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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
Commission file number 0-1291
------
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 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 October 31, 1994
Common Stock Series A 132,891,159
Common Stock Series B 57,347,198
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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INDEX
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Page No.
________
Part I. Financial Information
Consolidated Condensed Balance Sheets September 30, 1994 and
December 31, 1993 2
Consolidated Condensed Statements of Income for the Three
Months Ended September 30, 1994 and 1993 3
Consolidated Condensed Statements of Income for the Nine
months Ended September 30, 1994 and 1993 4
Consolidated Condensed Statements of Cash Flows for the
Nine months Ended September 30, 1994 and 1993 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
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 December
30, 1994 31, 1993
--------- ---------
ASSETS
------
Current assets:
Cash and cash equivalents $ 18,139 $ 21,738
Temporary investments 77,449 89,752
Accounts receivable 149,015 114,313
Other 31,897 14,934
----------- -----------
276,500 240,737
----------- -----------
Property, plant and equipment 3,229,253 2,153,891
Less accumulated depreciation 911,776 461,924
----------- ----------
2,317,477 1,691,967
----------- ----------
Investments 382,766 411,022
Regulatory assets 149,559 146,207
Deferred debits and other assets 227,066 137,185
---------- ----------
$3,353,368 $ 2,627,118
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Long-term debt due within one year $ 10,728 $ 1,620
Short-term debt 652,270 380,000
Other 261,948 246,605
---------- ----------
924,946 628,225
Customer advances for construction and
contributions in aid of construction 206,863 184,253
Deferred income taxes 247,294 213,471
Regulatory liabilities 26,931 28,376
Deferred credits and other liabilities 92,911 50,634
Long-term debt 740,980 547,673
---------- ----------
2,239,925 1,652,632
---------- ----------
Shareholders' equity:
Common stock issued, $.25 par value
Series A 33,220 32,447
Series B 14,309 13,119
Additional paid-in capital 818,758 698,688
Retained earnings 234,704 230,232
Unrealized gain on securities
classified as available for sale 12,452 -
---------- ----------
1,113,443 974,486
---------- ----------
$3,353,368 $2,627,118
========== ==========
The accompanying Notes are an integral part of these Financial Statements.
-2-<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
------------------------------------------------------
(In thousands, except per-share amounts)
1994 1993
---- ----
Revenues $242,308 $145,315
Expenses:
Operating expenses 146,183 90,234
Depreciation 33,640 13,106
-------- --------
179,823 103,340
-------- --------
Income from operations 62,485 41,975
Other income, net 14,531 14,476
Interest expense 20,613 9,107
------- --------
Income before income taxes 56,403 47,344
Income taxes 17,716 13,075
-------- --------
Net income $ 38,687 $ 34,269
-------- --------
Earnings per share of common stock:
Series A $.21 $.18
==== ====
Series B $.21 $.18
==== ====
Number of common shares outstanding at September 30:
Series A Common Stock 132,880 129,829
Series B Common Stock 57,236 49,703
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 1.3% 1.1%
==== ====
The accompanying Notes are an integral part of these Financial Statements.
-3-<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
------------------------------------------
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
-----------------------------------------------------
(In thousands, except per-share amounts)
1994 1993
---- ----
Revenues $654,878 $457,400
Expenses:
Operating expenses 403,181 290,005
Depreciation 83,659 41,386
-------- ---------
486,840 331,391
-------- ---------
Income from operations 168,038 126,009
Other income, net 37,892 36,346
Interest expense 48,575 28,702
-------- --------
Income before income taxes 157,355 133,653
Income taxes 48,997 36,463
-------- ---------
Net income $108,358 $ 97,190
======== =========
Earnings per share of common stock:
Series A $.58 $.52
==== ====
Series B $.58 $.52
==== ====
Number of common shares outstanding at September 30:
Series A Common Stock 132,880 129,829
Series B Common Stock 57,236 49,703
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 3.59% 3.34%
===== =====
The accompanying Notes are an integral part of these Financial Statements.
