Filed Pursuant to Rule 424(B)(2)
Registration Statement No. 333-58044
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 9, 2001)
[LOGO]
CITIZENS COMMUNICATIONS COMPANY
21,875,000 SHARES OF COMMON STOCK
--------------
We are offering 21,875,000 shares of our common stock at a price of $12.10
per share.
Concurrently with this offering, we are also offering $400.0 million of our
equity units, each of which will initially consist of a contract to purchase
shares of our common stock and a senior note due 2006 issued by us. This
offering is not conditioned on the completion of our concurrent equity unit
offering.
Our common stock is listed on The New York Stock Exchange under the symbol
"CZN." On June 13, 2001, the last reported sale price of our common stock on The
New York Stock Exchange was $12.10 per share.
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF
THE ATTACHED PROSPECTUS.
-----------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CITIZENS
-------- ------------- -----------
Per Share of Common Stock................. $12.1000 $0.5747 $11.5253
Total................................... $264,687,500.00 $12,571,562.50 $252,115,937.50
We have granted the underwriters a 30-day option to purchase up to 3,281,250
additional shares of our common stock on the same terms and conditions set forth
above solely to cover over-allotments, if any.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The underwriters expect to deliver the shares of common stock to purchasers
on June 19, 2001.
-------------------
JOINT BOOK-RUNNING MANAGERS
JPMORGAN MORGAN STANLEY DEAN WITTER
------------
JOINT LEAD MANAGERS
BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
------------
LEHMAN BROTHERS
-------------
THE BUCKINGHAM RESEARCH GROUP
INCORPORATED
DAIN RAUSCHER WESSELS
LEGG MASON WOOD WALKER
INCORPORATED
MIZUHO INTERNATIONAL PLC
ROBERTSON STEPHENS
TD SECURITIES
June 13, 2001
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Summary............................... S-3
The Offering.......................... S-7
Use of Proceeds....................... S-8
Capitalization........................ S-9
Consolidated Selected Financial and
Operating Data...................... S-11
Price Range of Common Stock and
Dividend Policy..................... S-15
Certain Material U.S. Tax Consequences
to Non-U.S. Holders................. S-16
Incorporation of Documents by
Reference........................... S-19
Underwriters.......................... S-20
Legal Matters......................... S-21
Pro Forma Combined Financial
Statements.......................... P-1
PROSPECTUS
PAGE
----
About This Prospectus................. 3
Risk Factors.......................... 4
Forward-Looking Statements............ 9
Use of Proceeds....................... 10
Ratio of Earnings to Fixed Charges.... 10
Citizens Communications Company....... 11
Citizens Communications Capital Trust
I................................... 25
Accounting Treatment.................. 25
Selling Stockholder................... 26
Description of Debt Securities........ 27
Description of Capital Stock.......... 35
Description of Warrants............... 37
Description of Depositary Shares...... 39
Description of Trust Preferred
Securities.......................... 42
Description of Guarantee.............. 43
Plan of Distribution.................. 46
Where You Can Find More Information... 48
Incorporation of Documents by
Reference........................... 48
Legal Matters......................... 49
Experts............................... 49
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus supplement and the accompanying prospectus. We are
offering to sell the shares of common stock, and seeking offers to buy the
shares of common stock, only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus supplement and the
accompanying prospectus is accurate only as of the date of this prospectus
supplement and the date of the accompanying prospectus, regardless of the time
of delivery of this prospectus supplement or any sales of the shares of common
stock. In this prospectus supplement and the accompanying prospectus, unless
otherwise indicated or unless the context otherwise requires, "we," "us" and
"our" refer to Citizens Communications Company and its subsidiaries. In this
prospectus supplement and the accompanying prospectus, unless otherwise
indicated, "Citizens" refers to Citizens Communications Company and does not
include its subsidiaries.
S-2
SUMMARY
THIS SUMMARY HIGHLIGHTS ONLY SELECTED INFORMATION FROM THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU. TO BETTER UNDERSTAND THIS OFFERING, YOU
SHOULD READ THIS ENTIRE PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND
THE ADDITIONAL DOCUMENTS TO WHICH WE REFER YOU. SEE "CITIZENS COMMUNICATIONS
COMPANY," "WHERE YOU CAN FIND MORE INFORMATION" IN THE ACCOMPANYING PROSPECTUS
AND "INCORPORATION OF DOCUMENTS BY REFERENCE" IN THIS PROSPECTUS SUPPLEMENT AND
IN THE ACCOMPANYING PROSPECTUS.
CITIZENS COMMUNICATIONS COMPANY
We are a telecommunications-focused company providing wireline
communications services primarily to rural areas and small and medium-sized
towns and cities as an incumbent local exchange carrier, or ILEC. In addition,
we provide competitive local exchange carrier, or CLEC, service to business
customers and to other communications carriers in certain metropolitan areas in
the western United States through Electric Lightwave, Inc., or ELI, our
85%-owned subsidiary. We also provide public utility services including natural
gas transmission and distribution, electric transmission and distribution and
water distribution and wastewater treatment services to primarily rural and
suburban customers throughout the United States.
With approximately 1.4 million telephone access lines in 17 states we were
the eighth largest local access wireline telephone provider in the United States
as of December 31, 2000. Upon consummation of telephone access line acquisitions
contracted for during 1999 and 2000, we expect to be the sixth largest ILEC in
the United States with approximately 3.1 million telephone access lines in 27
states. In fiscal years 1999 and 2000, revenues from our ILEC services segment
were $903.2 million and $963.7 million, respectively, and adjusted EBITDA
(operating income plus depreciation and amortization) was $327.1 million and
$434.1 million, respectively. Revenues in fiscal years 1999 and 2000, from our
CLEC services segment were $187.0 million and $244.0 million, respectively, and
adjusted EBITDA was $(57.6) million and $1.8 million, respectively.
In 1999, we announced plans to divest our public utilities services
segments. Consistent with this effort, we have contracted to sell our water and
wastewater utility services segments and portions of our gas and electric
properties and are presently engaged in the sale of or are seeking buyers for
our remaining gas and electric utility services segments. Pending these
divestitures, we continue to provide gas and electric utility services and water
and wastewater services.
STRATEGY
We are transforming ourselves into a company that focuses exclusively on
providing telecommunications services. We primarily operate in rural areas and
small and medium-sized towns where, we believe we have a competitive advantage
because of our relatively larger size, greater resources, local focus and lower
levels of competition. We believe that our operations in these areas will
provide us with steady revenue growth and margin enhancement opportunities. To
reach our objective we intend to:
- Target telecommunications needs of rural areas and small and medium-sized
towns and cities;
- Continue to achieve economies of scale through clustering and increase
operational efficiencies;
- Increase penetration rates of the services offered to our markets;
- Retain existing customers and attract new customers through the
introduction of new technology and improved marketing and customer
services;
- Strengthen and build strategic partnerships as a member of the local
communities;
- Increase utilization of our CLEC's high-capacity, installed, fiber-optic
infrastructure; and
- Divest our public utilities services segment's business and assets.
S-3
ACQUISITIONS
We have entered into agreements with Verizon Communications Inc., Qwest
Communications International Inc. and Global Crossing, Ltd. to acquire
approximately 2.0 million telephone access lines. Through March 31, 2001, we had
closed on the acquisition of 334,500 of these telephone access lines and we
expect to close on the acquisition of the remaining 1,700,200 of these telephone
access lines in 2001 and 2002.
Between May and December 1999, we announced agreements to purchase from
Verizon approximately 381,200 telephone access lines (as of December 31, 2000)
in Arizona, California, Illinois/ Wisconsin, Minnesota and Nebraska for
approximately $1,171.0 million in cash. As of March 31, 2001, we had closed on
the purchase of approximately 317,500 telephone access lines. We expect that the
remainder of the Verizon acquisitions, which are subject to various state and
federal regulatory approvals, will close on a state-by-state basis in 2001.
In June 1999, we announced agreements to purchase from Qwest approximately
556,800 telephone access lines (as of December 31, 2000) in Arizona, Colorado,
Idaho/Washington, Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming
for approximately $1,650.0 million in cash and the assumption of certain
liabilities. As of March 31, 2001, we had closed on the purchase of
approximately 17,000 telephone access lines for approximately $38.0 million in
cash. The remainder of the Qwest acquisitions, covering 539,800 access lines,
are subject to the satisfaction of certain closing conditions, including,
without limitation, financial representations and warranties and the receipt of
governmental consents. We have already received all required state regulatory
approvals other than from Minnesota. Subject to satisfaction of the required
closing conditions, we anticipate closing the acquisitions on a state-by-state
basis. We cannot assure you that all required closing conditions will be
satisfied. We are currently in discussions with Qwest relating to the
satisfaction of closing conditions. We do not believe that the failure to close
any or all of the remaining Qwest acquisitions will have a material adverse
effect on us, including our ability to implement our telecommunications
strategies.
In July 2000, we announced an agreement to purchase from Global Crossing
100% of the stock of the Frontier Corp. and its related subsidiaries, which own
approximately 1.1 million telephone access lines (as of December 31, 2000) in
Alabama/Florida, Georgia, Illinois, Indiana, Iowa, Michigan, Minnesota,
Mississippi, New York, Pennsylvania and Wisconsin, for approximately
$3,650.0 million in cash, which price was later reduced to $3,500.0 million. We
have received approval for the proposed purchase from the Federal Communications
Commission and all other state Public Service Commissions with the exception of
Minnesota. Subject to the timely receipt of the Minnesota regulatory approval,
we expect that this transaction will be completed and paid for in full by the
end of June 2001.
DIVESTITURES
Through our public utilities services segments, we provide gas and electric,
water and wastewater utility services. We have entered into agreements to sell a
substantial portion of our public utilities services segments for
$1,380.0 million in cash and $90.0 million in debt. In certain cases, we may
remain contingently liable for certain liabilities assumed by the relevant
purchasers.
Our water and wastewater segment is under contract to be sold to American
Water Works, Inc., one of the largest water utilities in the country, for
$745.0 million in cash and the assumption of $90.0 million in debt by the
purchaser. This transaction is expected to close in the second half of 2001
following the receipt of regulatory approval. This contract may be terminated if
the required approvals are not received by September 30, 2001.
Our natural gas operations in Louisiana are under contract to be sold to
Atmos Energy Corporation for $365.0 million in cash plus the assumption of
certain liabilities. We received approval for this sale from the Louisiana
Public Service Commission in April 2001 and this transaction is expected to
close by the end of June 2001.
S-4
Our electric utility division in Hawaii is under contract to be sold to
Kauai Island Electric Co-op for $270.0 million in cash plus the assumption of
certain liabilities by the purchaser. In August 2000, the Hawaii Public Utility
Commission denied the application requesting approval of the purchase by Kauai
Island Electric Co-op. We are considering a variety of options, including filing
a request for reconsideration of the decision or filing a new application. Our
agreement for the sale of this division may be terminated if regulatory approval
is not received before February 2002.
We intend to sell our remaining public utility assets, which include gas
operations in Arizona, Colorado, and Hawaii and electric utility operations in
Arizona and Vermont. We expect to use the proceeds of pending and future public
utilities' sales to preserve the strength of our balance sheet and provide
additional financing for acquisitions.
RECENT DEVELOPMENTS
CONCURRENT ISSUANCE OF EQUITY UNITS
We are offering concurrently an aggregate of $400.0 million of equity units
(or $460.0 million if the underwriters exercise their over-allotment option in
full) in a separate offering. Each equity unit will initially consist of a
purchase contract to purchase a number of shares of our common stock and $25 in
aggregate principal amount of a 6 3/4% Citizens senior note due 2006. This
offering is not contingent on the completion of the offering of the equity
units.
SALE OF NOTES
We issued on May 23, 2001 an aggregate of $1,750 million of notes consisting
of $700 million principal amount of 8.50% notes due 2006 and $1,050 million
principal amount of 9.25% notes due 2011. The net proceeds of the offering were
approximately $1,718.2 million. Of these net proceeds, approximately
$650 million was used to temporarily repay existing credit facilities and the
remainder is being held for general corporate purposes and to finance
acquisitions. The amount of the commitment under our existing bank credit
facility was reduced by the amount of the net proceeds of that offering.
We have received:
- from Moody's Investor Service, Inc. ("Moody's") a rating of Baa2 for our
long-term debt on review for a possible downgrade;
- from Standard and Poor's Rating Services, a division of McGraw-Hill, Inc.
("S&P"), a rating of BBB for our corporate credit and senior unsecured
debt with a negative outlook; and
- from Fitch IBCA, Duff & Phelps ("Fitch") a rating of BBB for our senior
unsecured debt with a stable outlook.
Each of Moody's, S&P and Fitch has indicated that, in order to maintain our
current ratings, we should undertake action to strengthen our balance sheet. We
are contemplating the issuance of additional equity, refinancing our credit
facility indebtedness, and perhaps raising capital by selling some significant
telecommunications assets to one or more joint ventures, which we expect to
operate. Market conditions permitting, we may undertake one or more of these or
other actions to preserve the strength of our balance sheet and maintain our
current ratings.
FIRST QUARTER RESULTS
In the quarter ended March 31, 2001, consolidated first quarter revenue from
our continuing operations, which includes revenue from our telecommunications,
electric and gas operations, was $624.3 million, an increase of 39% from the
first quarter of 2000. Our ILEC and CLEC operations (telecommunications and ELI
operations) accounted for $349.1 million and $282.4 million of first quarter
2001 and 2000 revenue, respectively. Our gas operations accounted for
$220.5 million and $113.1 million of the first quarter 2001 and 2000 revenue,
respectively. Our electric operations accounted for $54.7 million and
$53.2 million of the first quarter 2001 and 2000 revenue, respectively.
S-5
Our first quarter 2001 adjusted EBITDA (operating income plus depreciation
and amortization) from continuing operations totaled $193.6 million, a 44%
increase over first quarter 2000 adjusted EBITDA of $134.7 million. The current
and year-ago quarters include $153.1 million and $95.5 million in adjusted
EBITDA, respectively, from our telecommunications and ELI operations. The first
quarter 2001 and first quarter 2000 also include $28.8 million and
$24.5 million in adjusted EBITDA, respectively, from our gas operations and
$11.7 million and $14.7 million, respectively, in adjusted EBITDA from our
electric operations.
See "Where You Can Find More Information" in the accompanying prospectus and
"Incorporation of Documents by Reference" in this prospectus supplement and the
accompanying prospectus.
S-6
THE OFFERING
Securities Offered........................... 21,875,000 shares of common stock (25,156,250
shares if the underwriters exercise their
over-allotment option in full).
Use of Proceeds.............................. The net proceeds we receive for the sale of
the common stock, together with the net
proceeds from our concurrent offering of
equity units, after payment of estimated
offering expenses, will be approximately
$638.1 million (without regard to the
exercise of any over-allotment option). We
plan to use the net proceeds from the sale of
the common stock and, if successful, the net
proceeds from our concurrent offering of
equity units to finance our acquisitions and
for general corporate purposes. Until we use
the proceeds of the offerings in this manner,
we may temporarily use them to make
short-term investments. The amount of the
commitment under our existing bank credit
facility will be reduced by the amount of the
net proceeds of this offering and our
concurrent equity unit offering.
S-7
USE OF PROCEEDS
The net proceeds we receive for the sale of the common stock, together with
the net proceeds from our concurrent offering of equity units, after payment of
estimated offering expenses, will be approximately $638.1 million (without
regard to the exercise of any over-allotment option). We plan to use the net
proceeds from the sale of the common stock and, if successful, the net proceeds
from our concurrent offering of equity units to finance our acquisitions and for
general corporate purposes. Until we use the proceeds of the offerings in this
manner, we may temporarily use them to make short-term investments. The amount
of commitment under our existing bank credit facility will be reduced by the
amount of the net proceeds of this offering and our concurrent equity unit
offering.
S-8
CAPITALIZATION
The following table represents our historical cash, short-term investments
and capitalization as of March 31, 2001 and such items: (a) adjusted for our
May 18, 2001 offering of $1.75 billion aggregate principal amount of senior
notes and the use of proceeds thereof; (b) further adjusted for this offering
and our concurrent offering of equity units (assuming the underwriters do not
exercise their over-allotment option in either offering) and (c) on a pro forma
basis to reflect the offerings and the acquisitions, divestitures and remaining
assumed financings described in the footnotes below and elsewhere in this
prospectus supplement and the accompanying prospectus. This table should be read
in conjunction with the Consolidated Selected Financial and Operating Data and
notes and the consolidated financial statements and footnotes included elsewhere
or incorporated by reference in this prospectus supplement and the accompanying
prospectus.
FURTHER ADJUSTED FOR
ADJUSTED THIS OFFERING
FOR THE AND THE
SENIOR CONCURRENT
NOTES EQUITY UNIT
ACTUAL OFFERING(1) OFFERING(2) PRO FORMA(3)
-------- ----------- -------------------- ------------
(UNAUDITED IN MILLIONS)
Cash..................................... $ 28.4 $1,096.6 $1,734.7 $ 30.3(4)
Short-term investments................... 5.6 5.6 5.6 5.6
-------- -------- -------- --------
Total cash and short-term
investments.......................... 34.0 1,102.2 1,740.3 35.9
======== ======== ======== ========
Long-term debt, net of current portion
Senior notes........................... -- 1,750.0 1,750.0 1,750.0
Senior notes (component of Equity
Units)............................... -- -- 400.0 400.0
Debentures............................. 850.0 850.0 850.0 850.0
Industrial development revenue bonds... 385.5 385.5 385.5 385.5
Senior unsecured notes................. 361.0 361.0 361.0 361.0
Citizens' bank credit facility......... 650.0 -- -- 1,300.0(4)
ELI bank credit facility............... 400.0 400.0 400.0 400.0
Rural Utilities Service Loan
Contracts............................ 85.6 85.6 85.6 85.6
Other long-term debt and capital
leases............................... 103.0 103.0 103.0 219.1(5)
Commercial paper notes payable......... 146.4 146.4 146.4 146.4
-------- -------- -------- --------
Total long-term debt................. 2,981.5 4,081.5 4,481.5 5,897.6
-------- -------- -------- --------
Equity forward contracts................. 150.0 150.0 150.0 150.0
-------- -------- -------- --------
Company Obligated Mandatorily Redeemable
Convertible Preferred Securities....... 201.3 201.3 201.3 201.3
-------- -------- -------- --------
Shareholders' equity
Common stock........................... 66.6 66.6 72.1 72.1
Additional paid-in capital............. 1,482.0 1,482.0 1,731.9 2,206.9(4)
Retained earnings...................... 252.9 252.9 252.9 657.5(6)
Accumulated other comprehensive income
(loss)............................... (19.2) (19.2) (19.2) (19.2)
Treasury stock......................... (52.0) (52.0) (52.0) (52.0)
-------- -------- -------- --------
Total shareholders' equity........... 1,730.3 1,730.3 1,985.7 2,865.3
======== ======== ======== ========
Total capitalization................. $5,063.1 $6,163.1 $6,818.5 $9,114.2
======== ======== ======== ========
------------------------
(1) Reflects the proceeds of the May 18, 2001 senior notes offering totalling
$1.75 billion. These notes were offered in two maturities: $700.0 million
due May 2006 and $1.05 billion due May 2011. Adjusted for the senior notes
offering, cash is assumed to increase by $1,068.2 million representing the
net proceeds of $1,718.2 million (after deducting estimated offering
expenses $31.8 million) net of the repayment of amounts outstanding under
Citizens' bank credit facility of $650.0 million.
S-9
(2) Reflects the gross proceeds of this offering and the concurrent offering of
equity units totaling $664.7 million. Cash is assumed to increase by
$638.1 million (after deducting estimated offering expenses of
$26.6 million). Senior notes increased by $400.0 million for the amount of
the note component of the concurrent offering of equity units (which
includes debt discount of $4.3 million representing the value of the warrant
component). Common stock increased by $5.5 million representing the number
of shares of common stock issued in this offering (21.9 million shares)
times the par value per share ($.25). Additional paid-in capital increased
by $4.3 million for the value of the warrant component of the concurrent
offering of equity units plus $245.6 million representing the gross proceeds
of this offering of $264.7 million less the par value of the common stock of
$5.5 million and estimated expenses of $13.6 million.
(3) Reflects estimated cash, short-term investments and capitalization of
Citizens following the total proposed acquisition financings and the
proposed acquisitions totaling $5,334.8 million for the purchase of all
remaining telephone access lines including the Verizon Arizona and
California access lines; the Qwest Arizona, Colorado, Idaho/Washington,
Iowa, Minnesota, Montana, Nebraska and Wyoming access lines; and the
Frontier Incumbent Local Exchange businesses.
(4) The purchase price for the proposed acquisitions is assumed to have been
financed at March 31, 2001 with the proceeds from the sales of our public
utilities services properties and the issuance of debt and equity. The
following represents the total assumed financings of the proposed
acquisitions:
($ IN MILLIONS)
---------------
Estimated after-tax proceeds from sales of public utilities
services properties....................................... $1,855.4
Proceeds from the May 18, 2001 senior notes offering after
estimated offering expenses and repayment of Citizens'
bank credit facility...................................... 1,068.2
Estimated proceeds from this offering and the concurrent
offering of equity units after estimated offering
expenses.................................................. 638.1
Additional long-term borrowings............................. 1,300.0
Issuance of additional equity............................... 475.0
Purchase of remaining acquisitions.......................... (5,334.8)
--------
Increase to cash............................................ $ 1.9
========
To the extent the proceeds from the sale of our public utilities
services properties are $100.0 million (pre-tax) greater than the amount
assumed above, the difference would result in our having to issue
$61.4 million less in debt or equity. We may obtain a portion of our future
long-term borrowings and issuances of additional equity through one or more
joint venture entities.
(5) The increase in other long-term debt represents $116.1 million of Frontier
debt to be assumed in the Frontier acquisition based on Frontier's long-term
debt as of December 31, 2000 (the latest date such information is
available).
(6) The proposed acquisitions are assumed to have been partially financed with
anticipated net cash proceeds from the sales of our public utilities
services properties, net of estimated income taxes on the assumed gain
related thereto. For pro forma presentation purposes, cash proceeds from
these dispositions are assumed to be the contract prices for those
properties for which we have reached an agreement with a buyer and signed a
definitive contract to sell, and the net book values for those properties
not yet under contract. Such net cash proceeds are assumed to aggregate
$1,855.4 million. This results in an addition to retained earnings of
$404.6 million reflecting the estimated net book gain on the sale of these
properties based on their carrying values at March 31, 2001. All long-term
financing of our public utilities properties, $134.4 million as of
March 31, 2001, was assumed to be transferred to the purchasers of such
properties and is not reflected as long-term debt in the capitalization
table above. In certain cases, we may remain contingently liable for certain
liabilities assumed by the relevant purchasers.
S-10
CITIZENS COMMUNICATIONS COMPANY
CONSOLIDATED SELECTED FINANCIAL AND OPERATING DATA
The following tables contain consolidated selected financial data of
Citizens as of the dates and for the periods indicated. Historical financial
data for the years ended December 31, 1998, 1999 and 2000 have been derived from
our audited financial statements. The unaudited pro forma financial information
has been prepared to illustrate the effects of the acquisitions and divestitures
described elsewhere as if the acquisitions had been completed as of
December 31, 2000 for the pro forma balance sheet or at the beginning of the
periods presented for the pro forma statements of operations. The unaudited pro
forma financial information does not reflect any joint venture we may enter into
as a financing vehicle. If we enter into a joint venture, we expect our
financial condition and results will materially differ from the results
indicated by the pro forma financial information.
