10-Q 1 j8783601e10-q.txt CITADEL COMMUNICATIOINS CORP. 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: 000-24515 CITADEL COMMUNICATIONS CORPORATION ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 86-0748219 ------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) City Center West, Suite 400, 7201 West Lake Mead Blvd., Las Vegas, Nevada 89128 -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area (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 37,156,372 shares of common stock, $.001 par value per share, outstanding. 2 Citadel Communications Corporation Form 10-Q March 31, 2001 Index

~~SEPTEMBER~~PAGE ~~30, DECEMBER 31, 2000 1999~~ ---- ~~----~~Part ~~(UNAUDITED)~~I ~~ASSETS~~Item ~~Current~~1 ~~assets:~~- ~~Cash~~Financial ~~and~~Statements ~~cash equivalents $ 16,082 $ 17,981 Accounts receivable, less allowance for doubtful accounts of $~~3~~,024~~ inItem ~~2000 and $~~2~~,443~~ in- ~~1999~~Management's ~~72,337~~Discussion ~~52,728 Due from related parties 258 236 Income taxes receivable 551 226 Prepaid expenses~~ and ~~other~~Analysis ~~current~~of ~~assets~~Financial ~~5,683~~Condition ~~2,708~~And ~~Net~~Results ~~assets~~ of ~~discontinued~~Operations ~~operations~~10 ~~955~~Item ~~2,275~~3 -~~---------~~ ~~--------~~Qualitative ~~Total current assets 95,866 76,154 Property~~ and ~~equipment,~~Quantitative ~~net~~Disclosures ~~92,669~~about ~~68,035~~Market ~~Intangible~~Risk ~~assets,~~20 ~~net~~Part ~~1,024,456~~II ~~538,664~~Item ~~Restricted cash -- 26,192 Deposits for pending acquisitions 871 -- Other assets 7,136 7,568 ---------- -------- $~~1~~,220,998~~ ~~$716,613~~Legal ~~==========~~Proceedings ~~======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,516 $ 1,696 Accrued liabilities~~ 21~~,361~~ ~~13,344~~Item ~~Current maturities of notes payable --~~ 5~~,495~~ ~~Current maturities of other long~~-~~term~~ ~~obligations 830 842 ---------- -------- Total current liabilities 24,707 21,377 Notes payable 379,000 132,000 Senior subordinated notes payable, net of discount 210,850 210,509~~ Other ~~long-term~~Information ~~obligations,~~22 ~~less~~Item ~~current~~6 ~~maturities 2,562 2,516 Deferred tax liability 76,285 45,640~~ -~~---------~~ ~~--------~~Exhibits ~~Total liabilities 693,404 412,042 ---------- -------- Exchangeable preferred stock 92,987 85,362 Shareholders' equity: Common stock, $.001 par value; authorized 200,000,000 shares, issued~~ and ~~outstanding;~~Reports ~~36,958,673 and 31,831,212 shares as of September 30, 2000 and December 31, 1999, respectively 37 32 Additional paid-in capital 514,040 287,711 Deferred compensation (17,533) (26,924) Unrealized loss~~ on ~~hedging~~Form ~~contracts (100)~~ 8--K ~~Accumulated deficit (61,837) (41,610) ---------- -------- Total shareholders' equity 434,607 219,209 ---------- -------- $1,220,998 $716,613 ========== ========~~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. Our subsidiary, Citadel Broadcasting Company, owns and operates our radio stations. Unless the context otherwise requires, references in this report to Citadel Communications Corporation, Citadel Communications or the Company and the terms "we," "our" and "us" include Citadel Broadcasting Company. 2 3 Part I Item 1, Financial Statements CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

