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 JUNE 30, 1995
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 June 30, 1995 Commission file number 001-11001
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
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 August 4, 1994
Common Stock Series A 154,653,796
Common Stock Series B 67,242,855
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets
June 30, 1995 and December 31, 1994 2
Consolidated Condensed Statements of Income
for the Three Months Ended June 30, 1995 and 1994 3
Consolidated Condensed Statements of Income for
the Six Months Ended June 30, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows for
the Six Months Ended June 30, 1995 and 1994 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information 9
Signature 12
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PART I. FINANCIAL INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June December
30, 1995 31, 1994
-------- --------
ASSETS
------
Current assets:
Cash and cash equivalents $ 17,572 $ 14,224
Temporary investments 0 108,818
Accounts receivable 172,055 166,795
Other 35,034 24,217
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224,661 314,054
Property, plant and equipment 3,812,984 3,583,723
Less accumulated depreciation 1,132,652 1,014,068
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2,680,332 2,569,655
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Investments 328,332 325,011
Regulatory assets 178,263 177,414
Deferred debits and other assets 203,984 190,432
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$3,615,572 $3,576,566
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Long-term debt due within one year $ 4,788 $ 13,986
Short-term debt 160,600 515,200
Other 294,440 349,991
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459,828 879,177
Customer advances for construction and
contributions in aid of construction 217,676 216,730
Deferred income taxes 262,932 248,150
Regulatory liabilities 29,817 30,830
Deferred credits and other liabilities 72,637 50,594
Long-term debt 1,070,456 994,189
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2,113,346 2,419,670
Shareholders' equity:
Common stock issued, $.25 par value
Series A 38,812 33,586
Series B 16,405 14,782
Additional paid-in capital 1,205,166 861,981
Retained earnings 231,943 237,417
Unrealized gain on securities
classified as available for sale 9,900 9,130
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1,502,226 1,156,896
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$3,615,572 $3,576,566
The accompanying Notes are an integral part of these Financial Statements.
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PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands, except per-share amounts)
1995 1994
---- ----
Revenues $251,678 $187,130
Expenses:
Operating expenses 151,443 103,920
Depreciation 38,103 24,618
-------- --------
189,546 128,538
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Income from operations 62,132 58,592
Other income, net 14,924 11,455
Interest expense 21,007 14,825
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Income before income taxes 56,049 55,222
Income taxes 14,110 17,206
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Net income $ 41,939 $ 38,016
Earnings per share of common stock
Series A and Series B $.19 $.19
Number of common shares outstanding at June 30:
Series A Common Stock 155,253 147,421*
Series B Common Stock 65,624 61,540*
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 1.50% 1.15%
* Adjusted for subsequent stock dividends.
The accompanying Notes are an integral part of these Financial Statements.
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PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands, except per-share amounts)
1995 1994
---- ----
Revenues $518,712 $409,285
Expenses:
Operating expenses 320,182 253,714
Depreciation 77,496 50,019
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397,678 303,733
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Income from operations 121,034 105,552
Other income, net 27,779 23,361
Interest expense 43,704 27,962
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Income before income taxes 105,109 100,951
Income taxes 29,266 31,281
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Net income $ 75,843 $ 69,670
======== =========
Earnings per share of common stock
Series A and Series B $.36 $.36
Number of common shares outstanding at June 30:
Series A Common Stock 155,253 147,421 *
Series B Common Stock 65,624 61,540 *
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 3.02% 2.26%
* Adjusted for subsequent stock dividends.
The accompanying Notes are an integral part of these Financial Statements.
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PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands)
1994 1993
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Net cash provided by operating activities $97,987 $77,847
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Cash flows from investing activities:
Construction expenditures (94,788) (90,026)
Securities purchases (14,738) (19,482)
Securities sales 82,785 20,136
Securities maturities 64,765 30,657
Business acquisitions (111,469) (501,995)
Other, net (5,084) (4,702)
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(78,529) (565,412)
Cash flows from financing activities:
Issuance of common stock 267,261 2,534
Long-term debt borrowings 185,333 232,709
Long-term debt principal payments (126,332) (29,764)
Short-term debt payments (354,600) 275,270
Other, net 12,228 336
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(16,110) 481,085
Increase (decrease) in cash and
cash equivalents 3,348 (6,480)
Cash and cash equivalents at January 1, 14,224 21,738
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Cash and cash equivalents at June 30, $17,572 $15,258
======= =======
The accompanying Notes are an integral part of these Financial Statements.
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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. Certain reclassifications of balances
previously reported have been made to conform to current presentation.
