CITIZENS UTILITIES COMPANY
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996MARCH 31, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------March 31, 1997
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________to__________
Commission file number 001-11001
---------
CITIZENS UTILITIES COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0619596
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code (203)329-8800
--------------
NONE
Former- ------------------------------------------------------------------------------
(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 November 1, 1996.April 29, 1997.
Common Stock Series A 155,098,414156,395,497
Common Stock Series B 80,807,27586,142,262
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets September 30, 1996at March 31, 1997 and December 31, 19951996 2
Consolidated Condensed Statements of Income for the Three Months Ended
September 30,March 31, 1997 and 1996 and 1995 3
Consolidated Condensed Statements of Income for
the Nine Months Ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows for the NineThree Months Ended
September 30,March 31, 1997 and 1996 and 1995 54
Notes to Financial Statements 65
Management's Discussion and Analysis of Financial Condition and
Results of Operations 76
Part II. Other Information 1012
Signature 1113
~ 1 ~
PART I. FINANCIAL INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
September 30, 1996 December 31, 1995
ASSETS
Current assets:
Cash $ 16,432 $ 17,922
Accounts receivable 246,097 199,813
Other 62,941 34,967
------------- --------------
Total current assets 325,470 252,702
------------- --------------
Property, plant and equipment 4,463,831 4,187,354
Less accumulated depreciation 1,428,694 1,279,324
------------- --------------
Net property, plant and equipment 3,035,137 2,908,030
------------- --------------
Investments 432,232 329,090
Regulatory assets 180,768 180,572
Deferred debits and other assets 271,054 247,793
------------- --------------
Total assets $ 4,244,661 $ 3,918,187
============= ==============
LIABILITIES AND EQUITY
Current liabilities:
Long-term debt due within one year $ 3,179 $ 3,865
Short-term debt - 140,650
Accounts payable and current liabilities 299,663 359,163
------------- ---------------
Total current liabilities 302,842 503,678
-------------- ---------------
Customer advances for construction and
contributions in aid of construction 228,391 223,923
Deferred income taxes 348,279 314,094
Regulatory liabilities 26,682 28,279
Deferred credits and other liabilities 105,666 101,300
Long-term debt 1,388,338 1,187,000
------------- -------------
Total liabilities 2,400,198 2,358,274
------------- -------------
Company Obligated Mandatorily Redeemable
Convertible Preferred Securities * 201,250 -
------------- -------------
Shareholders' Equity:
Common stock issued, $.25 par value
Series A 38,900 38,839
Series B 20,018 18,057
Additional paid-in capital 1,345,355 1,263,694
Retained earnings 238,285 235,236
Unrealized gain on securities
classified as available for sale 655 4,087
------------- -------------
Total shareholders' equity 1,643,213 1,559,913
============= =============
Total liabilities and equity $ 4,244,661 $ 3,918,187
PART I. FINANCIAL INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS
- ------
Current assets:
Cash $ 15,724 $ 24,230
Accounts receivable, net 270,285 281,650
Other 61,862 63,890
------------- -------------
Total current assets 347,871 369,770
------------- -------------
Property, plant and equipment 4,654,673 4,582,869
Less accumulated depreciation 1,493,044 1,444,817
------------- -------------
Net property, plant and equipment 3,161,629 3,138,052
------------- -------------
Investments 527,973 539,152
Regulatory assets 174,255 174,196
Deferred debits and other assets 328,625 301,978
------------- -------------
Total assets $ 4,540,353 $ 4,523,148
============= =============
LIABILITIES AND EQUITY
Current liabilities:
Long-term debt due within one year $ 8,799 $ 3,593
Accounts payable and current liabilities 348,608 405,896
-------------- -------------
Total current liabilities 357,407 409,489
Deferred income taxes 354,868 347,975
Customer advances for construction and
contributions in aid of construction 238,717 238,453
Deferred credits and other liabilities 115,634 115,291
Regulatory liabilities 22,278 22,810
Long-term debt 1,554,855 1,509,697
------------- -------------
Total liabilities 2,643,759 2,643,715
-------------- -------------
Company obligated mandatorily redeemable
convertible preferred securities* 201,250 201,250
-------------- ------------
Shareholders' equity:
Common stock issued, $.25 par value
Series A 39,103 38,811
Series B 21,472 20,977
Additional paid-in capital 1,417,159 1,381,341
Retained earnings 230,143 244,066
Unrealized gain on securities
classified as available for sale (12,533) (7,012)
-------------- ------------
Total shareholders' equity 1,695,344 1,678,183
-------------- ------------
Total liabilities and equity $ 4,540,353 $ 4,523,148
============== ============
* Represents securities of a subsidiary trust, the sole assets of which are
securities of a subsidiary partnership substantially all the assets of which
are convertible debentures of the Company.
