<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, 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: 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.)
City Center West, Suite 400,
7201 West Lake Mead Blvd., Las Vegas, Nevada 89128
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 804-5200
--------------
--------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
--------------------------------------------------------------------------------
As of November 3, 2000, there were 36,961,313 shares of common stock, $.001
par value per share, outstanding.
<PAGE> 2
Citadel Communications Corporation
Form 10-Q
September 30, 2000
Index
PAGE
----
Part I
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis of Financial
Condition And Results of Operations 11
Item 3 - Qualitative and Quantitative Disclosures about
Market Risk 26
Part II
Item 6 - Exhibits and Reports on Form 8-K 28
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 Communications Corporation 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 Management's Discussion and Analysis of Financial
Condition and Results of Operations. Citadel Communications Corporation
undertakes no obligation to publicly update or revise these forward-looking
statements because of new information, future events or otherwise.
1
<PAGE> 3
CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,082 $ 17,981
Accounts receivable, less allowance for
doubtful accounts of $3,024 in 2000
and $2,443 in 1999 72,337 52,728
Due from related parties 258 236
Income taxes receivable 551 226
Prepaid expenses and other current assets 5,683 2,708
Net assets of discontinued operations 955 2,275
---------- --------
Total current assets 95,866 76,154
Property and equipment, net 92,669 68,035
Intangible assets, net 1,024,456 538,664
Restricted cash -- 26,192
Deposits for pending acquisitions 871 --
Other assets 7,136 7,568
---------- --------
$1,220,998 $716,613
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,516 $ 1,696
Accrued liabilities 21,361 13,344
Current maturities of notes payable -- 5,495
Current maturities of other long-term
obligations 830 842
---------- --------
Total current liabilities 24,707 21,377
Notes payable 379,000 132,000
Senior subordinated notes payable, net of
discount 210,850 210,509
Other long-term obligations, less current
maturities 2,562 2,516
Deferred tax liability 76,285 45,640
---------- --------
Total liabilities 693,404 412,042
---------- --------
Exchangeable preferred stock 92,987 85,362
Shareholders' equity:
Common stock, $.001 par value;
authorized 200,000,000 shares, issued
and outstanding; 36,958,673 and 31,831,212
shares as of September 30, 2000
and December 31, 1999, respectively 37 32
Additional paid-in capital 514,040 287,711
Deferred compensation (17,533) (26,924)
Unrealized loss on hedging contracts (100) --
Accumulated deficit (61,837) (41,610)
---------- --------
Total shareholders' equity 434,607 219,209
---------- --------
$1,220,998 $716,613
========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross broadcasting revenue $ 86,274 $ 55,393 $ 212,585 $ 135,542
Less agency commissions (8,092) (4,899) (20,053) (12,569)
----------- ----------- ----------- -----------
Net broadcasting revenue 78,182 50,494 192,532 122,973
Operating expenses:
Station operating expenses 47,051 31,567 119,541 80,853
Depreciation and amortization 21,357 10,004 49,876 24,471
Corporate general and administrative 2,193 1,890 6,575 4,669
Amortization of non-cash deferred
compensation 3,148 144 9,604 252
----------- ----------- ----------- -----------
Operating expenses 73,749 43,605 185,596 110,245
Operating income 4,433 6,889 6,936 12,728
Nonoperating expenses (income):
Interest expense 13,346 6,021 30,979 17,502
Interest income (242) (394) (3,726) (1,532)
Other (income) expense, net (772) (101) (787) 296
----------- ----------- ----------- -----------
Nonoperating expenses, net 12,332 5,526 26,466 16,266
Income (loss) from continuing operations
before income taxes (7,899) 1,363 (19,530) (3,538)
Income tax (benefit) (1,370) (472) (2,676) (1,376)
----------- ----------- ----------- -----------
Net income (loss) from continuing operations (6,529) 1,835 (16,854) (2,162)
Loss from discontinued operations,
net of tax (609) (1,380) (1,546) (1,890)
Loss on disposal of discontinued operations,
net of tax (989) -- (1,827) --
----------- ----------- ----------- -----------
Net income (loss) (8,127) 455 (20,227) (4,052)
Dividend requirement for exchangeable
preferred stock 3,109 3,296 8,941 11,322
----------- ----------- ----------- -----------
Net loss applicable to common shares $ (11,236) $ (2,841) $ (29,168) $ (15,374)
=========== =========== =========== ===========
Basic and diluted loss from continuing
operations after dividend requirement
per common share $ (0.26) $ (0.05) $ (0.71) $ (0.48)
Basic and diluted net loss per
common share $ (0.30) $ (0.09) $ (0.81) $ (0.55)
Weighted average common shares
outstanding 36,941,211 31,299,962 36,129,528 27,871,316
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(8,127) $455 $(20,227) $(4,052)
Other comprehensive income:
Unrealized gain (loss)on hedging
contracts, net of tax (100) 40 (100) 224
------- ---- -------- -------
Comprehensive income (loss) $(8,227) $495 $(20,327) $(3,828)
======= ==== ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (20,227) $ (4,052)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 49,876 24,471
Amortization of debt issuance costs and debt discounts 950 761
Amortization of deferred revenue (225) (25)
Bad debt expense 4,466 2,796
Deferred tax benefit (3,119) (1,737)
Amortization of deferred compensation 9,604 252
Gain on sale of assets (898) --
Changes in assets and liabilities, net of acquisitions:
Increase in accounts receivable and notes
receivable from related parties (18,685) (12,343)
Increase in prepaid expenses and other current assets (2,621) (1,645)
Increase in other assets -- (18)
Increase (decrease) in accounts payable 523 (2,626)
Increase in accrued liabilities 6,382 229
Decrease in net assets of discontinued operations 2,058 1,274
--------- ---------
Net cash provided by operating activities 28,084 7,337
Cash flows from investing activities:
Capital expenditures (4,107) (14,431)
Capitalized acquisition costs (576) (2,879)
Proceeds from sale of assets 15,757 --
Decrease in deposits for acquisitions 729 --
Cash paid to acquire stations (515,405) (227,726)
Expenditures for discontinued operations (737) (694)
--------- ---------
Net cash used in investing activities (504,339) (245,730)
Cash flows from financing activities:
Proceeds received from stock offering 234,840 140,400
Payment of costs related to stock offering (839) (1,310)
Proceeds from exercise of stock options 1,836 1,425
Proceeds from notes payable 259,000 57,500
Principal payments on notes payable (12,000) --
Repurchase of exchangeable preferred stock, including premium (1,679) --
Redemption of exchangeable preferred stock, including cash dividend -- (51,712)
Principal payments on other long-term obligations (5,885) (309)
Payment of debt issuance costs (917) (544)
--------- ---------
Net cash provided by financing activities 474,356 145,450
Net decrease in cash and cash equivalents (1,899) (92,943)
Cash and cash equivalents, beginning of period 17,981 102,655
--------- ---------
Cash and cash equivalents, end of period $ 16,082 $ 9,712
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 7
CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
Citadel Communications Corporation ("Citadel Communications") was formed March
24, 1993 as a Nevada corporation and is a holding company, which owns all of the
issued and outstanding common stock of Citadel Broadcasting Company ("Citadel
Broadcasting"). Citadel Broadcasting owns and operates radio stations and holds
Federal Communication Commission licenses in Alabama, Arkansas, California,
Colorado, Connecticut, Idaho, Illinois, Indiana, Louisiana, Maine,
Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New Mexico, New
York, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah and
Washington and has entered into a local marketing agreement for the stations it
owns in Texas.
