PROSPECTUS SUPPLEMENT
(To Prospectus dated March 28, 1994)
$125,000,000
7.45% Debentures Due 2035
------------------------------
Interest payable July 1 and January 1
------------------------------
The Offered Debentures may not be redeemed prior to maturity by the
Company and do not provide for any sinking fund. The Offered Debentures
will be represented by a global debenture registered in the name of a
nominee of The Depository Trust Company, New York, New York, as Depositary
(the "Depositary"). Beneficial interests in the Offered Debentures will
be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Except as described in
the accompanying Prospectus, Offered Debentures in certificated form will
not be issued in exchange for the global debenture.
------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Company(1)(3)
------------ -------------- -------------
Per Debenture............. 99.918% .875% 99.043%
Total..................... $124,899,500 $1,093,750 $123,803,750
(1) Plus accrued interest, if any, from June 15, 1995 to date of
delivery.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by the Company estimated to be
$60,000.
---------------------
The Offered Debentures offered by this Prospectus Supplement are
offered by the Underwriters subject to prior sale, withdrawal,
cancellation or modification of the offer without notice, to delivery to
and acceptance by the Underwriters and to certain further conditions. It
is expected that delivery of the Offered Debentures will be made on or
about June 15, 1995, through the book-entry facilities of the Depositary,
against payment therefor in immediately available funds.
---------------------
June 8, 1995
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
DEBENTURES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. and at its regional offices at Northwestern Atrium
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661, and
Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of
such material can also be obtained from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Certain securities of the Company are listed on the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 and reports, proxy
material and other information concerning the Company may be inspected at
the office of that Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC pursuant to
the 1934 Act are incorporated into this Prospectus Supplement by reference
in addition to the documents incorporated by reference into the Prospectus:
The Company's Annual Report on Form 10-K for the year ended December
31, 1994.
The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995.
The Company's Current Reports on Form 8-K relating to the acquisitions
of the Telecommunications Properties described herein filed on July 5,
August 9, and December 7, 1994 and June 1, 1995.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus Supplement is delivered, upon written or
oral request of such person, a copy of any or all of the documents referred
to above which have been or may be incorporated by reference in this
Prospectus Supplement, other than exhibits to such documents not specifically
incorporated by reference herein. Requests for such copies should be
directed to Office of the Secretary, Citizens Utilities Company, High Ridge
Park, Bldg. No. 3, Stamford, Connecticut 06905 (telephone (203) 329-8800).
<PAGE>
Consolidated Financial Information
(Dollars in Thousands, Except for Per-Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
Twelve Months -----------------------------------
Ended March 31, 1995 1994 1993 1992 1991
-------------------- ---- ---- ---- ----
Pro Forma(1) Actual
Income Statement
Data:
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $1,158,957 $961,652 $916,014 $619,392 $580,464 $545,025
Net Income $ 179,301 $146,246 $143,997 $125,630 $115,013 $112,354
Earnings per Share
of Common Stock
Series A and
Series B(2) $ .79(3) $ .75(3) $ .75 $ .66 $ .62 $ .61
Ratio of Earnings to
Fixed Charges(4) 4.2 3.4 3.7 5.3 4.8 5.3
</TABLE>
<TABLE>
<CAPTION> As at December 31,
-----------------------------------
As at March 31, 1995 1994 1993 1992 1991
-------------------- ---- ---- ---- ----
Pro Forma(5) Actual
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Total Assets $3,619,196 $3,501,896 $3,576,566 $2,627,118 $1,887,981 $1,721,452
Long-Term Debt(6) $1,096,138 $1,002,138 $ 994,189 $ 547,673 $ 522,699 $ 484,021
Shareholders' Equity $1,639,053 $1,451,453 $1,156,896 $ 974,486 $ 837,271 $ 719,676
Long-Term Debt to
Long-Term Debt
and Shareholders'
Equity Ratio 40% 41% 46% 36% 38% 40%
</TABLE>
(1) The Pro Forma Income Statement Data reflects the combined results of
operations of Citizens and the Telecommunications Properties (see "Notes to
the Pro Forma Condensed Statements of Income" on page S-11) as if the
Telecommunications Properties had been acquired on April 1, 1994. These
amounts should be read in conjunction with the Pro Forma Condensed
Statements of Income beginning on page S-9 of this Prospectus Supplement.
