet its financial obligations and to fund its operations for at
least the next 12 months, although additional capital resources may be required
in connection with the further implementation of the Company's acquisition
strategy.
YEAR 2000 MATTERS
The Year 2000 computer issue primarily results from the fact that
information technology hardware and software systems and other non-information
technology products containing embedded microchip processors were originally
programmed using a two digit format, as opposed to four digits, to indicate the
year. Such programming will be unable to interpret dates beyond the year 1999,
which could cause a system or product failure or other computer errors and a
disruption in the operation of such systems and products.
The Company's project team has identified its traffic/accounting
systems, satellite delivered programming, digital automation systems and
internet service provider systems as the mission critical systems to evaluate
for Year 2000 compliance. In addition, while there are several software programs
currently used throughout the Company which are not Year 2000 compliant, the
vendors of this software have committed to provide Year 2000 compliant updates
to the Company. The Company expects to have all such updates tested and
operational by June 1999.
The Company has identified five phases for the project team to address
for each of the Company's risk areas. These phases are (1) an inventory of the
Company's systems described above, (2) assessment of the systems to determine
the risk and apparent extent of Year 2000 problems, (3) remediation of
identified problems, (4) testing of systems for Year 2000 readiness and (5)
contingency planning for the worst-case scenarios.
Inventories have been completed for all mission critical Company
software applications and hardware systems, and the Company expects to complete
an inventory of at-risk non-information technology systems in the fourth quarter
of 1998. The project team is currently assessing compliance issues related to
the Company's information hardware and software, and expects to complete such
assessment in the first quarter of 1999. The Company expects that some amount of
the testing will be performed during this assessment phase.
In each of its markets, the Company employs centralized accounting and
traffic (advertising scheduling) systems for all of its stations in the market.
In September 1998, the Company completed the replacement and upgrading of
software certified as Year 2000 compliant by the software vendor. The Company
intends to complete Year 2000 testing of this software in the first quarter of
1999. The total cost of the software upgrade was $0.3 million. In connection
with the software upgrade, much of the accounting and traffic hardware systems
were also upgraded or replaced. The total cost of the hardware upgrade was $0.1
million. The Company anticipates that evaluation for Year 2000 compliance of the
hardware and the new software used in its accounting and traffic systems will be
completed during the first quarter of 1999.
Satellite delivered programs, which are delivered to the Company's
radio stations from outside sources, represent a third party risk to the Company
arising from the Year 2000 issue. The Company is sending questionnaires to each
of the vendors of these programs during the fourth quarter of 1998 asking them
to update the Company on the status of their Year 2000 compliance. Until those
questionnaires are returned and reviewed, the Company is unable to determine the
potential for disruption in its programming arising from this third party risk.
If the Company does not receive reasonable assurances regarding Year 2000
compliance from any vendor of these programs, the Company would then develop
contingency plans for alternative programming.
12
<PAGE> 13
The Company is currently reviewing a proposal to update and expand the
digital automation systems used in the Company. Although not directly related to
the Year 2000 problem, the Company believes the expansion and replacement of
these systems, which the Company anticipates would be completed by the end of
June 1997, would minimize or eliminate Year 2000 problems associated with these
systems. If the Company elects not to pursue such expansion, it anticipates that
the total cost of replacing the non-compliant digital components in its current
digital automation systems would be approximately $0.5 million and that the
replacement would be completed by the end of June 1999.
The Company recently completed an expansion of its internet service
provider division. All mission critical elements of such division are certified
Year 2000 compliant by the software hardware vendors. The Company expects to
conduct testing of such software and hardware during the first quarter of 1999.
No material expansion is scheduled for this division prior to the year 2000.
In addition to identification of these mission critical systems, the
Company has identified the top 10 advertisers on each of its radio stations.