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 (see further discussion at Note (6)).
(2) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Citadel Communications Corporation and Subsidiary (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, 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 Communications
Corporation's Annual Report on Form 10-K for the year ended December 31, 1999.
(3) Recent Transactions
On February 10, 2000, the Company acquired radio station WXLO-FM in Worcester,
Massachusetts and entered into a local marketing agreement, pending acquisition,
with respect to radio station WORC-FM, also in Worcester. On April 7, 2000, the
Company completed the acquisition of WORC-FM and terminated the local marketing
agreement. The purchase price for WXLO-FM and WORC-FM was approximately $24.5
million. 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.
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 licenses and radio towers. The acquisition was accounted for using
the purchase method of accounting.
On April 6, 2000, Citadel Broadcasting 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 and Citadel
Broadcasting received a waiver from the lenders under its credit facility to
permit the repurchase.
6
<PAGE> 8
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 was 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 was accounted
for using the purchase method of accounting.
On May 22, 2000, the Company acquired one AM radio station and one FM radio
station in Worcester, Massachusetts for approximately $0.9 million. The
acquisition was accounted for using the purchase method of accounting.
On June 1, 2000, the Company entered into a local marketing agreement with
Gleiser Communications, LLC with respect to five radio stations owned by the
Company in Tyler, Texas. Under the agreement, Gleiser Communications operates
the stations and receives all revenue and pays all expenses associated with the
stations. The Company receives reimbursement for all reasonable and prudent
operating costs of the stations incurred by the Company, a fee of $15,000 per
month plus 30% of broadcast cash flow (generally defined as station operating
income excluding amortization and depreciation) in excess of the $15,000 dollar
fee. In addition, Gleiser Communications is obligated, except under certain
circumstances, to purchase the radio stations from the Company prior to May 31,
2003. The purchase price ranges from $5.0 million to $6.5 million based on when
the asset purchase agreement is finalized by both parties.
On June 19, 2000, the Company acquired radio station WWFX-FM in Worcester,
Massachusetts for approximately $12.8 million. The acquisition was accounted for
using the purchase method of accounting.
On June 28, 2000, the Company purchased all of the issued and outstanding
capital stock of Bloomington Broadcasting Holdings, Inc. for the aggregate
purchase price of approximately $175.9 million. This amount includes repayment
of indebtedness of Bloomington Broadcasting Holdings that was 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 owned and operated 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 was accounted for using the
purchase method of accounting.
On August 1, 2000, the Company acquired four FM and two AM radio stations
serving the Lansing/East Lansing, Michigan market, two FM stations serving the
Saginaw/Bay City/Midland, Michigan market, one FM radio station serving the
Flint, Michigan market, the right to operate one AM radio station serving Flint
under a time brokerage agreement (as well as the right to acquire such station)
and related assets for approximately $120.9 million in cash. The acquisitions
were accounted for using the purchase method of accounting. As noted, the
Company was assigned the rights under a purchase agreement to acquire one AM
radio station serving Flint. The aggregate consideration paid or to be paid for
this AM radio station, including transaction expenses, is expected to be less
than $0.6 million and will be accounted for using the purchase method of
accounting. At the same time as the completed acquisitions, the Company sold one
AM station and two FM stations serving the Saginaw/Bay City/Midland, Michigan
market for approximately $16.1 million.
(4) 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. The proceeds to the Company from the
offering, net of underwriting discounts and commissions, were approximately
$234.8 million. The proceeds were used to repay a portion of the indebtedness
under the Company's credit facility and to fund acquisitions.
7
<PAGE> 9
(5) Credit Facility and Revised 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.
On June 15, 2000, the Company borrowed $160.0 million as revolving loans under
the credit facility. The funds were used to purchase the outstanding stock of
Bloomington Broadcasting Holdings, Inc. On July 31, 2000, the Company borrowed
an additional $25.0 million as revolving loans and $74.0 million as term loans
under the credit facility. These funds along with the proceeds received from the
sale of three radio stations in Saginaw/Bay City/Midland, Michigan were used to
complete the August 1, 2000 acquisition discussed in Note 3.
On October 2, 2000, the Company completed a Second Amended and Restated Credit
Agreement (the "Revised Credit Facility"), which replaced the original credit
facility. The Revised Credit Facility provides for (a) term loans (the "Tranche
A Term Loans") at any time prior to December 15, 2000 in an aggregate principal
amount not in excess of $325.0 million, (b) a term loan (the "Tranche B Term
Loan" and together with the Tranche A Term Loans, the "Term Loan Facility") in
the principal amount of $200.0 million, and (c) revolving loans at any time and
from time to time prior to March 31, 2006, in an aggregate principal amount at
any one time outstanding not in excess of $225.0 million (the "Revolving Credit
Facility"). Of the $225.0 million which is available in the form of revolving
loans under the Revolving Credit Facility, up to $50.0 million of the Revolving
Credit facility may be made available in the form of letters of credit. In
addition, the Company may request up to $150.0 million in additional loans,
which loans may be made at the sole discretion of the lenders. The lenders are
under no obligation whatsoever to make such additional loans.
On October 2, 2000, the Company borrowed (a) $200.0 million as a Tranche B Term
loan, (b) $55.0 million as a Tranche A Term Loan and (c) $35.0 million as a
revolving loan. The funds were used to complete the Company's acquisition of
eleven radio stations and related real estate from Dick Broadcasting Company. On
October 30, 2000, the Company repaid $12.0 million under the Revolving Credit
Facility. See further discussion at Note 7.
As of September 30, 2000, the Company had $185.0 million outstanding as
revolving loans and $194.0 million outstanding as term loans. After the
acquisition from Dick Broadcasting Company and including the repayment completed
on October 30, 2000, the Company has (a) $249.0 million outstanding as Tranche A
Loans with $76.0 million still available, (b) $200.0 million outstanding as a
Trance B Loan with no additional amounts available and (c) $208.0 million
outstanding as revolving loans with $17.0 million still available. There are no
letters of credit outstanding.
