PROSPECTUS SUPPLEMENT
(To Prospectus dated March 28, 1994)
$150,000,000
(CITIZENS LOGO)
7% Debentures Due 2025
-----------------------
Interest payable May 1 and November 1
-------------------------------------
The Offered Debentures may not be redeemed prior to maturity by the
Company and do not provide for any sinking fund. The Offered Debentures
will be represented by a global debenture registered in the name of a
nominee of The Depository Trust Company, New York, New York, as Depositary
(the "Depositary"). Beneficial interests in the Offered Debentures will be
shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Except as described in
the accompanying Prospectus, Offered Debentures in certificated form will
not be issued in exchange for the global debenture.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE 100% AND ACCRUED INTEREST, IF ANY
------------------------
==========================================================================
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Company(1)(3)
- ---------------|----------------|---------------------|-------------------
Per Debenture | 100% | .875% | 99.125%
- ---------------|----------------|---------------------|-------------------
Total | $150,000,000 | $1,312,500 | $148,687,500
==========================================================================
(1) Plus accrued interest, if any, from October 20, 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by the Company estimated to be
$60,000.
------------------------
The Offered Debentures offered by this Prospectus Supplement are
offered by the Underwriters subject to prior sale, withdrawal,
cancellation or modification of the offer without notice, to delivery to
and acceptance by the Underwriters and to certain further conditions. It
is expected that delivery of the Offered Debentures will be made on or
about October 20, 1995, through the book-entry facilities of the
Depositary, against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO. LEHMAN BROTHERS
Incorporated
October 17, 1995
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
DEBENTURES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its regional offices at Northwestern Atrium
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661, and
Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of
such material can also be obtained from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Certain securities of the Company are listed on the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 and reports, proxy
material and other information concerning the Company may be inspected at
the office of that Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC pursuant to
the 1934 Act are incorporated into this Prospectus Supplement and the
Prospectus by reference:
The Company's Annual Report on Form 10-K for the year ended December
31, 1994.
The Company's Quarterly Reports on Form 10-Q for the quarter ended
March 31, 1995 and on Forms 10-Q and 10-QA for the quarter ended June 30,
1995.
The Company's Current Reports on Form 8-K relating to the
acquisitions of the Telecommunications Properties described herein filed
on July 5, August 9, and December 7, 1994 and on June 1, 1995.
The Company hereby undertakes to provide, without charge, to each
person to whom a copy of this Prospectus Supplement is delivered, upon
written or oral request of such person, a copy of any or all of the
documents referred to above which have been or may be incorporated by
reference in this Prospectus Supplement, other than exhibits to such
documents not specifically incorporated by reference herein. Requests for
such copies should be directed to Office of the Treasurer, Citizens
Utilities Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut
06905 (telephone (203) 329-8800).
Page S-2
Consolidated Financial Information
(Dollars in Thousands, Except for Per-Share Amounts)
Twelve Months Year Ended December 31,
Ended June 30, 1995 --------------------------------
---------------------- 1994 1993 1992 1991
---- ---- ---- ----
Pro Forma(1) Actual
Income Statement
Data:
Revenues $1,155,017 $1,019,795 $910,369 $619,392 $580,464 $545,025
Net Income $ 174,540 $ 150,168 $143,997 $125,630 $115,013 $112,354
Earnings per
Share of
Common Stock
Series A and
Series B(2) $ .76(3) $ .74(3) $ .74 $ .65 $ .61 $ .60
Ratio of
Earnings to
Fixed Charges(4) 4.0 3.3 3.7 5.3 4.8 5.3
As at December 31,
As at June 30, 1995 ------------------------------------
---------------------- 1994 1993 1992 1991
---- ---- ---- ----
Pro Forma(5) Actual
Balance Sheet
Data:
Total Assets $3,696,184 $3,615,572 $3,576,566 $2,627,118 $1,887,981 $1,721,452
Long-Term Debt $1,141,456 $1,070,456 $ 994,189 $ 547,673 $ 522,699 $ 484,021
Shareholders'
Equity $1,677,226 $1,502,226 $1,156,896 $ 974,486 $ 837,271 $ 719,676
Long-Term Debt
to Long-Term
Debt and
Shareholders'
Equity Ratio 40% 42% 46% 36% 38% 40%
(1) The Pro Forma Income Statement Data reflects the combined results of
operations of Citizens and certain Telecommunications Properties (see
"Pro Forma Financial Statements") acquired subsequent to June 30,
1994 and properties to be acquired (as of June 30, 1995) as if such
properties had been acquired on July 1, 1994. This information should
be read in conjunction with the Pro Forma Condensed Statements of
Income beginning on page S-9 of this Prospectus Supplement. The Pro
Forma Income Statement Data is not necessarily indicative of what the
actual financial results would have been for the period had the
transactions occurred on the date indicated and does not purport to
indicate the financial results of future periods.
