PROSPECTUS SUPPLEMENT
(To Prospectus dated March 28, 1994)
$150,000,000
(CITIZENS LOGO)
7% Debentures Due 2025
-----------------------
Interest payable May 1 and November 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.
------------------------
PRICE 100% AND ACCRUED INTEREST, IF ANY
------------------------
==========================================================================
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Company(1)(3)
- ---------------|----------------|---------------------|-------------------
Per Debenture | 100% | .875% | 99.125%
- ---------------|----------------|---------------------|-------------------
Total | $150,000,000 | $1,312,500 | $148,687,500
==========================================================================
(1) Plus accrued interest, if any, from October 20, 1995.
(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 October 20, 1995, through the book-entry facilities of the
Depositary, against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO. LEHMAN BROTHERS
Incorporated
October 17, 1995<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE 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 SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 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 and the
Prospectus by reference:
The Company's Annual Report on Form 10-K for the year ended December
31, 1994.
The Company's Quarterly Reports on Form 10-Q for the quarter ended
March 31, 1995 and on Forms 10-Q and 10-QA for the quarter ended June 30,
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 on 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 Treasurer, Citizens
Utilities Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut
06905 (telephone (203) 329-8800).
Page S-2
<PAGE>
Consolidated Financial Information
(Dollars in Thousands, Except for Per-Share Amounts)
Twelve Months Year Ended December 31,
Ended June 30, 1995 --------------------------------
---------------------- 1994 1993 1992 1991
---- ---- ---- ----
Pro Forma(1) Actual
Income Statement
Data:
Revenues $1,155,017 $1,019,795 $910,369 $619,392 $580,464 $545,025
Net Income $ 174,540 $ 150,168 $143,997 $125,630 $115,013 $112,354
Earnings per
Share of
Common Stock
Series A and
Series B(2) $ .76(3) $ .74(3) $ .74 $ .65 $ .61 $ .60
Ratio of
Earnings to
Fixed Charges(4) 4.0 3.3 3.7 5.3 4.8 5.3
<TABLE>
<CAPTION>
As at December 31,
As at June 30, 1995 ------------------------------------
---------------------- 1994 1993 1992 1991
---- ---- ---- ----
Pro Forma(5) Actual
Balance Sheet
Data:
<S> <C> <C> <C> <C> <C> <C>
Total Assets $3,696,184 $3,615,572 $3,576,566 $2,627,118 $1,887,981 $1,721,452
Long-Term Debt $1,141,456 $1,070,456 $ 994,189 $ 547,673 $ 522,699 $ 484,021
Shareholders'
Equity $1,677,226 $1,502,226 $1,156,896 $ 974,486 $ 837,271 $ 719,676
Long-Term Debt
to Long-Term
Debt and
Shareholders'
Equity Ratio 40% 42% 46% 36% 38% 40%
</TABLE>
(1) The Pro Forma Income Statement Data reflects the combined results of
operations of Citizens and certain Telecommunications Properties (see
"Pro Forma Financial Statements") acquired subsequent to June 30,
1994 and properties to be acquired (as of June 30, 1995) as if such
properties had been acquired on July 1, 1994. This information 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.
(2) Common Stock Series A and Series B per-share amounts have been
adjusted for subsequent stock dividends and stock splits through June
30, 1995. No adjustment has been made for the 1.6% 1995 third quarter
stock dividend, as this adjustment is immaterial.
(3) Reflects the discontinuance of subsidy contract revenues received
through the end of 1994 from Pacific Bell. For the twelve months
ended June 30, 1995 on both an Actual and Pro Forma basis this
discontinuance had the effect of reducing, by $19 million, income
before income taxes and related Earnings Per Share as compared to
prior periods.
(4) "Earnings" consist of net income plus fixed charges and income taxes.
"Fixed Charges" consist of interest charges and an amount
representing the interest factor included in rentals. The Company may
issue tax-advantaged preferred securities to satisfy its remaining
permanent equity acquisition financing requirements (see "Capital
Requirements and Financing"). The issuance of such equity securities
would have the effect of reducing pro forma net income available to
common shareholders by an after-tax dividend requirement, decreasing
pro forma weighted average common shares, increasing Pro Forma
Earnings Per Share and producing a ratio of earnings to combined
fixed charges and dividends on preferred securities lower than the
Pro Forma Ratio of Earnings to Fixed Charges presented above.
(5) The Pro Forma Balance Sheet Data reflects the permanent financings
of the Telecommunications Properties as if such financings were in
place June 30, 1995. This information should be read in conjunction
with the Pro Forma Condensed Balance Sheet beginning on page S-7 of
this Prospectus Supplement. The Pro Forma Balance Sheet Data is not
necessarily indicative of what the actual financial position would
have been for the period had the transactions occurred on the date
indicated and does not purport to indicate the financial position of
future periods. The Company may issue tax-advantaged preferred
securities to satisfy its remaining permanent equity acquisition
financing requirements (see "Capital Requirements and Financing").
The issuance of such equity securities may change the presentation of
the Pro Forma Balance Sheet Data above.
Page S-3
THE COMPANY
Citizens Utilities Company (the "Company" or "Citizens") is a
diversified operating public utility which provides, either directly or
through subsidiaries, telecommunications, natural gas transmission and
distribution, electric distribution, water or wastewater services to
customers in areas of eighteen states. Citizens holds a significant
investment interest in Centennial Cellular Corp., a cellular telephone
company, and also owns Electric Lightwave, Inc., an alternative
telecommunications service provider operating in five western states.
Beginning with 1945, the Company has increased its revenues, net income
and earnings per share (adjusted for subsequent stock dividends and stock
splits) every year without interruption.
On November 29, 1994, the Company and ALLTEL Corporation ("ALLTEL")
announced the signing of definitive agreements pursuant to which Citizens
agreed to acquire from ALLTEL for a total purchase price of $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
("ALLTEL Telecommunications Properties"). On June 30, 1995, 35,662 local
telephone access lines in Oregon and West Virginia were transferred to the
Company. On September 30, 1995, approximately 19,000 local telephone
access lines in Tennessee were transferred to the Company. The remaining
ALLTEL Telecommunications Properties are expected to be transferred to the
Company by early 1996. The purchases require the approval of the
regulatory commissions of the states in which the properties are located.