The Revised Credit Facility bears interest at a rate equal to the applicable
margin plus either (a) the greater of (i) the per annum rate of interest
publicly announced from time to time by Credit Suisse First Boston in New York,
New York, as its prime rate of interest (the "Prime Rate") or (ii) the federal
funds effective rate as in effect plus 1/2 of 1% ( with the greater of (i) or
(ii) being referred to as the "Alternative Base Rate"), or (b) a rate determined
by Credit Suisse First Boston to be the Adjusted LIBO Rate for the respective
interest period. The LIBO Rate is determined by reference to the British
Bankers' Association Interest Settlement Rates for deposits in dollars. The
applicable margin for the Tranche B Term Loan is 2.0% and 3.0%, respectively,
for Alternative Base Rate and Adjusted LIBO Rate. The applicable margins for the
Tranche A Term Loans and revolving loans are expected to range between 0.00% and
1.75% for the Alternative Base Rate and 0.75% and 2.75% for the Adjusted LIBO
Rate, depending on the Company's consolidated leverage ratio. Currently, the
Company has selected the Adjusted LIBO Rate on all outstanding loans and the
margin for Tranche A and revolving loans is 2.75%. Below is a table that sets
forth the current rates and terms of the amounts borrowed under the Revised
Credit Facility.
<TABLE>
<CAPTION>
Type and Amount of Borrowing Interest Rate Next Interest Rate Change
---------------------------- ------------- -------------------------
<S> <C> <C>
Tranche A - $120,000,000 9.8750% December 5, 2000
Tranche A - $ 74,000,000 9.6875% January 31, 2001
Tranche A - $ 55,000,000 9.6250% January 2, 2001
Tranche B - $200,000,000 9.8750% January 2, 2001
Revolving - $160,000,000 9.5625% January 16, 2001
Revolving - $ 25,000,000 9.6875% January 31, 2001
Revolving - $ 23,000,000 9.6250% January 2, 2001
</TABLE>
8
<PAGE> 10
Additional draws may be made under the Tranche A Term Loans to finance permitted
acquisitions and to pay related fees and expenses, including repayment of
revolving loans used to finance permitted acquisitions. The maturity date for
the Tranche A Term Loans is December 31, 2006 (subject to extension to December
17, 2007). The amount of any Tranche A 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 December 31, 2007(if maturity
is extended to such date).
The maturity date of the Tranche B Term Loan is March 31, 2007 (subject to
extension to June 30, 2008). The Tranche B Term Loan must be repaid in quarterly
installments ranging from .25% of the amount from March 31, 2003 to March 31,
2008 and 94.75% of the amount on June 30, 2008 (if maturity is extended to such
date).
In addition, mandatory prepayments must be made under the Term Loan Facility
upon the happening of certain events. However, for as long as the Tranche B Term
Loan is outstanding, lenders with any portion of such outstanding loan may
decline to accept any mandatory prepayment of such loan and cause all or a
portion of the prepayment to instead be allocated to the then-outstanding
Tranche A Term Loans.
Additional 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 permitted
acquisitions. The Revolving Credit Facility must be paid in full on or before
December 31, 2006 (subject to extension to December 31, 2007). In addition, the
mandatory prepayments must be made under the Revolving Credit Facility upon the
happening of certain events.
Consistent with the original credit facility, the Revised Credit Facility
provides for up to $50.0 million of letters of credit. The letters of credit are
a subfacility of the Revolving Credit Facility and the total amount of letters
of credit and revolving loans outstanding at any one time cannot exceed the
total amount available under the Revolving Credit Facility.
The Revised Credit Facility contains customary restrictive covenants, which,
among other things, and with exceptions, limit the ability of the Company to
incur additional indebtedness and liens, enter into transactions with
affiliates, make acquisitions other than permitted acquisitions, 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 the Company's business. The Company is also required to satisfy
certain financial ratios and comply with financial tests, including ratios with
respect to maximum leverage, minimum interest coverage and minimum fixed charge
coverage. These financial tests must be met beginning with the quarter ended
December 31, 2000.
The Revised Credit Facility also requires that no less than 50% of the Company's
long-term indebtedness be subject to fixed interest rates. The Company has
entered into the following one year interest rate swap transactions in order to
convert a portion of its variable rate debt into fixed rate debt.
<TABLE>
<CAPTION>
Transaction Date Notional Amount Fixed Rate Variable Rate
---------------- --------------- ---------- -------------
<S> <C> <C> <C>
June 30, 2000 $25,000,000 7.055% 6.78%
August 31, 2000 $40,000,000 6.855% 6.68%
</TABLE>
The Company will incur interest expense based on the notional amounts at the
fixed rates and will receive interest income at the variable rates. The variable
rates are based on the LIBO Rate and are adjusted quarterly. The Company will
enter into an additional one year rate swap transaction during November of 2000
in a notional amount of approximately $135.0 million. The fixed and variable
rates will be based on market rates at the time the transaction is completed.
9
<PAGE> 11
(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 is currently negotiating the sale of eFortress, and the Company
anticipates completing the sale no later than January 2001.
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 consolidated financial statements. The Company has recorded
approximately $1.5 million in net loss from discontinued operations and
approximately $1.8 million in net loss from the disposal of discontinued
operations for the nine months ended September 30, 2000. These losses represent
the Company's estimate of operational losses to be incurred from eFortress and
the expected loss upon the sale of eFortress.
(7) Subsequent Events
On October 2, 2000, the Company completed its acquisition from Dick Broadcasting
Company, Inc. of Tennessee and related entities of (i) three FM radio stations
and one AM radio station serving Knoxville, Tennessee, two FM radio stations
serving Nashville, Tennessee and three FM and two AM radio stations serving
Birmingham, Alabama, and (ii) related real estate used in connection with the
operation of the stations. The aggregate purchase price was approximately $288.6
million and the acquisition will be accounted for using the purchase method of
accounting.
On October 30, 2000, the Company repaid $12.0 million under the Revolving Credit
Facility from operating cash flow.
10
<PAGE> 12
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 Communications Corporation and its subsidiary (collectively 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 Communications Corporation ("Citadel Communications") was formed
March 24, 1993 as a Nevada corporation and is a holding company, which owns all
of the issued and outstanding common stock of Citadel Broadcasting Company
("Citadel Broadcasting"). Citadel Communications and Citadel Broadcasting are
collectively referred to as the "Company." Citadel Broadcasting owns and
operates radio stations and holds Federal Communication Commission licenses in
Alabama, Arkansas, California, Colorado, Connecticut, Idaho, Illinois, Indiana,
Louisiana, Maine, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey,
New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, South Carolina,
Tennessee, Utah and Washington and has entered into a local marketing agreement
for the stations it owns in Texas.
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.
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. Barter revenue and barter
expenses are included in broadcast cash flow. 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
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<PAGE> 13
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 recognizes
barter expense upon utilization. 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 and are
recognized as advertisements are aired.
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
is currently negotiating the sale of eFortress and the Company anticipates
completing the sale no later than January 2001. However, there can be no
assurance that a sale will be completed as anticipated.
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<PAGE> 14
The Company's internet service provider recorded a net loss from
discontinued operations of $0.6 million and $1.5 million, respectively, for the
three and nine-month periods ended September 30, 2000 compared to $1.4 million
and $1.9 million, respectively, for the three and nine-month periods ended
September 30, 1999. In addition, the Company recorded a loss on disposal of
discontinued operations of $1.0 million and $1.8 million, respectively, for the
three and nine-month periods ended September 30, 2000. The losses reported in
2000 represent the Company's estimate of operational losses to be incurred from
eFortress and the expected loss upon the sale of eFortress, respectively. The
operations of the internet service provider and the expected loss upon sale of
the internet operations have been segregated and presented as discontinued
operations, net of tax, in the condensed consolidated financial statements.
