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): May 6, 2003
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)
ITEM 9. Regulation FD Disclosure.
------------------------
On May 6, 2003, Citizens Communications Company issued a press release. A
copy of the press release is attached hereto as Exhibit 99.3.
In accordance with the procedural guidance in SEC Release No. 33-8216, the
information in this Form 8-K and the Exhibits attached hereto is being
furnished under "Item 9. Regulation FD Disclosure" rather than under "Item
12. Disclosure of Results of Operations and Financial Condition." 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 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.
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
Chief Financial Officer
Date: May 6, 2003
Citizens Communications
3 High Ridge Park
Stamford, CT 06905
203.614.5600
Web site: www.czn.net
Exhibit 99.3
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
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Citizens Communications Reports
2003 First-Quarter Results
Stamford, Conn., May 6, 2003 - Citizens Communications (NYSE:CZN) today reported
first quarter 2003 consolidated revenues of $651.9 million; consolidated
operating income of $164.3 million; and consolidated net income of $127.4
million, or 45 cents per share. Consolidated net income for the quarter includes
a $40.7 million non-cash pre-tax gain from the extinguishment of a capital lease
obligation at Electric Lightwave, a $2.4 million pre-tax charge related to early
debt retirement and a $65.8 million non-cash after-tax gain from the adoption of
new accounting rules with respect to asset retirement obligations (SFAS No.
143). Excluding these items, consolidated net income was $38.2 million, or 14
cents per share.
The company produced free cash flow of $146.8 million for the first quarter 2003
and achieved a ratio of net debt to annualized Adjusted EBITDA of 3.7x and a
ratio of net debt to annualized operating income of 6.8x. The company retired
$123.4 million of debt during the quarter and ended the quarter with $455.9
million in cash.
The company remains focused on and committed to the continuing improvement of
its balance sheet through the generation of free cash flow applied to further
debt reduction. In addition, the sale of the company's Arizona Electric and Gas
divisions for $230 million ($220 million if closing occurs by July 28, 2003) in
cash and the sale of The Gas Company of Hawaii division for $115 million in cash
remain on track for closings during the second half of 2003. The company also
recently announced that it has entered into definitive agreements to sell its
Vermont Electric division for $25 million in cash. The sale of the Vermont
business is expected to close in mid-2004 and will complete the divestiture of
all of the company's utility businesses. After completion of all of these sales
Citizens will have generated $1.9 billion of proceeds from its utility
divestiture program, which exceeds the company's original estimate of $1.8
billion of total proceeds. The net proceeds from the remaining sales will be
used to further reduce debt.
Telecommunications
First quarter 2003 revenue from the company's ILEC operations was $513.6
million, up $5.6 million or 1.1 percent from $508 million in the first quarter
of 2002, primarily due to continued increases in penetration of data, enhanced
service and long distance products and increased subsidies.
ILEC operating income for the first quarter of 2003 was $146.9 million, up $54.7
million, or 59.3 percent from the first quarter of 2002. Operating income margin
was 28.6 percent compared to 18.2 percent in the first quarter of 2002.
ILEC Adjusted EBITDA for the first quarter of 2003 was $279.3 million, an
increase of $15 million or 5.7 percent compared to the prior year quarter.
Adjusted EBITDA margin for the first quarter of 2003 increased to 54.4 percent
from 52.0 percent in the first quarter of 2002, reflecting increases in
high-margin revenues, an ongoing focus on increased productivity and the
efficiencies achieved from consolidation of the company's activities. Capital
expenditures for the ILEC were $37.9 million for the first quarter 2003.
First quarter 2003 revenue from Electric Lightwave totaled $41.1 million,
operating income was $0.5 million, Adjusted EBITDA was $6.7 million and capital
expenditures were $1.1 million.
Public Service
The gas and electric segments accounted for $97.2 million of first quarter 2003
consolidated revenue, $16.8 million of operating income, $16.8 million of
Adjusted EBITDA and $8.3 million of capital expenditures.
The company uses certain non-GAAP financial measures in evaluating its
performance. These include Adjusted EBITDA, Adjusted EBITDA margin, net income
excluding certain items, free cash flow and the ratio of net debt to annualized
Adjusted EBITDA. A reconciliation of the differences between these non-GAAP
financial measures 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 referred to in this press release 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. Adjusted EBITDA is
operating income plus (i) depreciation and amortization, (ii) restructuring and
other expenses (primarily severance costs and expenses related to reorganizing
our telecom operations after the acquisition of Frontier) and (iii) reserves for
certain telecommunications bankruptcies (Global Crossing and Worldcom). Adjusted
EBITDA margin is Adjusted EBITDA divided by revenue. Net income excluding
certain items is net income without taking into account the items described in
the first paragraph. Free cash flow is operating income plus depreciation and
amortization minus capital expenditures, cash interest expense and cash taxes.
