UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/AA-2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission file number 0-1291
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CITIZENS UTILITIES COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 06-0619596
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 329-8800
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock Series A, par value $.25
per share New York Stock Exchange
Common Stock Series B, par value $.25
per share New York Stock Exchange
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(Title of each class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
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State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of January 31, 1994: $3,044,777,331.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of January 31, 1994.
Common Stock Series A 129,785,690
Common Stock Series B 52,505,457
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the registrant's 1994 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
PART I
Item 1. Description of Business
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(a) General Development of Business
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The "company" includes Citizens Utilities Company and its subsidiaries
except where the context or statement indicates otherwise. The company was
incorporated in Delaware in 1935 to acquire the assets and business of a
predecessor public utility corporation. Since then, the company has grown as a
result of investment in owned utility operations and numerous acquisitions of
additional utility operations. It continues to consider and carry out business
expansion through significant acquisitions and joint ventures in traditional
public utility and related fields and the rapidly evolving telecommunications
and cable television industries.
The company directly, or through subsidiaries, provides
telecommunications, electric, gas and water/wastewater services to more than
1,000,000 customer connections in areas of sixteen states: Arizona, California,
Colorado, Hawaii, Idaho, Illinois, Indiana, Louisiana, Ohio, Oregon,
Pennsylvania, Tennessee, Utah, Vermont, Washington and West Virginia. Other
than the acquisition of the GTE Telephone Properties discussed below, there have
not been any material changes in the business of the company during the past
fiscal year. The company's strong financial resources and consistent operating
performance enable it to make the investments and conduct the operations
necessary to serve growing areas and to expand through acquisitions. The
company is aggressively and enthusiastically integrating continuous improvement
into every aspect of its business with the goal of exceeding customer
expectations, ensuring employee satisfaction and increasing shareholder value.
In keeping with its commitment to continuous improvement the company has
centralized the administration of its Mohave County, Arizona operations, which
provide five different utility services, resulting in the ability to enhance
customer service and to realize operating cost efficiencies.
On May 19, 1993, the company and GTE Corporation announced the signing
of ten definitive agreements under which the company would purchase from GTE
Corporation, for approximately $1,100,000,000 in cash, 500,000 local telephone
access lines in nine states ("the GTE Telephone Properties"). These
transactions are consistent with the company's growth strategy, will enable the
company to achieve operating economies of scale and increase the company's
annual revenues to more than $1,000,000,000 once the operations are fully
integrated. These transactions require the approval of the Federal
Communications Commission and the regulatory commissions of the nine states in
which the properties are located. On December 31, 1993, 189,000 access lines in
Idaho, Tennessee, Utah and West Virginia were transferred to the company. The
remaining access lines are expected to be transferred during 1994.
(b) Financial Information about Industry Segments
---------------------------------------------
The Consolidated Statements of Income and Note 10 of the Notes to
Consolidated Financial Statements included herein sets forth financial
information about industry segments of the company for the last three fiscal
years.
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(c) Narrative Description of Business
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Telecommunications
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The company provides telecommunications services in Arizona, California,
Idaho, Oregon, Pennsylvania, Tennessee, Utah, Washington and West Virginia to
customers served by approximately 340,000 access lines as of December 31, 1993.
The company will provide telecommunications services to customers served by
approximately 311,000 additional access lines in Arizona, California, Montana,
New York and Oregon upon completion of the transfer of the remaining GTE
Telephone Properties in 1994. Telecommunications services consist of local
service, centrex service, network access service, long distance service,
competitive access service, cellular service and other related services. The
company's telecommunications services and/or rates are subject to the
jurisdiction of the Federal Communications Commission and state regulatory
agencies.
The Public Utility Commission of the State of California ("CPUC")
continues with its efforts to open the California telecommunications markets to
competition. The proceedings call for, among other things, authorized
competition for intrastate intraLATA switched toll services; alternative
regulatory frameworks for local exchange carriers; less regulation of radio
telephone utilities and the elimination of the toll settlement pools for mid-
sized local exchange carriers. In support of these CPUC efforts, the company's
California telephone subsidiary exited the intrastate toll settlement pools in
1991 and entered into a transition contract with Pacific Bell. Pursuant to the
contract, Pacific Bell has agreed to continue to make payments to the company
through December 31, 1994, by which time the company expected to have concluded
a general rate case permitting the implementation of new higher rates. In the
event a general rate case is concluded prior to December 31, 1994, the Pacific
Bell payments would be reduced. Such a reduction, if any, would not materially
affect 1994 consolidated revenues or earnings. The Pacific Bell contract was
designed to partially offset the declines in revenues and earnings which
resulted from exiting the intrastate toll settlement pools. The Pacific Bell
contract payments, which are received in lieu of revenues from the intrastate
toll settlement pools, are included in their entirety in the company's
telecommunications revenues and income from operations. The introduction of
competition for intrastate intraLATA switched toll services once the CPUC's
decision to authorize intrastate intraLATA switched toll competition is
implemented could have a negative impact on the California subsidiary's revenues
and earnings; however, the subsidiary's properties should be least effected by
such competition since they are located in small- and medium-size towns and
communities and the CPUC's decision will allow the company to compete for
switched toll revenues and earnings in markets that it is not currently allowed
to serve. The CPUC's decision, originally
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expected in 1993, is now expected in 1994. Thus, the time available to the
company to complete its general rate case and implement new higher rates and an
Incentive Regulatory Framework ("IRF") after the CPUC decision and prior to the
expiration of the Pacific Bell contract has been shortened. In order to have a
new rate design in effect prior to the expiration of the Pacific Bell contract,
the company proceeded with its general rate case filing on December 15, 1993.
The delay in the CPUC's decision is likely to have a negative impact on the
California subsidiary's revenues and earnings, since this delay could result in
a period in which intrastate intraLATA competition for switched toll services is
implemented, Pacific Bell contract payments would no longer be received and the
IRF and increased rates from the general rate case would not yet be implemented,
or, alternatively, interim rate relief would not be approved. The Pacific Bell
contract payments represent 6% of the company's 1993 consolidated revenues and
4% of the company's 1993 consolidated revenues pro forma for the acquisition of
all the GTE Telephone Properties (see Note 3 of Notes to Consolidated Financial
Statements). The company has taken the following measures to offset this
negative impact on revenues and earnings and simultaneously position itself for
a more competitive telecommunications environment: the company has pending
proposals before the CPUC to enter new and existing markets (including the
intrastate intraLATA toll market as a toll provider and the market for broadband
services, including two way interactive video applications such as distance
learning), to enter into an IRF under which the company would be allowed to earn
rates of return in excess of those allowed under traditional rate base rate of
return regulation and to rebalance its rate structure to be more competitive;
the company has implemented state-of-the-art operational cost control systems
and force management systems which provide for the ongoing monitoring and
improvement of business processes and will continue to generate cost reductions
which, under an IRF, will benefit shareholders and customers; the company's
acquisition of the GTE Telephone Properties positions the company for the new
competitive environment since these properties are located in small-and medium-
size towns and communities which should be least affected by competition and
will provide growth opportunities; and the company is also investing in
competitive telecommunications services such as competitive access, cellular and
cable operations.
The company continues to invest in its subsidiary,Electric Lightwave,
Inc., a competitive access provider in Oregon and Washington, with planned
expansion to California, Utah and Arizona. The Federal Communications Commission
has granted the company a permit to construct a fiber-optic route from Nevada to
Arizona which will provide centralized equal access service for the company's
telecommunications customers in Arizona. This project will allow the company to
interface with any carrier desiring equal access in the service area and make it
possible for the company to enter the long distance market as a competitor. The
company has contributed $29,120,000 through the year ended December 31, 1993
towards the expansion of Electric Lightwave, Inc.'s operations.
-4-
In January 1993, the company, through its Mohave Cellular subsidiary
as general managing partner, began the operation of a cellular partnership in
Arizona. The partnership currently owns five cell sites in Arizona. In 1993, a
subsidiary of the company conducted tests to determine the viability of Personal
Communications Networks ("PCN") and is exploring means to participate by either
acquiring a spectrum on its own or as part of a partnership or consortium.
In March 1993, the company signed an agreement to purchase, through a
joint venture with Century Communications Corp. ("Century"), the assets of two
cable television systems serving approximately 45,000 subscribers in California.
The joint venture will pay a purchase price of up to approximately $89,000,000
for the systems and intends to enter into an agreement with Century pursuant to
which Century will manage the systems. The purchase is subject to regulatory
approval for the transfer of licenses and is expected to be consummated in 1994.
The GTE Telephone Properties acquired and to be acquired increases the
company's number of access lines serving customers by approximately 500,000. To
best manage these new businesses, as well as the growth in its existing
properties, the company is in the process of consolidating support service
functions and establishing a centralized telecommunications infrastructure to
carry out these functions.
Natural Gas
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Operating divisions of the company provide gas transmission and
distribution services to residential, commercial and industrial customers in
Arizona, Colorado and Louisiana. Total number of gas customers served as of
December 31, 1993 was approximately 350,000. The provision of services and/or
rates charged are subject to the jurisdiction of federal and state regulatory
agencies. The company purchases all needed gas supplies, the supply of which is
believed to be adequate to meet current demands and to provide for additional
sales to new customers. The gas industry is subject to seasonal demand, with the
peak demand occurring during the heating season of November 1 through March 31.
The gas division experiences third party competition from fuel oil, propane, and
other natural gas suppliers for most of its large consumption customers and from
electricity for all of its customer base. The competitive position of natural
gas at any given time depends primarily on the relative prices of natural gas
and these other energy sources. Various federal and state tax incentive programs
call for replacing other fuels with compressed natural gas. However, these
regulations may, in certain circumstances, promote the use of other fuels to
replace natural gas.
Numerous opportunities for expansion are available to the company in
connection with its northern Arizona gas transmission and distribution system
build out program. In addition, gas powered cogeneration opportunities with
industrial customers have emerged as a result of the relatively high price of
electricity. Natural gas heat pumps that also cool would generate large demand
during the Summer months when natural gas consumption is historically low.
On December 22, 1993, the company acquired Natural Gas Company of
Louisiana ("NGL") by merger. In the merger, NGL's 59,980 outstanding shares were
converted into 568,748 shares of the company's Series B common stock, for an
aggregate value of $10,522,000. NGL is a local gas distribution company serving
15,500 customers in Louisiana. NGL will operate as part of the company's
Louisiana gas division.
Electric
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Operating divisions of the company provide electric services to
approximately 98,000 residential, commercial and industrial customers in
Arizona, Hawaii and Vermont as of December 31, 1993. The provision of services
and/or rates charged are subject to the jurisdiction of federal and state
regulatory agencies. The company purchases over 80% of needed electric
supplies, the supply of which is believed to be adequate to meet current demands
and to provide for additional sales to new customers. As a whole, the company's
electric segment does not experience material seasonal fluctuations. In
response to regulatory initiatives, the company's electric divisions are all
proceeding with demand-side management programs and integrated resource planning
techniques designed to promote the most efficient use of electricity and to
reduce the environmental impacts associated with new generation facilities.
The company's Kauai Electric Division ("KED") has restored all
transmission and distribution lines, poles and equipment that were damaged as a
result of Hurricane Iniki in September 1992. As of December 31, 1993, all
customers whose facilities were capable of receiving service (approximately
24,300 of the KED's 24,500 pre-hurricane customers) had been reconnected. Sales
volume has been slowly recovering as construction throughout the island
continues on residential homes, commercial establishments and hotels. The Hawaii
Public Utilities Commission ("HPUC") approved a stipulation on December 9, 1992
specifying regulatory treatment of certain
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costs associated with the restoration of KED facilities. As part of this
stipulation, KED agreed to defer its next general rate increase application
until 1994 with rates becoming effective no earlier than January 1, 1995 (the
"deferred rate case"). Under the terms of this stipulation, KED is authorized to
earn an allowance for funds used during construction ("AFUDC") on the
restoration costs. The allowed restoration costs, plus associated AFUDC
earnings, will be included in rate base to be recovered in the deferred rate
case. Restoration costs plus associated AFUDC earnings not ultimately allowed in
rate base should be recovered by the company in the deferred rate case over an
amortization period to be determined in that case. Depreciation expense on the
restoration plant is being deferred and will be amortized over the remaining
useful life of the restored plant when rates are approved in the deferred rate
case. Lost gross margin (unrecovered costs and the allowed return on investment
based on the rate award received by the KED in November, 1992) and interest,
compounded monthly, on the lost gross margin is authorized to be accrued and is
subject to recovery in the deferred rate case.