The accompanying Notes are an integral part of these Financial Statements.
~ 2 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 1997 AND 1996 AND 1995
(In thousands, except per-share amounts)
1996 1995
-------------- ---------------
Revenue $ 319,959 $ 259,732
-------------- ---------------
Expenses:
Operating expenses 199,491 147,155
Depreciation 46,246 39,637
--------------- --------------
245,737 186,792
-------------- ---------------
Income from operations 74,222 72,940
Other income, net 17,420 14,320
Interest expense 22,366 21,037
-------------- ---------------
Income before income taxes and dividends on
Convertible preferred securities 69,276 66,223
Income taxes 21,680 21,162
-------------- ---------------
Income before dividends on Convertible
preferred securities 47,596 45,061
Dividend on Convertible preferred
securities, net of income tax benefit 1,564 -
-------------- ---------------
Net Income $ 46,032 $ 45,061
============== ===============
Earnings per share of common stock
Series A and Series B $ .20 $ .19*
============== ===============
Average number of common shares outstanding
for the period
Series A Common Stock 155,303 165,709*
Series B Common Stock 78,883 72,433*
Dividend rate declared on common stock:
Paid in Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock 1.6% 1.6%
============== ===============
1997 1996
------------ ------------
Revenues $ 372,492 $ 329,138
------------ ------------
Expenses:
Operating 253,845 211,116
Depreciation 56,566 47,030
------------ ------------
Total expenses 310,411 258,146
------------ ------------
Income from operations 62,081 70,992
Other income, net 12,284 11,047
Interest expense 27,016 22,003
------------ ------------
Income before income taxes 47,349 60,036
Income taxes 15,627 19,927
------------ ------------
Income before dividend on convertible preferred securities 31,722 40,109
Dividend on convertible preferred securities,
net of income tax benefit 1,552 1,253
------------ ------------
Net income $ 30,170 $ 38,856
============ ============
Earnings per share of common stock Series A and Series B $ .13 $ .16*
============ ============
Average number of common shares outstanding for the period:
Series A common stock 155,826 165,345*
Series B common stock 84,898 78,604*
------------ ------------
Total average number of common shares outstanding 240,724 243,949*
============ ============
Dividend rate declared on common stock:
Paid in Series A and B shares on Series A and B
common stock, respectively 1.6% 1.6%
============ ============
*Adjusted for subsequent stock dividendsdividends.
The accompanying Notes are an integral part of these Financial Statements.