CAPITAL REQUIREMENTS AND FINANCING
The purchase price for the ALLTEL Telecommunications Properties, net
of the property to be transferred to ALLTEL valued at $10 million, is $282
million. The Company intends to permanently finance the acquisition of the
ALLTEL Telecommunications Properties approximately one third from the
issuance of equity securities ($94 million), one third from the issuance
or assumption of debt securities ($94 million), and one third from Company
cash and investments ($94 million). As of June 30, 1995, approximately $86
million of the purchase price of other telecommunications properties
acquired by the Company in 1994 remained temporarily financed with
commercial paper classified as short-term debt, pending the issuance of
approximately $80 million of equity securities and the maturity of $6
million of investments. The Company may issue tax-advantaged preferred
securities to satisfy $174 million of permanent equity acquisition
financing requirements.
The purchase price for the ALLTEL Telecommunications Properties
transferred as of June 30, 1995 has been permanently financed with
approximately $27 million of assumed long-term debt securities. The
remainder of the purchase price of such ALLTEL Telecommunications
Properties has been temporarily financed with commercial paper, $74
million of which was classified as short-term debt (to be repaid from
cash and investments and the issuance of equity securities) and $11
million of which was classified as long-term debt (to be refinanced
through the issuance of long-term debt). As of June 30, 1995, the Company
had an additional $68 million of outstanding commercial paper classified
as long-term debt. The $79 million of commercial paper classified as long-
term debt will be refinanced from the proceeds of the Offered Debentures.
Page S-4
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 relating to existing properties,
including the acquired Telecommunications Properties, will require
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, short-term borrowings, customer advances and contributions
in aid of construction.
The Company maintains $600 million of committed bank lines of credit
for general corporate purposes, under which there were no amounts
outstanding as of October 17, 1995.
APPLICATION OF PROCEEDS
The net proceeds from the sale of the Offered Debentures will be used
to repay all outstanding commercial paper classified as long-term debt
(see "Capital Requirements and Financing"), 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.
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 Telecommunications Properties, Standard
& Poor's placed its ratings of the Company's Industrial Development
Revenue Bonds and Debentures on "Credit Watch" with negative implications.
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.
Page S-5
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 Sixth Supplemental Indenture, dated as of October 15,
1995 creating the Offered Debentures (the "Indenture"). The Offered
Debentures will be issued in the aggregate principal amount of $150
million and will bear the designation "7% Debentures Due 2025". The
Offered Debentures will bear interest at an annual rate of 7% payable on
May 1 and November 1 of each year, commencing on May 1, 1996, to the
person in whose name the Offered Debentures are registered at the close of
business on the preceding April 15 or October 15, as the case may be. The
Offered Debentures will mature on November 1, 2025.
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 S-6
<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 June 30, 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 completion of the permanent
financings for the acquired Telecommunications Properties as if such
acquisitions and financings were closed on June 30, 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.
As of June 30, 1995
-----------------------------------------------------
Pro Forma
----------------------------
Citizens Adjustments(1) Adjusted
-------- -------------- --------
Assets
Current Assets:
Cash $ 17,572 $ 340,912 (2) $ 27,784
(330,700)(3)
Accounts Receivable 172,055 172,055
Other 35,034 35,034
---------- ----------
Total Current Assets 224,661 234,873
---------- ----------
Net Property, Plant
and Equipment 2,680,332 170,100 (3) 2,850,432
---------- ----------
Investments 328,332 (99,700)(2) 228,632
Regulatory Assets 178,263 178,263
Deferred Debits and
Other Assets 203,984 203,984
---------- -------- ----------
$3,615,572 $ 80,612 $3,696,184
========== ======== ==========
Liabilities and
Shareholders' Equity
Current Liabilities:
Long-Term Debt Due
Within One Year $ 4,788 $ (4,788)(2) $ 0
Other 294,440 294,440
Short-Term Debt 160,600 (160,600)(3) 0
---------- ---------
Total Current
Liabilities 459,828 294,440
Customer Advances
for Construction and
Contributions in Aid
of Construction 217,676 217,676
Deferred Income Taxes 262,932 262,932
Regulatory Liabilities 29,817 29,817
Deferred Credits and
Other Liabilities 72,637 72,637
Long-Term Debt 1,070,456 150,000 (2) 1,141,456
(79,000)(2)
---------- ----------
2,113,346 2,018,958
---------- ----------
Shareholders' Equity:
Common Stock Issued,
$.25 Par Value
Series A 38,812 38,812
Series B 16,405 16,405
Additional Paid-In
Capital 1,205,166 175,000 (2) 1,380,166
Retained Earnings 231,943 231,943
Unrealized gain on
securities classified
as available for sale 9,900 9,900
---------- ----------
1,502,226 1,677,226
---------- -------- ----------
$3,615,572 $ 80,612 $3,696,184
========== ======== ==========
- ----------------------
See Notes to Pro Forma Condensed Balance Sheet on page S-8.
Page S-7
<PAGE>
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 Corp. ("GTE") signed definitive
agreements pursuant to which Citizens agreed to acquire from GTE, for
approximately $1.1 billion in cash, certain GTE telephone properties
(the "GTE Telephone Properties") serving approximately 500,000 local
telephone access lines in eight 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.
In November 1994, Citizens and ALLTEL signed definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL telecommunications properties ("ALLTEL
Telecommunications Properties") serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers in eight states. The purchase price
for the ALLTEL Telecommunications Properties (net of 3,600 Citizens
telephone access lines which have been valued at $10 million and are
to be transferred to ALLTEL in a tax free exchange) is $282
million. On June 30, 1995, 35,662 local telephone access lines in
Oregon and West Virginia were transferred to the Company. On
September 30, 1995, approximately 19,000 local telephone access lines
in Tennessee were transferred to the Company. The remaining local
telephone access lines and the cable television systems are expected
to be transferred to the Company by early 1996. The GTE Telephone
Properties and the ALLTEL Telecommunications Properties are
collectively referred to as the "Telecommunications Properties".
(2) Through June 30, 1995, the purchase price for the Telecommunications
Properties had been permanently financed with approximately $357.6
million of cash and investments, $279.8 million of equity securities
issued through an underwritten public offering, the Company's Direct
Stock Purchase and Sale Plan and employee benefit plans and $402
million of debt securities. The remainder of the purchase price of
the Telecommunications Properties transferred as of June 30, 1995 has
been temporarily financed with commercial paper, $160.6 million of
which is classified as Short-Term Debt (to be repaid from cash and
investments and the issuance of equity securities) and $11 million of
which is classified as Long-Term Debt (to be refinanced with
Long-Term Debt). The Company has an additional $68 million in
commercial paper outstanding as of June 30, 1995 classified as
Long-Term Debt pending the issuance of Long-Term Debt securities.
