SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 2, 2004
CITIZENS COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 001-11001 06-0619596
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
3 High Ridge Park
Stamford, Connecticut 06905
(Address of Principal Executive Offices)
(203) 614-5600
(Registrant's Telephone Number, Including Area Code)
No Change Since Last Report
---------------------------
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligations of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 2.02 Results of Operations and Financial Condition
---------------------------------------------
On November 2, 2004, Citizens Communications Company issued a
press release. A copy of the press release is attached hereto as
Exhibit 99.1.
The information in this Form 8-K and the Exhibits attached hereto
shall not be deemed "filed" for purposes of Section 18 of the
Securities and Exchange Act of 1934 (the "Exchange Act") or
otherwise subject to the liabilities of that section, nor shall
it be deemed incorporated by reference in any filing under the
Securities Act of 1933 or the Exchange Act, except as expressly
set forth by specific reference in such a filing.
ITEM 9.01 Financial Statements and Exhibits
---------------------------------
(c) Exhibits
99.1 Press release of Citizens Communications Company released
November 2, 2004 announcing 2004 Third Quarter Results.
SIGNATURE
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.
CITIZENS COMMUNICATIONS COMPANY
(Registrant)
By: /s/ Jerry Elliott
--------------------------
Jerry Elliott
Executive Vice President and
Chief Financial Officer
Date: November 2, 2004
Exhibit 99.1
Citizens Communications
3 High Ridge Park
Stamford, CT 06905
203.614.5600
Web site: www.czn.net
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
Contacts:
Brigid M. Smith Michael A. Zarrella
Assistant Vice President Vice President
Corporate Communications Corporate Development
203.614.5042 203.614.5179
bsmith@czn.com mzarrell@czn.com
Citizens Communications Reports
2004 Third-Quarter Results
Stamford, Conn., November 2, 2004 -- Citizens Communications (NYSE:CZN) today
reported third-quarter 2004 consolidated revenues of $545.4 million;
consolidated operating income of $72 million; and consolidated net loss of $11.3
million. Consolidated operating income and net loss reflect $75.9 million of
pre-tax expense related primarily to management succession as well as our review
of financial and strategic alternatives, and consolidated net loss also reflects
$20.1 million of pre-tax expense related to the early retirement of debt. The
company's effective income tax rate for the first nine months of 2004 was 21.5%.
Third-quarter 2004 revenue from the company's ILEC operations was $506.2
million, compared to $511.6 million in the third quarter of 2003. The decrease
is due primarily to lower access services revenues, loss of access lines and
reduced long-distance revenue. These decreases were partially offset by
continued increases in data and enhanced service revenues. Data service revenues
increased 31% compared to the third quarter of 2003.
Average revenue per month per average number of access lines increased 1% to
$71.68 in the third quarter of 2004 from $70.70 in the year-ago period.
The company's revenue generating units (which consist of access lines and
high-speed data subscribers) increased 1% from a year ago as the company added a
record 23,300 high-speed internet customers during the quarter and had 187,500
high speed data subscribers at September 30, 2004. The number of high-speed data
subscribers has increased by 77% from a year ago. The company's primary access
line count, which does not take into account high-speed data subscriptions,
decreased 16,300 lines during the quarter.
ILEC operating income for the third quarter of 2004 was $71.2 million and
operating income margin was 14.1 % including the effect of the expenses related
to management succession and our review of financial and strategic alternatives.
--MORE --
Capital expenditures for the ILEC were $66 million for the third quarter of
2004, compared to $67 million in the year-ago period.
Free cash flow increased 22% to $131 million during the third quarter of 2004
and has increased 3% to $377.4 million for the first nine months of 2004. The
company's quarterly dividend represents a payout of 63% of third quarter 2004
Free Cash Flow.
In the third quarter of 2004 we retired $414 million of debt using cash on hand.
We expect to save approximately $28 million per year in interest expense as a
result of the retirements that occurred during the third quarter. The company
has retired a total of $513.8 million of debt during 2004.
In October 2004 the company entered into a $250 million revolving credit
facility that matures in 2009. This facility replaces the company's previous
credit facility, which was scheduled to expire in 2006.
The company's next quarterly dividend of $0.25 per common share will be paid in
cash on December 31, 2004 to shareholders of record on December 10, 2004.
The company uses certain non-GAAP financial measures in evaluating its
performance. These include free cash flow. A reconciliation of the differences
between free cash flow and the most comparable financial measure calculated and
presented in accordance with GAAP is included in the tables that follow. The
non-GAAP financial measures are by definition not measures of financial
performance under generally accepted accounting principles and are not
alternatives to operating income or net income reflected in the statement of
operations or to cash flow as reflected in the statement of cash flows and are
not necessarily indicative of cash available to fund all cash flow needs. The
non-GAAP financial measures used by the company may not be comparable to
similarly titled measures of other companies.