(2) Common Stock Series A and Series B per-share amounts have been
adjusted for subsequent stock dividends and stock splits through June
30, 1995. No adjustment has been made for the 1.6% 1995 third quarter
stock dividend, as this adjustment is immaterial.
(3) Reflects the discontinuance of subsidy contract revenues received
through the end of 1994 from Pacific Bell. For the twelve months
ended June 30, 1995 on both an Actual and Pro Forma basis this
discontinuance had the effect of reducing, by $19 million, income
before income taxes and related Earnings Per Share as compared to
prior periods.
(4) "Earnings" consist of net income plus fixed charges and income taxes.
"Fixed Charges" consist of interest charges and an amount
representing the interest factor included in rentals. The Company may
issue tax-advantaged preferred securities to satisfy its remaining
permanent equity acquisition financing requirements (see "Capital
Requirements and Financing"). The issuance of such equity securities
would have the effect of reducing pro forma net income available to
common shareholders by an after-tax dividend requirement, decreasing
pro forma weighted average common shares, increasing Pro Forma
Earnings Per Share and producing a ratio of earnings to combined
fixed charges and dividends on preferred securities lower than the
Pro Forma Ratio of Earnings to Fixed Charges presented above.
(5) The Pro Forma Balance Sheet Data reflects the permanent financings
of the Telecommunications Properties as if such financings were in
place June 30, 1995. This information should be read in conjunction
with the Pro Forma Condensed Balance Sheet beginning on page S-7 of
this Prospectus Supplement. The Pro Forma Balance Sheet Data is not
necessarily indicative of what the actual financial position would
have been for the period had the transactions occurred on the date
indicated and does not purport to indicate the financial position of
future periods. The Company may issue tax-advantaged preferred
securities to satisfy its remaining permanent equity acquisition
financing requirements (see "Capital Requirements and Financing").
The issuance of such equity securities may change the presentation of
the Pro Forma Balance Sheet Data above.
Page S-3
THE COMPANY
Citizens Utilities Company (the "Company" or "Citizens") is a
diversified operating public utility which provides, either directly or
through subsidiaries, telecommunications, natural gas transmission and
distribution, electric distribution, water or wastewater services to
customers in areas of eighteen states. Citizens holds a significant
investment interest in Centennial Cellular Corp., a cellular telephone
company, and also owns Electric Lightwave, Inc., an alternative
telecommunications service provider operating in five western states.
Beginning with 1945, the Company has increased its revenues, net income
and earnings per share (adjusted for subsequent stock dividends and stock
splits) every year without interruption.
On November 29, 1994, the Company and ALLTEL Corporation ("ALLTEL")
announced the signing of definitive agreements pursuant to which Citizens
agreed to acquire from ALLTEL for a total purchase price of $292 million,
certain telephone properties serving approximately 110,000 local telephone
access lines and certain cable television systems serving approximately
7,000 subscribers. The properties are located in eight states: Arizona,
California, Nevada, New Mexico, Oregon, Tennessee, Utah and West Virginia
("ALLTEL Telecommunications Properties"). On June 30, 1995, 35,662 local
telephone access lines in Oregon and West Virginia were transferred to the
Company. On September 30, 1995, approximately 19,000 local telephone
access lines in Tennessee were transferred to the Company. The remaining
ALLTEL Telecommunications Properties are expected to be transferred to the
Company by early 1996. The purchases require the approval of the
regulatory commissions of the states in which the properties are located.
