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): August 7, 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 12. Disclosure of Results of Operations and Financial Condition
-----------------------------------------------------------
On August 7, 2003, Citizens Communications Company issued a press
release. A copy of the press release is attached hereto as Exhibit
99.3.
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: August 7, 2003
Exhibit 99.3
Citizens Communications
3 High Ridge Park
Stamford, CT 06905
203.614.5600
--------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
Contacts:
Michael A. Zarrella Brigid M. Smith
Vice President Assistant Vice President
Corporate Development Corporate Communications
203.614.5179 203.614.5042
mzarrell@czn.com bsmith@czn.com
---------------- --------------
CITIZENS COMMUNICATIONS REPORTS 2003 SECOND-QUARTER RESULTS
Stamford, Conn., August 7, 2003 -- Citizens Communications (NYSE: CZN) today
reported second-quarter 2003 consolidated revenues of $644 million, consolidated
operating income of $135.2 million, and consolidated net income of $34.1
million, or 12 cents per share. Consolidated net income for the quarter includes
a $25 million non-cash gain from the extinguishment of a capital lease
obligation at Electric Lightwave, a $4.4 million gain on the sale of a wireless
partnership investment, a $2.3 million gain on the sale of access lines in North
Dakota, a $10.1 million charge related to restructuring and other expenses, $4.5
million of non-cash expense for restricted stock-related compensation, a $4.4
million charge related to early debt retirement and a $2.3 million charge
related to the Touch America bankruptcy. Excluding these items, consolidated net
income was $27.9 million, or 10 cents per share.
The company produced free cash flow of $113.3 million for the second-quarter
2003 and achieved a ratio of net debt to annualized cash generated by operations
of 3.5x and a ratio of net debt to annualized operating income of 7.9x. The
company reached its year-end target leverage ratio of 3.5x two quarters early.
The company retired $231.5 million of debt during the quarter and ended the
quarter with $385 million in cash. The company has retired $355 million of debt
during 2003.
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 Gas and Electric
divisions for $220 million in cash and The Gas Company of Hawaii division for
$115 million in cash and assumed liabilities remain on track for closings during
the third quarter of 2003. After completion 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 these sales will be used to further reduce debt. The sale of
the company's last public service business, the Vermont Electric division, for
$25 million in cash is expected to close in the first half of 2004.
Telecommunications
Second-quarter 2003 revenue from the company's ILEC operations was $510.2
million, down $4.5 million or 1 percent from $514.7 million in the
second-quarter of 2002. The decrease is due to a $2.8 million decrease resulting
from the sale of access lines in North Dakota and a decline in network access
revenue, in part because of approximately $3.0 million less in subsidy revenue
resulting from regulatory agency true-ups relating to prior years. These
decreases were partially offset by continued increases in enhanced service and
data revenues.
The company's primary access line count, which does not take into account DSL
subscriptions, decreased 5,600 lines during the quarter, excluding the sale of
10,800 access lines in North Dakota. The company added 12,300 DSL customers
during the quarter. Taking into account DSL subscriptions, total subscriptions
increased 6,700 for the quarter.
ILEC operating income for the second-quarter of 2003 was $121.8 million, up
$21.2 million, or 21 percent from the second quarter of 2002. Operating income
margin was 23.9 percent compared to 19.5 percent in the second quarter of 2002.
ILEC cash generated from operations for the second-quarter of 2003 was $280.5
million, an increase of $6.2 million or 2 percent compared to the prior year
quarter. ILEC cash generated from operations margin for the second-quarter of
2003 increased to 55 percent from 53.3 percent in the second-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 $56.4 million for the second-quarter
2003.
Second-quarter 2003 revenue from Electric Lightwave totaled $43.7 million,
operating income was $2.4 million, cash generated from operations was $10.7
million and capital expenditures were $2.3 million.
Public Service
The gas and electric segments accounted for $90.1 million of second-quarter 2003
consolidated revenue, $11 million of operating income, $11.2 million of cash
generated from operations, and $9.1 million of capital expenditures.