The company believes that presentation of non-GAAP financial measures provides
useful information to investors regarding the company's financial condition and
results of operations because these measures, when used in conjunction with
related GAAP financial measures, (i) together provide a more comprehensive view
of the company's core operations and ability to generate cash flow, (ii) provide
investors with the financial analytical framework upon which management bases
financial, operational, compensation and planning decisions and (iii) presents
measurements that investors and rating agencies have indicated to management are
useful to them in assessing the company and its results of operations.
Management uses these non-GAAP financial measures to plan and measure the
performance of its core operations and its divisions measure performance and
report to management based upon these measures. In addition, the company
believes that free cash flow, as the company defines it, can assist in comparing
performance from period to period, without taking into account factors affecting
cash flow reflected in the statement of cash flows, including changes in working
capital and the timing of purchases and payments.
--MORE --
Management uses these non-GAAP financial measures to (i) assist in analyzing the
company's underlying financial performance from period to period, (ii) evaluate
the financial performance of its business units, (iii) analyze and evaluate
strategic and operational decisions, (iv) establish criteria for compensation
decisions; and (v) assist management in understanding the company's ability to
generate cash flow and, as a result, to plan for future capital and operational
decisions. Management uses these non-GAAP financial measures in conjunction with
related GAAP financial measures. The company believes that the non-GAAP
financial measures are meaningful and useful for the reasons outlined above.
While the company utilizes these non-GAAP financial measures in managing and
analyzing its business and financial condition and believes they are useful to
management and to investors for the reasons described above, these non-GAAP
financial measures have certain shortcomings. In particular, free cash flow does
not represent the residual cash flow available for discretionary expenditures,
since items such as debt repayments are not deducted from such measure.
Management compensates for the shortcomings of these measures by utilizing them
in conjunction with their comparable GAAP financial measures. The information in
this press release should be read in conjunction with the financial statements
and footnotes contained in our documents to be filed with the U.S. Securities
and Exchange Commission.
About Citizens Communications
More information about Citizens can be found at www.czn.net.
This document contains forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the statements. These and all forward-looking statements
(including oral representations) are only predictions or statements of current
plans that are constantly under review by the company. All forward-looking
statements may differ from actual results. The foregoing information should be
read in conjunction with the company's filings with the U.S. Securities and
Exchange Commission including, but not limited to, reports on Forms 10-K and
10-Q. The company does not intend to update or revise these forward-looking
statements to reflect the occurrence of future events or circumstances.
###
TABLES TO FOLLOW
Citizens Communications Company
Consolidated Financial Data
(unaudited)
For the quarter ended For the nine months ended
September 30, September 30,
------------------------- % ----------------------------- %
(Amounts in thousands - except per-share amounts) 2004 2003 Change 2004 2003 Change
------------------------------------ ----------------------------------------
Income Statement Data (1)
Revenue $545,393 $ 595,037 -8% $ 1,647,952 $ 1,890,853 -13%
Cost of services (exclusive of depreciation and
amortization) 51,273 85,869 -40% 156,632 312,625 -50%
Other operating expenses 203,313 220,300 -8% 624,090 682,870 -9%
Management succession and strategic alternatives
expenses (2) 75,858 - 100% 90,632 - 100%
Restricted stock based compensation 1,615 (166) 1073% 7,013 5,720 23%
Depreciation and amortization 141,380 151,878 -7% 429,650 440,785 -3%
Reserve for telecommunications bankruptcies - - - - 2,260 -100%
Restructuring and other expenses - - - - 9,950 -100%
Loss on impairment - 4,000 -100% - 4,000 -100%
Operating income 71,954 133,156 -46% 339,935 432,643 -21%
Investment and other income (loss), net (13,651) (24,277) 44% 16,856 55,132 -69%
Interest expense (includes dividends on preferred
securities) 90,864 104,677 -13% 286,298 323,494 -11%
Income tax expense (benefit) (21,271) (7,210) 195% 15,123 57,150 -74%
Cumulative effect of change in accounting principle (3) - - - - 65,769 -100%
Net income (loss) available to common shareholders (11,290) 11,412 -199% 55,370 172,900 -68%
Weighted average shares outstanding 309,732 282,838 10% 294,455 282,217 4%
Net income (loss) available to common shareholders (4) $ (0.04) $ 0.04 -200% $ 0.19 $ 0.61 -69%
Other Financial Data
Total capital expenditures $ 67,876 $ 76,056 -11% $ 201,310 $ 191,658 5%
Free cash flow (5) 130,997 106,953 22% 377,426 365,571 3%
(1) Our Vermont distribution facilities were sold on April 1, 2004. The Gas
Company in Hawaii division was sold on August 8, 2003, our Arizona gas and
electric divisions were sold on August 11, 2003 and our Vermont
transmission facilities were sold on December 1, 2003. The sales of these
properties affect the comparability of data presented.