The company is participating in research and development of electric
powered vehicles which could provide new opportunities to expand its electric
business. At the same time, the company is taking a leadership role toward
enhancing and protecting the environment by sponsoring a study to protect
endangered species of birds, employment of new technology to reduce emissions
from generating facilities at the company's Kauai electric division and
conducting extensive studies at the company's Vermont electric division to
protect and preserve waterways, while balancing the need for hydrogeneration.
The United States Environmental Protection Agency ("EPA") named the
company a potentially responsible party ("PRP") with respect to three sites
which have been designated for federally supervised clean-up under the
Comprehensive Environmental Response, Compensation and Liability Act. These
three sites are Missouri Electric Works in Cape Girardeau, Missouri; Northwest
Transformer in Everson, Washington; and Rose Chemicals in Holden, Missouri. The
EPA has determined that the electric divisions' participation in each site is
less than 0.5%. The number of named PRP's ranges from 40 to 700 at each site.
Significant parties have accepted responsibility and are currently funding the
clean-up activity as required. The company's remaining financial liability is
estimated to be less than $141,000.
During 1993, the company acquired Franklin Electric Light Company,
Incorporated whose operations are contiguous with its Vermont electric division.
The company issued 51,500 shares of Series B common stock to complete the
acquisition. This acquisition will allow for greater economies of scale and will
result in more efficient customer service.
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Water/Wastewater
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The company provided water and/or wastewater services to approximately
254,000 customer connections in Arizona, California, Illinois, Indiana, Ohio and
Pennsylvania as of December 31, 1993. The provision of these services and/or
rates charged are subject to the jurisdiction of federal, state and local
regulatory agencies. A significant portion of the company's water/wastewater
construction expenditures necessary to serve new customers are made under
agreements with land developers who generally advance construction monies to the
company that are later refunded in part as new customers and revenues are added
in their developments.
Water/wastewater public utility property of the company, from time to
time, has been subjected to condemnation proceedings initiated by municipalities
or utility districts seeking to acquire and take control of the operation of
such property. During 1992, one operation in Illinois became subject to such
proceeding; this condemnation is being contested by the company.
In September 1992, the United States Environmental Protection Agency
("EPA") filed a complaint with the United States District Court for the Northern
District of Illinois relating to alleged violations by the company's Illinois
subsidiary with respect to
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National Pollutant Discharge Elimination System permit requirements. The company
is unable to estimate exposure at this time, but believes the Illinois
subsidiary has meritorious defenses. The company believes the risk of material
loss from this action is remote.
General
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The company's public utility operations are conducted primarily in small-
and medium-size towns and communities. No material part of the company's
business is dependent upon a single customer or upon a small group of customers.
The loss of one or more of such customers would not have a material adverse
effect on operating income. As a result of its diversification, the company is
not dependent upon any single geographic area or upon any one type of utility
service for its revenues. Due to this diversity, no single regulatory body
regulates a utility service of the company accounting for more than 18% of its
1993 revenues.
The company is subject to regulation by the respective state Public
Utility Commissions and federal regulatory agencies. The company is not subject
to the Public Utility Holding Company Act. Order backlog is not a significant
consideration in the company's business, and the company has no contracts or
subcontracts which may be subject to renegotiation of profits or termination at
the election of the federal government. The company holds franchises with local
governmental bodies, which vary in duration. The company also holds
certificates of convenience and necessity granted by various state commissions
which are generally of indefinite duration. The company has no special working
capital practices. The company's research and development activities are not
material. There are no patents, trademarks, licenses or concessions held by the
company that are material.
The company employed 2,917 full time and 50 part time employees at
December 31, 1993 (includes employees of the GTE Telephone Properties acquired
December 31, 1993).
(d) Financial Information about Foreign and Domestic Operations and
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Export Sales
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The company does not have any material foreign operations or
export sales.
-8-
Item 2. Description of Property
------------------------
The administrative offices of the company are located at High Ridge Park,
Stamford, Connecticut, 06905 and are leased. The company owns property
including: telecommunications outside plant, central office, microwave radio
and fiber-optic facilities; electric generation, transmission and distribution
facilities; gas transmission and distribution facilities; water production,
treatment, storage, transmission and distribution facilities; and wastewater
treatment, transmission, collection and discharge facilities; all as necessary
to provide services at the locations listed below.
State Service(s) Provided
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Arizona Electric, Natural Gas, Telecommunications,*
Water, Wastewater
California Telecommunications, Water
Colorado Natural Gas
Hawaii Electric
Idaho Telecommunications
Illinois Water, Wastewater
Indiana Water
Louisiana Natural Gas
Ohio Water, Wastewater
Oregon Telecommunications
Pennsylvania Telecommunications, Water
Tennessee Telecommunications
Utah Telecommunications
Vermont Electric
Washington Telecommunications
West Virginia Telecommunications
* Certain telecommunications properties are subject to a mortgage
deed.
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Item 3. Legal Proceedings
-----------------
In September 1992, the United States Environmental Protection Agency
filed a complaint with the United States District Court for the Northern
District of Illinois relating to alleged violations by the company's Illinois
subsidiary with respect to National Pollutant Discharge Elimination System
permit requirements. The company is unable to estimate exposure at this time,
but believes the Illinois subsidiary has meritorious defenses.
On February 19, 1993, the company was served with a summons and
complaint in an action brought by the Sun City Taxpayers' Association in the
United States District Court for the District of Connecticut. The plaintiff
alleged that the company, through its Sun City Water Company and Sun City Sewer
Company subsidiaries, misrepresented rate-base investment in rate applications
submitted to the Arizona Corporation Commission ("ACC") between 1968 and 1978
and claimed damages of $65,000,000 before trebling. The plaintiff made
substantially the same allegations in a regulatory proceeding before the ACC in
1986 and the ACC rejected those allegations. On February 1, 1994, the company's
motion to dismiss this action was granted and the complaint was dismissed by an
opinion and order of the court. On February 9, 1994, plaintiff filed a notice of
appeal and is seeking review of the court's ruling by the United States Court of
Appeals for the Second Circuit.
In June 1993, several stockholders commenced purported derivative actions
in the Delaware Court of Chancery against the company's Board of Directors.
These actions have since been consolidated under the name of the first-filed
action, Goodman, et al. v. Botwinik, et al. (the "Consolidated Action"). Another
action ("Thorpe") was also filed in June 1993 in the same court. These
stockholders allege that the compensation approved by the Board of Directors for
the company's Chairman is excessive and seek, among other things, an accounting
for alleged corporate waste and a declaration that the Chairman's employment
agreement and existing stock options are invalid. These stockholders further
allege that certain corporate transactions involving the company and Century
Communications Corp. ("Century") benefitted Century to the detriment of the
company. Certain of these stockholdersIn Thorpe the plaintiffs have also asserted individual and
purported class claims based upon the company's alleged failure to disclose
facts relating to the Chairman's compensation and certain stock options granted
to members of the company's Board of Directors and the allegedly improper
accounting treatment with respect to Citizens' investment in Centennial Cellular
Corp. ("Centennial"). The company's Board of Directors has moved to dismiss the
complaints for failure to state a claim and for failure to comply with the
demand requirements applicable to a derivative suit. The motions are currently
pending. In November 1993, another purported derivative action (Biggs) was filed
in the Court of Chancery against the company's Board of Directors and Century.
Plaintiffs challenge both the Chairman's compensation and the merger which
resulted in the creation of Centennial.
Certain of the above actions, commenced in June 1993, were consolidated
(the "Consolidated Action").
In February 1994, a Memorandum of Understanding was executed among
counsel for several of the stockholders in the Consolidated Action and counsel
for the company's Board of Directors. The parties to the Memorandum of
Understanding will attempt to agree upon, execute and present to the Delaware
Court of Chancery a stipulation of settlement resolving all of the claims in the
Consolidated Action. The Memorandum of Understanding sets forth the contemplated
terms of the stipulation of settlement. Consummation of the proposed settlement
will be subject to: (a) the drafting and execution of a stipulation of
settlement; (b) the completion by plaintiffs of appropriate confirmatory
discovery in the Consolidated Action; (c) notice to all stockholders of the
Company of the terms of the proposed settlement; and (c)(d) final approval of the
settlement by the Delaware Court of
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Chancery and dismissal of the Consolidated Action with prejudice. It is
contemplated that the stipulation of settlement will provide for the complete
release and settlement of all claims of the plaintiffs and all derivative claims
of the Company against the company's Board of Directors arising out of the
allegations in the Consolidated Action. It is also contemplated that plaintiffs'
counsel will seek an award of attorneys' fees and expenses in connection with
the settlement. No understanding has been reached with respect to the amount of
fees and expenses to be sought, but it is contemplated that the company will
pay, on behalf of the defendant directors, the amount of fees and expenses, if
any, to be awarded by the Delaware Court of Chancery to plaintiffs' counsel.
In June 1993, a stockholder of the company (Berlin) commenced a purported
class action in the United States District Court for the District of Delaware
against the company and the company's Board of Directors. The stockholder's
complaint, amended in July 1993, alleges that the proxy statements disseminated
by the company from 1990 to 1993 failed to disclose material information
regarding, among other things, the Chairman's compensation and certain purported
related-
partyrelated-party transactions and thereby violated federal and state disclosure
requirements. The relief sought includes a declaration that the results of the
1993 Annual Meeting of the stockholders are null and void, a declaration that
the Chairman's employment agreement is invalid and unspecified damages.
Defendants have filed a motion to dismiss this action. The motion is currently
pending.
The company believes the risk of material loss from the above actions is
remote.
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
None in fourth quarter 1993.
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Executive Officers
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Information as to Executive Officers of the company as of January 31,
1994, follows:
Name Age Current Position and Office
---- --- ---------------------------
Leonard Tow 65 Chairman of the Board, Chief Executive Officer
and Chief Financial Officer
Daryl A. Ferguson 55 President and Chief Operating Officer
Robert J. DeSantis 38 Vice President and Treasurer
Charles R. Aldrich 53 Vice President, Gas Operations
James P. Avery 37 Vice President, Electric Operations
Richard A. Faust,Jr. 47 Vice President, Mohave County, Arizona
Operations
J. Michael Love 42 Vice President, Corporate Planning
Robert L. O'Brien 51 Vice President, Regulatory Affairs
Donald K. Roberton 52 Vice President, Telecommunications
Livingston E. Ross 45 Vice President and Controller
Ronald E. Walsh 54 Vice President, Water and Wastewater
Operations
There is no family relationship between any of the officers of the
Registrant. The term of office of each of the foregoing officers of the
Registrant will continue until the next annual meeting of the Board of Directors
and until a successor has been elected and qualified.
LEONARD TOW has been associated with the Registrant since April 1989 as a
Director. In June 1990, he was elected Chairman of the Board and Chief
Executive Officer. In October 1991, he was appointed to the additional position
of Chief Financial Officer of the Registrant. He has also been a Director,
Chief Executive Officer and Chief Financial Officer of Century Communications
Corporation since its incorporation in 1973, and Chairman of its Board of
Directors since October 1989.
DARYL A. FERGUSON has been associated with the Registrant since July
1989. He was Vice President, Administration from July 1989 through March 1990
and Senior Vice President, Operations and Engineering from March 1990 through
June 1990. He has been President and Chief Operating Officer since June 1990.
During the period April 1987 through July 1989, he was President and Chief
Executive Officer of Microtecture Corporation.
ROBERT J. DeSANTIS has been associated with the Registrant since January
1986. He was Assistant to the Treasurer through May 1986 and Assistant
Treasurer from June 1986 through September 1991. He has been Vice President and
Treasurer since October 1991.
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CHARLES R. ALDRICH has been associated with the Registrant since December
1990 as Vice President of the Registrant's Gas Operations. He was associated
with Louisiana General Services, Inc. from 1971 until that company was merged
with the Registrant in December 1990. He served as President of LGS Pipeline,
Inc. from January 1983 through June 1988 and President of Louisiana Gas Service
Company from July 1988 through December 1990.