~ 3 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOMECASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 1997 AND 1996
AND 1995
(In thousands, except per-share amounts)
1996 1995
-------------- ----------------
Revenues $ 967,224 $ 778,444
-------------- ----------------
Expenses:
Operating expenses 607,454 467,337
Depreciation 140,475 117,134
-------------- --------------
747,929 584,471
-------------- ----------------
Income from operations 219,295 193,973
Other income, net 46,243 42,099
Interest expense 67,012 64,741
-------------- ----------------
Income before income taxes and dividends on
Convertible preferred securities 198,526 171,331
Income taxes 63,191 50,428
-------------- ----------------
Income before dividends on Convertible
preferred securities 135,335 120,903
Dividend on Convertible preferred securities,
net of income tax benefit 4,196 -
-------------- ----------------
Net Income $ 131,139 $ 120,903
============== ================
Earnings per share of common stock
Series A and Series B $ .57 $ .52*
============== ================
Average number of common shares outstanding
for the period
Series A Common Stock 155,476 162,446*
Series B Common Stock 76,150 68,972*
Dividend rate declared on common stock compounded:
Paid in Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock 4.88% 4.67%
============== ================
*Adjusted for subsequentthousands)
1997 1996
--------------- ----------------
Net cash provided by operating activities $ 64,092 $ 72,990
--------------- ----------------
Cash flows used for investing activities:
Capital expenditures (89,584) (51,622)
Securities purchased (69,005) (75,088)
Securities sold 61,774 20,132
Securities matured 8,126 17,710
Business acquisitions 0 (44,200)
Other (17,350) 304
--------------- ----------------
Net cash used for investing activities (106,039) (132,764)
--------------- ----------------
Cash flows from financing activities:
Long-term debt borrowings 46,669 20,548
Long-term debt principal payments (1,084) (15,218)
Short-term debt repayments 0 (140,650)
Issuance of convertible preferred securities 0 201,250
Issuance of common stock 971 1,019
Common stock buybacks to fund stock dividends (13,088) (14,477)
Other (27) (896)
--------------- ----------------
Net cash provided from financing activities 33,441 51,576
--------------- ----------------
Change in cash (8,506) (8,198)
Cash at January 1, 24,230 17,922
--------------- ----------------
Cash at March 31, $ 15,724 $ 9,724
=============== ================
The accompanying Notes are an integral part of these Financial Statements.
~ 4 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands)
1996 1995
---------- -----------
Net cash provided by operating activities $ 210,967 $ 193,571
----------- -----------
Cash flows from investing activities:
Construction expenditures (225,215) (150,461)
Securities purchased (195,430) (31,689)
Securities sold 72,700 88,341
Securities matured 29,446 68,869
Business acquisitions (89,564) (112,394)
Other (27,800) (2,809)
----------- -----------
(435,863) (140,143)
----------- -----------
Cash flows from financing activities:
Long-term debt borrowings 209,508 171,793
Long-term debt principal payments (3,538) (128,438)
Short-term debt repayments (140,650) (361,550)
Issuance of convertible preferred
securities 201,250 -
Issuance of common stock 9,761 269,233
Common stock buybacks (50,535) -
Other (2,390) (817)
----------- -----------
223,406 (49,779)
----------- -----------
Increase (decrease) in cash (1,490) 3,649
Cash at January 1, 17,922 14,224
----------- -----------
Cash at September 30, $ 16,432 $ 17,873
=========== ===========
The accompanying Notes are an integral part of these Financial Statements.
~ 5 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(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 subsequent stock dividends. The effect on earnings per
share of outstanding stockthe exercise of dilutive 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) During the first quarter of 1996 a consolidated wholly-owned subsidiary
of the Company, Citizens Utilities Trust (the "Trust"), issued, in an
underwritten public offering, 4,025,000 shares of 5% Company Obligated
Mandatorily Redeemable Convertible Preferred Securities due 2036 ("Trust
Convertible Preferred Securities"), representing preferred undivided
interests in the assets of the Trust, with a liquidation preference of $50
per security (for a total liquidation amount of $201,250,000). The proceeds
from the issuance of the Trust Convertible Preferred Securities and a
Company capital contribution were used to purchase $207,475,000 aggregate
liquidation amount of 5% Partnership Convertible Preferred Securities due
2036 from another wholly owned consolidated subsidiary, Citizens Utilities
Capital L.P. (the "Partnership"). The proceeds from the issuance of the
Partnership Convertible Preferred Securities and a Company capital
contribution were used to purchase from the Company $211,756,050 aggregate
principal amount of 5% Convertible Subordinated Debentures Due 2036. The
sole assets of the Trust are the Partnership Convertible Preferred
Securities, and the Company's Convertible Subordinated Debentures are
substantially all the assets of the Partnership. The Company's obligations
under the agreements related to the issuances of such securities, taken
together, constitute a full and unconditional guarantee by the Company of
the Trust's obligations relating to the Trust Convertible Preferred
Securities and the Partnership's obligations relating to the Partnership
Convertible Preferred Securities.
