Citizens Communications (NYSE:CZN) today reported first quarter
2008 revenue of $569.2 million, operating income of $164.3 million,
and net income of $45.6 million. �Citizens Communications had solid
financial and operating results for the first quarter of 2008,�
said Maggie Wilderotter, Chairman and CEO. �Our first quarter
performance is a direct result of our ongoing primary focus on
keeping customers, upgrading them to new products and services and
putting new customers on service. As a result of continued
effective expense management we achieved an operating cash flow
margin of 53.7%. Adjusted to exclude severance and early retirement
costs, our operating cash flow margin would have been 54.2%. We
continue to build on our successful promotional initiatives to
increase the penetration of High- Speed Internet and other bundled
product offerings, including the roll-out of our �Peace of Mind�
product suite.� Revenue for the first quarter of 2008 was $569.2
million, as compared to $556.1 million in the first quarter of
2007, a 2 percent increase. The 2008 period includes $62.0 million
of additional revenues in the aggregate contributed by the
operations of Commonwealth Telephone Enterprises, which was
acquired on March 8, 2007, and Global Valley Networks, which was
acquired on October 31, 2007. The 2007 period includes the
favorable one-time impact to access revenues of $38.7 million due
to the settlement of a switched access dispute. Excluding the
additional revenue due to the Commonwealth and Global Valley
acquisitions and the one-time favorable settlement in the first
quarter of 2007, revenue for the first quarter of 2008 would have
declined by $10.2 million, or 2 percent, as compared to the first
quarter of 2007. Our revenue declined as a result of lower access
lines, subsidy revenue and switched access revenue, partially
offset by a $12.7 million increase in data and internet services
revenue. Other operating expenses and network access expenses for
the first quarter of 2008 were $263.8 million, as compared to
$240.7 million in the first quarter of 2007. The increase of $23.1
million in 2008 as compared to the first quarter of 2007 is
primarily the result of $21.5 million in additional expenses
attributable to the acquired operations of Commonwealth and Global
Valley. The purchases of Commonwealth and Global Valley have
enabled the Company to leverage its centralized back office,
customer service and administrative support functions over a larger
customer base. Depreciation and amortization expense for the first
quarter of 2008 was $141.1 million, as compared to $122.2 million
in the first quarter of 2007, a 15 percent increase, reflecting the
impact of a larger asset base due to the 2007 acquisitions,
partially offset by a declining net asset base for our legacy
Citizens properties. Operating income for the first quarter of 2008
was $164.3 million and operating income margin was 28.9 percent, as
compared to operating income of $193.3 million and operating income
margin of 34.8 percent in the first quarter of 2007. The first
quarter 2008 decrease of $29.0 million is primarily the result of
the favorable one-time impact of $38.7 million in revenue
recognized in the first quarter of 2007 from the settlement of a
switched access dispute. Investment and other (loss) income, net
reflects the premium paid of $6.3 million to repurchase a portion
of the Company�s 9.25% Senior Notes due 2011. The Company lost
approximately 43,100 access lines, of which 15 percent were second
lines, during the first quarter of 2008 and had more than 2,387,100
access lines at March 31, 2008. The Company added approximately
20,200 high-speed internet customers during the first quarter of
2008 and had more than 543,000 high-speed internet customers at
March 31, 2008. The Company added approximately 7,800 video
customers during the first quarter of 2008 and had more than
101,400 video customers at March 31, 2008. Capital expenditures
were $48.0 million for the first quarter of 2008. Free cash flow
was $172.8 million for the first quarter of 2008. The Company�s
dividend represents a payout of 48 percent of free cash flow for
the first quarter of 2008. During the first quarter of 2008, the
Company repurchased 2,317,000 shares of its common stock for $24.8
million. In addition, during the first quarter, the Company
repurchased $128.7 million principal amount of its 9.25% Senior
Notes due 2011 for $135.0 million, and also retired all of its
outstanding interest rate swap agreements. The Company has
increased its free cash flow estimate for 2008 to approximately
$470.0 million to $495.0 million after calculating the impact,
preliminarily, that the �Economic Stimulus Act of 2008� will have
on its cash paid for income taxes. The Company uses certain
non-GAAP financial measures in evaluating its performance. These
include free cash flow and operating cash flow. A reconciliation of
the differences between free cash flow and operating cash flow 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 are by definition not measures of
financial performance under GAAP 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 the 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 and operating cash flow, as the
Company defines them, 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. The Company has shown adjustments to its financial
presentations to exclude $38.7 million in access revenue for the
favorable impact of the one-time carrier dispute settlement in the
first quarter of 2007, and $2.9 million and $0.2 million of
severance and early retirement costs in the first quarter of 2008
and 2007, respectively, because the Company believes that the
magnitude of such revenues in the first quarter of 2007 is unusual,
and such costs in the first quarter of 2008 materially exceeds the
comparable costs in the first quarter of 2007. 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 and dividends are not deducted in determining such
measure. Operating cash flow has similar shortcomings as interest,
income taxes, capital expenditures, debt repayments and dividends
are not deducted in determining this 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 filed with the U.S. Securities and Exchange Commission.