The company uses certain non-GAAP financial measures in evaluating its
performance. These include cash generated from operations, cash generated from
operations margin, net income excluding certain items, free cash flow and the
ratio of net debt to annualized cash generated from operations. A reconciliation
of the differences between these non-GAAP financial measures and the most
comparable financial measures 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.
Cash generated by operations is operating income plus (i) depreciation and
amortization, (ii) reserve for certain telecom bankruptcies (Global Crossing,
WorldCom and Touch America), (iii) restructuring and other expenses (primarily
the write-off of software costs and severance costs and expenses), and (iv)
restricted stock-related compensation expense. Cash generated by operations
margin is cash generated by operations 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 and restricted stock-related compensation minus capital
expenditures, interest expense and cash taxes.
Net debt to annualized cash generated by operations is the ratio of (i) total
debt (excluding equity units and convertible preferred) net of cash and cash
equivalents to (ii) cash generated by operations for the period indicated
multiplied by four (for a quarter) or by two (for a six-month period).
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) is indicative of the company's actual performance compared to
the covenant limiting the ratio of net debt to cash generated by operations
contained in certain of its debt agreements. 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. 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, cash
generated by operations and net income excluding certain items do not take into
account the items described above, some of which will recur in future periods,
in order to focus on core operations. In addition, 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 measures. Management
compensates for the shortcomings of these measures by utilizing them in
conjunction with their comparable GAAP financial measures. In addition,
annualized cash generated by operations and annualized operating income present
quarterly or six-month information for purposes of ratio analysis as annualized
information by multiplying the quarterly information by four and the six- month
information by two, without representing in any way a forecast, projection or
estimate of cash generated by operations 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 For the six months ended
June 30, June 30,
-------------------------- % -------------------------- %
(Amounts in thousands - except per-share amounts) 2003 2002 Change 2003 2002 Change
------------------------------------ -------------------------------------
Income Statement Data
Continuing operations
Revenue $ 643,954 $ 662,439 -3% $1,295,816 $1,341,773 -3%
Cost of services 113,537 113,786 0% 226,756 242,024 -6%
Other operating expenses 227,985 251,175 -9% 462,428 509,931 -9%
Restricted stock based compensation 4,508 251 1696% 5,886 2,349 151%
Depreciation and amortization (1) 150,359 186,378 -19% 288,907 364,552 -21%
Reserve for telecommunications bankruptcies 2,260 10,001 -77% 2,260 17,805 -87%
Restructuring and other expenses 10,113 18,280 -45% 10,092 22,185 -55%
Operating income 135,192 82,568 64% 299,487 182,927 64%
Investment and other income (loss), net 24,566 (29,188) 184% 74,388 (78,139) 195%
Gain on sales of assets, net 6,671 - 100% 5,021 - 100%
Interest expense (includes dividends on preferred
securities) 107,988 121,499 -11% 218,817 244,659 -11%
Income tax expense (benefit) 24,384 (26,560) 192% 64,360 (53,502) 220%
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 (loss) attributable to common shareholders 34,057 (41,559) 182% 161,488 41,667 288%
Weighted average shares outstanding 282,180 280,610 1% 281,934 280,432 1%
Net income (loss) attributable to common shareholders $ 0.12 $ (0.15) 180% $ 0.57 $ 0.15 280%
Other Financial Data (3)
Cash generated by operations $ 302,432 $ 297,478 2% $ 606,632 $ 589,818 3%
Total capital expenditures (4) 67,850 94,119 -28% 115,602 162,558 -29%
Free cash flow 113,295 44,040 157% 258,625 131,716 96%
Total debt (5) 4,662,168 5,403,338 -14% 4,662,168 5,403,338 -14%
Less: Cash and cash equivalents 385,038 421,069 -9% 385,038 421,069 -9%
Net debt 4,277,130 4,982,269 -14% 4,277,130 4,982,269 -14%
Net debt to annualized cash generated by operations 3.5 4.2 -17% 3.5 4.2 -17%
(1) 2002 includes $900,000 and $12,800,000, respectively, 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) A reconciliation of these non-GAAP measures to the most comparable GAAP
measure is presented at the end of these tables.
