1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number: 333-36771
CITADEL BROADCASTING COMPANY
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(Exact name of registrant as specified in its charter)
Nevada 86-0703641
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
City Center West, Suite 400,
7201 West Lake Mead Blvd., Las Vegas, Nevada 89128
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (702) code: 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 May 2, 2001, there were 45,000 shares of common stock, $.001 par value
per share, outstanding.
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Citadel Broadcasting Company
Form 10-Q
March 31, 2001
Index
PAGE
----
Part I
Item 1 - Financial Statements 3
Item 2 - Management's Discussion and Analysis of
Financial Condition And Results of Operations 10
Item 3 - Qualitative and Quantitative Disclosures
about Market Risk 20
Part II
Item 1 Legal Proceedings 21
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 5 - Other Information 22
Item 6 - Exhibits and Reports on Form 8-K 24
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,"
"intends," "will," 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 our actual
results, performance or achievements 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
realization of our business strategy, general economic and business conditions,
both nationally and in our radio markets, anticipated trends in our industry,
the impact of current or pending legislation and regulation, antitrust
considerations and other risks and uncertainties, as well as those matters
discussed in this report under the caption "Risk Factors" in Management's
Discussion and Analysis of Financial Condition and Results of Operations. We
undertake no obligation to publicly update or revise these forward-looking
statements because of new information, future events or otherwise.
Unless the context otherwise requires, references in this report to Citadel
Broadcasting or the Company and the terms "we," "our" and "us" refer to Citadel
Broadcasting Company. References in this report to Citadel Communications refer
to Citadel Communications Corporation, our parent, which owns all of our issued
and outstanding common stock.
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Part I
Item 1, Financial Statements
CITADEL BROADCASTING COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 4,976 $ 8,092
Accounts receivable, less allowance for doubtful
accounts of $3,018 in 2001 and $2,821 in 2000 62,873 77,974
Due from related parties 182 202
Income taxes receivable 136 182
Prepaid expenses and other current assets 7,285 5,938
Assets held for sale 14,771 3,448
----------- -----------
Total current assets 90,223 95,836
Property and equipment, net 102,467 104,834
Intangible assets, net 1,240,020 1,273,520
Deposits for pending acquisitions 738 1,121
Other assets 10,456 10,253
----------- -----------
$ 1,443,904 $ 1,485,564
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,051 $ 3,745
Accrued liabilities 30,811 32,384
Current maturities of notes payable -- 16,512
Current maturities of other long-term obligations 657 1,366
----------- -----------
Total current liabilities 33,519 54,007
Note payable 644,488 633,488
Senior subordinated notes payable, net of discount 211,091 210,969
Other long-term obligations, less current maturities 1,679 1,796
Deferred tax liability 73,466 74,875
Exchangeable preferred stock 99,536 96,158
Shareholder's equity:
Common stock, $.001 par value; authorized
136,300 shares, issued and outstanding;
45,000 shares as of March 31, 2001
and December 31, 2000, respectively -- --
Additional paid-in capital 504,954 507,889
Deferred compensation (12,924) (14,751)
Accumulated other comprehensive loss (1,393) (620)
Accumulated deficit (110,512) (78,247)
----------- -----------
Total shareholders' equity 380,125 414,271
----------- -----------
$ 1,443,904 $ 1,485,564
=========== ===========
See accompanying notes to financial statements.
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CITADEL BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
------------ ------------
Gross broadcasting revenue $ 80,657 $ 50,693
Less agency commissions (7,510) (4,556)
------------ ------------
Net broadcasting revenue 73,147 46,137
Operating expenses:
Station operating expenses 53,119 32,831
Depreciation and amortization 26,700 12,605
Corporate general and administrative 4,369 2,027
Non-cash deferred compensation 1,827 3,208
------------ ------------
Operating expenses 86,015 50,671
Operating loss (12,868) (4,534)
Non-operating expenses (income):
Interest expense 20,830 8,747
Interest income (99) (2,007)
Other (income) expense, net (84) (51)
------------ ------------
Non-operating expenses, net 20,647 6,689
Loss from continuing operations
before income taxes (33,515) (11,223)
Income tax (benefit) (1,251) (735)
------------ ------------
Net loss from continuing operations (32,264) (10,488)
Loss from discontinued operations,
net of tax -- (564)
------------ ------------
Net loss (32,264) (11,052)
Dividend requirement for
exchangeable preferred stock 3,315 2,965
------------ ------------
Net loss applicable to common shares $ (35,579) $ (14,017)
============ ============
Basic and diluted net loss per
common share $ (790.64) $ (311.48)
============ ============
Weighted average common shares
outstanding 45,000 45,000
============ ============
See accompanying notes to financial statements.
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CITADEL BROADCASTING COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2001 2000
-------- --------
Net loss $(32,264) $(11,052)
Other comprehensive income/(loss):
Unrealized loss on hedging contract, net of tax (773) --
-------- --------
Comprehensive loss $(33,037) $(11,052)
======== ========
See accompanying notes to financial statements.
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CITADEL BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net loss $ (32,264) $ (11,052)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 26,700 12,605
Amortization of debt issuance costs and debt discounts 422 361
Amortization of deferred revenue (75) (75)
Provision for accounts receivable allowances 1,169 1,540
Deferred tax benefit (1,409) (846)
Deferred compensation 1,827 3,208
Loss (gain) on sale of assets 14 (52)
Changes in assets and liabilities, net of acquisitions:
Decrease in accounts receivable and amounts
due from related parties 13,854 6,382
Increase in prepaid expenses and other current assets (831) (1,382)
Increase (decrease) in accounts payable (1,694) 1,430
Increase (decrease) in accrued liabilities (3,466) 1,474
Decrease in net assets of discontinued operations -- 62
--------- ---------
Net cash provided by operating activities 4,247 13,655
Cash flows from investing activities:
Capital expenditures (1,420) (1,364)
Capitalized acquisition costs (69) (672)
Proceeds from sale of assets 6 92
Cash held in escrow for future acquisitions -- (3,862)
Cash paid to acquire stations (43) (29,506)
Other assets, net -- 4
Net change in discontinued operations 236 (648)
--------- ---------
Net cash used in investing activities (1,290) (35,956)
Cash flows from financing activities:
Proceeds received from parent's stock offering -- 234,840
Payment of costs related to parent's stock offering -- (761)
Capital contributions from parent company 444 909
Proceeds from notes payable 23,000 --
Principal payments on notes payable (28,512) (12,000)
Principal payments on other long-term obligations (753) (5,683)
Payment of debt issuance costs (252) (798)
--------- ---------
Net cash provided by (used in) financing activities (6,073) 216,507
Net increase (decrease) in cash and cash equivalents (3,116) 194,206
Cash and cash equivalents, beginning of period 8,092 17,981
--------- ---------
Cash and cash equivalents, end of period $ 4,976 $ 212,187
========= =========
See accompanying notes to financial statements.
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CITADEL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
Citadel Broadcasting Company was formed August 21, 1991 as a Nevada corporation.
Citadel Communications Corporation ("Citadel Communications" or the "Parent")
owns all of the outstanding common stock of Citadel Broadcasting Company.
Citadel Broadcasting Company owns and operates radio stations and holds Federal
Communications 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 Tyler,
Texas.
(2) Basis of Presentation
The accompanying unaudited financial statements of Citadel Broadcasting Company
(the "Company" or "Citadel Broadcasting") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. For further information, refer to the financial statements and notes
thereto included in Citadel Broadcasting Company's Annual Report on Form 10-K
for the year ended December 31, 2000.