(2) Includes $36,618 related to stock based compensation expense for the three
and nine months ended September 30, 2004.
(3) Represents the effect of adoption of SFAS No. 143, net of tax.
(4) Calculated based on weighted average shares outstanding.
(5) Free cash flow excludes the charge for management succession and strategic
alternatives expenses. A reconciliation to the most comparable GAAP measure
is presented at the end of these tables.
Citizens Communications Company
Financial and Operating Data
(unaudited)
For the quarter ended For the nine months ended
September 30, September 30,
-------------------------- % --------------------------- %
(Amounts in thousands, except operating data) 2004 2003 Change 2004 2003 Change
------------------------------------- --------------------------------------
TELECOMMUNICATIONS
Select Income Statement Data
Revenue
Access services $ 157,692 $ 167,321 -6% $ 474,399 $ 503,517 -6%
Local services 214,299 216,349 -1% 640,458 644,511 -1%
Long distance services 46,089 48,654 -5% 138,966 151,677 -8%
Data services 35,913 27,491 31% 101,211 78,638 29%
Directory services 27,312 26,817 2% 82,987 80,596 3%
Other 24,878 24,942 0% 82,919 76,397 9%
ILEC revenue 506,183 511,574 -1% 1,520,940 1,535,336 -1%
Electric Lightwave 39,210 40,416 -3% 117,277 125,228 -6%
Total revenue 545,393 551,990 -1% 1,638,217 1,660,564 -1%
Expenses
Network access expense 51,273 57,133 -10% 151,109 171,816 -12%
Other operating expenses 203,302 205,411 -1% 617,546 620,922 -1%
Management succession and strategic alternatives
expenses (1) 75,858 - 100% 90,632 - 100%
Restricted stock based compensation 1,615 (12) - 7,013 5,637 24%
Depreciation and amortization 141,380 151,878 -7% 429,650 440,785 -3%
Reserve for telecommunications bankruptcies - - - - 2,260 -100%
Restructuring and other expenses - - - - 9,950 -100%
Total expenses 473,428 414,410 14% 1,295,950 1,251,370 4%
Operating Income
ILEC $ 71,191 $ 133,807 -47% $ 337,146 $ 402,536 -16%
ELI 774 3,773 -79% 5,121 6,658 -23%
Other Financial and Operating Data
ILEC capital expenditures $ 65,960 $ 66,968 -2% $ 192,491 $ 161,260 19%
ELI capital expenditures 1,907 3,113 -39% 8,066 6,514 24%
ILEC depreciation and amortization 135,259 146,261 -8% 411,749 422,990 -3%
ELI depreciation and amortization 6,121 5,617 9% 17,901 17,795 1%
ILEC access lines 2,346,018 2,404,188 -2% 2,346,018 2,404,188 -2%
DSL subscribers 187,463 105,613 77% 187,463 105,613 77%
ILEC switched access minutes of use (in millions) 2,973 3,009 -1% 8,890 9,037 -2%
ILEC average monthly revenue per average line $ 71.68 $ 70.70 1% $ 71.43 $ 70.38 1%
(1) See footnote (2) on first page.
Citizens Communications Company
Financial and Operating Data
(unaudited)
For the quarter ended For the nine months ended
September 30, September 30,
---------------------------- % ------------------------------- %
(Amounts in thousands) 2004 2003 Change 2004 2003 Change
----------------------------------------- --------------------------------------------
GAS AND ELECTRIC SECTORS (1)
Select Income Statement Data
Revenue $ - $ 43,047 -100% $ 9,735 $ 230,289 -96%
Gas, electric energy and fuel oil purchased - 28,736 -100% 5,523 140,809 -96%
Other operating expenses (2) 11 14,889 -100% 6,544 61,948 -89%
Restricted stock based compensation - (154) -100% - 83 -100%
Loss on impairment - 4,000 -100% - 4,000 -100%
Operating income (loss) (11) (4,424) -100% (2,332) 23,449 -110%
Other Financial Data
Capital expenditures - 5,927 -100% 573 23,364 -98%
(1) See footnote (1) on first page.
(2) 2004 quarterly data consists principally of post-sale activities associated
with the completion of our utility divestiture program. These costs could
not be accrued as a selling cost at the time of sale. The Company believes
it has an adequate provision for its remaining post-divestiture
liabilities. We do not anticipate any material future costs associated with
these activities.