~~THREE~~MARCH ~~MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30~~31, ~~SEPTEMBER~~DECEMBER 3031, ~~2000~~2001 ~~1999~~ 2000 ~~1999~~ ---- ------- ---- -------- ~~Gross~~(UNAUDITED) ~~broadcasting~~ASSETS ~~revenue~~Current assets: Cash and cash equivalents $ 864,~~274~~976 $ 558,~~393~~092 $Accounts ~~212~~receivable,~~585~~ less allowance for doubtful accounts of $3,018 ~~135~~in 2001 and $2,~~542~~821 ~~Less~~in ~~agency~~2000 ~~commissions~~62,873 (877,~~092)~~974 (4Due from related parties 182 202 Income taxes receivable 136 182 Prepaid expenses and other current assets 7,~~899)~~285 ~~(20~~5,~~053)~~938 ~~(12~~Assets held for sale 14,~~569)~~771 ~~-----------~~3,448 ----------- ----------- ~~-----------~~Total ~~Net~~current ~~broadcasting~~assets ~~revenue 78~~90,~~182~~223 5095,~~494~~836 ~~192,532~~Property ~~122~~and equipment,~~973~~ ~~Operating~~net ~~expenses: Station operating expenses 47~~102,~~051~~467 31104,~~567~~834 ~~119,541~~Intangible 80assets,~~853~~ ~~Depreciation~~net ~~and amortization 21~~1,~~357 10~~240,~~004~~020 491,~~876 24~~273,~~471~~520 ~~Corporate~~Deposits ~~general~~for ~~and~~pending ~~administrative~~acquisitions ~~2,193~~738 1,~~890~~121 ~~6,575~~Other ~~4,669~~assets ~~Amortization of non-cash deferred compensation 3~~10,~~148~~456 ~~144 9~~10,~~604~~253 ~~252~~ ----------- ----------- ~~-----------~~$ ~~----------- Operating expenses 73~~1,~~749 43~~443,~~605~~904 ~~185,596~~$ ~~110~~1,~~245~~485,564 ~~Operating~~=========== ~~income~~=========== ~~4,433~~LIABILITIES ~~6,889~~AND ~~6,936~~SHAREHOLDERS' ~~12,728~~EQUITY ~~Nonoperating~~Current ~~expenses (income)~~liabilities: ~~Interest~~Accounts ~~expense~~payable 13$ 2,~~346~~051 6$ 3,~~021~~745 Accrued liabilities 30,~~979~~811 1732,~~502~~384 ~~Interest~~Current ~~income~~maturities ~~(242)~~of ~~(394)~~notes ~~(3,726)~~payable (1-- 16,~~532)~~512 ~~Other~~Current ~~(income)~~maturities ~~expense,~~of ~~net~~other ~~(772)~~long-term ~~(101)~~obligations ~~(787)~~657 ~~296~~1,366 ----------- ----------- ~~-----------~~Total ~~-----------~~current ~~Nonoperating~~liabilities ~~expenses~~33,519 ~~net 12~~54,~~332~~007 ~~5,526~~Note 26payable 644,~~466~~488 16633,~~266~~488 ~~Income~~Senior ~~(loss)~~subordinated ~~from~~notes ~~continuing~~payable, ~~operations~~net ~~before~~of ~~income~~discount ~~taxes (7~~211,~~899)~~091 1210,~~363~~969 ~~(19,530)~~Other (3long-term obligations,~~538)~~ ~~Income~~less ~~tax~~current ~~(benefit)~~maturities (1,~~370)~~679 ~~(472) (2,676) (~~1,~~376)~~796 ~~-----------~~Deferred ~~-----------~~tax ~~-----------~~liability ~~-----------~~73,466 ~~Net~~74,875 ~~income~~Exchangeable ~~(loss)~~preferred ~~from~~stock ~~continuing operations (6~~99,~~529)~~536 196,~~835~~158 ~~(16,854)~~Shareholders' (2equity: Common stock,~~162)~~ ~~Loss~~$.001 ~~from~~par ~~discontinued~~value; ~~operations~~authorized 200,000,000 ~~net~~shares, ofissued ~~tax~~and ~~(609)~~outstanding; (137,~~380) (1~~151,~~546)~~172 (1and 36,~~890)~~978,138 ~~Loss~~shares onas ~~disposal~~ of ~~discontinued~~March ~~operations~~31, ~~net~~2001 ofand ~~tax~~December ~~(989)~~31, ~~-- (1~~2000,~~827)~~ --respectively ~~-----------~~37 ~~-----------~~37 ~~-----------~~Additional paid-~~----------~~in ~~Net~~capital ~~income~~507,503 ~~(loss) (8~~510,~~127)~~439 ~~455~~Deferred compensation (2012,~~227~~924) (414,~~052~~751) ~~Dividend~~Accumulated ~~requirement~~other ~~for~~comprehensive ~~exchangeable~~loss ~~preferred~~(1,393) ~~stock~~(620) ~~3,109~~Accumulated ~~3,296~~deficit 8(113,~~941~~098) 11(80,~~322~~834) ----------- ----------- Total shareholders' equity 380,125 414,271 ----------- ----------- ~~Net loss applicable to common shares~~ $ ~~(11~~1,~~236) $ (2~~443,~~841)~~904 $ ~~(29~~1,~~168) $ (15~~485,~~374)~~564 =========== =========== =========== =========== Basic and diluted loss from continuing operations after dividend requirement per common share $ (0.26) $ (0.05) $ (0.71) $ (0.48) Basic and diluted net loss per common share $ (0.30) $ (0.09) $ (0.81) $ (0.55) Weighted average common shares outstanding 36,941,211 31,299,962 36,129,528 27,871,316 =========== =========== =========== ===========

