CITIZENS UTILITIES COMPANY
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 Commission file number 001-11001
CITIZENS UTILITIES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 06-0619596
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 329-8800
NONE
Former 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 April 28, 1995.
Common Stock Series A 153,989,881
Common Stock Series B 62,999,971
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets March 31, 1995 and
December 31, 1994 2
Consolidated Condensed Statements of Income for the Three
Months Ended March 31, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows for the Three
Months Ended March 31, 1995 and 1994 4
Notes to Financial Statements 5
Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Part II. Other Information 7
Signature 10
-1-<PAGE>
PART I. FINANCIAL INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March December
31, 1995 31, 1994
ASSETS
Current assets:
Cash and cash equivalents $ 19,481 $ 14,224
Temporary investments 25,910 108,818
Accounts receivable 155,886 166,795
Other 31,054 24,217
------------ ----------
232,331 314,054
Property, plant and equipment 3,632,207 3,583,723
Less accumulated depreciation 1,055,467 1,014,068
------------ ----------
2,576,740 2,569,655
------------ ----------
Investments 329,301 325,011
Regulatory assets 178,009 177,414
Deferred debits and other assets 185,515 190,432
------------ ----------
$ 3,501,896 $ 3,576,566
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year $ 5,564 $ 13,986
Short-term debt 164,300 515,200
Other 317,200 349,991
------------ -----------
487,064 879,177
Customer advances for construction and
contributions in aid of construction 219,594 216,730
Deferred income taxes 256,004 248,150
Regulatory liabilities 30,318 30,830
Deferred credits and other liabilities 55,325 50,594
Long-term debt 1,002,138 994,189
------------ -----------
2,050,443 2,419,670
------------ -----------
Shareholders' equity:
Common stock issued, $.25 par value
Series A 38,546 33,586
Series B 15,667 14,782
Additional paid-in capital 1,158,118 861,981
Retained earnings 229,152 237,417
Unrealized gain on securities
classified as available for sale 9,970 9,130
------------ -----------
1,451,453 1,156,896
------------ -----------
$ 3,501,896 $ 3,576,566
============ ===========
The accompanying Notes are an integral part of these Financial Statements.
-2-
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(In thousands, except per-share amounts)
1995 1994
Revenues $269,534 $223,896
Expenses:
Operating expenses 171,239 151,534
Depreciation 39,393 25,401
-------- --------
210,632 176,935
-------- --------
Income from operations 58,902 46,961
Other income, net 12,855 11,906
Interest expense 22,697 13,137
-------- --------
Income before income taxes 49,060 45,730
Income taxes 15,156 14,075
-------- --------
Net income $ 33,904 $ 31,655
======== ========
Earnings per share of common stock Series A
and Series B $.16 $.16*
==== ====
Number of common shares outstanding at March 31:
Series A Common Stock 154,188 137,744*
Series B Common Stock 62,658 57,133*
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 1.5% 1.1%
==== ====
*Adjusted for subsequent stock dividends
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 CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(In thousands)
1995 1994
Net cash provided by operating activities $58,722 $49,134
======= =======
Cash flows from investing activities:
Construction expenditures (45,441) (47,235)
Securities purchases - (4,706)
Securities sales 51,086 7,972
Securities maturities 34,423 12,340
Business Acquisitions (4,597) -
Customer Advances for construction an
contributions in aid of construction 1,918 (568)
Other, net 758 2,950
------- -------
38,147 (29,247)
Cash flows from financing activities:
Long-term debt borrowings 12,277 22,476
Long-term debt principal payments (12,247) (321)
Short-term debt payments (350,900) (38,730)
Issuance of common stock 258,823 -
Other 435 167
------- -------
(91,612) (16,408)
------- -------
Increase in cash and cash equivalents 5,257 3,479
Cash and cash equivalents at January 1, 14,224 21,738
------- -------
Cash and cash equivalents at March 31, $19,481 $25,217
======= =======
The accompanying Notes are an integral part of these Financial Statements.