When added to the $357.6 million of cash and investments used,
$279.8 million of equity securities issued and the $402 million of
debt securities which have been issued or assumed to permanently
finance the acquisitions of the Telecommunications Properties, these
adjustments reflect the anticipated 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, long-term
debt securities and equity securities. These adjustments also
reflect the use of a portion of the proceeds from the sale of the
Offered Debentures to repay all commercial paper classified as
Long-Term Debt, refund Long-Term Debt Due Within One Year and
provide cash for other general corporate purposes. The Company may
issue tax-advantaged preferred securities to satisfy its remaining
permanent equity acquisition financing requirements. The issuance of
such equity securities would change the presentation of the Pro Forma
Shareholders' Equity on the Pro Forma Condensed Balance Sheet.
(3) Reflects the use of permanent financing proceeds to pay the purchase
price of the Telecommunications Properties to be transferred to
Citizens after June 30, 1995, (net of the property valued at $10
million to be transferred to ALLTEL) and to repay all Short-Term
Debt.
Page S-8
<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 twelve
months ended June 30, 1995 combines the historical statements of income of
Citizens and the Telecommunications Properties as if the acquisitions and
the permanent financings had been closed July 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.
Twelve Months Ended June 30, 1995
-------------------------------------------------------
Pro Forma
-------------------------
Citizens Acquisitions*(1) Adjustments Combined
-------- ------------ ----------- ----------
Revenues $1,019,795 $ 135,222 $1,155,017
Expenses:
Operating Expenses 633,539 57,470 691,009
Depreciation and
Amortization 142,653 28,645 $ 1,800 (3) 173,098
---------- --------- ------- ----------
Total Operating
Expenses 776,192 86,115 1,800 864,107
Income from
Operations 243,603 49,107 (1,800) 290,910
Other Income, Net 57,358 1,007 (10,500)(4) 47,865
Interest Expense 88,485 5,715 (12,400)(5) 81,800
---------- --------- ------- ----------
Income Before
Income Taxes 212,476 44,399 100 256,975
Income Taxes 62,308 14,827 5,300 (6) 82,435
---------- --------- ------- ----------
Net Income $ 150,168 $ 29,572 $(5,200) $ 174,540
========== ========= ======= ==========
Earnings Per Share
of Common Stock:
Series A and
Series B** $ .74 (8) $.76 (7)(8)
Weighted Average
Common Shares** 203,155 229,593 (7)
* Represents the financial results from July 1, 1994 to the dates of
acquisition for all the Telecommunications Properties acquired from
July 1, 1994 through June 30, 1995, and the financial results for the
entire twelve month period for the yet to be acquired ALLTEL
Telecommunications Properties (as of June 30, 1995) net of the
financial results for the property to be transferred to ALLTEL.
Financial results for the Telecommunications Properties acquired from
their dates of acquisition through June 30, 1995 are included in
Citizens' twelve months ended June 30, 1995 financial results.
** No adjustment has been made for the 1.6% 1995 third quarter stock
dividend as this adjustment is immaterial.
_____________
See Notes to Pro Forma Condensed Statements of Income on page S-11.
Page S-9
<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 permanent 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 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.
Year Ended December 31, 1994
-------------------------------------------------------
Pro Forma
-------------------------
Citizens Acquisitions*(1) Adjustments Combined
-------- ------------ ----------- ----------
Revenues $ 910,369 $ 254,815 $1,165,184
Expenses:
Operating Expenses 567,070 123,170 $(8,600)(2) 681,640
Depreciation and
Amortization 115,175 49,095 4,200 (3) 168,470
---------- --------- ------- ----------
Total Operating
Expenses 682,245 172,265 (4,400) 850,110
Income from
Operations 228,124 82,550 4,400 315,074
Other Income, Net 52,940 847 (17,300)(4) 36,487
Interest Expense 72,744 13,172 (10,300)(5) 75,616
---------- --------- ------- ----------
Income Before
Income Taxes 208,320 70,225 (2,600) 275,945
Income Taxes 64,323 24,137 7,100 (6) 95,560
---------- --------- ------- ----------
Net Income $ 143,997 $ 46,088 $(9,700) $ 180,385
========== ========= ======= ==========
Earnings Per Share
of Common Stock:
Series A and
Series B** $ .74 $ .79 (7)
Weighted Average
Common Shares** 194,638 229,702 (7)
* Represents the financial results from January 1, 1994 to the dates of
acquisition for all the Telecommunications Properties acquired from
January 1, 1994 through December 31, 1994, and the financial results
for the entire twelve month period for the yet to be acquired ALLTEL
Telecommunications Properties (as of December 31, 1994) net of the
financial results for the property to be transferred to ALLTEL.
Financial results for the Telecommunications 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 second quarter 1995 stock dividend. No adjustment
has been made for the 1.6% 1995 third quarter stock dividend as this
adjustment is immaterial.
_____________
See Notes to Pro Forma Condensed Statements of Income on page S-11.
Page S-10
<PAGE>
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 Corp. ("GTE") signed definitive
agreements pursuant to which Citizens agreed to acquire from GTE, for
approximately $1.1 billion in cash, certain GTE telephone properties
(the "GTE Telephone Properties") serving approximately 500,000 local
telephone access lines in eight 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.
In November 1994, Citizens and ALLTEL signed definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL telecommunications properties ("ALLTEL
Telecommunications Properties") serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers in eight states. The purchase price
for the ALLTEL Telecommunications Properties (net of 3,600 Citizens
telephone access lines which have been valued at $10 million and are
to be transferred to ALLTEL in a tax free exchange) is $282
million. On June 30, 1995, 35,662 local telephone access lines in
Oregon and West Virginia were transferred to the Company. On
September 30, 1995, approximately 19,000 local telephone access lines
in Tennessee were transferred to the Company. The remaining local
telephone access lines and the cable television systems are expected
to be transferred to the Company by early 1996. The GTE Telephone
Properties and the ALLTEL Telecommunications Properties are
collectively referred to as the "Telecommunications Properties".
(2) Elimination of certain corporate overhead expenses allocated to
certain of the Telecommunications 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 or to be 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 $458 million
of Company cash and investments which have been or are expected to be
used to partially finance the acquisition of the Telecommunications
Properties. The Company used $357.6 million of Company cash and
investments from December 31, 1993 through June 30, 1995 to
permanently finance the acquisitions of the Telecommunications
Properties.
