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 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 12. Disclosure of Results of Operations and Financial Condition
-----------------------------------------------------------
On November 6, 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: November 6, 2003
Exhibit 99.3
Citizens Communications
3 High Ridge Park
Stamford, CT 06905
203.614.5600
--------------------------------------------------------------------------------
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
2003 Third-Quarter Results
Stamford, Conn., November 6, 2003 -- Citizens Communications (NYSE:CZN) today
reported third quarter 2003 consolidated revenues of $595 million; consolidated
operating income of $133.2 million; and consolidated net income of $11.4
million, or 4 cents per share. Consolidated net income for the quarter includes
a loss of $16.8 million associated with the sale of the company's utility
divisions, $10.9 million of costs associated with the early retirement of debt
and a $4 million impairment charge related to the Vermont Electric division.
Excluding these items and their tax effect, consolidated net income was $32.2
million, or 11 cents per share.
The company produced free cash flow of $106.9 million for the third quarter 2003
and achieved a ratio of net debt to annualized cash generated by operations of
3.3x and a ratio of net debt to annualized operating income of 7.1x. The company
retired $267.4 million of debt during the quarter and ended the quarter with
$597.1 million in cash. The company has produced $365.6 million of free cash
flow and has retired $622.4 million of debt during 2003.
Telecommunications
Third quarter 2003 revenue from the company's ILEC operations was $511.6
million, down $8.2 million or 1.6 percent from $519.8 million in the third
quarter of 2002. The decrease is due primarily to loss of access lines, the sale
of our North Dakota exchanges and reduced network access and long distance
revenues. These decreases were partially offset by continued increases in
enhanced service and data revenues.
The company added a record 13,400 DSL customers during the quarter and had more
than 105,000 DSL subscribers at September 30, 2003. The company's primary access
line count, which does not take into account DSL subscriptions, decreased 14,600
lines during the quarter. Taking into account DSL subscriptions, total
subscriptions decreased 1,200 for the quarter.
ILEC operating income for the third quarter of 2003 was $133.8 million and
operating income margin was 26.2 percent, compared to ILEC operating income of
$131.2 million and operating income margin of 25.2 percent in the third quarter
of 2002.
ILEC cash generated by operations for the third quarter of 2003 was $280
million. ILEC cash generated by operations margin for the third quarter of 2003
was 54.7 percent, compared to 53.9 percent in the third quarter of 2002.
Capital expenditures for the ILEC were $67 million for the third quarter 2003.
Third quarter 2003 revenue from Electric Lightwave totaled $40.4 million,
operating income was $3.8 million, cash generated by operations was $9.4 million
and capital expenditures were $3.1 million.
Public Service
The gas and electric segments accounted for $43 million of third quarter 2003
consolidated revenue, a $4.4 million operating loss, and $5.9 million of capital
expenditures. The sale of the Company's Arizona and Hawaii utility businesses
for an aggregate of $343.4 million was completed during the third quarter.
The company uses certain non-GAAP financial measures in evaluating its
performance. These include cash generated by operations, cash generated by
operations margin, net income excluding certain items, free cash flow and the
ratio of net debt to annualized cash generated by operations. 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 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), (iv) loss on
impairment charges and (v) 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, loss on impairment charges 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 one and one-third (for
a nine 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 measure. 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 nine month
information for purposes of ratio analysis as annualized information, 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 nine months ended
September 30, September 30,
-------------------------- % --------------------------- %
(Amounts in thousands - except per-share amounts) 2003 2002 Change 2003 2002 Change
------------------------------------ --------------------------------------
Income Statement Data
Continuing operations
Revenue $ 595,037 $ 668,831 -11% $ 1,890,853 $ 2,010,604 -6%
Cost of services 85,869 115,795 -26% 312,625 357,819 -13%
Other operating expenses 220,442 248,784 -11% 682,870 758,715 -10%
Restricted stock based compensation (166) (106) -57% 5,720 2,243 155%
Depreciation and amortization (1) 151,878 199,611 -24% 440,785 564,163 -22%
Reserve for telecommunications bankruptcies - - - 2,260 17,805 -87%
Restructuring and other expenses (142) (273) 48% 9,950 21,912 -55%
Loss on impairment (2) 4,000 1,074,058 -100% 4,000 1,074,058 -100%
Operating income (loss) 133,156 (969,038) 114% 432,643 (786,111) 155%
Investment and other income (loss), net (7,464) 13,111 -157% 66,924 (65,028) 203%
Gain/(loss) on sales of assets, net (16,813) 1,901 -984% (11,792) 1,901 -720%
Interest expense (includes dividends on preferred
securities 104,677 117,264 -11% 323,494 361,923 -11%
Income tax expense (benefit) (7,210) (371,186) 98% 57,150 (424,688) 113%
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 (3) - - - 65,769 (39,812) 265%
Net income (loss) attributable to common shareholders 11,412 (700,104) 102% 172,900 (658,437) 126%
Weighted average shares outstanding 282,838 280,778 1% 282,217 280,540 1%
Net income (loss) attributable to common shareholders $ 0.04 $ (2.49) 102% $ 0.61 $ (2.35) 126%
Other Financial Data (4)
Cash generated by operations $ 288,726 $ 304,252 -5% $ 895,358 $ 894,070 0%
Total capital expenditures (5) 76,056 81,645 -7% 191,658 244,203 -22%
Free cash flow 106,946 135,983 -21% 365,571 267,699 37%
Total debt (6) 4,392,631 5,360,566 -18% 4,392,631 5,360,566 -18%
Less: Cash and cash equivalents 597,124 479,236 25% 597,124 479,236 25%
Net debt 3,795,507 4,881,330 -22% 3,795,507 4,881,330 -22%
Net debt to annualized cash generated by operations 3.3 4.0 -18% 3.2 4.1 -22%
(1) Includes $12,800,000 of accelerated depreciation for the nine months ended
September 30, 2002 (none for the three months ended September 30, 2002)
related to the closing of our Plano, Texas facility.