-4-
<PAGE>
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 and stock splits. Earnings
per share is presented with historical adjustment for 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.
<TABLE>
<CAPTION>
Unrealized Aggregate Fair
Investment Classification Amortized Cost Holding Gains Value
As of March 31, 1995
<S> <C> <C> <C>
Held-To-Maturity $289,061,000 $79,353,000 $368,414,000
Available-For-Sale 50,574,000 15,576,000 66,150,000
As of December 31, 1994
Held-To-Maturity $368,302,000 $77,355,000 $445,657,000
Available-For-Sale 50,809,000 14,718,000 65,527,000
</TABLE>
<TABLE>
<CAPTION> Held-to-Maturity Securities
Amortized Cost Fair Value
Investment Maturities March 31, 1995 December 31, 1994 March 31, 1995 December 31, 1994
<S> <C> <C> <C> <C>
Within 1 year $79,297,000 $108,818,000 $ 79,521,000 $108,935,000
2-5 years 98,780,000 141,030,000 98,796,000 139,567,000
6-10 years 23,042,000 34,171,000 23,532,000 33,656,000
Thereafter 87,942,000 84,283,000 166,565,000 163,499,000
$289,061,000 $368,302,000 $368,414,000 $445,657,000
</TABLE>
The Company sold $48,406,000 of securities classified as held-to-maturity
during 1995 for the purpose of permanently financing the acquisition of the
GTE Telephone Properties; gains and losses of $358,000 and $295,000,
respectively, were realized on such sales. This decrease in securities is
presented in the attached Balance Sheet as a reduction to Temporary
Investments. The amortized cost and related gains on available-for-sale
securities sold during 1995 were $235,000 and $2,445,000, respectively.
-5-<PAGE>
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 three months ended March 31, 1995, the primary source of
funds was from operations. Funds requisitioned from the 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 mature on May 1, 2030. Commercial paper notes payable
in the amount of $349,800,000 were outstanding as of March 31, 1995, of
which $164,300,000 is classified as short-term debt as it represents the
balance of the amount that was issued to temporarily and partially fund the
acquired GTE Telephone Properties. The $164,300,000 of commercial paper
is expected to be repaid from maturing temporary investments, funds
from operations and proceeds from the issuance of securities. On January
30, 1995, the Company, pursuant to an underwritten public offering, issued
19,000,000 shares of its Common Stock Series A at an issuance price of $13 3/8
per share and realized $244,200,000 in net proceeds. These proceeds were
used to repay short-term debt. An additional 914,000 shares of Series A
and Series B were issued pursuant to shareholder and employee stock plans
in the first quarter of 1995. The Company realized $11,770,000 in
proceeds from these issuances. On March 31, 1995, $8,600,000 of 11%
Subordinated Investment Notes matured.
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 March 31, 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
$1,200,000,000, there were no amounts outstanding under these lines at March
31, 1995.
The Company has entered into certain agreements whereby it has the
right to acquire shares of, and to provide certain management services to,
Hungarian Telephone & Cable Corp., a Delaware corporation (NASDAQ: HTCC).
Such arrangements are conditioned upon, among other things, the parties
entering into definitive agreements.
The Company has requests for increases in annual revenues pending
before regulatory commissions in California, Illinois, Hawaii, Ohio and
Vermont.
(b) Results of Operations
Operating revenues for the three months ended March 31, 1995
increased $45,638,000 or 20% compared to the like 1994 period primarily due
to increased telecommunications revenues. Telecommunications revenues totaled
$142,949,000, a 69% increase over the 1994 amount of $84,731,000 primarily due
to revenues derived from operating the GTE Telephone Properties acquired on
June 30, November 30 and December 30, 1994; partially offset by a $9,944,000
decrease in revenues of the Company's California Telephone Operations due to
the expiration of the Pacific Bell contract on December 31, 1994. Natural
gas revenues decreased 16% primarily due to $6,100,000 of decreased average
revenue per MCF of gas sold to residential and commercial customers and
$5,510,000 of decreased consumption as a result of mild weather conditions in
the first quarter of 1995.