(5) Represents an adjustment to reflect the inclusion in Interest Expense
of all the interest expense on $469 million of long-term debt
securities which have been or are expected to be issued or assumed to
partially finance the acquisition of the Telecommunications
Properties, net of the elimination of interest expense on the
temporary borrowings used to finance the acquisitions and on the debt
securities which are associated with the acquisitions of the
Telecommunications Properties and which were not or will not be
assumed by the Company. Through June 30, 1995, the purchase price for
the Telecommunications Properties had been permanently financed with
$402 million of long-term debt securities.
Page S-11
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Statements of Income
(6) Adjustment to Income Taxes based on Income Before Income Taxes and
the applicable incremental income tax rate.
(7) The Pro Forma Earnings Per Share calculation and Pro Forma Weighted
Average Common Shares are based on the weighted average number of
common shares outstanding for the periods indicated including the
number of additional shares issued or assumed to be issued to
permanently finance the Telecommunications Properties assuming such
additional shares were outstanding for the entire twelve month
periods. Through June 30, 1995, the Company financed $279.8 million
of the acquisition of the Telecommunications Properties from the
issuance of equity securities pursuant to the Company's Direct Stock
Purchase and Sale Plan, employee benefit plans and an underwritten
public offering. The Company may issue tax-advantaged preferred
securities to satisfy its remaining permanent equity acquisition
financing requirements. The issuance of such equity securities would
have the effect of reducing net income available to common
shareholders by an after-tax dividend requirement, decreasing Pro
Forma Weighted Average Common Shares and increasing Pro Forma
Earnings Per Share as compared to the presentation on the Pro Forma
Condensed Statements of Income.
(8) Reflects the discontinuance of subsidy contract revenues received
through the end of 1994 from Pacific Bell. For the twelve months
ended June 30, 1995 on both an Actual and Pro Forma basis this
discontinuance had the effect of reducing, by $19 million, income
before income taxes and related Earnings Per Share as compared to
prior periods.
Page S-12
<PAGE>
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 $ 75,000,000
Lehman Brothers Inc. 75,000,000
------------
Total $150,000,000
============
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 reallow, 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.
Page S-13
PROSPECTUS
CITIZENS UTILITIES COMPANY
SECURITIES
--------------------------------------
Citizens Utilities Company (the "Company" or "Citizens") may offer,
from time to time, debt securities consisting of unsecured debentures, in one
or more series (the "Debt Securities"); preferred stock, in one or more
series (the "Preferred Stock"); and its Common Stock, Series A and/or Series
B (the "Common Stock" and together with the Debt Securities and Preferred
Stock, the "Securities") in amounts, at prices and on terms to be determined
at the time of sale. The aggregate offering price of the Securities will not
exceed $1,000,000,000.
For each offering of Securities for which this Prospectus is being
delivered there will be an accompanying Prospectus Supplement (the "Prospectus
Supplement") that will set forth, with respect to Debt Securities, the
designation, principal amount, interest rate, interest payment dates, maturity
(not less than nine months nor more than fifty years), public offering price,
any redemption or sinking fund provisions, and any other specific terms; with
respect to Preferred Stock, the specific number of shares, liquidation value,
dividend rate (or method of calculation thereof), public offering price, any
redemption and sinking fund terms and other specific terms; and, with respect to
Common Stock, the specific number of shares, the designation, the public
offering price and other specific terms of the offering. The outstanding shares
of Common Stock are, and the new Common Stock will be, listed on the New York
Stock Exchange.
--------------------------------------
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. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------
The Company may offer the Securities through underwriters, through
dealers, directly to one or more institutional purchasers or through agents.
See "Plan of Distribution." The Prospectus Supplement will set forth the names
of the underwriters, dealers or agents, if any, any applicable commissions or
discounts and the gross and net proceeds to the Company from the sale of
Securities.
--------------------------------------
The date of this Prospectus is March 28, 1994
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus or any Prospectus Supplement in
connection with an offer made by this Prospectus or any Prospectus Supplement
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or by any other person,
underwriter, dealer or agent. Neither the delivery of this Prospectus or any
Prospectus Supplement nor any sale made hereunder shall under any circumstances
create an implication that there has been no change in the affairs of the
Company since the date hereof or thereof or that the information contained
herein is current as of any time subsequent to the date hereof. This Prospectus
and any Prospectus Supplement do not constitute an offer or solicitation by
anyone in any State in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such offer or solicitation.
----------------------------
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 1933 Act are incorporated into this Prospectus by reference:
The Company's Annual Report on Form 10-K for the year ended December
31, 1993 as amended on March 23 and March 25, 1994 by Forms 10-K/A and the
schedules to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 included in Form 8 filed on April 27, 1993.
The Company's Current Report on Form 8-K filed on December 15, and
December 20, 1993 and the Current Report on Form 8-K/A amending the Form 8K
filed on December 23, 1993 amending the Form 8-K filed December 15, 1993.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the 1934 Act prior to the termination of the
offering of the Securities shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus 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, 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).
2
<PAGE>
INFORMATION CONCERNING CITIZENS UTILITIES COMPANY
THE COMPANY
Citizens is a diversified operating public utility providing
telecommunications, natural gas, electric, water and wastewater services to
customers in sixteen states: Arizona, California, Colorado, Hawaii, Idaho,
Illinois, Indiana, Louisiana, Ohio, Oregon, Pennsylvania, Tennessee, Utah,
Vermont, Washington and West Virginia. Citizens also holds a significant
investment interest in Centennial Cellular Corp., a cellular telephone company
serving markets with a population of approximately 4.2 million. 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.
The Company, with administrative offices at High Ridge Park, Stamford,
Connecticut 06905, was incorporated in Delaware in 1935 to acquire the assets
and business of a predecessor corporation. Since then, the Company has grown as
a result of investment in owned utility operations and numerous acquisitions of
additional utility operations. It continues to consider and carry out business
expansion through significant acquisitions and joint ventures in traditional
public utility and related fields and the rapidly evolving telecommunications
and cable television industries.
As a result of its diversification, the Company is not dependent upon any
single geographic area for its revenues, nor is the Company dependent upon any
one type of utility service. Because of this diversity, no single regulatory
body regulates a utility service of the Company accounting for more than 18% of
its 1993 revenues. The Company is not aware of any other utility company as
fully diversified in both geographic areas served and variety of services
provided. The Company's operations are conducted principally in smaller
communities and non-urban areas. No material part of the Company's business is
dependent upon a single customer or a small group of customers. The loss of any
single customer or a small group of customers would not have a materially
adverse effect upon the Company. The Company's consumer connections have
increased from 26,150 in 1945 to 225,389 in 1965, to 610,585 in 1985, and to
more than 1,000,000 as of December 31, 1993.