(3) Recent Transactions
On January 15, 2001, Citadel Communications entered into an Agreement and Plan
of Merger, with FLCC Holdings, Inc., a Delaware corporation and an affiliate of
Forstmann Little & Co.("FLCC Holdings"), which the parties subsequently amended
on March 13, 2001 and March 22, 2001, under which FLCC Acquisition Corp.("FLCC
Acquisition"), a Nevada corporation and a wholly owned subsidiary of FLCC
Holdings, will merge with and into Citadel Communications, with Citadel
Communications as the surviving corporation. Pursuant to the proposed merger,
each issued and outstanding share of the Citadel Communications' common stock
will be converted into the right to receive $26.00 in cash.
On January 18, 2001, the Company acquired radio station WTRX-AM in Flint,
Michigan. The total purchase price was approximately $0.4 million. The station
was previously operated under a local marketing agreement since August of 2000.
The acquisition was accounted for using the purchase method of accounting.
On March 13, 2001, the Company entered into an asset purchase agreement with
Millennium Radio Group, LLC to sell two FM radio stations, one AM radio station
and the right to program and sell commercial advertising for one FM station, all
of which serve Atlantic City/Cape May, New Jersey, for the sale price of
approximately $19.4 million in cash. As of March 31, 2001, the net assets of
the radio stations serving Atlantic City/Cape May, New Jersey are presented in
the accompanying unaudited balance sheet as "Assets held for sale."
(4) Credit Facility
On March 30, 2001, the Company repaid approximately $15.2 million under the
tranche A term loans and approximately $1.3 million under the tranche B term
loan of its credit facility. These were mandatory prepayments based on the
Company's "excess cash flow" as defined in the credit facility and the
prepayments of approximately $16.5 million reduced the Company's total borrowing
capacity in an equal amount as prepayments under the term loan facilities are no
longer available for future borrowings. The Company borrowed $16.0 million under
the revolving credit facility to make the mandatory prepayments.
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As of March 31, 2001, the Company had the following amounts outstanding under
its credit facility:
Type and Amount of Borrowing Interest Rate Next Interest Rate Change
- ---------------------------- ------------- -------------------------
Tranche A - $76,000,000 7.8125% June 15, 2001
Tranche A - $74,000,000 8.3125% April 30, 2001
Tranche A - $39,793,234 9.1875% April 2, 2001
Tranche A - $120,000,000 9.375% June 4, 2001
Tranche B - $198,694,766 8.4375% May 2, 2001
Revolver - $120,000,000 8.4375% April 17, 2001
Revolver - $16,000,000 7.6875% June 29, 2001
In addition, the Company had approximately $85.8 million still available for
future borrowings under the revolving credit facility. The amount available for
future borrowings has been reduced by approximately $3.2 million in outstanding
letters of credit.
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 0.25% 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).
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).
The credit facility also 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 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.
Variable Rate at
Transaction Date Notional Amount Fixed Rate March 31, 2001
- ---------------- --------------- ---------- --------------
June 30, 2000 $25,000,000 7.055% 4.90%
August 31, 2000 $40,000,000 6.855% 5.19%
November 21, 2000 $135,000,000 6.53% 5.38%
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.
(5) 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 adopted a plan for the disposition by sale of eFortress. On December 19,
2000, the Company entered into an agreement with a large internet service
provider. The Company agreed to sell its subscriber list based on a per
subscriber amount assuming the subscribers remained with the acquiror for two
months of service. In late February 2001, the Company provided the acquiror with
its subscriber database and received approximately $0.9 million, one-half of the
purchase price based on the number of subscribers at that time. The purchase
price should be finalized in May or June of 2001 and the Company will receive
any additional amounts owed based on the number of subscribers that continued
internet service with the acquiror for two months. The Company has shut down all
internet services as of April 30, 2001 and is in the process of transferring (to
its radio stations), selling or otherwise disposing of the related fixed assets,
which should be completed by June 30, 2001.
eFortress has been accounted for as a discontinued operation and, accordingly,
its results of operations and financial position are
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segregated for all periods in the accompanying financial statements.
(6) Subsequent Events
On April 3, 2001, the Company completed the sale of four FM radio stations
serving Monroe, Louisiana to Monroe Radio Partners, Inc. for approximately $4.3
million in cash. Prior to the sale, Monroe Radio Partners provided programming
and sold commercial advertising for these stations pursuant to a local marketing
agreement dated December 14, 2000. As of March 31, 2001, the net assets of the
radio stations serving Monroe, Louisiana are presented in accompanying unaudited
balance sheet as "Assets held for sale."
On April 26, 2001 Citadel Communications' stockholders approved the Agreement
and Plan of Merger under which FLCC Acquisition will be merged with and into
Citadel Communications (see note 3) and Citadel Communications was advised by
the Federal Communications Commission (the "FCC") that it had granted its
consent to the transfer of control of the Company's broadcast licenses to FLCC
Holdings. The completion of this transaction is subject to various additional
conditions. Although the Company believes that all conditions to consummation of
the merger will be satisfied, there can be no assurance that this will be the
case. The FCC's order can become final no earlier than late June 2001, and
Citadel Communications expects to close the merger after such order becomes
final.
On May 4, 2001, in connection with the proposed merger, Citadel Broadcasting
commenced a tender offer to purchase for cash all outstanding shares of its
13-1/4% Series B Exchangeable Preferred Stock and to solicit consents to amend
the Certificate of Designations governing the exchangeable preferred stock. The
proposed amendments to the Certificate of Designations would, among other
things, modify and/or eliminate substantially all of the restrictive covenants,
including the change of control offer covenant, and other provisions contained
in the Certificate of Designations. Adoption of the proposed amendments requires
the consent of the holders of at least a majority of the outstanding shares of
the exchangeable preferred stock. On May 4, 2001, Citadel Broadcasting also
commenced tender offers to purchase for cash all of its outstanding 10-1/4%
Senior Subordinated Notes due 2007 and 9-1/4% Senior Subordinated Notes due 2008
and to solicit consents to amend the indentures relating to the subordinated
notes. The proposed amendments to the indentures would, among other things,
modify and/or eliminate substantially all of the restrictive covenants, certain
events of default and other provisions contained in the indentures. Adoption of
the proposed amendments to each indenture requires the consent of the holders of
at least a majority of the outstanding principal amount of each series of the
subordinated notes. The offers and solicitations were made at the expense of
FLCC Holdings. The Company anticipates that the offers will expire on June 26,
2001, unless otherwise terminated or extended. Citadel Broadcasting will not be
required to purchase any exchangeable preferred stock or subordinated notes, and
no proposed amendment to the Certificate of Designations governing the
exchangeable preferred stock or the indentures relating to the subordinated
notes, will be effective in each case, unless Citadel Communications' proposed
merger with FLCC Acquisition is completed or is simultaneously completed. The
merger is not conditioned upon the acceptance of these offers and solicitations.
In connection with the proposed merger, on April 3, 2001, FLCC Holdings, FLCC
Acquisition, The Chase Manhattan Bank and certain other lenders entered into a
credit agreement which provides that, concurrent with the merger, Citadel
Broadcasting will become a party to the credit agreement. Under the credit
agreement, the lenders have agreed to provide an aggregate principal amount of
$700 million in revolving loans and term loans to Citadel Broadcasting, and
Citadel Broadcasting may, at its option and subject to certain conditions
specified in the credit agreement, borrow an additional $400 million in
revolving loans and term loans to fund future acquisitions and to use for
general corporate purposes. The Company expects to obtain $525 million under the
credit agreement following or concurrently with the closing of the merger in
connection with Citadel Broadcasting's purchase of the exchangeable preferred
stock and subordinated notes pursuant to the cash tender offers and consent
solicitations described above and the refinancing of other indebtedness of the
Company including its current credit facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FORWARD-LOOKING STATEMENTS
Certain matters in this Form 10-Q, including, without limitation,
certain matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and in Quantitative and
Qualitative Disclosures about Market Risk, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Those statements include statements regarding the intent, belief or current
expectations of Citadel Broadcasting Company ("Citadel Broadcasting" or the
"Company"), its directors or its officers with respect to, among other things,
future events and financial trends affecting Citadel Broadcasting. Unless the
context otherwise requires, the words "we", "our", and "us" refer to Citadel
Broadcasting Company. References to Citadel Communications refer to Citadel
Communications Corporation, our parent, which owns all of our issued and
outstanding common stock.
