8-K 1 0001.txt FORM 8-K 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: November 30, 2000 ----------------------------------------------------------------------------- (Date of earliest event reported) CITIZENS COMMUNICATIONS COMPANY ----------------------------------------------------------------------------- (Exact name of Registrant as specified in charter) Delaware 001-11001 06-0619596 ----------------------------------------------------------------------------- (State or other (Commission File Number) (IRS Employer jurisdiction of Identification incorporation) No.) 3 High Ridge Park, P.O. Box 3801, Stamford, Connecticut 06905 ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (203) 614-5600 ----------------------------------------------------------------------------- (Registrant's telephone number, including area code) No change since last report ----------------------------------------------------------------------------- (Former name or address, if changed since last report) Item 7. Financial Statements, Exhibits. (a) Financial Statements of Businesses acquired *GTE Combined Entities for the nine months ended September 30, 2000 and 1999(unaudited) *Contel of Minnesota, Inc. for the eight months ended August 31, 2000 and 1999(unaudited) (b) Pro forma Financial Information * Pro forma Balance Sheet as of September 30, 2000 and Pro forma Income Statements for the nine months ended September 30, 2000. SIGNATURES 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 hereunto duly authorized. CITIZENS COMMUNICATIONS COMPANY Registrant By:/s/ Livingston E. Ross ------------------------------- Livingston E. Ross Vice President, Reporting and Audit Date: February 13, 2001 PROFORMA FINANCIAL INFORMATION On May 27, September 21, and December 16, 1999, we announced that we had entered into definitive agreements to purchase from Verizon Communications, formerly GTE Corp., approximately 366,000 telephone access lines (as of December 31, 1999) in Arizona, California, Illinois, Minnesota and Nebraska(GTE Acquisitions) for approximately $1.171 billion in cash. The acquisitions are subject to various state and federal regulatory approvals. The Nebraska and Minnesota purchases closed on June 30, 2000 and August 31, 2000, respectively. The Illinois transaction closed on November 30, 2000. The attached pro forma financial statements include the effect of all the GTE Acquisitions to illustrate the financial characteristics of the entire transaction. We expect that the remainder of these transactions will close throughout the next 6 months. On June 16, 1999,we announced that we had entered into a series of definitive agreements to purchase from Qwest Communications, formerly US West approximately 545,000 telephone access lines (as of December 31, 1999) in Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming (US West Acquisitions) for approximately $1.65 billion in cash. The acquisitions are subject to various state and federal regulatory approvals. The North Dakota purchase closed on October 31, 2000. We expect that the remainder of these transactions will close throughout the next two years. The US West Acquisition is not included in these pro forma financial statements. On July 12, 2000, we announced that we had agreed to acquire approximately 1.1 million telephone access lines for $3.65 billion, including $136 million in debt, through the purchase of Frontier (the Frontier Acquisition), the trade name of the local exchange carrier operations of Global Crossing, Ltd. The access lines are in New York, Minnesota, Iowa, Wisconsin, Pennsylvania, Alabama, Georgia, Michigan, Illinois, Mississippi and Indiana. The transaction is subject to various state and federal regulatory approvals and is expected to be completed in the second half of 2001. The Frontier Acquisition is not included in these pro forma financial statements. The following unaudited pro forma condensed combined financial information of Citizens Communications Company and the GTE Acquisitions, which are referred to as "Pro Forma Citizens Communications Company," has been prepared to illustrate the effects of the GTE Acquisitions and related financing had it been completed as of September 30, 2000 or at the beginning of the periods presented. This pro forma information does not give effect to the other pending acquisitions and the related financing. Citizens Communications Company has prepared the pro forma financial information using the purchase method of accounting. Citizens Communications Company expects that it will continue to have increased expenses until all acquisitions are fully integrated, and expects to achieve economies of scale through the acquired properties that will both expedite its ability to provide new and differentiated services and make those services more economically efficient. We expect that these acquisitions will therefore provide us the opportunity to increase revenue and decrease cost per access line. The unaudited pro forma information does not reflect these future increased expenses nor the expected economies of scale. Our regulated telecommunications operations are subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 requires regulated entities to record regulatory assets and liabilities as a result of actions of regulators. We are currently evaluating the continued applicability of SFAS 71. The operations acquired in the GTE Acquisition was not accounted for by GTE under SFAS 71 and we will continue to account for these properties as non-regulated entities pending the outcome of our evaluation. The pro forma information, while helpful in illustrating the financial characteristics of the combined company, does not attempt to predict or suggest future results. The pro forma information also does not attempt to show how the combined company would actually have performed had the companies been combined throughout these periods. If the companies had actually been combined in prior periods, these companies and businesses might have performed differently. You should not rely on pro forma financial information as an indication of the results that would have been achieved if the GTE Acquisitions had taken place earlier or the future results that the companies will experience after completion of these transactions. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of the GTE Acquisitions included in this document and incorporated by reference in this document, and the historical financial statements of Citizens Communications Company incorporated by reference in this document.