The Pro Forma Income Statement Data is not necessarily indicative of
what the actual financial results would have been for the period had the
transactions occurred on the date indicated and does not purport to
indicate the financial results of future periods.
<PAGE>
(2) Series A and Series B per-share earnings have been adjusted for subsequent
stock dividends and stock splits. No adjustment has been made for
Citizens' 1.5% 1995 second quarter dividend, as this adjustment is
immaterial.
(3) Reflects the discontinuance of $38 million of annual operating income
received through the end of 1994 pursuant to a contract with Pacific Bell.
This discontinuance had the effect of reducing operating income for the
twelve months ended March 31, 1995 on both an Actual and Pro Forma basis by
$9.5 million which reduced earnings per share (see "Recent Developments").
(4) "Earnings" consist of income from continuing operations plus fixed charges
and income taxes. "Fixed Charges" consist of interest charges and anamount
representing the interest factor included in rentals.
(5) The Pro Forma Balance Sheet Data reflects the permanent financing of the
acquisitions of the Telecommunications Properties as if the acquisitions and
permanent financing were closed on March 31, 1995. These amounts should be
read in conjunction with the Pro Forma Condensed Balance Sheet beginning on
page S-7 of this Prospectus Supplement.
(6) As of March 31, 1995, approximately $186 million of commercial paper was
classified as Long-Term Debt in the Company's financial statements since
these obligations are expected to be refinanced through the issuance of
long-term securities. Accordingly, the issuance of the Offered Debentures
will not increase the amount of the Company's Long-Term Debt.
THE COMPANY
Citizens Utilities Company (the "Company" or "Citizens") is a diversified
operating public utility, either directly or through subsidiaries, providing
telecommunications, natural gas transmission and distribution, electric
distribution, water and wastewater services to customers in areas of eighteen
states. Citizens also holds a significant investment interest in Centennial
Cellular Corp., a cellular telephone company and owns Electric Lightwave,
Inc., an alternative telecommunications service provider in Arizona,
California, Oregon, Utah and Washington. Beginning with 1945, the
Company has increased its revenues, net income and earnings per share
(adjusted for intervening stock dividends and stock splits) every year
without interruption.
RECENT DEVELOPMENTS
On November 29, 1994, the Company and ALLTEL Corporation ("ALLTEL") announced
the signing of eight definitive agreements pursuant to which Citizens agreed to
acquire from ALLTEL for $292 million certain telephone properties serving
approximately 110,000 local telephone access lines and certain cable
television systems serving approximately 7,000 subscribers. The properties
are located in eight states: Arizona, California, Nevada, New Mexico, Oregon,
Tennessee, Utah and West Virginia (the "ALLTEL Properties"). The purchases
require the approval of the Federal Communications Commission, the Department
of Justice and the regulatory commissions of the states in which the properties
are located. The closings are expected to occur state by state before the
end of 1995.
The Public Utility Commission of the State of California ("CPUC") issued an
order, effective January 1, 1995, authorizing competition for intrastate
intraLATA switched toll services, rebalancing local exchange and toll rates,
establishing more specific procedures for local exchange carriers to enter
into incentive regulatory frameworks ("IRF") and providing a timetable for
the elimination of the intrastate toll settlement pools for mid-sized local
exchange carriers. In support of CPUC efforts which preceded its order, the
Company's California telephone subsidiary (the "Subsidiary") exited the toll
settlement pools in 1991 and entered into a transition contract with Pacific
Bell. Pursuant to this contract, Pacific Bell agreed to pay the Subsidiary
$38 million annually through the end of 1994 to partially offset the decline in
revenues which resulted from exiting the toll settlement pools. The
Subsidiary expected to conclude a general rate case permitting the
implementation of rebalanced, competitive rates effective January 1, 1995
intended to protect the Subsidiary's overall revenues, other than the $38
million Pacific Bell contract payment, by enabling it to compete effectively in
the intrastate intraLATA switched toll services market. Although this general
rate case has not been finalized, the CPUC has issued an interim rate order
which became effective January 1, 1995 and authorizes rebalanced competitive
rates for the Subsidiary. In its general rate case, the Subsidiary
requested approval of an IRF which would allow it to earn up to 5% in
excess of its authorized rate of return. It is expected that the approved
IRF will be effective when the final rate order is issued later in 1995.