(4) 2002 excludes $110,000,000 of previously leased facilities purchased by ELI
in April 2002.
(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 For the six months ended
June 30, June 30,
---------------------------- % ---------------------------- %
(Dollars in thousands, except operating data) 2003 2002 Change 2003 2002 Change
---------------------------------------- -------------------------------------
TELECOMMUNICATIONS
Select Income Statement Data
Revenue
Network access services $ 160,142 $ 171,163 -6% $ 325,139 $ 336,996 -4%
Local network services 220,710 217,638 1% 441,805 434,438 2%
Long distance and data services 76,487 71,029 8% 151,265 141,315 7%
Directory services 26,736 25,810 4% 53,779 52,054 3%
Other 26,078 29,046 -10% 51,774 57,914 -11%
ILEC revenue 510,153 514,686 -1% 1,023,762 1,022,717 0%
Electric Lightwave 43,719 45,287 -3% 84,812 92,534 -8%
Total revenue 553,872 559,973 -1% 1,108,574 1,115,251 -1%
Expenses
Network access expense 58,168 58,598 -1% 114,683 116,556 -2%
Other operating expenses 204,515 224,821 -9% 415,369 455,105 -9%
Restricted stock based compensation 4,293 310 1285% 5,649 2,346 141%
Depreciation and amortization (1) 150,359 186,332 -19% 288,907 364,422 -21%
Reserve for telecommunications bankruptcies 2,260 10,001 -77% 2,260 17,805 -87%
Restructuring and other expenses 10,113 18,280 -45% 10,092 22,185 -55%
Total expenses 429,708 498,342 -14% 836,960 978,419 -14%
Operating Income (Loss)
ILEC $ 121,814 $ 100,607 21% $ 268,729 $ 192,828 39%
ELI 2,350 (38,976) 106% 2,885 (55,996) 105%
Other Financial and Operating Data (2)
ILEC cash generated by operations $ 280,498 $ 274,316 2% $ 560,873 $ 540,331 4%
ILEC cash generated by operations margin 55.0% 53.3% 3% 54.8% 52.8% 4%
ILEC capital expenditures $ 56,415 $ 81,364 -31% $ 94,292 $ 137,404 -31%
ELI cash generated by operations 10,691 2,238 378% 17,649 3,259 442%
ELI capital expenditures (3) 2,254 3,067 -27% 3,401 5,656 -40%
ILEC access lines 2,418,819 2,471,496 -2% 2,418,819 2,471,496 -2%
ILEC switched access minutes of use (in
millions) 2,995 3,034 -1% 6,040 6,048 0%
ILEC average monthly revenue per average
line $ 70.07 $ 69.32 1% $ 70.16 $ 68.84 2%
(1) See footnote (1) on first page.
(2) See footnote (3) on first page.
(3) See footnote (4) on first page.
Citizens Communications Company
Financial and Operating Data
(unaudited)
For the quarter ended For the six months ended
June 30, June 30,
---------------------------- % ---------------------------- %
(Dollars in thousands) 2003 2002 Change 2003 2002 Change
----------------------------------------- -----------------------------------------
GAS AND ELECTRIC SECTORS (1)
Select Income Statement Data
Revenue $ 90,082 $ 102,466 -12% $ 187,242 $ 226,522 -17%
Gas, electric energy and fuel oil purchased 55,369 55,188 0% 112,073 125,468 -11%
Other operating expenses 23,470 26,354 -11% 47,059 54,826 -14%
Restricted stock based compensation 215 (59) 464% 237 3 7800%
Depreciation and amortization (2) - 46 -100% - 130 -100%
Operating income 11,028 20,937 -47% 27,873 46,095 -40%
Other Financial Data (3)
Cash generated by operations $ 11,243 $ 20,924 -46% $ 28,110 $ 46,228 -39%
Capital expenditures 9,123 9,440 -3% 17,437 19,023 -8%
(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 (3) on first page.
