CITIZENS UTILITIES COMPANY
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 1994
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 1994 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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NONE
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Former name, former address and former fiscal year, if changed since last
report.
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
---- ----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of April 29, 1994.August 3, 1994
Common Stock Series A 130,440,021131,538,400
Common Stock Series B 53,848,532
55,204,705
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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INDEX
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Page No.
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Part I. Financial Information
Consolidated Condensed Balance Sheets
March 31,June 30, 1994 and December 31, 1993 2
Consolidated Condensed Statements of Income
for the Three Months Ended March 31,June 30, 1994 and 1993 3
Consolidated Condensed Statements of Income for the
Six Months Ended June 30, 1994 and 1993 4
Consolidated Condensed Statements of Cash Flows for
the ThreeSix Months Ended March 31,June 30, 1994 and 1993 45
Notes to Financial Statements 56
Management's Discussion and Analysis of Financial
Condition and Results of Operations 67
Part II. Other Information 79
Signature 8
-1-10
PART I. FINANCIAL INFORMATION
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED BALANCE SHEETS
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(In thousands)
March December
31, 1994 31, 1993
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ASSETS
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Current assets:
Cash and cash equivalents $ 25,217 $ 21,738
Temporary investments 115,974 89,752
Accounts receivable 114,081 114,313
Other 25,115 14,934
----------- ----------
280,387 240,737
----------- ----------
Property, plant and equipment 2,371,367 2,153,891
Less accumulated depreciation 665,357 461,924
----------- ----------
1,706,010 1,691,967
----------- ----------
Investments 390,192 411,022
Regulatory assets 141,996 146,207
Deferred debits and other assets 150,552 137,185
----------- ----------
$ 2,669,137 $2,627,118
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Long-term debt due within one year $ 1,620 $ 1,620
Short-term debt 341,270 380,000
Other 247,379 246,605
----------- ----------
590,269 628,225
Customer advances for construction and
contributions in aid of construction 183,685 184,253
Deferred income taxes 223,911 213,471
Regulatory liabilities 27,911 28,376
Deferred credits and other liabilities 61,399 50,634
Long-term debt 563,819 547,673
----------- ----------
1,650,994 1,652,632
----------- ----------
Shareholders' equity:
Common stock issued, $.25 par value
Series A 32,652 32,447
Series B 13,420 13,119
Additional paid-in capital 734,173 698,688
Retained earnings 226,580 230,232
Unrealized gain on securities
classified as available for sale 11,318 0
----------- ----------
1,018,143 974,486
----------- ----------
$ 2,669,137 $2,627,118
=========== ==========
The accompanying Notes are an integral part of these Financial
Statements.
-2-
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
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(In thousands, except per-share amounts)
1994 1993
---- ----
Revenues $223,896 $165,915
Expenses:
Operating expenses 151,534 113,235
Depreciation 25,401 14,165
-------- ---------
176,935 127,400
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Income from operations 46,961 38,515
Other income, net 11,906 9,116
Interest expense 13,137 10,222
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Income before income taxes 45,730 37,409
Income taxes 14,075 9,170
-------- ---------
Net income $ 31,655 $ 28,239
======== =========
Earnings per share of common stock:
Series A $ .17 $ .15*
===== ======
Series B $ .17 $ .15*
===== ======
Number of common shares outstanding at
March 31:
Series A Common Stock 130,615 129,105*
Series B Common Stock 53,672 47,174*
Dividends declared on common stock:
In Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock
paid quarterly - rate 1.1% 1.2%
===== =====
*Adjusted for the August 1993 2-for-1 stock split.
The accompanying Notes are an integral part of these Financial
Statements.