(2) Earnings per share is based on the weighted average number of outstanding
shares, adjusted for subsequent stock dividends and stock splits. 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) Pursuant to the provisions of SFAS 115, the Company classifies its
investments into two categories, "held-to-maturity" and "available-for-sale".
The Company records unrealized holding gains on securities classified as
available-for-sale as an increase to investments.
The following summarizes the cost, unrealized gains and fair market value for
investments.
Unrealized Aggregate Fair
Investment Classification Amortized Cost Holding Gains Value
------------------------- -------------- ------------- --------------
As of June 30, 1995
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Held-To-Maturity $265,309,000 $80,040,000 $345,349,000
Available-For-Sale 48,393,000 14,630,000 63,023,000
As of December 31, 1994
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Held-To-Maturity $368,302,000 $77,355,000 $445,657,000
Available-For-Sale 50,809,000 14,718,000 65,527,000
Held-to-Maturity Securities
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Investment Amortized Cost Fair Value
Maturities June 30, 1995 December 31, 1994 June 30, 1995 December 31, 1994
Within 1 year $70,331,000 $108,818,000 $70,821,000 $108,935,000
2-5 years 83,663,000 141,030,000 84,613,000 139,567,000
6-10 years 19,784,000 34,171,000 20,227,000 33,656,000
Thereafter 91,531,000 84,283,000 169,688,000 163,499,000
----------- ------------ ----------- ------------
$265,309,000 $368,302,000 $345,349,000 $445,657,000
The Company sold $57,905,000 of securities classified as held-to-maturity
during 1995 for the purpose of permanently financing the acquisition of the
GTE and Alltel Telephone Properties acquired; gains and losses of $485,000 and
$295,000, respectively, were realized on such sales. The amortized cost and
related gains on available-for-sale securities sold during 1995 were
$5,767,000 and $9,000,000, respectively.
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity and Capital Resources (update)
For the six months ended June 30, 1995, the primary source of funds was from
operations. Funds requisitioned from the 1995, 1994, 1993 and 1991 Series
Industrial Development Revenue Bond construction fund trust accounts were used
to pay for construction of utility plant. On May 3, 1995, the Company arranged
for the issuance of $13,550,000 of Industrial Development Revenue Bonds; the
bonds were issued as demand purchase bonds bearing interest at 6.2% and
maturing on May 1, 2030. On May 12, 1995, Citizens Utilities Rural Telephone
Company, Inc., a subsidiary of the Company, under it's Rural Telephone Bank
Loan Contract, was advanced $8,793,000. These funds bear an initial interest
rate of 6.52% and have an ultimate maturity date of December 31, 2027. On
June 15, 1995, the Company issued $125,000,000 of debentures at a price of
99.918% with an interest rate of 7.45% and a maturity date of July 1, 2035.
The proceeds from the sale of the debentures were used to repay commercial
paper notes outstanding. Commercial paper notes payable in the amount of
$239,500,000 were outstanding as of June 30, 1995, of which $160,600,000 is
classified as short-term debt as it represents the balance of the amount that
was issued to temporarily and partially fund the acquisition of GTE and Alltel
Telephone Properties. The $160,600,000 of commercial paper is expected to be
repaid from maturing temporary investments, funds from operations and proceeds
from the issuance of securities. As of August 11, 1995, $139,000,000 of this
commercial paper classified as short-term debt remains outstanding.
On April 28, 1995, 31,900 shares of Series B Common Stock were issued to
effect the merger of Douglasville Water Company into a subsidiary of the
Company. On June 29, 1995, the Company filed a registration statement with the
Securities and Exchange Commission to register 920,000 shares of Common Stock
Series A or B to fund the acquisition of Flex Communications and for other
corporate purposes. On July 17, 1995, Flex Communications was merged into the
Company. This merger required the issuance of 855,953 shares of Citizens Series
B Common Stock. On June 30, 1995, the Company acquired 35,000 telephone
access lines in West Virginia and Oregon from Alltel Corporation. In
conjunction with these acquisitions from Alltel, the Company assumed
$26,447,000 in debt at a weighted average interest rate of 5.76%.
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 June 30, 1995 as
compared to December 31, 1994. The increase is primarily due to the repayment of
short-term debt. The Company has lines of credit with commercial banks under
which it may borrow up to $600,000,000. There were no amounts outstanding
under these lines at June 30, 1995.
