Citizens Communications Reports 2005 First-Quarter Results

    Business Editors

    STAMFORD, Conn.--(BUSINESS WIRE)--May 3, 2005--Citizens Communications (NYSE:CZN) today reported first quarter 2005 consolidated revenues of $537.2 million; consolidated operating income of $145.1 million; and consolidated net income of $42.6 million. Consolidated net income includes $2.2 million, net of taxes, from our conferencing service business, which was sold in March 2005 and is therefore treated as a discontinued operation.
    First-quarter 2005 revenue from the company's ILEC operations was $499.2 million, a decrease from $502.8 million in the first quarter of 2004. The decrease was due primarily to loss of access lines, lower access service revenues and reduced long-distance revenue. Strong growth in data and enhanced service revenues offset most of the decreases. Data service revenues increased 21.9 percent compared to the first quarter of 2004.
    The company's revenue generating units (which consist of access lines and High-Speed Internet subscribers) increased 1 percent from a year ago as the company added a record 30,500 High-Speed Internet customers during the quarter and had 242,800 High-Speed data subscribers at March 31, 2005. The number of the company's High-Speed Internet subscribers has increased by more than 100,000 or 71 percent from a year ago. The company's access line count decreased 22,300 lines during the quarter.
    ILEC operating income for the first quarter of 2005 was $144.4 million and operating income margin was 28.9 percent, compared to $136.5 million and 27.1 percent in the first quarter of 2004. Capital expenditures for the ILEC were $47.3 million for the first quarter of 2005, compared to $52.8 million in the year ago period.
    Free cash flow increased 12.4 percent to $152.9 million during the first quarter of 2005. The company's quarterly dividend represented a payout of 55.6 percent of first-quarter 2005 free cash flow. The company expects to continue to pay its dividend of $0.25 per common share on the last day of each quarter.
    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 and dividends 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.

    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 (1) (unaudited)

For the quarter ended -------------------------- (Amounts in thousands - except per-share March 31, March 31, % amounts) 2005 2004 Change --------- --------- ------

Income Statement Data (2) Continuing operations Revenue $537,223 $552,311 -3% Cost of services (exclusive of depreciation and amortization) 51,018 55,550 -8% Other operating expenses 199,183 208,229 -4% Management succession and strategic alternatives expenses - 4,382 -100% Stock based compensation 2,265 3,189 -29% Depreciation and amortization 139,645 143,363 -3% Operating income 145,112 137,598 5% Investment and other income, net 4,773 25,295 -81% Interest expense (includes dividends on preferred securities) 83,785 97,781 -14% Income tax expense 25,673 23,705 8% Income from discontinued operations, net of tax 2,207 1,461 51% Net income attributable to common shareholders 42,634 42,868 -1%

Weighted average shares outstanding 338,450 283,990 19%

Basic net income per share attributable to common shareholders (3) $0.13 $0.15 -13%

Other Financial Data Capital expenditures 52,183 54,539 -4% Free cash flow (4) 152,913 135,985 12%

(1) Our conferencing business was sold on March 15, 2005. Prior periods have been restated to present our conferencing business as discontinued operations.

(2) Our Vermont distribution facilities were sold on April 1, 2004. This sale affects the comparability of data presented.

(3) Calculated based on weighted average shares outstanding.

(4) A reconciliation to the most comparable GAAP measure is presented at the end of these tables.

Citizens Communications Company Financial and Operating Data (1) (unaudited)

For the quarter ended -------------------------- (Dollars in thousands, except operating March 31, March 31, % data) 2005 2004 Change --------- --------- ------

TELECOMMUNICATIONS Select Income Statement Data Revenue Access services $157,322 $161,483 -3% Local services 209,986 212,742 -1% Long distance services 43,750 47,331 -8% Data services 38,609 31,674 22% Directory services 27,963 27,474 2% Other 21,613 22,107 -2% ILEC revenue 499,243 502,811 -1% Electric Lightwave 37,980 39,765 -4% Total revenue 537,223 542,576 -1%

Expenses Network access expense 51,018 50,027 2% Other operating expenses 199,183 202,715 -2% Management succession and strategic alternatives expenses - 4,382 -100% Stock based compensation 2,265 3,189 -29% Depreciation and amortization 139,645 143,363 -3% Total expenses 392,111 403,676 -3%

Operating Income ILEC $144,440 $136,510 6% ELI 672 2,390 -72%

Other Financial and Operating Data ILEC capital expenditures $47,325 $52,777 -10% ELI capital expenditures 4,801 1,762 172% ILEC depreciation and amortization 133,366 137,528 -3% ELI depreciation and amortization 6,279 5,835 8%

ILEC access lines 2,298,510 2,375,629 -3% High-speed internet subscribers 242,768 141,942 71% ILEC switched access minutes of use (in millions) 2,882 3,000 -4% ILEC average monthly revenue per average RGU (2) $65.59 $66.72 -2%

(1) See footnote (1) on the first page. (2) RGU's are access lines plus high-speed internet subscribers.