-4-<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
-----------------------------------------------------
(In thousands)
1994 1993
---- ----
Net cash provided by operating activities $133,885 $130,167
-------- --------
Cash flows from investing activities:
Construction expenditures (143,265) (84,774)
Securities purchases (39,194) (269,662)
Securities sales 39,577 178,218
Securities maturities 65,842 55,468
Business acquisitions (527,866) --
Other, net 30,946 (2,375)
-------- --------
(635,852) (123,125)
-------- --------
Cash flows from financing activities:
Long-term debt borrowings 227,776 33,289
Long-term debt principal payments (13,177) (26,440)
Short-term debt borrowings 272,270 --
Other, net 11,499 8,112
-------- --------
498,368 14,961
-------- --------
Increase (decrease) in cash and cash
equivalents (3,599) 22,003
Cash and cash equivalents at January 1, 21,738 19,752
-------- --------
Cash and cash equivalents at September 30, $18,139 $41,755
======== =========
The accompanying Notes are an integral part of these Financial Statements.
-5-<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
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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 intervening stock dividends and stock splits. Earnings per share
is presented for each Series separately, with historical adjustment for stock
dividends and stock splits for each Series. The effect on earnings per share
of outstanding stock options is immaterial.
(3) In accordance with applicable regulatory systems of account, an
allowance for funds used during construction is included in the cost of
additions to property, plant and equipment and is allowed in rate base for
rate making purposes. The allowance is not a cash item. The amount relating
to equity is included in Other income, net and the amount relating to
borrowings is offset against Interest expense.
(4) On December 22, 1993, Natural Gas Company of Louisiana ("NGL") was
merged into the company in a transaction accounted for as a pooling of
interests. The company's income statements and statement of cash flows at
September 30, 1993 have been restated to include the results of NGL's
operations for the three and nine months ended September 30, 1993. On August
31, 1994, Metro Utility Company ("Metro") was merged into the company. The
transaction was also accounted for as a pooling of interests. The results of
Metro for the three and nine months ended September 30, 1994 have been
included in the consolidated financial statements of the company. However,
prior year financial statements have not been restated because the amounts
are not significant.
The following pro forma financial information for the nine months ended
September 30, 1994 and 1993, presents the combined results of operations of
the Company and the New York GTE Telephone property acquired on June 30, 1994
and the Idaho, Tennessee, Utah, and West Virginia properties acquired on
December 31, 1993 as if the acquisitions had occurred at the beginning of the
respective periods. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the Company
and the GTE Telephone properties constituted a single entity during such
periods.
September 30, 1994 September 30, 1993
------------------ ------------------
Revenues $ 749,656,000 $ 720,846,000
Net Income $ 120,622,000 $ 112,715,000
Earnings Per Share $ .58 $ .53
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PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
(5) Effective January 1, 1994, the company adopted Statements of Financial
Accounting Standards ("SFAS") No. 112 "Employers' Accounting for
Postretirement Benefits" and SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". The company applied the provisions of these
accounting standards prospectively.
SFAS No. 112 requires the accrual of the expected costs of providing
benefits, if any, to former or inactive employees after termination of
employment for reasons other than retirement. Adoption of SFAS No. 112 did
not have a material effect on the Consolidated Financial Statements.
Adoption of SFAS No. 115 requires fair value reporting for certain
investments in debt and equity securities. Pursuant to the provisions of SFAS
115, the company classified its Temporary investments and Investments into
two categories, "held-to-maturity" ($389,539,000 at September 30, 1994) and
"available-for-sale" ($51,193,000 at September 30, 1994). The company
recorded unrealized holding gains on securities classified as available-for-
sale as an increase to investments.
Available for Sale Held to Maturity
------------------ ----------------
Aggregate fair value $ 70,676,000 $467,327,000
Gross unrealized holding gains 19,483,000 77,788,000
Amortized cost basis 51,193,000 389,539,000
Held to Maturity Securities
---------------------------
Contractual Maturities Fair Value Amortized Cost
- ---------------------- ---------- --------------
Within 1 year $121,312,000 $120,860,000
2-5 years 170,330,000 170,131,000
6-10 years 18,112,000 17,647,000
Thereafter 157,573,000 80,901,000
There were no sales of securities classified as held-to-maturity. The
change in the net unrealized gains on available-for-sale securities that was
included in a separate component of shareholders' equity was $12,452,000. The
company does not invest in securities classified as trading securities. The
amortized cost and realized gains and losses on available-for-sale securities
sold during the nine months ended September 30, 1994 were $39,577,000,
$251,000 and ($21,000), respectively.