On May 19, 1993, Citizens and GTE Corporation ("GTE") announced the
signing of ten definitive agreements pursuant to which Citizens agreed to
acquire from GTE, for $1.1 billion in cash, approximately 500,000 local
telephone exchange access lines in nine states: Arizona, California, Idaho,
Montana, New York, Oregon, Tennessee, Utah and West Virginia ("GTE Telephone
Properties"). The purchases require the approval of the Federal Communications
Commission and the regulatory commissions of the states in which the properties
are located. On December 31, 1993, 189,000 local telephone access lines in
Idaho, Tennessee, Utah and West Virginia were transferred to the Company. The
remaining GTE Telephone Properties are expected to be transferred in 1994.
THE BUSINESS
Operating divisions of Citizens provide electric and gas public
utility services, purchasing most of electric power needed and all gas supplies.
Telecommunications, water and wastewater public utility services are provided
either by divisions of Citizens or by its subsidiaries.
3
<PAGE>
FINANCIAL INFORMATION
The following financial information including Pro Forma financial
information reflecting the acquisition of GTE Telephone Properties is qualified
in its entirety by, and should be read in conjunction with, the information
appearing elsewhere herein and the documents and financial statements
incorporated by reference herein.
<TABLE>
<CAPTION>
Revenues
Year Ended December 31, 1993
-----------------------------
(In thousands)
Business Sector Pro Forma Actual
--------------- ----------- ------
<S> <C> <C>
Telecommunications $574,394 $177,497
Natural Gas 211,892 211,892
Electric 164,515 164,515
Water and Wastewater 65,488 65,488
---------- --------
Total $1,016,289 $619,392
========== ========
</TABLE>
4
<PAGE>
CONSOLIDATED SUMMARY FINANCIAL INFORMATION
(In thousands, except for per-share amounts)
<TABLE>
<CAPTION>
Year Ended
December 31, 1993 Year Ended December 31,
-------------------- -----------------------------------
Pro Actual 1992 1991 1990 1989
Forma/(1)/
-------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
- ----------------
Revenues $1,016,289 $619,392 $580,464 $545,025 $528,251 $483,582
Income from
Continuing Operations $ 151,724 $125,630 $115,013 $112,354 $105,624 $ 97,768
Earnings Per Share of
Common Stock from
Continuing Operations
/(2)/ Series A and B $ .77 $ .71 $ .66 $ .65 $ .60 $ .53
Ratio of Earnings to
Fixed Charges /(3)/ 4.4 5.3 4.8 5.3 5.3 5.2
</TABLE>
<TABLE>
<CAPTION>
As at December 31, 1993 As at December 31,
----------------------- ----------------------------------------------
Pro Actual 1992 1991 1990 1989
Forma/(4)/
----------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
- -------------
Total Assets $2,983,118 $2,627,118 $1,887,981 $1,721,452 $1,491,199 $1,365,534
Long-Term Debt $ 915,673 $ 547,673 $ 522,699 $ 484,021 $ 412,348 $ 379,729
Shareholders' Equity $1,342,486 $ 974,486 $ 837,271 $ 719,676 $ 606,229 $ 541,318
Long-Term Debt to
Total Capital Ratio 40.5% 36.0% 38.4% 40.2% 40.5% 41.2%
Shareholders' Equity
Per Share Series A
and Series B $ 6.77 $ 5.52 $ 4.76 $ 4.15 $ 3.43 $ 2.94
- -------------------
</TABLE>
(1) Combined Citizens' financial results with the financial results pertaining
to the GTE Telephone Properties assuming the acquisitions were effective on
January 1, 1993. These amounts should be read in conjunction with the Pro
Forma Financial Statements presented on pages 16 and 17 this Prospectus.
(2) Series A and Series B per-share amounts have been adjusted retroactively
for intervening stock dividends and stock splits. No adjustment has been
made for Citizens' 1.1% 1994 first quarter stock dividend, as this
adjustment is immaterial.
(3) "Earnings" consist of income from continuing operations plus fixed charges
and income taxes. "Fixed Charges" consist of interest charges and an amount
representing the interest factor included in rentals.
(4) Citizens' balance sheet data giving effect to the acquisitions of the GTE
Telephone Properties assuming the acquisitions were effective as at
December 31, 1993. These amounts should be read in conjunction with the Pro
Forma Financial Statements presented on pages 16 and 17 of this Prospectus.
5
<PAGE>
APPLICATION OF PROCEEDS
Approximately $750 million of proceeds from the sale of the Securities
is expected to be used to partially fund the acquisition of the GTE Telephone
Properties. The remainder of proceeds is expected to be used to reimburse the
Company's treasury for expenditures for the construction, extension, completion
and improvement of utility facilities, to acquire additional public utility and
related property and property in the rapidly evolving telecommunications and
cable television industries, to improve service and to provide funds for the
repayment of outstanding debt on such date or dates as the Company may determine
from time to time.
CAPITAL REQUIREMENTS AND FINANCING
The total purchase price for the GTE Telephone Properties is $1.1
billion in cash. The Company intends to permanently finance the acquisition of
the GTE Telephone Properties approximately one-third from the issuance of equity
securities, one-third from the issuance of debt securities and one-third from
Company investments. In addition, the Company is engaged in a continuous
acquisition program and expects, from time to time, to acquire additional public
utility and related property and property in the rapidly evolving
telecommunications and cable television industries.
The Company carries out a continuous construction program to maintain
reliable and safe service and to meet future customer service requirements. In
1994, the Company anticipates that construction, extension and improvement of
service relating to existing properties and the GTE Telephone Properties will
require approximately $280,000,000. 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. These capital requirements will be met from internally generated
funds, the sale of Securities covered by this Prospectus, the issuance of tax-
exempt debt securities and short-term borrowings.
The Company maintains $1,200,000,000 committed bank lines of credit
for general corporate purposes. As of March 24, 1994 no amounts were
outstanding under the existing lines of credit.
DESCRIPTION OF DEBT SECURITIES
GENERAL
Debt Securities may consist of any one or more of the following types
of securities: unsecured debentures, debentures convertible into equity, medium
term notes, and other
6
<PAGE>
unsecured notes, with a maturity of not less than nine months nor more than
fifty years from the date of issuance.
For each offering of Debt Securities there will be an accompanying
Prospectus Supplement that will set forth the aggregate principal amount or
amounts, public offering price or prices, maturity or maturities, rate or rates
and times of payment of interest, any sinking fund provisions, any redemption
terms and any other special terms of such Debt Securities. If the Debt
Securities are to be convertible to shares of equity securities, the
accompanying Prospectus Supplement will set forth the terms of conversion. The
following statements, which are qualified in their entirety by reference to the
Indenture described below, are brief summaries of the provisions of the
Indenture.