-3-
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
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(In thousands)
1994 1993
---- ----
Net cash provided by operating activities $49,134 $20,140
------- -------
Cash flows from investing activities:
Construction expenditures (47,235) (25,401)
Securities purchases (4,706) (71,127)
Securities sales 7,972 70,004
Securities maturities 12,340 23,777
Other, net 2,382 6,359
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(29,247) 3,612
-------- -------
Cash flows from financing activities:
Long-term debt borrowings 22,476 33,936
Long-term debt principal payments (321) (9,408)
Short-term debt payments (38,730) 0
Other 167 779
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(16,408) 25,307
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Increase (decrease) in cash and cash
equivalents 3,479 49,059
Cash and cash equivalents at January 1, 21,738 19,752
-------- -------
Cash and cash equivalents at March 31, $25,217 $68,811
June December
30, 1994 31, 1993
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ASSETS
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Current assets:
Cash and cash equivalents $ 15,258 $ 21,738
Temporary investments 116,633 89,752
Accounts receivable 130,943 114,313
Other 34,542 14,934
---------- ----------
297,376 240,737
Property, plant and equipment 3,151,033 2,153,891
Less accumulated depreciation 893,143 461,924
---------- ----------
2,257,890 1,691,967
Investments 367,145 411,022
Regulatory assets 145,198 146,207
Deferred debits and other assets 194,656 137,185
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$3,262,265 $2,627,118
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year $ 10,345 $ 1,620
Short-term debt 655,270 380,000
Other 260,411 246,605
---------- -----------
926,026 628,225
Customer advances for construction and
contributions in aid of construction 188,845 184,253
Deferred income taxes 233,308 213,471
Regulatory liabilities 27,409 28,376
Deferred credits and other liabilities 97,979 50,634
Long-term debt 731,453 547,673
---------- -----------
2,205,020 1,652,632
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Shareholders' equity:
Common stock issued, $.25 par value
Series A 32,909 32,447
Series B 13,741 13,119
Additional paid-in capital 770,267 698,688
Retained earnings 231,180 230,232
Unrealized gain on securities
classified as available for sale 9,148 0
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1,057,245 974,486
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$3,262,265 $2,627,118
========= =========
The accompanying Notes are an integral part of these Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED JUNE 30, 1994 AND 1993
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(In thousands, except per-share amounts)
1994 1993
---- ----
Revenues $188,674 $146,170
Expenses:
Operating expenses 105,464 86,536
Depreciation 24,618 14,115
-------- --------
130,082 100,651
Income from operations 58,592 45,519
Other income, net 11,455 12,754
Interest expense 14,825 9,373
-------- --------
Income before income taxes 55,222 48,900
Income taxes 17,206 14,218
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Net income $ 38,016 $ 34,682
======== ========
Earnings per share of common stock:
Series A $.21 $.19
==== ====
Series B $.21 $.19
==== ====
Number of common shares outstanding
at June 30:
Series A Common Stock 131,643 129,876
Series B Common Stock 54,954 48,184
Dividends declared on common stock:
In Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock
paid quarterly - rate 1.15% 1.0%
The accompanying Notes are an integral part of these Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
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(In thousands, except per-share amounts)
1994 1993
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Revenues $412,570 $312,085
Expenses:
Operating expenses 256,998 199,771
Depreciation 50,019 28,280
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307,017 228,051
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Income from operations 105,553 84,034
Other income, net 23,361 21,870
Interest expense 27,962 19,595
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Income before income taxes 100,952 86,309
Income taxes 31,281 23,388
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Net income $ 69,671 $ 62,921
======== =========
Earnings per share of common stock:
Series A $.38 $.34
==== ====
Series B $.38 $.34
==== ====
Number of common shares outstanding
at June 30:
Series A Common Stock 131,643 129,876
Series B Common Stock 54,954 48,184
Dividends declared on common stock:
In Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock
paid quarterly - compounded rate 2.26% 2.21%
The accompanying Notes are an integral part of these Financial Statements.
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
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(In thousands)
1994 1993
Net cash provided by operating activities $77,846 $85,182
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Cash flows from investing activities:
Construction expenditures (90,025) (64,522)
Securities purchases (19,482) (151,882)
Securities sales 20,136 116,304
Securities maturities 30,657 25,228
Business acquisitions (501,995) --
Other, net (4,702) 9,932
-------- -------
(565,411) (64,940)
Cash flows from financing activities:
Long-term debt borrowings 232,709 23,653
Long-term debt principal payments (29,764) (25,621)
Short-term debt borrowings 275,270 --
Other, net 2,870 949
-------- --------
481,085 (1,019)
Increase (decrease) in cash and
cash equivalents (6,480) 19,223
Cash and cash equivalents at January 1, 21,738 19,752
-------- -------
Cash and cash equivalents at June 30, $15,258 $38,975
======== =======
The accompanying Notes are an integral part of these Financial Statements.