CAPITAL REQUIREMENTS AND FINANCING
The purchase price for the ALLTEL Telecommunications Properties, net
of the property to be transferred to ALLTEL valued at $10 million, is $282
million. The Company intends to permanently finance the acquisition of the
ALLTEL Telecommunications Properties approximately one third from the
issuance of equity securities ($94 million), one third from the issuance
or assumption of debt securities ($94 million), and one third from Company
cash and investments ($94 million). As of June 30, 1995, approximately $86
million of the purchase price of other telecommunications properties
acquired by the Company in 1994 remained temporarily financed with
commercial paper classified as short-term debt, pending the issuance of
approximately $80 million of equity securities and the maturity of $6
million of investments. The Company may issue tax-advantaged preferred
securities to satisfy $174 million of permanent equity acquisition
financing requirements.
The purchase price for the ALLTEL Telecommunications Properties
transferred as of June 30, 1995 has been permanently financed with
approximately $27 million of assumed long-term debt securities. The
remainder of the purchase price of such ALLTEL Telecommunications
Properties has been temporarily financed with commercial paper, $74
million of which was classified as short-term debt (to be repaid from
cash and investments and the issuance of equity securities) and $11
million of which was classified as long-term debt (to be refinanced
through the issuance of long-term debt). As of June 30, 1995, the Company
had an additional $68 million of outstanding commercial paper classified
as long-term debt. The $79 million of commercial paper classified as long-
term debt will be refinanced from the proceeds of the Offered Debentures.
Page S-4
The Company carries out a continuous construction program to maintain
reliable and safe service and to meet future customer service
requirements. The Company estimates that expenditures for construction,
extension and improvement of service relating to existing properties,
including the acquired Telecommunications Properties, will require
approximately $262 million in 1995. The Company's construction program is
under continuous review and may be revised depending on business and
economic conditions, regulatory action, governmental mandates, customer
demand and other factors. Capital requirements are being financed from
internally generated funds and the issuance of taxable and tax-exempt
long-term debt, short-term borrowings, customer advances and contributions
in aid of construction.
The Company maintains $600 million of committed bank lines of credit
for general corporate purposes, under which there were no amounts
outstanding as of October 17, 1995.
APPLICATION OF PROCEEDS
The net proceeds from the sale of the Offered Debentures will be used
to repay all outstanding commercial paper classified as long-term debt
(see "Capital Requirements and Financing"), permanently fund a portion
of the ALLTEL Telecommunications Properties to be acquired, refund long-
term debt due within one year and for other general corporate purposes.
RATINGS OF COMPANY SECURITIES
Standard & Poor's Ratings Group, a division of McGraw-Hill ("Standard
& Poor's"), has rated the Offered Debentures "AAA" and Moody's Investors
Service, Inc. ("Moody's") has rated the Offered Debentures "Aa3".
Standard & Poor's has also rated the Company's outstanding publicly
held Debentures and Industrial Development Revenue Bonds "AAA"; its
Commercial Paper "A-1+"; and has ranked the Company's Common Stock "A+".
Each of these are the highest rating or ranking granted by Standard &
Poor's. Moody's has also assigned ratings of Aa3 to the Company's
outstanding publicly held Debentures and P-1 (its highest rating) to the
Company's Commercial Paper. Moody's does not rank or rate Common Stock.
Upon the Company's announcement of the signing of definitive
agreements to acquire the ALLTEL Telecommunications Properties, Standard
& Poor's placed its ratings of the Company's Industrial Development
Revenue Bonds and Debentures on "Credit Watch" with negative implications.
An explanation of the significance of ratings may be obtained from
the rating agencies. Generally, rating agencies base their ratings on such
material and information, and such of their own investigations, studies
and assumptions, as they deem appropriate. A credit rating of a security
is not a recommendation to buy, sell or hold securities. There is no
assurance that any rating will apply for any given period of time or that
a rating may not be adjusted or withdrawn.