About Citizens Communications Citizens Communications Company
(NYSE:CZN) operates under the brand name of Frontier and offers
telephone, television and internet services in 24 states with
approximately 5,800 employees. More information is available at
www.czn.com, www.frontieronline.com and www.frontier.myway.com.
This press release contains forward-looking statements that are
made pursuant to the safe harbor provisions of The Private
Securities Litigation Reform Act of 1995. These statements are made
on the basis of management�s views and assumptions regarding future
events and business performance. Words such as �believe,�
�anticipate,� �expect,� and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
(including oral representations) involve risks and uncertainties
that may cause actual results to differ materially from any future
results, performance or achievements expressed or implied by such
statements. These risks and uncertainties are based on a number of
factors, including but not limited to: reductions in the number of
our access lines and high-speed internet subscribers; the effects
of competition from cable, wireless and other wireline carriers
(through voice over internet protocol (VOIP) or otherwise); the
effects of greater than anticipated competition requiring new
pricing, marketing strategies or new product offerings and the risk
that we will not respond on a timely or profitable basis; the
effects of general and local economic, business, industry and
employment conditions on our revenues; our ability to effectively
manage service quality; our ability to successfully introduce new
product offerings, including our ability to offer bundled service
packages on terms that are both profitable to us and attractive to
our customers; our ability to sell enhanced and data services in
order to offset ongoing declines in revenue from local services,
switched access services and subsidies; changes in accounting
policies or practices adopted voluntarily or as required by
generally accepted accounting principles or regulators; the effects
of ongoing changes in the regulation of the communications industry
as a result of federal and state legislation and regulation,
including potential changes in state rate of return limitations on
our earnings, access charges and subsidy payments, and regulatory
network upgrade and reliability requirements; our ability to
effectively manage our operations, operating expenses and capital
expenditures, to pay dividends and to reduce or refinance our debt;
adverse changes in the credit markets and/or in the ratings given
to our debt securities by nationally accredited ratings
organizations, which could limit or restrict the availability
and/or increase the cost of financing; the effects of bankruptcies
in the telecommunications industry, which could result in potential
bad debts; the effects of technological changes and competition on
our capital expenditures and product and service offerings,
including the lack of assurance that our ongoing network
improvements will be sufficient to meet or exceed the capabilities
and quality of competing networks; the effects of increased
medical, retiree and pension expenses and related funding
requirements; changes in income tax rates, tax laws, regulations or
rulings, and/or federal or state tax assessments; the effects of
state regulatory cash management policies on our ability to
transfer cash among our subsidiaries and to the parent company; our
ability to successfully renegotiate union contracts expiring in
2008 and thereafter; our ability to pay a $1.00 per common share
dividend annually, which may be affected by our cash flow from
operations, amount of capital expenditures, debt service
requirements, cash paid for income taxes (which will increase in
the future) and our liquidity; the effects of fully utilizing our