The following data should be read together with the section under the
headings "Capitalization" and "Pro Forma Combined Financial Statements." For
copies of the financial data we incorporate by reference, see "Where You Can
Find More Information."
S-11
CONSOLIDATED FINANCIAL DATA
QUARTER ENDED PRO FORMA YEAR
YEAR ENDED DECEMBER 31, MARCH 31, ENDED
-------------------------------- -------------------------- DECEMBER 31,
1998 1999 2000 2000 2001 2000
-------- -------- ---------- ---------- ---------- --------------
($ IN MILLIONS, EXCEPT PER-SHARE AND OTHER FINANCIAL AND
OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Continuing Operations:(1)
Revenue..................... $1,448.6 $1,598.2 $ 1,802.3 $ 448.7 $ 624.3 $ 2,464.2
Operating expenses:
Cost of services and other
operating expenses........ 1,052.1 1,213.8 1,253.0 310.0 425.2 1,361.5
Depreciation and
amortization.............. 245.5 310.2 387.6 96.0 105.7 900.0
Acquisition assimilation
expenses.................. -- 3.9 39.9 4.0 5.5 --
-------- -------- ---------- ---------- ---------- ----------
Total operating expenses.... 1,297.6 1,527.9 1,680.5 410.0 536.4 2,261.5
-------- -------- ---------- ---------- ---------- ----------
Operating income (loss)..... 151.0 70.3 121.8 38.7 87.9 202.7
Investment and other income,
net(2).................... 6.1 243.9 3.4 5.6 2.8 58.4
Minority interest........... 14.0 23.2 12.2 6.3 -- 12.2
Interest expense............ 101.8 119.7 187.4 37.6 61.5 445.3
Income tax expense
(benefit)................. 16.7 74.9 (16.1) 4.8 9.0 (12.8)
Dividends on convertible
preferred securities, net
of income tax benefit..... 6.2 6.2 6.2 1.6 1.6 6.2
-------- -------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations..... 46.4 136.6 (40.1) 6.6 18.6 (165.4)
Income from discontinued
operations, net of tax.... 13.0 7.9 11.7 0.7 1.1 --
Cumulative effect of change
in accounting principle,
net of income tax and
related minority
interest.................. (2.3) -- -- -- -- --
-------- -------- ---------- ---------- ---------- ----------
Net income (loss)........... $ 57.1 $ 144.5 $ (28.4) $ 7.3 $ 19.7 $ (165.4)
======== ======== ========== ========== ========== ==========
SELECTED CASH FLOW SUMMARY
DATA:
Net cash provided by
continuing operating
activities................ $ 249.9 $ 370.3 $ 308.1 $ 113.3 $ 152.8 --
Net cash used for investing
activities................ (531.1) (552.9) (1,273.6) (157.6) (79.5) --
Net cash provided by (used
for) financing
activities................ 307.7 192.0 1,017.4 43.3 (71.4) --
S-12
QUARTER ENDED PRO FORMA YEAR
YEAR ENDED DECEMBER 31, MARCH 31, ENDED
-------------------------------- -------------------------- DECEMBER 31,
1998 1999 2000 2000 2001 2000
-------- -------- ---------- ---------- ---------- --------------
($ IN MILLIONS, EXCEPT PER-SHARE AND OTHER FINANCIAL AND
OPERATING DATA)
ADJUSTED EBITDA AND CAPITAL
EXPENDITURE DATA(3):
Adjusted EBITDA from
continuing operations....... $ 396.4 $ 380.5 $ 509.4 $ 134.7 $ 193.6 $ 1,102.7
Adjusted EBITDA from
discontinued operations..... 39.6 36.2 45.6 8.0 8.7 --
-------- -------- ---------- ---------- ---------- ----------
Total Company Adjusted
EBITDA...................... 436.0 416.7 555.0 142.7 202.3 1,102.7
-------- -------- ---------- ---------- ---------- ----------
Adjusted EBITDA from
continuing operations
excluding acquisition
assimilation expenses....... 396.4 384.5 549.3 138.7 199.1 1,102.7
-------- -------- ---------- ---------- ---------- ----------
Capital expenditures from
continuing operations....... 426.6 419.2 463.9 133.2 96.9 --
Capital expenditures from
assets held for sale........ 64.6 110.5 80.9 17.0 17.1 --
Capital expenditures from
discontinued operations..... 30.8 25.4 73.5 11.8 10.0 --
-------- -------- ---------- ---------- ---------- ----------
Total Company capital
expenditures................ 522.0 555.1 618.3 162.0 124.0 --
-------- -------- ---------- ---------- ---------- ----------
OTHER FINANCIAL DATA:
Consolidated ratio of
earnings(4) to fixed
charges(5).................. 1.28 2.22 .62 1.40 1.05 --
Consolidated ratio of earnings
to combined fixed charges
and preferred dividends..... 1.26 2.14 .64 1.39 1.05 --
BALANCE SHEET DATA (AS OF
DECEMBER 31, OR MARCH 31):
Cash and investments.......... $ 496.1 $ 628.5 $ 284.4 $ 590.6 $ 215.9 --
Net plant (continuing
operations)................. 2,705.1 2,888.7 3,509.8 2,947.0 3,498.7 --
Assets held for sale.......... 1,033.2 1,060.7 1,212.3 1,064.6 1,222.8 --
Assets of discontinued
operations.................. 598.4 595.7 673.5 587.7 674.0 --
Total assets.................. 5,292.9 5,771.7 6,955.0 5,758.5 6,811.7 --
Long-term debt (continuing
operations)................. 1,775.3 2,107.5 3,062.3 2,193.5 2,981.5 --
Shareholders' equity.......... 1,792.8 1,919.9 1,720.0 1,869.5 1,730.3 --
OTHER OPERATING DATA:
Access lines (as of
December 31, or
March 31)................... 951,500 996,800 1,371,200 1,007,250 1,387,293 3,071,400
Switched access minutes of use
(in millions)............... 4,526 5,224 5,755 1,323 1,811 N/A
------------------------
(1) Consists of our ILEC services segment, Electric Lightwave, Inc., our CLEC
services segment, and our natural gas and electric businesses. The natural
gas and electric businesses are presented in continuing operations in
selected income statement data and as assets held for sale in the balance
sheet data. We are reporting our water and wastewater businesses as
discontinued operations. All prior years have been restated to conform to
current presentation. Continuing operations reflect the elimination of
intercompany transactions.
S-13
(2) 1999 includes a gain of $69.5 million ($42.9 million net of tax) on the sale
of Centennial Cellular stock, a gain of $67.6 million ($41.7 million net of
tax) on the disposition of Century Communications Corp. ("Century") stock
and a gain of $83.9 million ($51.8 million net of tax) on the disposition of
an interest in a cable joint venture.
(3) Adjusted EBITDA is defined as operating income plus depreciation and
amortization.
(4) Earnings consist of income (loss) before income taxes plus fixed charges.
(5) Fixed charges consist of interest charges and an amount representing the
interest factor included in rentals (generally assumed to be one-third) and
preference security dividend requirements. Excluding the 1999 pre-tax
non-operating gains, described in Note 2, the ratio of earnings to fixed
charges for 1999 is 0.67 and the ratio of earnings to combined fixed charges
and preferred dividends for 1999 is 0.69.
SELECTED SECTOR FINANCIAL AND OPERATING DATA
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
($ IN MILLIONS, EXCEPT OPERATING DATA)
ILEC SERVICES SEGMENT
Total revenue.................................... $835.0 $903.2 $ 963.7 $ 226.3 $ 287.3
Adjusted EBITDA(1)............................... 336.2 327.1 434.1 102.0 149.0
Operating income................................. 154.5 100.9 157.9 32.0 62.7
Capital expenditures............................. 201.5 227.2 350.2 107.9 76.6
Access lines (as of December 31,
or March 31, in thousands)..................... 951.5 996.8 1,371.2 1,007.3 1,387.3
Switched access minutes of use (in millions)..... 4,526 5,224 5,755 1,323.0 1,811.0
ELECTRIC LIGHTWAVE, INC.(2)
Total revenue.................................... $100.9 $187.0 $ 244.0 $ 56.8 $ 62.6
Adjusted EBITDA(1)............................... (56.8) (57.6) 1.8 (6.7) 3.3
Operating loss................................... (73.8) (94.1) (59.9) (19.4) (15.6)
Capital expenditures(3).......................... 200.0 185.4 112.3 25.4 20.3
Route miles (as of December 31,
or March 31, in thousands)..................... 3.1 4.1 5.9 5.9 5.9
Fiber miles (as of December 31,
or March 31, in thousands)..................... 181.4 214.9 297.3 293.7 296.2
GAS SEGMENT
Total revenue.................................... $325.4 $307.0 $ 374.8 $ 113.1 $ 220.5
Adjusted EBITDA(1)............................... 66.3 54.2 27.5 24.5 28.8
Operating income................................. 42.2 32.0 8.3 18.1 28.6
Capital expenditures............................. 45.8 67.0 51.5 7.8 7.4
ELECTRIC SEGMENT
Total revenue.................................... $190.3 $203.8 $ 223.1 $ 53.2 $ 54.7
Adjusted EBITDA(1)............................... 49.8 55.8 43.9 14.7 11.7
Operating income................................. 27.1 30.3 15.2 7.9 11.7
Capital expenditures............................. 18.9 43.5 29.5 9.2 9.6
------------------------
(1) Adjusted EBITDA is defined as operating income plus depreciation and
amortization.
(2) Electric Lightwave, Inc. (ELI) is our 85%-owned publicly traded subsidiary.
This information is presented as-reported for ELI and does not reflect the
elimination of intercompany transactions.
(3) Excludes capitalized leases.
S-14
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock trades on The New York Stock Exchange under the symbol
"CZN." The reported last sale price of our common stock on June 13, 2001 on The
New York Stock Exchange was $12.10 per common share. The following table sets
forth the quarterly high and low sales prices for our common stock as reported
by The New York Stock Exchange for the periods indicated.
STOCK PRICES
-------------------
HIGH LOW
-------- --------
FISCAL YEAR 1999:
First Quarter............................................. $8.50 $7.25
Second Quarter............................................ 11.50 7.69
Third Quarter............................................. 12.44 10.88
Fourth Quarter............................................ 14.31 10.94
FISCAL YEAR 2000:
First Quarter............................................. 17.06 13.75
Second Quarter............................................ 18.00 14.31
Third Quarter............................................. 19.00 13.00
Fourth Quarter............................................ 15.31 12.50
FISCAL YEAR 2001:
First Quarter............................................. 15.88 12.05
Second Quarter (through June 13, 2001).................... 15.00 11.28
The amount and timing of dividends payable on our common stock are within
the sole discretion of our Board of Directors. Our Board of Directors
discontinued the payment of dividends after the payment of the December 1998
stock dividend.
S-15
CERTAIN MATERIAL U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following summary describes certain material United States federal
income and estate tax consequences of the ownership and disposition of common
stock by a Non-U.S. Holder (as defined below) as of the date hereof. This
discussion does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state and local consequences that
may be relevant to such Non-U.S. Holders in light of their personal
circumstances. Special rules may apply to certain Non-U.S. Holders, such as
"controlled foreign corporations", "passive foreign investment companies",
"foreign personal holding companies", corporations that accumulate earnings to
avoid U.S. federal income tax, and certain former citizens or long-term
residents of the United States, that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the U.S.
federal, state, local and other tax consequences that may be relevant to them.
Furthermore, the discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in United States federal income
tax consequences different from those discussed below.
If a partnership holds the common stock, the tax treatment of a partner will
generally depend on the status of the partner and the activities of the
partnership. Persons who are partners in partnerships holding the common stock
should consult their tax advisors.
The authorities on which this summary is based are subject to various
interpretations, and any views expressed within this summary are not binding on
the Internal Revenue Service (which we refer to as the "IRS") or the courts.
Either the IRS or the courts could disagree with the explanations or conclusions
contained in this summary. No assurance can be given that the IRS or the courts
will agree with the tax consequences described herein. You should consult your
own tax advisor regarding the tax consequences to you of the purchase, ownership
and disposition of the common stock, including the tax consequences under state,
local, foreign and other tax laws.
As used herein, a "U.S. Holder" of common stock means a holder that is
(i) a citizen or resident of the United States, (ii) a corporation or other
entity, treated, for purposes of U.S. taxation, as a corporation, created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to United States federal
income taxation regardless of its source or (iv) a trust (X) which is subject to
primary supervision by a court situated within the United States and as to which
one or more United States persons have the authority to control all substantial
decisions of the trust, as described in section 7701(a)(30) of the Code or
(Y) that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a United States person. A "Non-U.S. Holder" is a
holder that is not a U.S. Holder.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. However,
dividends that are effectively connected with the conduct of a trade or business
by the Non-U.S. Holder within the United States and, where a tax treaty applies,
are attributable to a United States permanent establishment of the Non-U.S.
Holder, are not subject to the withholding tax, but instead are subject to
United States federal income tax on a net income basis at applicable graduated
individual or corporate rates. Certain certification and disclosure requirements
must be complied with in order for effectively connected income to be exempt
from withholding. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
A Non-U.S. Holder of common stock who wishes to claim the benefit of an
applicable treaty rate (and avoid back-up withholding as discussed below) for
dividends, will be required to (a) complete IRS
S-16
Form W-8BEN (or appropriate substitute form) and certify under penalty of
perjury, that such holder is not a U.S. person or (b) hold common stock through
certain foreign intermediaries or certain foreign partnerships, and satisfy the
certification requirements of applicable Treasury regulations. Special
certification requirements apply to certain Non-U.S. Holders that are
"pass-through" entities rather than individuals.
A Non-U.S. Holder of common stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
common stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, and, where a tax treaty
applies, is attributable to a United States permanent establishment of the
Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the common stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale or other disposition
and certain other conditions are met, or (iii) Citizens is or has been a "U.S.
real property holding corporation" for United States federal income tax
purposes.
An individual Non-U.S. Holder described in clause (i) above will be subject
to tax on the net gain derived from the sale under regular graduated United
States federal income tax rates. An individual Non-U.S. Holder described in
clause (ii) above will be subject to a flat 30% tax on the gain derived from the
sale, which may be offset by United States source capital losses (even though
the individual is not considered a resident of the United States). If a Non-U.S.
Holder that is a foreign corporation falls under clause (i) above, it will be
subject to tax on its gain under regular graduated United States federal income
tax rates and, in addition, may be subject to the branch profits tax equal to
30% of its effectively connected earnings and profits or at such lower rate as
may be specified by an applicable income tax treaty.
Citizens has not determined whether it is a "U.S. real property holding
corporation" for U.S. federal income tax purposes. If Citizens is or becomes a
"U.S. real property holding corporation," so long as the common stock continues
to be regularly traded on an established securities market, only a Non-U.S.
Holder who holds or held directly, indirectly, or by application of prescribed
stock attribution rules (at any time during the shorter of the five year period
preceding the date of disposition or the holder's holding period) more than five
percent of the common stock will be subject to U.S. federal income tax on the
disposition of the common stock.
FEDERAL ESTATE TAX
Common stock held by an individual Non-U.S. Holder at the time of death will
be included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Citizens must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
The United States imposes a backup withholding tax on dividends and certain
other types of payments to United States persons at a rate of 31% of the gross
amount. A Non-U.S. Holder will not
S-17
be subject to backup withholding tax on dividends which such holder receives on
its shares of common stock if proper certification (usually on an IRS
Form W-8BEN) of foreign status is provided or the holder is a corporation or one
of several types of entities and organizations that qualify for exemption (an
"exempt recipient").
Information reporting and backup withholding generally are not required with
respect to the amount of any proceeds from the sale of shares of common stock by
a Non-U.S. Holder outside the United States through a foreign office of a
foreign broker that does not have certain specified connections to the United
States. However, if a Non-U.S. Holder sells shares of common stock through a
United States broker or the United States office of a foreign broker, the broker
will be required to report the amount of proceeds paid to such holder to the IRS
and also backup withhold at a rate of 31% of that amount unless appropriate
certification (usually on an IRS Form W-8BEN) is provided to the broker of the
holder's status as a non-United States person or the holder is an exempt
recipient. Information reporting (and backup withholding if the appropriate
certification is not provided) also apply if a Non-U.S. Holder sells its shares
of common stock through a foreign broker deriving more than a specified
percentage of its income from United States sources or having certain other
connections to the United States.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
S-18
INCORPORATION OF DOCUMENTS BY REFERENCE
Some of the information that you may want to consider in deciding whether to
purchase shares of common stock is not included in this prospectus supplement
but rather is incorporated by reference to specific reports that we have filed
with the SEC. This allows us to disclose important information to you by
referring you to those documents rather than repeating them in full in this
prospectus supplement or the accompanying prospectus. The information
incorporated by reference in this prospectus supplement contains important
business and financial information. In addition, information that we file with
the SEC after the date of this prospectus supplement automatically updates and
supersedes the information contained in this prospectus supplement and
incorporated filings. We have previously filed the following documents with the
SEC (File No. 001-11001) and are incorporating them by reference into this
prospectus supplement:
- Quarterly Report on Form 10-Q for the three-month period ended March 31,
2001 of Citizens Communications Company filed with the SEC on May 10,
2001;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on May 10, 2001 in respect of our earnings announcement for the
quarter ended May 31, 2001;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on May 16, 2001 in respect of our offering of up to $1,000 million
in senior unsecured debt;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on May 24, 2001 in respect of our May 18, 2001 issuance of
$1,750 million in aggregate principal amount of notes;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on June 4, 2001 in respect of the announcement of this offering
and the concurrent offering of our equity units; and
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on June 12, 2001.
We also incorporate by reference all documents subsequently filed by us
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus supplement until our offering is completed.
In addition, you should refer to the section entitled "Incorporation of
Documents by Reference" in the accompanying prospectus for a list of documents
previously incorporated by reference into the prospectus.
We will provide you, upon written or oral request, with a copy of any of
these documents, at no cost. You should direct your request, either in writing
or by telephone, to
Citizens Communications Company
3 High Ridge Park, Stamford, Connecticut 06905
Attn.: Office of the Secretary
Telephone 203-614-5600
S-19
UNDERWRITERS
Under the terms and subject to the conditions set forth in the underwriting
agreement dated June 13, 2001, the underwriters named below have severally
agreed to purchase and we have agreed to sell them, severally, the respective
shares of common stock set forth opposite the name of each underwriter. J.P.
Morgan Securities Inc. and Morgan Stanley & Co. Incorporated are acting as
representatives of the underwriters in the offering of the common stock.
NAME NUMBER OF SHARES
---- ----------------
J.P. Morgan Securities Inc. ................................ 4,630,938
Morgan Stanley & Co. Incorporated........................... 4,630,938
Banc of America Securities LLC.............................. 4,630,937
Salomon Smith Barney Inc. .................................. 4,630,937
Lehman Brothers Inc......................................... 1,155,000
The Buckingham Research Group Incorporated.................. 231,875
Dain Rauscher Incorporated.................................. 288,750
Legg Mason Wood Walker, Incorporated........................ 231,875
Mizuho International plc.................................... 288,750
Robertson Stephens, Inc..................................... 577,500
TD Securities (USA) Inc..................................... 577,500
-----------
Total................................................... 21,875,000
===========
The underwriting agreement provides that the obligation of the underwriters
to pay for and accept delivery of the shares of common stock are subject to,
among other things, the approval of certain legal matters by their counsel and
certain other conditions. The underwriters are obligated to take and pay for all
the shares of common stock if any are taken.
The underwriters propose initially to offer part of the common stock to the
public at the public offering price set forth on the cover page hereof and in
part to certain dealers at a price that represents a concession not in excess of
$0.36. After the initial offering of the common stock, the offering price and
other selling terms may from time to time be varied by the underwriters.
Citizens has agreed that, without the prior written consent of J.P. Morgan
Securities Inc. and Morgan Stanley & Co. Incorporated, on behalf of the
underwriters, it will not, during the period ending 90 days after the date of
this prospectus supplement:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of directly
or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of Citizens
common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of shares
of Citizens common stock;
whether any transaction described above is to be settled by delivery of Citizens
common stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to, among other things:
- the sale of shares of common stock to the underwriters;
- the issuance of equity units in Citizens' anticipated concurrent equity
units offering;
- the issuance by Citizens of shares of common stock upon the exercise of an
option outstanding on the date of this prospectus supplement or with
respect to awards under Citizens executive stock incentive plan
outstanding on the date of this prospectus supplement;
- the grant of options or awards pursuant to Citizens employee benefit
plans, provided that such options or awards do not vest prior to the
termination of the lock-up period; or
S-20
- the issuance of shares of our common stock or securities convertible into
or exchangeable or exercisable for any shares of our common stock by us in
a private sale in which each recipient of such securities agrees to be
bound by the same restrictions as those described in the following
paragraph.
Our executive officers and directors have agreed that, for a period of
90 days after the date of this prospectus supplement, they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction that
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our common stock, whether any of these transactions is to be
settled by delivery of our common stock or other securities, in cash or
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of J.P.
Morgan Securities Inc. and Morgan Stanley & Co. Incorporated.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with this offering, creating short positions in the common stock for
their own accounts. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for and purchase, common
stock in the open market. Finally, the underwriters may reclaim selling
concessions allowed to an underwriter or dealer for distributing common stock in
this offering, if the underwriters repurchase previously distributed common
stock in transactions that cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.
Concurrently with this offering, we are also offering an aggregate of
$400.0 million of equity units (or $460.0 million if the underwriters exercise
their over-allotment option in full) for which the underwriters of this offering
are also acting as underwriters under a separate underwriting agreement. The two
offerings are not conditioned on each other.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
The underwriters or their affiliates have provided and may in the future
continue to provide investment banking and other financial services, including
the provision of credit facilities, for us in the ordinary course of business.
LEGAL MATTERS
Certain legal matters with respect to the common stock will be passed upon
for Citizens by Winston & Strawn, New York, New York and by Simpson Thacher &
Bartlett, New York, New York for the underwriters.
S-21
PRO FORMA COMBINED FINANCIAL STATEMENTS
From May 27, 1999 through July 12, 2000, we entered into several agreements
to acquire approximately 2.0 million telephone access lines (as of December 31,
2000) for approximately $6,471.0 million in cash which was subsequently reduced
to $6,321.0 million. These transactions have been and will be accounted for
using the purchase method of accounting. The results of operations of the
acquired properties have been and will be included in our financial statements
from the dates of acquisition of each property. These agreements and the status
of each transaction are described as follows:
VERIZON (GTE) ACQUISITION
On May 27, September 21, and December 16, 1999, we announced definitive
agreements to purchase from Verizon Communications Inc., formerly GTE Corp.
(Verizon), approximately 381,200 telephone access lines (as of December 31,
2000) in Arizona, California, Illinois/Wisconsin, Minnesota and Nebraska for
approximately $1,171.0 million in cash. On June 30, 2000, we closed on the
Nebraska purchase of approximately 62,200 access lines for approximately
$205.4 million in cash. On August 31, 2000, we closed on the Minnesota purchase
of approximately 142,400 access lines for approximately $438.9 million in cash.
On November 30, 2000, we closed on the Illinois/Wisconsin purchase of
approximately 112,900 access lines for approximately $303.9 million in cash. We
expect that the remainder of the Verizon transactions which are subject to
various state and federal regulatory approvals will close on a state-by-state
basis in 2001. Our expected cash requirement to complete the Verizon
acquisitions is $222.8 million in 2001.