See accompanying notes to consolidated financial statements. 3 4 CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

THREE MONTHS ENDED ~~NINE~~MARCH ~~MONTHS~~31, ~~ENDED~~------------------------------- ~~SEPTEMBER~~2001 302000 ------------ ------------ Gross broadcasting revenue $ 80,657 ~~SEPTEMBER~~$ 3050,693 ~~2000~~Less ~~1999~~agency ~~2000~~commissions ~~1999~~(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 ------------ ------------ ~~Net~~Operating ~~income~~expenses (86,015 50,671 Operating loss (12,868) $(84,~~127~~534) ~~$455~~Non-operating $expenses (income): Interest expense 20,~~227~~830 8,747 Interest income (99) $(42,~~052~~007) Other ~~comprehensive~~ (income:) ~~Unrealized~~expense, ~~gain~~net (~~loss~~84)on ~~hedging~~(51) ~~contracts~~------------ ------------ Non-operating expenses, net of20,647 ~~tax~~6,689 Loss from continuing operations before income taxes (~~100~~33,515) 40(11,223) Income tax (~~100~~benefit) ~~224~~(1,251) (735) ------------ ------------ Net loss from continuing operations (32,264) (10,488) Loss from discontinued operations, net of tax -- (564) ------------ ------------ ~~Comprehensive~~Net ~~income~~loss (~~loss~~32,264) $(811,~~227~~052) ~~$495~~Dividend requirement for exchangeable preferred stock 3,315 2,965 ------------ ------------ Net loss applicable to common shares $ (2035,~~327~~579) $ (314,~~828~~017) ============ ============ Basic and diluted net loss per common share $ (0.96) $ (0.41) ============ ============ Weighted average common shares outstanding 37,053,798 34,578,084 ============ ============