Net debt to annualized Adjusted EBITDA is the ratio of (i) total debt (excluding
equity units and convertible preferred) net of cash and cash equivalents to (ii)
Adjusted EBITDA for the period indicated multiplied by four. The company
believes that presentation of these non-GAAP financial measures is useful to
investors because it (i) reflects management's view of core operations and cash
flow generation upon which management bases financial, operational, compensation
and planning decisions, (ii) presents measurements that investors and rating
agencies have indicated to management are important in assessing the company and
(iii) indicates the company's actual performance compared to the covenant
limiting the ratio of net debt to Adjusted EBITDA contained in certain of its
debt agreements. While the company utilizes these non-GAAP financial measures in
managing and analyzing its business and financial condition and believes they
are useful to investors for the reasons described above, these non-GAAP
financial measures have certain shortcomings. In particular, Adjusted EBITDA and
net income excluding certain items exclude the items described above, some of
which may recur in future periods, in order to focus on core operations.
In addition, annualized Adjusted EBITDA and annualized operating income present
quarterly information for purposes of ratio analysis as annualized information
by multiplying the quarterly information by four, without representing in any
way a forecast, projection or estimate of Adjusted EBITDA or operating income
for future periods. 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.
Citizens Communications Company
Consolidated Financial Data
(unaudited)
For the quarter ended
----------------------------------------------------
March 31, March 31, %
(Amounts in thousands - except per-share amounts) 2003 2002 Change
--------------- --------------- ---------------
Income Statement Data
Continuing operations
Revenue $ 651,862 $ 679,334 -4%
Cost of services 113,219 128,238 -12%
Other operating expenses 235,821 260,854 -10%
Depreciation and amortization (1) 138,548 178,174 -22%
Reserve for telecommunications bankruptcies - 7,804 -100%
Restructuring and other expenses (21) 3,905 101%
Operating income 164,295 100,359 64%
Investment and other income (loss), net 48,172 (48,508) 199%
Interest expense 110,829 123,603 -10%
Income tax expense (benefit) 39,976 (26,942) 248%
Loss from discontinued operations, net of tax - (1,478) -100%
Gain on disposal of water segment, net of tax - 169,326 -100%
Cumulative effect of change in accounting principle (2) 65,769 (39,812) 265%
Net income attributable to common shareholders 127,431 83,226 53%
Weighted average shares outstanding 281,637 280,257 0%
Net income attributable to common shareholders (3) $ 0.45 $ 0.30 50%
Other Financial Data (4)
Adjusted EBITDA from continuing operations $ 302,822 $ 290,242 4%
Total capital expenditures 47,752 68,439 -30%
Free cash flow 146,803 104,177 41%
Total debt (5) 4,893,560 5,914,115 -17%
Less: Cash and cash equivalents 455,923 972,751 -53%
Net debt 4,437,637 4,941,364 -10%
Net debt to annualized Adjusted EBITDA 3.7 4.3 -14%
(1) 2002 includes $11,900,000 of accelerated depreciation related to the closing of our Plano, Texas facility.
(2) 2003 represents the effect of adoption of SFAS No. 143. 2002 represents the write-off of ELI's goodwill.
Both are net of tax.
(3) Calculated based on weighted average shares outstanding.
(4) A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is
presented at the end of these tables.
(5) Excludes equity units and convertible preferred stock. Total debt includes current portion of long term debt.
Citizens Communications Company
Financial and Operating Data
(unaudited)
For the quarter ended
------------------------------------------------
March 31, March 31, %
(Dollars in thousands, except operating data) 2003 2002 Change
--------------- --------------- ------------
TELECOMMUNICATIONS
Select Income Statement Data
Revenue
Network access services $ 164,997 $ 165,833 -1%
Local network services 221,095 216,800 2%
Long distance and data services 74,778 70,286 6%
Directory services 27,043 26,244 3%
Other 25,696 28,868 -11%
ILEC revenue 513,609 508,031 1%
Electric Lightwave 41,093 47,247 -13%
Total revenue 554,702 555,278 0%
Expenses
Network access expense 56,515 57,958 -2%
Other operating expenses 212,210 232,320 -9%
Depreciation and amortization (1) 138,548 178,090 -22%
Reserve for telecommunications bankruptcies - 7,804 -100%
Restructuring and other expenses (21) 3,905 101%
Total expenses 407,252 480,077 -15%
Operating Income (Loss)
ILEC $ 146,915 $ 92,221 59%
ELI 535 (17,020) 103%
Other Financial and Operating Data (2)
ILEC Adjusted EBITDA $ 279,270 $ 264,320 6%
ILEC Adjusted EBITDA margin 54.4% 52.0% 5%
ILEC capital expenditures $ 37,877 $ 56,040 -32%
ELI Adjusted EBITDA 6,707 680 886%
ELI capital expenditures 1,147 2,589 -56%
ILEC access lines 2,435,246 2,478,573 -2%
ILEC switched access minutes of use (in millions) 3,045 3,081 -1%
ILEC average monthly revenue per average line $ 70.17 $ 68.28 3%
(1) See footnote (1) on first page.