Forward-looking statements are typically identified by the words
"believes," "expects," "anticipates," "intends," "will," 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 our actual results, performance or achievements 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 realization of our business strategy, general economic
and business conditions, both nationally and in our radio markets, anticipated
trends in our industry, 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. We
undertake no obligation to publicly update or revise these forward-looking
statements because of new information, future events or otherwise.
GENERAL
Citadel Broadcasting Company was formed August 21, 1991 as a Nevada
corporation. Citadel Communications Corporation ("Citadel Communications") is a
holding company, which owns all of the issued and outstanding common stock of
Citadel Broadcasting. Citadel Broadcasting owns and operates radio stations
and holds Federal Communications 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 Tyler, Texas.
General economic conditions have an impact on our business and
financial results. From time to time the markets in which we operate experience
weak economic conditions that may negatively affect our revenue. However, we
believe that this impact is somewhat mitigated by our diverse geographical
presence. In addition, our 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, we discuss our broadcast cash flow. The
performance of a radio station group is customarily measured by its ability to
generate broadcast cash flow. The two components of broadcast cash flow are
gross revenue, net of agency commissions, and operating expenses, excluding
depreciation and amortization, corporate general and administrative expenses and
non-cash and non-recurring charges. Broadcast cash flow assists in comparing
performance on a consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods, particularly when acquisitions are involved. Earnings before
interest, taxes, depreciation and amortization or EBITDA, consists of operating
income (loss) before depreciation and amortization. Although broadcast cash flow
and EBITDA are not measures of performance calculated in accordance with
generally accepted accounting principles, management believes that they are
useful to an investor in evaluating the Company because they are measures widely
used in the broadcasting industry to evaluate a radio company's operating
performance. However, broadcast cash flow and EBITDA should not be considered in
isolation or as substitutes for net income, cash flows from operating activities
and other income or cash flow statement data prepared in accordance with
generally accepted accounting principles as a measure of liquidity or
profitability.
The principal source of our revenue is the sale of broadcasting time on
our radio stations for advertising. As a result, our
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revenue is affected primarily by the advertising rates our 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 our 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 our selling activity is
based on demand for our radio stations' on-air inventory and, in general, we
respond 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. We recognize barter
expenses upon utilization. We have generally sold over 90% of our 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.
Our revenue varies throughout the year. As is typical in the radio
broadcasting industry, our 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. We strive to control these
expenses by working closely with local station management. We also incur 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, we decided to discontinue the operations of our
internet service provider, eFortress. As a result of this decision, we adopted a
plan for the disposition by sale of eFortress. On December 19, 2000, we entered
into an agreement with a large internet service provider. We agreed to sell our
subscriber list based on a per subscriber amount assuming the subscribers
remained with the acquiror for two months of service. In late February 2001, we
provided the acquiror with our subscriber database and received approximately
$0.9 million, one-half of the purchase price based on the number of subscribers
at that time. The purchase price should be finalized in May or June of 2001 and
we will receive any additional amounts owed based on the number of subscribers
that continued internet service with the acquiror for two months. We have shut
down all internet services as of April 30, 2001 and are in the process of
transferring (to our radio stations), selling or otherwise disposing of the
related fixed assets, which should be completed by June 30, 2001.
Our internet service provider recorded no loss for the three months
ended March 31, 2001 compared to $0.6 million for the three months ended March
31, 2000. At December 31, 2000, we estimated the future losses from the internet
service provider until its disposal. We believe the estimate made at December
31, 2000 was adequate and therefore no additional losses were recorded in the
quarter ended March 31, 2001. The operations of the internet service provider
have been segregated and presented as discontinued operations, net of tax, in
the consolidated financial statements.
RESULTS OF OPERATIONS
Our unaudited financial statements tend not to be directly comparable
from period to period due to acquisition activity. Our acquisitions in the first
quarter of 2001 and during the year ended 2000, 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:
2000 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, 2000, we acquired two FM and
two AM radio stations serving Lafayette, Louisiana. On April 6, 2000, we
acquired one AM radio station in Albuquerque, New Mexico in exchange for one of
our AM radio stations in Albuquerque. On April 15, 2000, we completed an
acquisition from Broadcasting Partners Holdings, L.P. of a total of 23 FM radio
stations 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, we acquired one AM station serving Salt Lake City, Utah. On May
22, 2000, we 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, we entered into a local marketing agreement
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with Gleiser Communications, LLC with respect to five radio stations owned in
Tyler, Texas. In addition, Gleiser Communications is obligated, except under
certain circumstances, to purchase the radio stations from us prior to May 31,
2003. On June 28, 2000, we 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 July 31, 2000, we 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 day we sold one AM station
and two FM stations serving the Saginaw/Bay City/Midland, Michigan market. On
October 2, 2000, we acquired assets from Dick Broadcasting Company, Inc. of
Tennessee and related entities. The assets acquired included eight FM and three
AM radio stations serving the markets of Nashville and Knoxville, Tennessee and
Birmingham, Alabama.
2001 First Quarter Acquisitions: On January 18, 2001, we acquired radio station
WTRX-AM in Flint, Michigan. We previously operated this station under a local
marketing agreement since August of 2000.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
NET BROADCASTING REVENUE. Net broadcasting revenue increased $27.0 million or
59% to $73.1 million for the three months ended March 31, 2001 from $46.1
million for the three months ended March 31, 2000, primarily due to the
inclusion of additional revenue from the acquisition of radio stations acquired
after March 31, 2000. Barter revenue, which is included in net broadcasting
revenue, decreased $0.9 million to $2.3 million for the three months ended March
31, 2001 from $3.2 million for the same period in 2000. For markets where we
operated stations for the full 2001 and 2000 three-month periods, excluding one
market in the early stages of development and excluding barter revenue, net
broadcasting revenue for the stations operated in such markets declined $0.3
million or 0.7% to $40.3 million in 2001 from $40.6 million in 2000.
STATION OPERATING EXPENSES. Station operating expenses increased $20.3 million
or 62% to $53.1 million for the three months ended March 31, 2001 from $32.8
million for the three months ended March 31, 2000. Barter expenses, which are
included in station operating expenses, increased $2.5 million to $5.0 million
for the three months ended March 31, 2001 from $2.5 million for the same period
in 2000. The increase in station operating expenses was primarily attributable
to the inclusion of station operating expenses of the radio stations acquired
during 2000.
BROADCAST CASH FLOW. As a result of the factors described above, broadcast cash
flow increased $6.7 million or 50% to $20.0 million for the three months ended
March 31, 2001 from $13.3 million for the three months ended March 31, 2000. For
markets where we operated stations for the full 2001 and 2000 three-month
periods, excluding one market in the early stages of development and excluding
barter revenue and barter expense, broadcast cash flow for the stations operated
in such markets increased $0.6 million or 5% to $13.2 million in 2001 from $12.6
million in 2000. As a percentage of net broadcasting revenue, broadcast cash
flow declined slightly to 27% for the three months ended March 31, 2001 compared
to 29% for the three months ended March 31, 2000.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDES NON-CASH DEFERRED
COMPENSATION). Corporate general and administrative expenses increased $1.0
million or 19% to $6.2 million for the three months ended March 31, 2001 from
$5.2 million for the three months ended March 31, 2000. The increase was due to
$1.8 million in costs associated with the proposed merger (discussed below under
the heading "Liquidity and Capital Resources" and in Part II, Item 5 of this
report) in 2001, offset by a $1.4 million decrease in non-cash deferred
compensation related to stock options. The remaining increase is due to
increased staffing levels and associated costs needed to support our growth.