See accompanying notes to consolidated financial statements. 4 5 CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ------------- ~~2000 1999~~ ---- ---- Cash flows from operating activities: Net loss $ (20,227) $ (4,052) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 49,876 24,471 Amortization of debt issuance costs and debt discounts 950 761 Amortization of deferred revenue (225) (25) Bad debt expense 4,466 2,796 Deferred tax benefit (3,119) (1,737) Amortization of deferred compensation 9,604 252 Gain on sale of assets (898) -- ~~Changes~~2001 in2000 assets and liabilities, net of acquisitions: Increase in accounts receivable and notes receivable from related parties (18,685) (12,343) Increase in prepaid expenses and other current assets (2,621) (1,645) Increase in other assets -- ~~(18) Increase (decrease) in accounts payable 523 (2,626) Increase in accrued liabilities 6,382 229 Decrease in net assets of discontinued operations 2,058 1,274~~ ------~~---~~ --------- Net ~~cash~~loss ~~provided by operating activities 28,084 7,337 Cash flows from investing activities: Capital expenditures~~ $(432,~~107~~264) $(1411,~~431~~052) ~~Capitalized~~Other ~~acquisition~~comprehensive ~~costs~~ income/(~~576~~loss) (2,879) Proceeds from sale of assets 15,757 -- Decrease in deposits for acquisitions 729 -- Cash paid to acquire stations (515,405) (227,726) Expenditures for discontinued operations (737) (694) --------- --------- Net cash used in investing activities (504,339) (245,730) Cash flows from financing activities: ~~Proceeds~~Unrealized ~~received~~loss from stock offering 234,840 140,400 Payment of costs related to stock offering (839) (1,310) Proceeds from exercise of stock options 1,836 1,425 Proceeds from notes payable 259,000 57,500 Principal payments on ~~notes~~hedging ~~payable (12~~contract,~~000)~~ --net ~~Repurchase~~ of ~~exchangeable~~tax ~~preferred stock, including premium~~ (~~1,679~~773) -- ~~Redemption of exchangeable preferred stock, including cash dividend~~ -- ~~(51,712) Principal payments on other long~~-~~term obligations (5,885) (309) Payment of debt issuance costs (917) (544)~~ -----~~----~~ --------- ~~Net~~Comprehensive ~~cash~~loss ~~provided by financing activities 474,356 145,450 Net decrease in cash and cash equivalents~~ $(133,~~899~~037) $(9211,~~943~~052) ~~Cash and cash equivalents, beginning of period 17,981 102,655 --------- --------- Cash and cash equivalents, end of period $ 16,082 $ 9,712~~ ========= =========

See accompanying notes to consolidated financial statements. 5 6 CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)

~~Type~~THREE ~~and~~MONTHS ~~Amount~~ENDED ofMARCH ~~Borrowing~~31, ~~Interest Rate Next Interest Rate Change~~ -------------------------~~---~~ 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 --------- --------- ~~Tranche~~Net Acash -provided ~~$120~~by operating activities 4,~~000~~247 13,~~000~~655 ~~9.8750%~~Cash ~~December~~flows 5from investing activities: Capital expenditures (1,420) ~~2000~~(1,364) ~~Tranche~~Capitalized Aacquisition costs (69) (672) Proceeds from sale of assets 6 92 Cash held in escrow for future acquisitions -- $(3,862) 74Cash paid to acquire stations (43) (29,~~000~~506) Other assets,~~000~~ ~~9.6875%~~net ~~January~~-- ~~31,~~4 ~~2001~~Net ~~Tranche~~change Ain discontinued operations 236 (648) --------- $--------- 55Net cash used in investing activities (1,~~000~~290) (35,~~000~~956) ~~9.6250%~~Cash ~~January~~flows 2from financing activities: Proceeds received from stock offering -- 234,840 ~~2001~~Payment ~~Tranche~~of Bcosts related to stock offering -- ~~$200~~(761) Proceeds from exercise of stock options 444 909 Proceeds from notes payable 23,000 -- Principal payments on notes payable (28,512) (12,000) ~~9.8750%~~Principal ~~January~~payments 2on other long-term obligations (753) (5,683) ~~2001~~Payment ~~Revolving~~of debt issuance costs (252) (798) --------- ~~$160~~--------- Net cash provided by (used in) financing activities (6,~~000~~073) 216,~~000~~507 ~~9.5625%~~Net ~~January~~increase ~~16,~~(decrease) ~~2001~~in ~~Revolving~~cash -and $cash 25equivalents (3,~~000~~116) 194,~~000~~206 ~~9.6875%~~Cash ~~January~~and 31cash equivalents, ~~2001~~beginning ~~Revolving~~of period 8,092 17,981 --------- $--------- 23Cash and cash equivalents,~~000,000~~ ~~9.6250%~~end ~~January~~of 2period $ 4,976 ~~2001~~$ 212,187 ========= =========