JAMES P. AVERY has been associated with the Registrant since August 1981.
He was Project Manager, Electric through June 1988, Assistant Vice President,
Electric Operations from June 1988 through December 1990 and Acting Vice
President from December 1990 through April 1991. He has been Vice President,
Electric Operations since May 1991.
RICHARD A. FAUST, JR. has been associated with the Registrant since
December 1990. He was associated with Louisiana General Services, Inc. from
1972 until that company was merged with the Registrant in December 1990. He
served as Vice President, General Counsel and Secretary of Louisiana General
Services, Inc. from March 1984 through May 1993. He was elected Assistant
Secretary for the Registrant in June 1991 and Vice President, Mohave County,
Arizona Operations in June 1993.
J. MICHAEL LOVE has been associated with the Registrant since May 1990
and from November 1984 through January 1988. He was Assistant Vice President,
Regulatory Affairs and Community Relations from June 1986 through January 1988.
He left the Registrant in January 1988 to become President and General Counsel
of Southern New Hampshire Water Company. He rejoined the Registrant in April
1990 and was Assistant Vice President, Corporate Planning from June 1990 through
March 1991. He has been Vice President, Corporate Planning since March 1991.
ROBERT L. O'BRIEN has been associated with the Registrant since March
1975. He has been Vice President, Regulatory Affairs since June 1981.
DONALD K. ROBERTON has been associated with the Registrant since January
1991 and has been Vice President, Telecommunications since that date. Prior to
joining the Registrant, he was Vice President, Western Operations at Henkels &
McCoy from December 1989 through December 1990. From January 1984 through
November 1989, he was a Vice President with Centel Communications Systems.
LIVINGSTON E. ROSS has been associated with the Registrant since August
1977. He was Manager of Reporting from September 1984 through March 1988,
Manager of General Accounting from April 1988 through September 1990 and
Assistant Controller from October 1990 through November 1991. He has been Vice
President and Controller since December 1991.
RONALD E. WALSH has been associated with the Registrant since January
1986. He was Attorney and Assistant Secretary from November 1987 through August
1992. He has been Vice President, Water and Wastewater Operations since August
1992.
-13-
PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholder
----------------------------------------------------------------
Matters
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PRICE RANGE OF COMMON STOCK
The company's Common Stock is traded on the New York Stock Exchange under
the symbols CZNA and CZNB for Series A and Series B, respectively. The
following table indicates the high and low prices per share as taken from the
daily quotations published in the "Wall Street Journal" during the periods
indicated. Prices are adjusted for intervening stock dividends, the July 24,
1992 3-for-2 stock split and the August 31, 1993 2-for-1 stock split, rounded to
the nearest 1/8th. (See Note 7 of Notes to Consolidated Financial Statements.)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------------- -------------- ------------- ---------------
High Low High Low High Low High Low
-------------- -------------- -------------- ---------------
1993:
----
Series A 17 5/8 13 3/8 18 3/8 15 7/8 18 1/8 13 1/4 19 7/8 16 1/8
Series B 17 5/8 13 1/2 18 3/8 15 3/4 18 1/8 13 1/4 19 3/4 16 1/8
1992:
----
Series A 12 3/8 10 1/2 12 1/8 11 13 5/8 10 3/4 14 1/2 12
Series B 12 1/8 10 3/8 12 1/8 10 5/8 13 5/8 10 5/8 14 1/2 12
The December 31, 1993 prices were: Series A $18.125 high, $17.875 low;
Series B $18.125 high, $17.875 low.
As of January 31, 1994, the approximate number of record security holders
of the company's Series A and Series B Common Stock was 37,715. This
information was obtained from the company's transfer agent.
DIVIDENDS
Quarterly stock dividends declared and issued on both Series A and Series
B Common Stock were 1.2% for the first quarter of 1993, 1.0% for the second
quarter of 1993, 1.1% for the third quarter of 1993 and 1.0% for the fourth
quarter of 1993. Quarterly stock dividends declared and issued on both Series A
and Series B Common Stock were 1.6% for the first quarter of 1992, 1.5% for the
second quarter of 1992 and 1.2% for each of the third and fourth quarters of
1992. An annual cash dividend equivalent rate of $0.745 and $0.675 per share
(adjusted for subsequent stock dividends and stock splits) was considered by the
company's Board of Directors in establishing the Series A and Series B stock
dividends during 1993 and 1992, respectively. (See Note 7 of Notes to
Consolidated Financial Statements.)
-14-
Item 6. Selected Financial Data (In thousands, except for per-share
-----------------------------------------------------------
amounts)
-------
Year Ended December 31,
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
Operating revenues $ 619,392 $ 580,464 $ 545,025 $ 528,251 $ 483,582
Income from continuing
operations $ 125,630 $ 115,013 $ 112,354 $ 105,624 $ 97,768
Earnings per-share of common
stock from continuing
operations:/(1)/
Series A $ 0.71 $ 0.66 $ 0.65 $ 0.60 $ 0.53
Series B $ 0.71 $ 0.66 $ 0.65 $ 0.60 $ 0.53
Dividends declared on common
stock:
Series A in stock/(2)/ 4.37% 5.61% 7.93% 6.54% 3.84%
Series B
In stock/(2)/ 4.37% 5.61% 7.93% 6.54% --
In cash/(3)/ $ -- $ -- $ -- $ 0.32 $ 1.32
Total assets $2,627,118 $1,887,981 $1,721,452 $1,491,199 $1,365,534
Long-term debt $ 547,673 $ 522,699 $ 484,021 $ 412,348 $ 379,729
/(1)/ Adjusted for intervening stock dividends and splits; no adjustment
has been made for the company's 1.1% first quarter 1994 stock dividend because
the effect is immaterial.
/(2)/ Annual rate of quarterly stock dividends compounded.
/(3)/ The 1990 amount represents cash dividend payments by Louisiana
General Services, Inc. prior to its merger into the company on December 4, 1990.
The 1989 amount represents cash dividend payments by Louisiana General Services,
Inc. prior to its merger into the company in 1990 and payments by the company.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
(a) Liquidity and Capital Resources
-------------------------------
The company's primary source of funds was from operations. Funds
requisitioned from the 1993, 1992 and 1991 Series Industrial Development Revenue
Bond construction fund trust accounts and funds from advances for specific
capital expenditures from parties desiring utility service were used to pay for
the construction of utility plant. Funds from the issuance of commercial paper
were used to repay $11,489,000 of higher-coupon first mortgage bonds on October
15, 1993. Commercial paper notes payable in the amount of $438,953,000 were
outstanding as of December 31, 1993, of which $380,000,000 was issued to
temporarily and partially fund the GTE Telephone Properties acquired on December
31, 1993. The $380,000,000 of commercial paper is expected to be repaid from
maturing temporary investments and proceeds from the planned issuance of equity
securities in 1994. On March 10, 1993, the company arranged for the issuance of
-15-
$42,560,000 of 1993 Series Industrial Development Revenue Bonds. The bonds were
issued as money market bonds with an initial interest rate of 2.25% and an
ultimate maturity date of December 1, 2027. On November 16, 1993, the company
arranged for the issuance of $25,600,000 of 1993 Series Industrial Development
Revenue Bonds; the bonds were issued as Demand Purchase Bonds bearing interest
at a composite rate of approximately 5.8% and mature on November 15, 2028. On
December 15, 1993, the company arranged for the issuance of $35,700,000 of 1993
Series Special Purpose Revenue Bonds; these bonds were issued as Residual
Interest Bonds/Select Auction Variable Rate Securities and bear interest at a
fixed annual interest rate of 5.6% and mature on December 15, 2023. The company
has received approval from the Federal Energy Regulatory Commission to issue up
to $1,250,000,000 in various forms of additional securities over the next two
years to fund the acquisition of the GTE Telephone Properties and for other
corporate purposes. The company has filed a shelf-registration statement with
the Securities and Exchange Commission to offer, from time to time, up to
$1,000,000,000 in securities to fund the acquisition of the GTE Telephone
Properties and for other corporate purposes.
The company considers its operating cash flows and its ability to raise
debt and equity capital as the principal indicators of its liquidity. Although
working capital is not considered to be an indicator of the company's liquidity,
the company experienced a decrease in its working capital at December 31, 1993.
The decrease is primarily due to the issuance of short-term debt to temporarily
and partially fund the acquisition of the GTE Telephone Properties acquired on
December 31, 1993.
Capital expenditures for the years 1993, 1992 and 1991, respectively,
were $182,480,000, $148,027,000 and $115,884,000, and for 1994 are expected to
be approximately $280,000,000. These expenditures were, and in 1994 will be,
for utility and related facilities and properties, including the GTE Telephone
Properties.
The company anticipates that the funds necessary for its 1994 capital
expenditures will be provided from operations; from 1991, 1992 and 1993 Series
Industrial Development Revenue Bond construction fund trust account
requisitions; from Rural Telephone Bank loan contract advances; from commercial
paper notes payable; from parties desiring utility service; from debt, equity
and other financing at appropriate times; and, if deemed advantageous, from
short-term borrowings under bank credit lines. The company has committed lines
of credit with banks under which it may borrow up to $1,200,000,000.
In March 1993, the company signed an agreement to purchase, through a
joint venture with Century Communications Corp. ("Century"), the assets of two
cable television systems serving approximately 45,000 subscribers in California.
The joint venture will pay a purchase price of up to approximately $89,000,000
for the systems and intends to enter into an agreement with Century pursuant to
which Century will manage the systems. The purchase is subject to regulatory
approval for the transfer of licenses and is expected to be consummated in 1994.
On May 19, 1993, the company and GTE Corporation announced the signing
of ten definitive agreements under which the company would purchase from GTE
Corporation, for approximately $1,100,000,000 in cash, 500,000 local telephone
access lines in nine states ("the GTE
-16-
Telephone Properties"). These transactions are consistent with the company's
growth strategy, will enable the company to achieve operating economies of
scale, and will increase the company's annual revenues to more than
$1,000,000,000 once the operations are fully integrated. These transactions
require the approval of the Federal Communications Commission and the regulatory
commissions of the nine states in which the properties are located. On December
31, 1993, 189,000 access lines in Idaho, Tennessee, Utah and West Virginia were
transferred to the company. The remaining access lines are expected to be
transferred during 1994.
During 1993, the company acquired Franklin Electric Light Company,
Incorporated which operations are contiguous with its Vermont electric division.
The company issued 51,500 shares of Series B common stock to complete the
acquisition. This acquisition will allow for greater economies of scale and will
result in more efficient customer service.
On December 22, 1993, the company acquired Natural Gas Company of
Louisiana ("NGL") by merger. In the merger, NGL's 59,980 outstanding shares
were converted into 568,748 shares of the company's Series B common stock, for
an aggregate value of $10,522,000. NGL is a local gas distribution company
serving 15,500 customers in Louisiana, and will operate as part of the company's
Louisiana gas division.
Regulatory Matters
- ------------------
Pursuant to the 1972 Clean Water Act, as amended, National Pollutant
Discharge Elimination System ("NPDES") permits are required for wastewater
treatment facilities which discharge to surface waters. In September 1992, the
United States Environmental Protection Agency ("EPA") filed a complaint with the
United States District Court for the Northern District of Illinois relating to
alleged violations by the company's Illinois subsidiary with respect to NPDES
permit requirements. The company is unable to estimate exposure at this time,
but believes the Illinois subsidiary has meritorious defenses. The company
believes the risk of material loss from this action is remote.
On February 19, 1993, the company was served with a summons and
complaint in an action brought by the Sun City Taxpayers' Association in the
United States District Court for the District of Connecticut. The plaintiff
alleged that the company, through its Sun City Water Company and Sun City Sewer
Company subsidiaries, misrepresented rate-base investment in rate applications
submitted to the Arizona Corporation Commission ("ACC") between 1968 and 1978
and claimed damages of $65,000,000 before trebling. The plaintiff made
substantially the same allegations in a regulatory proceeding before the ACC in
1986 and the ACC rejected those allegations. On February 1, 1994, the company's
motion to dismiss this action was granted and the complaint was dismissed by an
opinion and order of the court. On February 9, 1994, plaintiff filed a notice of
appeal and is seeking review of the court's ruling by the United States Court of
Appeals for the Second Circuit.