EBITDA. As a result of the factors described above, EBITDA increased $5.7
million or 70% to $13.8 million for the three months ended March 31, 2001 from
$8.1 million for the three months ended March 31, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$14.1 million or 112% to $26.7 million for the three months ended March 31, 2001
from $12.6 million for the three months ended March 31, 2000, primarily due to
radio station acquisitions completed during 2000.
INTEREST EXPENSE. Interest expense increased $12.1 million or 139% to $20.8
million for the three months ended March 31, 2001 from $8.7 million for the
three months ended March 31, 2000, primarily due to increased interest expense
associated with outstanding borrowings and commitment fees under our credit
facility during the first quarter of 2001 as compared to the first quarter of
2000.
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INTEREST INCOME. Interest income decreased $1.9 million or 95% to $0.1 million
for the three months ended March 31, 2001 from $2.0 million for the three months
ended March 31, 2000, primarily due to interest earned on proceeds received from
Citadel Communications' stock offering in February of 2000 prior to the funds
being utilized for station acquisitions during 2000.
INCOME TAX BENEFIT. The income tax benefit for the three months ended March 31,
2001 and 2000 represents the reversal of deferred tax liabilities established at
the dates 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 the net
tax benefit of $0.5 million when comparing the three month periods ended March
31, 2001 and 2000 is primarily due to the stock acquisition completed in 2000.
LIQUIDITY AND CAPITAL RESOURCES
On January 15, 2001, Citadel Communications entered into an Agreement
and Plan of Merger, with FLCC Holdings, Inc., a Delaware corporation and an
affiliate of Forstmann Little & Co., which the parties subsequently amended on
March 13, 2001 and March 22, 2001, under which FLCC Acquisition Corp., a Nevada
corporation and a wholly owned subsidiary of FLCC Holdings, will merge with and
into Citadel Communications. Pursuant to the proposed merger, each issued and
outstanding share of Citadel Communications common stock will be converted into
the right to receive $26.00 in cash. On April 26, 2001 Citadel Communications'
stockholders approved the Agreement and Plan of Merger and Citadel
Communications was advised by the Federal Communications Commission that it had
granted its consent to the transfer of control of Citadel Broadcasting's
broadcast licenses to FLCC Holdings. The completion of this transaction is
subject to various additional conditions. Although Citadel Communications
believes that all conditions to consummation of the merger will be satisfied,
there can be no assurance that this will be the case. The FCC's order can become
final no earlier than late June 2001, and Citadel Communications expects to
close the merger after such order becomes final. See Part II, Item 5 of this
report for additional information concerning the proposed merger. The discussion
in this Part I, Item 2 does not give effect to the completion of the proposed
merger and the related financing transactions.
Historically, our liquidity needs have been driven by our acquisition
strategy. Our principal liquidity requirements are for debt service, working
capital, any future acquisitions and general and corporate purposes, including
capital expenditures. Our acquisition strategy has historically required a
significant portion of our capital resources. We expect that our debt service
obligations within the next twelve months, without regard to further
acquisitions or the proposed merger discussed above, will be approximately
$76.1 million, including approximately $21.0 million for interest on our
10-1/4% Senior Subordinate Notes and our 9-1/4% Senior Subordinated Notes and
approximately $55.1 million on our credit facility, excluding any commitment
fees and interest due under rate swap transactions. Our 13-1/4% Exchangeable
Preferred Stock does not require cash dividends through July 1, 2002.
We have financed past acquisitions through bank borrowings, sales of
equity and debt securities, internally generated funds and proceeds from asset
sales. We expect that financing for future acquisitions will be provided from
the same sources.
NET CASH PROVIDED BY OPERATING ACTIVITIES. For the three months ended March 31,
2001, net cash provided by operations decreased to $4.2 million from $13.7
million for the comparable 2000 period, primarily due to an increase in the net
loss offset by additional depreciation and amortization expense from radio
stations acquired during 2000 and an increase in cash collections of accounts
receivable.
NET CASH USED IN INVESTING ACTIVITIES. For the three months ended March 31,
2001, net cash used in investing activities decreased to $1.3 million from $36.0
million in the comparable 2000 period, primarily for station acquisitions.
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. For the three months ended
March 31, 2001, net cash used in financing activities was $6.1 million compared
to net cash provided of $216.5 million in the comparable 2000 period. This
decrease of $222.6 million is primarily the result of Citadel Communications'
common stock offering completed in February 2000 of $234.8 million and a
reduction in net repayments on notes payable and other obligations of $11.4
million. The net proceeds received by Citadel Communications from the 2000
stock offering were transferred to the equity of Citadel Broadcasting.
CREDIT FACILITY. On October 2, 2000, we completed a Second Amended and Restated
Credit Agreement (the "Credit Facility"). The 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, we may request up to $150.0 million in additional
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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 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 our consolidated leverage ratio.
On March 30, 2001, we repaid approximately $15.2 million under the
Tranche A Term Loans and approximately $1.3 million under the Tranche B Term
Loan. These were mandatory prepayments based on our "excess cash flow" as
defined in the Credit Facility and the prepayments of approximately $16.5
million reduced our total borrowing capacity in an equal amount as prepayments
under the Term Loan Facility are no longer available for future borrowings. We
borrowed $16.0 million under the Revolving Credit Facility to make the mandatory
prepayments.
As of March 31, 2001, we had the following amounts outstanding under
our Credit Facility:
Type and Amount of Borrowing Interest Rate Next Interest Rate Change
- ---------------------------- ------------- -------------------------
Tranche A - $76,000,000 7.8125% June 15, 2001
Tranche A - $74,000,000 8.3125% April 30, 2001
Tranche A - $39,793,234 9.1875% April 2, 2001
Tranche A - $120,000,000 9.375% June 4, 2001
Tranche B - $198,694,766 8.4375% May 2, 2001
Revolver - $120,000,000 8.4375% April 17, 2001
Revolver - $16,000,000 7.6875% June 29, 2001
In addition, as of March 31, 2001, we had approximately $85.8 million
still available for future borrowings under the Revolving Credit Facility. The
amount available for future borrowings has been reduced by approximately $3.2
million in outstanding letters of credit.
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 0.25% 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).
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, mandatory prepayments must be made under the Revolving Credit Facility
upon the happening of certain events.
The Credit Facility also provides for up to $50.0 million of letters of
credit, which may be used as security for our obligations under agreements
entered into in connection with certain radio station acquisitions and for any
other purpose related to our business. 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.
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The Credit Facility also requires that no less than 50% of our
long-term indebtedness be subject to fixed interest rates. We have entered into
the following one-year interest rate swap transactions in order to convert a
portion of our variable rate debt into fixed rate debt.
Variable Rate at
Transaction Date Notional Amount Fixed Rate March 31, 2001
- ---------------- --------------- ---------- --------------
June 30, 2000 $25,000,000 7.055% 4.90%
August 31, 2000 $40,000,000 6.855% 5.19%
November 21, 2000 $135,000,000 6.53% 5.38%
We 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.
Subject to permitted liens, the Credit Facility is secured by: (a) a
first priority pledge on all of our capital stock other than our exchangeable
preferred stock, (b) a first priority security interest in all the existing and
after-acquired property of Citadel Communications and Citadel Broadcasting,
including, without limitation, accounts, machinery, equipment, inventory, real
estate, general intangibles and investment property and (c) all proceeds of the
foregoing. The Credit Facility is also guaranteed by Citadel Communications. The
Credit Facility contains customary events of default. Upon the occurrence of an
event of default, with certain limitations, our obligations under the Credit
Facility, which are at that time outstanding, may become accelerated.