See accompanying notes to consolidated financial statements. 6 7 CITADEL COMMUNICATIONS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) General Citadel Communications Corporation ("Citadel Communications") was formed March 24, 1993 as a Nevada corporation and is a holding company, which owns all of the issued and outstanding common stock of Citadel Broadcasting Company ("Citadel Broadcasting"). Citadel Broadcasting owns and operates radio stations and holds Federal 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 consolidated financial statements of Citadel Communications Corporation and Subsidiary (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the 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 consolidated financial statements and notes thereto included in Citadel Communications Corporation'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 consolidated 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. 7 8 As of March 31, 2001, the Company had the following amounts outstanding under its credit facility:

~~Transaction~~Type ~~Date~~and ~~Notional~~ Amount ~~Fixed~~of Borrowing Interest Rate ~~Variable~~Next Interest Rate Change ---------------- ------------ --- ---------- ------------------------- Tranche A - $76,000,000 7.8125% June 15, 2001 Tranche A - $74,000,000 8.3125% April 30, ~~2000~~2001 Tranche A - $2539,793,234 9.1875% April 2, 2001 Tranche A - $120,000,000 79.~~055~~375% 6June 4, 2001 Tranche B - $198,694,766 8.784375% ~~August~~May 312, ~~2000~~2001 Revolver - $40120,000,000 68.~~855~~4375% 6April 17, 2001 Revolver - $16,000,000 7.686875% 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.

~~Type~~Variable ~~and~~Rate ~~Amount~~at ofTransaction ~~Borrowing~~Date ~~Interest~~Notional ~~Rate~~Amount ~~Next~~Fixed ~~Interest~~ Rate ~~Change~~March 31, 2001 ---------------- ------------ --- ---------- --------------~~-----------~~ ~~Tranche~~June ~~A - $120~~30,~~000,000~~ ~~9.8750% December 5,~~ 2000 ~~Tranche A -~~ $ 7425,000,000 97.~~6875~~055% ~~January 31, 2001 Tranche A - $ 55,000,000 9~~4.~~6250~~90% ~~January~~August 231, ~~2001~~2000 ~~Tranche B -~~ $~~200~~40,000,000 96.~~8750~~855% ~~January 2, 2001 Revolving - $160,000,000 9~~5.~~5625~~19% ~~January~~November 1621, ~~2001~~2000 ~~Revolving -~~ $ 25135,000,000 96.~~6875~~53% ~~January 31, 2001 Revolving - $ 23,000,000 9~~5.~~6250~~38% ~~January 2, 2001~~