On May 31, 1995, the Company entered into definitive agreements with Hungarian
Telephone and Cable Corp. ("HTCC"), a Delaware corporation, which generally
provide certain rights for the Company to purchase shares of up to 51% of
HTCC common stock; being granted certain registration rights with respect to
HTCC common stock now owned or that may be acquired; providing certain
management services on a cost-plus basis; and having the right to designate
one member of the HTCC Board of Directors. On May 31, 1995, the Company also
acquired 300,000, or 10% of HTCC common shares for $4,200,000. HTCC presently
controls the rights to own, operate and expand certain telecommunications
services to the Sarvar and Salgotarjan areas of Hungary. On July 25, 1995,
the company made a secured loan to HTCC in the amount of $1,887,000.
During the six months ended June 30, 1995, the Company was authorized net
increases in annual revenues for properties in Hawaii (interim order), Ohio
and Vermont (final orders) totaling $9,566,000. The Company has requests for
increases in annual revenues pending before regulatory commissions in
California, Hawaii, Illinois, Louisiana and Pennsylvania.
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PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
(b) Results of Operations
Operating revenues increased for the three and six months ended June 30, 1995 in
comparison to the like 1994 periods primarily due to an increase in
telecommunications revenues. Telecommunications revenues for the 1995 second
quarter totaled $151,088,000, a 70% increase over the $88,754,000 for the
second quarter of 1994. Telecommunications revenues for the six months ended
June 30, 1995 totaled $291,538,000, a 68% increase over the 1994 amount of
$173,485,000. The increase in telecommunications revenues for both the quarter
and six months ended June 30, 1995 was primarily due to revenues derived from
operating the local telephone access lines acquired from GTE Corp. The
increase in telecommunications revenues was partially offset by $9,500,000 and
$19,000,000 for the three and six months ended June 30, 1995, respectively,
due to the expiration of the Pacific Bell Contract on December 31, 1994.
Natural gas revenues for the three months ended June 30, 1995 were flat
compared to the same 1994 period. Natural gas revenues for the six months
ended June 30, 1995 showed an 11% decline compared to the six months ended
June 30, 1994 due to $9,334,000 of decreased average revenue per MCF gas sold
to residential and commercial customers and $1,209,000 of decreased
consumption due to mild weather conditions in the first quarter of 1995.
Operating expenses for the three months ended June 30, 1995 increased 47% to
$189,546,000 from $128,538,000 for the like 1994 period and for the six
months ended June 30, 1995 increased 31% from $303,733,000 to $397,678,000
compared to the like 1994 period primarily due to increased telecommunications
operating expenses associated with the local telephone access lines acquired
from GTE Corp. The increase in operating expenses is partially offset by a
15%, or $10,717,000 decrease in natural gas purchased due to lower commodity
prices and decreased customer consumption.
Depreciation expense increased 55% for both the three and six months ended
June 30, 1995 compared to the like 1994 periods, primarily due to increased
depreciable plant as a result of the acquisition of GTE Telephone Properties
and the expansion of the Company's competitive access provider, Electric
Lightwave, Inc.
Other income, net for the three and six months ended June 30, 1995 increased
30% and 19%, respectively, compared to the like 1994 periods primarily due to
net gains on securities sold.
Interest expense increased 42% and 56% for the three and six months ended June
30, 1995, respectively, compared with the like 1994 periods primarily as a
result of the issuance of debt securities, the proceeds of which were used to
finance the acquisition of telephone properties from GTE Corp. and an
increase in industrial development revenue bond borrowings. Income taxes for
the three and six months ended June 30, 1995 decreased 18% and 6%,
respectively, compared to the like 1994 periods primarily due to a decrease
in the effective tax rate and favorable tax settlements for those periods.
-8-
PART II. OTHER INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 1. - Legal Proceedings
In June 1993, several stockholders commenced purported derivative actions in
the Delaware Court of Chancery against the Company's Board of Directors. These
actions were later consolidated (the "Consolidated Action"). These
stockholders alleged that the compensation approved by the Board of Directors
for the Company's Chairman was excessive and sought, among other things, an
action for alleged corporate waste and a declaration that the Chairman's
employment agreement and existing stock options are invalid. These
stockholders further alleged that certain corporate transactions involving
the Company and Century Communications Corp. ("Century") benefitted Century
to the detriment of the Company and that the Company's Chairman was granted
stock options in the Company's Subsidiary, Citizens Cellular, which benefitted
him when the Subsidiaries subsequently merged.
Another action ("Thorpe") was filed in June 1993 in the Delaware Court of
Chancery. Like the plaintiffs in the Consolidation Action, plaintiffs in
Thorpe alleged derivative claims challenging the Chairman's compensation as
excessive in the validity of certain stock options granted to the Chairman and
other members of the Company's Board of Directors. The plaintiffs in Thorpe
also asserted derivative claims challenging the fairness of the 1991 merger
between the cellular subsidiaries of the Company and Century. In addition,
these plaintiffs have alleged that the Chairman and Century paid a premium
to purchase control of the Company from the former Chairman, Richard L.