The Credit Facility contains customary restrictive covenants, which,
among other things, and with exceptions, limits our ability 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 our
business. We are 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. At March 31, 2001, Citadel
Communications and Citadel Broadcasting were in compliance with all covenants
under the Credit Facility.
If the proposed merger with FLCC Acquisition Corp. described above is
completed, the existing Credit Facility will be terminated and we will enter
into a new credit facility. See Part II, Item 5 of this report for additional
information.
SENIOR SUBORDINATED NOTES. On July 3, 1997, we 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 our
option, 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, we 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 our option, 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, we may, at our 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 our ability
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 March 31, 2001, we were in compliance
with all covenants under the indentures.
On May 4, 2001, we commenced an offer to purchase all of our
outstanding 10-1/4% notes and 9-1/4% notes for cash, contingent on the
satisfaction of various conditions, including consummation of the proposed
merger with FLCC Acquisition Corp. described above. See Part II, Item 5 of
this report for additional information.
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EXCHANGEABLE PREFERRED STOCK. On July 3, 1997, we sold an aggregate of
1,000,000 shares of our 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 our option,
in cash. Thereafter, all dividends will be payable only in cash. To date, we
have paid all dividends in additional shares of exchangeable preferred stock.
We 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.
We may redeem the exchangeable preferred stock, in whole or in part, at
our option, 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.
The Certificate of Designation governing the exchangeable preferred
stock also contains covenants that restrict us 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 March 31, 2001, we were in compliance with all covenants under
the Certificate of Designation.
On May 4, 2001, we commenced an offer to purchase all outstanding
shares of our exchangeable preferred stock for cash, contingent on the
satisfaction of various conditions, including consummation of the proposed
merger with FLCC Acquisition Corp. described above. See Part II, Item 5 of
this report for additional information.
PENDING TRANSACTIONS AND RECENTLY COMPLETED TRANSACTIONS. We have three
transactions currently pending, which if completed, would result in the purchase
of three FM radio stations and three AM radio stations and the sale of two FM
radio stations, one AM radio station and the right to provide programming and
sell commercial advertising for one FM radio station pursuant to a program
service and time brokerage agreement. The total cash required to fund the
pending acquisitions is expected to be approximately $61.8 million, of which
approximately $0.8 million has already been paid. In addition to the cash, the
purchase price also includes 181,820 shares of Citadel Communications' common
stock valued at approximately $2.0 million, based on the closing price of
Citadel Communications' stock on December 21, 2000. If the proposed merger with
FLCC Acquisition Corp. described above occurs prior to the closing of our
acquisition of certain stations in Tucson, Arizona, the cash purchase price for
such stations will increase by $4.7 million, in lieu of the issuance of the
181,820 shares of Citadel Communications' common stock. The sale price of the
two FM stations, one AM station and the right to provide programming and sell
commercial advertising for one FM station under a program service and time
brokerage agreement is approximately $19.4 million in cash. We expect to fund
the acquisitions from internally generated funds, borrowings under the Credit
Facility and proceeds from radio station sales. The consummation of each of the
pending transactions is subject to certain conditions. Although we believe that
all closing conditions will be satisfied in each case, there can be no assurance
that this will be the case.
On January 18, 2001, we completed our acquisition of radio station
WTRX-AM in Flint, Michigan. The total purchase price was approximately $0.4
million of which approximately $0.3 million had previously been paid in
connection with the acquisition of other stations in Lansing, Saginaw and Flint,
Michigan on July 31, 2000. The remaining purchase price was funded from
internally generated cash. We previously operated the station under a local
marketing agreement since August of 2000.
On April 3, 2001, we completed the sale of four FM radio stations
serving Monroe, Louisiana to Monroe Radio Partners, Inc. for approximately
$4.3 million in cash. Prior to the sale, Monroe Radio Partners provided
programming and sold commercial advertising for these stations pursuant to
a local marketing agreement dated December 14, 2000.
CAPITAL EXPENDITURES. We had capital expenditures of approximately $1.4 million
for the three months ended March 31, 2001. Our equipment purchases 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, our principal liquidity
requirements will be for working capital and general corporate purposes,
including capital expenditures, which are not expected to be material in amount.
We believe that cash from operating activities and revolving loans under our
Credit Facility should be sufficient to permit us to meet our financial
obligations and to fund our operations, including completion of our pending
acquisitions, for at least the next 12 months, although additional capital
resources may be required in connection with any further implementation of our
acquisition strategy.
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RISK FACTORS
Any of the following risks could have a material adverse effect on our
business, financial condition or results of operations. These risks and
uncertainties are not the only ones facing us or which may adversely affect of
business.
SUBSTANTIAL INDEBTEDNESS. - Our debt service consumes a substantial portion of
the cash we generate and reduces the cash available to invest in our operations.
We have a significant amount of indebtedness. Our large amount of debt
could significantly impact our business because, among other things, it:
- 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,
- limits our ability to obtain additional financing, if we need it, for
working capital, capital expenditures, acquisitions, debt service
requirements or other purposes,
- inhibits our ability to compete with competitors who are less leveraged
than we are, and
- restrains our ability to react to changing market conditions, changes in
our industry and economic downturns.
As of March 31, 2001, we had:
- outstanding total debt of approximately $862.8 million, excluding the
discount on our 10 1/4% notes and our 9 1/4% notes,
- our exchangeable preferred stock with an aggregate liquidation
preference of approximately $103.4 million, and
- shareholder's equity of approximately $380.1 million.
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 planned acquisitions and capital
expenditures or sell assets. We cannot assure you that we will generate
sufficient cash flow or be able to obtain sufficient funding to satisfy our debt
service requirements.
RESTRICTIONS IMPOSED ON US BY OUR DEBT INSTRUMENTS--Our existing debt
instruments contain restrictions and limitations that could significantly impact
our ability to operate our business.
The covenants in our Credit Facility and the agreements governing our
other outstanding debt and preferred stock restrict, among other things, our
ability to incur additional debt, make particular types of investments or other
restricted payments, swap or sell assets or merge or consolidate. A breach of
any of the covenants contained in the Credit Facility could allow the lenders to
declare all amounts outstanding under the Credit Facility to be immediately due
and payable. In addition, the lenders under the Credit Facility could proceed
against the collateral granted to them to secure that indebtedness. Citadel
Communications has pledged the outstanding shares of our common stock that it
owns to secure its guarantee of the Credit Facility. If the amounts outstanding
under the Credit Facility are accelerated, we cannot assure you that our assets
will be sufficient to repay amounts due
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under the Credit Facility and other outstanding debt obligations.
The Credit Facility requires us to obtain our banks' consent before
making acquisitions or capital expenditures that exceed the amount permitted by
the Credit Facility and before making the acquisitions that do not meet
applicable tests under the Credit Facility. The Credit Facility also requires us
to maintain specific financial ratios and satisfy financial condition tests.
Events beyond our control could affect our ability to meet those financial
ratios and condition tests, and we cannot assure you that we will do so.
The indentures governing our 9 1/4% notes and 10 1/4% notes and the
Credit Facility restrict, with certain exceptions, our ability to pay dividends
on or to repurchase, redeem or otherwise acquire any shares of our capital
stock. In the event that, after July 1, 2002, cash dividends on our exchangeable
preferred stock are in arrears and unpaid for two or more semi-annual dividend
periods, whether or not consecutive, holders of the exchangeable preferred stock
will be entitled to elect two directors of Citadel Broadcasting.