Page S-5
DESCRIPTION OF OFFERED DEBENTURES
The following description of the particular terms of the Offered
Debentures supplements the description of the general terms and provisions
of the Offered Debentures set forth in the accompanying Prospectus under
the caption "Description of Debt Securities--Debentures and Other
Unsecured Debt Securities".
GENERAL
The Offered Debentures will be issued under the Company's Indenture
with Chemical Bank, as Trustee, dated as of August 15, 1991, as
supplemented by a Sixth Supplemental Indenture, dated as of October 15,
1995 creating the Offered Debentures (the "Indenture"). The Offered
Debentures will be issued in the aggregate principal amount of $150
million and will bear the designation "7% Debentures Due 2025". The
Offered Debentures will bear interest at an annual rate of 7% payable on
May 1 and November 1 of each year, commencing on May 1, 1996, to the
person in whose name the Offered Debentures are registered at the close of
business on the preceding April 15 or October 15, as the case may be. The
Offered Debentures will mature on November 1, 2025.
The Offered Debentures are not subject to redemption prior to
maturity and do not provide for any sinking fund.
The Offered Debentures will not be secured and will rank equally with
any other indebtedness which is issued under the Indenture and not
specifically subordinated to the Offered Debentures. The Offered
Debentures will also rank equally with other unsecured obligations of the
Company except as noted in the accompanying Prospectus.
The Offered Debentures will be held by the owners as book-entry
securities (see "Description of Debt Securities - Debentures and Other
Unsecured Debt Securities" in the accompanying Prospectus).
Chemical Bank, Trustee under the Indenture, is one of the lending
banks on the Company's bank line of credit arrangements.
Page S-6
PRO FORMA FINANCIAL STATEMENTS
(These Pro Forma Financial Statements update and supersede the
Pro Forma Financial Statements in the Prospectus.)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Balance Sheet
(In thousands)
The following Pro Forma Condensed Balance Sheet represents the
historical condensed balance sheet of Citizens at June 30, 1995, giving
effect to the acquisitions of the yet to be acquired Telecommunications
Properties (as defined in Note 1 on page S-8) following the purchase
method of accounting, as well as the completion of the permanent
financings for the acquired Telecommunications Properties as if such
acquisitions and financings were closed on June 30, 1995. The Pro Forma
Condensed Balance Sheet should be read in conjunction with the historical
financial statements and related notes thereto of Citizens which are
incorporated by reference herein. The Pro Forma Condensed Balance Sheet is
not necessarily indicative of what the actual financial position would
have been had the transactions occurred at the date indicated and does not
purport to indicate future financial position.
As of June 30, 1995
-----------------------------------------------------
Pro Forma
----------------------------
Citizens Adjustments(1) Adjusted
-------- -------------- --------
Assets
Current Assets:
Cash $ 17,572 $ 340,912 (2) $ 27,784
(330,700)(3)
Accounts Receivable 172,055 172,055
Other 35,034 35,034
---------- ----------
Total Current Assets 224,661 234,873
---------- ----------
Net Property, Plant
and Equipment 2,680,332 170,100 (3) 2,850,432
---------- ----------
Investments 328,332 (99,700)(2) 228,632
Regulatory Assets 178,263 178,263
Deferred Debits and
Other Assets 203,984 203,984
---------- -------- ----------
$3,615,572 $ 80,612 $3,696,184
========== ======== ==========
Liabilities and
Shareholders' Equity
Current Liabilities:
Long-Term Debt Due
Within One Year $ 4,788 $ (4,788)(2) $ 0
Other 294,440 294,440
Short-Term Debt 160,600 (160,600)(3) 0
---------- ---------
Total Current
Liabilities 459,828 294,440
Customer Advances
for Construction and
Contributions in Aid
of Construction 217,676 217,676
Deferred Income Taxes 262,932 262,932
Regulatory Liabilities 29,817 29,817
Deferred Credits and
Other Liabilities 72,637 72,637
Long-Term Debt 1,070,456 150,000 (2) 1,141,456
(79,000)(2)
---------- ----------
2,113,346 2,018,958
---------- ----------
Shareholders' Equity:
Common Stock Issued,
$.25 Par Value
Series A 38,812 38,812
Series B 16,405 16,405
Additional Paid-In
Capital 1,205,166 175,000 (2) 1,380,166
Retained Earnings 231,943 231,943
Unrealized gain on
securities classified
as available for sale 9,900 9,900
---------- ----------
1,502,226 1,677,226
---------- -------- ----------
$3,615,572 $ 80,612 $3,696,184
========== ======== ==========
- ----------------------
See Notes to Pro Forma Condensed Balance Sheet on page S-8.