~ 65 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
------------------------------------------------------------
The following information is unaudited and should be read in conjunction
with financial statements and footnotes included in this report.
The Company provides network access, local network, long distance,
directory, and other communication services as well as public services
including electric transmission and distribution, natural gas
transportation and distribution, water distribution and wastewater
treatment services to primarily rural and suburban customers throughout the
United States. The Company develops and expands its businesses through
internal investment, acquisitions and joint ventures in the rapidly
evolving telecommunications industry and in traditional public services
and related fields.
(a) Liquidity and Capital Resources
-------------------------------
For the ninethree months ended September 30, 1996,March 31, 1997, the Company used proceedscash flow from
operations and proceeds from net financings to fund acquisitions and construction.capital expenditures.
Funds requisitioned from the 1996, 1995, 1994 and 1993 Series Industrial
Development Revenue Bond construction fund trust accounts were used to
partially pay for construction of utility plant.
On January 22, 1996,Increasing communications revenue and revenue opportunities require
additional expenses and capital expenditures to deploy and support the
Company's national distribution network and to establish a subsidiarystrong brand
identity. The Company has committed and will continue to commit increased
resources to this purpose. Cash flow from operations will most likely
continue to reflect increased and accelerated expenses and capital
expenditures during 1997 and 1998. This continuing and increasing
commitment of capital and human resources to the Company issued 4,025,000 sharesCompany's aggressive
expansion plan, designed to take advantage of 5% Company Obligated Mandatorily Redeemable Convertible Preferred
Securities (also known as Equity Providing Preferred Income Convertible
Securities or "EPPICS") havingcommunications revenue
opportunities, may result in a liquidation preference of $50 per security
and a maturity date of January 15, 2036. Each security is currently
convertible into 3.411 sharesfuture determination that certain of the
Company's Common Stock Series A atexisting assets are either unrealizable or should have a conversion price of $14.660 per share (as adjusted for subsequent stock
dividends paid on Series A Common Stock). The $196,722,000 of net proceeds
from the sale of these securities was used to repay short-term debt,
permanently fund a portion of the acquisition of 23,000 telephone access
lines in Nevada from ALLTEL Corporation on March 31, 1996 and for other
general corporate purposes.
On January 22, 1996 and September 25, 1996, Citizens Utilities Rural
Company, Inc., a subsidiary of the Company, under its Rural Telephone Bank
Loan Contract, was advanced $4,464,000 and $4,515,000, respectively. Such
funds bear the respective initial interest rates of 5.83% and 6.08% and
have an ultimate maturity date of December 31, 2027.
On June 11, 1996, the Company issued $100,000,000 of debentures at a price
of 99.818%shorter
useful life. Any such determination would be consistent with an interest rate of 6.8% and a maturity date of August 15,
2026. The debentures are redeemable at par at the option of the holders on
August 15, 2003. The proceeds from the sale of the debentures were used to
repay outstanding commercial paper and to fund capital expenditures for the
construction, extension and improvement of the Company's
facilities and
services.
On August 1, 1996, the Company arranged for the issuance of $16,700,000 of
Industrial Development Revenue Bonds. The Bonds were issued as money market
bonds with an initial interest rate of 3.67% and an ultimate maturity date
of July 1, 2031. Proceeds from the issuance of the Bonds will be used to
fund the construction of the Company's water utility facilities in the
State of Pennsylvania.
On September 3, 1996, $18,250,000 of the Company's 1988 Series Industrial
Development Revenue Bonds, outstanding as 7% demand purchase bonds, were
converted and remarketed as weekly rate bonds, initially bearing interest
at a rate of 3.35% and maturing on September 1, 2018.
On October 1, 1996, $24,000,000 of the Company's 1988 Series A and 1988
Series C Industrial Development Revenue Bonds originally issued as 7.9% and
7.375%, respectively, demand purchase bonds, were converted and remarketed
as money market bonds, initially bearing interest at a rate of 3.63% and
maturing on September 1, 2018.