QWEST ACQUISITION
On June 16, 1999, we announced a series of definitive agreements to purchase
from Qwest Communications, formerly U S WEST (Qwest), approximately 556,800
telephone access lines (as of December 31, 2000) in Arizona, Colorado,
Idaho/Washington, Iowa, Minnesota, Montana, Nebraska, North Dakota and Wyoming
for approximately $1,650.0 million in cash and the assumption of certain
liabilities. On October 31, 2000, we closed on the North Dakota purchase of
approximately 17,000 access lines for approximately $38.0 million in cash. The
remainder of the Qwest acquisitions, covering 539,800 access lines, are subject
to the satisfaction of certain closing conditions, including, without
limitation, financial representations and warranties and the receipt of
governmental consents. We have already received all required state regulatory
approvals other than from Minnesota. Subject to satisfaction of the required
closing conditions, we anticipate closing the acquisitions on a state-by-state
basis. We cannot assure you that all required closing conditions will be
satisfied. We are currently in discussions with Qwest relating to the
satisfaction of closing conditions. We do not believe that the failure to close
any or all of the remaining Qwest acquisitions will have a material adverse
effect on us, including our ability to implement our telecommunications
strategies.
GLOBAL CROSSING ACQUISITION
On July 12, 2000, we announced a definitive agreement to purchase from
Global Crossing Ltd. (Global) 100% of the stock of the Frontier Incumbent Local
Exchange Carrier business, which owns approximately 1.1 million telephone access
lines (as of December 31, 2000) in Alabama/Florida, Georgia, Illinois, Indiana,
Iowa, Michigan, Minnesota, Mississippi, New York, Pennsylvania and Wisconsin,
for approximately $3,650.0 million in cash which price was later reduced to
$3,500.0 million. We have received approval for the proposed purchase from the
Federal Communications Commission and all other state Public Service Commissions
with the exception of Minnesota. Subject to the timely receipt of the Minnesota
regulatory approval, we expect that this transaction will be completed and paid
for in full by the end of June 2001.
P-1
The GTE Acquisitions, the Qwest Acquisitions and the Frontier Acquisition
are collectively referred to as the Acquisitions. The following unaudited pro
forma condensed combined financial information of Citizens Communications
Company and the Acquisitions, which are referred to as "Pro Forma Citizens
Communications Company," has been prepared to illustrate the effects of the
Acquisitions and related financing (including the sale of the water, gas and
electric properties) had the Acquisitions been completed as of December 31, 2000
for the pro forma balance sheet and at the beginning of the year for the pro
forma statement of operations. The Frontier Acquisition on the pro forma balance
sheet represents the balance sheet of the Frontier Acquisition as of
December 31, 2000. The GTE and Qwest Acquisitions on the pro forma balance sheet
represent the assets to be acquired from GTE and Qwest as of December 31, 2000,
including our preliminary allocation of purchase price. The amount in
shareholders' equity represents the net assets acquired. As stated in the notes
to the financial statements of the Qwest Acquisition, corporate overhead
expenses are not included in the statement of revenue and expenses.
We have prepared the pro forma financial information using the purchase
method of accounting. We expect that we will continue to have increased expenses
until all acquisitions are fully integrated. We expect to achieve economies of
scale with the acquired properties that will both expedite our ability to
provide an expanded menu of telecommunications services and make those services
incrementally more profitable but can provide no assurance that such economies
will be realized. 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 reflects the increased expenses to the extent
they have been incurred in the periods presented, but does not reflect economies
of scale.
Certain of 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. We do not expect to account for the assets acquired in the
Acquisitions under SFAS 71; as a result, the pro forma financial information
does not present the Acquisitions completed and to be completed as if they were
accounted for under SFAS 71 pending the outcome of our evaluation.
The pro forma information, presented in this prospectus supplement with
regard to our pending acquisitions, 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
at the beginning of the year. If the companies had actually been combined at the
beginning of the year, 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 Acquisitions had
taken place earlier or the future results that the companies will experience
after completion of these transactions. The unaudited pro forma information does
not reflect the impact of any joint venture we may enter into as a financing
vehicle. If we enter into a joint venture, we expect our results and financial
condition would materially differ from our pro forma results.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements of the Acquisitions
included herein and in the Current Reports on Form 8-K filed by us on
November 14, 2000, March 29, 2001 and May 7, 2001 and the historical financial
statements of Citizens Communications Company.
P-2
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
PRO FORMA BALANCE SHEET DATA
AS OF DECEMBER 31, 2000
(UNAUDITED)
PRO FORMA
GTE AND ----------------------------
CITIZENS FRONTIER QWEST
COMMUNICATIONS ACQUISITION ACQUISITIONS ADJUSTMENTS ADJUSTED
-------------- ----------- ------------ ----------- -----------
(AMOUNTS IN THOUSANDS)
ASSETS
Cash...................................... $ 31,223 $ 41,550 $ -- $ 1,855,406 (1) $ 92,479
(1,835,700)(2)
Accounts receivable, net.................. 243,304 1,524,682 (1,411,727)(2) 356,259
Short-term investments.................... 38,863 -- -- 38,863
Other..................................... 63,490 41,766 -- 105,256
Assets held for sale...................... 1,212,307 -- (1,212,307)(1) --
Assets of discontinued operations......... 673,515 -- (673,515)(1) --
---------- ---------- ---------- ----------- -----------
Total current assets.................. 2,262,702 1,607,998 -- (3,277,843) 592,857
Net property, plant & equipment........... 3,509,767 1,052,745 605,171 5,167,683
Excess cost over net assets acquired...... 633,268 1,521,250 1,230,529 1,223,500 (2) 4,608,547
Investments............................... 214,359 -- -- 214,359
Regulatory assets......................... 175,949 -- -- 175,949
Deferred debits and other assets.......... 158,961 65,641 (46,932)(2) 177,670
---------- ---------- ---------- ----------- -----------
Total assets.......................... $6,955,006 $4,247,634 $1,835,700 $(2,101,275) $10,937,065
========== ========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt due within one year........ $ 181,014 $ 3,142 $ -- $ -- $ 184,156
Accounts payable and other current
liabilities............................. 330,383 1,294,303 (1,139,831)(2) 484,855
Liabilities related to assets held for
sale.................................... 290,575 -- (290,575)(1) --
Liabilities of discontinued operations.... 190,496 -- (190,496)(1) --
---------- ---------- ---------- ----------- -----------
Total current liabilities............. 992,468 1,297,445 (1,620,902) 669,011
Deferred income taxes..................... 490,487 120,124 -- 610,611
Customer advances for construction
and contributions in aid of
construction............................ 205,604 -- -- 205,604
Deferred credits and other liabilities.... 108,321 148,232 (29,552)(2) 227,001
Regulatory liabilities.................... 24,573 -- -- 24,573
Long-term debt............................ 3,062,289 116,057 2,400,000 (2) 5,578,346
---------- ---------- ---------- ----------- -----------
Total liabilities..................... 4,883,742 1,681,858 -- 749,546 7,315,146
Equity forward contracts.................. 150,013 150,013
Company Obligated Mandatorily
Redeemable Convertible Preferred
Securities *............................ 201,250 -- -- 201,250
Shareholders' equity...................... 1,720,001 2,565,776 1,835,700 450,655 (1) 3,270,656
(4,401,476)(2)
1,100,000 (2)
---------- ---------- ---------- ----------- -----------
Total liabilities and shareholders'
equity................................ $6,955,006 $4,247,634 $1,835,700 $(2,101,275) $10,937,065
========== ========== ========== =========== ===========
*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.
See Notes to Pro Forma Combined Financial Statements.
P-3
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
GTE ACQUISITIONS
--------------------
GTE
CITIZENS GTE COMBINED QWEST FRONTIER TOTAL
COMMUNICATIONS MINNESOTA ENTITIES ACQUISTION ACQUISITION ACQUISITIONS
-------------- --------- -------- ---------- ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Revenue................. $1,802,358 $56,962 $121,334 $335,076 $746,302 $1,259,674
Operating expenses...... 1,292,950 23,323 44,188 147,635 370,893 586,039
Depreciation and
amortization.......... 387,607 545 28,712 88,802 200,669 318,728
---------- ------- -------- -------- -------- ----------
Income from
operations............ 121,801 33,094 48,434 98,639 174,740 354,907
Investment and other
income, net........... 3,350 -- -- 23,347 64,583 87,930
Minority interest....... 12,222 -- -- -- -- --
Interest expense........ 187,366 1,686 2,933 -- 24,067 28,686
Income tax expense
(benefit)............. (16,132) 12,687 18,105 45,379 103,417 179,588
Convertible preferred
dividends............. 6,210 -- -- -- -- --
---------- ------- -------- -------- -------- ----------
Income (loss) from
continuing
operations............ $ (40,071) $18,721 $ 27,396 $ 76,607 $111,839 $ 234,563
========== ======= ======== ======== ======== ==========
Weighted average shares
outstanding--Basic.... 261,744
Weighted average shares
outstanding--Diluted... 266,931
Loss from continuing
operations per basic
share................. $ (0.15)
Loss from continuing
operations per diluted
share................. $ (0.15)
ELIMINATION OF GAS PRO FORMA
AND ELECTRIC ----------------------------
OPERATIONS (1) ADJUSTMENTS ADJUSTED
------------------ ----------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Revenue................. $597,823 $ -- $2,464,209
Operating expenses...... 526,472 9,000 (3) 1,361,517
Depreciation and
amortization.......... 47,857 228,953 (4) 899,957
12,526 (5)
-------- ---------- ----------
Income from
operations............ 23,494 (250,479) 202,735
Investment and other
income, net........... 5,073 (27,770)(6) 58,437
Minority interest....... -- -- 12,222
Interest expense........ 36,056 265,339 (7) 445,335
Income tax expense
(benefit)............. (2,417) (178,622)(8) (12,789)
Convertible preferred
dividends............. -- -- 6,210
-------- ---------- ----------
Income (loss) from
continuing
operations............ $ (5,072) $ (364,926) $ (165,362)
======== ========== ==========
Weighted average shares
outstanding--Basic....
Weighted average shares
outstanding--Diluted...
Loss from continuing
operations per basic
share.................
Loss from continuing
operations per diluted
share.................
See Notes to Pro Forma Combined Financial Statements
P-4
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects the effect of the sales of our public utilities services
properties, net of estimated income taxes. For the pro forma balance sheet
data, cash proceeds from these dispositions are assumed to be the contract
price for those properties for which we have reached an agreement with a
buyer and signed a definitive contract to sell, and the net book values for
those properties not yet under contract. Such net cash proceeds are assumed
to aggregate $1,855.4 million. This results in an addition to retained
earnings of $450.7 million at December 31, 2000 reflecting the estimated net
book gain on the sale of these properties. Currently, we have agreements to
sell all our water and wastewater operations, one of our electric operations
and one of our natural gas operations. The proceeds from these agreements
aggregate approximately $1,380.0 million in cash plus the assumption of
certain liabilities. We do not expect any of such properties to be sold at a
loss. For the pro forma income statement data, we have eliminated the
operations of the gas and electric properties as if they had been disposed
of on January 1, 2000. The water operations were classified as discontinued
operations and therefore are not included in Citizens pro forma statement of
operations data.
(2) Represents the acquisition of the stock of the Frontier Acquisition and the
remaining assets to be acquired (as of December 31, 2000) in the GTE and
Qwest Acquisitions. Such acquisitions are assumed to be funded through the
cash proceeds, net of tax, from the assumed sale of the public utilities
services properties, the issuance of long-term debt securities and the
issuance of equity securities. The pro forma condensed financial statements
assume that debt and equity securities would be issued in amounts that
result in a long-term debt to long-term debt and equity ratio of 63%
subsequent to the transactions contemplated herein. The following represents
the adjustment to record the Acquisitions:
(IN THOUSANDS)
--------------
Elimination of historical shareholder's equity of the
Frontier Acquisition and the net equity in assets acquired
and to be acquired of the GTE and Qwest Acquisitions...... $(4,401,476)
Elimination of related party balances of Frontier, net
(a)....................................................... 289,276
Issuance of long-term debt.................................. 2,400,000
Issuance of equity.......................................... 1,100,000
Cash proceeds used from sales of public utilities services
properties................................................ 1,835,700
-----------
$ 1,223,500
===========
(a) The Frontier related party balances are included in accounts receivable,
net, other assets, accounts payable and other liabilities. Upon
acquisition by Citizens, certain related party balances are settled by
Frontier's parent. The remaining amounts, representing a net receivable
of $289.3 million, are assumed by Citizens. All of these related party
balances are eliminated as part of the pro forma adjustments with the
amount assumed by Citizens resulting in an increase to "Excess cost over
net assets acquired."
For purposes of the accompanying pro forma combined financial statements, we
have reflected the acquired assets and the assets to be acquired (including
our estimate of the GTE and Qwest purchase price allocations) at their
historical carrying values and have reflected the excess cost over such
amounts as excess 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 undertake studies to
determine the fair values of assets acquired and allocate the purchase
prices accordingly. We believe that the excess cost over historical net
assets acquired and to be acquired will be allocated to property, plant and
equipment, customer base, other identifiable intangibles and goodwill.
P-5
However, there can be no assurance that the actual allocation will not
differ significantly from the pro forma allocation.
(3) Represents an increase in selling, general and administrative expenses of
the GTE Combined Entities to reverse a pension credit recorded during the
year ended December 31, 2000 that will not continue.
(4) Reflects amortization expense of the excess cost over net assets acquired in
the Acquisitions using the straight-line method over a 15-year period.
Should the allocation of purchase price differ significantly as described in
Note 2, amortization expense could be impacted since the depreciable lives
of assets other than goodwill may be shorter or longer than 15 years.
On September 30, 1999, Global Crossing acquired Frontier Corporation and all
of its subsidiaries (including the LEC businesses that we are acquiring), in
a merger transaction. In accordance with Accounting Principles Board Opinion
No. 16, "Business Combinations," the purchase price was allocated to
Frontier Corporation and its subsidiaries based upon their fair market
values at the date of the acquisition. Frontier was amortizing the
associated goodwill over a 25-year period. Citizens included the full year
2000 amortization of goodwill over a 15-year period.
(5) Represents an adjustment for depreciation expense related to GTE Minnesota
since the GTE historical financial statements did not include depreciation
related to these assets held for sale.
(6) Represents the elimination of a gain reported by the Qwest Acquisition
associated with the sale of their North Dakota properties to Citizens and
the elimination of our investment income related to our bond portfolio sold
during 2000 to partially fund the acquisitions.
(7) Represents pro forma interest expense from the beginning of the year on the
debt assumed to have been issued to partially fund the Acquisitions (the
interest rate is assumed to be 9.0%).
(8) Represents adjustments to income taxes based on income before income taxes
using the applicable incremental income tax rate.
P-6
$3,800,000,000
CITIZENS COMMUNICATIONS COMPANY
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
DEBT SECURITIES
WARRANTS
CITIZENS COMMUNICATIONS CAPITAL TRUST I
TRUST PREFERRED SECURITIES
GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
CITIZENS COMMUNICATIONS COMPANY
---------------------
Citizens Communications Company intends to offer from time to time common
stock, preferred stock, depositary shares, debt securities, and warrants to
purchase these types of securities. In addition, Citizens Communications Company
has established Citizens Communications Capital Trust I, or the Trust, as a
Delaware statutory business trust. The Trust intends to offer trust preferred
securities. The trust preferred securities will be guaranteed to the extent
described herein by Citizens Communications Company. We may sell any combination
of these securities in one or more offerings up to a total dollar amount of
$3,800,000,000. We will provide specific terms of these securities in
supplements to this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest.
In this prospectus, references to "Citizens" are to Citizens Communications
Company and do not include its subsidiaries. References to the "Trust" are to
Citizens Communications Capital Trust I and do not include Citizens. References
to the "Company," "we," "us" and "our" do include Citizens, the Trust and its
other subsidiaries.
We may sell the securities directly or to or through underwriters or
dealers, and also to other purchasers or through agents. The names of any
underwriters or agents that are included in a sale of securities to you, and any
applicable commissions or discounts, will be stated in an accompanying
prospectus supplement.
This prospectus also relates to approximately 9,139,900 shares, or the
Resale Shares, of common stock of Citizens that may, from time to time, be sold
by the person named in this prospectus under the caption "Selling Stockholder."
The selling stockholder may from time to time sell the Resale Shares on the
New York Stock Exchange or on any other national securities exchange on which
our common stock may be listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market price
or at negotiated prices. The Resale Shares may be sold directly or through
brokers or dealers. See "Plan of Distribution."
We will receive no part of the proceeds of any sales of the Resale Shares
made hereunder. See "Use of Proceeds." All expenses of registration of the
Resale Shares incurred in connection with the offering, as well as all selling
and other expenses incurred by the selling stockholder, are being borne by us.
A brief description of the securities we, or the selling stockholder, may
offer can be found in this prospectus.
Our common stock is quoted on the New York Stock Exchange under the symbol
"CZN." The closing price of our common stock on the New York Stock Exchange on
May 4, 2001 was $12.56. None of the other securities that we may offer under
this prospectus is currently publicly traded.
------------------------
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF MATTERS
THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THESE SECURITIES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is May 9, 2001
TABLE OF CONTENTS
PAGE
--------
About This Prospectus....................................... 3
Risk Factors................................................ 4
Forward-Looking Statements.................................. 9
Use of Proceeds............................................. 10
Ratio of Earnings to Fixed Charges.......................... 10
Citizens Communications Company............................. 11
Citizens Communications Capital Trust I..................... 25
Accounting Treatment........................................ 25
Selling Stockholder......................................... 26
Description of Debt Securities.............................. 27
Description of Capital Stock................................ 35
Description of Warrants..................................... 37
Description of Depositary Shares............................ 39
Description of Trust Preferred Securities................... 42
Description of Guarantee.................................... 43
Plan of Distribution........................................ 46
Where You Can Find More Information......................... 48
Incorporation of Documents by Reference..................... 48
Legal Matters............................................... 49
Experts..................................................... 49
2
ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a registration statement
that we filed with the Securities and Exchange Commission using a "shelf"
registration or continuous offering process. Under this shelf process, we may
from time to time sell any combination of the securities described in this
prospectus.
This prospectus provides you with a description of our business, certain
risk factors and a general description of the securities we may offer. Each time
we sell securities, we will provide a prospectus supplement containing specific
information about the terms of the securities being offered. That prospectus
supplement will include a detailed and current discussion of any risk factors or
other special considerations applicable to those securities. The prospectus
supplement may also add, update or change information in this prospectus. If
there is any inconsistency between the information in this prospectus together
with additional information described under the heading "Where You Can Find More
Information" and any prospectus supplement, you should rely on the information
in that prospectus supplement.
You should rely on the information provided in this prospectus and in any
prospectus supplement, including the information incorporated by reference.
Neither we nor any underwriters or agents have authorized anyone to provide you
with different information. We are not offering the securities in any state
where the offer is prohibited. You should not assume that the information in
this prospectus, any prospectus supplement, or any document incorporated by
reference, is truthful or complete at any date other than the date mentioned on
the cover page of those documents.
3
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR IN ANY
PROSPECTUS SUPPLEMENT BEFORE YOU DECIDE TO PURCHASE SECURITIES OFFERED BY THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. IN ADDITION, YOU SHOULD NOTE THAT THE
PROSPECTUS SUPPLEMENT THAT WILL ACCOMPANY THIS PROSPECTUS WILL INCLUDE ANY
ADDITIONAL RISK FACTORS THAT MAY SPECIFICALLY APPLY TO THE TYPE OF SECURITY THAT
WE WILL OFFER UNDER THE PROSPECTUS SUPPLEMENT OR THAT MAY OTHERWISE APPLY.
WE MAY BE UNABLE TO OBTAIN NEW FINANCING AND ANY NEW FINANCING WE DO OBTAIN
MAY BE ON UNFAVORABLE TERMS.
Since March 1999, we have contracted to purchase 2,034,700 telephone access
lines for an aggregate purchase price of $6,321.0 million. As of March 31, 2001,
we have closed on the purchase of 334,500 telephone access lines for an
aggregate purchase price of $985.3 million, which was financed with drawings
under our bank credit facilities, the sale of our commercial paper and the sale
of marketable securities held by us. We will require $5,334.8 million to close
on the remaining purchases. Our remaining available credit facilities of
$5,553.6 million as of March 31, 2001, together with cash flows, are sufficient
to fund these acquisitions as they close.
Our ability to draw on our $5,700.0 million credit facility will end on
October 26, 2001 and the debt outstanding under this facility will mature on
October 25, 2002. Accordingly, prior to October 25, 2002, we will need to
establish a permanent capital structure consisting of a combination of
replacement credit facilities and issuances of long-term debt and equity. We may
not be able to obtain sufficient long-term debt financing and equity financing
on favorable terms. Our ability to accomplish these objectives is subject to
market conditions, relevant regulatory approvals, and our ability to maintain a
favorable credit rating. We may only be able to obtain long-term debt financing
at higher interest rates than we currently pay or with onerous covenants that
could restrict our operating flexibility or adversely affect our overall
financial results.
WE WILL NEED TO TAKE ACTION IF WE ARE TO MAINTAIN OUR CREDIT RATINGS.
It is our intention to maintain investment grade credit ratings for our
senior unsecured indebtedness. In order to do so, we expect to take action to
preserve the strength of our balance sheet. More specifically, we expect that we
may issue equity or securities that the rating agencies deem to have equity
characteristics, refinance our credit facility indebtedness, sell our public
utility assets and perhaps raise capital through one or more joint ventures
which we expect we would operate and to which we would sell some significant
assets. The consummation of any and/or all of these transactions is dependent
upon a number of conditions affecting our operations and the capital markets
generally, including the receipt of any necessary regulatory approvals,
favorable market reception to our issuance of long-term debt and equity
securities and our continued success in operating our businesses. Failure to
preserve the strength of our balance sheet through some combination of these
transactions could result in a downgrading of the ratings applicable to our
indebtedness. In addition, if we undertake any further acquisitions, such
acquisitions might have a detrimental effect on our credit ratings.
WE MAY BE UNABLE TO SUCCESSFULLY DIVEST OUR PUBLIC UTILITIES SERVICES
SEGMENTS IN A TIMELY MANNER WHICH MAY ADVERSELY AFFECT OUR FINANCING PLANS.
A key component of our business strategy involves the divestiture of our
public utilities services segments. Failure to sell our public utilities
services segments on acceptable terms or to complete agreed sales within agreed
time periods may adversely affect our ability to obtain new financing on
acceptable terms to continue to expand our telecommunications business
internally and to meet competitive challenges. Sales of our public utilities
services segments require regulatory approval and in some cases contain
financing conditions. We cannot be sure that we will receive the necessary
regulatory approvals or financing prior to the expirations of closing deadlines
contained in our sale agreements. Therefore, the planned sale of our public
utilities services segments may not occur within
4
the anticipated time periods. Examples of delays or factors which may affect our
proposed transactions include:
- Our agreements to sell our Arizona and Vermont electric divisions have
been terminated due to the failure of the proposed purchaser to obtain
financing.
- The California electricity generation crisis has stretched the resources
of California utility regulators and may result in delays in approving the
sale of our water and wastewater assets. Our agreement for the sale of
this business may be terminated if regulatory approval is not received
before September 30, 2001.
- The Hawaii Public Utility Commission has denied the initial application
requesting approval of the proposed sale of our Kauai electric division to
Kauai Island Electric Co-op. Our agreement for the sale of this division
may be terminated if regulatory approval is not received before
February 2002.
Our failure to consummate these divestitures at the expected prices could
adversely affect our financing plans, credit ratings and internal expansion.