Questionnaires are being sent to each of these advertisers during the fourth
quarter of 1998 asking them to update the Company on the status of their Year
2000 compliance. In addition, questionnaires are also being sent to various
equipment vendors, banks and other lending institutions that provide substantial
products and services to the Company. Until the questionnaires are returned and
reviewed, the Company is unable to determine the effect of these third party
risks on the Company's operations. There can be no assurance that the Company
will be successful in finding alternative Year 2000 compliant advertisers,
suppliers and service providers, if required.
The Company also intends to solicit information regarding its critical
internal non-information technology systems such as telephones and HVAC prior to
March 31, 1999. Any required remediation and testing of the Company's
non-information technology systems is expected to be completed by June 1999.
Risk of Company's Year 2000 Issues; Contingency Plans
The Company is in the process of determining its contingency plans,
which are expected to include the identification of the Company's most
reasonably likely worst-case scenarios. Preliminary contingency plans are
expected to be completed during the first quarter of 1999 and comprehensive
plans are expected to be completed by the second or third quarter of 1999. At
this time, the Company does not have sufficient information to assess the
likelihood of such worst-case scenarios. Currently, the Company believes that
the most reasonably likely sources of risk to the Company include (i)
disruptions in the supply of satellite delivered programs and (ii) diminished
demand for advertising time arising from Year 2000 problems both specific to the
Company's advertisers or more generally related to the potential for economic
disruptions related to the Year 2000 issues.
Based on its current assessment efforts, the Company does not believe
that Year 2000 issues related to its internal systems will have a material
adverse effect on the Company's financial condition or results of operations.
However, as described above, the failure by third parties to be Year 2000 ready
could have a material adverse effect on the Company.
13
<PAGE> 14
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, but the Company is not a party to any
lawsuit or proceeding which, in the opinion of the Company, is likely to have a
material adverse effect on the Company.
The Company has received civil investigative demands ("CIDs") from the
Department of Justice ("DOJ") pursuant to which the DOJ has requested
information from the Company to determine whether the Company has violated
certain antitrust laws. The first CID was issued on September 27, 1996 and
concerns the Company's acquisition of all of the assets of KRST-FM in
Albuquerque, New Mexico on October 9, 1996 (the "KRST Acquisition"). The CID
requested written answers to interrogatories and the production of certain
documents concerning the radio station market in Albuquerque, in general, and
the KRST Acquisition, in particular, to enable the DOJ to determine, among other
things, whether the KRST Acquisition would result in excessive concentration in
the market. The Company has responded to the CID. The DOJ requested supplemental
information on January 27, 1997, to which the Company also responded. There have
been no communications since that time and, at present, the Company has been
given no indication from the DOJ regarding its intended future actions. If the
DOJ were to proceed with and successfully challenge the KRST Acquisition, the
Company may be required to divest one or more radio stations in Albuquerque.
A second investigation was initiated on October 9, 1996 and concerned
the Company's Joint Sales Agreement (the "JSA") relating to a total of eight
radio stations in Spokane, Washington and Colorado Springs, Colorado and which
became effective in January 1996. Pursuant to this investigation, the DOJ has
requested information to determine whether the JSA constituted a de facto merger
or amounted to a combination or contract in restraint of trade. The Company has
provided the requested information and has met with the DOJ concerning this
matter. If the DOJ were to proceed with and successfully challenge the JSA, the
Company may be required to terminate the JSA.
At this time, the Company cannot predict the impact on the Company, if
any, of these proceedings or any future DOJ demands.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 1, 1998, the Company issued 414,303 shares of Common Stock to
BankAmerica Investment Corporation upon exercise of a warrant for the aggregate
purchase price of $345.25. As such issuance involved no public offering, the
issuance of such shares was exempt from registration under Section 4(2) of the
Securities Act.
On August 7, 1998 and on August 11, 1998, the Company issued 1,131 and
4,800 shares, respectively, of Common Stock to two employees upon exercise of
stock options for the aggregate purchase price of $7,733. As such issuances
involved no public offering, the issuances of such shares were exempt from
registration under Section 4(2) of the Securities Act.