(2) See footnote (4) on first page.
Citizens Communications Company
Financial and Operating Data
(unaudited)
For the quarter ended
---------------------------------------------
March 31, March 31, %
(Dollars in thousands) 2003 2002 Change
--------------- ----------- ------------
GAS AND ELECTRIC SECTORS (1)
Select Income Statement Data
Revenue $ 97,160 $ 124,056 -22%
Gas, electric energy and fuel oil purchased 56,704 70,280 -19%
Other operating expenses 23,611 28,534 -17%
Depreciation and amortization (2) - 84 -100%
Operating income 16,845 25,158 -33%
Other Financial Data (3)
Adjusted EBITDA $ 16,845 $ 25,242 -33%
Capital expenditures 8,314 9,583 -13%
(1) Our Kauai Electric operations were sold on November 1, 2002, which affects the
comparability of data presented.
(2) Our gas and electric operations are reported as "held for sale." Accordingly, we
ceased to record depreciation expense effective October 1, 2000 and January 1, 2001,
respectively.
(3) See footnote (4) on first page.
Schedule A
Reconciliation of Non-GAAP Financial Measures
For the quarter ended March 31,
Net Income to Net Income Excluding Items
(Dollars in thousands, except per-share amounts. All amounts shown net of tax.)
2003 2002
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Net income as reported $ 127,431 $ 83,226
Capital lease termination (24,937) -
Early retirement of debt 1,470 -
Income from discontinued operations - (167,848)
Cumulative effect of accounting change (65,769) 39,812
-----------------------------
Net income excluding items $ 38,195 $ (44,810)
=============================
Net Income Per Share to Net Income
(Loss) Per Share Excluding Items
------------------------------------
Net income per share as reported $ 0.45 $ 0.30
Capital lease termination (0.09) -
Early retirement of debt 0.01 -
Income from discontinued operations - (0.60)
Cumulative effect of accounting change (0.23) 0.14
-----------------------------
Net income (loss) per share excluding items $ 0.14 $ (0.16)
=============================
Schedule B
Reconciliation of Non-GAAP Financial Measures
For the quarter ended March 31,
Electric Gas and Electric
ILEC Lightwave, Inc. Sectors As Reported
--------------------- ----------------------- --------------------- ---------------------
(Dollars in thousands) 2003 2002 2003 2002 2003 2002 2003 2002
------------------------------------ ----------------------------------------------------------------------------------------------
Operating Income to Adjusted EBITDA
Operating income (loss) $ 146,915 $ 92,221 $ 535 $ (17,020) $ 16,845 $ 25,158 $ 164,295 $100,359
Add back:
Depreciation and amortization 132,355 158,290 6,193 19,800 - 84 138,548 178,174
Reserve for telecom bankruptcies - 7,804 - - - - - 7,804
Restructuring and other expenses - 6,005 (21) (2,100) - - (21) 3,905
----------------------------------------------------------------------------------------------
Adjusted EBITDA $ 279,270 $ 264,320 $ 6,707 $ 680 $ 16,845 $ 25,242 $ 302,822 $290,242
==============================================================================================
Schedule C
Reconciliation of Non-GAAP Financial Measures
For the quarter ended March 31,
(Dollars in thousands) 2003 2002
------------------------------------- -------------- --------------
Operating Income to Free Cash Flow
Operating income $ 164,295 $ 100,359
Add back:
Depreciation and amortization 138,548 178,174
Subtract:
Cash paid for income taxes 306 1,644
Cash paid for interest 107,982 104,273
Capital expenditures 47,752 68,439
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Free cash flow $ 146,803 $ 104,177
============== ==============
Schedule D
Reconciliation of Non-GAAP Financial Measures
For the quarter ended March 31,
(Dollars in thousands) 2003 2002
---------------------------------------------- ------------------------ --------------------------
Net Debt to Annualized Adjusted EBITDA
Adjusted EBITDA (1) 302,822 290,242
Multiplied by:
Number of quarters 4 4
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Annualized Adjusted EBITDA 1,211,288 1,160,968
Total debt (2) 4,893,560 5,914,115
Less:
Cash and cash equivalents (2) 455,923 972,751
----------- ------------
Net debt 4,437,637 4,941,364
Divided by:
Annualized Adjusted EBITDA 1,211,288 1,160,968
Net Debt to Annualized Adjusted EBITDA Ratio 3.7 4.3
(1) See Schedule B.
(2) As reported in the Company's financial statements prepared in accordance with GAAP.