SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 17, 2001
CITIZENS COMMUNICATIONS COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 001-11001 06-0619596
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
3 High Ridge Park
Stamford, Connecticut 06905
(Address of Principal Executive Offices) (Zip Code)
(203) 614-5600
(Registrant's Telephone Number, Including Area Code)
No Change Since Last Report
----------------------------------------------
(Former name or former address, if changed since last report)
Item 5. Other Events.
From May 27, 1999 through July 12, 2000, we entered into several agreements to
acquire telephone access lines. 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 Acquisition
-------------------
Between May and December 1999, we announced 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 (the GTE
Acquisitions) for approximately $1,171.0 million in cash. To date, we have
closed on approximately 317,500 telephone access lines. We have received
all necessary regulatory approvals and expect that the acquisition of the
remaining access lines in Arizona and California will close during 2002.
Our expected cash requirement to complete the Verizon acquisitions is
$222.8 million.
Qwest Acquisition - termination
-------------------------------
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. On October 31, 2000, we closed on the
purchase of approximately 17,000 telephone access lines in North Dakota for
approximately $38.0 million in cash. On July 20, 2001, we notified Qwest
that we were terminating the remaining eight acquisition agreements with
Qwest relating to telephone exchanges in Arizona, Colorado,
Idaho/Washington, Iowa, Minnesota, Montana, Nebraska and Wyoming. Qwest
subsequently filed a notice of claim for arbitration in Denver, Colorado
under the rules of the American Arbitration Association with respect to the
terminated acquisition agreements. Qwest asserts that we wrongfully
terminated these agreements and is seeking approximately $64.0 million,
which is the aggregate of liquidation damages under letters of credit
established in the terminated acquisition agreements. We have filed a
notice of claim in the same arbitration proceeding, contesting Qwest's
asserted claims and asserting substantial claims against Qwest for material
breaches of representations, warranties and covenants in the terminated
acquisition agreements and in the acquisition agreement relating to North
Dakota assets that we purchased from Qwest.
Frontier Acquisition
--------------------
On June 29, 2001, we purchased from Global Crossing Ltd. (Global) 100% of
the stock of Frontier Corp.'s (Frontier) local exchange carrier
subsidiaries, which owned approximately 1,096,700 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 $3,370.0 million in cash, subject to
adjustment.
Divestitures
------------
On August 24, 1999, our Board of Directors approved a plan of divestiture for
our public utilities services businesses, which include gas, electric and water
and wastewater businesses. Currently, we have agreements to sell all our water
and wastewater operations and one of our electric operations. We have sold two
of our natural gas operations. These agreements and the status of each
transaction are described as follows:
Water and Wastewater
--------------------
On October 18, 1999, we announced the agreement to sell our water and
wastewater operations 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 first quarter of 2002.
Electric
--------
On February 15, 2000, we announced that we had agreed to sell our electric
utility operations. The Arizona and Vermont electric divisions were under
contract to be sold to Cap Rock Energy Corp. (Cap Rock). The agreement with
Cap Rock was terminated on March 7, 2001. We intend to pursue the
disposition of the Vermont and Arizona electric divisions with alternative
buyers. In August 2000, the Hawaii Public Utilities Commission denied the
initial 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 discussing a
reduction of the purchase price and other options. Our agreement for the
sale of this division may be terminated if regulatory approval is not
received before February 2002.
Gas
---
On July 2, 2001, we completed the sale of our Louisiana Gas operations to
Atmos Energy Corporation for $363.4 million in cash. The pre-tax gain on
the sale recognized in the third quarter was approximately $139.3 million.
In July 2001, an agreement was signed to sell the Colorado Gas division to
Kinder Morgan for $11.0 million in cash. This transaction closed on
November 30, 2001. We received approximately $8,899,000, after purchase
price adjustment.
Item 7. Financial Statements, Exhibits
(a) Financial Statements of Business Acquired
Previously filed.