On October 10, 1996, the Company entered into a definitive agreement to
acquire all the stock of Conference-Call USA, Inc. Conference-Call USA,
Inc. provides nationwide conference calling services and its subsidiary,
Dial, Inc., provides international dial-back services. The transaction,
valued at approximately $15.5 million, is expected to close in the fourth
quarter of 1996, pending receipt of FCC approval.
On October 18, 1996, holders of $9,400,000 of the Company's 1985 Series
Industrial Development Revenue Bonds, outstanding as 7.375% Demand Purchase
Bonds were given notice of the conversion and remarketing of the Bonds to
money market bonds. The conversion and remarketing of the bonds is expected
to occur on November 19, 1996.conservative financial management practices.
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 increase in its working
capital at September 30, 1996March 31, 1997 as compared to December 31, 1995. The
increase is primarily due to the repayment of outstanding commercial paper
with the proceeds from the issuances of the EPPICS and debentures.1996. The Company has
lines of credit with commercial banks under which it may borrow up to $600,000,000.$600
million. There were no amounts outstanding under these lines at September 30, 1996.
~ 7 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
During 1996 to date, the Company was authorized increases in annual revenues for
properties in Arizona, Pennsylvania, and Louisiana totaling $9,017,000. In
August, 1996, the Hawaii Public Utilities Commission finalized the Company's
rate application granting the Company a $12.8 million rate increase without
providing for the proposed statewide surcharge for partial recovery of Hurricane
Iniki restoration and repair costs; $5,983,000 of this rate increase was
received in an interim order dated June, 1995.March 31,
1997.
The Company has requests for increases in annual revenues pending before
regulatory commissions in Arizona and California.California totaling $5.2 million.
~ 6 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
(b) Results of Operations
---------------------
Revenues
- --------
Operating revenues increased for the three and nine months ended September 30,
1996 in comparison to the like 1995 periods primarily due to revenues from long
distance service and acquisitions.
Telecommunications revenues for the 1996 third quarter totaled $208,824,000, a
34%March 31, 1997 increased
$43.4 million, or 13%. The increase over the $156,160,000 for the third quarter of 1995.
Telecommunications revenues for the nine months ended September 30, 1996 totaled
$591,825,000, a 32% increase over the 1995 amount of $447,698,000. For both the
quarter and the nine months ended September 30, 1996, the increase in revenues was primarily due to increased
customers,communications, natural gas and electric revenues.
Communications Revenues
- -----------------------
For the three months
ended March 31,
-----------------------------------------
($ in thousands)
Increase/
1997 1996 (Decrease)
---------- ---------- ------------
Network Access Services $ 105,806 $ 100,345 5%
Local Network Services 60,875 55,548 10%
Long Distance Service 25,277 7,684 229%
Directory Service 7,502 7,116 5%
Other 10,405 11,059 (6%)
---------- ---------- -----------
$ 209,865 $ 181,752 15%
========== ========== ===========
Network Access Services revenues from long distance service
and acquisitions.
Natural gas revenues for the 1996 third quarter totaled $34,426,000, a 10%
increaseincreased $5.5 million, or 5%, over the
$31,351,000 for the thirdfirst quarter of 1995. Natural gas1996 primarily due to an increase in toll minutes of use
and customer growth.
Local Network Services revenues forincreased $5.3 million, or 10%, over the ninefirst
quarter of 1996 primarily due to internal access line growth.
Long Distance Services revenues increased $17.6 million, or 229%, over the
first quarter of 1996 primarily due to growth in customers and minutes of
use.