(2) Shown as the pre-tax amount.
(3) 2003 represents the effect of adoption of SFAS No. 143. 2002 represents the
write-off of ELI's goodwill. Both are net of tax.
(4) A reconciliation of these non-GAAP measures to the most comparable GAAP
measure is presented at the end of these tables.
(5) 2002 excludes $110,000,000 of previously leased facilities purchased by ELI
in April 2002.
(6) 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 nine months ended
September 30, September 30,
------------------------ % --------------------------- %
(Dollars in thousands, except operating data) 2003 2002 Change 2003 2002 Change
----------------------------------- --------------------------------------
TELECOMMUNICATIONS
Select Income Statement Data
Revenue
Network access services $ 166,705 $ 170,069 -2% $ 491,844 $ 507,065 -3%
Local network services 216,349 221,671 -2% 658,155 656,109 0%
Long distance and data services 76,146 73,396 4% 227,410 214,711 6%
Directory services 26,817 26,443 1% 80,595 78,497 3%
Other 25,557 28,198 -9% 77,332 86,112 -10%
ILEC revenue 511,574 519,777 -2% 1,535,336 1,542,494 0%
Electric Lightwave 40,416 41,311 -2% 125,228 133,845 -6%
Total revenue 551,990 561,088 -2% 1,660,564 1,676,339 -1%
Expenses
Network access expense 57,133 58,218 -2% 171,816 174,774 -2%
Other operating expenses 205,553 218,208 -6% 620,922 673,313 -8%
Restricted stock based compensation (12) (21) 43% 5,637 2,325 142%
Depreciation and amortization (1) 151,878 199,385 -24% 440,785 563,807 -22%
Reserve for telecommunications bankruptcies - - - 2,260 17,805 -87%
Restructuring and other expenses (142) (273) 48% 9,950 21,912 -55%
Loss on impairment (2) - 656,658 -100% - 656,658 -100%
Total expenses 414,410 1,132,175 -63% 1,251,370 2,110,594 -41%
Operating Income (Loss)
ILEC $ 133,807 $ 131,239 2% $ 402,536 $ 324,067 24%
ELI 3,773 (702,326) 101% 6,658 (758,322) 101%
Other Financial and Operating Data (3)
ILEC cash generated by operations $ 279,952 $ 280,116 0% $ 840,824 $ 820,447 2%
ILEC cash generated by operations margin 54.7% 53.9% 1% 54.8% 53.2% 3%
ILEC capital expenditures $ 66,968 $ 67,601 -1% $ 161,260 $ 205,005 -21%
ELI cash generated by operations 9,352 4,546 106% 27,002 7,805 246%
ELI capital expenditures (4) 3,113 2,547 22% 6,514 8,203 -21%
ILEC access lines (5) 2,404,188 2,460,022 -2% 2,404,188 2,460,022 -2%
ILEC switched access minutes of use
(in millions) 3,009 3,135 -4% 9,049 9,183 -1%
ILEC average monthly revenue per average
line $ 70.70 $ 70.26 1% $ 70.38 $ 69.36 1%
(1) See footnote (1) on first page.
(2) See footnote (2) on first page.
(3) See footnote (4) on first page.
(4) See footnote (5) on first page.
(5) On April 1, 2003 and October 31, 2002, we completed the sale of
approximately 11,000 and 4,000 telephone access lines, respectively, in the
state of North Dakota. These sales affect the comparability of data
presented.