(b) Pro forma Financial Information
Pro forma Balance Sheet as of June 30, 2001 and Pro forma Income Statements
for the six months ended June 30, 2001 and the year ended December 31,
2000. Such pro-forma information has been revised to exclude the
amortization of excess of purchase price over net assets acquired on
properties to be acquired subsequent to June 30, 2001.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS COMMUNICATIONS COMPANY
-------------------------------
(Registrant)
By: /s/ Robert J. Larson
-----------------------
Robert J. Larson
Vice President and Chief Accounting Officer
Date: December 13, 2001
Proforma Financial Information
From May 27, 1999 through July 12, 2000, we entered into several agreements to
acquire telephone access lines. 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 Acquisition
-------------------
Between May and December 1999, we announced 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 (the GTE
Acqusitions) for approximately $1,171.0 million in cash. To date, we have
closed on approximately 317,500 telephone access lines. We have received
all necessary regulatory approvals and expect that the acquisition of the
remaining access lines in Arizona and California will close during 2002.
Our expected cash requirement to complete the Verizon acquisitions is
$222.8 million.
Qwest Acquisition - termination
-------------------------------
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. On October 31, 2000, we closed on the
purchase of approximately 17,000 telephone access lines in North Dakota for
approximately $38.0 million in cash. On July 20, 2001, we notified Qwest
that we were terminating the remaining eight acquisition agreements with
Qwest relating to telephone exchanges in Arizona, Colorado,
Idaho/Washington, Iowa, Minnesota, Montana, Nebraska and Wyoming. Qwest
subsequently filed a notice of claim for arbitration in Denver, Colorado
under the rules of the American Arbitration Association with respect to the
terminated acquisition agreements. Qwest asserts that we wrongfully
terminated these agreements and is seeking approximately $64.0 million,
which is the aggregate of liquidation damages under letters of credit
established in the terminated acquisition agreements. We have filed a
notice of claim in the same arbitration proceeding, contesting Qwest's
asserted claims and asserting substantial claims against Qwest for material
breaches of representations, warranties and covenants in the terminated
acquisition agreements and in the acquisition agreement relating to North
Dakota assets that we purchased from Qwest.
Frontier Acquisition
--------------------
On June 29, 2001, we purchased from Global Crossing Ltd. (Global) 100% of
the stock of Frontier Corp.'s (Frontier) local exchange carrier
subsidiaries, which owned approximately 1,096,700 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 $3,370.0 million in cash, subject to
adjustment.
Divestitures
------------
On August 24, 1999, our Board of Directors approved a plan of divestiture for
our public utilities services businesses, which include gas, electric and water
and wastewater businesses. Currently, we have agreements to sell all our water
and wastewater operations and one of our electric operations. We have sold two
of our natural gas operations. These agreements and the status of each
transaction are described as follows:
Water and Wastewater
--------------------
On October 18, 1999, we announced the agreement to sell our water and
wastewater operations 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 first quarter of 2002.
Electric
--------
On February 15, 2000, we announced that we had agreed to sell our electric
utility operations. The Arizona and Vermont electric divisions were under
contract to be sold to Cap Rock Energy Corp. (Cap Rock). The agreement with
Cap Rock was terminated on March 7, 2001. We intend to pursue the
disposition of the Vermont and Arizona electric divisions with alternative
buyers. In August 2000, the Hawaii Public Utilities Commission denied the
initial 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 discussing a
reduction of the purchase price and other options. Our agreement for the
sale of this division may be terminated if regulatory approval is not
received before February 2002.
Gas
---
On July 2, 2001, we completed the sale of our Louisiana Gas operations to
Atmos Energy Corporation for $363.4 million in cash. The pre-tax gain on
the sale recognized in the third quarter was approximately $139.3 million.
In July 2001, an agreement was signed to sell the Colorado Gas division to
Kinder Morgan for $11.0 million in cash. This transaction closed on
November 30, 2001. We received approximately $8,899,000, after purchase
price adjustment.