The EPA named the company a potentially responsible party ("PRP") with
respect to three sites which have been designated for federally supervised
clean-up under the Comprehensive Environmental Response, Compensation and
Liability Act. These three sites are Missouri Electric Works in Cape Girardeau,
Missouri; Northwest Transformer in Everson, Washington; and Rose Chemicals in
Holden, Missouri. The EPA has determined that the company's participation in
each site is less than 0.5%. The number of named PRP's ranges from 40 to 700 at
each site. Significant parties have accepted responsibility and are currently
funding the clean-up activity as required. The company's remaining financial
liability is estimated to be less than $141,000.
-17-
The Public Utility Commission of the State of California ("CPUC")
continues with its efforts to open the California telecommunications markets to
competition. The proceedings call for, among other things, authorized
competition for intrastate intraLATA switched toll services; alternative
regulatory frameworks for local exchange carriers; less regulation of radio
telephone utilities; and the elimination of the toll settlement pools for mid-
sized local exchange carriers. In support of these CPUC efforts, the company's
California telephone subsidiary exited the intrastate toll settlement pools in
1991 and entered into a transition contract with Pacific Bell. Pursuant to the
contract, Pacific Bell has agreed to continue to make payments to the company
through December 31, 1994, by which time the company expected to have concluded
a general rate case permitting the implementation of new higher rates. In the
event a general rate case is concluded prior to December 31, 1994, the Pacific
Bell payments would be reduced. Such a reduction, if any, would not materially
affect 1994 consolidated revenues or earnings. The Pacific Bell contract was
designed to partially offset the declines in revenues and earnings which
resulted from exiting the intrastate toll settlement pools. The Pacific Bell
contract payments, which are received in lieu of revenues from the intrastate
toll settlement pools, are included in their entirety in the company's
telecommunications revenues and income from operations. The introduction of
competition for intrastate intraLATA switched toll services, once the CPUC's
decision to authorize intrastate intraLATA switched toll competition is
implemented, could have a negative impact on the California subsidiary's
revenues and earnings; however, the subsidiary's properties should be least
affected by such competition since they are located in small-and medium-size
towns and communities and the CPUC's decision will allow the company to compete
for switched toll revenues and earnings in markets that it is not currently
allowed to serve. The CPUC's decision, originally expected in 1993, is now
expected in 1994. Thus, the time available to the company to complete its
general rate case and implement new higher rates and an Incentive Regulatory
Framework ("IRF") after the CPUC decision and prior to the expiration of the
Pacific Bell contract has been shortened. In order to have a new rate design in
effect prior to the expiration of the Pacific Bell contract, the company
proceeded with its general rate case filing on December 15, 1993. The delay in
the CPUC's decision is likely to have a negative impact on the California
subsidiary's revenues and earnings, since this delay could result in a period in
which intrastate intraLATA competition for switched toll services is
implemented, Pacific Bell contract payments would no longer be received and the
IRF and increased rates from the general rate case would not yet be implemented,
or, alternatively, interim rate relief would not be approved. The Pacific Bell
contract payments represent 6% of the company's 1993 consolidated revenues and
4% of the company's 1993 consolidated revenues pro forma for the acquisition of
the GTE Telephone Properties (see Note 3 of Notes to Consolidated Financial
Statements). The company has taken the following measures to offset this
negative impact on revenues and earnings and simultaneously position itself for
a more competitive telecommunications environment: the company has pending
-18-
proposals before the CPUC to enter new and existing markets (including the
intrastate intraLATA toll market as a toll provider and the market for
broadband services, including two-way interactive video applications such as
distance learning), to enter into an IRF under which the company would be
allowed to earn rates of return in excess of those allowed under traditional
rate base rate of return regulation and to rebalance its rate structure to be
more competitive; the company has implemented state-of-the-art operational cost
control systems and force management systems which provide for the ongoing
monitoring and improvement of business processes and will continue to generate
cost reductions which, under an IRF, will benefit shareholders and customers;
the company's acquisition of the GTE Telephone Properties positions the company
for the new competitive environment since these properties are located in small-
and medium-size towns and communities which should be least affected by
competition and will provide growth opportunities; and the company is also
investing in competitive telecommunications services such as competitive access,
cellular and cable operations.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits," effective for fiscal years beginning after December
15, 1993. Adoption of SFAS No. 112 will require accrual of the expected cost of
providing benefits, if any, to former or inactive employees after termination of
employment for reasons other than retirement. Adoption of SFAS No. 112 will not
have a material effect on the Consolidated Financial Statements.
The FASB has issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after December
15, 1993. Adoption of SFAS No. 115 will require Fair Value reporting for
certain investments in debt and equity securities. The company does not expect
the adoption of SFAS No. 115 to have a material impact on the Consolidated
Statements of Income, but does expect there to be an increase to investments on
the Consolidated Balance Sheets with an accompanying increase in shareholders'
equity.
(b) Results of Operations
---------------------
Operating revenues for the years ended December 31, 1993 and 1992
increased compared to the like prior year periods primarily due to increased
natural gas, electric, water/wastewater revenues. Telecommunications
revenues decreased 5% in 1993 and 6% in 1992, primarily due to regulatory
changes in the state of California, as discussed in the "Regulatory Matters"
section. The decrease in 1993 was partially offset by $2,626,000 of increased
local revenues as a result of customer growth and $2,548,000 of increased toll
revenues as a result of increased toll volume. The acquisition of the GTE
Telephone Properties is expected to increase annual consolidated revenues to
more than $1,000,000,000 once the
-19-
operations are fully integrated. Natural gas revenues increased 12% in 1993
primarily due to $7,089,000 of revenues from Natural Gas Company of Louisiana
("NGL"), which was acquired by the company in 1993; $3,624,000 from increased
average revenue per MCF of gas sold to industrial customers; $5,229,000 from
increased average revenue per MCF of gas sold to residential and commercial
customers and $9,322,000 from pass-ons to residential and commercial customers
of increases in the wholesale costs of commodities purchased. These increases
were partially offset by decreased consumption due to warmer weather conditions.
Pass-ons are required under tariff provisions and do not affect net income.
Natural gas revenues increased 25% in 1992 primarily due to $29,333,000 of
revenues from northern Arizona gas properties acquired by the company on
December 3, 1991, $5,430,000 from increased rates and $11,463,000 from pass-ons
to residential and commercial customers of increases in the wholesale costs of
commodities purchased. These increases were partially offset by decreased
consumption due to warmer weather conditions. Electric revenues increased 13% in
1993 primarily due to $10,245,000 of increased unit revenues and $4,737,000 from
customer consumption. Electric revenues increased 5% in 1992 primarily because
of increased consumption resulting from increased customer usage due to warmer
weather conditions. Water/wastewater revenues increased 10% in 1993 primarily
due to $2,826,000 of rate increases; $2,018,000 from customer growth and
increased customer usage; as well as $1,256,000 of revenues received from a
water/wastewater property acquired in December 1992. Water/wastewater revenues
increased 3% in 1992 primarily due to rate increases.
Electric energy and fuel oil purchased costs increased 9% in 1993 and 7%
in 1992. Electric energy purchased costs for 1993 totaled $68,224,000 a 6%
increase over the 1992 amount of $64,077,000, which was a 15% increase over the
1991 cost of $55,480,000. The increased cost of electricity purchased in 1993
and 1992 was primarily due to increased customer demand and increased supplier
prices. The increase in 1992 was partially offset by a decline in customer
consumption at the company's Kauai electric division due to Hurricane Iniki.
Fuel oil purchased in 1993 of $14,895,000 increased 22% from the 1992 amount of
$12,209,000 primarily due to higher supplier prices and increased volume to
satisfy increased customer consumption. Fuel oil purchased costs in 1992 of
$12,209,000 decreased 23% from the 1991 amount of $15,843,000, primarily due to
decreasing supplier prices. Natural gas purchased costs increased 15% in 1993,
primarily due to higher supplier prices. Natural gas purchased costs increased
26% in 1992, primarily due to the acquisition of northern Arizona gas
properties. Under tariff provisions, changes in the company's wholesale costs
of electric energy, fuel oil and natural gas purchased are largely passed on to
customers.
Operating and maintenance expenses increased .4% in 1993 primarily due to
the acquisition of Natural Gas Company of Louisiana. Operating and maintenance
expenses increased 2% in 1992 primarily due to the acquisition of northern
Arizona gas properties in December 1991. In addition, in 1992 the company's
operations were impacted by several natural disasters; forest fires in northern
California, Hurricane Andrew in Louisiana and Hurricane Iniki on
-20-
Kauai. Depreciation expense increased 9% in 1993 and 6% in 1992, primarily due
to increased investment in plant in service and increases in the authorized
depreciation rates for the company's Arizona electric operations in 1993 and
California telephone operations in 1992.
Taxes other than income increased 3% in 1993 and 7% in 1992, primarily
due to increased real estate taxes resulting from higher tax rates and
assessment values and the acquisition of northern Arizona gas properties in
1992.
Interest expense decreased 4% in 1993, primarily due to the refinancing
of higher-coupon First Mortgage Bonds with lower cost debentures and increased
allowance for funds used during construction related to borrowings, which is a
reduction to interest expense. The decrease in interest expense was partially
offset by an increase in industrial development revenue bond borrowings.
Interest expense increased 17% in 1992, primarily due to additional industrial
development revenue bond construction fund requisitions and interest on
debentures issued in January 1992, the proceeds of which were used to redeem
higher-coupon debt in February and March 1992. Investment income increased 5%
in 1993, primarily due to realization of gains on sales of securities and an
increase in income from the company's Centennial investment; partially offset by
lower investment balances and market yields. Investment income increased 24% in
1992, primarily due to the temporary investment of debenture proceeds, increased
industrial development revenue bond proceeds held-in-trust, and income from the
company's Centennial investment. Other income-net increased 66% in 1993
primarily due to an increase in the allowance for funds used during construction
related to equity, as a result of increased property, plant and equipment.
Income taxes increased 19% in 1993 and 1% in 1992, primarily due to
increased taxable income and an increase in the effective tax rate resulting
from an increase in the federal corporate income tax rate.
Cost increases, including those due to inflation, are offset in due
course by increases in revenues obtained under established regulatory
procedures.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following documents are filed as part of this Report:
1. Financial Statements:
See Index on page F-1.
2. Supplementary Data:
Quarterly Financial Data is included in the Financial Statements
(see 1. above).
Item 9. Disagreements with Auditors on Accounting and Financial Disclosure
------------------------------------------------------------------
None
-21-
PART III
--------
The company intends to file with the Commission a definitive proxy
statement for the 1994 Annual Meeting of Stockholders pursuant to Regulation 14A
not later than 120 days after December 31, 1993. The information called for by
this Part III is incorporated by reference to that proxy statement.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. The financial statements indexed on page F-1 of this Report.
2. The financial statement schedules required to be filed by
Item 8 will be filed as an amendment to this Report on or
before April 29, 1994.
3. The Exhibits listed below:
Exhibit
No. Description
- ------- -----------
3.1 Certificate of Incorporation
3.2 By-laws
3.2.1 Amendment dated April 14, 1992, to the By-laws
3.200.1 Restated Certificate of Incorporation of Citizens Utilities Company,
with all amendments to March 9, 1994
3.200.2 By-laws of the Company, as amended to-date of Citizens Utilities
Company, with all amendments to March 9, 1994
4.100.1 Copy of Indenture of Securities, dated as of August 15, 1991, to
Chemical Bank, as Trustee
4.100.2 First Supplemental Indenture, dated August 15, 1991
4.100.3 Letter of Representations, dated August 20, 1991, from Citizens
Utilities Company and Chemical Bank, as Trustee, to Depository
Trust Company ("DTC") for deposit of securities with DTC
4.100.4 Second Supplemental Indenture, dated January 15, 1992, to Chemical
Bank, as Trustee
4.100.5 Letter of Representations, dated January 29, 1992, from Citizens
Utilities Company and Chemical Bank, as Trustee, to DTC, for
deposit of securities with DTC
The company agrees to furnish to the Commission upon request copies of the
Realty and Chattel Mortgage, dated as of March 1, 1965, made by Citizens
Utilities Rural Company, Inc., to the United States of America (the Rural
Electrification Administration and Rural Telephone Bank) and the Mortgage Notes
which that mortgage secures; and the several subsequent supplemental Mortgages
and Mortgage
-22-
Notes; copies of the instruments governing the long-term debt of Louisiana
General Services, Inc.; and copies of separate loan agreements and indentures
governing various Industrial development revenue bonds.