Citizens Communications Company and Subsidiaries Proforma Balance Sheet Data As of September 30, 2000 (unaudited) Proforma Citizens ---------------------------- (Amounts in thousands) 9/30/00 Adjustments Adjusted --------------------------------------------------- Cash $ 45,963 $ - $ 45,963 Accounts receivable, net 220,257 - 220,257 Other 760,899 - 760,899 --------------------------------------------------- Total current assets 1,027,119 - 1,027,119 Net Property, Plant & Equipment 3,255,120 113,149 (1) 3,368,269 Excess of Cost over Net Assets Acquired 466,358 413,851 (1) 880,209 Investments 147,457 (147,457) (1) - Regulatory assets 181,800 - 181,800 Deferred debits and other assets 172,301 - 172,301 Assets of discontinued operations 1,169,898 - 1,169,898 --------------------------------------------------- Total assets $ 6,420,053 $ 379,543 $ 6,799,596 =================================================== Long-term debt due within one year $ 84,187 $ - $ 84,187 Accounts payable and other current liabilities 306,803 - 306,803 --------------------------------------------------- Total current liabilities 390,990 - 390,990 Deferred income taxes 433,993 - 433,993 Customer advances for contruction and contributions in aid of construction 190,395 - 190,395 Deferred credits and other liabilities 70,845 - 70,845 Regulatory liabilities 25,251 - 25,251 Long-term debt 2,925,680 379,543 (1) 3,305,223 Liabilities of discontinued operations 332,545 - 332,545 --------------------------------------------------- Total liabilities 4,369,699 379,543 4,749,242 Company Obligated Mandatorily Redeemable Convertible Preferred Securities * 201,250 - 201,250 Minority interest in subsidiary - - - Shareholders' equity 1,849,104 - 1,849,104 --------------------------------------------------- Total liabilities and shareholders' equity $ 6,420,053 $ 379,543 $ 6,799,596 =================================================== *Represents securities of a subsidiary trust, the sole assets of which are securities of a subsidiary partnership, substantially all the assets of which are convertible debentures of the Company.
Citizens Communications Company and Subsidiaries Proforma Income Statement Data For the nine months ended September 30, 2000 (unaudited)
GTE Proforma Citizens Combined GTE --------------------------- 9/30/00 Entities Minnesota Adjustments Adjusted ------------------------------------------------------------------------------ (Amounts in thousands - except per-share amounts) Revenue $ 1,150,140 $ 99,117 $ 56,962 $ - $ 1,306,219 Operating expenses 773,266 32,735 (7) 23,323 - 829,324 Depreciation and amortization 258,677 23,112 545 39,756 (2) 334,616 - - - 12,526 (3) Acquisition assimilation expenses 24,130 - - - 24,130 ------------------------------------------------------------------------------ Income from operations 94,067 43,270 33,094 (52,282) 118,149 Investment and other income, net 15,086 - - (16,486) (4) (1,400) Minority interest 12,222 - - - 12,222 Interest expense 116,288 2,548 1,686 44,324 (5) 164,846 Income tax expense (benefit) 2,298 16,687 12,687 (41,840) (6) (10,168) Convertible preferred dividends 4,657 - - - 4,657 ------------------------------------------------------------------------------ Income (loss) from continuing operations $ (1,868) $ 24,035 $ 18,721 $ (71,252) $ (30,364) ============================================================================== Weighted average shares outstanding -Basic 263,725 263,725 -Diluted 268,042 268,042 Income (loss) from continuing operations per share -Basic $ (0.01) $ (0.12) -Diluted $ (0.01) $ (0.11)
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (1) Reflects the use of proceeds from the sales of investments and issuance of long-term debt at an assumed interest rate of 7.8% to fund the aggregate purchase price of the GTE Acquisitions. For purposes of the accompanying pro forma combined financial statements, we have recorded the acquired assets and assets to be acquired at their historical carrying values and have reflected the excess of cost over such amounts as excess of cost over net assets acquired. The final allocation of purchase price to assets and liabilities acquired will depend upon the final purchase prices and the final estimates of fair values of assets and liabilities as of the various closing dates. We are undertaking a study to determine the fair values of assets acquired and will allocate the purchase price accordingly. We believe that the excess of cost over historical net assets acquired and to be acquired will be allocated to property, plant and equipment, goodwill and other identifiable intangibles. However, there can be no assurance that the actual allocation will not differ significantly from the pro forma allocation. (2) Reflects the amortization expense of the excess of cost over historical net assets acquired in the GTE acquisition by use of the straight-line method over 15 years. Should the allocation of such excess of cost over historical net assets acquired differ significantly as described in Note 1, amortization expense could increase since the depreciable lives of assets other than goodwill may be shorter. (3) Represents an adjustment