Page S-7
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Balance Sheet
(1) In May 1993, Citizens and GTE Corp. ("GTE") signed definitive
agreements pursuant to which Citizens agreed to acquire from GTE, for
approximately $1.1 billion in cash, certain GTE telephone properties
(the "GTE Telephone Properties") serving approximately 500,000 local
telephone access lines in eight states. On December 31, 1993, 189,123
local telephone access lines in Idaho, Tennessee, Utah and West
Virginia were transferred to the Company. On June 30, 1994, 270,883
access lines in New York were transferred to the Company. On November
30, 1994, 37,802 access lines in Arizona and Montana were transferred
to the Company and on December 30, 1994, 5,440 local telephone access
lines in California were transferred to the Company.
In November 1994, Citizens and ALLTEL signed definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL telecommunications properties ("ALLTEL
Telecommunications Properties") serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers in eight states. The purchase price
for the ALLTEL Telecommunications Properties (net of 3,600 Citizens
telephone access lines which have been valued at $10 million and are
to be transferred to ALLTEL in a tax free exchange) is $282
million. On June 30, 1995, 35,662 local telephone access lines in
Oregon and West Virginia were transferred to the Company. On
September 30, 1995, approximately 19,000 local telephone access lines
in Tennessee were transferred to the Company. The remaining local
telephone access lines and the cable television systems are expected
to be transferred to the Company by early 1996. The GTE Telephone
Properties and the ALLTEL Telecommunications Properties are
collectively referred to as the "Telecommunications Properties".
(2) Through June 30, 1995, the purchase price for the Telecommunications
Properties had been permanently financed with approximately $357.6
million of cash and investments, $279.8 million of equity securities
issued through an underwritten public offering, the Company's Direct
Stock Purchase and Sale Plan and employee benefit plans and $402
million of debt securities. The remainder of the purchase price of
the Telecommunications Properties transferred as of June 30, 1995 has
been temporarily financed with commercial paper, $160.6 million of
which is classified as Short-Term Debt (to be repaid from cash and
investments and the issuance of equity securities) and $11 million of
which is classified as Long-Term Debt (to be refinanced with
Long-Term Debt). The Company has an additional $68 million in
commercial paper outstanding as of June 30, 1995 classified as
Long-Term Debt pending the issuance of Long-Term Debt securities.
When added to the $357.6 million of cash and investments used,
$279.8 million of equity securities issued and the $402 million of
debt securities which have been issued or assumed to permanently
finance the acquisitions of the Telecommunications Properties, these
adjustments reflect the anticipated permanent financing of the $1.381
billion purchase price (net of the property valued at $10 million to
be transferred to ALLTEL) for the Telecommunications Properties with
approximately equal components of cash and investments, long-term
debt securities and equity securities. These adjustments also
reflect the use of a portion of the proceeds from the sale of the
Offered Debentures to repay all commercial paper classified as
Long-Term Debt, refund Long-Term Debt Due Within One Year and
provide cash for other general corporate purposes. The Company may
issue tax-advantaged preferred securities to satisfy its remaining
permanent equity acquisition financing requirements. The issuance of
such equity securities would change the presentation of the Pro Forma
Shareholders' Equity on the Pro Forma Condensed Balance Sheet.