10.1 Incentive Deferred Compensation Plan, dated April 16, 1991
10.6 Deferred Compensation Plans for Directors, dated November 26, 1984
and December 10, 1984
10.6.1 Directors' Retirement Plan, effective January 1, 1989
10.9 Management Equity Incentive Plan, effective June 22, 1990
10.10 LGS 1979 Option Incentive Plan, as amended
10.11 LGS 1981 Incentive Option Plan, as amended
10.12 LGS 1981 Stock Option Plan, as amended
10.13 LGS Supplemental Executive Retirement Plan
10.16 Employment Agreement between Citizens Utilities Company and
Leonard Tow
10.17 1992 Employee Stock Purchase Plan
10.18 Amendment dated May 21, 1993, to the 1992 Employee Stock Purchase
Plan
10.19 Asset Purchase Agreements, dated May 18, 1993
12. Computation of ratio of earnings to fixed charges (this item is
included herein for the sole purpose of incorporation by reference)
21. Subsidiaries of the Registrant
23. Auditors' Consent
24. Powers of Attorney
Exhibit number 10.6 is incorporated by reference to the same exhibit
designation in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1984. Exhibit number 10.6.1 is incorporated
by reference to the same exhibit designation in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989.
Exhibit number 10.9 is incorporated by reference to Appendix A to
the Registrant's Proxy Statement dated May 14, 1990. Exhibit numbers
10.10, 10.11, 10.12 and 10.13 are incorporated by reference to the
same exhibit designation in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990. Exhibit numbers 4.100.1,
4.100.2 and 4.100.3 are incorporated by reference to the same
exhibit designation in the Registrant's Quarterly Report on Form 10-
Q for the nine months ended September 30, 1991. Exhibit numbers 3.1,
3.2, 4.100.4, 4.100.5, 10.1 and 10.16 are incorporated by reference
to the same exhibit designation in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991. Exhibit numbers
3.2.1 and 10.17 are incorporated by reference to the same exhibit
designation in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992. Exhibit number 10.18 is incorporated
by reference to the Registrant's Proxy Statement dated March 31,
1993. Exhibit number 10.19 is incorporated by reference to exhibit
number 2.1 in the Registrant's Form 8-K Current Report filed June
30, 1993. Exhibit numbers 3.200.1 and 3.200.2 are incorporated by
reference to the same exhibit designation in the Registrant's Form S-
3 filed December 16, 1993. The Registrant's Annual Reports on Form
10-K and Form 8-K Current Reports bear SEC File Number Reference 0-
1291.
(b) A Report on Form 8-K was filed as of December 15, 1993,
transmitting Financial Statements listed below of certain businesses
expected to be acquired for the periods indicated along with
exhibits showing consent of independent auditors KPMG Peat Marwick
and Arthur Andersen & Co.
-23-
- Contel of New York, Inc., for each of the three years ended
December 31, 1992
- Contel of West Virginia, Inc., for each of the three years ended
December 31, 1992
- West Virginia Division GTE South, Inc., for each of the two years
ended December 31, 1992
- Arizona Division Contel of the West, Inc., for the year ended
December 31, 1992
- Idaho Division Contel of the West, Inc., for the year ended
December 31, 1992
- Tennessee Division GTE South, Inc., for the year ended December
31, 1992
-24-
A Report on Form 8-K was filed as of December 20, 1993, transmitting Condensed
Financial Statements as of September 30, 1993 and for the twelve month period
then ended for certain of the individual GTE Telephone Properties listed below
proposed to be acquired by Citizens Utilities Company.
- Contel of New York, Inc.
- Contel of West Virginia, Inc.
- West Virginia Division GTE South, Inc.
- Arizona Division Contel of the West, Inc.
- Idaho Division Contel of the West, Inc.
- Tennessee Division GTE South, Inc.
A Report on Form 8-K was filed as of December 23, 1993 updating the initiatives
of the Public Utility Commission of the State of California to open the
California Telecommunications market to competition and pending stockholders'
litigation.
A Report on Form 8-K/A was filed as of December 23, 1993, amending the Form 8-K
filed December 15, 1993, to include the Reports of Independent Public
Accountants.
A Report on Form 8-K was filed as of December 31, 1993, transmitting a press
release dated January 3, 1994, announcing the transfer of GTE's 189,000 access
lines in southern Idaho, Tennessee, Utah and West Virginia to Citizens Utilities
Company effective December 31, 1993, pursuant to agreements dated May 19, 1993.
-25-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 UTILITIES COMPANY
--------------------------
(Registrant)
By: /s/ Leonard Tow
------------------------
Leonard Tow
Chairman of the Board; Chief Executive Officer;
Chief Financial Officer; Member, Executive Committee and Director
March 15,25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 15th25th day of March 1994.
Signature Title
--------- -----
/s/ Robert J. DeSantis Vice President and Treasurer
- ------------------------------------------
(Robert J. DeSantis)
/s/ Livingston E. Ross Vice President and Controller
- ------------------------------------------
(Livingston E. Ross)
Norman I. Botwinik* Member, Executive Committee and
- ------------------------------------------ Director
(Norman I. Botwinik)
Aaron I. Fleischman* Member, Executive Committee and
- ------------------------------------------ Director
(Aaron I. Fleischman)
Stanley Harfenist* Member, Executive Committee and
- ------------------------------------------ Director
(Stanley Harfenist)
Andrew N. Heine* Director
- ------------------------------------------
(Andrew N. Heine)
Elwood A. Rickless* Director
- ------------------------------------------
(Elwood A. Rickless)
John L. Schroeder* Director
- ------------------------------------------
(John L. Schroeder)
Robert D. Siff* Director
- ------------------------------------------
(Robert D. Siff)
-26-
Robert A. Stanger* Director
- ------------------------------------------
(Robert A. Stanger)
Edwin Tornberg* Director
- ------------------------------------------
(Edwin Tornberg)
Claire L. Tow* Director
- ------------------------------------------
(Claire L. Tow)
*By: /s/ Robert J. DeSantis
--------------------------------------
(Robert J. DeSantis)
Attorney-in-Fact
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Index to Financial Statements
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1993, 1992 and 1991 F-3
Consolidated statements of income for the three years ended
December 31, 1993 F-4
Consolidated statements of shareholders' equity for the three
years ended December 31, 1993 F-5
Consolidated statements of cash flows for the three years
ended December 31, 1993 F-6
Notes to consolidated financial statements F-7 - F-24
F-1
Independent Auditors' Report
The Board of Directors and Shareholders
Citizens Utilities Company:
We have audited the accompanying consolidated balance sheets of Citizens
Utilities Company and subsidiaries as of December 31, 1993, 1992 and 1991, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Utilities
Company and subsidiaries at December 31, 1993, 1992 and 1991, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
As discussed in Notes 1 and 13 to the consolidated financial statements, the
company has adopted Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" effective January 1, 1993.
KPMG Peat Marwick
New York, New York
March 9, 1994
F-2
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993, 1992 and 1991
(In thousands)
1993 1992 1991
---------- ---------- ----------
ASSETS
------
Current assets:
Cash $ 21,738 $ 19,752 $ 42,229
Temporary investments 89,752 0 0
Accounts receivable:
Utility service 99,684 75,754 60,668
Other 15,088 15,932 18,559
Less allowance for doubtful accounts 459 441 354
---------- ---------- ----------
Total accounts receivable 114,313 91,245 78,873
---------- ---------- ----------
Materials and supplies 10,061 7,794 10,842
Other current assets 4,873 4,400 4,908
---------- ---------- ----------
Total current assets 240,737 123,191 136,852
---------- ---------- ----------
Property, plant and equipment 2,153,891 1,503,471 1,399,176
Less accumulated depreciation 461,924 406,833 371,880
---------- ---------- ----------
Net property, plant and equipment 1,691,967 1,096,638 1,027,296
---------- ---------- ----------
Investments 411,022 561,062 480,727
Regulatory assets 146,207 0 0
Deferred debits and other assets 137,185 107,090 76,577
---------- ---------- ----------
$2,627,118 $1,887,981 $1,721,452
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 84,015 $ 87,298 $ 88,682
Income taxes accrued 82,632 59,947 42,466
Long-term debt due within one year 1,620 10,850 11,784
Customers' deposits 19,436 17,150 17,709
Interest accrued 12,731 12,943 10,776
Other current liabilities 47,791 36,300 34,871
Short-term debt 380,000 0 0
---------- ---------- ----------
Total current liabilities 628,225 224,488 206,288
---------- ---------- ----------
Customer advances for construction 137,012 140,309 134,878
Contributions in aid of construction 47,241 39,549 41,620
Deferred income taxes 213,471 95,222 107,767
Regulatory liabilities 28,376 0 0
Deferred credits 50,634 28,443 27,202
Long-term debt 547,673 522,699 484,021
Shareholders' equity 974,486 837,271 719,676
---------- ---------- ----------
$2,627,118 $1,887,981 $1,721,452
========== ========== ==========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-3
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(In thousands, except for per-share amounts)
1993 1992 1991
-------- -------- --------
Revenues:
Telecommunications $177,497 $186,232 $197,958
Natural gas 211,892 189,812 151,257
Electric 164,515 145,032 138,168
Water/Wastewater 65,488 59,388 57,642
-------- -------- --------
619,392 580,464 545,025
-------- -------- --------
Operating expenses:
Natural gas purchased 117,724 102,556 81,402
Electric energy and fuel oil
purchased 83,119 76,286 71,323
Operating expenses 142,718 141,954 135,924
Maintenance expenses 24,816 24,893 28,376
Depreciation 54,698 50,127 47,212
Taxes other than income 35,157 34,174 31,935
-------- -------- --------
458,232 429,990 396,172
-------- -------- --------
Income from operations 161,160 150,474 148,853
Investment income 42,097 40,072 32,248
Other income - net 12,102 7,278 8,073
Interest expense 37,431 39,044 33,249
-------- -------- --------
Income before income taxes 177,928 158,780 155,925
Income taxes 52,298 43,767 43,571
-------- -------- --------
Net income $125,630 $115,013 $112,354
======== ======== ========
Earnings per share of common stock:
Series A $0.71 $0.66 $0.65
===== ===== =====
Series B $0.71 $0.66 $0.65
===== ===== =====
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-4
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(In thousands, except for per-share amounts)
Additional
Common Stock ($.25) Paid-in Retained
Series A Series B Capital Earnings Other Total
--------- --------- ---------- ---------- -------- ----------
Balance December 31, 1990 $ 9,607 $ 3,005 $369,471 $ 229,019 ($4,873) $606,229
Adjustment to change fiscal
year-end of merged company 261 (4,092) 1,297 (2,534)
Net income 112,354 112,354
Stock dividends in shares of
Common Stock Series A and
Series B 760 215 97,088 (100,621) (2,558)
Stock plan 40 1,690 1,730
Tax benefit arising from stock
options exercised 977 977
Cancelled treasury shares (13) (1,380) (1,393)
Conversions of Series A to
Series B (76) 76 0
Other 4,871 4,871
------- ------- -------- --------- -------- --------
Balance December 31, 1991 $10,291 $ 3,323 $468,107 $ 236,660 $ 1,295 $719,676
Net income 115,013 115,013
Stock dividends in shares of
Common Stock Series A and
Series B 700 237 117,454 (118,391) 0
Stock split (3-for-2) 5,270 1,783 (7,053) 0
Stock plans 86 9,853 9,939
Tax benefit arising from stock
options exercised 531 531
Non-vested restricted stock (6,593) (6,593)
Conversions of Series A to
Series B (222) 222 0
Other (1,295) (1,295)
------- ------- -------- --------- -------- --------
Balance December 31, 1992 $16,039 $ 5,651 $582,299 $233,282 $ 0 $837,271
NGL merger 142 497 2,949 3,588
Franklin merger 13 505 (35) 483
Net income 125,630 125,630
Stock dividends in shares of
Common Stock Series A and
Series B 1,029 387 129,963 (131,594) (215)
Stock split (2-for-1) 16,155 6,036 (22,191) 0
Stock plans 114 5,854 5,968
Tax benefit arising from stock
options exercised 537 537
Non-vested restricted stock 1,224 1,224
Conversions of Series A to
Series B (776) 776 0
------- ------- -------- -------- --------- ---------
Balance December 31, 1993 $32,447 $13,119 $698,688 $230,232 $ 0 $974,486
======= ======= ======== ======== ======= =========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-5
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(In thousands)
1993 1992 1991
--------- --------- ---------
Net cash provided by operating
activities $ 187,863 $ 150,795 $ 165,013
--------- --------- ---------
Cash flows from investing activities:
Construction expenditures (175,308) (148,563) (113,981)
Customer advances for
construction and contributions
in aid of construction 6,959 5,033 15,144
Securities purchases (254,203) (356,816) (253,018)
Securities sales 269,624 212,634 113,560
Securities maturities 54,465 72,651 67,383
Business acquisitions (481,257) 0 (41,893)
Change in net assets of
discontinued operations 0 0 4,226
--------- --------- ---------
(579,720) (215,061) (208,579)
--------- --------- ---------
Cash flows from financing
activities:
Long-term debt borrowings 34,733 135,672 119,371
Long-term debt principal payments (26,644) (95,365) (56,731)
Issuance of short-term debt 380,000 0 0
Other 5,754 1,482 (4,963)
--------- --------- ---------
393,843 41,789 57,677
--------- --------- ---------
Increase (decrease) in cash 1,986 (22,477) 14,111
Cash at January 1, 19,752 42,229 28,118
--------- --------- ---------
Cash at December 31, $ 21,738 $ 19,752 $ 42,229
========= ========= =========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-6
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies:
------------------------------------------
(a) Principles of Consolidation:
The Consolidated Financial Statements include the accounts of Citizens
Utilities Company and all subsidiaries after elimination of intercompany
balances and transactions. The Consolidated Balance Sheet at December 31, 1993,
includes $469,487,000 of property, plant and equipment representing the GTE
Telephone Properties acquired on December 31, 1993, in a purchase transaction
(See Note 3 of Notes to Consolidated Financial Statements). Certain
reclassifications of balances previously reported have been made to conform to
current presentation.