for depreciation expense related to GTE Minnesota. (4) Represents the elimination of investment income associated with the investment portfolio used to partially fund the GTE Acquisition. (5) Represents the effect of the transaction on interest expense since January 1. (6) Adjustments to income taxes based on income before income taxes using the applicable incremental income tax rate. (7) During the nine months ended September 30, 2000 the GTE combined entities recorded a $9 million credit to operating expenses. The credit resulted from an adjustment to a 1999 estimated obligation for pension lump sum settlements. This credit is not expected to have a continuing impact on our operations. GTE combined entities (wholly owned properties of Verizon Communications) Combined Financial Statements September 30, 2000 GTE COMBINED ENTITIES (wholly owned properties of Verizon Communications) COMBINED BALANCE SHEETS DECEMBER 31, 1999 AND SEPTEMBER 30, 2000 (in $000's)
2000 1999 ---------- ---------- ASSETS Current assets: Receivables, net of allowance for doubtful $ 20,698 $ 31,508 accounts $907 and $1,926 Other 1,130 2,767 ---------- ---------- Total current assets 21,828 34,275 ---------- ---------- Property, plant and equipment, net 104,317 141,916 Pension assets in excess of projected benefit obligations 22,471 22,090 Other assets 525 648 ---------- ---------- Total assets $ 149,141 $ 198,929 ========== ========== LIABILITIES AND PARENT FUNDING Current liabilities: Accounts payable $ 4,668 $ 5,332 Accrued expenses 16,223 15,426 ---------- ---------- Total current liabilities 20,891 20,758 ---------- ---------- Post retirement benefit obligations 9,026 12,888 Other liabilities 187 545 ---------- ---------- Total liabilities 30,104 34,191 ---------- ---------- Parent funding 119,037 164,738 ---------- ---------- Total liabilities and parent funding $ 149,141 $ 198,929 ========== ========== See the accompanying notes to the combined financial statements
GTE COMBINED ENTITIES (wholly owned properties of Verizon Communications) COMBINED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (in $000's)
2000 1999 -------- -------- REVENUES AND SALES Local services $ 43,818 $ 45,921 Network access services 40,593 48,645 Toll services 4,560 4,353 Other services and sales 10,146 11,907 -------- -------- Total revenues and sales 99,117 110,826 -------- -------- OPERATING COSTS AND EXPENSES Cost of services and sales 28,503 35,571 Selling, general and administrative 4,232 13,642 Depreciation and amortization 23,112 25,278 -------- -------- Total operating costs and expenses 55,847 74,491 -------- -------- OPERATING INCOME 43,270 36,335 OTHER EXPENSE Interest - net 2,548 4,032 -------- -------- INCOME BEFORE INCOME TAXES 40,722 32,303 Income taxes 16,687 12,895 -------- -------- NET INCOME $ 24,035 $ 19,408 ======== ======== See the accompanying notes to the combined financial statements
GTE COMBINED ENTITIES (wholly owned properties of Verizon Communications) COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (in $000's)
2000 1999 ---------- ---------- OPERATIONS Net income $ 24,035 $ 19,404 Adjustments to reconcile net income to net cash from operations: Depreciation and amortization 23,112 25,277 Provision for uncollectible accounts (524) 63 Change in current assets and current liabilities: Receivables - gross 6,380 (2,709) Other current assets 1,566 2,152 Accounts payable (664) 4,041 Accrued expenses 517 (20) Other - net (7,239) 3,461 ---------- ---------- Net cash provided from operations $ 47,183 $ 51,669 ---------- ---------- INVESTING Capital expenditures (15,363) (18,617) ---------- ---------- Net cash used in investing activities $ (15,363) $ (18,617) ---------- ---------- FINANCING Change in parent funding (31,820) (33,052) ---------- ---------- Net cash provided from financing activities $ (31,820) $ (33,052) ---------- ---------- Decrease in cash and cash equivalents - - Cash and cash equivalents: Beginning of year - - ---------- ---------- End of year $ - $ - ========== ========== Supplemental disclosure of cashflow information - Noncash transactions Nebraska net assets offset against parent's funding $ 35,236 $ - ========== ==========
See the accompanying notes to the combined financial statements (1) Basis of Presentation The accompanying unaudited combined financial statements include the accounts of GTE Combined Entities and have been prepared in conformity with generally accepted accounting principles. These unaudited combined financial statements should be read in conjunction with the 1999 audited combined financial statements and notes thereto of the GTE Combined Entities. These unaudited combined financial statements include all adjustments, which consist of normal recurring accruals, necessary to present fairly the results for the interim periods shown. Certain information and footnote disclosures have been condensed pursuant to Securities and Exchange Commission rules and regulations. The results for the interim periods are not necessarily indicative of results for the full year. (2) Bell Atlantic - GTE Merger On June 30, 2000, Bell Atlantic and GTE completed a merger of equals under a