The GTE businesses acquired, the U S WEST North Dakota Acquisition and the
Frontier ILEC Acquisition are collectively referred to as the Acquisitions. All
of the public utilities services dispositions (including those not yet sold) are
collectively referred to as the Dispositions. The following unaudited pro forma
condensed combined statements of income information has been prepared to
illustrate the effects of the Acquisitions and related financings and the
Dispositions had these transactions been completed at the beginning of the
periods presented. Cash proceeds from the Dispositions that have not yet been
sold have been estimated using the actual contract price for properties where we
have signed a definitive contract to sell and using net book value for
properties not yet under contract. The following unaudited pro forma condensed
balance sheet information as of June 30, 2001 has been prepared assuming the
Acquisitions and Dispositions not consummated by June 30, 2001 had been
completed at that date.
We have accounted for our acquisitions using the purchase method of accounting.
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 of scale 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.
Through the second quarter 2001, we had historically applied SFAS 71 in the
preparation of our financial statements because our incumbent local exchange
telephone properties (properties we owned prior to the 2000 and 2001
acquisitions of the Verizon, Qwest and Frontier properties) were predominantly
regulated in the past following a cost of service/rate of return approach.
Beginning in the third quarter of 2001, these properties no longer met the
criteria for application of SFAS 71 due to the continuing process of
deregulation and the introduction of competition to our existing rural local
exchange telephone properties, and our expectation that these trends will
continue for all our properties.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company, does not attempt to predict or suggest
future results. The pro forma information also does not attempt to show how the
combined company would actually have performed had the companies been combined
at the beginning of the periods presented. If the companies had actually been
combined at the beginning of the periods presented, 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.
These unaudited pro forma condensed combined financial statements should be read
in conjunction with the historical financial statements of the Acquisitions and
the historical financial statements of Citizens Communications Company.
Citizens Communications Company and Subsidiaries
Pro Forma Balance Sheet Data
As of June 30, 2001
(unaudited)
Citizens Pro Forma for Acquisitions
Communications ---------------------------------------
(Amounts in thousands) 6/30/2001 Adjustments Adjusted
----------------------------------------------------------
Cash $ 31,115 $ 2,118,411 (1) $ 1,926,726
(222,800) (3)
Accounts receivable, net 336,490 - 336,490
Short-term investments 18,463 - 18,463
Other current assets 40,424 - 40,424
Assets held for sale 1,240,998 (1,240,998) (1) -
Assets of discontinued operations 687,275 (687,275) (1) -
----------------------------------- -----------------
Total current assets 2,354,765 (32,662) 2,322,103
Net property, plant & equipment 4,662,361 53,393 (3) 4,715,754
Goodwill 469,370 - 469,370
Customer lists and other 139,066 - 139,066
Excess cost over net assets acquired 2,406,315 169,407 (3) 2,575,722
------------------------------------ -----------------
Total intangibles 3,014,751 169,407 3,184,158
Investments 173,318 - 173,318
Regulatory assets 173,611 (109,102) (1) 64,509
Deferred debits and other assets 466,882 (16,126) (1) 450,756
------------------------------------ -----------------
Total assets $ 10,845,688 $ 64,910 $ 10,910,598
==================================== =================
Long-term debt due within one year $ 222,522 $ - $ 222,522
Accounts payable and other current liabilities 416,207 237,199 (1) 653,406
Liabilities related to assets held for sale 255,774 (255,774) (1) -
Liabilities of discontinued operations 189,856 (189,856) (1) -
------------------------------------ -----------------
Total current liabilities 1,084,359 (208,431) 875,928
Deferred income taxes 688,562 (38,228) (1) 650,334
Customer advances for construction
and contributions in aid of construction 200,688 - 200,688
Deferred credits and other liabilities 245,888 - 245,888
Regulatory liabilities 23,415 (12,425) (1) 10,990
Equity units 460,000 - 460,000
Long-term debt 5,818,312 5,818,312
------------------------------------ -----------------
Total liabilities 8,521,224 (259,084) 8,262,140
Equity forward contracts 107,018 107,018
Company Obligated Mandatorily Redeemable
Convertible Preferred Securities * 201,250 - 201,250
Common stock, $.25 par value (600,000,000 authorized
shares, 292,169,969 issued shares and 289,038,071
outstanding shares) 73,043 - 73,043
Additional paid-in capital 1,780,169 - 1,780,169
Retained earnings 239,623 323,994 (1) 563,617
Accumulated other comprehensive (loss) (24,451) - (24,451)
Treasury stock (52,188) - (52,188)
------------------------------------ -----------------
Total shareholders' equity 2,016,196 323,994 2,340,190
------------------------------------ -----------------
Total liabilities and shareholders' equity $ 10,845,688 $ 64,910 $ 10,910,598
==================================== =================
*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 Condensed Financial Statements.