For more information about our indebtedness, see the discussion above
under the heading "Liquidity and Capital Resources."
HISTORY OF NET LOSSES--We have a history of net losses that we expect to
continue through at least 2001.
We had a net loss of $39.2 million for the year ended December 31, 2000
and $32.3 million for the three months ended March 31, 2001. The primary reasons
for these losses are significant charges for depreciation and amortization
relating to the acquisition of radio stations, interest charges on our
outstanding debt and non-cash deferred compensation related to stock options. If
we acquire additional stations, these charges will probably increase. We expect
to continue to experience net losses through at least 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 intend to grow by acquiring radio stations in mid-sized markets.
However, our acquisition strategy may not increase our cash flow or yield other
anticipated benefits because this strategy is subject to a number of other
risks, including:
- failure or unanticipated delays in completing acquisitions due to
difficulties in obtaining regulatory approval,
- failure of certain of our acquisitions to prove profitable or for the
station or stations acquired to generate cash flow,
- difficulty in integrating the operations, systems and management of our
acquired stations,
- diversion of management's attention from other business concerns,
- loss of key employees of acquired stations, and
- 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 approximately $85.8 million. We may be unable to
obtain additional required financing for acquisitions on terms favorable to us
or at all.
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 if we are unable to comply with these financial ratios.
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 PENDING AND FUTURE TRANSACTIONS DUE TO
GOVERNMENTAL REVIEW--Antitrust law and other regulatory considerations could
prevent or delay our strategy to expand our business and increase revenue.
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The completion of 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. All of our pending and future radio station acquisitions and
dispositions will be subject to the license transfer approval process of the
Federal Communications Commission. Review by the Department of Justice or the
Federal Trade Commission may cause delays in completing transactions and, in
some cases, result in attempts by these agencies to prevent completion of
transactions or negotiate modifications to the proposed terms. Review by the FCC
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.
IMPORTANCE OF CERTAIN MARKETS--A downturn in any of our significant markets
could adversely affect our revenue and cash flow.
Our Providence, Salt Lake City, Knoxville, Oklahoma City and Lansing
markets are particularly important for our financial well being. A significant
decline in net broadcasting revenue or broadcast cash flow from our stations in
these markets could have a material adverse effect on our operations and
financial condition. To illustrate, our radio stations in these markets
generated the following percentages of our total net broadcasting revenue and
broadcast cash flow for the three months ended March 31, 2001:
% OF NET % OF BROADCAST
MARKET BROADCASTING REVENUE CASH FLOW
---------------- -------------------- --------------
Providence 5.7% 7.9%
Salt Lake City 5.2% 5.9%
Knoxville 4.5% 6.4%
Oklahoma City 4.3% 6.5%
Lansing 4.2% 7.0%
SIGNIFICANT COMPETITION IN OUR INDUSTRY--Because the radio broadcasting industry
is highly competitive, we may lose audience share and advertising revenue.
Our radio stations face heavy competition from other radio stations in
each market for audience share and advertising revenue. We also compete with
other media such as television, newspapers, direct mail and outdoor advertising
for advertising revenue. A decrease in either audience share or advertising
revenue could result in decreased cash flow, which could impair our ability to,
among other things service our debt obligations. The radio broadcasting industry
is also facing competition from new media technologies that are being developed
such as the following:
- audio programming by cable television systems, direct broadcasting
satellite systems and other digital audio broadcasting formats,
- 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
- 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.
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LICENSES. The radio broadcasting industry is subject to extensive regulation by
the FCC under the Communications Act of 1934, as amended. Issuance, renewal or
transfer of radio broadcast station operating licenses requires FCC approval,
and we cannot operate our radio stations without FCC licenses. The failure to
renew our licenses could prevent us from operating the affected stations and
generating revenue from them. If the FCC decides to include conditions or
qualifications in any of our licenses, we may be limited in the manner in which
we may operate the affected station.
OWNERSHIP. The Communications Act and FCC rules impose specific limits on the
number of stations and other media outlets an entity can own in a single market.
The FCC attributes interests held by, among others, an entity's officers,
directors and stockholders to that entity for purposes of applying these
ownership limitations. The existing ownership rules or proposed new rules could
affect our acquisition strategy because they may prevent us from acquiring
additional stations in a particular market. We may also be prevented from
engaging in a swap transaction if the swap would cause the other company to
violate these rules.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK. During the normal course of business we are 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. We constantly
assess these market risks and have established policies and practices to protect
against the adverse effects of these and other potential exposures. In addition,
we are exposed to foreign currency risk with respect to Canadian accounts
receivable. However, we believe that these foreign receivables are insignificant
relative to our total accounts receivable and do not represent a material market
risk to us. We do not use derivative financial instruments for trading purposes.
Although we do 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. We are exposed to interest rate changes under our credit
facility and interest rate swap transactions. We constantly monitor interest
rate changes to determine the impact any change will have on our business,
financial condition or results of operations. We do not consider our 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 we will be adequately protected against the risks
associated with interest rate fluctuations.
Our credit facility, which we maintain 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 the interest rate under the credit facility, see Part
I, Item 2, Managements' Discussion and Analysis of Financial Condition and
Results of Operations under the heading "Liquidity and Capital Resources -
Credit Facility." Our 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
0.25% from March 31, 2003 to March 31, 2008 and 94.75% on June 30, 2008 (if
maturity is extended to such date).
At March 31, 2001, approximately $309.8 million was outstanding under
the tranche A term loans at interest rates of 7.8125% to 9.375%, approximately
$198.7 million under the tranche B term loan at an interest rate of 8.4375% and
$136.0 million outstanding under the revolving loans at interest rates of
7.6875% to 8.4375%.
In addition, the credit facility requires that no less than 50% of our
long-term indebtedness be subject to fixed interest rates. If our total variable
debt under the credit facility exceeds this 50% threshold, we are required to
enter into a hedging contract that will convert a portion of the variable rate
into a fixed rate. Based on our variable rate borrowings, we entered into the
following one year interest rate swap transactions to convert a portion of our
variable rate debt into fixed rate debt.
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Transaction Date Notional Amount Fixed Rate Variable Rate at March 31, 2001
- ---------------- --------------- ---------- -------------------------------
June 30, 2000 $25,000,000 7.055% 4.90%
August 31, 2000 $40,000,000 6.855% 5.19%
November 21, 2000 $135,000,000 6.53% 5.38%
We 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.
Through our credit facility and related interest swap transactions, we
may be vulnerable to changes in the U.S. prime rates, the federal funds
effective rate and the LIBO rate. We have performed a sensitivity analysis
assuming a hypothetical increase in the interest rate of 10% applied to the
$644.5 million of outstanding variable debt and the interest rate swap
transactions as of March 31, 2001.
Based on this analysis, as of March 31, 2001, the impact on future
earnings for the next twelve months would be approximately $5.3 million of
increased interest expense, which amount includes a reduction in interest
expense of $0.2 million related to the interest rate swap transactions.
Comparatively, assuming the same hypothetical 10% increase in the interest rate
applied to the $120.0 million of outstanding variable debt as of March 31, 2000,
the impact of future earnings would have been approximately $0.9 million of
increased interest expense. There were no interest rate swap agreements
outstanding as of March 31, 2000.
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 March 31, 2001 and 2000.
Settlement of our 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 $1.4 million as of March 31, 2001.
There were no interest rate swap agreements outstanding as of March 31, 2000.
PART II
ITEM 1. LEGAL PROCEEDINGS.
We and our parent, Citadel Communications currently and from time to
time are involved in litigation incidental to the conduct of our business, but
neither we nor Citadel Communications is a party to any lawsuit or proceeding
which, in our opinion, is likely to have a material adverse effect on us.