UNTIL WE DIVEST OUR PUBLIC UTILITIES SERVICES SEGMENTS WE WILL BE SUBJECT TO
THE RISKS OF THE PUBLIC UTILITIES BUSINESS.
We intend to divest our public utilities services segments in order to focus
on the telecommunications sector. Until we complete our divestitures on
acceptable terms, we remain subject to continuing risks of the public utilities
business. These risks include exposure to rapidly fluctuating prices for gas and
electricity in a regulated or partially regulated environment and financial
instability in the public utilities industry in certain states. For example:
- In Arizona, we are disputing what we believe to be excessive power costs
charged by our power supplier in the amount of $57.0 million through
December 31, 2000. We have deferred charging these costs to consumers and
have recorded them as a regulatory asset on our balance sheet in
anticipation of recovering certain amounts through renegotiation with the
power supplier.
- In Vermont, we belong to a Vermont utility consortium that purchases power
from a Canadian power generation facility. Two participants in the
consortium, representing an aggregate of 83% of the purchase commitment,
have experienced financial difficulties. If they default on their purchase
commitments, we, as a 10% participant, and other members of the consortium
will be obligated to purchase the defaulting parties' share of power on a
pro rata basis. We will be exposed to any price differential between the
price that we pay for the power and the market price for the power.
- The market for energy has become more unstable recently, particularly in
states such as California. Continued market instability in California or
in other jurisdictions may have an adverse effect upon the energy market
generally and our operations specifically.
WE HAVE SUBSTANTIAL EXISTING INDEBTEDNESS AND WILL INCUR SUBSTANTIAL
ADDITIONAL OBLIGATIONS.
As of March 31, 2001, we had outstanding long-term indebtedness of
approximately $2,981.5 million. This amount includes indebtedness of our
85%-owned subsidiary, Electric Lightwave, Inc., or ELI. We have credit
facilities of $6,350.0 million of which $5,553.6 million was available as of
March 31, 2001 to fund our currently contracted for acquisitions. Through
March 31, 2002, we expect $181.2 million of this indebtedness to mature.
As of March 31, 2001, ELI had outstanding long-term indebtedness of
approximately $885.9 million. ELI has borrowed $400.0 million under a revolving
line of credit with commercial banks that expires on November 21, 2002 and has
issued $325.0 million in indebtedness that matures on May 14, 2004. In addition,
ELI has entered into leases for telecommunication facilities, including one with
a final purchase option due on April 30, 2002 in the amount of $110.0 million.
We have guaranteed $911.1 million of indebtedness and other obligations of ELI.
We do not expect that ELI will
5
have sufficient resources from internally generated funds to make all of these
required payments. Therefore, ELI must rely upon the financial markets and us to
refinance all or a portion of this indebtedness. There can be no assurance that
ELI will be successful in refinancing this indebtedness. We have committed to
continue to finance ELI's cash requirements through a revolving credit facility
to ELI in the amount of $450.0 million that matures on October 30, 2005. As of
March 31, 2001, $58.0 million principal amount was outstanding under this
facility.
We must use a portion of our future cash flow from operations to pay the
principal and interest on our indebtedness, which will reduce the funds
available for our operations, including capital investments and business
expenses. This could hinder our ability to adjust to changing market and
economic conditions. If we incur significant additional indebtedness, our credit
ratings could be adversely affected. As a result, our borrowing costs could
increase and our access to capital may be adversely affected.
WE MAY BE UNABLE TO ACHIEVE IMPROVED OPERATING RESULTS FROM OUR NEWLY
ACQUIRED OPERATIONS AND EFFICIENTLY INTEGRATE THESE OPERATIONS INTO OUR
EXISTING BUSINESS.
In order to accomplish growth in profitability, we will need to increase our
revenues per customer through enhanced products and services as well as attract
new customers while retaining our existing customer revenue base. In addition,
we need to integrate our newly acquired operations into our existing business.
Our strategy is premised, in part, on our ability to timely consummate our
pending telecommunications acquisitions and to improve operating results in our
existing and to-be-acquired telecommunications businesses by introducing new
communications products and services, expanding the penetration of existing
services and improving operating efficiencies.
The rapid growth in the size of our telecommunications business though our
acquisitions and our ongoing transformation into a telecommunications company
poses challenges for us to monitor our operations, costs, regulatory compliance,
and service quality and to maintain other necessary internal controls. If we are
not able to meet these challenges effectively, our results of operations may be
harmed.
OUR ACTUAL OPERATING RESULTS WILL DIFFER FROM THE RESULTS INDICATED IN THE
PRO FORMA FINANCIAL STATEMENTS AND THIS COULD ADVERSELY AFFECT THE VALUE OF
THE SECURITIES.
The pro forma information incorporated by reference in this prospectus with
regard to our pending acquisitions, 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 and businesses
been combined throughout these periods and performance might have been
different. You should not rely on pro forma financial information as an
indication of the results that would have been achieved if the acquisitions had
taken place earlier or the future results that the companies and businesses will
experience after completion of these transactions.
In addition, we may enter transactions that would affect our financial
condition and the value of the securities. Our pro forma financial statements do
not reflect what would be the effect of any transaction, including joint
ventures we may enter into.
THE ACCESS CHARGE REVENUES WE RECEIVE MAY BE REDUCED AT ANY TIME.
A significant portion of our revenues comes or is derived from access
charges paid by interexchange carriers, or IXCs, for services we provide in
originating and terminating intrastate and interstate long-distance telephone
calls. The amount of access charge revenues we receive for these services is
regulated by the Federal Communications Commission, or FCC, and state regulatory
agencies. Recent rulings regarding access charges have lowered the amount of
revenue we receive from this source. Additional actions by these agencies could
further reduce the amount of access revenues we receive. In addition, a portion
of our access revenues is received from state and federal universal
6
service funds based upon the high cost of providing telephone service to certain
rural areas. In the future, there may be proposals by state or federal
regulatory agencies to eliminate or reduce these revenues. A material reduction
in the revenues we receive from these funds would adversely affect our financial
results.
WE FACE COMPETITION, WHICH COULD ADVERSELY AFFECT US.
The telecommunications industry is a competitive industry. The traditional
dividing lines between long distance, local, wireless, cable and internet
services are becoming increasingly blurred. Through mergers and various service
integration strategies, services providers are striving to provide integrated
solutions both within and across geographic markets. As a diversified full
service incumbent local exchange carrier, or ILEC, our competitors are
competitive local exchange carriers, or CLECs, and other providers (or potential
providers) of services, such as internet service providers, or ISPs, satellite
companies, neighboring ILECs and cable companies that may provide services
competitive with ours or services that we intend to introduce. We cannot assure
you that we will be able to compete effectively with these industry participants
in all of our operations.
In addition, wireless providers currently compete in territories of all of
our rural telephone exchange subsidiaries. Increased competition from these
wireless providers is expected. We cannot predict the effects of greater
competition from wireless providers. Furthermore, regions served by access lines
that have not had substantial upgrading over the last several years are
particularly vulnerable to competition. Until we complete the upgrade of our
access lines, the services we provide in the areas served by these access lines
are vulnerable to competition from operators of more updated systems.
We expect competition to intensify as a result of the entrance of new
competitors and the development of new technologies, products and services. We
cannot predict which of many possible future technologies, products or services
will be important to maintain our competitive position or what expenditures will
be required to develop and provide these technologies, products or services. Our
ability to compete successfully will depend on marketing and on our ability to
anticipate and respond to various competitive factors affecting the industry,
including a changing regulatory environment that may affect our competitors and
us differently, new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors.
ELI FACES SUBSTANTIAL COMPETITION FOR ITS TELECOMMUNICATIONS SERVICES FROM
LARGER COMPANIES.
ELI's competitors for telecommunications services are primarily larger
ILECs, CLECs and IXCs. Because it is not an incumbent provider, ELI's ability to
succeed in the telecommunications services market depends to a large extent on
its ability to build tailored, value-added network services for business
customers and to maintain its customer base and develop additional business
customers in its core geographic areas in light of changing technologies.
We anticipate that general pricing competition and pressures will increase
significantly. We have not obtained significant market share in any of the areas
where we offer our CLEC services, nor do we expect to do so given the size of
our telecommunications services markets, the intense competition therein and the
diversity of customer requirements. There can be no assurance that we will be
able to compete effectively in any of our markets. Furthermore, the recent
bankruptcies and weakened financial position of a number of CLECs have resulted
in a more demanding operating environment for CLECs, as both customers and
suppliers are more concerned about each CLEC's creditworthiness.
MANY OF OUR COMPETITORS HAVE SUPERIOR RESOURCES, WHICH MAY PLACE US AT A
COST AND PRICE DISADVANTAGE.
Many of our current and potential competitors have market presence,
engineering, technical and marketing capabilities and financial, personnel and
other resources substantially greater than ours. In addition, some of our
competitors can raise capital at a lower cost than we can. Consequently, some
competitors may be able to develop and expand their communications and network
infrastructures
7
more quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily and devote greater resources to the marketing and sale of their
products and services than we can. Also, the greater brand name recognition of
some competitors may require us to price our services at lower levels in order
to win business. Finally, the cost advantages of some competitors may give them
the ability to reduce their prices for an extended period of time if they so
choose.
OUR COMPANY AND INDUSTRY ARE HIGHLY REGULATED, IMPOSING SUBSTANTIAL
COMPLIANCE COSTS AND RESTRICTING OUR ABILITY TO COMPETE IN OUR TARGET
MARKETS.
As an ILEC, we are subject to significant regulation from federal, state and
local authorities. This regulation restricts our ability to raise our rates,
especially in our basic services, and imposes substantial compliance costs on
us. Regulation restricts our ability to compete and, in some jurisdictions, it
may restrict our ability to expand our services. In addition, changes to the
regulations that govern us may have an adverse effect upon our business by
reducing the allowable fees that we may charge, imposing additional compliance
costs, or otherwise changing the nature of our operations and the competiton in
our industry.
IN THE FUTURE AS COMPETITION ENTERS OUR MARKETS, WE MAY BE UNABLE TO MEET
THE TECHNOLOGICAL NEEDS OR EXPECTATIONS OF OUR CUSTOMERS.
The telecommunications industry is subject to significant changes in
technology. If we do not replace or upgrade technology and equipment that
becomes obsolete, we will be unable to compete effectively because we will not
be able to meet the needs or expectations of our customers. Replacing or
upgrading our infrastructure could result in significant capital expenditures.
DETERIORATING ECONOMIC CONDITIONS COULD HARM OUR BUSINESS.
Demand for communications products and services may be adversely affected by
a downturn in the United States economy as well as changes in the global
economy. Key United States economic indicators have recently signaled a
softening of the United States economy. As a result, we may experience decreased
demand for our communications products and services. A decline in the demand for
and usage of communications products and services could have an adverse effect
on our results of operations and financial condition.
Many of ELI's customers are in various internet-related businesses,
including internet service providers, some of which have been adversely affected
by recent business trends in that sector. To the extent the credit quality of
these customers deteriorates or these customers seek bankruptcy protection,
ELI's ability to collect receivables, and ultimately its operating results, may
be adversely affected.
AS A HOLDING COMPANY WITH RESPECT TO TELECOMMUNICATIONS ASSETS, WE WILL
REQUIRE DIVIDENDS FROM SUBSIDIARIES TO MEET CASH REQUIREMENTS OR PAY
DIVIDENDS.
Citizens conducts all its telecommunications business operations through its
subsidiaries and may arrange for certain telecommunications assets to be held in
special purpose legal entities with separate financing. Accordingly, following
the divestiture of our public utilities services segments, Citizens' only source
of cash to pay dividends or make other distributions on its capital stock or to
pay interest and principal on its outstanding indebtedness will be distributions
relating to its ownership interest in its telecommunications subsidiaries and
affiliates from the net earnings and cash flow generated by such subsidiaries.
We cannot be sure that Citizens' telecommunications subsidiaries will generate
sufficient cash flow to pay or distribute such dividends or funds, or that
applicable state law, regulatory action, and contractual restrictions, including
negative covenants contained in any debt instruments of such subsidiaries and
affiliates, would permit such dividends, distributions or payments.
8
FORWARD-LOOKING STATEMENTS
Our forward-looking statements are subject to a variety of factors that
could cause actual results to differ significantly from current beliefs.
Some statements and information contained in this prospectus and in the
documents incorporated by reference into this prospectus are not historical
facts, but are "forward-looking statements," as such term is defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "plans," "may," "will," "would," "could," "should," or
"anticipates" or the negative of these words or other variations of these words
or other comparable words, or by discussions of strategy that involve risks and
uncertainties. Forward-looking statements may differ from actual future results
due to, but not limited to, those factors referenced under "Risk Factors" and/or
any of the following possibilities:
- changes in economic conditions;
- changes in the capital markets;
- changes in industry conditions;
- changes in our credit rating; and
- changes in accounting policies or practices adopted voluntarily or as
required by regulations or generally accepted accounting principles.
You should consider these important factors as well as those referenced
under "Risk Factors" in evaluating any statement in this prospectus or otherwise
made by us or on our behalf. We have no obligation to update or revise these
forward-looking statements.
9
USE OF PROCEEDS
Except as otherwise described in an accompanying prospectus supplement, we
plan to use substantially all of the net proceeds from the sale of any
securities sold by us, together with internally generated funds and possible
future borrowings, to refinance bank borrowings and other extensions of credit,
to expand our networks, service offerings and related infrastructure, to fund
working capital and pending as well as future acquisitions, to make further
investments in related telecommunications businesses as well as for general
corporate purposes. Until we use the proceeds of sales by us of any securities
covered by this prospectus or any prospectus supplement in this manner, we may
temporarily use them to make short-term investments or to reduce short-term
borrowings.
All of the Resale Shares offered hereby are being offered by the selling
stockholder. We will not receive any of the proceeds of any sales of Resales
Shares made hereunder.
The proceeds from the sale of trust preferred securities by the Trust will
be invested in junior subordinated notes issued by Citizens. Except as we may
otherwise describe in a prospectus supplement, Citizens expects to use the net
proceeds from the sale of the junior subordinated notes to the Trust for the
purposes set forth above.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our consolidated ratio of earnings to fixed
charges and our consolidated ratio of earnings to combined fixed charges and
preferred dividends. Earnings consist of income (loss) before income taxes plus
fixed charges and preferred dividends. Fixed charges consist of interest charges
and an amount representing the interest factor included in rentals (assumed to
be one-third) and preference security dividend requirements.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999(1) 2000
-------- -------- -------- -------- --------
Consolidated ratio of earnings to fixed charges......... 3.44 .98 1.28 2.22 .62
Consolidated ratio of earnings to combined fixed charges
and preferred dividends............................... 3.22 .98 1.26 2.14 .64
------------------------
(1) In 1999, we recorded pre-tax non-operating gains of approximately
$221.0 million related to the sale of our investments in Centennial Cellular
Corp., Century Communications Corp. ("Century") and our interest in a cable
television joint venture with a subsidiary of Century. Excluding such
pre-tax non-operating gains, the ratio of earnings to fixed charges for 1999
is 0.67 and the ratio of earnings to combined fixed charges and preferred
dividends for 1999 is 0.69.
10
CITIZENS COMMUNICATIONS COMPANY
INTRODUCTION
We are a telecommunications-focused company providing wireline
communications services primarily to rural areas and small and medium-sized
towns and cities as an incumbent local exchange carrier, or ILEC. In addition,
we provide competitive local exchange carrier, or CLEC, service to business
customers and to other communications carriers in certain metropolitan areas in
the western United States through Electric Lightwave, Inc., our 85%-owned
subsidiary. We also provide public utility services including natural gas
transmission and distribution, electric transmission and distribution and water
distribution and wastewater treatment services to primarily rural and suburban
customers throughout the United States.
With approximately 1.4 million telephone access lines in 17 states we were
the eighth largest local access wireline telephone provider in the United States
as of December 31, 2000. Upon consummation of telephone access line acquisitions
contracted for during 1999 and 2000, we expect to be the sixth largest ILEC in
the United States with approximately 3.1 million telephone access lines in 27
states. In fiscal years 1999 and 2000 revenues from our ILEC services segment
were $903.2 million and $963.7 million, respectively, and our adjusted EBITDA,
operating income plus depreciation and amortization, was $327.1 million and
$434.1 million, respectively. Revenues in fiscal years 1999 and 2000 from our
CLEC services segment were $187.0 million and $244.0 million, respectively, and
adjusted EBITDA was $(57.6) million and $1.8 million respectively.
In 1999, we announced plans to divest our public utilities services
segments. Consistent with this effort, we have contracted to sell our water and
wastewater utility services segments and portions of our gas and electric
properties and are presently engaged in the sale of, or are seeking buyers for,
our gas and electric properties. Pending these divestitures, we continue to
provide gas and electric utility services and water and wastewater services.
We are incorporated in Delaware, and the address of our principal executive
offices is 3 High Ridge Park, Stamford, Connecticut 06905. Our telephone number
is (203) 614-5600.
TELECOMMUNICATIONS INDUSTRY OVERVIEW
The telecommunications industry involves the transmission of voice, data and
video communications from the point of origination to the point of termination.
The industry has been undergoing rapid change due to deregulation, the
construction of additional infrastructure and the introduction of new
technologies, which has resulted in increased competition and demand for
telecommunications services.
ILECs provide local, toll, access and resale services, sell, install and
maintain customer premises equipment and provide directory services. In our
primary markets we are the incumbent provider of local exchange service. As a
result, we are subject to greater regulation than CLECs and other non-incumbent
carriers.
ILECs establish their local market position because they are the primary
provider of wire access to users of services in their areas. With these
connections to customers, ILECs may provide local network services, network
access services, long distance and data services and other related services. The
basic "dial-tone" service is subject to substantial regulation, and the other
services are subject to various levels of regulation. ILECs compete with other
service providers through pricing, customer service, network quality and
valued-added services, with the ILECs having an initial advantage as the
existing provider of basic telephone services. We believe that we maintain this
advantage in a number of the markets in which we operate as an ILEC.
Currently, the five largest ILECs in the United States are Verizon, Qwest,
SBC, BellSouth and Sprint and each of them is substantially larger than we are.
The structure of the domestic telecommunications industry was strongly
influenced by a 1982 court decree that required the divestiture by AT&T of its
seven regional Bell operating companies, or RBOCs, and divided the
11
country into approximately 200 local access transport areas, or LATAs, that
range in size from metropolitan areas to entire states. The original RBOCs were
initially limited to providing local telephone service, access to long distance
carriers and "in-region" long distance service, service within a LATA. The right
to provide inter-LATA service was initially ceded to AT&T and other long
distance carriers, as well as to ILECs other than the RBOCs. However, under the
Telecommunications Act of 1996, or the 1996 Act, the RBOCs are permitted to
provide inter-LATA long distance service, subject to certain conditions. We, as
an ILEC, provide access to long distance services for our ILEC services segment
customers.
For each long distance call, the originating and terminating ILECs charge
the long distance carrier an access fee to carry the call across their local
networks. The long distance carrier charges the customer a fee for its
transmission of the call, a portion of which consists of the access fees charged
by the originating and terminating ILECs. To encourage the development of
competition in the long distance market, the ILECs are required to provide all
long distance carriers with access to local exchange service that is "equal in
type, quality and price" to that provided to AT&T.
These "equal access" and related provisions were intended to prevent
preferential treatment of AT&T and to require that the ILECs charge the same
access fees to all long distance carriers, regardless of their volume of
traffic. We derive a significant portion of our revenues from these access fees.
Continuing developments in multimedia applications are bringing new entrants
to the telecommunications market. Internet service providers and cable
television, satellite, entertainment and data transmission companies, for
instance, are potential customers for voice, data and video communications over
high bandwidth networks.
BUSINESS STRATEGY
We are transforming ourselves into a company that focuses exclusively on
providing telecommunication services. We primarily operate in rural areas and
small and medium-sized towns where we believe we have a competitive advantage
due to our relatively larger size, greater resources, and local focus and lower
levels of competition. We believe that our operations in these areas will
provide us with steady revenue flow and margin enhancement opportunities. To
reach our objective we intend to:
TARGET TELECOMMUNICATIONS NEEDS OF RURAL AREAS AND SMALL AND MEDIUM-SIZED
TOWNS AND CITIES.
Following the consummation of our pending acquisitions, we expect to be the
among the largest ILECs in the United States (the largest after Verizon, Qwest,
SBC, BellSouth and Sprint) and, we believe, the largest ILEC that focuses
primarily on serving rural areas and small and medium-sized towns and cities.
Apart from the RBOCs, smaller, often family-owned ILECs have traditionally
provided wireline telephone services in rural areas. As newer services such as
data services, the internet and digital subscriber networks have created a
catalyst for growth and consolidation in the telecommunications market, the
larger telecommunications companies appear to be focusing their efforts on
providing new services to urban markets and are in the process of divesting
parts of their rural telephone access lines and exchanges. Many smaller ILECs,
on the other hand, lack the resources to improve their networks to provide these
enhanced services to their consumers. We believe that, following the
consummation of our pending acquisitions, our position as the largest ILEC
focusing on rural and smaller markets will enable us to compete effectively
against larger competitors because of our market focus and against smaller
competitors because of our additional resources and economies of scale.
CONTINUE TO ACHIEVE ECONOMIES OF SCALE THROUGH CLUSTERING AND INCREASE
OPERATIONAL EFFICIENCIES.
We continually seek the advantages and efficiencies of operating large local
and regional telecommunications clusters. When we have completed our currently
planned acquisitions, approximately two-thirds of our customers will be located
in four states. In addition, a key part of our
12
growth strategy is the acquisition on an opportunistic basis of access lines and
exchanges contiguous to our existing network. Locally and regionally-clustered
systems enable us to reduce expenses through the consolidation of marketing and
support functions and to place more experienced managers at the system level who
are better equipped to meet the new competitive and regulatory challenges of
today's telecommunications industry. Local and regional clusters will also
increase the speed and effectiveness of our product and services deployment,
enhancing our ability to increase both customers and revenues.
INCREASE PENETRATION RATES OF THE SERVICES OFFERED TO OUR MARKETS.
We intend to increase the penetration of existing value-added services such
as second lines and enhanced services, such as call forwarding, conference
calling, caller identification, internet, voicemail and call waiting, to our
ILEC services segment including our current markets and to-be-acquired markets.
At present, the penetration rates for enhanced services in our ILEC services
segment in rural areas and small and medium-sized towns and cities are below
industry averages. We believe that increased sales of value-added and enhanced
services in existing ILEC markets will produce revenue with higher operating
margins due to the relatively low marginal operating costs necessary to offer
value-added and enhanced services in markets we already serve. We believe that
our ability to integrate value-added and enhanced services with our core ILEC
services will provide us with the opportunity to capture an increased percentage
of our customers' telecommunications expenditures.
RETAIN EXISTING CUSTOMERS AND ATTRACT NEW CUSTOMERS THROUGH THE INTRODUCTION
OF NEW TECHNOLOGY AND IMPROVED MARKETING AND CUSTOMER SERVICES.
Recent improvements in telecommunications technology as well as improvements
to our network will allow us to offer new services such as digital subscriber
network lines and other high-speed premium-priced data services to our existing
and future customer base. We have sought to ensure that our network employs
technologically current switching software and is positioned to support network
growth. For example, we are gradually deploying digital subscriber line, or DSL,
service in parts of our markets to provide broadband access where it is
economically feasible. We believe that technological improvements in our
existing and future markets will enable us to offer additional services for a
low marginal increased operating cost.