Citizens Communications Company and Subsidiaries
Proforma Income Statement Data
For the six months period ended June 30, 2001
(unaudited)
Proforma for Acquisitions
Citizens Frontier GTE --------------------------------
(Amounts in thousands, except per-share amounts) Communications Acquisition Acquisitions Adjustments Adjusted
--------------------------------------------------------------------------------
Revenue $ 1,130,023 $ 387,796 $ 21,100 $ - 1,538,919
Operating expenses 761,519 203,920 7,834 - 973,273
Depreciation and amortization 220,072 103,686 3,862 50,615 (5) 378,235
-------------------------------------------------------------- -------------
Income from operations 148,432 80,190 9,404 (50,615) 187,411
Investment and other income, net 13,425 (4,990) - 50,064 (7) 26,753
(31,746) (8)
Interest expense 134,581 37,482 673 122,727 (9) 264,738
(30,725) (8)
Convertible preferred dividends 3,105 - - - 3,105
-------------------------------------------------------------- -------------
Pre-tax income 24,171 37,718 8,731 (124,299) (53,679)
Income tax expense (benefit) 9,573 27,985 3,513 (61,290) (10) (20,219)
-------------------------------------------------------------- -------------
Income (loss) from continuing operations $ 14,598 $ 9,733 $ 5,218 $ (63,009) $ (33,460)
============================================================== =============
Carrying cost of equity forward contracts 12,647
Income (loss) from continuing operations available
------------------
to common shareholders $ 1,951
==================
Weighted average shares outstanding -Basic 266,898 25,156 (11)
Weighted average shares outstanding -Diluted 270,237 25,156 (11)
Income (loss) from continuing operations
available to common shareholders per basic share $ 0.01
Income (loss) from continuing operations
available to common shareholders per diluted share $ 0.01
Elimination of
Gas and Electric Total
Operations Proforma
--------------------------------
Revenue $ 432,831 1,106,088
Operating expenses 371,271 602,002
Depreciation and amortization 6,105 372,130
--------------------------------
Income from operations $ 55,455 $ 131,956
Investment and other income, net 1,065 25,688
Interest expense 18,654 246,084
Convertible preferred dividends - 3,105
--------------------------------
Pre-tax income 37,866 (91,545)
Income tax expense (benefit) 12,458 (32,677)
--------------------------------
Income (loss) from continuing operations $ 25,408 $ (58,868)
================================
Carrying cost of equity forward contracts 12,647
Income (loss) from continuing operations available
-----------------
to common shareholders $ (71,515)
=================
Weighted average shares outstanding -Basic 292,054
Weighted average shares outstanding -Diluted 295,393
Income (loss) from continuing operations
available to common shareholders per basic share $ (0.24)
Income (loss) from continuing operations
available to common shareholders per diluted share $ (0.24)
See Notes to Pro Forma Condensed Financial Statements.