14
<PAGE> 15
On September 18, 1998, the Company issued an aggregate of 9,506,561
shares of Common Stock to ABRY Broadcast Partners II, L.P. and ABRY/Citadel
Investment Partners, L.P. upon conversion of Series AA Convertible Preferred
Stock in a cashless conversion. As such issuance involved no public offering,
the issuance of such shares was exempt from registration under Section 4(2) of
the Securities Act.
Following the foregoing conversion of the Series AA Convertible
Preferred Stock into Common Stock, the Board of Directors ceased being a
classified Board, and all directors (other than a director appointed to fill a
vacancy on the Board caused by a resignation or similar event or by an increase
in the number of directors) will be elected by the holders of the Common Stock.
The Common Stock is now the only outstanding class of capital stock of the
Company.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
10.1 Ninth Amendment to Loan Instruments dated as
of September 15, 1998 among Citadel
Communications Corporation, Citadel
Broadcasting Company, Citadel License, Inc.,
FINOVA Capital Corporation and the Lenders
party thereto.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
16
<PAGE> 17
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 COMMUNICATIONS CORPORATION
Date: November 16, 1998 By: /s/ Lawrence R. Wilson
----------------- ------------------------------------------------
Lawrence R. Wilson
Chairman of the Board
Chief Executive Officer and President
(Principal Executive Officer)
Date: November 16, 1998 By: /s/ Donna L. Heffner
----------------- ------------------------------------------------
Donna L. Heffner
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE> 18
(a) EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
10.1 Ninth Amendment to Loan Instruments dated as
of September 15, 1998 among Citadel
Communications Corporation, Citadel
Broadcasting Company, Citadel License, Inc.,
FINOVA Capital Corporation and the Lenders
party thereto.
27 Financial Data Schedule
</TABLE>
18
<PAGE> 1
EXHIBIT 10.1
NINTH AMENDMENT TO LOAN INSTRUMENTS
THIS NINTH AMENDMENT TO LOAN INSTRUMENTS (this "Ninth Amendment"),
dated as of September 15, 1998, is among CITADEL BROADCASTING COMPANY, CITADEL
LICENSE, INC., CITADEL COMMUNICATIONS CORPORATION, each a Nevada corporation,
FINOVA CAPITAL CORPORATION, a Delaware corporation, in its individual capacity
and as Agent for all Lenders (this and all other capitalized terms used but not
elsewhere defined herein shall have the respective meanings ascribed to such
terms in the Loan Agreement defined below), and the Lenders which are parties
thereto.
RECITALS
A. Borrowers, Agent and Lenders entered into an Amended and Restated
Loan Agreement dated as of July 3, 1997 (such Amended and Restated Loan
Agreement, as amended to the date hereof, hereinafter is referred to as the
"Loan Agreement").
B. Borrowers have requested that Lenders amend the Loan Agreement to
provide that Borrower may use the proceeds of Additional Loans to purchase
internet service providers.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AMENDMENT TO LOAN INSTRUMENTS. The Loan Agreement and other Loan
Instruments are amended as follows:
1.1. SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1 of the
Loan Agreement is hereby amended by adding the following definitions in
the appropriate alphabetical order:
"ISP: a business in which the majority of its
revenues arise out of its activities as an internet service
provider.
ISP Acquisition: an acquisition of either the
Property of an ISP or the capital stock or other equity
interests of the Person or Persons which own an ISP.
ISP Assets: all Property used in the operations of an
ISP."
1.2. SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1 of the
Loan Agreement is hereby amended by deleting the following definitions
contained therein and substituting the following in lieu thereof:
"Acquisition: an Asset Acquisition, an Equity
Acquisition or an ISP Acquisition.
Acquisition Merger: an acquisition merger as defined
in subsection 4.3.1 or an ISP Acquisition Merger.
Asset Acquisition: an acquisition of Station Assets
and the related FCC Licenses, Related Business Assets or ISP
Assets.