definitive merger agreement dated July 27, 1998. Under the terms of the agreement, GTE became a wholly-owned subsidiary of Bell Atlantic. With the closing of the merger, the combined company began doing business as Verizon Communications. The merger had no impact on the financial statements of the GTE Combined Entities presented herein. (3) Employee Pension Plans During the nine months ended September 30, 2000, selling, general and administrative costs significantly decreased as compared to the nine months ended September 30, 1999. The decrease was primarily the result of a pretax gain associated with lump-sum settlements of pension obligations for former employees electing deferred vested pension cash-outs. These employees were terminated during 1999 and in 1999 GTE Combined Entities recorded an estimated obligation to pay out the lump sum settlements. However, during the nine months ended September 30, 2000, the GTE Combined Entities adjusted downward the obligation recorded during fiscal year 1999 due to the fact that not all the employees expected to elect to receive lump sum settlements so elected. As such, the GTE Combined Entities reversed a portion of the accrual set up in 1999 for such termination settlements and recognized a pretax gain of approximately $9 million in the period ended September 30, 2000, which amount was recorded as a credit to selling, general and administrative costs. (4) Sale of the Nebraska Property On June 30, 2000, pursuant to a definitive agreement with Citizens Communications Company dated September 21, 1999, GTE completed the sale of its switched access lines in Nebraska for cash proceeds of approximately $204.0 million. Under the terms of the agreement, Citizens Communications Company purchased the telephone plant, earned end-user accounts receivable, material and supplies inventories, non-regulated construction work in process associated with the switched access lines, a portion of the pension plan assets, and the transfer of certain liabilities, including obligations under employee benefit plans, and certain leases and contracts. Liabilities that will be retained by GTE include debt, accounts payable and income tax liabilities. With the completion of the sale, the combined balance sheet as of September 30, 2000 does not reflect the assets and liabilities of the Nebraska property, except for the liabilities noted above. Additionally, the combined statements of income and cash flows for the nine month period ended September 30, 2000 includes the results for the Nebraska property from January 1, 2000 through the date of disposition (June 30, 2000). For the three months ended September 30, 1999, Nebraska contributed approximately $9,374,000 in revenues and $3,279,000 in operating income. Contel of Minnesota, Incorporated Unaudited Statements of Income for For the eight months ended August 31, 2000 and 1999 CONTEL OF MINNESOTA STATEMENTS OF INCOME (unaudited)
Eight Months Ended August August 2000 1999 ---------------------------- (Thousands of Dollars) REVENUE AND SALES Local services 26,779 24,662 Network access services 27,083 26,150 Toll services 15 - Other services and sales 3,085 5,777 ---------------------------- Total revenue and sales 56,962 56,589 OPERATING COSTS AND EXPENSES 23,868 21,195 OPERATING INCOME 33,094 35,394 OTHER EXPENSE Interest - net 1,686 1,659 ---------------------------- INCOME BEFORE INCOME TAXES 31,408 33,735 Income taxes 12,687 13,842 ---------------------------- INCOME BEFORE EXTRAORDINARY ITEMS 18,721 19,893 Extraordinary items (16) - ---------------------------- NET INCOME 18,705 19,893 ============================
Contel of Minnesota Footnotes to Condensed Income Statements For the eight months ended August 31, 2000 (1) BASIS OF PRESENTATION The accompanying unaudited condensed income statements include the operations of the Minnesota property and have been prepared in conformity with generally accepted accounting principles. These unaudited condensed income statements should be read in conjunction with the 1999 audited condensed financial statements and notes thereto of Contel of Minnesota, Inc. These unaudited condensed income statements include all adjustments, which consist of normal recurring accruals, necessary to present fairly the results for the interim periods shown. Certain information and footnote disclosures have been condensed pursuant to Securities and Exchange Commission rules and regulations. The results for the interim periods are not necessarily indicative of results for the full year. (2) BELL ATLANTIC - GTE MERGER On June 30, 2000, Bell Atlantic and GTE completed a merger of equals under a definitive merger agreement dated July 27, 1998. Under the terms of the agreement, GTE became a wholly-owned subsidiary of Bell Atlantic. With the closing of the merger, the condensed company began doing business as Verizon Communications. The merger had no impact on the income statements of Contel of Minnesota, Inc. presented herein. (3) SALE OF CONTEL OF MINNESOTA On August 31, 2000, pursuant to a definitive agreement with Citizens Communications Company, Verizon completed the sale ot its switched access lines in Minnesota.