Citizens Communications Company and Subsidiaries
Proforma Income Statement Data
For the year ended December 31, 2000
(unaudited)
Acquisitions
-------------------------------------------------------------------
GTE GTE
Citizens Frontier GTE Qwest Nebraska and California
(Amounts in thousands, except per-share Communications Acquisition Minnesota North Dakota Illinois and Arizona
amounts) ------------------------------------------------------------------------------------
Revenue $ 1,802,358 $ 746,302 $ 56,962 $ 10,632 $ 77,570 $ 43,764
Operating expenses 1,292,950 370,893 23,323 3,058 27,494 16,694
Depreciation and amortization 387,607 200,669 545 2,270 17,087 11,625
-----------------------------------------------------------------------------------
Income from operations 121,801 174,740 33,094 5,304 32,989 15,445
Investment and other income, net 3,350 64,583 - - - -
Minority interest 12,222 - - - - -
Interest expense 187,366 24,067 1,686 - 1,716 1,217
Convertible preferred dividends 6,210 - - - - -
------------------------------------------------------------------------------------
Pre-tax income (56,203) 215,256 31,408 5,304 31,273 14,228
Income tax expense (benefit) (16,132) 103,417 12,687 2,007 12,393 5,712
------------------------------------------------------------------------------------
Income (loss) from continuing operations $ (40,071) $ 111,839 $ 18,721 $ 3,297 $ 18,880 $ 8,516
====================================================================================
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)
Proforma for Acquisitions Elimination of
----------------------------- Gas and Electric Total
Adjustments Adjusted Operations Proforma
-------------- -----------------------------------------
Revenue $ - $ 2,737,588 $ 597,823 $ 2,139,765
Operating expenses 9,000 (4) 1,743,412 526,472 1,216,940
Depreciation and amortization 126,581 (5) 758,910 47,857 711,053
12,526 (6)
-------------- -----------------------------------------
Income from operations (148,107) 235,266 23,494 211,772
Investment and other income, net (26,323) (7) 28,856 5,073 23,783
(12,754) (8)
Minority interest - 12,222 - 12,222
Interest expense 301,055 (9) 502,467 36,056 466,411
(14,640) (8)
Convertible preferred dividends - 6,210 - 6,210
-------------- -----------------------------------------
Pre-tax income (473,599) (232,333) (7,489) (224,844)
Income tax expense (benefit) (199,700) (10) (79,616) (2,417) (77,199)
-------------- ----------------------------------------
Income (loss) from continuing operations $ (273,899) $ (152,717) $ (5,072) $ (147,645)
============== =========================================
Weighted average shares outstanding -Basic 25,156 (11) 286,900
Weighted average shares outstanding -Diluted 25,156 (11) 292,087
Loss from continuing operations per basic share $ (0.51)
Loss from continuing operations per diluted share $ (0.51)
See Notes to Pro Forma Condensed Financial Statements.
Notes to Pro Forma Condensed Financial Statements
(1) Reflects the effect of the probable sale of our public utilities services
properties, including adjustments for the estimated income taxes due on the
estimated gain. The estimated cash proceeds from the sale of our public
utilities service properties are $2,118,411,000. The adjustment to
shareholders' equity represents an increase to retained earnings
representing the estimated after tax gain on the sale.
(2) The columns reflecting the historical results of operations for Frontier,
GTE Minnesota, GTE Nebraska and Illinois and Qwest North Dakota represent
historical results prior to their acquisitions by Citizens. The results
after the acquisitions by Citizens are included in Citizens' historical
results.
(3) Represents the purchase of the remaining GTE Acquisitions for approximately
$222,800,000 in cash. For purposes of the accompanying pro forma combined
financial statements, we have reflected the assets to be acquired at their
historical carrying values and have reflected the excess of cost over such
amounts as excess of cost over net assets acquired. The final allocation of
purchase price to assets and liabilities acquired will depend upon the
final purchase price and the final estimate of fair values of the assets
and liabilities acquired. We have undertaken studies to determine the fair
values of assets acquired and allocate the purchase prices accordingly. We
believe that the excess of cost over historical net assets acquired will be
allocated to property, plant and equipment, customer base, other
identifiable intangibles and goodwill. However, there can be no assurance
that the actual allocation will not differ significantly from the pro forma
allocation.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
141, "Business Combinations." This statement requires that all business
combinations be accounted for under the purchase method of accounting for
business combinations initiated after June 30, 2001 and prohibits the use
of the pooling-of-interests method of accounting. All acquisitions
presented in these pro forma financial statements have been accounted for
using the purchase method.