Disposition: any sale, lease, assignment, transfer or
other disposition of any Property by Borrowers of Station
Assets and the Related FCC Licenses, Related Business Assets
or ISP Assets.
Equity Acquisition: an acquisition of the capital
stock or other equity interest of the Person or Persons which
own Station Assets and the related FCC Licenses, Related
Business Assets or ISP Assets.
1
<PAGE> 2
Permitted Acquisition: an Acquisition (i) after the
consummation of which the Adjusted Leverage Ratio will not
exceed the Applicable Ratio as calculated as of the last day
of the most recent month preceding the closing date of such
Acquisition for which Borrowers have delivered to Lenders the
financial statements and other information reasonably
necessary to enable Lenders to make such calculation, provided
that such delivery shall occur not less than 30 days prior to
such closing date, (ii) if such Acquisition is of a Related
Business, the aggregate purchase price for such Acquisitions
and any prior Acquisitions of Related Business Assets shall
not exceed $5,000,000, (iii) if such Acquisition is of one or
more Stations, either directly or as a result of an
Acquisition Merger, such Acquisition or Acquisition Merger
would not result in more than 25% of the aggregate of the
Operating Cash Flow of CBC Stations to thereafter be derived
from Small Markets, as determined by Agent in its reasonable
discretion, (iv) with respect to which the conditions of
Section 4.3 are satisfied, except in the case of an
Acquisition which is an ISP Acquisition, and (v) if such
Acquisition is an ISP Acquisition, the conditions of Section
4.5 are satisfied and the aggregate purchase price for such
ISP Acquisition and all prior ISP Acquisitions shall not
exceed $10,000,000."
1.3. SECTION 4.5 OF THE LOAN AGREEMENT. The Loan Agreement is
hereby amended by adding the following as Section 4.5:
"4.5. ISP ACQUISITION. The right of any Borrower to
make an ISP Acquisition, whether or not the proceeds of an
Additional Loan are used to consummate such ISP Acquisition,
shall be subject to the satisfaction of all of the following
conditions in a manner satisfactory to the Required Lenders:
4.5.1 CONSUMMATION OF ISP ACQUISITION. Prior
or concurrently with each Acquisition Closing, Agent
shall have received evidence that (ii) such ISP
Acquisition is in accordance with the terms of the
applicable Acquisition Instruments, (ii) if such ISP
Acquisition is an Asset Acquisition, CBC will acquire
concurrently with the ISP Acquisition good and
marketable title to all of the ISP Assets which are
being purchased pursuant to such Acquisition
Instruments, free and clear of all Liens and
Indebtedness except Permitted Liens and Indebtedness
which CBC has agreed to assume or take subject to
pursuant to such Acquisition Instruments, subject to
the limitations set forth in Sections 7.1, 7.2 and
7.4, (iii) if such ISP Acquisition is an Equity
Acquisition, (A) the Property owned by the Person
which owns the capital stock or equity interest which
are subject to such ISP Acquisition shall be free and
clear of all Liens and Indebtedness, except such
Liens and Indebtedness as CBC has agreed to assume or
take subject to pursuant to such Acquisition
Instruments, subject to the limitations set forth in
Sections 7.1, 7.2 and 7.4, (B) the Required Lenders
shall be reasonably satisfied that adequate provision
has been made to protect CBC against the assumption
of material undisclosed liabilities and (C)
simultaneously with the Acquisition Closing such
Person is merged into CBC with CBC being the
surviving entity (an "ISP Acquisition Merger") and
(iv) any consent, authorization or approval which is
required from any Governmental Body or other Person
as a condition to the consummation of such ISP
Acquisition, the failure to obtain which would
prevent the applicable Borrower from operating the
ISP which is the subject of such ISP Acquisition, has
been obtained.
4.5.2 ISP ACQUISITIONS OVER $1,800,000. If
the purchase price of an ISP Acquisition is greater
than $1,800,000, Borrower shall have complied with
the requirements set forth in Sections 4.3.2, 4.3.3,
4.3.4, 4.3.5, 4.3.7, 4.3.8, 4.3.9, 4.3.11, 4.3.12 and
4.3.13.