(3) Reflects the use of permanent financing proceeds to pay the purchase
price of the Telecommunications Properties to be transferred to
Citizens after June 30, 1995, (net of the property valued at $10
million to be transferred to ALLTEL) and to repay all Short-Term
Debt.
Page S-8
PRO FORMA FINANCIAL STATEMENTS (continued)
(These Pro Forma Financial Statements update and supersede
the Pro Forma Financial Statements in the Prospectus.)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Statement of Income
(In thousands, except per share amounts)
The following Pro Forma Condensed Statement of Income for the twelve
months ended June 30, 1995 combines the historical statements of income of
Citizens and the Telecommunications Properties as if the acquisitions and
the permanent financings had been closed July 1, 1994. The Pro Forma
Condensed Statement of Income should be read in conjunction with the
historical financial statements and related notes thereto of Citizens and
those of the Telecommunications Properties that have been audited and
which are incorporated by reference herein. The Pro Forma Condensed
Statement of Income is not necessarily indicative of what the actual
financial results would have been for the period had the transactions
occurred at the date indicated and does not purport to indicate the
financial results of future periods.
Twelve Months Ended June 30, 1995
-------------------------------------------------------
Pro Forma
-------------------------
Citizens Acquisitions*(1) Adjustments Combined
-------- ------------ ----------- ----------
Revenues $1,019,795 $ 135,222 $1,155,017
Expenses:
Operating Expenses 633,539 57,470 691,009
Depreciation and
Amortization 142,653 28,645 $ 1,800 (3) 173,098
---------- --------- ------- ----------
Total Operating
Expenses 776,192 86,115 1,800 864,107
Income from
Operations 243,603 49,107 (1,800) 290,910
Other Income, Net 57,358 1,007 (10,500)(4) 47,865
Interest Expense 88,485 5,715 (12,400)(5) 81,800
---------- --------- ------- ----------
Income Before
Income Taxes 212,476 44,399 100 256,975
Income Taxes 62,308 14,827 5,300 (6) 82,435
---------- --------- ------- ----------
Net Income $ 150,168 $ 29,572 $(5,200) $ 174,540
========== ========= ======= ==========
Earnings Per Share
of Common Stock:
Series A and
Series B** $ .74 (8) $.76 (7)(8)
Weighted Average
Common Shares** 203,155 229,593 (7)
* Represents the financial results from July 1, 1994 to the dates of
acquisition for all the Telecommunications Properties acquired from
July 1, 1994 through June 30, 1995, and the financial results for the
entire twelve month period for the yet to be acquired ALLTEL
Telecommunications Properties (as of June 30, 1995) net of the
financial results for the property to be transferred to ALLTEL.
Financial results for the Telecommunications Properties acquired from
their dates of acquisition through June 30, 1995 are included in
Citizens' twelve months ended June 30, 1995 financial results.
** No adjustment has been made for the 1.6% 1995 third quarter stock
dividend as this adjustment is immaterial.
_____________
See Notes to Pro Forma Condensed Statements of Income on page S-11.
Page S-9
PRO FORMA FINANCIAL STATEMENTS (continued)
(These Pro Forma Financial Statements update and supersede
the Pro Forma Financial Statements in the Prospectus.)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Statement of Income
(In thousands, except per share amounts)
The following Pro Forma Condensed Statement of Income for the year
ended December 31, 1994 combines the historical statements of income of
Citizens and the Telecommunications Properties as if the acquisitions and
the permanent financings had been closed January 1, 1994. The Pro Forma
Condensed Statement of Income should be read in conjunction with the
historical financial statements and related notes thereto of Citizens and
those of the Telecommunications Properties that have been audited and
which are incorporated by reference herein. The Pro Forma Condensed
Statement of Income is not necessarily indicative of what the actual
financial results would have been for the period had the transactions
occurred at the date indicated and does not purport to indicate the
financial results of future periods.