Operating expenses of $171,239,000 for the three months ended March
31, 1995 increased 13% over the 1994 amount of $151,534,000 primarily due to
increased telecommunications operating expenses. The increase in operating
expenses was partially offset by a 23% decrease in natural gas purchased due
to lower commodity prices and decreased customer consumption. Depreciation
expense of $39,393,000 for the three months ended March 31, 1995 increased
55% compared to the like 1994 period primarily due to increased depreciable
plant as a result of the acquisitions of the GTE Telephone Properties.
Other income, net for the three months ended March 31, 1995 increased
8% compared to the amount reported last year due to increases of $1,046,000
in the allowance for funds used during construction as a result of increased
property, plant and equipment. In addition, there was a net increase of
$1,244,000 in investment income primarily due to net gains on securities
sold, partially offset by a decrease in tax exempt income.
Interest expense for the three months ended March 31, 1995 increased
$9,560,000 or 73% over the 1994 amount of $13,137,000 primarily as a result
of debentures issued to finance the acquisition of the GTE Telephone
Properties acquired and an increase in Industrial Development Revenue Bond
borrowings. The increase in interest expense was partially offset by
increased allowance for funds used during construction, which is related to
borrowings, as a result of increased property plant and equipment. Income
taxes for the three months ended March 31, 1995 increased compared to the
like 1994 period primarily due to increased taxable income.
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PART II. OTHER INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 1. Legal Proceedings
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 Company settled this action on March 23,
1995. Under the settlement, the Company paid a fine of $501,000 and it will
also make certain plant improvements with an estimated cost of $2,200,000.
These improvements are presently under design. Construction is expected
to begin later in 1995 and be completed before the end of 1996. The
improvements are required in order to comply with new discharge limits
reached under the settlement. As a regulated entity, the Company is
entitled to earn a fair rate of return on these improvements that are
placed in service for the benefit of its customers. The Company believes that
the cost of these improvements will be recovered through customer rates.
On February 19, 1993, the Company was served with a summons and
complaint in an action brought by the Sun City Taxpayers' Association in the
United States District Court for the District of Connecticut. The plaintiff
alleged that the Company, through its Sun City Water Company and Sun City
Sewer Company subsidiaries, misrepresented rate-base investment in rate
applications submitted to the Arizona Corporation Commission ("ACC") between
1968 and 1978 and claimed damages of $65,000,000 before trebling. The
plaintiff made substantially the same allegations in a regulatory proceeding
before the ACC in 1986 and the ACC rejected those allegations. On February 1,
1994, the Company's motion to dismiss this action was granted and the complaint
was dismissed by an opinion and order of the District Court. On February 9,
1994, plaintiff filed a notice of appeal seeking review of the court's ruling
by the United States Court of Appeals for the Second Circuit. The Second
Circuit denied the appeal on January 23, 1995 and the Plaintiff filed a Writ
of Certiorari to the United States Supreme Court on February 14, 1995.
The Supreme Court denied Plaintiff's motion on April 17, 1995, thus
extinguishing all avenues of further appeal and bringing the case to a close.
In June 1993, several stockholders commenced purported derivative
actions in the Delaware Court of Chancery against the Company's Board of
Directors. These actions have since been consolidated (the "Consolidated
Action"). These stockholders allege that the compensation approved by the
Board of Directors for the Company's Chairman is excessive and seek, among
other things, an accounting for alleged corporate waste and a declaration
that the Chairman's employment agreement and existing stock options are
invalid. These stockholders further allege 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. In February 1994, a memorandum of understanding was executed among
counsel for the stockholders in the Consolidated Action and counsel for the
Company's Board of Directors. The memorandum of understanding contemplates
that the parties will attempt to agree upon and execute a stipulation of
settlement resolving all of the claims in the Consolidated Action.