Following the announcement of Citadel Communications' proposed merger
with FLCC Acquisition Corp. pursuant to an Agreement and Plan of Merger with
FLCC Holdings, Inc., dated January 15, 2001 and amended on March 13 and 22,
2001, discussed under Part II, Item 5, Other Information, the following lawsuits
were filed against Citadel Communications and other parties:
On January 17, 2001, William P. Burcin, an alleged stockholder of
Citadel Communications, filed a purported class action under Nevada law in the
District Court, Clark County, Nevada. The suit names as defendants Citadel
Communications, several directors of Citadel Communications, unidentified
individuals (Does 1 through 100) and unidentified corporations (Roe Corporations
1 through 100). Plaintiff alleges, among other things, that Citadel
Communications and its board of directors caused plaintiff and other members of
the purported class to be deprived of the value of their investment in Citadel
Communications, that Citadel Communications and its board of directors failed to
exercise ordinary care and diligence in the exercise of their fiduciary duties
to the public stockholders of Citadel Communications, and that plaintiff and the
other members of the purported class will be irreparably harmed by defendants'
actions. The complaint seeks the following relief: (i) class action status; (ii)
a declaration that the merger agreement is unenforceable; (iii) an order
enjoining the merger agreement and enjoining defendants from consummating the
merger until Citadel Communications discloses all material facts regarding the
merger and implements procedures to obtain the highest possible price for
Citadel Communications; (iv) an order directing the defendant directors to
exercise their fiduciary duties and rescinding any agreements to pay Forstmann
Little & Co. termination fees; (v) unspecified damages; and (vi) costs and
disbursements, including attorneys' and experts' fees.
On January 17, 2001, Rolling Investor Group Inc., an alleged
stockholder of Citadel Communications, filed a purported class action under
Nevada law in the District Court, Clark County, Nevada. The suit names as
defendants Citadel Communications, several directors of Citadel Communications,
Forstmann Little & Co., FLCC Holdings, Inc. and FLCC Acquisition Corp.
Plaintiff's allegations include the following: the merger is unfair to the
stockholders of Citadel Communications; the defendant directors have
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breached their fiduciary and common law duties by failing to properly auction
Citadel Communications and to ensure the highest possible price is paid to
Citadel Communications' public stockholders; and plaintiff and the other members
of the purported class will be irreparably harmed by defendants' actions. The
complaint seeks the following relief: (i) class action status and certification
of plaintiff as class representative; (ii) a preliminary and permanent order
enjoining the merger or, in the event the merger is consummated, rescission
thereof; (iii) unspecified compensatory damages together with prejudgment
interest at the maximum rate allowable by law; and (iv) costs and disbursements,
including attorneys' and experts' fees.
On January 18, 2001, John Newalanic, an alleged stockholder of Citadel
Communications, filed a purported class action in the District Court, Clark
County, Nevada, against Citadel Communications and several of its directors.
Plaintiff alleges, among other things, that defendants are attempting to deprive
plaintiff and other members of the purported class of the value of their
investment in Citadel Communications, that defendants have failed to exercise
ordinary care and diligence in the exercise of their fiduciary duties to the
public stockholders of Citadel Communications, and that plaintiff and the other
members of the purported class will be irreparably harmed by defendants'
actions. The complaint seeks the following relief: (i) class action status; (ii)
a declaration that the merger agreement is unenforceable; (iii) an order
enjoining defendants from proceeding with the merger agreement and from
consummating the merger until Citadel Communications implements procedures to
obtain the highest possible price for Citadel Communications; (iv) an order
directing the defendant directors to exercise their fiduciary duties until the
sale or auction of Citadel Communications is completed and rescinding any terms
of the merger agreement that have been implemented; (v) unspecified damages; and
(vi) costs and disbursements, including attorneys' and experts' fees.
On January 19, 2001, Ray Jourdan, an alleged stockholder of Citadel
Communications, filed a purported class action in the District Court, Clark
County, Nevada. The suit names as defendants Citadel Communications, several of
its directors, unidentified individuals (Does 1 through 100) and unidentified
corporations (Roe Corporations 1 through 100). Plaintiff alleges, among other
things, that the director defendants have failed to announce active auction of
Citadel Communications, that the director defendants are abiding by a process
that will deprive purported class members of the value of their investment in
Citadel Communications, that the directors have failed to exercise ordinary care
and diligence in the exercise of their fiduciary duties to the public
stockholders of Citadel Communications, and that plaintiff and the other members
of the purported class will be irreparably harmed by defendants' actions. The
complaint seeks the following relief: (i) class action status; (ii) a
declaration that the merger agreement is unenforceable; (iii) an order enjoining
the merger agreement and enjoining defendants from consummating the merger until
Citadel Communications discloses all material facts regarding the merger and
implements procedures to obtain the highest possible price for Citadel
Communications; (iv) an order directing the defendant directors to exercise
their fiduciary duties and rescinding any agreements to pay Forstmann Little &
Co. termination fees; (v) unspecified damages; and (vi) costs and disbursements,
including attorneys' and experts' fees.
On February 13, 2001, Allan B. Bowdach, an alleged stockholder of
Citadel Communications, filed a purported class action in the District Court,
Clark County, Nevada. The suit names as defendants Citadel Communications,
several directors of Citadel Communications, Forstmann Little & Co., FLCC
Holdings, Inc. and FLCC Acquisition Corp. Plaintiff alleges, among other things,
that the defendant directors have conflicts of interest in the merger, that the
defendant directors have breached their fiduciary and common law duties by
failing to properly auction Citadel Communications and to ensure the highest
possible price is paid to Citadel Communications' public stockholders, and that
plaintiff and the other members of the purported class will be irreparably
harmed by defendants' actions. The complaint seeks the following relief: (i)
class action status and certification of plaintiff as class representative; (ii)
a preliminary and permanent order enjoining the merger or, in the event the
merger is consummated, rescission thereof; (iii) unspecified compensatory
damages together with prejudgment interest at the maximum rate allowable by law;
and (iv) costs and disbursements, including attorneys' and experts' fees.
Citadel Communications believes that the allegations discussed above
relating to Citadel Communications' proposed merger with FLCC Acquisition are
without merit. The parties to the foregoing proceedings have reached an
agreement in principle to settle all claims arising out of the proposed merger
with FLCC Acquisition pursuant to which certain changes were made to the terms
of the Agreement and Plan of Merger and to the proxy statement relating to the
vote of Citadel Communications' stockholders based on the suggestions and
comments of plaintiffs' counsel. Citadel Communications expects that the
agreement will be memorialized in a formal settlement agreement and presented to
the court for its approval.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The sole holder of the common stock of the Company acted by written
consent (the "Written Consent") in lieu of an Annual Meeting of the
Sole Stockholder dated February 2, 2001.
(b) The matter acted upon by the sole stockholder, pursuant to the Written
Consent, was the election of directors. Each of Lawrence R. Wilson,
Robert F. Fuller, Ike Kalangis, Robert G. Liggett, Jr., John E. von
Schlegell and Ted L. Snider, Sr. was elected to serve as a director of
the Company until the next annual meeting of stockholders and until his
successor is duly elected and qualified.
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(c) The Written Consent was signed by the sole holder of the 45,000
outstanding shares of common stock of the Company. All such 45,000 shares
were voted for the election of each of Lawrence R. Wilson, Robert F.
Fuller, Ike Kalangis, Robert G. Liggett, Jr., John E. von Schlegell and
Ted L. Snider, Sr. as a director of the Company.
ITEM 5. OTHER INFORMATION.