(b) Revenues:
Electric, natural gas and water/wastewater - The company records
revenues from electric, natural gas and water/wastewater customers when billed.
These customers are billed on a cycle basis based on monthly meter readings.
The company accrues unbilled revenues earned from the dates customers were last
billed to the end of the accounting period.
Telecommunications - The company records revenues from
telecommunications services when earned. Revenues from local service are
primarily derived from providing local telephone services. Revenues from long-
distance service are derived from charges for access to the company's local
exchange network, subscriber line charges and contractual arrangements. Certain
toll and access services revenues are estimated under cost separation procedures
that base revenues on current operating costs and investments in facilities to
provide such services.
(c) Construction Costs and Maintenance Expense:
Property, plant and equipment are stated at original cost, including
general overhead and an allowance for funds used during construction ("AFUDC").
AFUDC represents the borrowing costs and a return on common equity of funds used
to finance construction. AFUDC is capitalized as a component of additions to
property, plant and equipment and is credited to income. AFUDC does not
represent current cash earnings; however, under established regulatory rate-
making practices, after the related plant is placed in service, the company is
permitted to include in the rates charged for utility services a fair return on
and depreciation of such AFUDC included in plant in service. The amount
relating to equity is included in other income ($10,123,000, $6,398,000 and
$7,250,000 for 1993, 1992 and 1991, respectively) and the amount relating to
borrowings is a reduction of interest expense ($2,678,000, $1,805,000 and
$2,045,000 for 1993, 1992 and 1991, respectively). The weighted average rates
used to calculate AFUDC were 12%, 14% and 13% in 1993, 1992 and 1991,
respectively. Maintenance and repairs are charged to operating expenses as
incurred. The cost, net of salvage, of routine property dispositions is charged
against accumulated depreciation.
F-7
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(d) Depreciation Expense:
Depreciation expense, calculated using the straight-line method, is
based upon the estimated service lives of various classifications of property,
plant and equipment and represented approximately 4% of the gross depreciable
property, plant and equipment for 1993, 1992 and 1991.
(e) Temporary Investments and Short-Term Debt:
Temporary investments include investments in state and municipal
securities held by the company which mature in 1994 and are to be used to
partially finance the acquisition of the GTE Telephone Properties (see Note 3 of
Notes to Consolidated Financial Statements). The fair value of temporary
investments at December 31, 1993, was $93,438,000.
Short-term debt outstanding, was issued in the form of commercial
paper notes payable to temporarily and partially fund the GTE Telephone
Properties acquired on December 31, 1993. This short-term debt had a weighted
average interest rate of 3.26% at December 31, 1993 and is expected to be repaid
from maturing temporary investments and proceeds from the planned issuance of
equity securities in 1994. The fair value of short-term debt at December 31,
1993, was $380,000,000.
(f) Investment in Centennial Cellular Corp.:
The company recorded its investment in Centennial Cellular Corp.
Convertible Redeemable Preferred Stock (the "Preferred Security") and Class B
Common Stock at the historical cost of the company's investment in Citizens
Cellular Company. The terms of the Preferred Security provide that the Preferred
Security accretes a liquidation value preference at a fixed dividend rate of
7.5%, compounded quarterly, on an initial liquidation value preference of
$125,700,000 until the Preferred Security reaches a liquidation value preference
of$186,000,000 on August 31, 1996. The company recognizes the non-cash accretion
as it is earned in each period as investment income and increases the book value
of its investment in Centennial by the same amount. On a quarterly basis, the
company assesses whether the book value of the Preferred Security can be
realized by comparing such book value to the market value of Centennial's common
equity and by evaluating other relevant indicators of realizability, including
Centennial's ability to redeem the Preferred Security. The book value of the
Preferred Security would be deemed impaired to the extent that such book value
exceeds the estimated realizability of the Preferred Security based on all
existing facts and circumstances, including the company's assessment of its
ability to realize the book value of the Preferred Security through mandatory
redemption. (See Notes 3 and 5 of Notes to Consolidated Financial Statements)
(g) Deferred Income Taxes and Investment Tax Credits:
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
effective for fiscal years beginning after December 15, 1992. SFAS No. 109
required a change from the deferred to the liability method of computing
deferred income taxes. The company adopted the provisions of SFAS No. 109 in
1993 without restating the prior years financial statements; there was no
material effect of the adoption of SFAS No. 109 on net income in 1993. Adoption
of SFAS No. 109 resulted in recording a net increase in the liability for
deferred income taxes of $115,437,000. Such increase resulted principally from
income tax benefits previously flowed through to customers and the allowance for
funds used during construction; partially offsetting these items were the
effects of tax law changes and the tax benefit associated with the unamortized
deferred
F-8
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
investment tax credits. Due to the effects of utility regulation, the company
recorded regulatory assets and liabilities of $143,813,000 and $28,376,000,
respectively, as offsets to the increase in the deferred income taxes.
Prior to the adoption of SFAS No. 109, deferred income taxes resulted
from the tax effect of using accelerated depreciation methods and certain other
timing differences between income reported on the Consolidated Financial
Statements and taxable income reported on the company's income tax returns.
The investment tax credits relating to utility properties, as defined
by applicable regulatory authorities, have been deferred and are being amortized
to income over the life of the related properties.
(h) Earnings Per Share:
Earnings per share is based on the average number of outstanding
shares. Earnings per share is presented for each series separately, with
historical adjustment for stock dividends and stock splits for each series. The
calculation has not been adjusted for the 1.1% stock dividend declared on
February 8, 1994, because its effect is immaterial. The effect on earnings per
share of the exercise of dilutive options is immaterial.
F-9
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Property, Plant and Equipment:
------------------------------
The components of property, plant and equipment at December 31, 1993,
1992 and 1991 are as follows:
Classifications 1993 1992 1991
--------------- ---------- ---------- --------
($ in thousands)
Transmission and distribution
facilities $1,417,320 $1,032,426 $968,717
Production and generating facilities 414,743 222,594 209,540
Pumping, storage and purification
facilities 80,175 71,238 67,967
Intangibles 5,968 3,145 2,507
Other 166,817 128,452 126,737
Construction work in progress 68,868 45,616 23,708
(3) Mergers and Acquisitions:
-------------------------
On May 19, 1993, the company and GTE Corporation announced the signing
of ten definitive agreements under which the company would purchase from GTE
Corporation, for approximately $1,100,000,000 in cash, 500,000 local telephone
access lines in nine states ("the GTE Telephone Properties"). These
transactions require the approval of the Federal Communications Commission and
the regulatory commissions of the nine states in which the properties are
located. On December 31, 1993, 189,000 access lines in Idaho, Tennessee, Utah
and West Virginia were transferred to the company. The remaining access lines
are expected to be transferred during 1994. No revenues were recorded during
1993 since this acquisition was accounted for by the purchase method.
The following unaudited pro forma financial information presents the
combined results of operations of the company and the GTE Telephone Properties
acquired and to be acquired as if the acquisition had occurred at the beginning
of the respective periods. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
company and the GTE Telephone Properties constituted a single entity during such
periods.
All GTE GTE Telephone Properties Acquired
Telephone Properties December 31, 1993
1993 1993 1992
------------------- ---------------- -------------
Revenues $1,016,289 $784,586 $741,030
Net Income 151,724 139,617 126,882
Earnings per share $ 0.77 $ 0.75 $ 0.69
F-10
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 1993, the company separately acquired Natural Gas Company of
Louisiana ("NGL") and Franklin Electric Light Company, Incorporated
("Franklin") by merger. In the mergers, the company issued 568,748 shares and
51,500 shares of Series B common stock for all of the common stock of NGL and
Franklin, respectively. The acquisitions were accounted for as poolings of
interests. Prior years' financial statements were not restated for the effects
of these transactions because the amounts were not significant.
On December 3, 1991, the company acquired Southern Union Company's
northern Arizona gas utility operations, which serve more than 65,000 customers,
for a purchase price of $46,000,000. The purchase price was comprised of
approximately $39,000,000 in cash, allocated to utility plant, and $7,000,000 in
net liabilities assumed.
On August 30, 1991, the company and Century Communications Corp.
("Century") completed the merger of their respective interests in the cellular
telephone field. The combination was effected through a merger of Citizens
Cellular Company, a subsidiary of the company having an adjusted book value of
$69,668,000, with and into Century Cellular Corp., a wholly owned subsidiary of
Century Communications Corp. In connection with the merger, the company received
Centennial Cellular Corp. (formerly Century Cellular Corp.) Convertible
Redeemable Preferred Stock with an initial liquidation value preference of
$125,700,000 and Class B Common Stock representing 12% of the currently
outstanding common equity of Centennial Cellular Corp. These securities are
included in the investments caption of the Consolidated Balance Sheets.
In March 1993, the company signed an agreement to purchase, through a
joint venture with Century the assets of two cable television systems serving
approximately 45,000 subscribers in California. The joint venture will pay a
purchase price of up to approximately $89,000,000 for the systems and intends to
enter into an agreement with Century pursuant to which Century will manage the
systems. The purchase is subject to regulatory approval for the transfer of
licenses and is expected to be consummated in 1994.
The chairman and chief executive officer of the company is also
chairman and chief executive officer of Century Communications Corp.
(4) Dispositions:
-------------
During 1993, the company disposed of its Santa Cruz County, Arizona
water and wastewater properties, Idaho water property and Aalert Paging Company.
The sale of the Santa Cruz properties yielded net proceeds of $1,694,000 and had
a net investment of $94,000. The company received net proceeds of $1,221,000
from the sale of the Idaho water property and had a net investment of
$1,249,000. The sale of Aalert Paging Company yielded net proceeds of
$5,498,000 and had a net investment of $5,287,000. The resulting gains and
losses are included in other income - net.