~ 7 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Public Services Revenues
- ------------------------
For the three months
ended September 30,March 31,
--------------------------------------------
($ in thousands)
Increase/
Natural Gas Revenues 1997 1996 totaled $166,484,000, an
18% increase(Decrease)
- -------------------- -------- -------- ----------
Residential $ 60,396 $ 51,416 17%
Commercial 21,063 17,679 19%
Industrial 8,290 10,376 (20%)
Municipal 1,384 1,029 34%
-------- -------- ---------
Total Distribution 91,133 80,500 13%
Transportation 1,080 993 9%
Other 2,570 2,290 12%
-------- -------- ---------
Total Natural Gas Revenue $ 94,783 $ 83,783 13%
======== ======== =========
Residential and commercial distribution revenues increased $9 million, or 17%,
and $3.4 million, or 19%, respectively, over the 1995 amountfirst quarter of $141,129,000. For both1996 due to
rate increases at the Louisiana and Arizona gas divisions in May, 1996 and
November, 1996, respectively, customer growth, higher consumption due to
cooler weather conditions in Arizona and Colorado and higher gas costs passed
on to customers, partially offset by lower consumption due to warmer weather
conditions in Louisiana.
Industrial distribution revenue decreased by $2.1 million, or 20%, compared to
the prior year quarter andprimarily due to lower consumption.
Municipal distribution revenues increased $355,000, or 34%, compared to the
nine months ended September 30, 1996, the increase in revenues wasprior year quarter primarily the
result ofdue to a rate increase in Louisiana which took effect on May 1, 1996. In
addition to the rate increase, there was also increasedNovember, 1996,
customer growth and higher consumption by
residential customers in Louisiana due to colder than normalcooler weather conditions which was partially offset by decreased usage in
Arizona due to milder than
expected weather conditions and a decrease in industrial customers in Louisiana.
Water and Wastewater revenues for the 1996 third quarter totaled $24,059,000, a
10 % increase over the $21,927,000 for the third quarter of 1995. Water and
Wastewater revenues for the nine months ended September 30, 1996 totaled
$65,447,000, a 13% increase over the 1995 amount of $57,687,000. For both the
quarter and nine months ended September 30, 1996, the increase in revenues was
primarily the result of rate increases in Illinois, Pennsylvania and Ohio as
well as increased consumption at the Company's California and Arizona water
properties.
Operating expenses for the three months ended September 30, 1996 increased 36%
to $199,491,000 from $147,155,000 for the like 1995 period and for the nine
months ended September 30, 1996 increased 30% to $607,454,000 from $467,337,000
for the like 1995 period primarily due to increased telecommunications operating
expenses, increases in the cost of natural gas purchased, and a noncash charge
of $12.5 million for electric sector net regulatory assets which, as a result of
recently finalized rate proceedings in Hawaii, are no longer deemed recoverable
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of".
Depreciation expense for the three and nine month periods ended September 30,
1996 increased by 17% and 20%, respectively, over the corresponding 1995
periods. These increases were due to increased depreciable telecommunications
plant due to acquisitions.Arizona.
~ 8 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Other income, net forFor the three months
ended March 31,
-------------------------------------------
($ in thousands)
Increase/
Electric Revenues 1997 1996 (Decrease)
- ----------------- -------- -------- ----------
Residential $ 20,654 $ 18,675 11%
Commercial 13,437 12,598 7%
Industrial 10,848 10,209 6%
Municipal 1,966 1,821 8%
-------- -------- ----------
Total Distribution 46,905 43,303 8%
Transmission 545 626 (13%)
Other 452 (51) 986%
-------- -------- ----------
Total Electric Revenues $ 47,902 $ 43,878 9%
======== ======== ==========
Residential and nine month periods ended September
30, 1996commercial distribution revenues increased by 22%$2 million, or
11%, and 10%$839,000, or 7%, respectively, overcompared to the corresponding 1995
periodsprior year quarter
primarily due to a rate increase in Hawaii in August, 1996, customer growth
and increased consumption due to cooler weather conditions in Arizona,
partially offset by lower consumption in Hawaii due to warmer weather
conditions.
Industrial and municipal distribution revenues increased $639,000, or 6%,
and $145,000, or 8%, respectively, compared to the prior year quarter
primarily due to a rate increase in Hawaii in August, 1996 and higher
consumption in Arizona.
For the three months
ended March 31,
------------------------------------------
($ in thousands)
Increase
Water and Wastewater Revenues 1997 1996 (Decrease)
- ----------------------------- ---------- --------- ----------
Residential distribution $ 16,238 $ 15,950 2%
Commercial distribution 2,719 2,803 (3%)
Industrial distribution 209 117 79%
Other 776 855 (9%)
---------- --------- ----------
Total Water and Wastewater Revenues $ 19,942 $ 19,725 1%
========== ========= ==========
Water and wastewater revenues are essentially the same as the prior year
quarter.