RESULTS OF OPERATIONS
The Company's unaudited condensed consolidated financial statements tend not
to be directly comparable from period to period due to acquisition activity. The
Company's acquisitions in the first, second and third quarters 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 nine 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 nine 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, Second and Third Quarter Acquisitions and Dispositions: WXLO-FM
in Worcester, Massachusetts was acquired on February 10, 2000 and WORC-FM also
in Worcester was acquired on April 7, 2000. WORC-FM was operated under a local
marketing agreement from February 10, 2000 until April 7, 2000. On March 31,
13
<PAGE> 15
2000, the Company acquired two FM and two AM radio stations serving Lafayette,
Louisiana. 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. 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. On April 18, 2000, the Company acquired one AM station
serving Salt Lake City, Utah. On May 22, 2000, the Company acquired one AM
station and one FM station in Worcester, Massachusetts, and an additional FM
station in Worcester was acquired on June 19, 2000. On June 1, 2000, the Company
entered into a local marketing agreement with Gleiser Communications, LLC with
respect to five radio stations owned by the Company in Tyler, Texas. In
addition, Gleiser Communications is obligated, except under certain
circumstances, to purchase the radio stations from the Company prior to May 31,
2003. On June 28, 2000, the Company purchased all of the issued and outstanding
capital stock of Bloomington Broadcasting Holdings, Inc. Through its
subsidiaries, Bloomington Broadcasting Holdings owned and operated 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. On August 1, 2000, the Company acquired four FM
and two AM radio stations serving the Lansing/East Lansing, Michigan market, two
FM stations serving the Saginaw/Bay City/Midland, Michigan market, one FM radio
station serving the Flint, Michigan market and the right to operate one AM radio
station serving Flint under a time brokerage agreement (as well as the right to
acquire such station). In addition and on the same date, the Company sold one AM
station and two FM stations serving the Saginaw/Bay City/Midland, Michigan
market.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
NET BROADCASTING REVENUE. Net broadcasting revenue increased $27.7 million
or 54.9% to $78.2 million for the three months ended September 30, 2000 from
$50.5 million for the three months ended September 30, 1999, primarily due to
the inclusion of revenue from radio stations acquired after September 30, 1999.
Barter revenue, which is included in net broadcasting revenue, decreased $1.4
million to $4.4 million for the three months ended September 30, 2000 from $5.8
million for the same period in 1999. For markets where the Company operated
stations for the full 2000 and 1999 three-month periods, excluding one market in
the early stages of development, net broadcasting revenue for the stations
operated by the Company in such markets increased $0.4 million or 0.9% to $43.5
million in the 2000 period from $43.1 million in the 1999 period. This
lower-than-expected revenue growth for the quarter was due to
lower-than-expected sales in September of 2000 and an unusually high level of
cancellations of bookings for September of 2000.
STATION OPERATING EXPENSES. Station operating expenses increased $15.5
million or 49.1% to $47.1 million for the three months ended September 30, 2000
from $31.6 million for the three months ended September 30, 1999. The increase
in station operating expenses was primarily attributable to the inclusion of
station operating expenses of the radio stations acquired after September 30,
1999. Barter expenses, which are included in station operating expenses,
increased $1.0 million to $4.8 million for the three months ended September 30,
2000 from $3.8 million for the same period in 1999.
BROADCAST CASH FLOW. As a result of the factors described above, broadcast
cash flow increased $12.2 million or 64.6% to $31.1 million for the three months
ended September 30, 2000 from $18.9 million for the three months ended September
30, 1999. For markets where the Company operated stations for the full 2000 and
1999 three-month periods, excluding one market in the early stages of
development, broadcast cash flow for the stations operated by the Company in
such markets increased $0.2 million or 1.2% to $17.0 million in the 2000 period
from $16.8 million in the 1999 period. As a percentage of net broadcasting
revenue, broadcast cash flow improved to 39.8% for the three months ended
September 30, 2000 compared to 37.4% for the three months ended September 30,
1999.
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<PAGE> 16
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDES AMORTIZATION OF
NON-CASH DEFERRED COMPENSATION). Corporate general and administrative expenses
increased $3.3 million or 165.0% to $5.3 million for the three months ended
September 30, 2000 from $2.0 million for the three months ended September 30,
1999. The increase was due primarily to a $3.0 million increase in amortization
of 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 $8.9
million or 52.7% to $25.8 million for the three months ended September 30, 2000
from $16.9 million for the three months ended September 30, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $11.4 million or 114.0% to $21.4 million for the three months ended
September 30, 2000 from $10.0 million for the three months ended September 30,
1999, primarily due to radio station acquisitions completed after September 30,
1999.
INTEREST EXPENSE. Interest expense increased $7.3 million or 121.7% to $13.3
million for the three months ended September 30, 2000 from $6.0 million for the
three months ended September 30, 1999, primarily due to interest expense
associated with increased borrowings and commitment fees under the Company's
credit facility during the third quarter of 2000 as compared to the third
quarter of 1999.
INCOME TAX BENEFIT. The income tax benefit for the three months ended
September 30, 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. The increase in income
tax benefit for the quarter is due primarily to the stock-based acquisition that
was completed in June of 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
NET BROADCASTING REVENUE. Net broadcasting revenue increased $69.5 million
or 56.5% to $192.5 million for the nine months ended September 30, 2000 from
$123.0 million for the nine months ended September 30, 1999, primarily due to
the inclusion of revenue from radio stations acquired after September 30, 1999.
Barter revenue, which is included in net broadcasting revenue, increased $1.9
million to $12.3 million for the nine months ended September 30, 2000 from $10.4
million for the same period in 1999. For markets where the Company operated
stations for the full 2000 and 1999 nine-month periods, excluding one market in
the early stages of development, net broadcasting revenue for stations operated
by the Company in such markets improved $8.1 million or 8.5% to $103.5 million
in the 2000 period from $95.4 million in the 1999 period, primarily due to
increased ratings and improved selling efforts offset by lower-than-expected
sales in September of 2000 and an unusually high level of cancellations of
bookings for September of 2000.
STATION OPERATING EXPENSES. Station operating expenses increased $38.6
million or 47.7% to $119.5 million for the nine months ended September 30, 2000
from $80.9 million for the nine months ended September 30, 1999. The increase in
station operating expenses was primarily attributable to the inclusion of
station operating expenses of the radio stations acquired after September 30,
1999. Barter expenses, which are included in station operating expenses,
increased $2.1 million to $9.6 million for the nine months ended September 30,
2000 from $7.5 million for the same period in 1999.
BROADCAST CASH FLOW. As a result of the factors described above, broadcast
cash flow increased $30.9 million or 73.4% to $73.0 million for the nine months
ended September 30, 2000 from $42.1 million for the nine months ended September
30, 1999. For markets where the Company operated stations for the full 2000 and
1999 nine-month periods, excluding one market in the early stages of
development, broadcast cash flow for the stations operated by the Company in
such markets increased $4.9 million or 14.2% to $39.3 million in the 2000 period
from $34.4 million in the 1999 period. As a percentage of net broadcasting
revenue, broadcast cash flow improved to 37.9% for the nine months ended
September 30, 2000 compared to 34.2% for the nine months ended September 30,
1999.