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets." this statement requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. Impairment tests are
required to be performed at least annually. The amortization of goodwill
ceases upon adoption of the statement. The statement is effective for
fiscal years beginning after December 15, 2001 for companies whose annual
reporting period ends on December 31, 2001 and applies to all goodwill and
other intangible assets recognized in the statement of financial position
at that date, regardless of when the assets were initially recognized. We
will cease to recognize amortization of the goodwill portion of intangibles
starting January 1, 2002. Pro forma amortization of intangibles for the six
months ended June 30, 2001 and the year ended December 31, 2000 was $76.9
million and $144.3 million, respectively. We will be required to test for
impairment of goodwill annually starting January 1, 2002. The amount of any
future impairment, if any, cannot be estimated at this time.
(4) Represents an increase in selling, general and administrative expenses of
the GTE Combined Entities to reverse a pension credit recorded during the
year ended December 31, 2000 that will not continue.
(5) The following table details the amortization adjustment for the year ended
December 31, 2000 and the six months ended June 30, 2001:
($ in thousands) For the year For the six
ended months ended
December 31, 2000 June 30, 2001
----------------- -------------
Frontier $ 61,230 $ 30,615
Frontier adjustments 40,000 20,000
Acquired GTE Properties 25,351 -
----------------- -------------
Properties acquired prior to
June 30, 2001 126,581 50,615
================= =============
Excess of cost over net assets acquired for the Acquisitions is being
amortized using the straight-line method over a 15 year period for
properties acquired prior to June 30, 2001. The adjustments for the
Frontier ILEC and the Acquired GTE businesses in the table above reflect
this amortization. Should the allocation of such excess of cost over
historical net assets acquired differ significantly from that described
above as well as our initial allocation for properties recently purchased,
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 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 the fair market
value at the date of the acquisition. Frontier was amortizing the
associated goodwill over a 25-year period. We included amortization of
goodwill over a 15-year period for the full year 2000 and the six months
ended June 30, 2001 to conform with our policy. The "Frontier adjustments"
of $40,000,000 and $20,000,000 for the year ended December 31, 2000 and the
six months ended June 30, 2001, respectively, are reflected in the table
above.
(6) 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.
(7) Represents the reversal of a foreign exchange gain of $21,900,000 for the
year ended December 31, 2000 and the reversal of a foreign exchange loss of
$50,064,000 for the six months ended June 30, 2001 recorded by Frontier
related to a note receivable due from an affiliate. Such note is not part
of the assets acquired by Citizens.
The pro forma income statement for the year ended December 31, 2000 also
includes an adjustment to eliminate $4,423,000 of our investment income
related to our bond portfolio sold during 2000 to partially fund the
Acquisitions.
(8) Represents the elimination of intercompany interest income recorded by
Frontier related to a note receivable due from an affiliate of Frontier and
interest expense recorded by Frontier. related to a loan facility used to
fund this note receivable. Such note and loan facility are not part of the
assets and liabilities acquired by Citizens.
(9) Represents the increase in interest expense assuming the permanent
financings as described below were utilized at the beginning of the periods
presented to partially fund the Acquisitions. On May 18, 2001, we issued an
aggregate of $1.75 billion of notes consisting of $700 million principal
amount of 8.50% notes, due May 15, 2006 and $1.05 billion principal amount
of 9.25% notes due May 15, 2011. On June 13, 2001, we issued 18,400,000
equity units at $25 per unit for gross proceeds of $460,000,000. Each
equity unit consists of a 6 3/4 % senior note due 2006 and a purchase
contract for our common stock. On August 13, 2001, we issued an aggregate
of $1.75 billion of notes consisting of $300 million principal amount of
6.375% notes due August 15, 2004, $750 million principal amount of 7.625%
notes due August 15, 2008 and $700 million principal amount of 9.0 % notes
due August 15, 2031.
(10) Represents adjustments to income taxes based on income before income taxes
using the applicable incremental income tax rate.
(11) On June 13, 2001, we issued 25,156,250 shares of our common stock at
$12.10, for net proceeds of $289,787,000 (after underwriting discounts and
commissions).