~ 9 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
EXPENSES
--------
For the three months
ended March 31,
------------------------------------
($ in thousands)
Increase/
1997 1996 (Decrease)
--------- --------- ---------
Natural gas purchased $ 58,569 $ 48,201 22%
Depreciation 56,566 47,030 20%
Network expenses 29,094 7,779 274%
Taxes other than income 24,312 22,082 10%
Electric energy and fuel oil purchased 22,190 20,160 10%
Sales and marketing 14,134 5,336 165%
Other operating expenses 105,546 107,558 (2%)
--------- ---------- ---------
$ 310,411 $ 258,146 20%
========= ========== =========
Natural gas purchased increased $10.4 million, or 22%, compared to the
prior year quarter primarily due to higher supplier prices partially offset
by decreased purchases due to lower consumption in Louisiana.
Depreciation expense increased $9.5 million, or 20%, compared to the prior
year quarter primarily due to an increase in the allowance for funds used during
construction associated with increases in construction expenditures.
Interest expense for the three month period ending September 30, 1996property, plant and equipment.
Network expenses increased by 6% over the corresponding 1995 period due the issuance of
additional debt during 1996.
Income taxes for the nine month period ending September 30, 1996 increased 25%$21.3 million, or 274%, compared to the like 1995 periodprior
year quarter primarily due to the deployment and support of Citizen's
Communications national distribution network.
Taxes other than income increased $2.2 million, or 10%, compared to the
prior year quarter primarily due to higher payroll and property taxes.
Electric energy and fuel oil purchased increased $2 million, or 10%,
compared to the prior year quarter primarily due to higher supplier costs
in Hawaii and increased purchases to satisfy higher consumption.
Sales and marketing increased $8.8 million, or 165%, compared to the prior
year quarter primarily due to an increased level of sales and marketing
activity including the deployment of a Citizens Communications branding
initiative.
Other operating expenses decreased $2 million, or 2%, compared to the prior
year quarter primarily due to a decrease in public service operating and
maintenance expense due to administrative efficiencies.
~ 10 ~
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
OTHER INCOME/INTEREST EXPENSE/INCOME TAXES
------------------------------------------
For the three months
ended March 31,
-----------------------------------
($ in thousands)
Increase/
1997 1996 (Decrease)
-------- -------- ----------
Investment income $ 9,714 $ 8,629 13%
Other 2,570 2,418 6%
--------- -------- ----------
Total other income $ 12,284 $ 11,047 11%
========= ======== ==========
The increase in investment income for the 1997 first quarter as compared
with the 1996 first quarter is primarily due to an increase in investments.
For the three months
ended March 31,
---------------------------------------
($ in thousands)
Increase/
1997 1996 (Decrease)
--------- --------- ----------
Interest expense $ 27,016 $ 22,003 23%
Interest expense increased $5.0 million, or 23%, compared to the prior year
quarter primarily due to the issuance of $300 million of debentures in
1996.
For the three months
ended March 31,
---------------------------------------
($ in thousands)
Increase/
1997 1996 (Decrease)
--------- -------- ----------
Income taxes $ 15,627 $ 19,927 (22%)
Income taxes decreased $4.3 million, or 22%, compared to the prior year
quarter primarily due to lower taxable income.
NET INCOME AND EARNINGS PER SHARE
---------------------------------
For the three months
ended March 31,
---------------------------------------
($ in thousands)
Increase/
1997 1996 (Decrease)
-------- --------- ----------
Net Income $ 30,170 $ 38,856 (22%)
Earnings Per Share $ .13 $ .16 (19%)
Net income decreased $8.7 million, or 22%, from the prior year quarter
primarily due to increased sales, marketing, network and operational systems
support expenses partially offset by increased revenues associated with the
Company's communications operations. Earnings per share decreased $.03, or
19%, primarily due to a decrease in net income partially offset by a
decrease in shares outstanding resulting from the Company's stock buyback
program.