federal net operating loss carryforwards and alternative minimum
tax (AMT) credit carryforwards, that were generated in prior years,
have significantly increased our cash taxes in 2007 and will
continue to do so in 2008 and 2009; the effects of any future
liabilities or compliance costs in connection with worker health
and safety matters; and the effects of any unfavorable outcome with
respect to any of our current or future legal, governmental or
regulatory proceedings, audits or disputes. These and other
uncertainties related to our business are described in greater
detail in our filings with the Securities and Exchange Commission,
including our reports on Forms 10-K and 10-Q and the foregoing
information should be read in conjunction with these filings. We do
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 (1) � � � � For
the quarter ended March 31, % (Amounts in thousands, except per
share amounts) 2008 � 2007 � Change � Income Statement Data Revenue
$ 569,205 � $ 556,147 � (2) 2 % � Network access expenses 60,549
51,397 18 % Other operating expenses 203,264 189,267 7 %
Depreciation and amortization � 141,080 � � 122,181 � 15 % Total
operating expenses � 404,893 � � 362,845 � 12 % � Operating income
164,312 193,302 -15 % Investment and other (loss) income, net (3)
(1,235 ) 10,017 -112 % Interest expense � 90,860 � � 93,964 � -3 %
Income before income taxes 72,217 109,355 -34 % Income tax expense
� 26,628 � � 41,688 � -36 % Net income attributable to common
shareholders $ 45,589 � $ 67,667 � -33 % � Weighted average shares
outstanding 326,173 326,542 0 % � Basic net income per share
attributableto common shareholders (4) $ 0.14 $ 0.21 (2) -33 % �
Other Financial Data Capital expenditures $ 47,986 $ 45,111 6 %
Operating cash flow (5) 305,392 315,483 -3 % Free cash flow (5)
172,810 187,555 -8 % Dividends paid 82,103 85,462 -4 % Dividend
payout ratio (6) 48 % 46 % 4 % (1) � On March 8, 2007, we acquired
Commonwealth Telephone Enterprises, Inc. (CTE) for approximately
$1.1 billion, and on October 31, 2007, we acquired Global Valley
Networks, Inc. and GVN Services (together GVN) for $62.0 million,
and have included the historical results of CTE and GVN from the
dates of acquisition. (2) Includes the $38.7 million favorable
impact of a carrier dispute settlement, representing $.07 per
share. (3) Includes $6.3 million for premium on debt repurchases
and $4.0 million for bridge loan fee for the quarters ended March
31, 2008 and 2007, respectively. (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.
(6) Represents dividends paid divided by free cash flow. Citizens
Communications Company Consolidated Financial and Operating Data
(1) � � � � For the quarter ended � March 31, % (Amounts in
thousands, except operating data) 2008 � 2007 � � Change � � Select
Income Statement Data Revenue Local services $ 217,158 $ 204,444
(2) 6 % Data and internet services 145,982 118,024 (2) 24 % Access
services 107,818 139,024 (3) -22 % Long distance services 46,453
40,428 15 % Directory services 28,628 28,670 0 % Other � 23,166 �
25,557 -9 % Total revenue � 569,205 � 556,147 2 % � Expenses
Network access expenses 60,549 51,397 (2) 18 % Other operating
expenses (4) 203,264 189,267 (2) 7 % Depreciation and amortization
� 141,080 � 122,181 15 % Total operating expenses � 404,893 �
362,845 12 % � Operating Income $ 164,312 $ 193,302 -15 % � Other
Financial and Operating Data Employees 5,828 6,355 -8 % Access
lines (5) 2,387,108 2,538,471 -6 % High-speed internet (HSI)
subscribers (5) 543,020 464,056 17 % Video subscribers 101,410
76,009 33 % Switched access minutes of use (in millions) 2,602
2,528 3 % Average monthly revenue per average access line $ 78.77 $
84.38 (6) -7 % (1) � On March 8, 2007, we acquired Commonwealth
Telephone Enterprises, Inc. (CTE) for approximately $1.1 billion,
and on October 31, 2007, we acquired Global Valley Networks, Inc.