APPLICATION OF PROCEEDS
The net proceeds from the sale of the Offered Debentures will be used to repay
outstanding commercial paper on such date or dates as the Company may
determine. Commercial paper to be repaid is currently classified as Long-Term
Debt in the Company's financial statements since these obligations are expected
to be refinanced through the issuance of long-term securities. Accordingly,
the issuance of the Offered Debentures will not increase the amount of the
Company's Long-Term Debt.
CAPITAL REQUIREMENTS AND FINANCING
The total purchase price for the ALLTEL Properties, net of the property to be
transferred to ALLTEL valued at $10 million, is $282 million (see "Notes to Pro
Forma Condensed Balance Sheet"). The Company intends to permanently finance
the acquisition of the ALLTEL Properties approximately one-third from the
issuance of equity securities, one third from the issuance or assumption of
debt securities, and one-third from Company cash and investments. In
addition, the Company is engaged in a continuous acquisition program and
expects, from time to time, to acquire properties in the rapidly evolving
telecommunications and cable television industries and traditional public
utility and related businesses.
The Company carries out a continuous construction program to maintain
reliable and safe service and to meet future customer service requirements.
The Company estimates that expenditures for construction, extension and
improvement of service will be approximately $262 million in 1995. The
Company's construction program is under continuous review and may be revised
depending on business and economic conditions, regulatory action,
governmental mandates, customer demand and other factors. Capital requirements
are being financed from internally generated funds and the issuance of
taxable and tax-exempt long-term debt, equity and short-term borrowings.
The Company maintains $1.2 billion of committed bank lines of credit for
general corporate purposes. As of June 8, 1995, no amounts were outstanding
under the existing bank lines of credit.
RATINGS OF COMPANY SECURITIES
Standard & Poor's Ratings Group, a division of McGraw-Hill ("Standard &
Poor's"), has rated the Offered Debentures "AAA" and Moody's Investors Service,
Inc. ("Moody's") has rated the Offered Debentures "Aa3".
Standard & Poor's has also rated the Company's outstanding publicly held
Debentures and Industrial Development Revenue Bonds "AAA"; its Commercial
Paper "A-1+"; and has ranked the Company's Common Stock "A+". Each of these
are the highest rating or ranking granted by Standard & Poor's. Moody's has
also assigned ratings of Aa3 to the Company's outstanding publicly held
Debentures and P-1 (its highest rating) to the Company's Commercial Paper.
Moody's does not rank or rate Common Stock.
Upon the Company's announcement of the signing of definitive agreements to
acquire the ALLTEL Properties, Standard and Poor's placed its ratings of the
Company's Industrial Development Revenue Bonds and Debentures on "Credit
Watch" with negative implications and Moody's placed its ratings of the
Company's Debentures on "Credit Review" for possible downgrade.
An explanation of the significance of ratings may be obtained from the rating
agencies. Generally, rating agencies base their ratings on such material and
information, and such of their own investigations, studies and assumptions,
as they deem appropriate. A credit rating of a security is not a
recommendation to buy, sell or hold securities. There is no assurance that any
rating will apply for any given period of time or that a rating may not be
adjusted or withdrawn.
DESCRIPTION OF OFFERED DEBENTURES
The following description of the particular terms of the Offered Debentures
supplements the description of the general terms and provisions of the Offered
Debentures set forth in the accompanying Prospectus under the caption
"Description of Debt Securities--Debentures and Other Unsecured Debt
Securities".
GENERAL
The Offered Debentures will be issued under the Company's Indenture with
Chemical Bank, as Trustee, dated as of August 15, 1991, as supplemented by a
Fifth Supplemental Indenture, dated as of June 15, 1995 creating the Offered
Debentures (the "Indenture"). The Offered Debentures will be issued in the
aggregate principal amount of $125 million and will bear the
designation "7.45% Debentures Due 2035". The Offered Debentures will bear
interest at an annual rate of 7.45% payable on January 1 and July 1 of
each year, commencing on January 1, 1996, to the person in whose name the
Offered Debentures are registered at the close of business on the preceding
December 15 or June 15, as the case may be. The Offered Debentures will
mature on July 1, 2035.
The Offered Debentures are not subject to redemption prior to maturity and
do not provide for any sinking fund.