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<PAGE> 17
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDES AMORTIZATION OF
NON-CASH DEFERRED COMPENSATION). Corporate general and administrative expenses
increased $11.3 million or 230.6% to $16.2 million for the nine months ended
September 30, 2000 from $4.9 million for the nine months ended September 30,
1999. The increase was due primarily to a $9.4 million increase in amortization
of 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 $19.6
million or 52.7% to $56.8 million for the nine months ended September 30, 2000
from $37.2 million for the nine months ended September 30, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $25.4 million or 103.7% to $49.9 million for the nine months ended
September 30, 2000 from $24.5 million for the nine months ended September 30,
1999, primarily due to radio station acquisitions completed after September 30,
1999.
INTEREST EXPENSE. Interest expense increased $13.5 million or 77.1% to $31.0
million for the nine months ended September 30, 2000 from $17.5 million for the
nine months ended September 30, 1999, primarily due to interest expense
associated with increased borrowings and commitment fees under the Company's
credit facility during the first nine months of 2000 as compared to the first
nine months of 1999.
INCOME TAX BENEFIT. The income tax benefit for the nine months ended
September 30, 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. The increase in income
tax benefit for the nine month period is due primarily to the stock-based
acquisitions that were completed in June of 2000 and August of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity needs have been driven by the Company's acquisition strategy. The
Company's principal liquidity requirements are for debt service, working
capital, any future acquisitions and general corporate purposes, including
capital expenditures. The Company's acquisition strategy has historically
required 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 $85.1 million, including
approximately $21.0 million for interest on Citadel Broadcasting's 10-1/4%
Senior Subordinated Notes and Citadel Broadcasting's 9-1/4% Senior Subordinated
Notes and approximately $64.1 million for interest on Citadel Broadcasting's
credit facility, excluding any commitment fees and interest due under rate swap
transactions. Citadel Broadcasting's 13-1/4% Exchangeable Preferred Stock does
not require cash dividends through July 1, 2002.
The Company has financed its 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 September 30, 2000, the Company held approximately $16.1 million in cash
and cash equivalents. On October 30, 2000, the Company repaid $12.0 million of
borrowings under its credit facility.
NET CASH PROVIDED BY OPERATING ACTIVITIES. For the nine months ended
September 30, 2000, net cash provided by operations increased to $28.1 million
from $7.3 million for the comparable 1999 period, primarily due to the inclusion
of operating activities of the radio stations acquired after September 30, 1999.
NET CASH USED IN INVESTING ACTIVITIES. For the nine months ended September
30, 2000, net cash used in investing activities, primarily for station
acquisitions, increased to $504.3 million from $245.7 million in the comparable
1999 period. For further discussion of acquisitions completed in 2000 compared
to 1999, see "Results of Operations" above.
NET CASH PROVIDED BY FINANCING ACTIVITIES. For the nine months ended
September 30, 2000, net cash provided by financing activities was $474.4 million
compared to $145.5 million in the comparable 1999 period. This increase of
$328.9 million is primarily the result of the 2000 Stock Offering described
below and additional borrowings under the credit facility offset by proceeds of
approximately $140.4 million from the Company's 1999 stock offering.
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<PAGE> 18
2000 STOCK OFFERING. On February 11, 2000, the Company sold 4,750,000 shares
of its common stock at $51.50 per share (the "2000 Stock Offering"). The
proceeds to the Company from the offering, net of underwriting discounts and
commissions, were approximately $234.8 million. A portion of the proceeds was
used to repay a portion of the indebtedness under Citadel Broadcasting's credit
facility and the remainder was used to fund radio station acquisitions during
the first and second quarter of 2000.
CREDIT FACILITY AND REVISED CREDIT FACILITY. On December 17, 1999, the
Company 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 provided 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 available in the form of revolving loans under the revolving credit
facility, up to $50.0 million could be made available in the form of letters of
credit. On February 10, 2000, the credit facility was amended and restated 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.
On October 2, 2000, the Company completed a Second Amended and Restated
Credit Agreement (the "Revised Credit Facility"), which replaced the original
credit facility. The Revised Credit Facility provides for (a) term loans (the
"Tranche A Term Loans") at any time prior to December 15, 2000 in an aggregate
principal amount not in excess of $325.0 million, (b) a term loan (the "Tranche
B Term Loan" and together with the Tranche A Term Loans, the "Term Loan
Facility") in the principal amount of $200.0 million, and (c) revolving loans at
any time and from time to time prior to March 31, 2006, in an aggregate
principal amount at any one time outstanding not in excess of $225.0 million
(the "Revolving Credit Facility"). Of the $225.0 million which is available in
the form of revolving loans under the Revolving Credit Facility, up to $50.0
million may be made available in the form of letters of credit. In addition, the
Company may request up to $150.0 million in additional loans, which loans may be
made at the sole discretion of the lenders. The lenders are under no obligation
whatsoever to make such additional loans.
The Revised Credit Facility bears interest at a rate equal to the
applicable margin plus either (a) the greater of (i) the per annum rate of
interest publicly announced from time to time by Credit Suisse First Boston in
New York, New York, as its prime rate of interest (the "Prime Rate") or (ii) the
federal funds effective rate as in effect plus 1/2 of 1% ( with the greater of
(i) or (ii) being referred to as the "Alternative Base Rate"), or (b) a rate
determined by Credit Suisse First Boston to be the Adjusted LIBO Rate for the
respective interest period. The LIBO Rate is determined by reference to the
British Bankers' Association Interest Settlement Rates for deposits in dollars.
The applicable margin for the Tranche B Term Loan is 2.0% and 3.0%,
respectively, for Alternative Base Rate and Adjusted LIBO Rate. The applicable
margins for the Tranche A Term Loans and revolving loans are expected to range
between 0.00% and 1.75% for the Alternative Base Rate and 0.75% and 2.75% for
the Adjusted LIBO Rate, depending on the Company's consolidated leverage ratio.
During the first quarter of 2000, Citadel Broadcasting repaid $132.0
million in revolving loans outstanding under the credit facility with $120.0
million in term borrowings, internally generated funds and a portion of the
funds received from the 2000 Stock Offering. On June 15, 2000, Citadel
Broadcasting
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<PAGE> 19
borrowed $160.0 million as revolving loans under the credit facility. The funds
were used to purchase the outstanding stock of Bloomington Broadcasting
Holdings, Inc. On July 31, 2000, Citadel Broadcasting borrowed an additional
$25.0 million as revolving loans and $74.0 million as term loans under the
credit facility. These funds along with the proceeds received from the sale of
three radio stations in Saginaw/Bay City/Midland, Michigan were used to complete
the August 1, 2000 acquisition of other radio stations in Michigan, see "Pending
Acquisitions and Recently Completed Transactions" below. On October 2, 2000, the
Company borrowed (a) $200.0 million as a Tranche B Term loan, (b) $55.0 million
as a Tranche A Term Loan and (c) $35.0 million as a revolving loan under the
Revised Credit Facility. The funds were used to complete Citadel Broadcasting's
acquisition of eleven radio stations and related real estate from Dick
Broadcasting Company. On October 30, 2000, the Company repaid $12.0 million
under the Revolving Credit Facility. Below is a table that sets forth the
current rates and terms of the amounts borrowed under the Revised Credit
Facility.