Citizens Communications Company
Condensed Consolidated Balance Sheet Data
(unaudited)
(Amounts in thousands)
September 30, 2004 December 31, 2003
--------------------- --------------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 199,027 $ 583,671
Accounts receivable and other current assets 266,100 294,636
Assets held for sale - 23,130
--------------------- --------------------
Total current assets 465,127 901,437
Property, plant and equipment, net 3,375,980 3,525,640
Other long-term assets 3,156,423 3,267,212
--------------------- --------------------
Total assets $ 6,997,530 $ 7,694,289
===================== ====================
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Long-term debt due within one year $ 6,366 $ 88,002
Accounts payable and other current liabilities 441,573 489,624
Liabilities related to assets held for sale - 11,128
--------------------- --------------------
Total current liabilities 447,939 588,754
Deferred income taxes and other liabilities 841,030 833,473
Equity units - 460,000
Long-term debt (1) 4,324,817 4,195,629
Mandatorily Redeemable Convertible Preferred Securities (1) - 201,250
Shareholders' equity 1,383,744 1,415,183
--------------------- --------------------
Total liabilities and equity $ 6,997,530 $ 7,694,289
===================== ====================
(1) In accordance with FASB Interpretaion No. 46R, the Mandatorily Redeemable
Convertible Preferred Securities are classified as debt effective January
1, 2004.
Citizens Communications Company
Condensed Consolidated Cash Flow Data
(unaudited)
(Amounts in thousands)
For the nine months ended September 30,
---------------------------------------
2004 2003
------------------ ------------------
Income before cumulative effect of change in accounting principle $ 55,370 $ 107,131
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 429,650 440,785
Gain on expiration/settlement of customer advances (25,345) (6,165)
Gain on capital lease termination/restucturing - (65,724)
Stock based compensation expense 43,631 5,720
Loss on extinguishment of debt 20,368 10,704
Loss on impairment - 4,000
Other 14,660 78,726
------------------ ------------------
Net cash provided by continuing operating activities 538,334 575,177
Cash flows from investing activities:
Proceeds from sales of assets, net of selling expenses 59,045 380,735
Capital expenditures (201,310) (191,658)
Other (26,715) (770)
------------------ ------------------
Net cash used by investing activities (168,980) 188,307
Cash flows from financing activities:
Dividends paid (747,937) -
Long-term debt payments (513,798) (551,425)
Premiums paid to retire debt (20,368) (10,704)
Issuance of common stock 530,197 10,357
Other (2,092) (7,765)
------------------ ------------------
Net cash used by financing activities (753,998) (559,537)
Increase (decrease) in cash and cash equivalents (384,644) 203,947
Cash and cash equivalents at January 1, 583,671 393,177
------------------ ------------------
Cash and cash equivalents at September 30, $ 199,027 $ 597,124
================== ==================
Schedule A
Reconciliation of Non-GAAP Financial Measures
For the quarter ended For the nine months ended
September 30, September 30,
------------------------------- -----------------------------
(Amounts in thousands) 2004 2003 2004 2003
-------------- -------------- --------------- -----------
Net Income (Loss) Available to Common Shareholders to
- -----------------------------------------------------
Free Cash Flow; Net Cash Provided by Operating Activities
---------------------------------------------------------
Net income (loss) available to common shareholders $ (11,290) $ 11,412 $ 55,370 $ 172,900
Add back:
Depreciation and amortization 141,380 151,878 429,650 440,785
Income tax expense (benefit) (21,271) (7,210) 15,123 57,150
Management succession and strategic alternatives expenses 75,858 - 90,632 -
Restricted stock based compensation 1,615 (166) 7,013 5,720
Loss on impairment - 4,000 - 4,000
Subtract:
Cash paid for income taxes 1,070 1,182 2,196 2,425
Investment and other income (loss), net (13,651) (24,277) 16,856 55,132
Cumulative effect of change in accounting principle - - - 65,769
Capital expenditures 67,876 76,056 201,310 191,658
-------------- ------------- ------------- ------------
Free cash flow 130,997 106,953 377,426 365,571
Add back:
Deferred income taxes (20,484) (13,103) 15,123 91,488
Other non-cash adjustments 54,155 33,203 37,738 (43,803)
Investment and other income (loss), net (13,651) (24,277) 16,856 55,132
Cash paid for income taxes 1,070 1,182 2,196 2,425
Capital expenditures 67,876 76,056 201,310 191,658
Subtract:
Changes in current assets and liabilities (9,918) (44,027) (453) 24,424
Income tax expense (benefit) (21,271) (7,210) 15,123 57,150
Management succession and strategic alternatives expenses 75,858 - 90,632 -
Restricted stock based compensation 1,615 (166) 7,013 5,720
-------------- ------------- ------------- ------------
Net cash provided by operating activities $ 173,679 $ 231,417 $ 538,334 $ 575,177
============== ============= ============= ============