The Offered Debentures will not be secured and will rank equally with any
other indebtedness which is issued under the Indenture and not specifically
subordinated to the Offered Debentures. The Offered Debentures will also rank
equally with other unsecured obligations of the Company except as noted in the
accompanying Prospectus.
The Offered Debentures will be held by the owners as book-entry securities
(see "Description of Debt Securities - Debentures and Other Unsecured Debt
Securities" in the accompanying Prospectus).
Chemical Bank, Trustee under the Indenture, is one of the lending banks on
the Company's bank line of credit arrangements.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (These Pro Forma Financial Statements update
and supersede the Pro Forma Financial Statements in the Prospectus.)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Balance Sheet
(In thousands)
The following Pro Forma Condensed Balance Sheet represents the historical
condensed balance sheet of Citizens at March 31, 1995, giving effect to the
acquisitions of the yet to be acquired Telecommunications Properties (as
defined in Note 1 on page S-8) following the purchase method of accounting,
as well as the permanent financing for the acquisitions of the
Telecommunications Properties, as if such acquisitions and financings
were closed on March 31, 1995. The Pro Forma Condensed Balance Sheet should
be read in conjunction with the historical financial statements and related
notes thereto of Citizens which are incorporated by reference herein. The
Pro Forma Condensed Balance Sheet is not necessarily indicative of what the
actual financial position would have been had the transactions occurred at
the date indicated and does not purport to indicate future financial position.
<TABLE>
<CAPTION> As at March 31, 1995
Pro Forma
--------------------------------
Citizens Adjustments (1) Adjusted
-------- --------------- ----------
Assets
Current Assets:
<S> <C> <C> <C>
Cash $ 19,481 $ 282,000 (2) $ 19,481
(282,000)(3)
Temporary Investments 25,910 (25,910)(2) 0
Accounts Receivable 155,886 155,886
Other 31,054 31,054
---------- ----------
Total Current Assets 232,331 206,421
---------- ----------
Net Property, Plant and Equipment 2,576,740 282,000 (3) 2,858,740
---------- ----------
Investments 329,301 (138,790)(2) 190,511
Regulatory Assets 178,009 178,009
Deferred Debits and Other Assets 185,515 185,515
---------- ---------- ----------
$3,501,896 $ 117,300 $3,619,196
========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Long-Term Debt Due Within
One Year $ 5,564 $ 5,564
Other 317,200 317,200
Short-Term Debt 164,300 $ (164,300)(2) 0
---------- ----------
Total Current Liabilities 487,064 322,764
Customer Advances for Construction
and Contributions in Aid of
Construction 219,594 219,594
Deferred Income Taxes 256,004 256,004
Regulatory Liabilities 30,318 30,318
Deferred Credits and Other
Liabilities 55,325 55,325
Long-Term Debt 1,002,138 94,000 (2) 1,096,138
---------- ----------
2,050,443 1,980,143
---------- ----------
Shareholders' Equity:
Common Stock Issued, $.25 Par Value
Series A 38,546 38,546
Series B 15,667 15,667
Additional Paid-In Capital 1,158,118 187,600 (2) 1,345,718
Retained Earnings 229,152 229,152
Unrealized gain on securities
classified as available for sale 9,970 9,970
---------- ----------
1,451,453 1,639,053
---------- ----------
$3,501,896 $ 117,300 $ 3,619,196
========== ========== ===========
</TABLE>
___________________________
See Notes to Pro Forma Condensed Balance Sheet on page S-8.
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Balance Sheet
(1) In May 1993, Citizens and GTE signed ten definitive agreements pursuant
to which Citizens agreed to acquire from GTE, for $1.1 billion in cash,
certain GTE Telephone Properties serving approximately 500,000 local
telephone access lines in nine states. On December 31, 1993, 189,123 local
telephone access lines in Idaho, Tennessee, Utah and West Virginia were
transferred to the Company. On June 30, 1994, 270,883 access lines in
New York were transferred to the Company . On November 30, 1994, 37,802
access lines in Arizona and Montana were transferred to the Company and on
December 30, 1994, 5,440 local telephone access lines in California were
transferred to the Company. The remaining GTE Property located in
Oregon is expected to be transferred to Citizens in 1995.