STRENGTHEN AND BUILD STRATEGIC PARTNERSHIPS AS A MEMBER OF THE LOCAL
COMMUNITIES.
We intend to continue to strengthen and build our relationships with local
and community groups. Our relationships with such groups assist us in
determining the range of features and services that consumers in our markets
want. Much of our marketing and advertising efforts are directed to sponsoring
local events and activities rather than mass media advertising. We believe that
our local and community-based approach helps us build customer loyalty and brand
awareness in the areas we serve. In addition, we intend to leverage our assets
through strategic partnerships with appropriate partners.
INCREASE UTILIZATION OF OUR CLEC'S HIGH-CAPACITY, INSTALLED, FIBER-OPTIC
INFRASTRUCTURE.
ELI is a CLEC that focuses on medium to large markets in the western United
States. We presently provide financial support to ELI. ELI's primary focus in
2001 is increasing new and existing customer usage of its high-capacity,
installed, fiber-optic infrastructure in its seven major cities and surrounding
areas by increasing the penetration of existing on-net buildings and sales to
customers that are connected to the network. We intend to continue to grow ELI's
business so that it can operate profitably on a stand-alone basis.
DIVEST OUR PUBLIC UTILITIES SERVICES SEGMENT'S BUSINESS AND ASSETS.
As part of our strategy to transform our business focus entirely to that of
a telecommunications services provider, we are in the process of monetizing our
public utilities services segment's assets. We have entered into agreements to
sell all of our water and wastewater treatment businesses, our Louisiana natural
gas business and our Hawaii electric business and seek to dispose of the
remainder of our public utilities services business and assets. Successful
implementation of this divestiture program will allow us to focus on our core
telecommunications business while simultaneously providing us with an internal
source for a portion of the financing necessary for enlarging our telephone
access line network.
13
TELECOMMUNICATIONS SERVICES
Our telecommunications services are principally ILEC services and also
include CLEC services delivered through ELI. As of December 31, 2000, we
operated ILECs in 17 states, serving approximately 1.4 million access lines. Our
ILEC services segment is presently marketed under the Citizens name but we
intend to market these services under the Frontier name following the closing of
the Frontier acquisition. Our CLEC services segment is marketed under the
Electric Lightwave name and provides a variety of integrated telecommunications
products designed to meet the customer's total communications needs.
ILEC SERVICES
Our ILEC services segment accounted for $963.7 million, or 53.5%, of our
revenues in fiscal year 2000. In fiscal year 2000, approximately 56% of our ILEC
services segment revenues came from federal and state universal service charges
through the federal and local governments and regulated access charges paid by
long distance operators and CLECs. Between 1990 and 2000 the population in our
service areas grew overall by approximately 6%. In 1999 and 2000 the number of
telephone access lines in our historic telephone systems increased by 4.8% and
4.0%, respectively.
Our ILEC services business is primarily with retail customers and, to a
lesser extent, business customers. Our ILEC services segment provides:
- local network services,
- enhanced services,
- network access services,
- long distance and data services, and
- directory services.
LOCAL NETWORK SERVICES. We provide telephone wireline access services in
our service areas primarily to residential customers. We are the incumbent
provider of basic telephone services in our service areas. Our present service
areas are generally less densely populated than what we believe to be the
primary service areas of the five largest ILECs.
ENHANCED SERVICES. We offer our ILEC customers the following enhanced
service features: call forwarding, conference calling, caller identification,
voicemail and call waiting. We recently introduced Citizens Select and Citizens
Select Plus as branded bundles of telecommunications services directed at our
retail customer base in a majority of our markets. These plans permit customers
to bundle their residential line with custom local area signaling services, or
CLASS, and custom calling features for a single flat rate. Citizens Select
allows customers to choose up to seven features with their residential line
while Citizens Select Plus allows customers to bundle with their residential
line as many features as desired plus voicemail. In connection with the pending
Frontier acquisition, we may rebrand some or all of these services.
NETWORK ACCESS SERVICES. We provide network access services to long
distance carriers and other customers in connection with the use of our
facilities to originate and terminate interstate and intrastate long distance
telephone calls. We provide originating and switched terminating services to
long distance carriers through switched services network. Such services are
generally offered on a month-to-month basis and the service is billed on a
minutes-of-use basis. Access charges to long distance carriers and other
customers are based on access rates filed with the FCC for interstate services
and with the respective state regulatory agency for intrastate services.
LONG DISTANCE AND DATA SERVICES. Long distance network service to and from
points outside of a telephone company's operating and data territories is
provided by interconnection with the facilities of interexchange carriers, or
IXCs. We believe that many customers prefer the convenience of obtaining their
long distance service through their local telephone company and receiving a
single bill.
We also offer data services including internet dial up service, digital
subscriber lines, frame relay and asynchronous transfer mode, or ATM, switching.
As part of our integration strategy, we offer a
14
solution whereby other ILEC companies resell our integrated services. We offer
this integrated solution to most of our customers.
DIRECTORY SERVICES. Directory services involves the provision of
residential and business directories. We provide this service through a third
party contractor who pays us a percentage of its revenues realized from the
directories.
ILEC ASSET ACQUISITIONS
We continually evaluate the possibility of acquiring additional
telecommunications assets. Over the past few years, the number and size of
available telecommunications assets has increased substantially. Although our
primary focus will continue to be the acquisition of telephone access lines,
exchange and operators that are proximate to our existing systems or that serve
a customer base large enough for us to operate efficiently, we may also acquire
other telecommunications interests.
The following table sets forth certain information with respect to our
telephone access lines as of December 31, 2000 and the additional lines we
intend to acquire upon the expected closing of each of the referenced
acquisitions.
VERIZON(2) QWEST(2) FRONTIER(2)
STATE CITIZENS(1) ACQUISITION ACQUISITION ACQUISITION TOTAL
----- ----------- ----------- ----------- ----------- ---------
New York........................ 339,100 -- -- 698,200 1,037,300
Minnesota....................... 142,400 -- 187,100 129,600 459,100
Arizona......................... 163,000 8,600 171,500 -- 343,100
California...................... 145,600 55,100 -- -- 200,700
West Virginia................... 153,200 -- -- -- 153,200
Illinois........................ 112,200 -- -- 20,100 132,300
Iowa............................ -- -- 53,200 60,400 113,600
Tennessee....................... 102,500 -- -- -- 102,500
Nebraska........................ 62,200 -- 14,900 -- 77,100
Wisconsin....................... 27,800 -- -- 44,800 72,600
Idaho........................... 21,700 -- 33,900 -- 55,600
Colorado........................ -- -- 51,400 -- 51,400
Pennsylvania.................... 1,500 -- -- 42,900 44,400
Georgia......................... -- -- -- 29,000 29,000
Nevada.......................... 28,300 -- -- -- 28,300
Alabama......................... -- -- -- 27,700 27,700
Michigan........................ -- -- -- 27,200 27,200
Utah............................ 23,700 -- -- -- 23,700
Montana......................... 9,000 -- 11,900 -- 20,900
North Dakota.................... 17,000 -- -- -- 17,000
Oregon.......................... 15,100 -- -- -- 15,100
Washington...................... -- -- 10,000 -- 10,000
New Mexico...................... 6,900 -- -- -- 6,900
Mississippi..................... -- -- -- 6,500 6,500
Wyoming......................... -- -- 5,900 -- 5,900
Indiana......................... -- -- -- 5,700 5,700
Florida......................... -- -- -- 4,600 4,600
--------- ------ ------- --------- ---------
Total........................... 1,371,200 63,700 539,800 1,096,700 3,071,400
========= ====== ======= ========= =========
------------------------
(1) Represents telephone access lines owned or acquired through December 31,
2000 from Verizon (Nebraska, Minnesota and Illinois/Wisconsin) and Qwest
(North Dakota).
(2) Represents telephone access lines in acquisitions pending as of
December 31, 2000.
We intend to fully integrate our acquisitions with existing core telephone
access line holdings by the end of the first half of 2002. We are acquiring
telephone access lines on a state-by-state basis from each of Verizon and Qwest.
As of December 31, 2000, we have acquired assets in several Verizon states,
including Nebraska (62,200 access lines), Minnesota (142,400 access lines),
Illinois/Wisconsin
15
(112,900 access lines), and one Qwest state, North Dakota (17,000 access lines).
We expect the Frontier acquisition to close as a single transaction during the
first half of 2001.
Unlike the Verizon and Qwest acquisitions, which consist of exchanges only,
the Frontier acquisition includes the operations, in addition to the assets, of
Frontier Corp.'s ILEC businesses. Approximately one-half of the Frontier access
lines are in the Rochester, New York metropolitan area and will give us
substantially all of the wireline market share in Rochester. Rochester will be
our sole metropolitan area telephone system at this time.
ILEC TECHNOLOGY
In 1999 we entered into a three-year agreement to outsource central office
engineering of our ILEC switching facilities. This agreement provides for
provisioning of current technology for our switching facilities, deploying the
latest switch software throughout our network, provisioning of switch capacity
to support network growth, integrating acquired properties onto a common network
platform and providing other project management and service support resources.
These improvements to our network will allow us to continue to offer enhanced
services and other high-speed data services to our existing and future customer
base.
In addition, as we upgrade and extend our physical plant and operations over
the next several years, the installation of digital switches and related
software will continue to be an important component of our business strategy, as
these features enhance our ability to offer additional services. We are in the
process of installing advanced digital switching platforms in parts of our
switching network. We expect to achieve cost reductions through the elimination
of duplicative services and procedures and the consolidation of administrative
functions. We believe that additional cost reductions may be obtainable from
advanced switching platforms and outside plant delivery systems. We intend to
pursue additional gains in productivity by investing in these technologies where
feasible and by reengineering customer service processes.
CLEC SERVICES
ELI provides a broad range of wireline communications products and services
to businesses in the western United States. ELI accounted for $240.8 million, or
13.4%, of our revenues in fiscal year 2000.
ELI's facilities-based network consists of optical fiber plus voice and data
switches. ELI has a national internet and data network with switches and routers
in key cities, linked by leased transport facilities. As of December 31, 2000,
ELI had 5,924 local and long-haul route miles of fiber-optic cable in service.
During 2000, ELI completed construction of its long-haul fiber-optic Synchronous
Optical Network, or SONET, network. ELI provides a full range of its services in
the following seven cities and their surrounding areas: Boise, Idaho; Portland,
Oregon; Salt Lake City, Utah; Seattle, Washington; Spokane, Washington; Phoenix,
Arizona and Sacramento, California. This network spans more than 3,200 miles,
crosses seven states and is one of the largest OC-192 SONET systems in the
western United States. The network will include Dense Wave Division
Multiplexing, or DWDM, equipment and will support voice and data traffic at
speeds up to OC-192. DWDM is a technique for transmitting 16 or more different
light-wave frequencies at speeds up to OC-192 on a single fiber to increase
transmission capacity.
DESCRIPTION OF CLEC SERVICES BUSINESS
ELI offers switched service, including local dial tone, from eight Nortel
DMS 500 switches in the seven metropolitan areas that ELI serves. This permits
ELI to offer both voice and data services in these areas. ELI also has
transmission equipment collocated with switches of the relevant ILEC operators
at 55 locations.
ELI has broadband points of presence in the following cities: Atlanta,
Georgia; Austin, Texas; Chicago, Illinois; Cleveland, Ohio; Dallas, Texas;
Denver, Colorado; Houston, Texas; Las Vegas, Nevada; Los Angeles, California;
New York, New York; Philadelphia, Pennsylvania; San Diego,
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California; San Francisco, California and Washington, D.C. This permits ELI to
offer high-capacity data services in these areas.
ELI has developed an internet backbone network that provides internet
connectivity in each of its markets, including presence at all major network
access points, and offers peering arrangements with other internet backbone
service providers. A peering arrangement is an agreement where internet backbone
service providers agree to allow each other direct access to internet data
contained on their networks. ELI's broadband network consists of frame relay
switches, ATM switches and network-to-network interfaces. ELI provides national
and international coverage to its customers through strategic relationships with
other communications providers.
ELI owns or leases broadband, long-haul fiber-optic network connections
between major cities in the western United States and within strategic markets
across the nation. ELI seeks to maximize utilization of its network facilities
and minimize network access costs and other interconnection costs.
In the development of its long-haul facilities, ELI has formed strategic
relationships with utility companies that enable it to use existing
rights-of-way and fiber-optic facilities, use the construction expertise and
local permitting experience of such companies and minimize its near-term cash
requirements. These relationships allow ELI to extend its network infrastructure
more quickly and economically.
In 1999, ELI entered into a fiber-swap agreement to exchange unused fiber on
its network for unused fiber on another carrier's network. This fiber-swap
agreement will provide ELI with a fiber route from Salt Lake City to Dallas,
routed through Denver.
REGULATORY ENVIRONMENT
ILEC SERVICES REGULATION
The 1996 Act dramatically changed the landscape of the telecommunications
industry. The main thrust of the 1996 Act was to open local telecommunications
marketplaces to competition while enhancing universal service. We expect the
1996 Act, subsequent state and federal regulatory rulings and technological
changes to lead to an overall reduction in the level of regulation for the
telecommunications industry. Although the majority of our operations continues
to be regulated extensively by various state regulatory agencies, often called
public service commissions, and the FCC, we may experience reductions in the
level of regulation for some of our ILEC operations in the future. However, upon
the anticipated closing of the Frontier acquisition and of the remaining Qwest
acquisitions, certain of our systems may be subject to a higher degree of
scrutiny from the FCC and the applicable public service commissions. In any
event, we are currently unable to determine the ultimate degree of reduction or
increase in regulation in our operating territories.
The 1996 Act preempts state and local laws to the extent that they prevent
competitive entry into the provision of any communications service. Under the
1996 Act, however, states retain authority to impose requirements on carriers
necessary to preserve universal service, protect public safety and welfare,
ensure quality of service and protect consumers. States are also responsible for
mediating and arbitrating interconnection agreements between CLECs and ILECs if
voluntary negotiations fail.
In order to create an environment in which local competition is a practical
possibility, the 1996 Act imposes a number of access and interconnection
requirements on all local communications providers. All local carriers must
interconnect with other carriers, permit resale of their services, provide local
telephone number portability and dialing parity, provide access to poles, ducts,
conduits, and rights-of-way, and complete calls originated by competing carriers
under reciprocal compensation or mutual termination arrangements.
Many of our properties continue to be regulated under a regime that sets
prices for a specific property based on its level of earnings. As a result of
recent legislation enabling regulators to reduce the level of regulation in
certain states and at the federal level, we have elected incentive regulation
plans under which prices are capped in return for the elimination or relaxation
of earnings oversight. Some states also allow us flexibility in price changes
for optional services and relaxed reporting
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requirements. The goal of these incentive regulation plans is to provide
incentives to improve efficiencies and increase pricing flexibility for
competitive services while ensuring that customers receive reasonable rates for
basic services that continue to be deemed part of a monopoly while allowing us
to continue to recover our costs in rates.
Approximately 85% of our ILEC services segment revenue is subject to
regulation including incentive regulation. The FCC regulates approximately 34%
of this revenue, while various state regulatory agencies regulate approximately
51% of this revenue. We expect state lawmakers to continue to review the
statutes governing the level and type of regulation for telecommunications
services. Over the next few years, legislative and regulatory actions are
expected to provide opportunities to restructure rates, introduce more flexible
incentive regulation programs and possibly reduce the overall level of
regulation. While we still believe that such actions will nonetheless allow us
to recover our costs in revenues, we expect the election of incentive regulation
plans and the expected reduction in the overall level of regulation to allow us
to introduce new services more expeditiously than in the past.
For interstate services regulated by the FCC, we have elected a form of
incentive regulation known as price caps. Under price caps, interstate access
rates are capped and adjusted annually by the difference between the level of
inflation and a productivity factor. Most recently the productivity factor was
set at 6.5%. Given the relatively low inflation rate in recent years, interstate
access rates have been adjusted downward annually. In May 2000, the FCC adopted
a revised methodology for regulating the interstate access rates of price cap
companies through May 2005. The new program, known as the Coalition for
Affordable Local and Long Distance Services, or CALLs plan, establishes a price
floor for interstate-switched access services and phases out many of the
subsidies in interstate access rates. Though the end-user charges and an
expanded universal service program will continue to benefit rural service
providers such as our ILEC services segment, we believe we will be able to
offset some of the reduction in interstate access rates. Annual adjustments
based on the difference between inflation and the 6.5% productivity factor will
continue for several years until the price floor for interstate switched access
services is reached.
We believe that the CALLs plan has potential benefits for us in the long
term. Although some of the required rate reductions are front loaded, the price
floor provides a degree of certainty that rate reductions will be curtailed in
the future. We were successful in negotiating a price floor that recognized the
unique cost characteristics of rural telecommunications providers as opposed to
being forced into a one size fits all program designed for larger companies.
Under the CALLs plan, for many of our properties, the price floor is higher than
the rate level that would have been required over time under the previous rate
programs. In addition, shifting revenue from interstate access services to end
user customers and universal service programs provides us more control over
future revenue as access customers seek alternatives to switched access
services.
In 1998, the FCC determined that the federal universal service fund, or USF,
for non-rural companies would be based on a forward-looking cost methodology,
but chartered a Rural Task Force, or RTF, to develop a recommendation for the
funding methodology for rural companies. Since many of our current properties
are classified as rural, our federal USF will be driven by the rural methodology
that is still under development. In October 2000, the RTF recommended the use of
embedded cost instead of forward-looking costs to determine the USF for rural
companies. In addition, the RTF suggested the FCC should adjust the caps on the
USF to recognize inflation and allow rural companies the opportunity to recover
some of the costs associated with incremental investment.
The FCC has historically required an acquiring company to cap its federal
USF for acquired exchanges at the level of the selling company. Since the seller
often includes the acquired exchanges in a much larger USF study area, the
amount of USF is often negligible. In addition, the purchasing company is not
able to include its new investment in the USF calculation. The RTF concluded
that this cap might deter investment in acquired properties. In addition, the
FCC has historically capped certain corporate expenses. The RTF recommended this
expense cap be indexed to reflect inflation. In December 2000, the Federal/State
Universal Service Joint Board recommended that the FCC adopt the
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RTF recommendations. Although the final FCC decision is still uncertain, if the
FCC agrees with the Joint Board, the combination of the embedded cost
methodology and some relief on the caps should provide rural providers like us
with a more stable source of USF money over the next few years.
Another goal of the 1996 Act was to remove implicit subsidies from the rates
charged by local telecommunications companies. The CALLs plan addressed this
requirement for interstate services. State legislatures and regulatory agencies
are beginning to reduce the implicit subsidies in intrastate rates. The most
common subsidies are in access rates that historically have been priced above
their costs to allow basic local rates to be priced below cost. Legislation has
been considered in several states to require regulators to eliminate these
subsidies and implement state universal service programs where necessary to
maintain reasonable basic local rates. However, not all the reductions in access
charges are fully offset. In Tennessee for example, as a result of such
legislation, we will be reducing intrastate access rates by $1 million per year
for three years beginning in 2001. We anticipate additional state legislative
and regulatory pressure to lower intrastate access rates in the near future.
However, regulators are cognizant of the potential impact on basic local rates
and are moving cautiously. Many states are embracing the need for state
universal service funds to ensure protection for customers while ensuring that
local telecommunications companies continue to have the incentive to recover in
rates their investment in their networks and new services.
State legislatures and regulators are also examining the provision of
telecommunications services to previously unserved areas. Since many unserved
areas are located in rural markets, we may be required to expand our service
territory into some of these areas. Given the start-up costs involved with
territory expansion, we expect legislatures and regulators to continue to move
cautiously and provide some means of recovery for the costs associated with
serving these new areas.
CLEC SERVICES REGULATION
The 1996 Act dramatically changed the national public policy framework for
telecommunications. A central focus of this sweeping policy reform was to open
local communications markets to competition. One result of the 1996 Act has been
the development of CLECs which compete for business with the existing carriers.
As a CLEC, ELI is subject to federal, state and local regulation. However, the
level of regulation is typically less than an ILEC. The FCC exercises
jurisdiction over all interstate communications services. State commissions
retain jurisdiction over all intrastate communications services. Local
governments may require ELI to obtain licenses or franchises regulating the use
of public rights-of-way necessary to install and operate its networks.
The FCC exercises regulatory jurisdiction over all facilities of, and
services offered by, communications common carriers to the extent those
facilities are used to provide, originate or terminate interstate
communications. The FCC has established different levels of regulation for
"dominant" carriers and "nondominant" carriers. The FCC regulates many of the
rates, charges and services of dominant carriers to a greater degree than those
of nondominant carriers. As a nondominant carrier, ELI may install and operate
facilities for domestic interstate communications without prior FCC
authorization. ELI is no longer required to maintain tariffs for domestic
interstate long distance services. As a provider of international long distance
services, ELI obtained FCC operating authority and maintains an international
tariff. However, the FCC is also eliminating the requirement for international
tariffs. ELI is also required to submit certain periodic reports to the FCC and
pay regulatory fees.
RBOCs had been barred from participating in the market for inter-LATA
services, which is primarily long-distance traffic, in their service territories
since the break up of the Bell System in 1984. The 1996 Act provides a mechanism
for an RBOC and/or any successors to enter in-region inter-LATA markets. Full
entry by the companies into inter-LATA markets will increase the level of
competition faced by our long distance services. Before an RBOC or its
successors can enter an inter-LATA market it must first meet specific criteria
set out by section 271 of the 1996 Act. These criteria are commonly referred to
as the "14 point checklist". The checklist is meant to ensure that these
companies have opened up their local markets to competition before they compete
in the long-distance markets in their regions. Verizon
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and SBC Communications have both successfully filed inter-LATA applications with
the FCC for some of their states.
LOCAL GOVERNMENT AUTHORIZATIONS
ELI has various interconnection agreements in the states in which it
operates. These agreements govern reciprocal compensation relating to the
transport and termination of traffic between the ILEC's and ELI's networks. On
February 25, 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking that categorized calls terminated to internet service providers, or
ISPs, as "largely" interstate in nature, which could have the effect of
precluding these calls from reciprocal compensation charges. However, the ruling
stated that the existing interconnection agreements and the state decisions that
have defined them bind ILECs. The FCC gave the states authority to interpret
existing interconnection agreements. Since this FCC order, five states in which
we operate, Oregon, Washington, California, Utah and Arizona, have ruled that
calls terminated to ISPs should be included in the calculation to determine
reciprocal compensation. However, the FCC is expected to readdress this issue in
2001.
Most state public service commissions require competitive communications
providers, such as ELI, to obtain operating authority prior to initiating
intrastate services. Most states also require the filing of tariffs or price
lists and customer-specific contracts. ELI is not currently subject to
rate-of-return or price regulation. However, ELI is subject to state-specific
quality of service, universal service, periodic reporting and other regulatory
requirements, although the extent of these requirements is generally less than
those applicable to ILECs.
COMPETITION
ILEC SERVICES COMPETITION
The 1996 Act and subsequent FCC interconnection decisions have established
the relationships between ILECs and CLECs and the mechanisms for competitive
market entry. Though carriers like us, who serve predominantly rural markets,
did receive a qualified exemption from some of the technical requirements
imposed upon all ILECs for interconnection arrangements, we did not receive an
exemption from interconnection or local exchange competition in general. The
exemption, known as the rural telephone company exemption, continues until a
bona fide request for interconnection is received from a CLEC and a state public
services commission with jurisdiction determines that discontinuance of the
exemption is warranted. The state commission must determine that discontinuing
the exemption will not adversely impact the availability of universal service in
the state nor impose an undue economic hardship on us and that the requested
interconnection is technically feasible.