and GVN Services (together GVN) for $62.0 million, and have
included the historical results of CTE and GVN from the dates of
acquisition. (2) Reflects a reclassification of $1.6 million of
revenue related to our CTE acquisition from local services to data
and internet services. Also, expenses reflect a reclassification of
$0.6 million of expenses related to our CTE acquisition from other
operating expenses to network access expenses. (3) Includes the
$38.7 million favorable impact of a carrier dispute settlement. (4)
For the quarter ended March 31, 2008 and 2007, includes severance
and early retirement costs of $2.9 million and $0.2 million,
respectively. (5) Access lines and high-speed internet subscribers
as of December 31, 2007 have been revised by 1,500 to 2,430,177 and
by 1,000 to 522,845, respectively, arising from the GVN billing
system conversion. (6) For the quarter ended March 31, 2007, the
calculation excludes CTE and GVN data and includes the $38.7
million favorable one-time impact from the settlement of a switched
access dispute. The amount is $78.29 without the $38.7 million
favorable one-time impact from the settlement. Citizens
Communications Company Condensed Consolidated Balance Sheet Data
(1) � (Amounts in thousands) � � � March 31, 2008 December 31, 2007
ASSETS Current assets: Cash and cash equivalents $ 227,634 $
226,466 Accounts receivable and other current assets � 266,893 �
297,688 Total current assets 494,527 524,154 � Property, plant and
equipment, net 3,288,135 3,335,244 � Other long-term assets �
3,345,939 � 3,396,671 Total assets $ 7,128,601 $ 7,256,069 �
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term
debt due within one year $ 3,814 $ 2,448 Accounts payable and other
current liabilities � 364,954 � 443,443 Total current liabilities
368,768 445,891 � Deferred income taxes and other liabilities
1,072,780 1,075,382 Long-term debt 4,747,265 4,736,897
Shareholders' equity � 939,788 � 997,899 Total liabilities and
shareholders' equity $ 7,128,601 $ 7,256,069 (1) � On March 8,
2007, we acquired Commonwealth Telephone Enterprises, Inc. (CTE)
for approximately $1.1 billion, and on October 31, 2007, we
acquired Global Valley Networks, Inc. and GVN Services (together
GVN) for $62.0 million, and have included the historical results of
CTE and GVN from the dates of acquisition. Citizens Communications
Company Consolidated Cash Flow Data (1) � (Amounts in thousands) �
� For the three months ended March 31, 2008 � 2007 � Cash flows
provided by (used in) operating activities: Net income $ 45,589 $
67,667 Adjustments to reconcile income to net cash provided by
operating activities: Depreciation and amortization expense 141,080
122,181 Stock based compensation expense 3,019 3,407 Losses on
extinguishment of debt 6,290 4,026 Other non-cash adjustments
(1,413 ) 2,982 Deferred income taxes (282 ) 23,614 Change in
accounts receivable 19,057 10,366 Change in accounts payable and
other liabilities (70,261 ) (57,242 ) Change in other current
assets � (1,568 ) � (1,714 ) Net cash provided by operating
activities 141,511 175,287 � Cash flows provided from (used by)
investing activities: Capital expenditures (47,986 ) (45,111 ) Cash
paid for Commonwealth acquisition, net - (649,507 ) Other assets
(purchased) distributions received, net � 654 � � 571 � Net cash
used by investing activities (47,332 ) (694,047 ) � Cash flows
provided from (used by) financing activities: � Long-term debt
borrowings 135,000 950,000 Long-term debt payments (129,332 )
(327,815 ) Settlement of interest rate swaps 15,521 - Debt issuance
costs (857 ) (13,841 ) Premium paid to retire debt (6,290 ) -
Issuance of common stock 591 5,119 Dividends paid (82,103 ) (85,462
) Common stock repurchased (24,784 ) (12,016 ) Repayment of
customer advances for construction � (757 ) � (602 ) Net cash (used
by) provided from financing activities (93,011 ) 515,383 � Increase
(decrease) in cash and cash equivalents 1,168 (3,377 ) Cash and
cash equivalents at January 1, � 226,466 � � 1,041,106 � � Cash and
cash equivalents at March 31, $ 227,634 � $ 1,037,729 � � Cash paid
during the period for: Interest $ 121,396 $ 97,416 Income taxes $
1,859 $ 6,786 (1) � On March 8, 2007, we acquired Commonwealth
Telephone Enterprises, Inc. (CTE) for approximately $1.1 billion,
and on October 31, 2007, we acquired Global Valley Networks, Inc.