DEBENTURES AND OTHER UNSECURED DEBT SECURITIES
Debentures and other unsecured Debt Securities will be issued under
the Company's Indenture dated as of August 15, 1991, supplemented to cover two
earlier issuances of debentures and as may be further supplemented by one or
more supplemental indentures creating the respective series of Debentures and
other unsecured Debt Securities. Chemical Bank, New York, is the trustee (the
"Trustee") under the Indenture. Copies of the Indenture and any supplemental
indentures (collectively hereinafter called the "Indenture") are or will be
filed as exhibits to the Registration Statement. The Indenture provides
generally for the issuance of Debt Securities in series. Securities issued
under this Indenture are herein called the "Indenture Securities".
Debt Securities will not be secured. Debt Securities will rank
equally, unless otherwise specified in the Prospectus Supplements, with any
other indebtedness which may be issued under the Indenture and other unsecured
obligations of the Company except as noted. As of December 31, 1993, there was
outstanding approximately $505,422,000 principal amount of unsecured
indebtedness of the Company, including obligations under loan agreements
relating to industrial development revenue bonds issued on behalf of the Company
to finance the construction of specified property, all of which ranks equally in
right of payment with the Indenture Securities, except for approximately
$11,692,000 principal amount of such unsecured indebtedness which is subordinate
to all other unsecured indebtedness. In the future, the Company may incur
additional unsecured indebtedness, including obligations under industrial
development revenue bond loan agreements, and secured indebtedness under
mortgages or other security arrangements. At December 31, 1993 there was
$380,000,000 of short-term debt outstanding, issued in the form of commercial
paper notes, to temporarily and partially fund the GTE Telephone
Properties acquired on December 31, 1993. This short-term debt is expected to
be repaid from maturing temporary investments and proceeds from the planned
issuance of Securities in 1994.
Utility properties of a subsidiary of the Company in the state of
Arizona are subject to the lien of a mortgage securing $43,486,000 principal
amount of indebtedness from federal agencies as of December 31, 1993.
7
<PAGE>
Unless otherwise stated in the accompanying Prospectus Supplement, it
is intended that Debt Securities will be held by the owners as book-entry
securities. See below under "Description of Debt Securities -- Book-Entry Debt
Securities."
ISSUANCE OF ADDITIONAL SECURITIES
Additional Debt Securities may be issued under the Indenture. The
Indenture does not contain any limitation on the issuance by the Company of
other securities, either secured or unsecured.
MERGER, CONSOLIDATION, TRANSFER OF ASSETS
In the event of a merger, consolidation or transfer of assets of the
Company with or to another corporation or entity, in which the Company is not
the surviving corporation, the surviving entity shall assume the obligations of
the Company for Indenture Securities under the Indenture by execution of a
supplemental indenture, and such merger, consolidation or transfer of assets is
conditioned upon the surviving entity having a consolidated net worth
immediately subsequent to such event at least equal to that of the Company
immediately prior to such event.
MODIFICATION OF INDENTURE; DEFEASANCE
The Indenture provides that, with the consent of the holders of not
less than 66 2/3% in principal amount of all series of Indenture Securities
affected thereby which are at the time outstanding, the Company and the Trustee
may enter into supplemental indentures for the purpose of amending or modifying,
in any manner, provisions of the Indenture; provided, however, that no such
supplemental indenture, without the consent of the holder of each outstanding
Indenture Security affected thereby, shall, among other things, (i) change the
maturity of the principal of, or any installment of interest on, any Indenture
Security, or reduce the principal amount thereof or the interest thereon or any
premium payable upon the redemption thereof, or (ii) reduce the amount of the
principal of an original issue discount security that would be payable upon
acceleration, or (iii) impair the right to institute suit for the enforcement of
any such payment on or after the maturity or redemption date, or (iv) reduce the
aforesaid percentage of the Indenture Securities, the consent of the holders of
which is required for the execution of any such supplemental indenture or the
waiver of compliance with certain covenants (Indenture Section 902).
The Indenture provides for the defeasance of the Indenture with regard
to one or more series of Indenture Securities, or the defeasance of specified
covenants of the Indenture applicable to one or more series, upon the deposit in
trust of cash or U.S. government securities in an amount sufficient to pay
principal, premium, if any, and interest on such series of Indenture Securities
and upon satisfaction by the Company of other conditions (Indenture Sections
1302, 1303 and 1304).
8
<PAGE>
A condition to defeasance with respect to the entire amount of any
series of Indenture Securities is an opinion of counsel to the effect that the
holders of such series will not realize income for federal income tax purposes
as a result of such defeasance.
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to any series
of Indenture Securities as being: a default for 60 days in the payment of any
interest upon any Indenture Security of such series; a default in the payment of
any principal of or premium on any Indenture Security of such series when due; a
default in the deposit of any sinking fund payment with respect to such series;
a default in the performance of any other covenant in the Indenture applicable
to such series which goes unremedied for 90 days after notice of default given
by the Trustee or the holders of not less than a majority of principal amount of
such series; and includes certain events of bankruptcy, insolvency or
reorganization. The Company may add, delete or modify any Event of Default or
other similar event with respect to one or more series of Indenture Securities
at the time of establishing such series (Indenture Section 501). The Company is
required to file with the Trustee all reports required by the Trust Indenture
Act of 1939, which includes an annual officer's certificate as to compliance
with all conditions and covenants under the Indenture (Indenture Sections 704
and 1006).
The Indenture provides that, if an Event of Default with respect to a
series of Indenture Securities occurs and is continuing, the Trustee or the
holders of not less than a majority of principal amount of the outstanding
Indenture Securities of such series may declare the principal of the Indenture
Securities of such series to be due and payable immediately. The holders of a
majority of principal amount of the outstanding Indenture Securities of such
series may rescind any such declaration if such Event of Default has been cured
or waived and all amounts then due on the Indenture Securities of such series
have been paid (Indenture Section 502).
The Indenture further provides that, if an Event of Default occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
the rights of the Trustee and the rights of the holders of Indenture Securities
by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights (Indenture Section 503).
The Indenture provides that the Trustee shall give to the holders of
the Indenture Securities of any series notice of any default relating to such
series under the Indenture within 90 days of its occurrence, except that in the
------
case of a default by the Company in the performance of any covenant in the
Indenture other than those with respect to the payment of principal, premium or
interest or deposit of sinking fund payment, no such notice shall be given until
at least 30 days after the occurrence thereof, provided that the Trustee may
--------
withhold notice to holders of Indenture Securities of any series of any default
(except in payment of the principal of, or premium, if any, or interest on, any
Indenture Security or in
9
<PAGE>
the making of any sinking fund or similar payment) if it considers it in the
interest of the holders of Indenture Securities to do so (Indenture Section 602;
and Trust Indenture Act of 1939, Section 315(b)).