Year Ended December 31, 1994
-------------------------------------------------------
Pro Forma
-------------------------
Citizens Acquisitions*(1) Adjustments Combined
-------- ------------ ----------- ----------
Revenues $ 910,369 $ 254,815 $1,165,184
Expenses:
Operating Expenses 567,070 123,170 $(8,600)(2) 681,640
Depreciation and
Amortization 115,175 49,095 4,200 (3) 168,470
---------- --------- ------- ----------
Total Operating
Expenses 682,245 172,265 (4,400) 850,110
Income from
Operations 228,124 82,550 4,400 315,074
Other Income, Net 52,940 847 (17,300)(4) 36,487
Interest Expense 72,744 13,172 (10,300)(5) 75,616
---------- --------- ------- ----------
Income Before
Income Taxes 208,320 70,225 (2,600) 275,945
Income Taxes 64,323 24,137 7,100 (6) 95,560
---------- --------- ------- ----------
Net Income $ 143,997 $ 46,088 $(9,700) $ 180,385
========== ========= ======= ==========
Earnings Per Share
of Common Stock:
Series A and
Series B** $ .74 $ .79 (7)
Weighted Average
Common Shares** 194,638 229,702 (7)
* Represents the financial results from January 1, 1994 to the dates of
acquisition for all the Telecommunications Properties acquired from
January 1, 1994 through December 31, 1994, and the financial results
for the entire twelve month period for the yet to be acquired ALLTEL
Telecommunications Properties (as of December 31, 1994) net of the
financial results for the property to be transferred to ALLTEL.
Financial results for the Telecommunications Properties acquired from
their dates of acquisition through December 31, 1994 are included in
Citizens' twelve months ended December 31, 1994 financial results.
** Restated through the second quarter 1995 stock dividend. No adjustment
has been made for the 1.6% 1995 third quarter stock dividend as this
adjustment is immaterial.
_____________
See Notes to Pro Forma Condensed Statements of Income on page S-11.
Page S-10
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Statements of Income
(1) In May 1993, Citizens and GTE Corp. ("GTE") signed definitive
agreements pursuant to which Citizens agreed to acquire from GTE, for
approximately $1.1 billion in cash, certain GTE telephone properties
(the "GTE Telephone Properties") serving approximately 500,000 local
telephone access lines in eight states. On December 31, 1993, 189,123
local telephone access lines in Idaho, Tennessee, Utah and West
Virginia were transferred to the Company. On June 30, 1994, 270,883
access lines in New York were transferred to the Company. On November
30, 1994, 37,802 access lines in Arizona and Montana were transferred
to the Company and on December 30, 1994, 5,440 local telephone access
lines in California were transferred to the Company.
In November 1994, Citizens and ALLTEL signed definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL telecommunications properties ("ALLTEL
Telecommunications Properties") serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers in eight states. The purchase price
for the ALLTEL Telecommunications Properties (net of 3,600 Citizens
telephone access lines which have been valued at $10 million and are
to be transferred to ALLTEL in a tax free exchange) is $282
million. On June 30, 1995, 35,662 local telephone access lines in
Oregon and West Virginia were transferred to the Company. On
September 30, 1995, approximately 19,000 local telephone access lines
in Tennessee were transferred to the Company. The remaining local
telephone access lines and the cable television systems are expected
to be transferred to the Company by early 1996. The GTE Telephone
Properties and the ALLTEL Telecommunications Properties are
collectively referred to as the "Telecommunications Properties".
(2) Elimination of certain corporate overhead expenses allocated to
certain of the Telecommunications Properties which will not have a
continuing impact on the combined entity.
(3) Represents amortization of $253 million of excess purchase price over
net book value of assets acquired or to be acquired. Pursuant to
Statement of Financial Accounting Standards No. 71, "Accounting for
the Effects of Certain Types of Regulation," the remaining $138
million of excess of purchase price over net book value of assets
acquired will be deferred. The Company intends to seek from the
public utilities commissions maximum recovery of the excess of
purchase price over net book value in future rate proceedings.