Citizens Communications Company Financial and Operating Data (unaudited)

For the quarter ended -------------------------- March 31, March 31, % (Dollars in thousands) 2005 2004 Change --------- --------- ------ GAS AND ELECTRIC SECTORS (1)

Select Income Statement Data Revenue $- $9,735 -100% Gas, electric energy and fuel oil purchased - 5,523 -100% Other operating expenses - 5,514 -100% Operating (loss) - (1,302) -100%

(1) See footnote (2) on the first page.

Citizens Communications Company Condensed Consolidated Balance Sheet Data (1)

(Dollars in thousands) (unaudited) March 31, December 31, 2005 2004 ----------- -----------

ASSETS ------------ Current assets: Cash and cash equivalents $284,220 $167,463 Accounts receivable and other current assets 245,822 279,295 Assets of discontinued operations - 24,122 ----------- ----------- Total current assets 530,042 470,880

Property, plant and equipment, net 3,279,957 3,335,850

Other long-term assets 2,812,023 2,861,689 ----------- ----------- Total assets $6,622,022 $6,668,419 =========== ===========

LIABILITIES AND EQUITY ---------------------- Current liabilities: Long-term debt due within one year $6,362 $6,380 Accounts payable and other current liabilities 382,969 410,405 Liabilities of discontinued operations - 735 ----------- ----------- Total current liabilities 389,331 417,520

Deferred income taxes and other liabilities 652,772 621,661 Long-term debt 4,253,034 4,266,998 Shareholders' equity 1,326,885 1,362,240 ----------- ----------- Total liabilities and equity $6,622,022 $6,668,419 =========== ===========

(1) See footnote (1) on the first page.

Citizens Communications Company Condensed Consolidated Cash Flow Data (1) (unaudited)

(Dollars in thousands) For the three months ended March 31, ------------------- 2005 2004 --------- ---------

Income from continuing operations $40,427 $41,407 Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities: Depreciation and amortization expense 139,645 143,363 Gain on expiration/settlement of customer advances (80) (24,182) Stock based compensation 2,265 3,189 Other 22,646 41,649 --------- --------- Net cash provided by continuing operating activities 204,903 205,426

Cash flows from investing activities: Proceeds from sales of assets, net of selling expenses 1,112 - Capital expenditures (52,183) (54,539) Other assets (purchased) distributions received. net 247 - --------- --------- Net cash used in investing activities (50,824) (54,539)

Cash flows from financing activities: Debt issuance costs (385) - Long-term debt payments (307) (93,557) Issuance of common stock 5,552 7,682 Dividends paid (85,081) - Other (1,237) (1,775) --------- --------- Net cash used in financing activities (81,458) (87,650)

Cash provided by discontinued operations 44,136 1,104

Increase in cash and cash equivalents 116,757 64,341 Cash and cash equivalents at January 1, 167,463 583,671 --------- ---------

Cash and cash equivalents at March 31, $284,220 $648,012 ========= =========

Cash paid (refunded) during the period for: Interest $71,336 $97,515 Income taxes $(1,859) $227

(1) See footnote (1) on the first page.

Schedule A

Reconciliation of Non-GAAP Financial Measures (1)

For the quarter ended March 31, ------------------- (Dollars in thousands) 2005 2004 --------- ---------

Net Income from Continuing Operations to Free --------------------------------------------- Cash Flow ; Net Cash Provided by Continuing --------------------------------------------- Operating Activities --------------------

Net income from continuing operations $40,427 $41,407

Add back: Depreciation and amortization 139,645 143,363

Income tax expense 25,673 23,705

Management succession and strategic alternatives expenses - 4,382

Stock based compensation 2,265 3,189

Subtract: Cash paid (refunded) for income taxes (1,859) 227

Investment and other income, net 4,773 25,295

Capital expenditures 52,183 54,539

--------- --------- Free cash flow 152,913 135,985

Add back: Deferred income taxes 25,109 20,991

Noncash (gains)/losses, net 1,855 (17,136)

Investment and other income, net 4,773 25,295

Cash paid (refunded) for income taxes (1,859) 227

Capital expenditures 52,183 54,539

Subtract: Changes in current assets and liabilities 2,133 (16,801)

Income tax expense 25,673 23,705

Management succession and strategic alternatives expenses - 4,382

Stock based compensation 2,265 3,189

--------- --------- Net cash provided by continuing operating activities $204,903 $205,426 ========= =========

(1) See footnote (1) on the first page.

--30--RG/ny*

CONTACT: Citizens Communications Brigid M. Smith, 203-614-5042 bsmith@czn.com or Michael A. Zarrella, 203-614-5179 mzarrell@czn.com

KEYWORD: CONNECTICUT INDUSTRY KEYWORD: TELECOMMUNICATIONS EARNINGS SOURCE: Citizens Communications

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