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 8 9 segregated for all periods in the accompanying consolidated 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 the accompanying unaudited consolidated 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 the Company 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 the Company 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 the 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. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain matters in this Form 10-Q, including, without limitation, certain matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations and in Quantitative and Qualitative Disclosures about Market Risk, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the intent, belief or current expectations of Citadel Communications Corporation, its directors or its officers with respect to, among other things, future events and financial trends affecting Citadel Communications Corporation and its subsidiary, Citadel Broadcasting Company. Unless the context otherwise requires, the words "we", "our", and "us" include Citadel Broadcasting Company. 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 Communications Corporation ("Citadel Communications") was formed March 24, 1993 as a Nevada corporation and is a holding company, which owns all of the issued and outstanding common stock of Citadel Broadcasting Company ("Citadel Broadcasting"). Citadel Communications and Citadel Broadcasting are collectively referred to as the "Company." Citadel Broadcasting owns and operates radio stations and holds Federal 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 10 11 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 consolidated 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 11 12 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. 12 13 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 our 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, we 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 our common stock will be converted into the right to receive $26.00 in cash. On April 26, 2001 our stockholders approved the Agreement and Plan of Merger and we were advised by the Federal Communications Commission that it had granted its consent to the transfer of control of our broadcast licenses to FLCC Holdings. The completion of this transaction is subject to various additional conditions. Although we believe 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 we expect 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 Citadel Broadcasting's 10-1/4% Senior Subordinate Notes and Citadel Broadcasting's 9-1/4% Senior Subordinated Notes and approximately $55.1 million on Citadel Broadcasting's credit facility, excluding any commitment fees and interest due under rate swap transactions. Citadel Broadcasting's 13-1/4% Exchangeable Preferred Stock does not require cash dividends through July 1, 2002. 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 a common stock offering we completed in February 2000 of $234.8 million and a reduction in net repayments on notes payable and other obligations of $11.4 million. 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 13 14 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 the Company's 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:

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 Citadel Broadcasting's obligations under agreements entered into in connection with certain radio station acquisitions and for any other purpose related to the business of Citadel Broadcasting. 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. 14 15 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 OFRate ~~NET~~at %Transaction OFDate ~~BROADCAST~~Notional ~~MARKET~~Amount ~~BROADCASTING~~Fixed ~~REVENUE~~Rate ~~CASH~~March ~~FLOW~~31, 2001 ---------------- --------------- ---------- -------------- ~~Albuquerque~~June 830, 2000 $25,000,000 7.3055% 84.790% ~~Providence~~August 731, 2000 $40,000,000 6.2855% 85.219% ~~Salt~~November ~~Lake~~21, ~~City~~2000 7$135,000,000 6.153% 65.938%