On January 15, 2001, Citadel Communications entered into an Agreement
and Plan of Merger with FLCC Holdings, Inc., a Delaware corporation and an
affiliate of Forstmann Little & Co., which the parties subsequently amended on
March 13, 2001 and March 22, 2001, under which FLCC Acquisition Corp., a Nevada
corporation and a wholly owned subsidiary of FLCC Holdings, will merge with and
into Citadel Communications, with Citadel Communications as the surviving
corporation. Pursuant to the proposed merger, each issued and outstanding share
of Citadel Communications' common stock will be converted into the right to
receive $26.00 in cash.
The completion of the proposed merger is subject to various conditions,
including approval of the Agreement and Plan of Merger by Citadel
Communications' stockholders and consent of the Federal Communications
Commission to transfer of control of our broadcast licenses. On April 26, 2001,
Citadel Communications' stockholders approved the Agreement and Plan of Merger.
On April 26, 2001, the FCC also granted its consent to our transfer of control
application. On May 1, 2001, the FCC issued a public notice stating that the
grant was effective on April 26, 2001. This notice triggered a 30-day period
during which third parties can ask the FCC to reconsider its decision. For an
additional 10 days beyond the 30-day period, the FCC also can review and
reconsider the grant on its own motion. The FCC's order can become final no
earlier than late June 2001, and Citadel Communications expects to close the
merger after such order becomes final.
On May 4, 2001, in connection with the proposed merger, we commenced
a tender offer to purchase for cash all outstanding shares of our 13-1/4% Series
B Exchangeable Preferred Stock and to solicit consents to amend the Certificate
of Designations governing the exchangeable preferred stock. The proposed
amendments to the Certificate of Designations would, among other things, modify
and/or eliminate substantially all of the restrictive covenants, including the
change of control offer covenant, and other provisions contained in the
Certificate of Designations. Adoption of the proposed amendments requires the
consent of the holders of at least a majority of the outstanding shares of the
exchangeable preferred stock. On May 4, 2001, we also commenced tender offers
to purchase for cash all of our outstanding 10-1/4% Senior Subordinated Notes
due 2007 and 9-1/4% Senior Subordinated Notes due 2008 and to solicit consents
to amend the indentures relating to the subordinated notes. The proposed
amendments to the indentures would, among other things, modify and/or eliminate
substantially all of the restrictive covenants, certain events of default and
other provisions contained in the indentures. Adoption of the proposed
amendments to each indenture requires the consent of the holders of at least a
majority of the outstanding principal amount of each series of the subordinated
notes. The offers and solicitations were made at the expense of FLCC Holdings.
We anticipate that the offers will expire on June 26, 2001, unless otherwise
terminated or extended. We will not be required to purchase any exchangeable
preferred stock or subordinated notes, and no proposed amendment to the
Certificate of Designations governing the exchangeable preferred stock or
the indentures relating to the subordinated notes will be effective, in each
case, unless Citadel Communications' proposed merger with FLCC Acquisition is
completed or is simultaneously completed. The merger is not conditioned upon
the acceptance of these offers and solicitations.
In connection with the proposed merger, on April 3, 2001, FLCC
Holdings, FLCC Acquisition, The Chase Manhattan Bank and certain other lenders
entered into a credit agreement which provides that, concurrent with the merger,
we will become a party to the credit agreement. Under the credit agreement, the
lenders have agreed to provide an aggregate principal amount of $700 million in
revolving loans and term loans to us, and we may, at our option and subject to
certain conditions specified in the credit agreement, borrow an additional
$400 million in revolving loans and term loans to fund future acquisitions and
to use for general corporate purposes. The loans under the credit agreement
will be conditioned on certain customary conditions and will contain customary
representations and warranties, covenants and events of default. We expect to
obtain $525 million under the credit agreement following or concurrently with
the closing of the merger in connection with our purchase of the exchangeable
preferred stock and subordinated notes pursuant to the cash tender offers and
consent solicitations described above and the refinancing of our other
indebtedness including our current credit facility.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- --------------------------------------------------------------
2.1 Agreement and Plan of Merger dated January 15, 2001 by and
between Citadel Communications Corporation and FLCC Holdings,
Inc. (incorporated by reference to Exhibit 2.1 to Citadel
Communications Corporation's Current Report on Form 8-K filed
on January 24, 2001).
2.2 Letter Agreement dated January 15, 2001 by and between Citadel
Communications Corporation and FLCC Holdings, Inc.
(incorporated by reference to Exhibit 2.2 to Citadel
Communications Corporation's Current Report on Form 8-K filed
on January 24, 2001).
2.3 Guarantee dated January 15, 2001 made by Forstmann Little &
Co. Subordinated Debt and Equity Management Buyout
Partnership-VII, L.P. and Forstmann Little & Co. Equity
Partnership-VI, L.P. (incorporated by reference to Exhibit 2.3
to Citadel Communications Corporation's Current Report on Form
8-K filed on January 24, 2001).
2.4 Amendment No. 1, dated March 13, 2001, to Merger Agreement
dated as of January 15, 2001 by and among FLCC Holdings, Inc.,
Citadel Communications Corporation and FLCC Acquisition Corp.
(incorporated by reference to Exhibit 2.13 to Citadel
Communications Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
2.5 Letter Agreement dated March 22, 2001 by and among Citadel
Communications Corporation,FLCC Holdings, Inc. and FLCC
Acquisition Corp. (incorporated by reference to Exhibit 2.14
to Citadel Communications Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 2000).
(b) Reports on Form 8-K - During the quarter ended March 31, 2001, Citadel
Broadcasting Company filed the following reports on Form 8-K.
(i) Form 8-K filed on January 15, 2001 reporting Citadel
Communications Corporation's Agreement and Plan of Merger with
FLCC Holdings, Inc., an affiliate of Forstmann Little & Co.,
under which FLCC Acquisition Corp., a wholly owned subsidiary
of FLCC Holdings, Inc., would merge with and into Citadel
Communications Corporation.
(ii) Form 8-K filed on January 23, 2001 providing a copy of the
Agreement and Plan of Merger and related documents with
regards to the Citadel Communications Corporation's merger
with FLCC Holdings, Inc. as reported on January 15, 2001.
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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 BROADCASTING COMPANY
Date: May 14, 2001 By: /s/ LAWRENCE R. WILSON
- ------------------ ---------------------------
Lawrence R. Wilson
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2001 By: /s/ DONNA L. HEFFNER
- ------------------ -------------------------
Donna L. Heffner
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ --------------------------------------------------------------
2.1 Agreement and Plan of Merger dated January 15, 2001 by and
between Citadel Communications Corporation and FLCC Holdings,
Inc. (incorporated by reference to Exhibit 2.1 to Citadel
Communications Corporation's Current Report on Form 8-K filed
on January 24, 2001).
2.2 Letter Agreement dated January 15, 2001 by and between Citadel
Communications Corporation and FLCC Holdings, Inc.
(incorporated by reference to Exhibit 2.2 to Citadel
Communications Corporation's Current Report on Form 8-K filed
on January 24, 2001).
2.3 Guarantee dated January 15, 2001 made by Forstmann Little &
Co. Subordinated Debt and Equity Management Buyout
Partnership-VII, L.P. and Forstmann Little & Co. Equity
Partnership-VI, L.P. (incorporated by reference to Exhibit 2.3
to Citadel Communications Corporation's Current Report on Form
8-K filed on January 24, 2001).
2.4 Amendment No. 1, dated March 13, 2001, to Merger Agreement
dated as of January 15, 2001 by and among FLCC Holdings, Inc.,
Citadel Communications Corporation and FLCC Acquisition Corp.
(incorporated by reference to Exhibit 2.13 to Citadel
Communications Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
2.5 Letter Agreement dated March 22, 2001 by and among Citadel
Communications Corporation, FLCC Holdings, Inc. and FLCC
Acquisition Corp. (incorporated by reference to Exhibit 2.14
to Citadel Communications Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 2000).