Though much of the initial competition in local telecommunications has been
in more densely populated urban areas, we have begun to experience competition
in some of our suburban and rural markets. These competitors mainly serve
internet service providers and a few large business customers, but competition
for residential customers is present in isolated areas.
Under the 1996 Act and subsequent FCC and state rules, CLECs can compete
using one or more of three mechanisms:
- Construction of its own local exchange facilities, in which case the
ILEC's sole obligation is interconnection for purposes of traffic
interchange.
- Purchase unbundled network elements, or UNEs, at cost from the ILEC and
assemble them into local exchange services and/or supplement the
facilities it already owns.
- Resale of the ILEC's retail services purchased at wholesale rates from the
ILEC.
Some competitors have taken advantage of an ILEC's requirement to pay the
CLEC reciprocal compensation for traffic delivered to the CLEC. The increase of
traffic over the Internet has provided CLECs with an immediate mechanism to
build traffic and reciprocal compensation revenues. In 2000, our ILECs paid
$1.9 million in reciprocal compensation. While our ILECs are reciprocal
compensation payors, ELI is a reciprocal compensation receiver. We expect the
spread of Digital Subscriber Line and
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other high speed network services that give customers a dedicated link to the
internet, as well as the rural nature of our markets and expected actions by the
FCC and the United States Congress to limit the future growth of reciprocal
compensation.
Beginning in late 1999, the FCC expanded the availability of UNEs by
requiring ILECs to offer subloop unbundling, expanded extended loops, or EELs,
and line sharing. Pursuant to this FCC decision, CLECs can purchase a portion of
the ILECs' loop facilities at cost-based rates as opposed to the entire loop.
EELs allow CLECs to purchase links to customer premises located outside the
exchange where the CLEC is physically located at cost-based rates. Line sharing
allows ILECs to purchase just the high frequency portion of the loop that
permits the CLEC to offer high-speed data services more profitably, but leave
the lower margin voice services for the same customer with the ILEC. In addition
to expanding the availability of UNEs, in August 2000, the FCC expanded
collocation requirements to include cageless collocation in ILEC facilities.
These FCC decisions increase the CLECs' opportunities to reach customers
economically thereby increasing their ability to compete.
Under the 1996 Act, the RBOCs and their successors were precluded from
competing in most long-distance markets until they satisfied the state
regulatory authority and the FCC that their markets had been sufficiently opened
to local exchange competition. Beginning in 1999, state regulators and the FCC
began to allow the RBOCs and their successors to enter the long-distance market
in some states. By the end of February 2001, RBOC long-distance entry was only
allowed in New York, Texas, Oklahoma and Kansas. However, we expect additional
states to follow suit in the near future. Because we currently offer
long-distance service in New York and other states, it is possible that the
entry of the RBOCs and their successors into this market could adversely impact
our operations.
Though much of the initial competition in local telecommunications has been
in more densely populated urban areas, we have begun to experience competition
in some of our suburban and rural markets.
As of December 31, 2000, we had entered into 88 interconnection agreements.
These agreements allow CLECs to connect with some of our ILEC networks and
compete in our ILEC markets. In addition, in some markets, our ILEC services
provide reciprocal compensation payments and local number portability. These
competitors are mainly serving large business customers and internet service
providers. Competition for residential customers is present in isolated areas.
CLEC SERVICES COMPETITION
ELI faces significant competition from ILECs in each of its facilities-based
markets. Principal ILEC competitors include Qwest, SBC and Verizon.
Facility and non-facility based CLEC competitors in ELI's markets include,
among others: AT&T Local Services, Time Warner Telecom, MCI WorldCom and XO
Communications. In each of the markets in which ELI operates, at least one other
CLEC, and in some cases several other CLECs, offer many of the same local
communications services that ELI provides, generally at similar prices.
Potential and actual new market entrants in the local communications
services business include RBOCs and their successors entering new geographic
markets, IXCs, cable television companies, electric utilities, international
carriers, satellite carriers, teleports, microwave carriers, wireless telephone
system operators and private networks built by large end users. In addition, the
current trend of business combinations and alliances in the communications
industry, including mergers between RBOCs and their successors, may increase
competition for ELI. With the passage of the 1996 Act and the entry of RBOCs and
their successors into the long distance market, IXCs may be motivated to
construct their own local facilities or otherwise acquire the right to use local
facilities and/or resell the local services of ELI's competitors.
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Competition for network services is based on price, quality, network
reliability, customer service, service features and responsiveness to the
customer's needs. As a point of differentiation from the ILECs, ELI's
fiber-optic networks provide both diverse access routing and redundant
electronics, design features not widely deployed within the ILEC's networks.
ELI's competitors for high-speed data services include major IXCs, other
CLECs and various providers of niche services, such as internet access
providers, router management services and systems integrators. The
interconnectivity of ELI's markets may create additional competitive advantages
over other data service providers that must obtain local access from the ILEC or
another CLEC in each market or that cannot obtain intercity transport rates on
terms as favorable as those available to ELI.
The market for internet access and related services in the United States is
extremely competitive, with barriers to entry related to capital costs,
bandwidth capacity and internal provisioning and operations processes. We expect
that competition will intensify as existing services and network providers and
new entrants compete for customers. In addition, new enhanced internet services
such as managed router service and web hosting are constantly under development
in the market and we expect additional innovation in this market by a range of
competitors. ELI's current and future competitors include communications
companies, including the RBOCs and their successors, IXCs, CLECs and cable
television companies and other internet access providers.
Many of these competitors have greater market presence and greater
financial, technical, marketing and human resources, more extensive
infrastructure and stronger customer and strategic relationships than are
available to us.
PUBLIC UTILITIES SERVICES
We have historically provided public utilities services including natural
gas transmission and distribution, electric transmission and distribution, water
distribution and wastewater treatment services to primarily rural and suburban
customers throughout the United States. In May 1998, we announced a plan of
divestiture for our public utilities services properties. In 1999, we initially
accounted for the planned divestiture of our public utilities services segments
as discontinued operations. Because we have not yet entered into agreements to
sell our entire gas and electric segments, we reclassified all our gas and
electric assets and their related liabilities in the second half of 2000 as "net
assets held for sale." As a result, our discontinued operations only reflect the
assets and related liabilities of the water and wastewater businesses.
NATURAL GAS
Our natural gas segment provides natural gas transmission and distribution
services in Louisiana, Arizona and Colorado, as well as synthetic natural gas
and propane service in Hawaii to 473,500 primarily residential customers. Our
natural gas segment accounted for $374.8 million, or 20.8%, of our revenues in
fiscal year 2000.
Natural gas services and/or rates charged are subject to the jurisdiction of
federal and state regulatory agencies, except for the non-regulated propane
rates charged to customers in Hawaii. We purchase the gas supply we need, except
for our production of synthetic natural gas in Hawaii. We believe our natural
gas supply is adequate to meet current demands and to provide for additional
sales to new customers. The natural gas industry is subject to seasonal demand,
except in Hawaii, with the peak demand occurring during the heating season of
November 1 through March 31. Our natural gas segment experiences third-party
competition from fuel oil, propane and other gas suppliers for most of our large
consumption customers, of which there are few, and from electric suppliers for
all of our customer base. The competitive position of gas at any given time
depends primarily on the relative prices of gas and these other energy sources.
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ELECTRIC
Our electric segment provides electric transmission and distribution
services in Arizona, Hawaii and Vermont to 123,500 primarily residential
customers. Our electric segment accounted for $223.1 million, or 12.4%, of our
revenues in fiscal year 2000.
Electric services and/or rates charged are subject to the jurisdiction of
federal and state regulatory agencies. We purchase approximately 81% of the
electric energy needed to provide services to our customers. We believe our
supply is adequate to meet current demands and to provide for additional sales
to new customers. The majority of our generating facilities are on Kauai,
Hawaii. We also have generating facilities in Arizona and Vermont, which are
used mainly for back-up power supply. Generally, our electric segment does not
experience material seasonal fluctuations.
The electric utility industry in the United States is undergoing fundamental
changes. For many years electric utilities have been vertically integrated
entities with the responsibility for the generation, transmission and
distribution of electric power in a franchise territory. In return for monopoly
status, electric utilities have been subject to comprehensive regulation at the
state and federal level. The industry is now shifting toward electric customers
being able to choose their energy provider much like telephone customers are
able to choose their long distance provider. Generally, this involves splitting
apart the generation and transmission of power from the remainder of the
business, and having generators compete with one another in the sale of power
directly to retail customers. The interconnected regional transmission grids
will be operated independently, continuing as a federally regulated monopoly.
Local transmission and distribution facilities would continue as state-regulated
monopolies. This change in the industry is in various stages of development
around the United States. The pace and degree of regulation vary from state to
state.
During the past year power supply costs have increased substantially,
forcing distribution companies to incur higher costs to operate their electric
businesses. As a result, companies have employed several varied tactics to try
to control or offset these costs. These tactics include renegotiating prices
with power suppliers and attempting to pass increased power costs on to
customers through automatic adjustment mechanisms or rate proceedings.
Regulators have resisted these efforts in an attempt to avoid a sudden, steep
increase in electric rates, known as "rate shock." Pending final resolution of
these issues, we will, where appropriate, seek authority to defer these costs in
hopes of being allowed to recover them in the future. In addition, distribution
companies have disputed past charges from their power suppliers. In Arizona, we
are currently disputing with our power supplier the amount of what we believe
are excessive power costs charged by our power supplier which, through
December 31, 2000, total approximately $57.0 million.
Our Vermont Electric Division is a member of the Vermont Joint Owners, a
consortium of 14 Vermont utilities that has entered into a purchase power
agreement with a Canadian power generation facility. The agreement provides for
up to 450 MW of power and associated energy to be delivered to Vermont, in
varying amounts, between 1990 and 2020. If any member of the consortium defaults
on its share of power under the agreement, the remaining members of the
consortium are required by "step-up" provisions of the agreement to assume
responsibility for a defaulting member's share on a pro-rata basis. Currently
the agreement's pricing exceeds market levels, and the Vermont Public Service
Board has been unwilling to allow all members of the consortium full recovery
through rates of power costs associated with the contract. The Vermont Board's
decision has put at least one of the members of the consortium in a precarious
financial condition. If the Vermont Board persists in its refusal and thereby
forces one or more members of the consortium to default on their obligations
under the contract, such default could shift significant additional cost burdens
to our Vermont electric division.
On February 15, 2000, we announced that we had agreed to sell our electric
services segment. Our Arizona and Vermont electric divisions were under contract
to be sold, but the parties terminated the agreement on March 7, 2001 due to the
failure of the proposed purchaser to raise the required financing
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and obtain the required regulatory approval necessary to meet its obligations
under the contract for sale. We intend to pursue the disposition of the Vermont
and Arizona electric divisions with alternative buyers.
In August 2000, the Hawaii Public Utility Commission, or HPUC, denied the
application requesting approval of the purchase of our Kauai electric division
by the Kauai Island Electric Co-op for $270.0 million in cash including the
assumption of certain liabilities. We are considering a variety of options,
including the filing of a request for reconsideration of the decision or the
filing of a new application. Our agreement for the sale of this division may be
terminated if regulatory approval is not received before February 2002.
In Kauai, historically, we received approximately 13% of our power from a
third-party provider. As of January 2001, this third-party provider will no
longer provide power due to the closure of their sugar operations. In order to
avoid power outages, we have completed negotiations with a new-third party
provider for a new purchase power agreement. This agreement is subject to
approval by the HPUC. Current forecasts report that Kauai will require
additional electrical generating capacity in 2002. As a result, we have entered
into a 25-year purchase power agreement with Kauai Power Partners, an
independent power producer, to provide firm power by July 2002. This agreement
was recently approved by the HPUC.
WATER AND WASTEWATER
Through subsidiaries, we provide water distribution, wholesale water
transmission, wastewater treatment, public works consulting and marketing and
billing services to approximately 322,200 primarily residential customers in,
Arizona, Illinois, California, Pennsylvania, Ohio, and Indiana.
On October 18, 1999, we announced the agreement to sell our water and
wastewater segment to American Water Works, Inc. for $745.0 million in cash and
$90.0 million of assumed debt. This transaction is expected to close in the
second half of 2001 following the receipt of regulatory approvals. However, our
agreement for the sale of this business may be terminated if regulatory approval
is not received before September 30, 2001.
PROPERTIES
Our principal offices are located in leased premises in Stamford,
Connecticut.
The operations support office for our ILEC segment is located in Plano,
Texas. This facility, which we own, accommodates approximately 1,100 employees
and has the acreage necessary for phased expansion up to 750,000 square feet. In
addition, our ILEC segment leases and owns office space in various markets
throughout the United States.
The operations support office for our CLEC segment is located in Vancouver,
Washington. This building, which we own, is fully occupied. In addition, our
CLEC segment leases local office space in various markets throughout the United
States, and also maintains a warehouse facility in Portland, Oregon. Our CLEC
segment also leases network hub and network equipment installation sites in
various locations throughout the areas in which it provides services.
Our ILEC and CLEC services segments own telephone properties which include:
connecting lines between customers' premises and the central offices; central
office switching equipment; fiber-optic and microwave radio facilities,
buildings and land; and customer premise equipment. The connecting lines,
including aerial and underground cable, conduit, poles, wires and microwave
equipment, are located on public streets and highways or on privately owned
land. We have permission to use these lands pursuant to local governmental
consent or lease, permit, franchise, easement or other agreement.
Our public utilities services segments are administered locally in the
principal states in which they operate. Pending the sale of our public utilities
services segments, we own:
- gas production, transmission and distribution facilities; electric
generation, transmission and distribution facilities;
- water production, treatment, storage, transmission and distribution
facilities; and
- wastewater treatment, transmission, collection and discharge facilities.
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CITIZENS COMMUNICATIONS CAPITAL TRUST I
Citizens created the Trust as a statutory business trust under Delaware law.
The Trust's business is defined in a trust agreement executed by Citizens, as
depositor, and Chase Manhattan Bank USA, National Association, as the Delaware
trustee. That trust agreement will be amended when the trust preferred
securities are issued. The amended trust agreement will be in substantially the
form filed with the Securities and Exchange Commission, or SEC, as an exhibit to
the registration statement, of which the prospectus is a part. The amended trust
agreement is called the "Trust Agreement" in this prospectus.
The Trust exists for the purposes of (1) issuing the trust preferred
securities to the public, (2) issuing common securities of the Trust to Citizens
and (3) using the proceeds from the issuance of the trust preferred securities
and the common securities of the Trust to purchase junior subordinated notes of
Citizens. The Trust may engage in only those other activities as are necessary,
appropriate, convenient or incidental to those purposes. The preferred
securities and the common securities of the Trust together are sometimes called
the "Trust Securities" in this prospectus.
The securities trustees--the administrative trustees, the property trustee
and the Delaware trustee--will conduct the Trust's business and affairs.
Citizens, as the holder of the common securities of the Trust, will appoint the
securities trustees. Two of Citizens' officers initially will serve as
administrative trustees. The Chase Manhattan Bank will serve as property
trustee. Chase Manhattan Bank USA, National Association will serve as Delaware
trustee. Citizens, as the holder of all the common securities of the Trust, will
have the right to appoint, remove or replace any of the securities trustees,
subject to the right of the holders of a majority of the trust preferred
securities to appoint a substitute property trustee and Delaware trustee if an
event of default with respect to the junior subordinated notes occurs.
No separate financial statements of the Trust are included in this
prospectus. Citizens believes that those statements would not be material to
holders of the trust preferred securities because the Trust has no independent
operations and the sole purpose of the Trust is investing the proceeds of the
sale of its Trust Securities in the junior subordinated notes. Citizens does not
expect that the Trust will be filing annual, quarterly or special reports with
the SEC.
The Trust's office address in the State of Delaware is c/o Chase Manhattan
Bank USA, National Association, 1201 Market Street, Wilmington, Delaware 19801.
The principal place of business of the Trust will be c/o Citizens, 3 High Ridge
Park, Stamford, Connecticut 06905. The Trust's telephone number is
(203) 614-5600.
ACCOUNTING TREATMENT
The Trust will be treated as a subsidiary of Citizens for financial
reporting purposes. Accordingly, Citizens' consolidated financial statements
will include the accounts of the Trust. The trust preferred securities, along
with other trust preferred securities that Citizens guarantees on an equivalent
basis, will be presented as a separate line item in Citizens' consolidated
balance sheets, entitled "Guaranteed Preferred Beneficial Interests in
Subordinated Notes of Citizens or Subsidiaries" or under a similar description.
Citizens will record distributions that the Trust pays on the trust preferred
securities as an expense in its consolidated statement of income.
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SELLING STOCKHOLDER
This prospectus also relates to approximately 9,139,900 shares, or the
Resale Shares, of common stock of Citizens that may from time to time be sold by
the entity set forth below. An affiliate of Citibank, N.A. purchased shares of
common stock in the public markets in connection with an equity repurchase
transaction between Citibank, N.A. and us. The shares of common stock were
subsequently transferred to Salomon Smith Barney Inc., the selling stockholder
and an affiliate of Citibank, N.A.
The following table states the number of shares of our outstanding common
stock that the selling stockholder owns and the number of shares of common stock
that may be sold from the account of the selling stockholder in connection with
the settlement of the equity repurchase transaction.
NUMBER OF SHARES
NAME AND ADDRESS NUMBER OF SHARES OWNED NUMBER OF SHARES THAT MAY OWNED AFTER THE
OF STOCKHOLDER PRIOR TO THE OFFERING BE SOLD IN THE OFFERING OFFERING
---------------- ---------------------- ------------------------- -----------------
Salomon Smith Barney Inc. 9,909,066 9,139,900 769,166*
390 Greenwich Street
New York, NY 10013
------------------------------
* This assumes that all shares that may be sold in the offering by the selling
stockholder are sold in the offering.
We will pay all expenses in connection with the registration of the Resale
Shares, including brokerage commissions allocable to the sales of the Resale
Shares and fees and disbursements of counsel and other representatives of the
selling stockholder. We have also agreed to indemnify the selling stockholder
and its affiliates for certain matters.
The selling stockholder and its affiliates have performed investment banking
and advisory services for us from time to time for which they have received
customary fees and expenses. The selling stockholder and its affiliates may,
from time to time, engage in transactions with and perform services for us in
the ordinary course of their business.
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DESCRIPTION OF DEBT SECURITIES
The following is a summary of the general terms of the debt securities. We
will file a prospectus supplement that may contain additional terms when we
issue debt securities. The terms presented here, together with the terms in a
related prospectus supplement, which could be different from the terms described
below, will be a description of the material terms of the debt securities. You
should also read the indenture governing the applicable class of our debt
securities. We have filed two forms of indentures, one each for senior debt
securities and for subordinated debt securities, with the SEC as exhibits to the
registration statement of which this prospectus is a part. All capitalized terms
have the meanings specified in the indentures. The terms and provisions of the
debt securities described below will most likely be modified by the documents
that set forth the specific terms of the debt securities issued.
We may issue, from time to time, debt securities, in one or more series,
that will consist of either our senior debt or our subordinated debt. Each
series of debt securities we offer will be issued under an indenture between us
and a trustee. Debt securities, whether senior or subordinated, may be issued as
convertible debt securities or exchangeable debt securities. Unless otherwise
provided for in the applicable prospectus supplement, the indenture governing
our subordinated debt securities will be substantially similar to the indenture
governing our senior debt securities other than as to subordination terms.
GENERAL TERMS OF THE INDENTURES
The indentures do not limit the amount of debt securities that we may issue.
Each indenture provides that we may issue debt securities up to the principal
amount that we may authorize and may be in any currency or currency unit that we
may designate. The terms of the indentures do not contain any covenants or other
provisions designed to give holders of any debt securities protection against
changes in our operations, financial condition or transactions involving us, but
these types of provisions may be included in the documents that set forth the
specific terms of the debt securities. We may issue the debt securities issued
under either indenture as "discount securities," which means they may be sold at
a discount below their stated principal amount. These debt securities, as well
as other debt securities that are not issued at a discount, may, for United
States federal income tax purposes, be treated as if they were issued with
"original issue discount" because of interest payment and other characteristics.
Special United States federal income tax considerations applicable to debt
securities issued with original issue discount will be described in more detail
in any applicable prospectus supplement.
The applicable prospectus supplement for a series of debt securities that we
issue will describe, among other things, the following terms of the offered debt
securities:
- the title;
- any limit on the aggregate principal amount;
- whether issued in fully registered form without coupons or in a form
registered as to principal only with coupons or in bearer form with
coupons;
- whether issued in the form of one or more global securities and whether
all or a portion of the principal amount of the debt securities is
represented by a global security;
- the price or prices at which the debt securities will be issued;
- the date or dates on which principal is payable;
- the place or places where and the manner in which principal, premium or
interest will be payable and the place or places where the debt securities
may be presented for transfer and, if applicable, conversion or exchange;
27
- interest rates, and the dates from which interest, if any, will accrue,
and the dates when interest is payable and the maturity;
- the right, if any, to extend the interest payment periods and the duration
of the extensions;
- our rights or obligations to redeem or purchase the debt securities;
- any sinking fund provisions;
- conversion or exchange provisions, if any, including conversion or
exchange prices or rates and adjustments to conversion or exchange prices
or rates;
- the currency or currencies of payment of principal or interest;
- the terms applicable to any debt securities issued at a discount from
their stated principal amount;
- the terms, if any, under which any debt securities will rank junior to any
of our other debt;
- if the amount of payments of principal or interest is to be determined by
reference to an index or formula, or based on a coin or currency other
than that in which the debt securities are stated to be payable, the
manner in which these amounts are determined and the calculation agent, if
any, with respect thereto;
- if other than the entire principal amount of the debt securities when
issued, the portion of the principal amount payable upon acceleration of
maturity as a result of a default on our obligations;
- if applicable, covenants affording holders of debt protection against
changes in our operations, financial condition or transactions involving
us; and
- any other specific terms of any debt securities.
The applicable prospectus supplement will present United States federal income
tax considerations for holders of any debt securities and the securities
exchange or quotation system on which any debt securities are listed or quoted.
SENIOR DEBT SECURITIES
Senior debt securities will be issued under the senior indenture. Payment of
the principal of, premium, if any, and interest on senior debt securities will
rank on a parity with all of our other unsecured and unsubordinated debt.
SUBORDINATED DEBT SECURITIES
GENERALLY
Subordinated debt securities will be issued under the subordinated
indenture. Payment of the principal of, premium, if any, and interest on
subordinated debt securities will be subordinated and junior in right of payment
to the prior payment in full of all of our senior debt. We will state in the
applicable prospectus supplement relating to any subordinated debt securities
the subordination terms of the securities as well as the aggregate amount of
outstanding indebtedness, as of the most recent practicable date, that by its
terms would be senior to the subordinated debt securities. We will also state in
the prospectus supplement limitations, if any, on issuance of additional senior
indebtedness.
JUNIOR SUBORDINATED NOTES
In connection with the issuance of any trust preferred securities by the
Trust, Citizens will issue to the Trust a series of junior subordinated notes.
Citizens will also provide a guarantee of obligations of the Trust as described
under "Description of the Guarantee". The junior subordinated notes are expected
to rank subordinate and junior in right of payment to all of Citizens'
indebtedness, which may
28
include other subordinated notes, unless that indebtedness is expressly
subordinated to or ranks on a parity with the junior subordinated notes.
Specific terms of any junior subordinated notes issued in connection with the
issuance of any trust preferred securities will be set forth in a prospectus
supplement describing these issuances.