Rosenthal, and others. The plaintiffs in Thorpe have also asserted individual
and purported class claims challenging the disclosures made by the defendants
relating to the above matters and the allegedly improper accounting treatment
with respect to the Company's investment in Centennial Cellular Corp. These
plaintiffs sought, among other things, an accounting for alleged corporate
waste, a declaration that the Chariman's employment agreement and existing
stock options are invalid and unspecified monetary damages from the director
defendants. In November 1993, another purported derivative action ("Biggs")
was filed in the Delaware Court of Chancery against the Company's Board
of Directors and Century. The plaintiffs in Biggs challenged the Chairman's
compensation, the grant of stock options to the Chairman and other members
of the Company's Board of Directors in the 1991 cellular subisidiary merger
and the service agreement between Century and Centennial. In May 1995,
plaintiffs in the Thorpe and Biggs Actions filed supplemental and amended
complaints challenging certain stock options granted to the Chairman in 1993
and certain of the terms of the Chairmans employment agreement.
On August 14, 1995, parties to the Consolidation Action, the Thorpe Action and
the Biggs Action entered into a stipulation of settlement. The stipulation of
settlement which is subject to approval of the Delaware Court of Chancery,
provides for certain modifications to the Chairman's compensation
arrangements and Company by-laws and 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
actions. Plaintiffs Counsel will seek and defendant's will not oppose an
award of attorney fees and expenses of $2,640,000 in connection with the
settlement. The Company expects to recover a substantial portion of the fees
and expenses, if any, to be awarded by the Delaware Court of Chancery to
Plaintiffs' Counsel under the Company's Directors and Officers liability
insurance policy.
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PART II. OTHER INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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, alleged 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-party transactions and thereby violated federal and
state disclosure requirements. The relief sought included 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. In September 1994, the District Court granted in part
and denied in part defendants' motion to dismiss the amended complaint and
denied defendants' motion for summary judgement. In October 1994, defendants
moved for summary judgment dismissing the remainder of the claim. In November
1994, plaintiff moved to supplement her amended complaint to add a claim
seeking to invalidate the results of the 1994 Annual Meeting of Citizens
stockholders on the grounds that the Company's 1994 proxy statement
allegedly failed to disclose the amount of the management fee then proposed
to be paid to Century in connection with a proposed cable television joint
venture. The proposed supplemental complaint also seeks unspecified monetary
damages. In April 1995, the Delaware federal district court granted
defendant's motion for summary judgement dismissing the remainder of the
complaint and denied Berlin's motion for leave to supplement her complaint.
In October 1994, the Company and eight other companies were served with a
Summons and Complaint by the Town of Walkill, New York ("the Town") in the
United States District Court for the Southern District of New York. The Town
seeks to recover an unspecified amount representing response costs resulting
from the release or threatened release of hazardous substances at the Town's
Landfill, and damages and restitution under common law theories for other costs
associated with environmental conditions at the Town's Landfill. The Town
also seeks a declaratory judgement under CERCLA that the Defendants are
strictly, jointly and severally liable for future necessary response costs.
The Company notified GTE Corp. of this action since any potential liability
for this matter has been retained by GTE Corp. pursuant to the Asset Purchase
Agreement dated May 18, 1993. GTE Corp. has assumed the Company's defense in
this action.
The Company believes the risk of material loss from the above actions is
remote.
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PART II. OTHER INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 4. - Submission of Matter to a Vote of Security Holders
(a) The Registrant held its 1995 Annual Meeting of the Stockholders on May
19, 1995.
(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 stockholders voted 79% 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. Tow and L. Tow. Stockholders voted
only 5% of outstanding shares in the negative for one or more of the
nominees.
The stockholders voted 75% of total outstanding shares in the affirmative for
the approval of the Non-Employee Directors Deferred Fee Equity Plan.
Stockholders voted only 6% of outstanding shares against the approval of the
plan.
Item 6. - Reports on Form 8-K
(b) The Company filed on Form 8-K dated June 1, 1995 under Item 5 "Other
Events" and Item 7 "Financial Statements and Exhibits", the audited
financial statements for Mountain State Telephone Company, Navajo
Communications Company, Inc., and Alltel Nevada Inc., for each of the
two years ended December 31, 1994 and 1993.
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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 August 10, 1994 Livingston E. Ross
Vice President and Controller
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