-4-
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENTS
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(1) The consolidated financial statements include the accounts of Citizens
Utilities Company and all subsidiaries after elimination of intercompany
balances and transactions. All adjustments, which consist of only normal
recurring accruals, necessary for a fair statement of the results for the
interim periods have been made.
(2) Earnings per share is based on the average number of outstanding
shares, adjusted for intervening stock dividends and stock splits. Earnings
per share is presented for each Series separately, with historical adjustment
for stock dividends and stock splits for each Series. The effect on earnings
per share of outstanding stock options is immaterial.
(3) In accordance with applicable regulatory systems of account, an
allowance for funds used during construction is included in the cost of
additions to property, plant and equipment and is allowed in rate base for
rate making purposes. The allowance is not a cash item. The amount relating
to equity is included in Other income, net and the amount relating to
borrowings is offset against Interest expense.
(4) On December 22, 1993, Natural Gas Company of Louisiana ("NGL") was
merged into the company in a transaction accounted for as a pooling of
interests. The company's income statementstatements and statement of cash flows
at March
31,June 30, 1993 has been restated to include the results of NGLs'NGL's operations
for the three and six months ended MarchJune 30, 1993.
The following pro forma financial information for the six months ended
June 30, 1994 and 1993, presents the combined results of operations of the
Company and the New York GTE Telephone property acquired on June 30, 1994 and
the Idaho, Tennessee, Utah and West Virginia properties acquired on December
31, 1993.1993 as if the acquisitions 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.
June 30, 1994 June 30, 1993
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Revenues $507,347,000 $483,157,000
Net Income $ 78,339,000 $ 73,599,000
Earnings Per Share $ .39 $ .36
(5) Effective January 1, 1994, the company adopted Statements of Financial
Accounting Standards ("SFAS") No. 112 "Employers' Accounting for
Postretirement Benefits" and SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". The company applied the provisions of these
accounting standards prospectively.
SFAS No. 112 requires the accrual of the expected costs of providing
benefits, if any, to former or inactive employees after termination of
employment for reasons other than retirement. Adoption of SFAS No. 112 did
not have a material effect on the Consolidated Financial Statements.
Adoption of SFAS No. 115 requires fair value reporting for certain
investments in debt and equity securities. Pursuant to the provisions of SFAS
115, the company classified its Temporary investments and Investments into
two categories, "held-to-maturity" ($445,876,000426,882,000 at March 31,June 30, 1994) and
"available-for-sale" ($42,581,000 at March 31,June 30, 1994). The company recorded
unrealized holding gains on securities classified as available-for-sale as
an increase to investments.
Available for Sale Held to Maturity
------------------ ----------------
Aggregate fair value $ 60,290,000 $530,655,000
Gross unrealized holding gains 17,709,000 84,779,000
Amortized cost basis 42,581,000 445,876,000
Held to Maturity Securities
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Contractual Maturities Fair Value Amortized Cost
- - ---------------------- ---------- --------------
Within 1 year $116,759,000 $115,974,000
2-5 years 239,447,000 236,563,000
6-10 years 19,752,000 19,249,000
Thereafter 154,697,000 74,090,000
Available for Sale Held to Maturity
------------------ ----------------
Aggregate fair value $ 56,896,000 $506,049,000
Gross unrealized
holding gains 14,315,000 79,167,000
Amortized cost basis 42,581,000 426,882,000
Held to Maturity Securities
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Contractual Maturities Fair Value Amortized Cost
- ---------------------- ---------- --------------
Within 1 year $118,007,000 $117,459,000
2-5 years 217,584,000 216,763,000
6-10 years 15,615,000 15,042,000
Thereafter 154,843,000 77,618,000
There were no sales of securities classified as held-to-maturity. The
change in the net unrealized gains on available-for-sale securities that was
included in a separate component of shareholders' equity was $11,318,000.$9,148,000. The
company does not invest in securities classified as trading securities. The
amortized cost and realized gains and losses on available-for-sale securities
sold during the threesix months ended March 31,June 30, 1994 were $7,972,000, $150,000$20,136,000, $155,000 and
($21,000), respectively.