2
<PAGE> 3
4.5.3 ISP ACQUISITIONS $1,800,000 OR LESS.
If the purchase price for an ISP Acquisition is less
than $1,800,000, Borrower shall be required to comply
with Sections 4.3.4, 4.3.7, 4.3.8, 4.3.11, 4.3.12 and
4.3.13."
2. CONDITIONS TO EFFECTIVENESS. This Ninth Amendment shall not become
effective with respect unless and until Borrowers shall have paid to Agent a
non-refundable amendment fee of $30,000.
3. FEES AND EXPENSES. Borrowers hereby agree to reimburse Lenders for
all reasonable fees and expenses incurred in connection with the consummation of
the transactions contemplated by this Ninth Amendment.
4. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders to
execute this Ninth Amendment, each Obligor represents and warrants to Lenders
that the representations and warranties made by each such Person in each of the
Loan Instruments to which such Person is a party, as such Loan Instruments have
been amended, are true and correct in all material respects as of the date
hereof and shall be true and correct on the date hereof, except to the extent
such representations and warranties by their nature relate to an earlier date.
5. CONFIRMATION OF EFFECTIVENESS. Guarantor hereby consents to the
execution of this Ninth Amendment. Each Obligor hereby agrees that each Loan
Instrument executed by such Person remains in full force and effect in
accordance with the original terms thereof as amended.
6. COUNTERPARTS. This Ninth Amendment may be executed in one or more
counterparts, each of which counterparts shall be deemed to be an original, but
all such counterparts when taken together shall constitute one and the same
instrument.
[remainder of this page intentionally left blank]
3
<PAGE> 4
IN WITNESS WHEREOF, this Ninth Amendment has been executed and
delivered by each of the parties hereto by a duly authorized officer of each
such party on the date first set forth above.
CITADEL BROADCASTING COMPANY,
CITADEL LICENSE, INC. and
CITADEL COMMUNICATIONS CORPORATION,
each a Nevada corporation
By:_________________________________________
Donna L. Heffner
Vice President of each corporation
FINOVA CAPITAL CORPORATION, a Delaware
corporation, individually and as Agent
By:_________________________________________
Name:_______________________________________
Title:______________________________________
BANKBOSTON, N.A.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
NATIONSBANK OF TEXAS, N.A.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
THE BANK OF NEW YORK
By:_________________________________________
Name:_______________________________________
Title:______________________________________
UNION BANK OF CALIFORNIA, N.A.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS IN CITADEL COMMUNICATIONS CORPORATION'S FORM 10-Q FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,406,965
<SECURITIES> 0
<RECEIVABLES> 33,089,071
<ALLOWANCES> (1,280,553)
<INVENTORY> 0
<CURRENT-ASSETS> 42,738,241
<PP&E> 49,138,530
<DEPRECIATION> (12,304,811)
<TOTAL-ASSETS> 373,353,272
<CURRENT-LIABILITIES> 11,681,498
<BONDS> 118,197,999
112,964,761
0
<COMMON> 25,725
<OTHER-SE> 105,177,127
<TOTAL-LIABILITY-AND-EQUITY> 373,353,272
<SALES> 0
<TOTAL-REVENUES> 98,821,374<F1>
<CGS> 0
<TOTAL-COSTS> 71,876,093
<OTHER-EXPENSES> 20,005,073
<LOSS-PROVISION> 886,873
<INTEREST-EXPENSE> 13,590,447
<INCOME-PRETAX> (7,442,963)
<INCOME-TAX> (1,162,507)
<INCOME-CONTINUING> (6,280,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,280,456)
<EPS-PRIMARY> (2.22)
<EPS-DILUTED> (2.22)
<FN>
<F1>COMPRISED OF NET REVENUES (GROSS REVENUES NET OF AGENCY COMMISSIONS).
</FN>
</TABLE>