Citizens Communications Company
Financial and Operating Data
(unaudited)
For the quarter ended For the nine months ended
September 30, September 30,
---------------------------- % --------------------------- %
(Dollars in thousands) 2003 2002 Change 2003 2002 Change
-------------------------------------- -------------------------------------
GAS AND ELECTRIC SECTORS (1)
Select Income Statement Data
Revenue $ 43,047 $107,743 -60% $ 230,289 $ 334,265 -31%
Gas, electric energy and fuel oil purchased 28,736 57,577 -50% 140,809 183,045 -23%
Other operating expenses 14,889 30,576 -51% 61,948 85,402 -27%
Restricted stock based compensation (154) (85) -81% 83 (82) 201%
Depreciation and amortization (2) - 226 -100% - 356 -100%
Loss on impairment 4,000 417,400 -99% 4,000 417,400 -99%
Operating income (loss) (4,424) (397,951) 99% 23,449 (351,856) 107%
Other Financial Data (3)
Cash generated by operations $ (578) $ 19,590 -103% $ 27,532 $ 65,818 -58%
Capital expenditures 5,927 11,497 -48% 23,364 30,520 -23%
(1) Our Kauai Electric operations were sold on November 1, 2002. In addition,
The Gas Company in Hawaii division was sold on August 8, 2003, and our
Arizona gas and electric divisions were sold on August 11, 2003. The sales
of these properties 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.
Citizens Communications Company
Condensed Consolidated Balance Sheet Data
(Dollars in thousands) September 30, 2003
(unaudited) December 31, 2002
--------------------- --------------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 597,124 $ 393,177
Accounts receivable and other current assets 298,237 360,043
Assets held for sale 25,709 447,764
--------------------- --------------------
Total current assets 921,070 1,200,984
Property, plant and equipment, net 3,568,816 3,690,056
Other long-term assets 3,213,727 3,255,702
--------------------- --------------------
Total assets $ 7,703,613 $ 8,146,742
===================== ====================
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Long-term debt due within one year $ 89,769 $ 58,911
Accounts payable and other current liabilities 534,487 565,986
Liabilities related to assets held for sale 3,546 145,969
--------------------- --------------------
Total current liabilities 627,802 770,866
Deferred income taxes and other liabilities 740,841 585,126
Equity units 460,000 460,000
Long-term debt 4,302,862 4,957,361
Mandatorily Redeemable Convertible Preferred Securities 201,250 201,250
Shareholders' equity 1,370,858 1,172,139
--------------------- --------------------
Total liabilities and equity $ 7,703,613 $ 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.)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- ---------------------------------------
2003 2002 2003 2002
------------------------------------------------------------------------------------- ---------------------------------------
Net income (loss) as reported $ 11,412 $ (700,104) $ 172,900 $ (658,437)
Capital lease termination - - (65,724) -
Investment write-downs - - - 95,319
Restructuring and other (142) (273) 9,950 21,912
Reserve for telecom bankruptcies - - 2,260 17,805
Restricted stock based compensation (166) (106) 5,720 2,243
Loss on impairment 4,000 1,074,058 4,000 1,074,058
Sale of assets 16,813 (1,901) 11,792 (1,901)
Early retirement of debt 10,852 (11,584) 11,745 (24,462)
Tax effect of above items* (10,608) (373,188) 6,853 (417,111)
Income from discontinued operations - - - (167,848)
Cumulative effect of accounting change - - (65,769) 39,812
------------------------------------- -------------------------------------
Net income (loss) excluding items $ 32,161 $ (13,098) $ 93,727 $ (18,610)
===================================== =====================================
Net Income (Loss) Per Share to Net Income
-----------------------------------------
(Loss) Per Share Excluding Items
--------------------------------
Net income (loss) per share as reported $ 0.04 $ (2.49) $ 0.61 $ (2.35)
Capital lease termination - - (0.23) -
Investment write-downs - - - 0.34
Restructuring and other - - 0.04 0.08
Reserve for telecom bankruptcies - - 0.01 0.06
Restricted stock based compensation - - 0.02 0.01
Loss on impairment 0.01 3.82 0.01 3.83
Sale of assets 0.06 (0.01) 0.04 (0.01)
Early retirement of debt 0.04 (0.04) 0.04 (0.09)
Tax effect of above items* (0.04) (1.33) 0.02 (1.48)
Income from discontinued operations - - - (0.60)
Cumulative effect of accounting change - - (0.23) 0.14
------------------------------------- -------------------------------------
Net income (loss) per share excluding items $ 0.11 $ (0.05) $ 0.33 $ (0.07)
===================================== =====================================
*Effective Tax Rate 33.83% 35.20% 33.83% 35.20%
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 September 30, 2003 2002 2003 2002 2003 2002 2003 2002