<TABLE>
<CAPTION>
Type and Amount of Borrowing Interest Rate Next Interest Rate Change
---------------------------- ------------- -------------------------
<S> <C> <C>
Tranche A - $120,000,000 9.8750% December 5, 2000
Tranche A - $ 74,000,000 9.6875% January 31, 2001
Tranche A - $ 55,000,000 9.6250% January 2, 2001
Tranche B - $200,000,000 9.8750% January 2, 2001
Revolving - $160,000,000 9.5625% January 16, 2001
Revolving - $ 25,000,000 9.6875% January 31, 2001
Revolving - $ 23,000,000 9.6250% January 2, 2001
</TABLE>
Additional draws may be made under the Tranche A Term Loans to finance
permitted acquisitions and to pay related fees and expenses, including repayment
of revolving loans used to finance permitted acquisitions. The maturity date for
the Tranche A Term Loans is December 31, 2006 (subject to extension to December
17, 2007). The amount of any Tranche A 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 December 31, 2007(if maturity
is extended to such date).
The maturity date of the Tranche B Term Loan is March 31, 2007 (subject
to extension to June 30, 2008). The Tranche B Term Loan must be repaid in
quarterly installments ranging from .25% of the amount from March 31, 2003 to
March 31, 2008 and 94.75% of the amount on June 30, 2008 (if maturity is
extended to such date).
In addition, mandatory prepayments must be made under the Term Loan
Facility upon the happening of certain events. However, for as long as the
Tranche B Term Loan is outstanding, lenders with any portion of such outstanding
loan may decline to accept any mandatory prepayment of such loan and cause all
or a portion of the prepayment to instead be allocated to the then-outstanding
Tranche A Term Loans.
Additional 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
permitted acquisitions. The Revolving Credit Facility must be paid in full on or
before December 31, 2006 (subject to extension to December 31, 2007). In
addition, the mandatory prepayments must be made under the Revolving Credit
Facility upon the happening of certain events.
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<PAGE> 20
Consistent with the original credit facility, the Revised Credit
Facility provides for a letter of credit facility up to $50.0 million, which is
a sub facility of the Revolving Credit Facility. The letter of credit facility
provides for the issuance of letters of credit 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 November 10,
2000, the Company had no amounts outstanding under the letter of credit
facility.
The Revised Credit Facility also requires that no less than 50% of the
Company's long-term indebtedness be subject to fixed interest rates. The Company
has entered into the following one year interest rate swap transactions in order
to convert a portion of its variable rate debt into fixed rate debt.
<TABLE>
<CAPTION>
Transaction Date Notional Amount Fixed Rate Variable Rate
---------------- --------------- ---------- -------------
<S> <C> <C> <C>
June 30, 2000 $25,000,000 7.055% 6.78%
August 31, 2000 $40,000,000 6.855% 6.68%
</TABLE>
The Company will incur interest expense based on the notional amounts
at the fixed rates and will receive interest income at the variable rates. The
variable rates are based on LIBO Rate and are adjusted quarterly. The Company
will enter into an additional one year rate swap transaction by November of 2000
in a notional amount of approximately $135.0 million. The fixed and variable
rates will be based on market rates at the time the transaction is completed.
Subject to permitted liens, the Revised 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 Revised Credit Facility is also
guaranteed by Citadel Communications. The Revised Credit Facility contains
customary events of default. Upon the occurrence of an event of default, with
certain limitations, the Company's obligations under the Revised Credit
Facility, which are at that time outstanding, may become accelerated.
The Revised Credit Facility contains customary restrictive covenants,
which, among other things, and with exceptions, limit the ability of the Company
to incur additional indebtedness and liens, enter into transactions with
affiliates, make acquisitions other than permitted acquisitions, 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 the Company's business. The Company is also required to satisfy
certain financial ratios and comply with financial tests, including ratios with
respect to maximum leverage, minimum interest coverage and minimum fixed charge
coverage. These financial tests must be met beginning with the quarter ended
December 31, 2000.
As of November 10, 2000, Citadel Broadcasting had $208.0 million
outstanding as revolving loans with $17.0 million still available as revolving
loans, $249.0 million outstanding as Tranche A Term Loans with $76.0 million
still available as Tranche A Term Loans and $200.0 million outstanding as a
Tranche B Term Loan under the Revised Credit Facility.
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<PAGE> 21
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.
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 September 30, 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 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, and Citadel Broadcasting received a waiver from the
lenders under the credit facility allowing 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 September 30, 2000, Citadel Broadcasting was
in compliance with all covenants under the Certificate of Designation.
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<PAGE> 22
PENDING ACQUISITIONS AND RECENTLY COMPLETED TRANSACTIONS. The Company has
two transactions currently pending, which if completed, would result in the
purchase of one FM radio station and one AM radio station. The total cash
required to fund the pending acquisitions is expected to be approximately $1.4
million, of which approximately $0.9 million has already been paid and the
remaining amount due will be funded with working capital. The consummation of
each of the pending transactions is subject to certain conditions. Although the
Company believes that all closing conditions will be satisfied in each case,
there can be no assurance that this will be the case.
On August 1, 2000, the Company completed its acquisition of four FM and two
AM radio stations serving the Lansing/East Lansing, Michigan market, two FM
radio stations serving the Saginaw/Bay City/Midland, Michigan market, one AM
radio station serving the Flint, Michigan market, the right to operate one AM
radio station serving Flint under a Time Brokerage Agreement, as well as the
right to acquire such station, and related assets to be used in connection with
the operation of the stations. The aggregate purchase price was approximately
$120.9 million in cash. In addition to the stations and operating rights
acquired, the Company was assigned the rights under a purchase agreement to
acquire one AM radio station in Flint for which it acquired the operating rights
discussed above. The aggregate consideration paid or to be paid for this AM
radio station, including transaction expenses, is expected to be less than $0.6
million. Concurrent with the above acquisition, the Company sold one of the
acquired FM radio stations and one additional FM radio station and one AM radio
station, each serving Saginaw/Bay City/Midland, for the aggregate sale price of
approximately $16.1 million. This acquisition was funded by $99.0 million in
additional borrowings under the credit facility, the $16.1 million in proceeds
from the concurrent sale of three radio stations and working capital on hand at
the time of the acquisition.
On October 2, 2000, the Company completed its acquisition from Dick
Broadcasting Company, Inc. of Tennessee and related entities of (i) three FM
radio stations and one AM radio station serving Knoxville, Tennessee, two FM
radio stations serving Nashville, Tennessee and three FM and two AM radio
stations serving Birmingham, Alabama, and (ii) related real estate used in
connection with the operation of the stations. The aggregate purchase price was
approximately $288.6 million. This acquisition was funded by $290.0 million in
additional borrowings under the Revised Credit Facility.