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PART II. OTHER INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 1. Legal Proceedings
-----------------
In November 1995, the Company's electric operation in Vermont was permitted
an 8.5% rate increase. Subsequently the Vermont Public Service Board has
called into question the level of rates awarded in connection with its
formal review of allegations made by the Department of Public Service (the
"DPS"), the consumer advocate in Vermont, and a former Citizens employee
seeking penalties and other relief. The major issues in this proceeding
commenced on September 1992,1, 1995 and involve proper classification of certain
costs to property, plant and equipment accounts and the EPA filedCompany's Demand
Side Management ("DSM") program. In addition, the DPS believes that the
Company should have sought and received regulatory approvals prior to
construction of certain facilities in prior years. Hearings commenced in
November 1996 and should conclude by the end of the first half of 1997. The
final outcome of the various allegations is to be decided by the Vermont
Public Service Board and such decision is expected by June 1997. Although
the Company believes that there will not be a complaint withmaterial effect on the
United States
District CourtCompany's financial condition or results of operations as a result of this
proceeding and the practices complained of have been rectified, it is
possible that the decision of the Vermont Public Service Board could be
unfavorable to the Company. The Company has provided a reserve of
approximately $800,000 at December 31, 1996 for the Northern Districtpotential effects of
Illinois relating to
alleged violations bythis proceeding.
In January 1997, the Company's Illinois subsidiary was served with respect toa
complaint in an action commenced by the Illinois Attorney General. The
complaint alleges violations of National PollutantPollution Discharge Elimination
System permit requirements.permits issued to three wastewater treatment plants, acquired in mid
1994 through a merger with Metro Utility Company, as well as related
allegations. The majority of the alleged violations predate the Company's
acquisition of the plants, one of which has been taken out of service to
foster regionalization. The Company settled this action on March 21, 1995,filed its answer denying the
allegations of the complaint and paid a $490,000
fine. Underraised the settlement,affirmative defense of failure
of the Company also agreed to construct plant
improvements, with an estimated cost of $2,200,000, which would be
required in orderState to comply with new discharge limits provided for bycertain provisions of the settlement. Shortly after the action was settled, theIllinois
Environmental Protection Act. The Company entered into a tentative agreementhas engaged in settlement
negotiations with the Village of Bolingbrook to
transfer flow from the Company's to the Village's nearby facilities for
treatmentState and to convert the Company's plant to a flow transfer
station. The agreement with the Village of Bolingbrook required both
EPA and Court approval. Those approvals were obtained and are contained
in a Court Order dated May 22, 1996. The Company's financial
obligations to convert its systems to transfer flow to the Village of
Bolingbrook's plant will be equal to the estimated costs of upgrading
the plant as stated above. As a regulated entity, the Company is
entitled to earn a fair rate of return on improvements that are placed
in service for the benefit of its customers. The Company believes that the matter will be settled.
The cost of the above discussed improvements willsettlement is expected to be recovered through
customer rates.less than $100,000. The
Company has contractual rights of indemnification from the former
shareholders of Metro Utility Company and expects to recover any settlement
cost in full.
Item 6. Exhibits and Reports on Form 8-K
(a)--------------------------------
The following exhibit isCompany filed as part of this report:
Exhibit 10.16.1 Employment Agreement between
Citizens Utilities Company and Leonard Tow.
(b) Noon Form 8-K was required duringdated January 16, 1997, under Item 5, "Other
Events," and Item 7, "Exhibits," announcing that the three months ended
September 30, 1996.Company entered into a
definitive agreement to purchase all of the outstanding stock of Gasco,
Inc. The Company filed on Form 8-K dated March 31, 1997, under Item 7
"Exhibits", a press release issued March 16, 1997 that announced 1996
earnings.
~ 1012 ~
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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
--------------------------
(Registrant)
Date November 12, 1996May 1, 1997 By:/s/ /s/Livingston E. Ross
-----------------
---------------------
Livingston E. Ross
Vice President and Controller
~ 1113 ~