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 3, 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)
ITEM 12. Disclosure of Results of Operations and Financial Condition
-----------------------------------------------------------
On August 3, 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.
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: August 3, 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 Second-Quarter Results
Stamford, Conn., August 3, 2004 -- Citizens Communications (NYSE:CZN) today
reported second quarter 2004 consolidated revenues of $544.1 million;
consolidated operating income of $128.2 million; and consolidated net income of
$23.8 million. Consolidated operating income and net income reflect $11.6
million of pre-tax expense related to our review of financial and strategic
alternatives and management succession.
Second quarter 2004 revenue from the company's ILEC operations was $505.8
million, compared to $510.2 million in the second quarter of 2003. The decrease
is due primarily to lower access services revenues, reduced long distance
revenue and loss of access lines. These decreases were partially offset by
continued increases in data and enhanced service revenues.
Average revenue per month per average number of access lines increased 2% to
$71.17 in the second quarter of 2004 from $70.07 in the year ago period.
The company added a record 22,200 DSL customers during the quarter and had
164,200 DSL subscribers at June 30, 2004. The company's primary access line
count, which does not take into account DSL subscriptions, decreased 13,300
lines during the quarter.
ILEC operating income for the second quarter of 2004 was $127.2 million and
operating income margin was 25.2 percent.
Capital expenditures for the ILEC were $73.7 million for the second quarter of
2004.
In July 2004 we retired $300 million principal amount of Senior Notes that are
part of our Equity Units, which will result in a pre-tax charge of approximately
$15 million in the third quarter of 2004, and means that only the remaining
outstanding $160 million of such notes will be remarketed. We expect to save
approximately $20 million per year in interest expense as a result of this
retirement.
--MORE --
As previously reported, the company has declared a special dividend of $2 per
share and is instituting a regular annual dividend of $1 per share that will be
payable quarterly. The special dividend and the first quarterly dividend will
both be paid on September 2, 2004 to stockholders of record on August 18, 2004.
We expect that all of the dividends paid to stockholders in 2004 will be treated
as dividends for federal income tax purposes. Shareholders are encouraged to
consult with their tax advisors.
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.
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.
--MORE --
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 six months ended
June 30, June 30,
-------------------------- % ---------------------------- %
(Amounts in thousands - except per-share amounts) 2004 2003 Change 2004 2003 Change
----------------------------------- --------------------------------------
Income Statement Data (1)
Continuing operations
Revenue $544,091 $643,954 -16% $1,102,559 $1,295,816 -15%
Cost of services (exclusive of depreciation and
amortization) 48,295 113,537 -57% 105,359 226,756 -54%
Other operating expenses 210,157 227,985 -8% 420,678 462,428 -9%
Strategic alternatives and management succession
expenses 10,527 - 100% 14,873 - 100%
Restricted stock based compensation (2) 2,525 4,508 -44% 5,398 5,886 -8%
Depreciation and amortization 144,412 150,359 -4% 288,270 288,907 0%
Reserve for telecommunications bankruptcies - 2,260 -100% - 2,260 -100%
Restructuring and other expenses - 10,113 -100% - 10,092 -100%
Operating income 128,175 135,192 -5% 267,981 299,487 -11%
Investment and other income, net 5,213 31,237 -83% 30,507 79,409 -62%
Interest expense (includes dividends on preferred
securities) 97,652 107,988 -10% 195,434 218,817 -11%
Income tax expense 11,944 24,384 -51% 36,394 64,360 -43%
Cumulative effect of change in accounting principle (3) - - - - 65,769 -100%
Net income attributable to common shareholders 23,792 34,057 -30% 66,660 161,488 -59%
Weighted average shares outstanding 284,782 282,180 1% 284,378 281,934 1%
Net income attributable to common shareholders (4) $ 0.08 $ 0.12 -33% $ 0.23 $ 0.57 -60%
Other Financial Data
Total capital expenditures $ 78,246 $ 67,850 15% $ 133,434 $ 115,602 15%
Free cash flow (5) 98,315 113,288 -13% 231,655 258,618 -10%
(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 $1,034 and $1,619 related to strategic alternatives and management
succession for the three and six months ended June 30 2004, respectively.