--------------------------------------------------------------------------------------------
Operating Income (Loss) to Cash
-------------------------------
Generated by Operations
-----------------------
Operating income (loss) $ 133,807 $ 131,239 $ 3,773 $(702,326) $(4,424) $(397,951) $ 133,156 $(969,038)
Add back:
Depreciation and amortization 146,261 148,798 5,617 50,587 - 226 151,878 199,611
Reserve for telecom bankruptcies - - - - - - - -
Restructuring and other expenses - 138 (142) (411) - - (142) (273)
Restricted stock based
compensation (116) (59) 104 38 (154) (85) (166) (106)
Loss on impairment - - - 656,658 4,000 417,400 4,000 1,074,058
--------------------------------------------------------------------------------------------
Cash Generated by Operations $ 279,952 $ 280,116 $ 9,352 $ 4,546 $ (578) $ 19,590 $ 288,726 $ 304,252
============================================================================================
Electric Gas and Electric
ILEC Lightwave, Inc. Sectors As Reported
--------------------- --------------------- --------------------- ---------------------
For the nine months ended September 30, 2003 2002 2003 2002 2003 2002 2003 2002
--------------------------------------------------------------------------------------------
Operating Income (Loss) to Cash
-------------------------------
Generated by Operations
-----------------------
Operating income (loss) $ 402,536 $ 324,067 $ 6,658 $(758,322) $23,449 $(351,856) $ 432,643 $(786,111)
Add back:
Depreciation and amortization 422,990 461,829 17,795 101,978 - 356 440,785 564,163
Reserve for telecom bankruptcies 1,113 17,371 1,147 434 - - 2,260 17,805
Restructuring and other expenses 9,482 15,350 468 6,562 - - 9,950 21,912
Restricted stock based
compensation 4,703 1,830 934 495 83 (82) 5,720 2,243
Loss on impairment - - - 656,658 4,000 417,400 4,000 1,074,058
--------------------------------------------------------------------------------------------
Cash Generated by Operations $ 840,824 $ 820,447 $27,002 $ 7,805 $27,532 $ 65,818 $ 895,358 $ 894,070
============================================================================================
Schedule C
Reconciliation of Non-GAAP Financial Measures
For the quarter ended September 30, For the nine months ended September 30,
-------------------------------------- ----------------------------------------
(Dollars in thousands) 2003 2002 2003 2002
------------------------------------------- -------------- --------------------- ----------------- ---------------------
Operating Income (Loss) to Free Cash Flow
-----------------------------------------
Operating income (loss) $ 133,156 $ (969,038) $ 432,643 $ (786,111)
Add back:
Depreciation and amortization 151,878 199,611 440,785 564,163
Restricted stock based compensation (166) (106) 5,720 2,243
Loss on impairment 4,000 1,074,058 4,000 1,074,058
Subtract:
Cash paid for income taxes 1,189 (30,367) 2,425 (19,472)
Interest expense 104,677 117,264 323,494 361,923
Capital expenditures 76,056 81,645 191,658 244,203
-------------- --------------------- ----------------- ---------------------
Free cash flow $ 106,946 $ 135,983 $ 365,571 $ 267,699
============== ===================== ================= =====================
Schedule D
Reconciliation of Non-GAAP Financial Measures
For the quarter ended September 30, For the nine months ended September 30,
-------------------------------------------- ------------------------------------------
(Dollars in thousands) 2003 2002 2003 2002
----------------------------------------- -------------------- ---------------------- --------------------- -------------------
Net Debt to Annualized Cash Generated by
----------------------------------------
Operations
----------
Cash Generated by Operations (1) $ 288,726 $ 304,252 $ 895,358 $ 894,070
Multiplied by:
Number of quarters 4 4 1.3333333 1.3333333
------------ ----------- ------------ ---------
Annualized Cash Generated by Operations 1,154,904 1,217,008 1,193,811 1,192,093
Total debt (2) 4,392,631 5,360,566 4,392,631 5,360,566
Less:
Cash and cash equivalents (2) 597,124 479,236 597,124 479,236
------------ ----------- ------------ ---------
Net debt 3,795,507 4,881,330 3,795,507 4,881,330
Divided by:
Annualized Cash Generated by
Operations (3) 1,154,904 1,217,008 1,193,811 1,192,093
Net Debt to Annualized Cash Generated by
Operations Ratio 3.3 4.0 3.2 4.1
(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 nine month information for purposes of ratio analysis
as annualized information by multiplying the quarterly information by four
and nine month information by one and one third, without representing in
any way a forecast, projection or estimate of cash generated by operations
or operating income for future periods.