and GVN Services (together GVN) for $62.0 million, and have
included the historical results of CTE and GVN from the dates of
acquisition. Schedule A � Reconciliation of Non-GAAP Financial
Measures (1) � � � � For the quarter ended March 31, � (Amounts in
thousands) 2008 2007 � Net Income to Free Cash Flow ; Net Cash
Provided by Operating Activities � Net income $ 45,589 $ 67,667 �
Add back: � Depreciation and amortization 141,080 122,181 � Income
tax expense 26,628 41,688 � Stock based compensation 3,019 3,407 �
Subtract: Cash paid for income taxes 1,859 6,786 � Other (loss)
income, net (2) (6,339 ) (4,509 ) � Capital expenditures 47,986
45,111 � � Free cash flow 172,810 187,555 (3) � Add back: Deferred
income taxes (282 ) 23,614 � Non-cash (gains)/losses, net 7,896
10,415 � Other (loss) income, net (2) (6,339 ) (4,509 ) � Cash paid
for income taxes 1,859 6,786 � Capital expenditures 47,986 45,111 �
Subtract: Changes in current assets and liabilities 52,772 48,590 �
Income tax expense 26,628 41,688 � Stock based compensation 3,019
3,407 � � Net cash provided by operating activities $ 141,511 � $
175,287 � (1) � On March 8, 2007, we acquired Commonwealth
Telephone Enterprises, Inc. (CTE) for approximately $1.1 billion,
and on October 31, 2007, we acquired Global Valley Networks, Inc.
and GVN Services (together GVN) for $62.0 million, and have
included the historical results of CTE and GVN from the dates of
acquisition. (2) Includes $6.3 million for premium on debt
repurchases and $4.0 million for bridge loan fee for the quarters
ended March 31, 2008 and 2007, respectively. (3) Includes the $38.7
million favorable impact of a carrier dispute settlement. Schedule
B � Reconciliation of Non-GAAP Financial Measures (1) � � � For the
quarter ended March 31, 2008 � For the quarter ended March 31, 2007
(Amounts in thousands) � � � � � Severance Severance and Early
Carrier and Early Operating Cash Flow and As Retirement As As
Dispute Retirement As Operating Cash Flow Margin Reported Costs �
Adjusted Reported � Settlement � Costs � Adjusted � � Operating
Income $ 164,312 $ (2,891 ) $ 167,203 $ 193,302 $ 38,700 $ (182 ) $
154,784 � Add back: Depreciation and amortization � 141,080 � � - �
� 141,080 � � 122,181 � � - � - � � 122,181 � � Operating cash flow
$ 305,392 � $ (2,891 ) $ 308,283 � $ 315,483 � $ 38,700 $ (182 ) $
276,965 � � � Revenue $ 569,205 � $ 569,205 � $ 556,147 � $ 38,700
$ 517,447 � � Operating income margin (Operating income divided by
revenue) � 28.9 % � 29.4 % � 34.8 % � 29.9 % � Operating cash flow
margin � (Operating cash flow divided by revenue) � 53.7 % � 54.2 %
� 56.7 % � 53.5 % (1) � On March 8, 2007, we acquired Commonwealth
Telephone Enterprises, Inc. (CTE) for approximately $1.1 billion,
and on October 31, 2007, we acquired Global Valley Networks, Inc.
and GVN Services (together GVN) for $62.0 million, and have
included the historical results of CTE and GVN from the dates of
acquisition.
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