The Indenture provides that the holders of a majority of principal
amount of the outstanding Indenture Securities of a series have the right,
subject to certain conditions, to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee and the right to waive past
defaults, other than defaults in, or relating to, the payment of principal,
premium or interest (Indenture Sections 512 and 513). The Trustee will not be
required to comply with any request or direction of the holders of Indenture
Securities pursuant to the Indenture unless offered indemnity against costs,
expenses and liabilities which might be incurred by the Trustee as a result of
such compliance (Indenture Section 603(d)).
Holders of Indenture Securities of a series have no right to enforce
any remedy under the Indenture unless the Trustee has failed to institute
proceedings in respect of an Event of Default relating to such series within 90
days after notice thereof and has received a written request by the holders of
not less than a majority of principal amount of the outstanding Indenture
Securities of such series with an offer of reasonable indemnity against costs,
expenses and liabilities that may be incurred in complying with such request
(Indenture Section 507).
CONCERNING THE INDENTURE TRUSTEE
Chemical Bank, the Trustee, is one of the lending banks on the Company's
bank line of credit arrangements.
BOOK-ENTRY DEBT SECURITIES
Unless otherwise stated in the accompanying Prospectus Supplement, it
is intended that the Debt Securities will be held by the owners as book-entry
securities and will be issued in the form of one or more fully registered global
securities. The global securities will be deposited with, or on behalf of, and
will be registered in the name of, the Depository Trust Company, New York, NY,
(the "Depositary") or its nominee (Indenture Section 311). Except as set forth
below, the global securities may be transferred only to a nominee of the
Depositary or to a name designated by an authorized representative of the
Depositary or its nominee.
The Depositary has advised as follows: it is a limited-purpose trust
company organized under the banking laws of the State of New York and a "banking
organization" within the meaning of that law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the 1934 Act. The Depositary holds securities deposited by
its participating organizations ("participants") and
10
<PAGE>
facilitates settlement of securities transactions in such securities between
participants through electronic book-entry changes in accounts of its
participants. Participants include securities brokers and dealers, banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial re-
lationship with a participant, either directly or indirectly ("indirect
participants"). Persons who are not participants may beneficially own securities
held by the Depositary only through participants or indirect participants.
The Depositary has advised that pursuant to its procedures: (i) upon
issuance of the Indenture Securities by the Company, the Depositary will credit
the accounts of participants and indirect participants designated by any
underwriters, dealers or agents with the principal amount of the Debt Securities
purchased and (ii) ownership of beneficial interests in the global debt
securities will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the Depositary, the participants and the
indirect participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the global
debentures is limited to such extent.
So long as the Depositary or a nominee of the Depositary is the
registered owner of the global debt securities, such Depositary or nominee for
all purposes will be considered the sole owner or holder of the Debt Securities
under the applicable indenture. Except as provided below, owners of beneficial
interests in the global debt securities will not be entitled to have Debt
Securities registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities, and will not be considered the owners or
holders thereof under the applicable indenture.
Neither the Company nor the Trustee will have any responsibility or
obligation for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global debt securities or for
maintaining any records relating to such beneficial ownership interests.
Principal and interest payments on Debt Securities registered in the
name of the Depositary (or its successor or nominee) will be made by the paying
agent for the related series under the applicable indenture to the Depositary
(or its successor or nominee) as the registered owner of the global debt
securities. Under the terms of the Indenture and, unless otherwise stated in
the Prospectus Supplement, under the terms of any other applicable indenture the
Company and the Trustee will treat the persons in whose names the Debt
Securities are registered as the owners of such Debt Securities for the purpose
of payment of principal and interest on such Debt Securities, giving any notice
permitted or required to be given to holders of Debt Securities, registering the
transfer of the global debt securities, and for all other purposes whatsoever.
Therefore, neither the Company, the Trustee nor any paying agent has any direct
responsibility or liability for the payment of principal or interest on the Debt
Securities, or the giving of any such notice, to owners of
11
<PAGE>
beneficial interests in the global debt securities, as the case may be, or, in
the event of any sinking fund payment or redemption, the selection of the owners
of beneficial interests to receive payment. The Depositary has advised that its
present practice is, upon receipt of any payment of principal or interest, to
credit immediately the accounts of the participants and indirect participants
with such payment in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the global debt securities as shown
on the records of the Depositary. Payments by participants and indirect
participants to owners of beneficial interests in the global debt securities
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of the participants
or indirect participants.
Global debt securities are exchangeable for definitive Debt Securities
in registered form only if (i) the Depositary notifies the Company that it will
not continue its services as Depositary for the global debt securities, (ii) the
Depositary ceases to be a clearing agency registered under the 1934 Act, (iii)
the Company in its sole discretion determines that all such global debt
securities shall be exchangeable for definitive debt Securities in registered
form, or (iv) an Event of Default (as hereinabove described) with respect to the
debt Securities represented by such global debt securities has occurred and is
continuing. Any global debt securities that are exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive Debt Securities in
registered form in denominations of $1,000 and integral multiples thereof. Such
definitive Debt Securities shall be registered in the names of the owners of the
beneficial interests in such global debt securities as provided by the
Depositary's participants (as identified by the Depositary holding such global
debt securities).
In the event that Debt Securities which are held as book-entry debt
securities cease to be book-entry debt securities, such Debt Securities will be
delivered as registered debt securities without coupons in denominations of
$1,000 or any authorized multiple of $1,000. No service charge will be made for
any exchange or registration of transfer of any Debt Securities, except that the
Company may require payment sufficient to cover any tax or governmental charge
in connection therewith (Indenture Sections 302 and 305).
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue up to 50,000,000 shares of
Preferred Stock, par value $.01 per share. Under the Company's Restated
Certificate of Incorporation, as amended, the Board of Directors is empowered to
fix, by resolution, or resolutions, the designations, powers, preferences and
relative, participating, optional, conversion and other rights and the
qualifications, limitations and restrictions of such Preferred Stock, including
dividend rates and payment dates, liquidation preferences, conversion prices,
voting rights, redemption and sinking fund terms, and other specific terms.
Preferred Stock may be issued in one or more classes and in one or more series.