CAPITAL EXPENDITURES. The Company had capital expenditures of approximately
$4.1 million for the nine months ended September 30, 2000. The Company's capital
expenditures consist primarily of construction in progress related to
facilities, office furniture and equipment, 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 and revolving
loans and term 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" (SFAS No. 138). SFAS No. 138
amends a limited number of issues causing implementation difficulties for
entities that apply SFAS No. 133. SFAS No. 138 is effective for fiscal years
beginning after June 15, 2000, and is not expected to have a material effect on
the Company.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" (an interpretation of APB Opinion No. 25). This interpretation
provides guidance regarding the application of APB Opinion 25 to Stock
Compensation involving employees. This interpretation is effective July 1, 2000
and is not expected to have a material effect on the Company.
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<PAGE> 23
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 or on the value of our common stock. These risks and uncertainties
are not the only ones facing us or which may adversely affect our 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,
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 September 30, 2000, we had:
o outstanding total debt of approximately $598.4 million, excluding the
discount on Citadel Broadcasting's 10 1/4% notes and its 9 1/4% notes,
o Citadel Broadcasting's exchangeable preferred stock with an aggregate
liquidation preference of approximately $93.0 million, and
o shareholders' equity of approximately $434.6 million.
We borrowed an additional $290.0 million on October 2, 2000 to complete the
acquisition of 11 radio stations and we anticipate that we will incur additional
indebtedness in connection with any further implementation of our acquisition
strategy. 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 any 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 and the value of our common stock.
The covenants in our credit facility and the agreements governing our other
outstanding debt and exchangeable 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. We
have pledged the outstanding shares of common stock of Citadel Broadcasting
owned by us to secure our 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.
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<PAGE> 24
The credit facility requires us to obtain our lenders' consent before making
acquisitions or capital expenditures that exceed the amount permitted by the
credit facility and before making 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 Citadel Broadcasting's 9 1/4% notes and 10 1/4%
notes and its credit facility restrict, with certain exceptions, Citadel
Broadcasting's ability to pay dividends on or to repurchase, redeem or otherwise
acquire any shares of its capital stock. In the event that, after July 1, 2002,
cash dividends on Citadel Broadcasting's 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. This right to elect directors could
limit our control over Citadel Broadcasting, and could adversely affect the
value of our common stock.
For more information about our indebtedness, see the discussion above under
the heading "Liquidity and Capital Resources."
HISTORY OF NET LOSSES--We have a history of net losses which we expect to
continue through at least 2001.
We had a net loss of $8.9 million for the year ended December 31, 1999 and
$20.2 million for the nine months ended September 30, 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.
These charges will increase as a result of our October 2, 2000 acquisition of 11
radio stations, and, if we acquire additional stations, these charges will
probably increase further. We expect to continue to experience net losses
through at least 2001.
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 have grown, and expect to continue 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, and
o increases in prices for radio stations due to increased competition
for acquisition opportunities.
Also, the amount that remains available for borrowing under the credit
facility for acquisitions is $93.0 million. We may be unable to obtain
additional required financing for acquisitions on terms favorable to us or at
all.
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<PAGE> 25
In addition, our credit facility permits us to make acquisitions of radio
stations without the consent of our lenders 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.
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.
POTENTIAL DIFFICULTIES IN COMPLETING 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 any future transactions we may consider may 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. Any 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.
The closings of several of our recent transactions have been delayed by
the FCC's analysis of market revenue share in various markets. The recently
completed acquisition of stations in Michigan from Liggett Broadcast, Inc. and
certain of its affiliates was 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 concurrently sold two of our existing stations and one station
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 and Salt Lake City 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 nine months ended
September 30, 2000:
<TABLE>
<CAPTION>
% OF NET % OF BROADCAST
MARKET BROADCASTING REVENUE CASH FLOW
---------- -------------------- -----------
<S> <C> <C>
Albuquerque 8.3% 8.7%
Providence 7.2% 8.2%
Salt Lake City 7.1% 6.9%
</TABLE>
24
<PAGE> 26
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, and which could adversely affect the
value of our common stock. 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.
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.
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<PAGE> 27
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 market risks and has established policies
and practices to protect against the adverse effects of these and other
potential exposures. In addition, the Company is exposed to foreign currency
risk with respect to Canadian accounts receivable. However, management believes
that these foreign receivables are insignificant relative to the Company's total
accounts receivable and do not represent a material market risk to the Company.
The Company does not use derivative financial instruments for trading purposes.
Although the Company does not anticipate any material losses in any of 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 is exposed to interest rate changes under
the Revised Credit Facility and interest rate swap transactions. 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.
Citadel Broadcasting's Revised Credit Facility, which the Company
maintains to provide liquidity and to fund capital expenditures and
acquisitions, bears interest equal to an applicable margin plus a variable rate
based on either (a) the greater of (i) the per annum rate of interest publicly
announced from time to time by Credit Suisse First Boston in New York, New York,
as its prime rate of interest (the "Prime Rate") or (ii) the federal funds
effective rate as in effect plus 1/2 of 1% ( with the greater of (i) or (ii)
being referred to as the "Alternative Base Rate"), or (b) a rate determined by
Credit Suisse First Boston to be the Adjusted LIBO Rate for the respective
interest period. The LIBO Rate is determined by reference to the British
Bankers' Association Interest Settlement Rates for deposits in dollars. For
further discussion of Citadel Broadcasting's interest rate under the Revised
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 and Revised Credit Facility." Citadel Broadcasting's
Revised Credit Facility consists of revolving loans and Tranche A and Tranche B
term loans. The revolving loans mature on December 31, 2006 (subject to
extension until December 31, 2007). The Tranche A term loans are subject to
quarterly principle repayments starting in March 2003 and ending December 31,
2006 (subject to an extension to December 17, 2007). The quarterly repayments
are based on a percentage of the Tranche A term loan borrowings and the
percentage ranges from 3.75% in 2003 to 6.25% in 2007 (if maturity is extended
to such date). The Tranche B term loan is also subject to quarterly principle
repayments starting in March 2003 and ending March 31, 2007 (subject to an
extension to June 30, 2008). The quarterly repayments are based on a percentage
of the Tranche B term loan borrowings and the percentage ranges from .25% from
March 31, 2003 to March 31, 2008 and 94.75% on June 30, 2008(if maturity is
extended to such date).
At September 30, 2000, there was $194.0 million outstanding under the
Tranche A term loans at interest rates of 9.6875% to 9.875% and $185.0 million
outstanding under the revolving loans at interest rates of 9.5625% to 9.6875%.
On October 2, 2000, the Company borrowed an additional $200.0 million under the
Tranche B term loan at an interest rate of 9.875%, $55.0 million under the
Tranche A term loans at an interest rate of 9.625% and $35.0 million under the
revolving loans at an interest rate of 9.625%. On October 30, 2000, the Company
repaid $12.0 million under the revolving loans.
