CITIZENS UTILITIES COMPANY
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
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<PAGE>
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 Commission file number 001-11001
September 30, 1995 ---------
------------------
CITIZENS UTILITIES COMPANY
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(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
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NONE
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Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of November 1, 1995
Common Stock Series A 155,265,269
Common Stock Series B 69,995,444
<PAGE>
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, 1995 and
December 31, 1994 2
Consolidated Condensed Statements of Income for the Three
Months Ended September 30, 1995 and 1994 3
Consolidated Condensed Statements of Income for the Nine
Months Ended September 30, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and 1994 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information 9
Signature 10
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(In thousands)
September December
30, 1995 31, 1994
--------- --------
ASSETS
- ------
Current assets:
Cash $ 17,873 $ 14,224
Temporary investments 0 108,818
Accounts receivable 169,407 166,795
Other 37,467 24,217
---------- ----------
224,747 314,054
---------- ----------
Property, plant and equipment 3,907,854 3,583,723
Less accumulated depreciation 1,176,918 1,014,068
---------- ----------
2,730,936 2,569,655
---------- ----------
Investments 335,525 325,011
Regulatory assets 179,186 177,414
Deferred debits and other assets 196,534 190,432
---------- ----------
$3,666,928 $3,576,566
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Long-term debt due within one year $ 4,003 $ 13,986
Short-term debt 153,650 515,200
Other 268,456 322,634
---------- -----------
426,109 851,820
Customer advances for construction and
contributions in aid of construction 219,200 216,730
Deferred income taxes 273,137 248,150
Regulatory liabilities 29,294 30,830
Deferred credits and other liabilities 96,419 77,951
Long-term debt 1,071,943 994,189
---------- ----------
2,116,102 2,419,670
---------- ----------
Shareholders' equity:
Common stock issued, $.25 par value
Series A 38,946 33,586
Series B 17,369 14,782
Additional paid-in capital 1,246,327 861,981
Retained earnings 235,429 237,417
Unrealized gain on securities
classified as available for sale 12,755 9,130
---------- ----------
1,550,826 1,156,896
---------- ----------
$3,666,928 $3,576,566
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
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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(In thousands, except per-share amounts)
1995 1994
---- ----
Revenues $259,732 $241,005
Expenses:
Operating expenses 147,155 144,880
Depreciation 39,637 33,640
-------- --------
186,792 178,520
-------- --------
Income from operations 72,940 62,485
Other income, net 14,320 14,531
Interest expense 21,037 20,613
-------- --------
Income before income taxes 66,223 56,403
Income taxes 21,162 17,716
-------- --------
Net income $ 45,061 $ 38,687
======== ========
Earnings per share of common stock
Series A and Series B $.20 $.19
==== ====
Number of common shares outstanding at
September 30:
Series A Common Stock 155,781 141,034*
Series B Common Stock 69,476 60,762*
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% 1.3%
==== ====
* Adjusted for subsequent stock dividends.
The accompanying Notes are an integral part of these Financial Statements.
-3-<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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(In thousands, except per-share amounts)
1995 1994
---- ----
Revenues $778,444 $650,291
Expenses:
Operating expenses 467,337 398,594
Depreciation 117,134 83,659
-------- --------
584,471 482,253
-------- --------
Income from operations 193,973 168,038
Other income, net 42,099 37,892
Interest expense 64,741 48,575
-------- -------
Income before income taxes 171,331 157,355
Income taxes 50,428 48,997
-------- --------
Net income $120,903 $108,358
======== ========
Earnings per share of common stock
Series A and Series B $.56 $.55
==== ====
Number of common shares outstanding at
September 30:
Series A Common Stock 155,781 141,034 *
Series B Common Stock 69,476 60,762 *
Dividend rate (compounded) declared on
Common Stock:
Paid in Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock 4.67% 3.59%
===== =====
* Adjusted for subsequent stock dividends.
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
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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(In thousands)
1995 1994
---- ----
Net cash provided by operating activities $ 193,571 $ 164,729
--------- ---------
Cash flows from investing activities:
Construction expenditures (150,461) (143,265)
Securities purchases (31,689) (39,194)
Securities sales 88,341 39,577
Securities maturities 68,869 65,842
Business acquisitions (112,394) (558,710)
Other, net (2,809) (30,946)
-------- --------
(140,143) (666,696)
======== ========
Cash flows from financing activities:
Issuance of common stock 269,233 10,672
Long-term debt borrowings 171,793 227,776
Long-term debt principal payments (128,438) (13,177)
Short-term debt payments (361,550) 272,270
Other, net (817) 827
-------- --------
(49,779) 498,368
-------- --------
Increase (decrease) in cash and cash equivalents 3,649 (3,599)
Cash and cash equivalents at January 1, 14,224 21,738
-------- --------
Cash and cash equivalents at September 30, $17,873 $18,139
======== ========
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
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) The consolidated financial statements include the accounts of Citizens
Utilities Company and all subsidiaries after elimination of intercompany
balances and transactions. All adjustments, which consist of only normal
recurring accruals, necessary for a fair statement of the results for the
interim periods have been made. Certain reclassifications of balances
previously reported have been made to conform to current presentation.