Consummation of the proposed settlement will be subject to: (a) the
completion by plaintiffs of appropriate confirmatory discovery in the
Consolidated Action; (b) the drafting and execution of a stipulation of
settlement; (c) notice to all stockholders of the Company of the terms of
the proposed settlement; and (d) final approval of the stipulation of
settlement by the Delaware Court of Chancery and dismissal of the
Consolidated Action with prejudice. It is contemplated that the stipulation
of settlement will provide 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 Consolidated Action. The plaintiffs in the Consolidated
Action have completed their confirmatory discovery, and the terms of the
stipulation of settlement are being negotiated. Plaintiffs' counsel will seek
an award of attorneys' fees and expenses in connection with the settlement.
No understanding has been reached with respect to the amount of fees and
expenses to be sought, but the Company expects to recover substantially all
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.
-7-<PAGE>
PART II. OTHER INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Another action ("Thorpe") was filed in June 1993 in the Delaware
Court of Chancery. Like the plaintiffs in the Consolidated Action, plaintiffs
in Thorpe allege derivative claims challenging the Chairman's compensation as
excessive and 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 assert 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 seek, among other things, an accounting for alleged
corporate waste, a declaration that the Chairman'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 challenge the
Chairman's compensation, the grant of stock options to the Chairman and other
members of the Company's Board of Directors and the 1991 cellular subsidiary
merger and the service agreement between Century and Centennial. The Company's
Board of Directors has moved to dismiss the complaints in these derivative
actions for failure to state a claim and for failure to comply with the
demand requirements applicable to a derivative suit. The motions were
never decided. In May 1994, the Delaware Court of Chancery stayed proceedings
in the Thorpe and Biggs actions pending presentation of the proposed
stipulation of settlement of the Consolidated Action for approval by the
Court. In April 1995, the Delaware Court of Chancery vacated the stay of
proceedings in the Thorpe and Biggs actions, and in May 1995, plaintiffs in
these actions filed supplemental and amended complaints. In addition to the
claims previously asserted, the supplemental and amended complaints challenge
certain stock options granted to the Chairman in 1993 and certain of the
terms of the Chairman's employment agreement.
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
judgment. 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 Corporation of this action since any potential
liability for this matter has been retained by GTE Corporation pursuant to
the Asset Purchase Agreement dated May 18, 1993. GTE Corporation 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
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 6. Reports on Form 8-K
(b) The Company filed on Form 8-K dated January 3, 1995, under Item 5 "Other
Events", the Fourth Supplemental Indenture, supplemental to the Indenture
dated as of August 15, 1991 between Citizens Utilities Company and Chemical
Bank (Trustee).
The Company filed on Form 8-K dated February 8, 1995, under Item 5
"Other Events" and Item 7 "Financial Statements and Exhibits", notice of the
sale of shares to the underwriters identified in the Prospectus Supplement
dated January 23, 1995 to the Prospectus dated March 28, 1994.
-9-<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 June 20, 1995 By: /s/ Livingston E. Ross
Vice President and
Controller
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 19,481
<SECURITIES> 355,211
<RECEIVABLES> 155,886
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 232,331
<PP&E> 3,632,207
<DEPRECIATION> 1,055,467
<TOTAL-ASSETS> 3,501,896
<CURRENT-LIABILITIES> 487,064
<BONDS> 1,002,138
<COMMON> 54,213
0
0
<OTHER-SE> 1,397,240
<TOTAL-LIABILITY-AND-EQUITY> 3,501,896
<SALES> 269,534
<TOTAL-REVENUES> 269,534
<CGS> 0
<TOTAL-COSTS> 210,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,697
<INCOME-PRETAX> 49,060
<INCOME-TAX> 15,156
<INCOME-CONTINUING> 33,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,904
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