During 1992, the company disposed of two water properties in
California. One property was transferred to a municipality through condemnation
proceedings. The company received net proceeds of $3,400,000 and had a net
investment of $1,877,000. The other property was sold for net proceeds of
$6,618,000; the company's net investment was $4,160,000. In December 1992, the
company disposed of its Idaho electric operations. The company received
$1,177,500 and had a net investment of $706,000. The resulting gains on
dispositions are included in other income-net.
F-11
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investments:
-----------
Investments include high-grade, short- and intermediate-term fixed-
income securities (primarily state and municipal debt obligations) and equity
securities. Fixed-income securities are stated at cost. Marketable equity
securities are stated at the lower of cost or market.
The company's investment in Centennial Cellular Corp. (See Note 3 of
Notes to Consolidated Financial Statements) includes 102,187 Convertible
Redeemable Preferred Shares and 1,367,099 Class B Common Shares. The liquidation
value preference earned on the Convertible Redeemable Preferred Stock for 1993,
1992 and 1991 was $9,594,000, $8,803,000 and $2,563,000, respectively, and was
recorded as investment income. The book value of the investment in Centennial at
December 31, 1993, as presented in the table below, represents the historical
book value of the investment of $69,668,000 ($19,826,000 of which relates to the
Class B common shares) plus $20,960,000 of liquidation value preference earned
on the Preferred Security by the company to date. The Preferred Security is
mandatorily redeemable in the year 2007. The company believes it can realize its
investment in Centennial either by cash redemption by the issuer funded through
refinancing by the issuer, by temporary conversion to common equity securities
followed by the sale of the common equity securities, or by sale of its current
investment holdings.
The aggregate market value of marketable equity securities at December
31, 1993, was $27,492,000. Total unrealized gains on marketable equity
securities at December 31, 1993 were $14,210,000. Net realized gains on
marketable equity securities included in the determination of net income for the
years 1993, 1992 and 1991, respectively, were $0, $259,000 and $670,000. The
cost of securities sold was based on the actual cost of the shares of each
security held at the time of sale. Marketable equity securities at December 31,
1993, includes 1,758,428 shares (adjusted for stock dividends) of Class A Common
Stock of Century Communications Corp. These shares represent less than 2% of
the total outstanding common stock of Century Communications Corp. The
chairman and chief executive officer of the company is also chairman and chief
executive officer of Century Communications Corp.
The components of investments at December 31, 1993, 1992 and 1991 are
as follows:
1993 1992 1991
---- ---- ----
State and municipal securities $296,371,000 $448,605,000 $369,170,000
Investment in Centennial 90,628,000 81,034,000 72,231,000
Other fixed income securities 7,670,000 10,680,000 21,807,000
Marketable equity securities 13,282,000 13,934,000 10,968,000
Other 3,071,000 6,809,000 6,551,000
------------ ------------ ------------
Total $411,022,000 $561,062,000 $480,727,000
============ ============ ============
The fair value of investments, presented as required by SFAS No. 107,
was $501,273,000 and $649,366,000 at December 31, 1993 and 1992 respectively,
based on relative market information about each financial instrument.
F-12
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Long-term Debt:
---------------
Weighted average
interest rate at December 31,
December 31, 1993 Maturities 1993 1992 1991
----------------- ----------- -------- -------- --------
($ in thousands)
Industrial development
revenue bonds 6.07% 2015 - 2028 $284,777 $242,391 $209,208
Debentures 7.78% 2001 & 2004 150,000 150,000 50,000
Commercial paper notes
payable 3.30% Variable 58,953 62,680 77,565
Rural Electrification
Administration and Rural
Telephone Bank notes 6.50% 2006 - 2015 42,237 43,494 44,851
Subordinated notes 10.84% 1995 - 1998 11,692 12,261 20,784
First Mortgage and first
mortgage and collateral
trust bonds - - -- 11,489 81,215
Other long-term debt 7.00% 1999 14 384 398
-------- -------- -------- --------
6.38% $547,673 $522,699 $484,021
======== ======== ======== ========
Certain commercial paper notes payable have been classified as long-term
debt because these obligations are expected to be refinanced ultimately through
the issuance of long-term debt securities. The company has available lines of
credit with commercial banks in the amounts of $1,000,000,000 and $200,000,000,
which expire on December 14, 1994 and December 16, 1996, respectively, and have
associated facility fees of one-twentieth of one percent per annum and one-
twelfth of one percent per annum, respectively. The terms of the lines of credit
provide the company with certain extension options.
The total principal amounts of industrial development revenue bonds at
December 31, 1993, 1992 and 1991, respectively, were $377,890,000, $274,030,000
and $264,030,000. Amounts presented in the preceding table have been reduced by
funds held by trustees to be used for payment of qualifying construction
expenditures. Holders of certain industrial development revenue bonds may tender
at par prior to maturity. The next tender date is August 1, 1997, for
$30,350,000 of principal amount of bonds.
In the years 1993, 1992 and 1991, respectively, interest payments were
$40,217,000, $37,913,000 and $34,645,000.
The fair value of long-term debt, presented as required by SFAS No. 107 at
December 31, 1993 and 1992, respectively, was $602,710,000 and $550,724,000,
based on relative market information and information about each financial
instrument.
F-13
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The installment principal payments and maturities of long-term debt
for the next five years are as follows:
1994 1995 1996 1997 1998
----- ----- ---- ---- ----
($ in thousands)
Installment principal
payments $1,620 $ 1,329 $1,410 $1,498 $1,591
Maturities 0 9,814 779 112 1,243
------ ------- ------ ------ -------
$1,620 $11,143 $2,189 $1,610 $2,834
====== ======= ====== ====== =======
(7) Capital Stock:
--------------
The common stock of the company is in two series, Series A and Series B. The
company is authorized to issue up to 200,000,000 shares of Series A common stock
and 300,000,000 shares of Series B common stock. Quarterly stock dividends are
declared and issued at the same rate on both Series A and Series B. The series
differ in that, since 1992, Series B shareholders have the option of enrolling
in the "Series B Common Stock Dividend Sale Plan." The Plan offers Series B
shareholders the opportunity to have their stock dividends sold quarterly by the
Plan Broker and the net cash proceeds of the sale distributed to them quarterly.
Series A shares are convertible share-for-share into Series B shares. Series B
shares, however, are not convertible into Series A. In all other respects, the
shares of both series have the same voting rights and participate ratably in
liquidation.
On April 14, 1992, the company declared a 3-for-2 stock split of its Series A
and Series B common stock. The stock split was distributed on July 24, 1992, to
shareholders of record on July 1, 1992. On May 21, 1993, the company declared a
2-for-1 stock split of its Series A and Series B common stock. The stock split
was distributed on August 31, 1993, to shareholders of record on August 16,
1993. Quarterly stock dividend rates declared on Series A and Series B common
stock are based upon cash equivalent rates and share market prices, and have
been as follows:
Dividend Rates
-------------------
1993 1992 1991
----- ----- -----
First quarter 1.2% 1.6% 2.0%
Second quarter 1.0% 1.5% 1.9%
Third quarter 1.1% 1.2% 1.9%
Fourth quarter 1.0% 1.2% 1.9%
Annualized stock dividend cash equivalent rates considered by the company's
Board of Directors in establishing the stock dividends during 1993, 1992 and
1991, respectively, were $0.745, $0.675 and $0.585 per share (adjusted for
subsequent stock dividends and stock splits).
F-14
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The activity in shares of outstanding common stock for Series A and Series B
during 1993, 1992 and 1991 is summarized as follows:
Number of Shares
Series A Series B
---------- ----------
Balance at December 31, 1990 38,430,000 12,019,000
Stock dividends 3,039,000 860,000
Stock plan 0 159,000
Cancelled treasury shares 0 (52,000)
Conversions of Series A to Series B (303,000) 303,000
----------- ----------
Balance at December 31, 1991 41,166,000 13,289,000
Stock dividends 2,799,000 950,000
Stock split (3-for-2) 21,078,000 7,134,000
Stock plans 0 344,000
Conversions of Series A to Series B (887,000) 887,000
----------- ----------
Balance at December 31, 1992 64,156,000 22,604,000
NGL merger 0 569,000
Franklin merger 0 52,000
Stock dividends 4,114,000 1,548,000
Stock split (2-for-1) 64,620,000 24,142,000
Stock plans 0 457,000
Conversions of Series A to Series B (3,105,000) 3,105,000
----------- ----------
Balance at December 31, 1993 129,785,000 52,477,000
=========== ==========
The company used 7,000 Series B shares (not adjusted for subsequent
stock dividends and stock split) acquired from employees pursuant to the
Management Equity Incentive Plan ("MEIP") in partial payment of the 1993 stock
dividend. These shares had a cost of $215,000. The company purchased 93,000
Series B shares (not adjusted for subsequent stock dividends and stock splits)
at a cost of $2,558,000 for use in partial payment of the 1991 stock dividend.
The company has 50,000,000 authorized shares of preferred stock ($.01
par), none of which has been issued. The preferred stock may be issued by the
Board of Directors (without further approval by shareholders) in one or more
series, having such attributes as may be designated by the Board of Directors at
the time of issuance.
(8) Employee Stock Plans:
--------------------
On June 22, 1990, shareholders approved the Citizens Utilities Company
Management Equity Incentive Plan ("MEIP"). Under the MEIP, awards of the
company's Series A or Series B common stock may be granted to eligible officers
and other management employees of the company and its subsidiaries in the form
of incentive stock options, non-qualified stock
F-15
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
options, stock appreciation rights, restricted stock or other stock-based
awards. The MEIP is administered by the Compensation Committee of the Board of
Directors.
The maximum number of shares of common stock which may be issued pursuant to
awards at any time is 5% of the company's common stock outstanding from time to
time; provided that no more than 8,147,000 shares (adjusted for stock dividends
and stock splits) will be issued pursuant to incentive stock options under the
MEIP. No awards will be granted more than ten years after the effective date of
the MEIP. The exercise price of stock options and stock appreciation rights
("SARs") shall be equal to or greater than the fair market value of the
underlying common stock on the date of grant. Stock options are generally not
exercisable on the date of grant but vest over a period of time.
Some options were awarded in tandem with related SARs. SARs provide the MEIP
participant with the alternative of electing not to exercise the related stock
option, but to receive instead an amount in cash or in common stock equal to the
difference between the option price and the fair market value of the common
stock on the date the SAR is exercised. Either the SAR or the related option may
be exercised, but not both. During 1993, there were no SARs granted. During
1992, 613,000 SARs were exercised at an average exercise price of $12.21 per
share (not adjusted for subsequent stock dividends and stock splits). This
resulted in the cancellation of the 613,000 tandem stock options. At December
31, 1993 and 1992, no SARs were outstanding.
Under the terms of the MEIP, subsequent stock dividends and stock splits have
the effect of increasing the option shares outstanding, which correspondingly
decreases the average exercise price of outstanding options. The following
summary of shares subject to option under the MEIP reflects the original options
granted at original option prices adjusted for subsequent stock splits.
Shares subject Average option
to option price per share
--------------- ---------------
Balance at January 1, 1991 2,126,000 $ 6.20
Options granted 1,194,000 10.72
Options exercised (477,000) 3.62
Options cancelled or lapsed (93,000) 6.73
Adjustment for stock dividends* 181,000 -
---------- ------
Balance at December 31, 1991 2,931,000 8.06
Options granted 2,367,000 14.90
Options exercised (257,000) 6.60
Options cancelled or lapsed (1,294,000) 6.28
Adjustment for stock dividends* 173,000 -
---------- ------
Balance at December 31, 1992 3,920,000 12.54
Options granted 1,862,000 18.06
Options exercised (239,000) 7.62
Options cancelled or lapsed (25,000) 5.44
Adjustment for stock dividends* 201,000 -
---------- ------
Balance at December 31, 1993 5,719,000 $14.14
F-16
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
========== ======
Options exercisable at end of year 885,000 $ 9.79
========== ======
* Represents adjustment to outstanding option shares to reflect stock
dividends.