(3) Represents the effect of adoption of SFAS No. 143, net of tax.
(4) Calculated based on weighted average shares outstanding.
(5) 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 six months ended
June 30, June 30,
--------------------------- % -------------------------- %
(Amounts in thousands, except operating data) 2004 2003 Change 2004 2003 Change
------------------------------------- ------------------------------------
TELECOMMUNICATIONS
Select Income Statement Data
Revenue
Access services $ 155,224 $ 167,025 -7% $ 316,707 $ 336,196 -6%
Local services 213,417 213,889 0% 426,159 428,162 0%
Long distance services 45,546 50,102 -9% 92,877 103,023 -10%
Data services 33,624 26,385 27% 65,298 51,147 28%
Directory services 28,201 26,736 5% 55,675 53,779 4%
Other 29,777 26,016 14% 58,041 51,455 13%
ILEC revenue 505,789 510,153 -1% 1,014,757 1,023,762 -1%
Electric Lightwave 38,302 43,719 -12% 78,067 84,812 -8%
Total revenue 544,091 553,872 -2% 1,092,824 1,108,574 -1%
Expenses
Network access expense 48,295 58,168 -17% 99,836 114,683 -13%
Other operating expenses 209,138 204,515 2% 414,145 415,369 0%
Strategic alternatives and management succession
expenses 10,527 - 100% 14,873 - 100%
Restricted stock based compensation (1) 2,525 4,293 -41% 5,398 5,649 -4%
Depreciation and amortization 144,412 150,359 -4% 288,270 288,907 0%
Reserve for telecommunications bankruptcies - 2,260 -100% - 2,260 -100%
Restructuring and other expenses - 10,113 -100% - 10,092 -100%
Total expenses 414,897 429,708 -3% 822,522 836,960 -2%
Operating Income
ILEC $ 127,237 $ 121,814 4% $ 265,955 $ 268,729 -1%
ELI 1,957 2,350 -17% 4,347 2,885 51%
Other Financial and Operating Data
ILEC capital expenditures $ 73,678 $ 56,415 31% $ 126,531 $ 94,292 34%
ELI capital expenditures 4,397 2,254 95% 6,159 3,401 81%
ILEC depreciation and amortization 138,467 144,374 -4% 276,490 276,729 0%
ELI depreciation and amortization 5,945 5,985 -1% 11,780 12,178 -3%
ILEC access lines 2,362,285 2,418,819 -2% 2,362,285 2,418,819 -2%
DSL subscribers 164,184 92,201 78% 164,184 92,201 78%
ILEC switched access minutes of use (in millions) 2,917 2,995 -3% 5,917 6,040 -2%
ILEC average monthly revenue per average line $ 71.17 $ 70.07 2% $ 71.24 $ 70.16 2%
(1) See footnote (2) first page.
Citizens Communications Company
Financial and Operating Data
(unaudited)
For the quarter ended For the six months ended
June 30, June 30,
---------------------------- % ------------------------------- %
(Amounts in thousands) 2004 2003 Change 2004 2003 Change
----------------------------------------- --------------------------------------------
GAS AND ELECTRIC SECTORS (1)
Select Income Statement Data
Revenue $ - $ 90,082 -100% $ 9,735 $ 187,242 -95%
Gas, electric energy and fuel oil
purchased - 55,369 -100% 5,523 112,073 -95%
Other operating expenses 1,019 23,470 -96% 6,533 47,059 -86%
Restricted stock based compensation - 215 -100% - 237 -100%
Operating income (loss) (1,019) 11,028 -109% (2,321) 27,873 -108%
Other Financial Data
Capital expenditures - 9,123 -100% 573 17,437 -97%
(1) See footnote (1) first page.