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PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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(a) Liquidity and Capital Resources
-------------------------------
For the nine months ended September 30, 1994, the primary source of funds
was from operations. Funds requisitioned from the 1993, 1992, and 1991 Series
Industrial Development Bond construction fund trust accounts were used to pay
for construction of utility plant. Commercial paper notes payable in the
amount of $699,000,000 were outstanding at September 30, 1994, of which
$652,270,000 is classified as short-term debt as it represents the balance
of the amount that was issued to temporarily and partially fund the GTE
Telephone Properties acquired on December 31, 1993 and June 30, 1994. The
$652,270,000 of commercial paper is expected to be repaid from maturing
temporary investments, funds from operations and proceeds from the planned
issuance of securities.
On April 20, 1994, the company issued $175,000,000 of debentures at par
with an interest rate of 7.6% and a maturity date of June 1, 2006. On October
6, 1994, the company issued $100,000,000 of debentures at par with an
interest rate of 7.68% and a maturity date of October 1, 2034. The proceeds
from the sale of the debentures were used to permanently fund the GTE
Telephone Properties acquired on December 31, 1993 and June 30, 1994 and to
repay commercial paper notes outstanding at September 30, 1994. On June 16,
1994 and on September 9,1994, Citizens Utilities Rural Telephone Company, Inc.,
a subsidiary of the company, under the Rural Telephone Bank Loan Contract,
was advanced $2,394,000 and $3,848,000 respectively. These funds bear an
interest rate of 5.31% and 5.3% respectively and have an ultimate maturity
date of December 31, 2027. On September 28, 1994, the company arranged the
company arranged for the composite issuance of $14,640,000 of 1994 Series
Industrial Development Revenue Bonds; the bonds were issued as demand purchase
bonds with an interest rate of 6.6% and a maturity date of May 1, 2029.
On August 16, 1994, the company filed a shelf-registration statement with
the Securities and Exchange Commission to offer up to 1,600,000 shares of
Common Stock Series A and Common Stock Series B of which 491,594 were issued
to partially fund the acquisition of RHC, Inc. (Metro) on August 31, 1994
and to register restricted shares previously issued for the 1993
acquisitions of Natural Gas Company of Louisiana and Franklin Electric Light
Company, Incorporated and for other corporate purposes.
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 a decrease in its working
capital at September 30, 1994. The decrease is primarily due to the issuance
of short-term debt used to partially fund the acquisition of the GTE
Telephone Properties on December 31, 1993 and June 30, 1994. The company has
lines of credit with commercial banks under which it may borrow up to
$1,200,000,000. There were no amounts outstanding under these lines at
September 30, 1994.
During the nine months ended September 30, 1994, the company was authorized
net increases in annual revenues for properties in Arizona, California,
Pennsylvania and Vermont totaling $6,396,000. The company has requests for
increases pending before regulatory commissions in Arizona, California,
Hawaii and Ohio. On September 22, 1994, the company received approval from
the Montana Public Service Commission to purchase 7,000 telephone access
lines in Montana from GTE Corp.
On September 30, 1994, through a joint venture with Century Communications
Corporation, the company acquired cable television system servicing
approximately 24,000 subscribers in Southern California.
-8-<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
-------------------------------------------
(b) Results of Operations
---------------------
Operating revenues increased to $242,308,000 for the three month period
ended September 30, 1994, a 67% increase compared to the same period last
year primarily due to increased telecommunications revenues.
Telecommunications revenues for the third quarter of 1994 totaled $138,254,000
almost tripling the $46,259,000 earned in the 1993 third quarter. Operating
revenues for the nine month period ended September 30, 1994 increased to
$654,878,000, a 43% increase compared to the same period in 1993
primarily due to increased telecommunications and natural gas revenues.
Telecommunications revenues for the nine months totaled $311,739,000,
compared with the 1993 amount of $134,950,000. The increases in
telecommunications revenues for both the quarter and nine months ended
September 30, 1994 were primarily due to revenues derived from operating
the GTE Telephone Properties acquired on December 31, 1993 and June 30, 1994.
Natural gas revenues for the nine months totaled $157,078,000, a 7% increase
over the 1993 amount of $146,888,000. The increase was primarily due to
$7,154,000 from increased average revenue per MCF of gas sold to residential
and commercial customers and $1,266,000 from increased consumption as a result
of colder weather conditions.