CONVERSION OR EXCHANGE RIGHTS
Debt securities may be convertible into or exchangeable for shares of our
equity securities or equity securities of our subsidiaries or affiliates. The
terms and conditions of conversion or exchange will be stated in the applicable
prospectus supplement. The terms will include, among others, the following:
- the conversion or exchange price;
- the conversion or exchange period;
- provisions regarding the convertibility or exchangeability of the debt
securities, including who may convert or exchange;
- events requiring adjustment to the conversion or exchange price;
- provisions affecting conversion or exchange in the event of our redemption
of the debt securities; and
- any anti-dilution provisions, if applicable.
EVENTS OF DEFAULT
Unless otherwise provided for in the applicable prospectus supplement, the
term "Event of Default," when used in either indenture, unless otherwise
indicated, means any of the following:
- failure to pay interest for 60 days after the date payment is due and
payable; provided that if we extend an interest payment period in
accordance with the terms of the debt securities, the extension will not
be a failure to pay interest;
- failure to pay principal or premium, if any, on any debt security when
due, either at maturity, upon any redemption, by declaration or otherwise;
- failure to make sinking fund payments when due;
- failure to perform other covenants for 90 days after notice that
performance was required;
- events in bankruptcy, insolvency or reorganization of our company; or
- any other Event of Default provided in the applicable resolution of our
Board or supplemental indenture under which we issue a series of debt
securities.
An Event of Default for a particular series of debt securities does not
necessarily constitute an Event of Default for any other series of debt
securities issued under an indenture. If an Event of Default relating to the
payment of interest, principal or any sinking fund installment involving any
series of debt securities has occurred and is continuing, the trustee or the
holders of not less than 25% in aggregate principal amount of the debt
securities of each affected series may declare the entire principal of all the
debt securities of that series to be due and payable immediately.
If an Event of Default relating to the performance of other covenants occurs
and is continuing for a period of 60 days after notice of that event, or if any
other Event of Default occurs and is continuing involving all of the series of
senior debt securities, then the trustee or the holders of not less than 25% in
aggregate principal amount of all of the series of senior debt securities may
declare the entire principal amount of all of the series of senior debt
securities due and payable immediately.
Similarly, if an Event of Default relating to the performance of other
covenants occurs and is continuing for a period of 60 days after notice of that
event, or if any other Event of Default occurs and is continuing involving all
of the series of subordinated securities, then the trustee or the holders of
29
not less than 25% in aggregate principal amount of all of the series of
subordinated securities may declare the entire principal amount of all of the
series of subordinated securities due and payable immediately.
If, however, the Event of Default relating to the performance of other
covenants or any other Event of Default that has occurred and is continuing is
for less than all of the series of senior debt securities or subordinated
securities, as the case may be, then, the trustee or the holders of not less
than 25% in aggregate principal amount of each affected series of the senior
debt securities or the subordinated securities, as the case may be, may declare
the entire principal amount of all debt securities of the affected series due
and payable immediately. The holders of not less than a majority, or any
applicable supermajority, in aggregate principal amount of the debt securities
of a series may, after satisfying conditions, rescind and annul any of the
above-described declarations and consequences involving the series.
If an Event of Default relating to events in bankruptcy, insolvency or
reorganization of our company occurs and is continuing, then the principal
amount of all of the debt securities outstanding, and any accrued interest, will
automatically become due and payable immediately, without any declaration or
other act by the trustee or any holder.
The indentures impose limitations on suits brought by holders of debt
securities against us. Except for actions for payment of overdue principal or
interest, no holder of debt securities of any series may institute any action
against us under the relevant indenture unless:
- the holder has previously given to the trustee written notice of default
and continuance of such default;
- the holders of at least 25% in principal amount of the outstanding debt
securities of the affected series have requested that the trustee
institute the action;
- the requesting holders have offered the trustee reasonable indemnity for
expenses and liabilities that may be incurred by bringing the action;
- the trustee has not instituted the action within 60 days of the request;
and
- the trustee has not received inconsistent direction by the holders of a
majority in principal amount of the outstanding debt securities of the
series.
We will be required to file annually with each trustee a certificate, signed
by an officer of our company, stating whether or not the officer knows of any
default by us in the performance, observance or fulfillment of any condition or
covenant of the relevant indenture.
REGISTERED GLOBAL SECURITIES
We may issue the debt securities of a series in whole or in part in the form
of one or more fully registered global securities. We will deposit any
registered global securities with a depositary or with a nominee for a
depositary identified in the applicable prospectus supplement and registered in
the name of the depositary or nominee. In that case, we will issue one or more
registered global securities denominated in an amount equal to the aggregate
principal amount of all of the debt securities of the series to be issued and
represented by the registered global security or securities.
Unless and until it is exchanged in whole or in part for debt securities in
definitive registered form, a registered global security may not be transferred
except as a whole:
- by the depositary for such registered global security to its nominee;
- by a nominee of the depositary to the depositary or another nominee of the
depositary; or
- by the depositary or its nominee to a successor of the depositary or a
nominee of the successor.
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The prospectus supplement relating to a series of debt securities will
describe the specific terms of the depositary arrangement involving any portion
of the series represented by a registered global security.
We anticipate that the following provisions will apply to all depositary
arrangements for debt securities:
- ownership of beneficial interests in a registered global security will be
limited to persons that have accounts with the depositary for such
registered global security, these persons being referred to as
"participants," or persons that may hold interests through participants;
- upon the issuance of a registered global security, the depositary for the
registered global security will credit, on its book-entry registration and
transfer system, the participants' accounts with the respective principal
amounts of the debt securities represented by the registered global
security beneficially owned by the participants;
- any dealers, underwriters, or agents participating in the distribution of
the debt securities will designate the accounts to be credited; and
- ownership of beneficial interest in such registered global security will
be shown on, and the transfer of such ownership interest will be effected
only through, records maintained by the depositary for such registered
global security for interests of participants, and on the records of
participants for interests of persons holding through participants.
The laws of some states may require that specified purchasers of securities
take physical delivery of the securities in definitive form. These laws may
limit the ability of those persons to own, transfer or pledge beneficial
interests in registered global securities.
So long as the depositary for a registered global security, or its nominee,
is the registered owner of the registered global security, the depositary or
nominee, as the case may be, will be considered the sole owner or holder of the
debt securities represented by the registered global security for all purposes
under the relevant indenture. Except as stated below, owners of beneficial
interests in a registered global security:
- will not be entitled to have the debt securities represented by a
registered global security registered in their names;
- will not receive or be entitled to receive physical delivery of the debt
securities in the definitive form; and
- will not be considered the owners or holders of the debt securities under
the relevant indenture.
Accordingly, each person owning a beneficial interest in a registered global
security must rely on the procedures of the depositary for the registered global
security and, if the person is not a participant, on the procedures of a
participant through which the person owns its interest, to exercise any rights
of a holder under the relevant indenture.
We understand that under existing industry practices, if we request any
action of holders or if an owner of a beneficial interest in a registered global
security desires to give or take any action that a holder is entitled to give or
take under the relevant indenture, the depositary for the registered global
security would authorize the participants holding the relevant beneficial
interests to give or take the action, and the participants would authorize
beneficial owners owning through the participants to give or take the action or
would otherwise act upon the instructions of beneficial owners holding through
them.
We will make payments of principal and premium, if any, and interest, if
any, on debt securities represented by a registered global security registered
in the name of a depositary or its nominee to the depositary or its nominee, as
the case may be, as the registered owners of the registered global security.
None of our company, the trustee or any other agent of our company or the
trustee will be responsible or liable for any aspect of the records relating to,
or payments made on account of, beneficial
31
ownership interests in the registered global security or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests.
We expect that the depositary for any debt securities represented by a
registered global security, upon receipt of any payments of principal and
premium, if any, and interest, if any, in respect of the registered global
security, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the registered
global security as shown on the records of the depositary. We also expect that
standing customer instructions and customary practices will govern payments by
participants to owners of beneficial interests in the registered global security
held through the participants, as is now the case with the securities held for
the accounts of customers in bearer form or registered in "street name." We also
expect that any of these payments will be the responsibility of the
participants.
If the depositary for any debt securities represented by a registered global
security is at any time unwilling or unable to continue as depositary or stops
being a clearing agency registered under the Securities Exchange Act of 1934, we
will appoint an eligible successor depositary. If we fail to appoint an eligible
successor depositary within 90 days, we will issue the debt securities in
definitive form in exchange for the registered global security. In addition, we
may at any time and in our sole discretion decide not to have any of the debt
securities of a series represented by one or more registered global securities.
In that event, we will issue debt securities of the series in a definitive form
in exchange for all of the registered global securities representing the debt
securities. The trustee will register any debt securities issued in definitive
form in exchange for a registered global security in the name or names as the
depositary, based upon instructions from its participants, shall instruct the
trustee.
We may also issue bearer debt securities of a series in the form of one or
more global securities, referred to as "bearer global securities." We will
deposit these securities with a common depositary for Euroclear System and
Clearstream Banking, or with a nominee for the depositary identified in the
prospectus supplement relating to the series. The prospectus supplement relating
to a series of debt securities represented by a bearer global security will
describe the applicable terms and procedures. These will include the specific
terms of the depositary arrangement and any specific procedures for the issuance
of debt securities in definitive form in exchange for a bearer global security,
in proportion to the series represented by a bearer global security.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
We can discharge or defease our obligations under either indenture or both
indentures as stated below or as provided in the applicable prospectus
supplement.
Unless otherwise provided in the applicable prospectus supplement, we may
discharge obligations to holders of any series of debt securities that have not
already been delivered to the relevant trustee for cancellation and that have
either become due and payable or are by their terms to become due and payable,
or are scheduled for redemption, within one year. We may effect a discharge by
irrevocably depositing with the trustee cash or United States government
obligations, as trust funds, in an amount certified to be enough to pay when
due, whether at maturity, upon redemption or otherwise, the principal of,
premium, if any, and interest on the debt securities and any mandatory sinking
fund payments.
Unless otherwise provided in the applicable prospectus supplement, we may
also discharge any and all of our obligations to holders of any series of debt
securities at any time, referred to as "defeasance." We may also be released
from the obligations imposed by any covenants of any outstanding series of debt
securities and provisions of the relevant indenture, and we may omit to comply
with those covenants without creating an event of default under the relevant
indenture, referred
32
to as "covenant defeasance." We may effect defeasance and covenant defeasance
only if, among other things:
- we irrevocably deposit with the trustee cash or United States government
obligations, as trust funds, in an amount certified to be enough to pay at
maturity, or upon redemption, the principal, premium, if any, and interest
on all outstanding debt securities of the series;
- we deliver to the trustee an opinion of counsel from a nationally
recognized law firm to the effect that (i) in the case of covenant
defeasance, the holders of the series of debt securities will not
recognize income, gain or loss for United States federal income tax
purposes as a result of such defeasance, and will be subject to tax in the
same manner and at the same times as if no covenant defeasance had
occurred and (ii) in the case of defeasance, either we have received from,
or there has been published by, the Internal Revenue Service a ruling or
there has been a change in applicable United States federal income tax
law, and based thereon, the holders of the series of debt securities will
not recognize income, gain or loss for United States federal income tax
purposes as a result of such defeasance, and will be subject to tax in the
same manner as if no defeasance had occurred; and
- in the case of subordinated debt securities, no event or condition shall
exist that, based on the subordination provisions applicable to the
series, would prevent us from making payments of principal of, premium, if
any, and interest on any of the applicable subordinated debt securities at
the date of the irrevocable deposit referred to above or at any time
during the period ending on the 91st day after the deposit date.
Although we may discharge or decrease our obligations under an indenture as
described in the two preceding paragraphs, we may not avoid, among other things,
our duty to register the transfer or exchange of any series of debt securities,
to replace any temporary, mutilated, destroyed, lost or stolen series of debt
securities or to maintain an office or agency in respect of any series of debt
securities.
MODIFICATION OF THE INDENTURES
Except as provided in the applicable prospectus supplement, each indenture
provides that we and the trustee may enter into supplemental indentures without
the consent of the holders of debt securities to:
- secure any debt securities;
- evidence the assumption by a successor corporation of our obligations;
- add covenants for the protection of the holders of debt securities;
- cure any ambiguity or correct any inconsistency in the relevant indenture;
- establish the forms or terms of debt securities of any series; and
- evidence and provide for the acceptance of appointment by a successor
trustee.
The indentures also provide that we and the trustee may, with the consent of
the holders of not less than a majority in aggregate principal amount of debt
securities of all series of senior debt securities or of subordinated
securities, as the case may be, then outstanding and affected, voting as one
class, add any provisions to, or change in any manner, eliminate or modify in
any way the provisions of, the relevant indenture or modify in any manner the
rights of the holders of the debt securities. We and the trustee may not,
however, without the consent of the holder of each outstanding debt security
affected thereby:
- extend the final maturity of any debt security;
- reduce the principal amount or premium, if any;
- reduce the rate or extend the time of payment of interest;
- reduce any amount payable on redemption;
33
- change the currency in which the principal, unless otherwise provided for
a series, premium, if any, or interest is payable;
- reduce the amount of the principal of any debt security issued with an
original issue discount that is payable upon acceleration or provable in
bankruptcy;
- impair the right to institute suit for the enforcement of any payment on
any debt security when due; or
- reduce the percentage of holders of debt securities of any series whose
consent is required for any modification of the relevant indenture.
CONCERNING THE TRUSTEE
The indentures provide that there may be more than one trustee under each
indenture, each for one or more series of debt securities. If there are
different trustees for different series of debt securities under an indenture,
each trustee will be a trustee under the relevant indenture separate and apart
from the trust administered by any other trustee under the same indenture or any
other indenture. Except as otherwise indicated in this prospectus or any
prospectus supplement, any action permitted to be taken by a trustee may be
taken by that trustee only on the one or more series of debt securities for
which it is the trustee under the relevant indenture. Any trustee under the
relevant indenture may resign or be removed from one or more series of debt
securities. All payments of principal of, premium, if any, and interest on, and
all registration, transfer, exchange, authentication and delivery of, the debt
securities of a series will be effected by the relevant trustee for such series
at an office designated by such trustee in New York, New York.
If any trustee becomes a creditor of our company, each indenture places
limitations on the right of the trustee to obtain payment of claims or to
realize on property received in respect of any such claim as security otherwise.
Any trustee may engage in other transactions. If it acquires any conflicting
interest relating to any duties concerning the debt securities, however, it must
eliminate the conflict or resign as trustee.
The holders of a majority in aggregate principal amount of any series of
debt securities then outstanding will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the relevant trustee concerning the applicable series of debt securities,
provided that the direction:
- would not conflict with any rule of law or with the relevant indenture;
- would not be unduly prejudicial to the rights of another holder of the
debt securities; and
- would not involve any trustee in personal liability.
The indentures provide that in case an Event of Default shall occur, not be
cured and be known to any trustee, the relevant trustee must use the same degree
of care as a prudent person would use in the conduct of his or her own affairs
in the exercise of the trustee's power. No trustee will be under any obligation
to exercise any of its rights or powers under an indenture at the request of any
of the holders of the debt securities, unless the holders shall have offered to
the trustee security and indemnity satisfactory to that trustee.
NO INDIVIDUAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS OR DIRECTORS
The indentures provide that no incorporator and no past, present or future
shareholder, officer or director of our company or any successor corporation in
their capacity as such shall have any individual liability for any of our
obligations, covenants or agreements under the debt securities or the relevant
indenture.
GOVERNING LAW
The indentures and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 600,000,000 shares of common stock,
par value $.25 per share, and 50,000,000 shares of preferred stock, par value
$.01 per share. As of March 31, 2001, there were 266,485,914 shares of common
stock outstanding, and no shares of preferred stock outstanding.
COMMON STOCK
VOTING RIGHTS
The holders of common stock are entitled to one vote per share and are
entitled to vote upon all matters that come before the stockholders, including
the election of directors.
Only those holders of our common stock that, as of any relevant date, would
be entitled to elect a director at the next annual meeting of stockholders, may
remove a director. Our directors may be removed, with or without cause.
Vacancies in a directorship may be filled by:
- the majority of directors then in office, except in vacancies resulting
from the removal of directors by stockholders; or
- the vote of the holders of the common stock, as of the date such vacancy
is filled, entitled to elect such director at the next annual meeting of
stockholders.
DIVIDENDS
Holders of common stock are entitled to receive dividends at the same rate
if, as and when such dividends are declared by our board out of assets legally
available therefor after payment of dividends required to be paid on shares of
outstanding preferred stock. We may not make any dividend or distribution to any
holder of common stock unless simultaneously with the dividend or distribution
we make the same dividend or distribution with respect to each outstanding share
of common stock.
LIQUIDATION
In the event of our liquidation, after payment of our debts and other
liabilities and after making provision for the holders of preferred stock, if
any, our remaining assets will be distributable ratably among the holders of
common stock.
OTHER PROVISIONS
The holders of our common stock are not entitled to preemptive rights. All
outstanding shares of common stock are, and all shares of common stock offered
hereby when issued will be upon payment therefor, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
Our board of directors has the authority, without any further action by our
stockholders to issue from time to time shares of preferred stock in one or more
series and to fix the designations, preferences, rights, qualifications,
limitations and restrictions thereof, including voting rights, dividend rights,
dividend rates, conversion rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series. The
issuance of preferred stock with voting rights could have an adverse effect on
the voting power of holders of common stock by increasing the number of
outstanding shares having voting rights. In addition, if our board of directors
authorizes preferred stock with conversion rights, the number of shares of
common stock outstanding could potentially be increased up to the authorized
amount. The issuance of preferred stock could decrease the amount of earnings
and assets available for distribution to holders of common stock. Any such
issuance could also have the effect of delaying, deterring or preventing a
change in control of us and may adversely affect the rights of holders of our
common stock.
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GENERAL
CERTIFICATE OF INCORPORATION AND BY-LAWS
Stockholders' rights and related matters are governed by the Delaware
General Corporation Law and our certificate of incorporation and by-laws. The
terms of our restated certificate of incorporation and our by-laws are more
detailed than the general information provided in connection with the
description of our capital stock or otherwise in this prospectus. Therefore, you
should carefully consider the actual provisions of these documents.
LIMITATION OF DIRECTORS' LIABILITY
Our certificate of incorporation provides that none of our directors will be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
The effect of these provisions will be to eliminate our rights and our
stockholders' rights, through stockholders' derivatives suits on our behalf, to
recover monetary damages against a director for breach of fiduciary duty as a
director, including breaches resulting from grossly negligent behavior, except
in the situations described above. These provisions will not limit the liability
of directors under federal securities laws and will not affect the availability
of equitable remedies such as an injunction or rescission based upon a
director's breach of his or her duty of care.
TRANSFER AGENT
The Transfer Agent and Registrar for our common stock is the Illinois Stock
Transfer Company.
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DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred stock
or common stock. Warrants may be issued independently or together with debt
securities, preferred stock or common stock offered by any prospectus supplement
and may be attached to or separate from any such offered securities. Each series
of warrants will be issued under a separate warrant agreement to be entered into
between us and a bank or trust company, as warrant agent. The warrant agent will
act solely as our agent in connection with the warrants and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of warrants. The following summary of selected provisions of
the warrants does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the warrant agreement that will
be filed with the SEC in connection with the offering of such warrants.
DEBT WARRANTS
The prospectus supplement relating to a particular issue of debt warrants
will describe the terms of the debt warrants, including the following:
- the title of the debt warrants;
- the offering price for the debt warrants, if any;
- the aggregate number of the debt warrants;
- the designation and terms of the debt securities purchasable upon exercise
of the debt warrants;
- if applicable, the designation and terms of the debt securities with which
the debt warrants are issued and the number of debt warrants issued with
each debt security;
- if applicable, the date from and after which the debt warrants and any
debt securities issued therewith will be separately transferable;
- the principal amount of debt securities purchasable upon exercise of a
debt warrant and the price at which the principal amount of debt
securities may be purchased upon exercise, which price may be payable in
cash, securities, or other property;
- the date on which the right to exercise the debt warrants shall commence
and the date on which the right shall expire;
- if applicable, the minimum or maximum amount of the debt warrants that may
be exercised at any one time;
- whether the debt warrants represented by the debt warrant certificates or
debt securities that may be issued upon exercise of the debt warrants will
be issued in registered or bearer form;
- information with respect to book-entry procedures, if any;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
- if applicable, a discussion of material United States federal income tax
considerations;
- the antidilution provisions of the debt warrants, if any;
- the redemption or call provisions, if any, applicable to the debt
warrants; and
- any additional terms of the debt warrants, including terms, procedures,
and limitations relating to the exchange and exercise of the debt
warrants.
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STOCK WARRANTS
The prospectus supplement relating to any particular issue of preferred
stock warrants or common stock warrants will describe the terms of the warrants,
including the following:
- the title of the warrants;
- the offering price for the warrants, if any;
- the aggregate number of the warrants;
- the designation and terms of the common stock or preferred stock
purchasable upon exercise of the warrants;
- if applicable, the designation and terms of the offered securities with
which the warrants are issued and the number of the warrants issued with
each offered security;
- if applicable, the date from and after which the warrants and any offered
securities issued with them will be separately transferable;
- the number of shares of common stock or preferred stock purchasable upon
exercise of a warrant and the price at which the shares may be purchased
upon exercise;
- the date on which the right to exercise the warrants shall commence and
the date on which the right shall expire;
- if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
- if applicable, a discussion of material United States federal income tax
considerations;
- the antidilution provisions of the warrants, if any;
- the redemption or call provisions, if any, applicable to the warrants; and
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
38
DESCRIPTION OF DEPOSITARY SHARES
The following information outlines some of the provisions of the deposit
agreement, the depositary shares and the depositary receipts. This information
may not be complete in all respects and is qualified entirely by reference to
the relevant deposit agreement and depositary receipts with respect to the
depositary shares relating to any particular series of preferred stock. The
specific terms of any series of depositary shares will be described in the
relevant prospectus supplement. If so described in the prospectus supplement,
the terms of that series of depositary shares may differ and supersede some or
all of the terms presented below.
GENERAL
We may elect to offer fractional interests in shares of preferred stock
instead of whole shares of preferred stock. If so, we will allow a depositary to
issue depositary shares to the public, each of which will represent a fractional
interest in a share of the relevant series of preferred stock, as described in
the relevant prospectus supplement, of a share of preferred stock.
The shares of the preferred stock underlying any depositary shares will be
deposited under a separate deposit agreement between us and a bank or trust
company acting as depositary with respect to that series. The depositary will
have its principal office in the United States and have a combined capital and
surplus of at least $50,000,000. The relevant prospectus supplement relating to
a series of depositary shares will mention the name and address of the
depositary. Under the relevant deposit agreement, each owner of a depositary
share will be entitled, in proportion to its fractional interest in a share of
the preferred stock underlying that depositary share, to all the rights and
preferences of that preferred stock, including dividend, voting, redemption,
conversion, exchange and liquidation rights.
Depositary shares will be evidenced by one or more depositary receipts
issued under the relevant deposit agreement.
Pending the preparation of definitive engraved depositary receipts, a
depositary may, upon our order, issue temporary depositary receipts
substantially identical to and entitling their holders to all the rights
pertaining to the definitive depositary receipts, but not in definitive form.