Citizens Communications Company
Condensed Consolidated Balance Sheet Data
(unaudited)
(Amounts in thousands)
June 30, 2004 December 31, 2003
--------------------- --------------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 740,359 $ 583,671
Accounts receivable and other current assets 262,593 289,457
Assets held for sale - 23,130
--------------------- --------------------
Total current assets 1,002,952 896,258
Property, plant and equipment, net 3,437,099 3,525,640
Other long-term assets 3,200,547 3,267,212
--------------------- --------------------
Total assets $ 7,640,598 $ 7,689,110
===================== ====================
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Long-term debt due within one year $ 6,490 $ 88,002
Accounts payable and other current liabilities 453,403 484,445
Liabilities related to assets held for sale - 11,128
--------------------- --------------------
Total current liabilities 459,893 583,575
Deferred income taxes and other liabilities 841,208 833,473
Equity units 460,000 460,000
Long-term debt (1) 4,378,131 4,195,629
Mandatorily Redeemable Convertible Preferred Securities (1) - 201,250
Shareholders' equity 1,501,366 1,415,183
--------------------- --------------------
Total liabilities and equity $ 7,640,598 $ 7,689,110
===================== ====================
(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 six months ended June 30,
------------------------------------
2004 2003
----------------- -----------------
Income before cumulative effect of change in accounting principle $ 66,660 $ 95,719
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 288,270 288,907
Gain on expiration/settlement of customer advances (25,345) (6,165)
Gain on capital lease termination/restucturing - (65,724)
Other 35,070 31,023
----------------- -----------------
Net cash provided by continuing operating activities 364,655 343,760
Cash flows from investing activities:
Proceeds from sales of assets, net of selling expenses 13,992 54,900
Capital expenditures (133,434) (115,602)
Other - (605)
----------------- -----------------
Net cash used by investing activities (119,442) (61,307)
Cash flows from financing activities:
Long-term debt payments (99,786) (301,583)
Other 11,261 10,991
----------------- -----------------
Net cash used by financing activities (88,525) (290,592)
Increase (decrease) in cash and cash equivalents 156,688 (8,139)
Cash and cash equivalents at January 1, 583,671 393,177
----------------- -----------------
Cash and cash equivalents at June 30, $ 740,359 $ 385,038
================= =================
Schedule A
Reconciliation of Non-GAAP Financial Measures
For the quarter ended June 30, For the six months ended June 30,
--------------------------------- --------------------------------------
(Amounts in thousands) 2004 2003 2004 2003
------------- ------------------ ---------------- -------------------
Net Income to Free Cash Flow;
-----------------------------
Net Cash Provided by Operating Activities
-----------------------------------------
Net income $ 23,792 $ 34,057 $ 66,660 $ 161,488
Add back:
Depreciation and amortization 144,412 150,359 288,270 288,907
Income taxes 11,944 24,384 36,394 64,360
Restricted stock based compensation 2,525 4,508 5,398 5,886
Subtract:
Cash paid for income taxes 899 933 1,126 1,243
Investment and other income, net 5,213 31,237 30,507 79,409
Cumulative effect of change in accounting
principle - - - 65,769
Capital expenditures 78,246 67,850 133,434 115,602
------------- ------------------- --------------- -------------------
Free cash flow 98,315 113,288 231,655 258,618
Add back:
Deferred income taxes 14,616 24,782 35,607 104,591
Other non-cash adjustments 4,895 (25,328) (16,417) (77,006)
Investment and other income/(loss) 5,213 31,237 30,507 79,409
Cash paid for income taxes 899 933 1,126 1,243
Capital expenditures 78,246 67,850 133,434 115,602
Subtract:
Changes in current assets and liabilities 30,242 33,791 9,465 68,451
Income tax expense 11,944 24,384 36,394 64,360
Restricted stock based compensation 2,525 4,508 5,398 5,886
------------- ------------------- --------------- -------------------
Net cash provided by operating activities $ 157,473 $ 150,079 $ 364,655 $ 343,760
============= =================== =============== ===================
Schedule B
Citizens Communications Company
Long Distance and Data Services Revenue
For the quarters ended
---------------------------------------------------------------------------
(Amounts in thousands) 6/30/04 3/31/04 12/31/03 9/30/03 6/30/03 3/31/03
---------------------------------------------------------------------------
Long Distance and Data Services Revenue
Long distance services $ 45,546 $ 47,331 $ 47,705 $ 48,654 $ 50,102 $ 52,921
Data services 33,624 31,674 28,814 27,491 26,385 24,762
---------------------------------------------------------------------------
Total long distance and data services revenue $ 79,170 $ 79,005 $ 76,519 $ 76,145 $ 76,487 $ 77,683
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