(2) Earnings per share is based on the weighted average number of
outstanding shares, adjusted for subsequent stock dividends and stock splits.
The effect on earnings per share of outstanding stock options is immaterial.
(3) In accordance with applicable regulatory systems of account, an allowance
for funds used during construction is included in the cost of additions to
property, plant and equipment and is allowed in rate base for rate making
purposes. The allowance is not a cash item. The amount relating to equity is
included in Other income, net and the amount relating to borrowings is offset
against Interest expense.
(4) Pursuant to the provisions of SFAS 115, the Company classifies its
investments into two categories, "held-to-maturity" and "available-for-sale".
The Company records unrealized holding gains on securities classified as
available-for-sale as an increase to investments.
The following summarizes the cost, unrealized gains and fair market value
for investments.
Unrealized Aggregate Fair
Investment Classification Amortized Cost Holding Gains Value
- ------------------------- -------------- ------------- --------------
As of September 30, 1995
- ------------------------
Held-To-Maturity $268,073,000 $79,605,000 $347,678,000
Available-For-Sale 48,950,000 18,502,000 67,452,000
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>
<CAPTION>
Held-to-Maturity Securities
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Amortized Cost Fair Value
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<S> <C> <C> <C> <C>
Investment Maturities Sept. 30, 1995 December 31, 1994 Sept. 30, 1995 December 31, 1994
- --------------------- -------------- ----------------- -------------- -----------------
Within 1 year $71,862,000 $108,818,000 $72,168,000 $108,935,000
2-5 years 70,013,000 141,030,000 70,944,000 139,567,000
6-10 years 19,376,000 34,171,000 20,169,000 33,656,000
Thereafter 106,822,000 84,283,000 184,397,000 163,499,000
------------ ------------ ------------ ------------
$268,073,000 $368,302,000 $347,678,000 $445,657,000
============ ============ ============ ============
</TABLE>
The Company sold $66,685,000 of securities classified as held-to-maturity
during 1995 for the purpose of permanently financing the acquisition of
certain of the GTE and Alltel Telephone Properties; gains and losses of
$500,000 and $296,000, respectively, were realized on such sales. The
amortized cost and related gains on available-for-sale securities sold during
1995 were $8,969,000 and $12,687,000, 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, 1995, the primary source of funds was
from operations. Funds requisitioned from the 1995, 1994, 1993 and 1991 Series
Industrial Development Revenue Bond construction fund trust accounts were used
to pay for construction of utility plant. Commercial paper notes payable in
the amount of $230,300,000 were outstanding as of September 30, 1995, of which
$153,650,000 is classified as short-term debt as it represents the balance of
the amount that was issued to temporarily and partially fund the acquisition
of certain GTE and Alltel Telephone Properties and which the Company intends
to repay with proceeds from the issuance of equity securities and the
maturity of investments.
On May 3, 1995, the Company arranged for the issuance of $13,550,000 of
Industrial Development Revenue Bonds; the bonds were issued as demand purchase
bonds bearing interest at 6.2% and maturing on May 1, 2030. On May 12, 1995,
Citizens Utilities Rural Telephone Company, Inc., a subsidiary of the Company,
under it's Rural Telephone Bank Loan Contract, was advanced $8,793,000. These
funds bear an initial interest rate of 6.52% and have an ultimate maturity
date of December 31, 2027. On June 15, 1995 the Company issued $125,000,000
of debentures at a price of 99.918% with an interest rate of 7.45% and a
maturity date of July 1, 2035. On October 20, 1995, the Company issued
$150,000,000 of debentures at a price of 99.125% with an interest rate of 7%
and a maturity date of November 1, 2025. The proceeds from the sale of the
debentures were and will be used to repay commercial paper classified as
long-term debt, 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.
On April 28, 1995, 31,900 shares of Series B Common Stock were issued to
effect the merger of Douglasville Water Company into a subsidiary of the
Company. On July 17, 1995, Flex Communications was merged into the Company
requiring the issuance of 855,953 shares of Citizens Series B Common Stock.
On June 30, 1995, the Company acquired approximately 35,662 telephone access
lines in West Virginia and Oregon from ALLTEL Corporation ("ALLTEL"). On
October 2, 1995, the Company acquired approximately 19,000 telephone access
lines in Tennessee from ALLTEL. On October 31, 1995, the Company acquired
approximately 18,000 telephone access lines in Arizona, Utah and New Mexico
and approximately 7,000 cable television lines in Arizona, New Mexico and
California from ALLTEL.
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, 1995 as compared to December 31, 1994. The increase is primarily
due to the repayment of commercial paper. 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, 1995.
Electric Lightwave, Inc., a subsidiary of the Company, has entered into an
arrangement to lease $28.9 million of metropolitan area fiber optic cable
systems through April 30, 2002.