Definitive depositary receipts will be prepared without unreasonable delay
and the temporary depositary receipts will be exchangeable for definitive
depositary receipts at our expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions in respect of the preferred stock to the record depositary
shareholders based on the number of the depositary shares owned by that holder
on the relevant record date. The depositary will distribute only that amount
which can be distributed without attributing to any depositary shareholders a
fraction of one cent, and any balance not so distributed will be added to and
treated as part of the next sum received by the depositary for distribution to
the depositary shareholders of record.
If there is a distribution other than in cash, the depositary will
distribute property to the depositary shareholders of record on a pro rata
basis, unless the depositary determines that it is not feasible to make that
distribution. In that case, the depositary may, with our consultation, adopt a
method it deems equitable and practicable for making that distribution,
including any sale of property and the distribution of the net proceeds from
that sale to the concerned holders.
Each deposit agreement will also contain provisions relating to the manner
in which any subscription or similar rights we offer to preferred stockholders
of the relevant series will be made available to depositary shareholders.
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WITHDRAWAL OF STOCK
Upon surrender of depositary receipts at the depositary's office, the holder
of the relevant depositary shares will be entitled to the number of whole shares
of the related series of preferred stock and any money or other property those
depositary shares represent. Depositary shareholders will be entitled to receive
whole shares of the related preferred stock series on the basis described in the
relevant prospectus supplement, but holders of those whole preferred stock
shares will not afterward be entitled to receive depositary shares in exchange
for their shares. If the depositary receipts the holder delivers evidence a
depositary share number exceeding the whole share number of the related
preferred stock series to be withdrawn, the depositary will deliver to that
holder a new depositary receipt evidencing the excess depositary share number.
REDEMPTION; LIQUIDATION
The terms on which the depositary shares relating to the preferred stock of
any series may be redeemed and any amounts distributable upon our liquidation,
dissolution or winding up, will be described in the relevant prospectus
supplement.
CONVERSION
The depositary shares, as such, are not convertible or exchangeable into our
common stock or any of our other securities or property. Nevertheless, the
prospectus supplement relating to an offering of depositary shares may provide
that the holders of depositary receipts may surrender their depositary receipts
to the depositary with written instructions to the depositary to instruct us to
cause the conversion or exchange of the preferred stock represented by these
depositary shares.
VOTING
Upon receiving notice of any meeting at which preferred stockholders of any
series of preferred stock underlying the depositary shares are entitled to vote,
the depositary will mail the information contained in that notice to the
depositary shareholders of record relating to that series of preferred stock.
Each depositary shareholder on the record date will be entitled to instruct the
depositary on how to vote the shares of preferred stock underlying that holder's
depositary shares. The depositary will vote the preferred stock shares
underlying those depositary shares according to those instructions, and we will
take actions we deem necessary to enable the depositary to do so. If the
depositary does not receive specific instructions from the depositary
shareholders relating to that series of preferred stock, it will abstain from
voting those preferred stock shares, unless otherwise mentioned in the relevant
prospectus supplement.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The depositary receipt form evidencing the depositary shares and the
relevant deposit agreement may be amended by us and the depositary. However, any
amendment that significantly affects the rights of the depositary shareholders
will not be effective unless a majority of the outstanding depositary
shareholders approve that amendment. We or the depositary may terminate a
deposit agreement only if:
- we have redeemed or reacquired all outstanding depositary shares relating
to the deposit agreement;
- all preferred stock of the relevant series has been withdrawn;
- there has been a final distribution in respect of the relevant series of
preferred stock in connection with our liquidation, dissolution or winding
up and that distribution has been made to the relevant depositary
shareholders;
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- all outstanding depository shares have been converted into or exchanged
for other securities; or
- upon determination by Citizens to terminate the deposit agreement.
CHARGES OF DEPOSITARY
We will pay all charges of each depositary in connection with the initial
deposit and any redemption of the preferred stock. Depositary shareholders will
be required to pay any other transfer and other taxes and governmental charges
and any other charges expressly provided in the deposit agreement to be for
their accounts.
Each depositary will forward to the relevant depositary shareholders all
reports and communications that we are required to furnish to our preferred
stockholders.
Neither any depositary nor Citizens will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under any deposit agreement. The obligations of each depositary
under any deposit agreement will be limited to performance in good faith of
their duties under that agreement, and they will not be obligated to prosecute
or defend any legal proceeding in respect of any depositary shares or preferred
stock unless they are provided with satisfactory indemnity. They may rely upon
written advice of counsel or accountants, or information provided by persons
presenting preferred stock for deposit, depositary shareholders or other persons
believed to be competent, and on documents believed to be genuine.
TITLE
We, each depositary and any of their agents may treat the registered owner
of any depositary share as the absolute owner of that share, whether or not any
payment for that depositary share is overdue and despite any notice to the
contrary, for any purpose.
RESIGNATION AND REMOVAL OF DEPOSITARY
A depositary may resign at any time by delivering to us notice of its
election to resign, and we may remove a depositary, and resignation or removal
will take effect upon the appointment of a successor depositary and its
acceptance of appointment.
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DESCRIPTION OF TRUST PREFERRED SECURITIES
The following description of the trust preferred securities is only a
summary and is not intended to be comprehensive.
GENERAL
The Trust Agreement authorizes the administrative trustees to issue the
trust preferred securities and the trust common securities on behalf of the
Trust. For additional information you should refer to the Trust Agreement. The
form of the Trust Agreement is filed with the SEC as an exhibit to the
registration statement, of which this prospectus is a part.
The prospectus supplement describing the trust preferred securities will
disclose the specific terms related to the offering, including the price or
prices at which the trust preferred securities to be offered will be issued.
Those terms will include some or all of the following:
- the number of trust preferred securities;
- the yearly distribution rate, or the method of determining that rate, and
the date or dates on which distributions will be payable;
- the date or dates, or method of determining the date or dates, from which
distributions will be cumulative;
- the amount that will be paid out of the assets of the Trust to the holders
of the trust preferred securities upon the voluntary or involuntary
dissolution, winding-up or termination of the Trust;
- any obligation that the Trust has to purchase or redeem the trust
preferred securities and the price at which, the period within which, and
the terms and conditions upon which the Trust will purchase or redeem
them;
- any voting rights of the trust preferred securities that are in addition
to those legally required, including any right that the holders of the
trust preferred securities have to approve certain actions under or
amendments to the trust agreement;
- any right that the Trust has to defer distributions on the trust preferred
securities in the event that Citizens extends the interest payment period
on the junior subordinated notes;
- any other rights, preferences, privileges, limitations or restrictions
upon the trust preferred securities; and
- Citizens will guarantee the trust preferred securities to the extent
described below under the caption "Description of the Guarantee."
The applicable prospectus supplement will describe any material United States
federal income tax considerations that apply to the trust preferred securities.
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DESCRIPTION OF GUARANTEE
In connection with the issuance of trust preferred securities by the Trust
and junior subordinated notes to the Trust by Citizens, Citizens will execute
the guarantee for the benefit of the holders of the preferred securities of the
Trust. The Chase Manhattan Bank will act as guarantee trustee. The guarantee
trustee will hold the guarantee for the benefit of the holders of the trust
preferred securities.
The following description of the guarantee is only a summary and is not
intended to be comprehensive. The form of guarantee is filed with the SEC as an
exhibit to the registration statement, of which this prospectus is a part.
GENERAL
Citizens will irrevocably and unconditionally agree under the guarantee to
pay in full the guarantee payments that are defined below, to the extent
specified in the guarantee, to the holders of the trust preferred securities, to
the extent that the guarantee payments are not paid by or on behalf of the
Trust. Citizens is required to pay the guarantee payments to the extent
specified in the guarantee regardless of any defense, right of set-off or
counterclaim that Citizens may have or may assert against any person.
The following payments and distributions on the trust preferred securities
of the Trust are guarantee payments:
- any acquired and unpaid distributions required to be paid on the trust
preferred securities of the Trust, but only to the extent that the Trust
has funds legally and immediately available for those distributions;
- the redemption price for any trust preferred securities that the Trust
calls for redemption, including all accrued and unpaid distributions to
the redemption date, but only to the extent that the Trust has funds
legally and immediately available for the payment; and
- upon a dissolution, winding-up or termination of the Trust, other than in
connection with the distribution of junior subordinated notes to the
holders of trust preferred securities or the redemption of all the trust
preferred securities, the lesser of:
- the sum of the liquidation amount and all accrued and unpaid
distributions on the trust preferred securities of the Trust to the
payment date, to the extent that the Trust has funds legally and
immediately available for the payment; and
- the amount of assets of the Trust remaining available for distribution
to holders of the trust preferred securities of the Trust in
liquidation of the Trust.
Citizens may satisfy its obligation to make a guarantee payment by making
that payment directly to the holders of the trust preferred securities or by
causing the Trust to make the payment to those holders.
The guarantee will be a full and unconditional guarantee, subject to certain
subordination provisions, of the guarantee payments with respect to the trust
preferred securities from the time of issuance of the trust preferred
securities, except that the guarantee will only apply to the payment of
distributions and other payments on the trust preferred securities when the
Trust has sufficient funds legally and immediately available to make those
distributions or other payments.
If Citizens does not make the required payments on the junior subordinated
notes held by the Trust, the Trust will not make the payments on the trust
preferred securities.
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SUBORDINATION
Citizens' obligations under the guarantee will be unsecured obligations of
Citizens. Those obligations will rank:
- subordinate and junior in right of payment to all of Citizens' other
liabilities, other than obligations or liabilities that rank equal in
priority or subordinate by their terms;
- equal in priority with Citizens' preferred stock and similar guarantees,
and
- senior to Citizens' common stock.
The guarantee will be a guarantee of payment and not of collection. This
means that the guaranteed party may institute a legal proceeding directly
against Citizens, as guarantor, to enforce its rights under the guarantee
without first instituting a legal proceeding against any other person or entity.
The terms of the trust preferred securities are expected to provide that
each holder of the trust preferred securities, by accepting the trust preferred
securities, agrees to the subordination provisions and other terms of the
guarantee.
AMENDMENTS
Citizens may amend the guarantee without the consent of any holder of the
trust preferred securities if the amendment does not materially and adversely
affect the rights of those holders. Citizens may otherwise amend the guarantee
with the approval of 66 2/3% of the outstanding trust preferred securities.
TERMINATION
The guarantee will terminate and be of no further effect when:
- the redemption price of the trust preferred securities is fully paid;
- Citizens distributes the junior subordinated notes to the holders of the
trust preferred securities; or
- the amounts payable upon liquidation of the Trust are fully paid.
The guarantee will remain in effect or will be reinstated if at any time any
holder the trust preferred securities must restore payment of any sums paid to
that holder with respect to the trust preferred securities or under the
guarantee.
EVENTS OF DEFAULT
An event of default will occur under the guarantee if Citizens fails to
perform any of its payment obligations under the guarantee. The holders of a
majority of the trust preferred securities may waive any such event of default
and its consequences on behalf of all of the holders of the trust preferred
securities. The guarantee trustee is obligated to enforce the guarantee for the
benefit of the holders of the trust preferred securities if an event of default
occurs under the guarantee.
The holders of a majority of the trust preferred securities of the guarantee
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the guarantee trustee with respect to the guarantee
or to direct the exercise of any trust or power that the guarantee trustee holds
under the guarantee. Any holder of the trust preferred securities may institute
a legal proceeding directly against Citizens to enforce that holder's rights
under the guarantee without first instituting a legal proceeding against the
guarantee trustee or any other person or entity.
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THE GUARANTEE TRUSTEE
The Chase Manhattan Bank is the guarantee trustee. It is also the property
trustee, the subordinated indenture trustee, and the senior indenture trustee.
Citizens and certain of its affiliates maintain deposit accounts and banking
relationships with The Chase Manhattan Bank. The Chase Manhattan Bank also
serves as trustee or agent under other indentures and agreements pursuant to
which securities of Citizens and certain of its affiliates are outstanding.
The guarantee trustee will perform only those duties that are specifically
set forth in each guarantee unless an event of default under the guarantee
occurs and is continuing. If an event of default occurs and is continuing, the
guarantee trustee will exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to these
provisions, the guarantee trustee is under no obligation to exercise any of its
powers under the guarantee at the request of any holder of the trust preferred
securities unless that holder offers reasonable indemnity to the guarantee
trustee against the costs, expenses and liabilities which it might incur as a
result.
AGREEMENT AS TO EXPENSES AND LIABILITIES
Citizens will enter into an Agreement as to Expenses and Liabilities under
the Trust Agreement. The Agreement as to Expenses and Liabilities will provide
that Citizens will, with certain exceptions, irrevocably and unconditionally
guarantee the full payment of any indebtedness, expenses or liabilities of the
Trust to each person or entity to whom the Trust becomes indebted or liable. The
exceptions are the obligations of the Trust to pay the holders of the trust
preferred securities or other similar interests in the Trust the amounts due to
the holders under the terms of the trust preferred securities or those similar
interests.
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PLAN OF DISTRIBUTION
We may sell securities directly to purchasers, through agents, to dealers,
to underwriters or in any combination of these ways. Agents or dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933 and
any discounts or commissions received by them from us and any profit on the
resale of securities by them may be considered underwriting discounts and
commissions under the Securities Act of 1933. Any underwriter or agent will be
identified, and any compensation received from us will be described in the
prospectus supplement relating to those securities.
We may directly solicit offers to purchase securities or designate agents to
do so. Any agent will be named, and any commissions payable by us to such agent,
or the method by which commissions can be determined, will be described, in the
applicable prospectus supplement. If we use underwriters or dealers in a sale,
the securities will be acquired by the underwriters or dealers for their own
account. The underwriters or dealers may resell the securities from time to time
in one or more transactions, including negotiated transactions at a fixed public
offering price or at varying prices determined at the time of sale. The
securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more of
such firms. Unless otherwise indicated in the applicable prospectus supplement,
the obligations of the underwriters to purchase all the securities of the series
offered will be subject to customary conditions and the underwriters will be
obligated to purchase all the securities of the series offered if any are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
We may authorize underwriters, dealers and agents to solicit offers by
institutional investors to purchase offered securities under contracts providing
for payment and delivery on a future date specified in the prospectus
supplement. The prospectus supplement will also describe the public offering
price for the securities and the commission payable for solicitation of these
delayed delivery contracts. Delayed delivery contracts will contain definite
fixed price and quantity terms. The obligations of a purchaser under these
delayed delivery contracts will be subject to only two conditions:
- that the institution's purchase of the securities at the time of delivery
of the securities is not prohibited under the law of any jurisdiction to
which the institution is subject; and
- that we shall have sold to the underwriters the total principal amount of
the offered securities, less the principal amount covered by the delayed
delivery contracts.
We may have agreements with agents, dealers and underwriters to indemnify
them against specified liabilities, including liabilities under the Securities
Act of 1933, or to contribute to payments they may be required to make in
respect of these liabilities. Agents, dealers or underwriters may engage in
transactions with or perform services for us in the ordinary course of business.
This prospectus also relates to the offer and sale from time to time by the
selling stockholder identified in the section entitled "Selling Stockholder" and
its respective pledgees, donees and other successors in interest of up to
approximately 9,139,900 shares of Citizens common stock in the aggregate. We
refer to such shares as the Resale Shares. The Resale Shares may be sold from
time to time by the selling stockholder. Such sales may be made in underwritten
offerings or in open market or block transactions or otherwise on any national
securities exchange or automated interdealer quotation system on which shares of
Citizens common stock are then listed, including the New York Stock Exchange, in
the over-the-counter market, in private transactions or otherwise at prices
related to prevailing market prices at the time of the sale or at negotiated
prices. Some or all of the Resale Shares may be sold through brokers acting on
behalf of the selling stockholder or to dealers for resale by such dealers. In
connection with such sales, such brokers and dealers may receive compensation in
the form of discounts or commissions from the selling stockholder and may
receive commissions from the purchasers of such Resale Shares for whom they act
as broker or agent, which discounts and commissions are not anticipated to
exceed those customary in the types of transactions involved. The selling
stockholder may offer to sell and may sell shares of our common stock in options
transactions or deliver such shares to cover short sales "against the box." If
necessary, a supplemental or amended
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prospectus will describe the method of sale in greater detail. In effecting
sales, brokers or dealers engaged by the selling stockholder and/or purchasers
of the Resale Shares may arrange for other brokers or dealers to participate. In
addition, any of the Resale Shares covered by this prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act of 1933 may be sold under
Rule 144 rather than pursuant to this prospectus.
If the Resale Shares are sold in an underwritten offering, the Resale Shares
will be acquired by the underwriters for their own accounts and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or prices at the time of the sale
or at negotiated prices. Any initial public offering price and any discounts or
commissions allowed or reallowed or paid to dealers may be changed from time to
time. Underwriters may sell Resale Shares to or through brokers or dealers, and
such brokers and dealers may receive compensation in the form of discounts,
commissions or commissions from the underwriters and may receive commissions
from the purchasers of the Resale Shares for whom they act as broker or agent,
which discounts and commissions are not anticipated to exceed those customary in
the types of transactions involved.
Citizens has agreed to pay all expenses in connection with the registration
of the Resale Shares, including brokerage commissions allocable to the sale of
the Resale Shares and fees and disbursements of counsel and other
representatives of the selling stockholder.
The number of Resale Shares that may be actually sold by the selling
stockholder will be determined by the selling stockholder, and may depend upon a
number of factors, including, among other things, the market price of our common
stock. Because the selling stockholder may offer all, some or none of the Resale
Shares, and because the offering contemplated by this prospectus is currently
not being underwritten, no estimate can be given as to the number of Resale
Shares that will be held by the selling stockholder upon or prior to termination
of this offering. Accordingly, there can be no assurance that the selling
stockholder will sell any or all of the Resale Shares.
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and, in accordance therewith, file reports and other information
with the SEC. You may read and copy any document we file at the SEC's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located at 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can also be obtained by
mail from the Public Reference Section of the Commission, at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
prescribed rates. Please call the SEC at 1-800-SEC-0330 for more information on
their public reference rooms and their copy charges, as well as the SEC's Public
Reference Section's charges for mailing copies of the documents we have filed.
The SEC maintains a website at http://www.sec.gov that contains reports, proxy
and information statements and other information on a delayed basis regarding
registrants, including us, that file electronically with the SEC.
Our common stock is listed on the New York Stock Exchange and any reports,
proxy and information statements and other information we file with the SEC may
also be inspected and copied at the offices of the New York Stock Exchange,
Inc., located at 20 Broad Street, New York, New York 10005.
INCORPORATION OF DOCUMENTS BY REFERENCE
Some of the information that you may want to consider in deciding whether to
invest in any of our securities is not included in this prospectus, but rather
is incorporated by reference to specific reports that we have filed with the
SEC. This allows us to disclose important information to you by referring you to
those documents rather than repeating them in full in this prospectus. The
information incorporated by reference in this prospectus contains important
business and financial information. In addition, information that we file with
the SEC after the date of this prospectus automatically updates and supersedes
the information contained in this prospectus and incorporated filings. We have
previously filed the following documents with the SEC (File No. 001-11001) and
are incorporating them by reference into this prospectus:
- Annual Report on Form 10-K of Citizens Communications Company for the year
ended December 31, 2000 and filed with the SEC on March 9, 2001;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on May 7, 2001, including the audited financial statements of the
selected US WEST exchanges and the Frontier ILEC businesses as of
December 31, 2000 and 1999 for each of the years in the three year period
ended December 31, 2000 and pro forma financial information;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on April 27, 2001 including our press release announcing the
approval by the New York Public Service Commission of the purchase of
Global Crossing Ltd.'s local exchange carrier business (the Frontier ILEC
businesses);
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on April 25, 2001, including our press release announcing the
approval by the Louisiana Public Service Commission on April 23, 2001 of
the sale to Atmos Energy Corporation of the LGS Natural Gas Company
Subsidiary and the Louisiana Gas Service Company division;
- Current Report on Form 8-K of Citizens Communication Company filed with
the SEC on April 4, 2001, including our press release announcing the
offering of $3.0 billion worth of debt and equity securities under a shelf
registration statement;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on March 29, 2001, including the audited financial statements of
selected US WEST exchanges and the Frontier ILEC businesses as of
December 31, 1999 and 1998 and for each of the years in the three-year
period ended December 31, 1999 and the unaudited financial statements for
the nine months ended September 30, 2000 and 1999 and pro forma financial
information;
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- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on March 8, 2001, including our press release announcing fourth
quarter results and including our financial and operating data tables;
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on February 13, 2001, including financial statements of the GTE
combined entities as of September 30, 2000 and for the nine months ended
September 30, 2000 and 1999 and financial statements of Contel of
Minnesota, Inc. for the eight months ended August 31, 2000 and 1999, and
pro forma financial information; and
- Current Report on Form 8-K of Citizens Communications Company filed with
the SEC on November 14, 2000, including the audited financial statements
of the GTE combined entities and Contel of Minnesota, Inc. as of
December 31, 1999 and 1998 and for each of the years in the three-year
period ended December 31, 1999 and for the six months ended June 30, 2000
and 1999 and pro forma financial information.
We also incorporate by reference all documents subsequently filed by us
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus until our offering is completed.
We will provide you, upon written or oral request, with a copy of any of
these documents, at no cost. You should direct your request, either in writing
or by telephone, to
Citizens Communications Company
3 High Ridge Park, Stamford, Connecticut 06905
Attn.: Office of the Secretary
Telephone 203-614-5600.
LEGAL MATTERS
The legality of securities issued by Citizens offered hereby will be passed
upon by Winston & Strawn, 200 Park Avenue, New York, New York, counsel for
Citizens and for any underwriters by Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York.
Richards, Layton & Finger, P.A., special Delaware counsel to the Trust, will
issue an opinion concerning certain matters of Delaware law relating to the
validity of the trust preferred securities on behalf of the Trust. In giving
their respective opinions, Winston & Strawn and Simpson Thacher & Bartlett may
rely as to certain matters of Delaware law upon the opinion of Richards, Layton
& Finger, P.A.
EXPERTS
Our consolidated financial statements as of December 31, 2000 and 1999, and
for each of the years in the three-year period ended December 31, 2000,
incorporated by reference in this prospectus from our Annual Report on
Form 10-K, have been so incorporated by reference in reliance upon the report of
KPMG LLP, independent public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of the GTE combined entities as of December 31,
1999 and 1998 and for each of the years in the three-year period ended
December 31, 1999, incorporated by reference in this prospectus from our Current
Report on Form 8-K filed November 14, 2000, have been so incorporated by
reference in reliance upon the report of KPMG LLP, independent public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Contel of Minnesota, Inc. incorporated by
reference in this prospectus and elsewhere in the registration statement to the
extent and for the periods indicated in their reports dated January 27, 2000 and
January 28, 1999 have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports.
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The special purpose financial statements of the selected, assets,
liabilities and parent's equity of Qwest Communications International Inc.'s,
formerly US WEST, Inc., selected Qwest exchanges, formerly selected US WEST
exchanges, as of December 31, 2000 and 1999 and the related statements of
revenue and expenses and cash flows for each of the three years in the period
ended December 31, 2000, incorporated by reference in this prospectus from our
Current Report on Form 8-K filed on May 7, 2001, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are so incorporated by reference in reliance upon the
report of said firm, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The combined financial statements of the Frontier ILEC businesses as of
December 31, 1999 and 2000, for the year ended December 31, 2000, the nine-month
period ended September 30, 1999 and the three-month period ended December 31,
1999, incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
The combined financial statements of the Frontier Incumbent Local Exchange
Carrier Businesses as of December 31, 1997 and 1998 and for each of the two
years in the period ended December 31, 1998, incorporated in this registration
statement by reference to Citizens Communications Company's Current Report on
Form 8-K of dated March 29, 2001, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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