Frontier Communications 2004 Annual Report Download - page 4

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
2
PART I
Item 1. Business
Citizens Communications Company and its subsidiaries (Citizens) will be referred to as the “Company,” “we,” “us” or “our”
throughout this report.
We are a communications company providing services to rural areas and small and medium-sized towns and cities as an
incumbent local exchange carrier, or ILEC. We offer our ILEC services under the “Frontier” name. In addition, we provide
competitive local exchange carrier, or CLEC, services to business customers and to other communications carriers in certain
metropolitan areas in the western United States through Electric Lightwave, LLC, or ELI, our wholly-owned subsidiary. On
April 1, 2004, we announced the completion of the sale of our Vermont Electric Division. With that transaction, we completed
the divestiture of our public utilities services segments pursuant to plans announced in 1999. Among the highlights for 2004:
• Cash Generation
The Company continued to drive free cash flow through further growth of broadband and value added
services, productivity improvements, and a disciplined capital expenditure program that emphasizes return
on investment.
• Debt Reduction
In our concerted efforts to maintain the quality and strength of our balance sheet, we retired $662.0 million
of debt in 2004 ($514.0 million from cash on hand and $148.0 million of Equity Providing Preferred Income
Convertible Securities (EPPICS) converted to our common stock). In addition, we refinanced $700.0
million of debt that reduced the coupon from 8.5% to 6.25% a year and extended the maturity from 2006 to
2013. The annual cost savings from these debt repayments, conversions and the refinancing will be
approximately $60.4 million.
• Stockholder Value
In 2004, the Board of Directors determined that the best alternative for enhancing stockholder value was to
capitalize on the Company’s strong free cash flow by returning significant cash to stockholders by paying a
special, non-recurring dividend of $2 per common share and instituting a regular annual dividend of $1 per
common share to be paid quarterly.
• Growth
We continue to have success in selling enhanced services and high-speed internet products and we expect
continued demand and growth opportunities.
The telecommunications industry is facing significant changes and difficulties and our financial results reflect the impact of
this challenging environment. As discussed in more detail in Management’s Discussion & Analysis of Financial Condition
and Results of Operations (MD&A), our ILEC revenues have been decreasing, and demand and pricing for CLEC services
have decreased substantially, particularly for long-haul services, and these trends are likely to continue. Revenue from our
ILEC, CLEC and public utility operations was $2,027.2 million, $156.0 million, and $9.7 million, respectively, in 2004.
Telecommunications Services
Our telecommunications services are principally ILEC services and also include CLEC services delivered through ELI. As of
December 31, 2004, we operated ILECs in 23 states, serving approximately 2.321 million access lines and 212,300 high-speed
internet customers. Our CLEC services consist of a variety of integrated telecommunications products.
As an ILEC, we are typically the dominant incumbent carrier in the markets we serve and provide the "last mile" of
telecommunications services to residential and business customers in these markets. As a CLEC, we provide
telecommunications services to businesses and other carriers in competition with the ILEC. As a CLEC, we frequently obtain
the "last mile" access to customers through arrangements with the applicable ILEC. ILECs and CLECs are subject to different
regulatory frameworks of the Federal Communications Commission (FCC). ELI does not compete with our ILEC business.