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<PAGE> 28
In addition, the Revised Credit Facility requires that no less than 50% of
Citadel Broadcasting's long-term indebtedness be subject to fixed interest
rates. If Citadel Broadcasting's total variable debt under the Revised Credit
Facility exceeds this 50% threshold, Citadel Broadcasting is required to enter
into a hedging contract that will convert a portion of the variable rate into a
fixed rate. On June 30, 2000, the Company entered into a one-year interest rate
swap transaction in a notional amount of $25.0 million. The Company will pay a
fixed rate of 7.055% and will receive a variable rate based on the three month
LIBO rate. The variable rate will adjust quarterly and the initial rate was set
at 6.78%. On August 31, 2000 the Company entered into another one-year interest
rate swap transaction in a notional amount of $40.0 million. Under the terms of
this transaction, the Company will pay a fixed rate of 6.855% and will receive a
variable rate, to adjust quarterly, based on the three-month LIBO rate. The
initial variable rate under this transaction was set at 6.68%. The Company
expects to enter into another one-year interest rate swap transaction in a
notional amount of approximately $135.0 million during November of 2000. The
Company will pay a fixed rate and receive a variable rate of interest. The fixed
and variable rates will be based on market rates at the time the transaction is
completed.
Through Citadel Broadcasting's Revised Credit Facility and related
interest swap transactions, the Company may be vulnerable to changes in the U.S.
prime rates, the federal funds effective rate and the LIBO rate. The Company has
performed a sensitivity analysis assuming a hypothetical increase in the
interest rate of 10% applied to the $379.0 million of outstanding variable debt
and the interest rate swap transactions as of September 30, 2000. The analysis
also factors in the additional borrowings completed on October 2, 2000 and the
repayment of variable debt on October 30, 2000. However, the analysis excludes
the impact of the anticipated $135.0 million additional interest rate swap
transaction as the Company has not yet completed this transaction.
Based on this analysis, as of September 30, 2000,the impact on future
earnings for the next twelve months would be approximately $6.0 million of
increased interest expense, which amount includes a reduction in interest
expense of $0.4 million related to the interest rate swap transactions.
Comparatively, assuming the same hypothetical 10% increase in the interest rate
applied to the $57.5 million of outstanding variable debt and related interest
rate swap transaction as of September 30, 1999, the impact on future earnings
would have been approximately $0.3 million of increased interest expense, which
amount includes a reduction in interest expense of $0.1 million related to the
then interest rate swap transaction.
Such potential increases are based on certain simplifying assumptions,
including a constant level of variable-rate debt and related interest rate swap
transactions during the period and a constant interest rate based on the
variable rates in place as of September 30, 2000 and 1999. In the case of the
additional borrowings in October of 2000, the variable interest rate would be
based on the initial rate set at the date of borrowing.
Settlement of the Company's interest rate swap transactions are
recorded as adjustments to interest expense or income on a monthly basis. A
mark-to-market adjustment is recorded as a component of shareholders' equity to
reflect the fair market value of the interest rate swap agreement. The estimated
fair market value of the interest rate swap transactions, net of tax, based on
their current market rates, approximated a net payable of $100,000 and $12,000
as of September 30, 2000 and 1999, respectively.
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PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 First Amendment to Asset Purchase
Agreement dated September 30, 2000 among
Dick Broadcasting Company, Inc. of
Tennessee, Dick Broadcasting Company,
Inc. of Alabama, DFT Realty, DFT Realty
II, LLC, James Allen Dick, Sr., James
Allen Dick, Jr., Charles Arthur Dick,
Emily Dick McAlister, Jeannette Dick
Hundley and Citadel Broadcasting Company
(incorporated by reference to Exhibit
2.1 to Citadel Communications
Corporation's Current Report on Form 8-K
filed on October 17, 2000).
4.1 Second Amended and Restated Credit
Agreement dated as of October 2, 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 Documentation Agents, and the
lenders named therein (incorporated by
reference to Exhibit 4.1 to Citadel
Communications Corporation's Current
Report on Form 8-K filed on October 17,
2000).
27 Financial Data Schedule
(b) Reports on Form 8-K - During the quarter ended September 30, 2000, Citadel
Communications Corporation filed the following report on Form 8-K.
(i) Form 8-K filed on July 13, 2000 reporting the June 28, 2000
acquisition of all the issued and outstanding capital stock of
Bloomington Broadcasting Holdings, Inc.
Financial Statements - The following financial statements of
Bloomington Broadcasting Holdings, Inc. and Subsidiaries were
included in this report:
Independent Auditor's Report
Consolidated Balance Sheet as of December 31, 1999
Consolidated Statement of Income for the year ended December
31, 1999
Consolidated Statement of Stockholders' Equity for the year
ended December 31, 1999
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<PAGE> 30
Consolidated Statement of Cash Flows for the year ended
December 31, 1999
Notes to Consolidated Financial Statements
Consolidated Balance Sheet as of March 31, 2000 (unaudited)
Consolidated Statements of Operations for the three month
periods ended March 31, 2000 and 1999 (unaudited)
Consolidated Statement of Stockholders' Equity for the three
month period ended March 31, 2000 (unaudited)
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 2000 and 1999 (unaudited)
Notes to Condensed Consolidated Financial Statements
(unaudited)
Pro Forma Financial Information - The following pro forma
financial information of Citadel Communications Corporation
and Subsidiary was included in this report:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 2000
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three months ended March 31, 2000
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1999
(ii) Form 8-K filed on August 9, 2000 reporting (a) the August 1,
2000 acquisition of nine radio stations, and the right to
operate one additional radio station under a time brokerage
agreement (as well as the right to acquire such station) and
related assets, (b) the August 1, 2000 sale of three radio
stations and (c) the August 1, 2000 appointment of Robert G.
Liggett, Jr. as a director of each of Citadel Communications
Corporation and Citadel Broadcasting Company.
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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 14, 2000 By: /s/ LAWRENCE R. WILSON
----------------- --------------------------------------------
Lawrence R. Wilson
Chairman of the Board
Chief Executive Officer and President
(Principal Executive Officer)
Date: November 14, 2000 By: /s/ DONNA L. HEFFNER
----------------- --------------------------------------------
Donna L. Heffner
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 32
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 First Amendment to Asset Purchase
Agreement dated September 30, 2000 among
Dick Broadcasting Company, Inc. of
Tennessee, Dick Broadcasting Company,
Inc. of Alabama, DFT Realty, DFT Realty
II, LLC, James Allen Dick, Sr., James
Allen Dick, Jr., Charles Arthur Dick,
Emily Dick McAlister, Jeannette Dick
Hundley and Citadel Broadcasting Company
(incorporated by reference to Exhibit
2.1 to Citadel Communications
Corporation's Current Report on Form 8-K
filed on October 17, 2000).
4.1 Second Amended and Restated Credit
Agreement dated as of October 2, 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 Documentation Agents, and the
lenders named therein (incorporated by
reference to Exhibit 4.1 to Citadel
Communications Corporation's Current
Report on Form 8-K filed on October 17,
2000).
27 Financial Data Schedule