In November 1994, Citizens and ALLTEL signed eight definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL Properties serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers. The properties are located in eight
states: Arizona, California, Nevada, Oregon, New Mexico, Tennessee,
Utah and West Virginia. The purchase price for the ALLTEL Properties is
expected to be in the form of $32 million of assumed low cost Rural
Electrification Administration debt, the transfer to ALLTEL of 3,600
Citizens telephone access lines which have been valued at $10 million
and structured as a tax free exchange, and cash. The GTE Telephone
Properties and ALLTEL Properties collectively are referred to herein as
the "Telecommunications Properties".
Through March 31, 1995, the purchase price for the Telecommunications
Properties had been permanently financed with approximately $296
million of Cash and Investments, $272.7 million of Equity issued
pursuant to the Company's Direct Stock Purchase Plan, employee benefit
plans and an underwritten public offering, and $275 million of Long-
Term Debt. The remainder of the purchase price of the acquired
Telecommunications Properties has been temporarily financed with commercial
paper, $164.3 million of which is classified as Short-Term Debt (to be
repaid from Cash and Investments and the issuance of Equity) and $91
million of which is classified as Long-Term Debt (to be refinanced
through the issuance of Long-Term Debt).
(2) When added to the $296 million of Cash and Investments used, the $275
million of Long-Term Debt and $272.7 million of Equity issued through
March 31, 1995 to permanently finance the acquisitions of the
Telecommunications Properties as described in Note (1) above, these
adjustments reflect the permanent financing of the $1.381 billion
purchase price (net of the property valued at $10 million to be
transferred to ALLTEL) for the Telecommunications Properties with
approximately equal components of Cash and Investments (including
Temporary Investments), Long-Term Debt and Equity.
(3) Reflects the purchase price of the Telecommunications Properties to be
transferred to Citizens after March 31, 1995, net of the property
valued at $10 million to be transferred to ALLTEL.
PRO FORMA FINANCIAL STATEMENTS (continued)
(These Pro Forma Financial Statements update and supersede the Pro Forma
Financial Statements in the Prospectus.)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Statement of Income
(In thousands, except per share amounts)
The following Pro Forma Condensed Statement of Income for the twelve
months ended March 31, 1995 combines the historical statements of income of
Citizens and the Telecommunications Properties as if the acquisitions and the
permanent financings had been closed April 1, 1994. The Pro Forma Condensed
Statement of Income should be read in conjunction with the historical financial
statements and related notes thereto of Citizens and those of the
Telecommunications Properties that have been audited and which are
incorporated by reference herein. The Pro Forma Condensed Statement of
Income is not necessarily indicative of what the actual financial results
would have been for the period had the transactions occurred at the date
indicated and does not purport to indicate the financial results of future
periods.
<TABLE>
<CAPTION>
Twelve Months Ended March 31, 1995
----------------------------------------------------
Citizens Acquisitions*(1) Pro Forma
------------------------
Adjustments Combined
<S> <C> <C> <C> <C>
Operating Revenues $961,652 $197,305 $1,158,957
Operating Expenses:
Operating Expenses 592,420 90,401 $(4,400)(2) 678,421
Depreciation and Amortization 129,168 39,166 3,400 (3) 171,734
-------- -------- ------- ----------
Total Operating Expenses 721,588 129,567 (1,000) 850,155
Net Operating Income 240,064 67,738 1,000 308,802
Other Income (Deductions) 53,889 699 (13,800)(4) 40,788
Interest Expense 82,303 9,280 (13,600)(5) 77,983
-------- -------- ------- ----------
Income Before Income Taxes 211,650 59,157 800 271,607
Income Taxes 65,404 18,502 8,400 (6) 92,306
-------- -------- ------- ----------
Net Income $146,246 $ 40,655 $(7,600) $ 179,301
========= ======== ======= ==========
Earnings Per Share of Common Stock:
Series A and Series B** $ .75 $ .79 (7)
Weighted Average Common Shares** 194,488 227,149(7)
</TABLE>
* Represents the financial results from April 1, 1994 to the dates of
acquisition for all the GTE Telephone Properties acquired from April 1,
1994 through March 31, 1995, and for the yet to be acquired GTE Telephone
Properties (as of March 31, 1995) and for the ALLTEL Properties, net of
the financial results for the property to be transferred to ALLTEL, for the
entire twelve month period. Financial results for the GTE Telephone
Properties acquired from their dates of acquisition through March 31,
1995 are included in Citizens' twelve months ended March 31, 1995
financial results.