(4) Represents an adjustment to reflect the elimination from Other Income
of all tax-exempt investment income associated with the $458 million
of Company cash and investments which have been or are expected to be
used to partially finance the acquisition of the Telecommunications
Properties. The Company used $357.6 million of Company cash and
investments from December 31, 1993 through June 30, 1995 to
permanently finance the acquisitions of the Telecommunications
Properties.
(5) Represents an adjustment to reflect the inclusion in Interest Expense
of all the interest expense on $469 million of long-term debt
securities which have been or are expected to be issued or assumed to
partially finance the acquisition of the Telecommunications
Properties, net of the elimination of interest expense on the
temporary borrowings used to finance the acquisitions and on the debt
securities which are associated with the acquisitions of the
Telecommunications Properties and which were not or will not be
assumed by the Company. Through June 30, 1995, the purchase price for
the Telecommunications Properties had been permanently financed with
$402 million of long-term debt securities.
Page S-11
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Statements of Income
(6) Adjustment to Income Taxes based on Income Before Income Taxes and
the applicable incremental income tax rate.
(7) The Pro Forma Earnings Per Share calculation and Pro Forma Weighted
Average Common Shares are based on the weighted average number of
common shares outstanding for the periods indicated including the
number of additional shares issued or assumed to be issued to
permanently finance the Telecommunications Properties assuming such
additional shares were outstanding for the entire twelve month
periods. Through June 30, 1995, the Company financed $279.8 million
of the acquisition of the Telecommunications Properties from the
issuance of equity securities pursuant to the Company's Direct Stock
Purchase and Sale Plan, employee benefit plans and an underwritten
public offering. The Company may issue tax-advantaged preferred
securities to satisfy its remaining permanent equity acquisition
financing requirements. The issuance of such equity securities would
have the effect of reducing net income available to common
shareholders by an after-tax dividend requirement, decreasing Pro
Forma Weighted Average Common Shares and increasing Pro Forma
Earnings Per Share as compared to the presentation on the Pro Forma
Condensed Statements of Income.
(8) Reflects the discontinuance of subsidy contract revenues received
through the end of 1994 from Pacific Bell. For the twelve months
ended June 30, 1995 on both an Actual and Pro Forma basis this
discontinuance had the effect of reducing, by $19 million, income
before income taxes and related Earnings Per Share as compared to
prior periods.
Page S-12
UNDERWRITERS
Under the terms and subject to conditions set forth in the
Underwriting Agreement dated the date hereof, the Company has agreed to
sell to each of the Underwriters named below, severally, and each of the
Underwriters has severally agreed to purchase the principal amount of the
Offered Debentures set forth opposite its name below:
Principal
Amount of
Underwriters Debentures
------------ ----------
Morgan Stanley & Co. Incorporated $ 75,000,000
Lehman Brothers Inc. 75,000,000
------------
Total $150,000,000
============
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Offered Debentures are
subject to the approval of certain legal matters by counsel and to certain
other conditions. The nature of the Underwriters' obligations is such that
they are committed to take and pay for all of the Offered Debentures if
any are taken.
The Underwriters propose to offer part of the Offered Debentures
directly to the public at the public offering price set forth on the cover
page hereof and in part to selected dealers at a price which represents a
concession not in excess of .50% of the principal amount of the Offered
Debentures under the public offering price. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of .25% of the
principal amount of the Offered Debentures to certain other dealers. After
the initial offering of the Offered Debentures, the public offering price
and concessions may be changed.
The Company does not intend to apply for listing of the Offered
Debentures on a national securities exchange, but has been advised by the
Underwriters that they presently intend to make a market in the Offered
Debentures, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in the Offered
Debentures and any such market-making may be discontinued at any time at
the sole discretion of each of the Underwriters. Accordingly, no
assurance can be given as to the liquidity of the trading market for the
Offered Debentures.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1994, 1993 and 1992, and for each of the years then ended,
incorporated by reference in this Prospectus Supplement from the Company's
Annual Report on Form 10-K, have been so incorporated by reference in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon authority
of said firm as experts in accounting and auditing.
Page S-13