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, 1996
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 September 30, 1996
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Commission file number 001-11001
CITIZENS UTILITIES
COMPANY
(Exact name of registrant as specified in its charter)
Delaware 06-0619596
(State or other jurisdiction (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 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.
Common Stock Series A 155,098,414
Common Stock Series B 80,807,275
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets
September 30, 1996 and December 31, 1995 2
Consolidated Condensed Statements of Income
for the Three Months Ended September 30, 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 Nine Months Ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. Other Information 10
Signature 11
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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
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Total current assets 325,470 252,702
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Property, plant and equipment 4,463,831 4,187,354
Less accumulated depreciation 1,428,694 1,279,324
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Net property, plant and equipment 3,035,137 2,908,030
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Investments 432,232 329,090
Regulatory assets 180,768 180,572
Deferred debits and other assets 271,054 247,793
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Total assets $ 4,244,661 $ 3,918,187
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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
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Total current liabilities 302,842 503,678
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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
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Total liabilities 2,400,198 2,358,274
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Company Obligated Mandatorily Redeemable
Convertible Preferred Securities * 201,250 -
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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
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Total shareholders' equity 1,643,213 1,559,913
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Total liabilities and equity $ 4,244,661 $ 3,918,187
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* 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.
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PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands, except per-share amounts)
1996 1995
-------------- ---------------
Revenue $ 319,959 $ 259,732
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Expenses:
Operating expenses 199,491 147,155
Depreciation 46,246 39,637
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245,737 186,792
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Income from operations 74,222 72,940
Other income, net 17,420 14,320
Interest expense 22,366 21,037
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Income before income taxes and dividends on
Convertible preferred securities 69,276 66,223
Income taxes 21,680 21,162
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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
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Earnings per share of common stock
Series A and Series B $ .20 $ .19*
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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%
============== ===============
*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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands, except per-share amounts)
1996 1995
-------------- ----------------
Revenues $ 967,224 $ 778,444
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Expenses:
Operating expenses 607,454 467,337
Depreciation 140,475 117,134
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747,929 584,471
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Income from operations 219,295 193,973
Other income, net 46,243 42,099
Interest expense 67,012 64,741
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Income before income taxes and dividends on
Convertible preferred securities 198,526 171,331
Income taxes 63,191 50,428
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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
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Earnings per share of common stock
Series A and Series B $ .57 $ .52*
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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 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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands)
1996 1995
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Net cash provided by operating activities $ 210,967 $ 193,571
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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)
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(435,863) (140,143)
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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)
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223,406 (49,779)
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Increase (decrease) in cash (1,490) 3,649
Cash at January 1, 17,922 14,224
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Cash at September 30, $ 16,432 $ 17,873
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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.
(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 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) 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.
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PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(a) Liquidity and Capital Resources
For the nine months ended September 30, 1996, the Company used proceeds
from operations and net financings to fund acquisitions and construction.
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, a subsidiary of the Company issued 4,025,000 shares of
5% Company Obligated Mandatorily Redeemable Convertible Preferred
Securities (also known as Equity Providing Preferred Income Convertible
Securities or "EPPICS") having a liquidation preference of $50 per security
and a maturity date of January 15, 2036. Each security is currently
convertible into 3.411 shares of the Company's Common Stock Series A at 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% 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.
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, 1996 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. 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
September 30, 1996.
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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. The Company has requests for
increases in annual revenues pending before regulatory commissions in Arizona
and California.
(b) Results of Operations
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% 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, revenues from long distance service
and acquisitions.
Natural gas revenues for the 1996 third quarter totaled $34,426,000, a 10%
increase over the $31,351,000 for the third quarter of 1995. Natural gas
revenues for the nine months ended September 30, 1996 totaled $166,484,000, an
18% increase over the 1995 amount of $141,129,000. For both the quarter and the
nine months ended September 30, 1996, the increase in revenues was primarily the
result of a rate increase in Louisiana which took effect on May 1, 1996. In
addition to the rate increase, there was also increased consumption by
residential customers in Louisiana due to colder than normal 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.
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PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Other income, net for the three and nine month periods ended September
30, 1996 increased by 22% and 10%, respectively, over the corresponding 1995
periods 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, 1996
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%
compared to the like 1995 period due to an increase in taxable income.
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PART II. OTHER INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 1. Legal Proceedings
In September 1992, the EPA filed a complaint with the United States
District Court for the Northern District of Illinois relating to
alleged violations by the Company's Illinois subsidiary with respect to
National Pollutant Discharge Elimination System permit requirements.
The Company settled this action on March 21, 1995, and paid a $490,000
fine. Under the settlement, the Company also agreed to construct plant
improvements, with an estimated cost of $2,200,000, which would be
required in order to comply with new discharge limits provided for by
the settlement. Shortly after the action was settled, the Company
entered into a tentative agreement with the Village of Bolingbrook to
transfer flow from the Company's to the Village's nearby facilities for
treatment 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 cost of the above discussed improvements will be recovered through
customer rates.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
Exhibit 10.16.1 Employment Agreement between
Citizens Utilities Company and Leonard Tow.
(b) No Form 8-K was required during the three months ended
September 30, 1996.
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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 November 12, 1996 By:/s/Livingston E. Ross
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Livingston E. Ross
Vice President and Controller
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