** No adjustment has been made for the 1.5% 1995 second quarter stock dividend
as this adjustment is immaterial.
_____________
See Notes to Pro Forma Condensed Statements of Income on page S-11.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (continued)
(These Pro Forma Financial Statements update and supersede the Pro Forma
Financial Statements in the Prospectus.)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Statement of Income
(In thousands, except per share amounts)
The following Pro Forma Condensed Statement of Income for the year ended
December 31, 1994 combines the historical statements of income of Citizens
and the Telecommunications Properties as if the acquisitions and the required
financings had been closed January 1, 1994. The Pro Forma Condensed
Statement of Income should be read in conjunction with the historical
financial statements and related notes thereto of Citizens and those of the
ALLTEL Properties that have been audited and which are incorporated by
reference herein. The Pro Forma Condensed Statement of Income is not
necessarily indicative of what the actual financial results would have been for
the period had the transactions occurred at the date indicated and does not
purport to indicate the financial results of future periods.
<TABLE>
<CAPTION>
Years Ended December 31, 1994
Citizens Acquisitions*(1) Pro Forma
Adjustments Combined
<S> <C> <C> <C> <C>
Operating Revenues $916,014 $254,815 $1,170,829
Operating Expenses:
Operating Expenses 572,715 123,170 $(8,600)(2) 687,285
Depreciation and Amortization 115,175 49,095 4,200 (3) 168,470
-------- -------- ------- ----------
Total Operating Expenses 687,890 172,265 (4,400) 855,755
Net Operating Income 228,124 82,550 4,400 315,074
Other Income (Deductions) 52,940 847 (17,000)(4) 36,787
Interest Expense 72,744 13,172 (10,300)(5) 75,616
-------- -------- ------- ----------
Income Before Income Taxes 208,320 70,225 (2,300) 276,245
Income Taxes 64,323 24,137 7,000 (6) 95,460
-------- -------- ------- ----------
Net Income $143,997 $ 46,088 $(9,300) $ 180,785
========= ======== ======= ==========
Earnings Per Share of Common Stock:
Series A and Series B** $ .75 $ .79 (7)
Weighted Average Common Shares** 190,941 227,737(7)
</TABLE>
* Represents the financial results from January 1, 1994 to the dates of
acquisition for all the GTE Telephone Properties acquired from January 1, 1994
through December 31, 1994, and for the yet to be acquired GTE Telephone
Properties (as of December 31, 1994) and for the ALLTEL Properties, net of
the financial results for the property to be transferred to ALLTEL, for the
entire twelve month period. Financial results for the GTE Telephone
Properties acquired from their dates of acquisition through December 31,
1994 are included in Citizens' twelve months ended December 31, 1994
financial results.
** Restated through the first quarter 1995 stock dividend. No adjustment has
been made for the 1.5% 1995 second quarter stock dividend as this adjustment is
immaterial.
_____________
See Notes to Pro Forma Condensed Statements of Income on page S-11.
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Statements of Income
(1) In May 1993, Citizens and GTE signed ten definitive agreements pursuant to
which Citizens agreed to acquire from GTE, for $1.1 billion in cash,
certain GTE Telephone Properties serving approximately 500,000 local
telephone access lines in nine states. On December 31, 1993, 189,123
local telephone access lines in Idaho, Tennessee, Utah and West Virginia
were transferred to the Company. On June 30, 1994, 270,883 access
lines in New York were transferred to the Company. On November 30, 1994,
37,802 access lines in Arizona and Montana were transferred to the
Company and on December 30, 1994, 5,440 local telephone access lines in
California were transferred to the Company. The remaining GTE Telephone
Property located in Oregon is expected to be transferred to Citizens
later in 1995.
In November 1994, Citizens and ALLTEL signed eight definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL Properties serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers. The properties are located in eight
states: Arizona, California, Nevada, Oregon, New Mexico, Tennessee,
Utah and West Virginia. The purchase price for the ALLTEL Properties is
expected to be in the form of $32 million of assumed low cost Rural
Electrification Administration debt, the transfer to ALLTEL of 3,600
Citizens telephone access lines, which have been valued at $10 million
and structured as a tax free exchange, and $250 million in cash. The
GTE Telephone Properties and ALLTEL Properties collectively are referred
to herein as the "Telecommunications Properties".