During 1993 and 1992, the company granted restricted stock awards to key
employees in the form of the company's Series B common stock. The number of
Series B shares issued as restricted stock awards during 1993 and 1992 was
142,000 and 754,000, respectively (adjusted for stock dividends and stock
splits). None of the restricted stock awards may be sold, assigned, pledged or
otherwise transferred, voluntarily or involuntarily, by the employee. The
restrictions lapse on 20% of the restricted stock awards each year over a five-
year period. At December 31, 1993, 701,000 shares (adjusted for stock dividends
and stock splits) of restricted stock were outstanding.
The company's Employee Stock Purchase Plan ("ESP Plan") was approved by
shareholders on June 12, 1992 and amended on May 21, 1993. Under the ESP Plan,
eligible employees of the company and its subsidiaries may subscribe to purchase
shares of Series B common stock at the lower of 85% of the average market price
on the first day of the purchase period or on the last day of the purchase
period. An employee may elect to have up to 20% of annual base pay withheld in
equal installments throughout the designated payroll-deduction period for the
purchase of shares. The value of an employee's subscription may not exceed
$25,000 in any one calendar year. As of December 31, 1993, there are 1,217,000
shares (adjusted for stock dividends and stock splits) of Series B common stock
reserved for issuance under the ESP Plan. These shares will be adjusted for any
future stock dividends or stock splits. The ESP Plan will terminate when all
1,217,000 shares reserved have been subscribed for, unless terminated earlier by
the Board of Directors. The ESP Plan is administered by a committee of the
Board of Directors. As of January 1, 1993, the number of employees
participating in the ESP Plan was 1,058 and the number of shares subscribed for
was 182,000 at a price of $11.63 per share (which reflects the 15% discount and
is adjusted for stock dividends and stock splits).
F-17
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes:
------------
The following is a reconciliation of the provision for income taxes at federal
statutory rates to the reported provision for income taxes:
1993 1992 1991
--------------- --------------- ---------------
($ in thousands)
Consolidated tax
provision at
federal statutory
rate $62,275 35.0% $53,985 34.0% $53,014 34.0%
Allowance for funds
used during
construction (4,480) (2.5%) (2,789) (1.8%) (3,160) (2.0%)
Amortization of
investment tax
credits (2,086) (1.2%) (2,140) (1.3%) (2,292) (1.5%)
State income tax
provisions, net of
federal income tax
benefit 6,432 3.6% 4,989 3.1% 5,399 3.4%
Nontaxable investment
income (8,339) (4.7%) (8,490) (5.3%) (8,229) (5.3%)
All other - net (1,504) (0.8%) (1,788) (1.1%) (1,161) (0.8%)
------- ------ ------- ------ ------ -----
$52,298 29.4% $43,767 27.6% $43,571 27.8%
======= ==== ======= ==== ======= ====
For 1993, 1992 and 1991, accumulated deferred income taxes amounted to
$194,165,000, $72,969,000 and $83,157,000, respectively, and the unamortized
deferred investment tax credits amounted to $19,306,000, $22,253,000 and
$24,610,000, respectively. Income taxes paid during the year were $24,139,000,
$22,798,000 and $29,309,000 for 1993, 1992 and 1991, respectively.
F-18
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of the net deferred tax liability at December 31, 1993
are as follows:
1993
--------
Deferred tax liabilities ($ in thousands)
- ------------------------ ----------------
Property, plant and equipment
bases differences $148,756
Regulatory assets 57,134
Other-net 25,365
--------
231,255
Deferred tax assets
- -------------------
Deferred investment tax credits 6,649
Regulatory liabilities 11,135
--------
17,784
--------
Valuation Allowance* 0
--------
Deferred income taxes $213,471
========
* There was no change in the valuation allowance during 1993.
The provision for federal and state income taxes includes amounts both
payable currently and deferred for payment in future periods. The company and
its subsidiaries are included in a consolidated federal income tax return using
a calendar year reporting period.
1993 1992 1991
-------- --------- --------
($ in thousands)
Current
- ------- $ 39,571 $ 37,501 $ 38,863
Federal 8,682 7,118 8,377
State -------- -------- --------
48,253 44,619 47,240
-------- -------- --------
Deferred
- -------- 4,917 847 (1,178)
Federal (2,086) (2,140) (2,293)
Investment tax credits 1,214 441 (198)
State -------- -------- --------
4,045 (852) (3,669)
-------- -------- --------
$ 52,298 $ 43,767 $ 43,571
Total ======== ======== ========
F-19
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Segment Information:
--------------------
Year Ended December 31,
------------------------------
1993 1992 1991
-------- -------- --------
($ in thousands)
Telecommunications:
- ------------------
Revenues $177,497 $186,232 $197,958
Assets 980,988* 325,618 326,568
Depreciation 22,744 22,452 20,117
Capital expenditures 66,619 20,672 29,344
Operating income before
income taxes 85,934 85,994 95,824
Natural gas:
- -----------
Revenues $211,892 $189,812 $151,257
Assets 281,257 243,582 233,189
Depreciation 10,646 10,106 10,138
Capital expenditures 25,677 22,280 8,922
Operating income before
income taxes 28,971 26,952 20,009
Electric:
- --------
Revenues $164,515 $145,032 $138,168
Assets 457,366 356,829 286,661
Depreciation 12,924 11,038 10,171
Capital expenditures 43,673 74,502 41,268
Operating income before
income taxes 30,660 18,999 22,364
Water/Wastewater:
- ----------------
Revenues $ 65,488 $ 59,388 $ 57,642
Assets 326,358 320,985 308,527
Depreciation 8,384 6,531 6,786
Capital expenditures 37,426 25,456 21,979
Operating income before
income taxes 15,595 18,529 10,656
*$469,487,000 of which constitutes a portion of the GTE Telephone Properties.
These properties were acquired on December 31, 1993, in a transaction accounted
for under the purchase method.
F-20
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Quarterly Financial Data (unaudited):
------------------------------------
Net Income
--------------------------------
($ in thousands) Per Share
-------------------
1993 Revenues Amount Series A Series B
---- ----------- ---------- -------- --------
First quarter $165,915 $ 28,239 $ 0.16 $0.16
Second quarter 146,170 34,682 0.19 0.19
Third quarter 145,315 34,269 0.19 0.19
Fourth quarter 161,992 28,440 0.16 0.16
Net Income
--------------------------------
($ in thousands) Per Share
-------------------
1992 Revenues Amount Series A Series B
---- -------- ---------- -------- --------
First quarter $153,133 $ 25,396 $ 0.14 $0.14
Second quarter 133,695 32,430 0.18 0.18
Third quarter 139,384 31,723 0.18 0.18
Fourth quarter 154,252 25,464 0.14 0.14
(12) Supplemental Cash Flow Information:
----------------------------------
Schedule of net cash provided by operating activities for the years ended
December 31,
1993 1992 1991
-------- -------- --------
($ in thousands)
Net income $125,630 $115,013 $112,354
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 54,698 50,127 47,212
Deferred income taxes and
amortization of investment
tax credits 4,045 (852) (3,669)
Centennial investment income (9,594) (8,803) (2,563)
Allowance for equity funds used
during construction (10,123) (6,398) (7,250)
Change in accounts receivable (23,068) (12,372) (14,615)
Change in accounts payable (3,773) (4,607) 5,298
Change in accrued taxes and
accrued interest 24,960 19,672 20,643
Other 25,088 (985) 7,603
-------- -------- --------
$187,863 $150,795 $165,013
-------- -------- --------
F-21
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Pension and Retirement Plans:
----------------------------
The company and its subsidiaries have noncontributory pension plans covering
all employees who have met certain service and age requirements. The benefits
are based on years of service and final average pay or pay rate. Contributions
are made in amounts sufficient to fund the plans' current service costs and to
provide for benefits expected to be earned in the future. Plan assets are
invested in a diversified portfolio of equity and fixed-income securities.
Pension costs for 1993, 1992 and 1991 include the following components:
1993 1992 1991
------- ------- -------
($ in thousands)
Service cost $ 3,585 $ 3,277 $ 3,481
Interest cost on projected
benefit obligations 5,038 4,544 4,704
Net amortization and deferral 1,751 132 5,091
Return on plan assets (6,945) (5,438) (9,897)
------- ------- -------
Net pension cost $ 3,429 $ 2,515 $ 3,379
======= ======= =======
Assumptions used in the computation of pension costs and the actuarial present
value of projected benefit obligations included the following:
1993 1992 1991
---- ---- ----
Discount rate 7.5% 8% 8%
Expected long-term rate of
return on plan assets 8% 8.5% 9%
Rate of increase in
compensation levels 4.5% 5% 5-6%
As of December 31, 1993, 1992 and 1991, respectively, the fair values of plan
assets were $73,233,000, $68,506,000 and $63,654,000. The actuarial present
values of the accumulated benefit obligations were $57,216,000, $48,661,000 and
$44,513,000 for 1993, 1992 and 1991, respectively. The actuarial present values
of the vested accumulated benefit obligation for 1993, 1992 and 1991,
respectively, were $54,591,000, $46,819,000 and $43,484,000. The total
projected benefit obligations for 1993, 1992 and 1991, respectively, were
$75,531,000, $63,199,000 and $62,915,000. The company has agreed to assume the
pension liabilities associated with employees of the GTE Telephone Properties
acquired on December 31, 1993. GTE Corporation has agreed to transfer to the
company plan assets in an amount equal to the assumed liabilities. Such amounts
will be determined in 1994.
The company provides certain medical, dental and life insurance benefits for
retired employees and their beneficiaries and covered dependents. In January
1993, the company implemented SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions". SFAS No. 106 requires the company
to accrue the expected costs of
F-22
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
providing postretirement benefits to employees and to employees' beneficiaries
and covered dependents, during the years the employee renders the necessary
service. The company's 1993 annualized costs were approximately $3,671,000, of
which approximately $1,601,000 were recorded as regulatory assets for states
whose regulatory commissions to date have not but will likely allow recovery of
accrued costs in future rate proceedings. The company's accumulated
postretirement benefit obligation at December 31, 1993, was approximately
$24,000,000. The company's annual cost includes 20-year prospective recognition
of the transition obligation. The company is currently assessing the costs and
benefits of alternative funding methods. For measurement purposes, the company
used a 7.5% discount rate and a 9% annual rate of increase in the per capita
cost of covered health care benefits, gradually decreasing to 6% in the year
2030 and remaining at that level thereafter. The effect of a 1% increase in the
assumed health care cost trend rates for each future year on the aggregate of
the service and interest cost components of the total postretirement benefit
cost would be $314,000 and the effect on the accumulated postretirement benefit
obligation for health benefits would be $2,609,000.
The components of the net periodic postretirement benefit cost for the year
ended December 31, 1993, is as follows:
1993
-----
($ in thousands)
Service cost-benefits earned during year $ 845
Interest cost 1,710
Amortization of transition obligation 1,116
======
$3,671
======
The following table sets forth the accrued postretirement benefit cost
recognized in the company's balance sheet at December 31, 1993:
1993
----
($ in thousands)
Accumulated postretirement benefit obligation:
Retirees ($13,919)
Fully eligible active plan participants (2,749)
Other active plan participants (7,328)
---------
(23,996)
Unrecognized net loss 1,563
Unrecognized prior service cost (1,477)
Unrecognized transition obligation 21,201
--------
($2,709)
========
F-23
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Commitments and Contingencies:
------------------------------
The company has budgeted expenditures for facilities in 1994 of
approximately $280,000,000 and certain commitments have been entered into in
connection therewith. On May 19, 1993, the company and GTE Corporation
announced the signing of ten definitive agreements under which the company would
purchase from GTE Corporation, for approximately $1,100,000,000 in cash
($469,487,000 of the total purchase price has been paid to date), 500,000 access
lines in nine states. These transactions are consistent with the company's
growth strategy, will enable the company to achieve operating economies of scale
and will increase the company's annual revenues to more than $1,000,000,000 once
the operations are fully integrated. These transactions require the approval of
the Federal Communications Commission and the regulatory commissions of the nine
states in which the properties are located. On December 31, 1993, 189,000
access lines in Idaho, Tennessee, Utah and West Virginia were transferred to the
company. The remaining access lines are expected to be transferred during 1994.
F-24
CITIZENS UTILITIES COMPANY
EXHIBITS TO FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 1993
Exhibit
No. Description
- ------- -----------
23. Auditors' Consent