-5-
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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(a) Liquidity and Capital Resources -------------------------------(update)
For the threesix months ended March 31,June 30, 1994, the primary
source of funds was from operations. Funds requisitioned
from the 1993, 1992 and 1991 Series Industrial Development
Revenue Bond construction fund trust accounts were used to
pay for construction of utility plant. Commercial paper
notes payable in the amount of $400,223,000$702,000,000 were outstanding
as of March 31,June 30, 1994, of which $341,270,000$655,270,000 is classified as
short-term debt as it represents the balance of the amount
that was issued to temporarily and partially fund the GTE
Telephone Properties acquired on December 31, 1993.1993 and June
30, 1994. The $341,270,000$655,270,000 of commercial paper is expected
to be repaid from maturing temporary investments, funds from
operations and proceeds from the planned issuance of
securities. On April 20, 1994, the company issued
$175,000,000 of debentures at par with an interest rate of
7.60% and maturing ona maturity date of June 1, 2006. The proceeds from
the sale of the debentures were used to repay commercial
paper notes outstanding
at March 31, 1994.outstanding. 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 an increasea decrease in its working capital at March 31,June 30,
1994. The increasedecrease is primarily due to the partial
repaymentissuance of
additional short-term debt.debt to temporarily and partially fund
the acquisition of the GTE Telephone properties acquired on
December 31, 1993 and June 30, 1994. The company has lines
of credit with commercial banks under which it may borrow
up to $1,200,000,000, there$1,200,000,000. There were no amounts outstanding
under these lines at MarchJune 30, 1994. On June 16, 1994,
Citizens Utilities Rural Company, Inc., a subsidiary of the
company, was advanced $2,394,000 under the subsidiary's
Rural Telephone Bank Loan Contract; these funds bear an
initial interest rate of 5.31% with an ultimate maturity
date of December 31, 1994.2027.
During the threesix months ended March 31,June 30, 1994, the company
was authorized net increases in annual revenues for
properties in Arizona, California, Pennsylvania, and Vermont
totaling $2,246,000.$6,376,000. The company has requests for increases
in annual revenues pending before regulatory commissions in
Arizona, California and Pennsylvania.Hawaii.
(b) Results of Operations
---------------------
Operating revenues for the three monthsmonth period ended March 31,June
30, 1994 increased compared to the likesame period last year
primarily due to increased telecommunications revenues.
Telecommunications revenues for the second quarter of 1994
totaled $88,754,000, a 97% increase over the $45,051,000
earned in the 1993 second quarter. Operating revenues for
the six month period ended June 30, 1994 increased compared
to the same period in 1993 primarily due to increased
telecommunications and natural gas revenues.
Telecommunications revenues for the six months totaled
$84,731,000,$173,485,000, a 94%96% increase over the 1993 amount of
$43,640,000. This increase was$88,691,000. The increases in telecommunications revenues
for both the quarter and six months ended June 30, 1994 were
primarily due to revenues derived from operating 189,000
local telephone access lines in Idaho, Tennessee, Utah and
West Virginia acquired on December 31, 1993 from GTE Corp.
Natural gas revenues for the six months totaled
$82,012,000,$122,780,000, a 20%10% increase over the 1993 amount of
$68,617,000.$112,089,000. The increase was primarily due to $4,989,000$6,037,000
from increased average revenue per MCF of gas sold to
residential and commercial customers and $8,347,000$4,527,000 from
increased consumption due toas a result of colder weather
conditions.
Operating expenses for the three months ended March 31,June 30,
1994 increased compared to the like 1993 period primarily
due to increased telecommunications operating expenses.
Operating expenses for the six months ended June 30, 1994
increased compared to the like 1993 period primarily due to
increased natural gas purchased and telecommunications
operating expenses.