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 Citadel Broadcasting's capital stock other than its exchangeable preferred stock, (b) a first priority security interest in all the existing and after-acquired property of Citadel Communications and Citadel Broadcasting, including, without limitation, accounts, machinery, equipment, inventory, real estate, general intangibles and investment property and (c) all proceeds of the foregoing. The Credit Facility is also guaranteed by Citadel Communications. The Credit Facility contains customary events of default. Upon the occurrence of an event of default, with certain limitations, 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, Citadel Broadcasting completed the issuance of $101.0 million of 10 1/4% Senior Subordinated Notes due 2007 ("10 1/4% notes"). Interest is payable semi-annually. The 10 1/4% notes may be redeemed at the option of Citadel Broadcasting, in whole or in part, at any time on or after July 1, 2002 at the redemption prices set forth in the indenture governing the 10 1/4% notes. On November 19, 1998, Citadel Broadcasting completed the issuance of $115.0 million of 9 1/4% Senior Subordinated Notes due 2008 ("9 1/4% notes"). Interest is payable semi-annually. The 9 1/4% notes may be redeemed at the option of Citadel Broadcasting, in whole or in part, at any time on or after November 15, 2003 at the redemption prices set forth in the indenture governing the 9 1/4% notes. In addition, at any time prior to November 15, 2001, Citadel Broadcasting may, at its option, redeem the 9 1/4% notes with the net proceeds of one or more Public Equity Offerings (as defined in the indenture governing the 9 1/4% notes), at a redemption price equal to 109.25% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of redemption. The indentures governing the 10 1/4% notes and the 9 1/4% notes contain certain restrictive covenants, including limitations which restrict the ability of Citadel Broadcasting to incur additional debt, incur liens, pay cash dividends, or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets. As of March 31, 2001, Citadel Broadcasting was in compliance with all covenants under the indentures. On May 4, 2001, Citadel Broadcasting commenced an offer to purchase all of its 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. 15 16 EXCHANGEABLE PREFERRED STOCK. On July 3, 1997, Citadel Broadcasting sold an aggregate of 1,000,000 shares of its 13 1/4% Exchangeable Preferred Stock. Dividends on the exchangeable preferred stock accrue at the rate of 13 1/4% per annum and are payable semi-annually. On or prior to July 1, 2002, dividends are payable in additional shares of exchangeable preferred stock having an aggregate liquidation preference equal to the amount of such dividends, or, at the option of Citadel Broadcasting, in cash. Thereafter, all dividends will be payable only in cash. To date, Citadel Broadcasting has paid all dividends in additional shares of exchangeable preferred stock. Citadel Broadcasting will be required to redeem the exchangeable preferred stock on July 1, 2009, subject to the legal availability of funds therefore, at a redemption price equal to the liquidation preference thereof, plus accumulated and unpaid dividends, if any, to the date of redemption. Citadel Broadcasting may redeem the exchangeable preferred stock, in whole or in part, at the option of Citadel Broadcasting, at any time on or after July 1, 2002, at declining redemption prices ranging from 107.729% to 101.104%, plus accumulated and unpaid dividends, if any, to the date of redemption. The Certificate of Designation governing the exchangeable preferred stock also contains covenants that restrict Citadel Broadcasting from taking various actions, including, subject to specified exceptions, the incurrence of additional indebtedness, the granting of additional liens, the making of investments, the payment of dividends and other restricted payments, mergers, acquisitions and other fundamental corporate changes, capital expenditures and transactions with affiliates. As of March 31, 2001, Citadel Broadcasting was in compliance with all covenants under the Certificate of Designation. On May 4, 2001, Citadel Broadcasting commenced an offer to purchase all outstanding shares of its 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 our common stock valued at approximately $2.0 million, based on the closing price of our 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 our 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. 16 17 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 Citadel Broadcasting's 10 1/4% notes and its 9 1/4% notes, - Citadel Broadcasting's exchangeable preferred stock with an aggregate liquidation preference of approximately $103.4 million, and - shareholders' 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. We have pledged the outstanding shares of common stock of Citadel Broadcasting owned by us to secure our guarantee of the Credit Facility. If the amounts outstanding under the Credit Facility are accelerated, we cannot assure you that our assets will be sufficient to repay amounts due 17 18 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 Citadel Broadcasting's 9 1/4% notes and 10 1/4% notes and the Credit Facility restrict, with certain exceptions, Citadel Broadcasting's ability to pay dividends on or to repurchase, redeem or otherwise acquire any shares of its capital stock. In the event that, after July 1, 2002, cash dividends on Citadel Broadcasting's exchangeable preferred stock are in arrears and unpaid for two or more semi-annual dividend periods, whether or not consecutive, holders of the exchangeable preferred stock will be entitled to elect two directors of Citadel Broadcasting. This right to elect directors could limit our control over Citadel Broadcasting. 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. 18 19 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:

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. 19 20 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. 20 21

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 currently and from time to time are involved in litigation incidental to the conduct of our business, but we are not 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 our 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 21 22 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. We believe that the allegations discussed above relating to our 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. We expect that the agreement will be memorialized in a formal settlement agreement and presented to the court for its approval. ITEM 5. OTHER INFORMATION. On January 15, 2001, we 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 22 23 Citadel Communications, with Citadel Communications as the surviving corporation. Pursuant to the proposed merger, each issued and outstanding share of our 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 our stockholders and consent of the Federal Communications Commission to transfer of control of our broadcast licenses. On April 26, 2001, our 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 we expect 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. We anticipate 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 the 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 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 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 our other indebtedness including our current credit facility. 23 24 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 Communications Corporation 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. 24 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITADEL COMMUNICATIONS CORPORATION Date: May 14, 2001 By: /s/ LAWRENCE R. WILSON ------------------ --------------------------- Lawrence R. Wilson Chairman of the Board Chief Executive Officer and President (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) 26 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).

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