On May 31, 1995, the Company acquired 300,000 common shares or 10% of Hungarian
Telephone and Cable Corp. ("HTCC"), a Delaware Corporation, with the option to
purchase shares of up to 51% of HTCC Common Stock. On September 28, 1995, the
Company and HTCC, entered into an agreement in which the Company agreed to
provide up to $33,200,000 of interim financial support to HTCC. In
consideration of such financial support, HTCC has granted to the Company,
additional shares of its Common Stock which increases the Company's
ownership in HTCC to 14%.
During the nine months ended September 30, 1995, the Company was authorized
net increases in annual revenues for properties in Hawaii, Illinois and Ohio
totaling $11,246,000. The Company has requests of $57,168,000 for increases in
annual revenues pending before regulatory commissions in Arizona, California,
Hawaii, Louisiana, Pennsylvania and Vermont.
-7-
<PAGE>
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
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(b) Results of Operations
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REVENUES
The revenue increases for both the quarter and the nine months ended September
30, 1995 were primarily due to growth in telecommunications revenues.
Telecommunications revenues for the three and nine months ended September 30,
1995 increased 13% and 44%, to $156,160,000 and $447,698,000, respectively,
over the same periods last year. These increases are attributable to the
operation of the telecommunications properties acquired. The increases in
telecommunications revenues were partially offset by a $9,500,000 and a
$28,500,000 decline in revenues for the quarter and nine month periods,
respectively, from the Company's California telephone operation due to the
expiration of the Pacific Bell contract on December 31, 1994.
Natural gas revenues decreased 9% and 10%, respectively, for the quarter and
nine months ended September 30, 1995 compared to the same periods last year.
The decreases are primarily due to lower average revenue per MCF of gas sold
for both periods which resulted from increases in pass-ons to customers of
lower average gas costs from suppliers. The decrease in revenues due to
pass-ons of lower average gas costs was partially offset by increased
consumption for the three and nine months ended September 30, 1995.
Electric revenues increased 7% and 3%, to $50,294,000 and $131,930,000, for
the quarter and nine months ended September 30, 1995, respectively, when
compared to the same periods in 1994. The increases for both periods are due
primarily to rate increases and customer growth.
Water and Wastewater revenues increased 2% and 7%, respectively, for the
quarter and nine months ended September 30, 1995 when compared to the same
periods last year. The increases in revenues are due to increased consumption.
EXPENSES AND OTHER INCOME
The increases in operating expenses for the quarter and nine month periods are
due primarily to increased telecommunications operating expenses. As of
September 30, 1995, natural gas purchased decreased 12% and 14%, to
$15,547,000 and $75,326,000, for the three months and nine months ended
September 30, 1995, respectively, over the same periods last year. The
decreases are due to lower supplier prices partially offset by increased
consumption for the three and nine months ended. Fuel oil purchased increased
19% for both the quarter and nine month periods due to increased power
generated to satisfy higher electric consumption.
Depreciation expense for the three and nine month periods ended September 30,
1995 increased 18% and 40%, respectively, over the corresponding prior year
periods primarily due to increased telecommunications property, plant and
equipment acquired.
Other income increased 11% for the nine month period ended September 30, 1995
when compared to the same period last year. This increase is due to a
$5,825,000 increase in investment income.
Interest expense for the three months and nine months ended September 30, 1995
increased 2% and 33%, respectively, as compared to the like 1994 periods. The
increase for the nine month period is due to interest paid on the additional
debt securities issued to finance the acquisitions as well as increased
Industrial Development Revenue Bonds.
Income taxes for the three and nine months ended September 30, 1995 increased
19% and 3%, respectively, as compared to the same periods last year due to
increased taxable income which was partially offset by a decrease in the
effective income tax rates for both periods primarily as a result of lower
state income tax rates.
-8-<PAGE>
PART II. OTHER INFORMATION
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
-------------------------------------------
Item 1. - Legal Proceedings
-----------------
On September 28, 1995, the Delaware Court of Chancery (the "Court") approved
the stipulation of settlement in the Consolidated Action, the Thorpe Action
and the Biggs Action, and the award of counsel fees. The stipulation of
settlement bars further action by the plaintiffs and members of the Class as
determined by the Court on the subject matter of these Actions. The fees and
expenses awarded to the plaintiff's counsel were substantively paid by the
Company's Directors' and Officers' liability insurance carrier.
Item 6. - Reports on Form 8-K
-------------------
(b) No Form 8-K was required during the three months ended September 30, 1995.
-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 November 14, 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> SEP-30-1995
<CASH> 17,873
<SECURITIES> 335,525
<RECEIVABLES> 169,407
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 224,747
<PP&E> 3,907,854
<DEPRECIATION> 1,176,918
<TOTAL-ASSETS> 3,666,928
<CURRENT-LIABILITIES> 426,109
<BONDS> 1,071,943
<COMMON> 56,315
0
0
<OTHER-SE> 1,494,511
<TOTAL-LIABILITY-AND-EQUITY> 3,666,928
<SALES> 259,732
<TOTAL-REVENUES> 259,732
<CGS> 0
<TOTAL-COSTS> 186,792
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,037
<INCOME-PRETAX> 66,223
<INCOME-TAX> 21,162
<INCOME-CONTINUING> 45,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,061
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