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Item 2 (b) - (continued)
-----------------
Natural gas purchased for the six months ended June 30, 1994 totaled
$49,247,000,
a 35%$70,496,000 and 18% increase over the 1993 amount of $36,471,000$59,608,000
primarily due to higher supplier prices and increased volume to
satisfy increased customer consumption. Operating and maintenance
expenses, depreciationDepreciation expense and
taxes other than income for the three and six months ended March 31,June 30,
1994 increased compared to the like 1993 period primarily due to
operation of the 189,000 local telephone access lines acquired from
GTE Corp. on December 31, 1993.
Other income, net for the three months ended MarchJune 30, 1994
decreased compared to the like 1993 period primarily due to the
liquidation of investment balances to partially fund the purchase
of the 189,000 local telephone access lines acquired on December
31, 1993. The decrease was partially offset by an increase in
investment income from the company's Centennial investment and the
allowance for funds used during construction; a direct result of
increased construction of utility property, plant and equipment.
Other income, net for the six months ended June 30, 1994 increased
compared to the like 1993 period primarily due to an increase in
the allowance for funds used during construction, as
a result of increased property, plant and equipment and the gain on the
sale of land.land and an increase in investment income from the
company's Centennial investment. The increase was partially offset
by the liquidation of investment balances to partially fund the
purchase of the 189,000 local telephone access lines acquired on
December 31, 1993.
Interest expense for the three and six months ended March 31,June 30,
1994 increased compared with the like 1993 periodperiods primarily as a
result of the interim financingissuance of debt securities, the proceeds of which
were used to temporarily and partially finance the acquisition of
the 189,000 local telephone access lines acquired on December 31,
1993, with short-term debt, and an increase in industrial development revenue bond
borrowings. The increase in Interest expense was partially offset
by increased allowance for funds used during construction which is related
to borrowings, as a
result of increased property plant and equipment.borrowings. Income taxes for the three and six months ended March 31,June
30, 1994 increased compared to the like 1993 period primarily due
to increased taxable income
and an increase in the federal income tax rate.
-6-income.
PART II. OTHER INFORMATION
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Item 1. Legal Proceedings
-----------------
Reference is made to information describing certain
legal matters under Item 3 "Legal Proceedings" in the
Company'scompany's Form 10-K for the year ended December 31, 1993.
In May, 1994, the Delaware Court of Chancery granted the
defendants' motion for a stay of proceedings in the Thorpe
and Biggs action referred to in the third paragraph of Legal
Proceedings in the company's 1993 Annual Report, Form 10-K,
pending resolution of the settlement proceedings referred
to in the fourth paragraph of Legal Proceedings in the
company's 1993 Annual Report, Form 10-K. Discovery to
confirm the reasonableness of the settlement terms reflected
in the Memorandum of Understanding has been substantially
completed.
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 parties are
presently in settlement discussions.
Item 4. Submission of Matter to a Vote of Security Holders
--------------------------------------------------
(a) The Registrant held its 1994 Annual Meeting of the
Stockholders on May 20, 1994.
(b) Proxies for the Annual Meeting were solicited pursuant
to Regulation 14; there was no solicitation in
opposition to management's nominees for directors as
listed in the Proxy Statement and all such nominees
were elected.
The stockholder's voted 80% of total outstanding
shares in the affirmative to elect all the nominees
as directors. Directors elected were N.I. Botwinik,
A.I. Fleischman, S. Harfenist, A.N. Heine, E.A.
Rickless, J.L. Schroeder, R.D. Siff, R.A. Stanger, E.
Tornberg, C.L. Tow and L. Tow. Stockholders voted only
2% of outstanding shares in the negative for one or
more of the nominees.
Item 6. Reports on Form 8-K
-------------------
(b)No Form 8-K was required during the three months ended
March 31,June 30, 1994.
-7-
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS UTILITIES COMPANY
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(Registrant)
Date May 13,August 10, 1994 By:/s/ Livingston E. Ross
------------ ---------------------- Livingston E. Ross----------------------
Vice President and Controller
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