(2) Elimination of certain corporate overhead expenses allocated by GTE to
certain of the GTE Telephone Properties which will not have a continuing
impact on the combined entity.
(3) Represents amortization of $253 million of excess purchase price over net
book value of assets acquired. Pursuant to Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types
of Regulation," the remaining $138 million of excess of purchase price over
net book value of assets acquired will be deferred. The Company intends to
seek from the public utilities commissions maximum recovery of the excess
of purchase price over net book value in future rate proceedings.
(4) Represents an adjustment to reflect the elimination from Other Income of
all tax-exempt investment income associated with the $461 million of
Company Investments which have been or are expected to be used to
partially finance the acquisition of the Telecommunications Properties.
The Company used $296 million of Company Investments from December 31,
1993 through March 31, 1995 to permanently finance the GTE Telephone
Property acquisitions.
(5) Represents an adjustment to reflect the inclusion in Interest Expense of
all the interest expense on $460 million of Long-Term Debt which has
been or is expected to be issued or assumed to partially finance the
acquisition of the Telecommunications Properties, net of the elimination
of interest expense on Long-Term Debt which is associated with the
Telecommunications Properties and which was not or will not be
assumed by the Company. On April 26, 1994, the Company issued $175
million of Long-Term Debt at par with an interest rate of 7.6% and a
maturity date of June 1, 2006, and on October 6, 1994, the Company
issued $100 million of Long-Term Debt at par with an interest rate of
7.68% and a maturity date of October 1, 2034. The proceeds from these
issuances were used to finance the acquisitions of the Telecommunication
Properties.
(6) Adjustment to Income Tax expense based on Income Before Income Taxes and
the applicable effective tax rate.
(7) The Pro Forma Earnings Per Share is based on the average number of common
shares outstanding plus the number of additional shares assumed to be
issued to finance $460 million of the Telecommunications Properties
purchase price assuming such shares were outstanding for the entire
twelve month periods. Through March 31, 1995, the Company financed
$272.7 million of the acquisition of the Telecommunications Properties
from the issuance of Equity pursuant to the Company's Direct Stock Purchase
Plan, employee benefit plans and an underwritten public offering.
UNDERWRITERS
Under the terms and subject to conditions set forth in the Underwriting
Agreement dated the date hereof, the Company has agreed to sell to each of the
Underwriters named below, severally, and each of the Underwriters has severally
agreed to purchase the principal amount of the Offered Debentures set forth
opposite its name below:
Principal
Amount of
Underwriters Debentures
Morgan Stanley & Co. Incorporated . . . . . . . . . . . . $ 39,600,000
Lehman Brothers Inc.. . . . . . . . . . . . . . . . . . . 39,575,000
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . 39,575,000
Citicorp Securities, Inc... . . . . . . . . . . . . . . . 6,250,000
Total. . . . . . . . . . . . . . . . . . . . . . . $125,000,000
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Offered Debentures are
subject to the approval of certain legal matters by counsel and to certain
other conditions. The nature of the Underwriters' obligations is such that
they are committed to take and pay for all of the Offered Debentures if any
are taken.
The Underwriters propose to offer part of the Offered Debentures directly
to the public at the public offering price set forth on the cover page hereof
and in part to selected dealers at a price which represents a concession not
in excess of .50% of the principal amount of the Offered Debentures under
the public offering price. The Underwriters may allow, and such dealers may
real low, a concession not in excess of .25% of the principal amount of the
Offered Debentures to certain other dealers. After the initial offering of
the Offered Debentures, the public offering price and concessions may
be changed.
The Company does not intend to apply for listing of the Offered
Debentures on a national securities exchange, but has been advised by the
Underwriters that they presently intend to make a market in the Offered
Debentures, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in the Offered
Debentures and any such market-making may be discontinued at any time at the
sole discretion of each of the Underwriters. Accordingly, no assurance
can be given as to the liquidity of the trading market for the Offered
Debentures.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994, 1993 and 1992, and for each of the years then ended, incorporated by
reference in this Prospectus Supplement from the Company's Annual Report on
Form 10-K, have been so incorporated by reference in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon authority of said firm as experts
in accounting and auditing.
Independent Auditors' Consent
-----------------------------
The Board of Directors
Citizens Utilities Company:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
June 12, 1995