Operating expenses for the three months ended September 30, 1994
were $179,822,000 a $76,481,000 increase compared to the like 1993 period
primarily due to increased telecommunications operating expenses. Operating
expenses for the nine months ended September 30, 1994 increased from
the like 1993 period primarily due to increased natural gas purchased and
telecommunications operating expenses. Natural gas purchased totaled
$88,076,000, a 14% increase over the 1993 amount of $77,584,000 primarily due
to higher supplier prices and increased volume to satisfy increased
customer consumption. Depreciation expense for the three and nine months ended
September 30, 1994 increased $20,533,000 and $42,272,000, respectively,
compared to the like 1993 periods primarily due to operation of the GTE
Telephone Properties acquired on December 31, 1993 and June 30, 1994.
Other income, net for the three and nine months ended September 30, 1994,
increased compared to the like 1993 periods primarily due to increases in
the allowance for funds used during construction as a result of increased
construction of utility property, plant and equipment. The increase is
partially offset by lower investment income as a result of the liquidation
of investment balances to fund the purchase of the local telephone access
lines acquired on December 31, 1993 and June 30, 1994.
Interest expense for the three and nine months ended September 30, 1994
increased $11,507,000 and $19,874,000 respectively compared with the
like 1993 periods primarily as a result of the issuance of debt securities,
the proceeds of which were used to partially finance the acquisition of the
GTE Properites and an increase in industrial development revenue bond
borrowings. The increase in interest expense is partially offset by
increased allowance for funds used during construction related to
borrowings. Income taxes for the three and nine months ended September 30,
1994 increased $4,641,000 and $12,535,000 respectively compared to the
like 1993 periods primarily due to increased taxable income which can be
attributed mostly to the GTE Telephone Properties acquired on December 31,
1993 and June 30, 1994.
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PART II. OTHER INFORMATION
---------------------------
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
-------------------------------------------
Item 1. Legal Proceedings
-----------------
Reference is made to information describing certain legal matters under
Item 3 "Legal Proceedings" in the company's Form 10-K for the year ended
December 31, 1993.
In May, 1994, the Delaware Court of Chancery granted the defendants' motion
for a stay of proceedings in the Thorpe and Biggs action referred to in the
third paragraph of Legal Proceedings in the company's 1993 Annual Report,
Form 10-K, pending resolution of the settlement proceedings referred to in
the fourth paragraph of Legal Proceedings in the company's 1993 Annual
Report, Form 10-K. Discovery to confirm the reasonableness of the settlement
terms reflected in the Memorandum of Understanding has been substantially
completed.
In September 1992, the United States Environmental Protection Agency filed
a complaint with the United States District Court for the Northern District
of Illinois relating to alleged violations by the company's Illinois
subsidiary with respect to National Pollutant Discharge Elimination System
permit requirements. The parties have settled this matter.
In October 1994, the company and eight other companies were served with a
Summons and Complaint by the Town of Wallkill, 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 an Asset Purchase
Agreement dated May 18, 1993. GTE Corp. has assumed the company's defense in
this action.
Item 6. Reports on Form 8-K
-------------------
(b) The Company filed on Form 8-K dated July 5, 1994, under Item 5 "Other
Events" and Item 7 "Financial Statements and Exhibits", the audited financial
statements for Contel of New York for each of the two years ended December
31, 1993.
The Company filed on Form 8-K dated July 5, 1994, under Item 5 "Other
Events", a Third Supplemental Indenture, supplemental to the Indenture dated
as of August 15, 1991 between the Company and Chemical Bank (Trustee).
The Company filed on Form 8-K dated July 15, 1994, under Item 2
"Acquisition of Assets", Item 5 "Other Events", and Item 7 "Financial
Statements and Exhibits", a press release announcing the transfer of the GTE
Telephone Property in New York State to the Company.
The Company filed on Form 8-K dated August 9, 1994, under Item 5 "Other
Events" and Item 7 "Financial Statements and Exhibits", the financial
statements for Contel of New York for the quarterly period ended March 31,
1994, Pro Forma financial statements as of and for the twelve month period
ended March 31, 1994 combining the company and certain of the GTE Telephone
Properties; and a press release announcing second quarter earnings for the
company.
-10-<PAGE>
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 14, 1994 By:/s/ Livingston E. Ross
------------------------ -------------------------
Vice President and Controller
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