Citizens Communications Company
Condensed Consolidated Balance Sheet Data
(Dollars in thousands) June 30, 2003
(unaudited) December 31, 2002
--------------------- --------------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 385,038 $ 393,177
Accounts receivable and other current assets 317,862 360,043
Assets held for sale 471,331 447,764
--------------------- --------------------
Total current assets 1,174,231 1,200,984
Property, plant and equipment, net 3,620,734 3,690,056
Other long-term assets 3,167,307 3,255,702
--------------------- --------------------
Total assets $ 7,962,272 $ 8,146,742
===================== ====================
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Long-term debt due within one year $ 105,776 $ 58,911
Accounts payable and other current liabilities 503,489 565,986
Liabilities related to assets held for sale 113,186 145,969
--------------------- --------------------
Total current liabilities 722,451 770,866
Deferred income taxes and other liabilities 666,228 585,126
Equity units 460,000 460,000
Long-term debt 4,556,392 4,957,361
Mandatorily Redeemable Convertible Preferred Securities 201,250 201,250
Shareholders' equity 1,355,951 1,172,139
--------------------- --------------------
Total liabilities and equity $ 7,962,272 $ 8,146,742
===================== ====================
Schedule A
Reconciliation of Non-GAAP Financial Measures
Net Income (Loss) to Net Income (Loss) Excluding Items
------------------------------------------------------
(Dollars in thousands, except per-share amounts. All amounts shown net of tax.*)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- -----------------------------------
2003 2002 2003 2002
----------------------------------------------------------------------------------- -----------------------------------
Net income (loss) as reported $ 34,057 $ (41,559) $ 161,488 $ 41,667
Capital lease termination (14,852) - (39,802) -
Investment write-downs - 27,393 - 58,049
Restructuring and other 6,003 10,986 6,112 13,511
Reserve for telecom bankruptcies 1,342 6,011 1,369 10,843
Restricted stock based compensation 2,676 151 3,565 1,431
Sale of assets (3,960) - (3,041) -
Early retirement of debt 2,615 (8,006) 541 (7,843)
Income from discontinued operations - - - (167,848)
Cumulative effect of accounting change - - (65,769) 39,812
---------------------------------- -----------------------------------
Net income (loss) excluding items $ 27,881 $ (5,024) $ 64,463 $ (10,378)
================================== ===================================
Net Income (Loss) Per Share to Net Income
-----------------------------------------
(Loss) Per Share Excluding Items
--------------------------------
Net income (loss) per share as reported $ 0.12 $ (0.15) $ 0.57 $ 0.15
Capital lease termination (0.05) - (0.14) -
Investment write-downs - 0.10 - 0.21
Restructuring and other 0.02 0.04 0.02 0.05
Reserve for telecom bankruptcies - 0.02 - 0.04
Restricted stock based compensation 0.01 - 0.01 0.01
Sale of assets (0.01) - (0.01) -
Early retirement of debt 0.01 (0.03) - (0.03)
Income from discontinued operations - - - (0.60)
Cumulative effect of accounting change - - (0.23) 0.14
---------------------------------- -----------------------------------
Net income (loss) per share excluding items $ 0.10 $ (0.02) $ 0.22 $ (0.03)
================================== ===================================
*Effective Tax Rate 40.64% 39.90% 39.44% 39.10%
Schedule B
Reconciliation of Non-GAAP Financial Measures
(Dollars in thousands)
Electric Gas and Electric
ILEC Lightwave, Inc. Sectors As Reported
----------------------- --------------------- ------------------- --------------------
For the quarter ended June 30, 2003 2002 2003 2002 2003 2002 2003 2002
-------------------------------------------------------------------------------------------
Operating Income to Cash Generated by
-------------------------------------
Operations
----------
Operating income (loss) $ 121,814 $ 100,607 $ 2,350 $(38,976) $ 11,028 $20,937 $ 135,192 $ 82,568
Add back:
Depreciation and amortization 144,374 154,741 5,985 31,591 - 46 150,359 186,378
Reserve for telecom bankruptcies 1,113 9,567 1,147 434 - - 2,260 10,001
Restructuring and other expenses 9,482 9,207 631 9,073 - - 10,113 18,280
Restricted stock based compensation 3,715 194 578 116 215 (59) 4,508 251
-------------------------------------------------------------------------------------------
Cash Generated by Operations $ 280,498 $ 274,316 $ 10,691 $ 2,238 $ 11,243 $20,924 $ 302,432 $297,478
===========================================================================================
Electric Gas and Electric
ILEC Lightwave, Inc. Sectors As Reported
----------------------- --------------------- ------------------- --------------------
For the six months ended June 30, 2003 2002 2003 2002 2003 2002 2003 2002
-------------------------------------------------------------------------------------------
Operating Income to Cash Generated by
-------------------------------------
Operations
----------
Operating income (loss) $ 268,729 $ 192,828 $ 2,885 $ (55,996) $ 27,873 $46,095 $ 299,487 $182,927
Add back:
Depreciation and amortization 276,729 313,031 12,178 51,391 - 130 288,907 364,552
Reserve for telecom bankruptcies 1,113 17,371 1,147 434 - - 2,260 17,805
Restructuring and other expenses 9,482 15,212 610 6,973 - - 10,092 22,185
Restricted stock based compensation 4,820 1,889 829 457 237 3 5,886 2,349
-------------------------------------------------------------------------------------------
Cash Generated by Operations $ 560,873 $ 540,331 $ 17,649 $ 3,259 $ 28,110 $46,228 $ 606,632 $589,818
===========================================================================================
Schedule C
Reconciliation of Non-GAAP Financial Measures
For the quarter ended June 30, For the six months ended June 30,
---------------------------------- ---------------------------------
(Dollars in thousands) 2003 2002 2003 2002
----------------------------------------------- --------------- --------------- -------------- ----------------
Operating Income to Free Cash Flow
----------------------------------
Operating income $ 135,192 $ 82,568 $ 299,487 $ 182,927
Add back:
Depreciation and amortization 150,359 186,378 288,907 364,552
Restricted stock based compensation 4,508 251 5,886 2,349
Subtract:
Cash paid for income taxes 926 9,539 1,236 10,895
Interest expense 107,988 121,499 218,817 244,659
Capital expenditures 67,850 94,119 115,602 162,558
--------------- --------------- -------------- ----------------
Free cash flow $ 113,295 $ 44,040 $ 258,625 $ 131,716
=============== =============== ============== ================
Schedule D
Reconciliation of Non-GAAP Financial Measures
For the quarter ended June 30, For the six months ended June 30,
---------------------------------------------- ------------------------------------------------
(Dollars in thousands) 2003 2002 2003 2002
------------------------------- ---------------------- ---------------------- ----------------------- ------------------------
Net Debt to Annualized Cash
---------------------------
Generated by Operations
-----------------------
Cash Generated by Operations (1) $ 302,432 $ 297,478 $ 606,632 $ 589,818
Multiplied by:
Number of quarters 4 4 2 2
----------- ------------ ------------ ------------
Annualized Cash Generated by
Operations 1,209,728 1,189,912 1,213,264 1,179,636
Total debt (2) 4,662,168 5,403,338 4,662,168 5,403,338
Less:
Cash and cash equivalents (2) 385,038 421,069 385,038 421,069
----------- ------------ ------------ ------------
Net debt 4,277,130 4,982,269 4,277,130 4,982,269
Divided by:
Annualized Cash Generated by
Operations (3) 1,209,728 1,189,912 1,213,264 1,179,636
Net Debt to Annualized Cash
Generated by Operations Ratio 3.5 4.2 3.5 4.2
(1) See Schedule B.
(2) As reported in the Company's financial statements prepared in accordance
with GAAP.
(3) Annualized cash generated by operations and annualized operating income
present quarterly or six month information for purposes of ratio analysis
as annualized information by multiplying the quarterly information by four
and six month information by two, without representing in any way a
forecast, projection or estimate of cash generated by operations or
operating income for future periods.