In the event that the Directors shall
12
<PAGE>
create a class or series of Preferred Stock, the terms shall be as set forth in
the resolution of the Directors creating such stock. None of the Company's
authorized Preferred Stock has been issued.
The statements with respect to the Company's Preferred Stock contained
in this Prospectus and in any Prospectus Supplement, are summaries of the
Company's Restated Certificate of Incorporation and the aforesaid resolutions.
Such statements are in all respects subject to and qualified in their entirety
by reference by the Restated Certificate and the resolutions fixing the terms of
the Preferred Stock.
DIVIDEND RIGHTS
The holders of Preferred Stock in respect of which an accompanying
Prospectus Supplement is being delivered will be entitled to receive dividends
when and as declared by the Board of Directors of Citizens, as specified in such
accompanying Prospectus Supplement. The date that the initial dividend on such
Preferred Stock is expected to be payable will be as set forth in such
accompanying Prospectus Supplement. There are no limitations in any existing
indentures or any other agreements on the payments of dividends on Preferred
Stock.
VOTING RIGHTS
Any rights of the holders of the shares of any series or class of
Preferred Stock will be as set forth in an accompanying Prospectus Supplement.
REDEMPTION AND LIQUIDATION RIGHTS
Redemption provisions and Liquidation Rights and preferences for the
Preferred Stock in respect of which an accompanying Prospectus Supplement is
being delivered will be set forth in such accompanying Prospectus Supplement.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Preferred Stock will be as
set forth in an accompanying Prospectus Supplement.
DESCRIPTION OF COMMON STOCK SERIES A AND SERIES B
Citizens' common equity capital consists of two series: Common Stock
Series A and Common Stock Series B. The Company has authorized 200,000,000
shares of Common Stock Series A and 300,000,000 shares of Common Stock Series B.
The Company as of March 10, 1994 had outstanding 129,321,066 shares of Common
Stock Series A and
13
<PAGE>
53,507,044 shares of Common Stock Series B. The holders of Common Stock Series A
and Common Stock Series B are entitled to one vote for each share on all matters
voted on by stockholders. Pursuant to Citizens' Restated Certificate of
Incorporation, the holders of Common Stock Series A and the holders of Common
Stock Series B vote together as a single class on all matters to be voted on by
stockholders, unless otherwise expressly required by applicable law. Common
Stock Series A is convertible, on a share-for-share and a tax free basis,
into Common Stock Series B at all times. Common Stock Series B is not
convertible into Common Stock Series A. The Board of Directors of Citizens may,
in its sole discretion and at any time, require all of the holders of Common
Stock Series A to exchange all of their shares of Common Stock Series A for
shares of Common Stock Series B on a share-for-share basis. The holders of
Common Stock Series A and Series B participate ratably in liquidation.
COMMON STOCK DIVIDENDS
The holders of Common Stock are entitled to receive dividends when and
as declared by the Board of Directors of Citizens out of funds legally available
therefor. Dividends have been paid to holders of Common Stock every year without
interruption beginning in 1939, with increases in cash dividends or cash value
equivalents every year without interruption beginning in 1946. Beginning in
1956, when the two-series common stock capitalization of Citizens was initiated,
through 1989, only stock dividends were paid on Common Stock Series A and only
cash dividends were paid on Common Stock Series B. Commencing in 1990, Citizens
declared and paid stock dividends on shares of both Common Stock Series A and
Common Stock Series B. Under present Federal tax law, stock dividends on Common
Stock Series A and Common Stock Series B, if paid and received pro-rata and
otherwise in the same manner as they have been since 1990, will continue to be
free of current federal income taxation on receipt.
To the extent that stock dividends are declared on Common Stock Series
B, the same stock dividend must be declared on Common Stock Series A. To the
extent that cash dividends are paid out of funds that are legally available on
Common Stock Series B, stock dividends with an equivalent fair value must be
paid during the same calendar year on Common Stock Series A, unless cash
dividends are declared on Common Stock Series A at the same time and in an equal
amount as on Common Stock Series B.
As noted herein, the Company's Board of Directors may determine the
power, preferences and rights of holders of Preferred Stock which may be issued
in the future, which may impact the powers and rights of holders of outstanding
Common Stock, without any further action by the stockholders of the Company.
The holders of Common Stock have no preemptive rights.
STOCK DIVIDEND SALE PLAN
The Company has a Stock Dividend Sale Plan (the "Plan") offered by a
separate prospectus that permits holders of shares of Common Stock Series B to
have their stock
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<PAGE>
dividends sold quarterly by the Plan Broker with the cash proceeds of the sale
distributed to them. The Company absorbs all expenses of the Plan, except for
specified brokerage charges incurred in connection with selling the Series B
dividend shares. The Company reserves the right to discontinue the Plan at any
time.
TRANSFER AGENT
The Transfer Agent for the Company's Common Stock is the Illinois Stock
Transfer Company.
15
<PAGE>
COMMON STOCK PRICE RANGE
Prior to February 24, 1992, the Company's common stock was traded on
the over-the-counter market as a National Market Issue under NASDAQ symbols
CITUA for Series A and CITUB for Series B shares. On February 24, 1992,
Citizens commenced trading on the New York Stock Exchange under the symbols CZNA
and CZNB for Common Stock Series A and Common Stock Series B, respectively.
The table below indicates the high and low prices per share for the
periods shown. From January 2, 1991, through February 21, 1992, the last day
the stock was traded on the over-the-counter market, the prices were taken from
the NASDAQ/NMS Monthly Statistical Report. The high and low prices per share
from February 24, 1992, through December 31, 1993, were taken from the daily
quotations published in The Wall Street Journal during the periods indicated.
Prices have been adjusted retroactively for intervening stock dividends, the
July 24, 1992 3-for-2 stock split and the August 31, 1993 2-for-1 stock split,
rounded to the nearest 1/8th. No adjustment has been made for the 1.1% 1994
first quarter stock dividend, as this adjustment is immaterial.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------- ------------- ------------ -------------
High Low High Low High Low High Low
------ ------ ----- ------ ---- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993:
Series A $17 5/8 13 3/8 18 3/8 15 7/8 18 1/8 13 1/4 19 7/8 16 1/8
Series B $17 5/8 13 1/2 18 3/8 15 3/4 18 1/8 13 1/4 19 3/4 16 1/8
1992:
Series A $12 3/8 10 1/2 12 1/8 11 13 5/8 10 3/4 14 1/2 12
Series B $12 1/8 10 3/8 12 1/8 10 5/8 13 5/8 10 5/8 14 1/2 12
1991:
Series A $8 1/2 6 1/2 8 1/4 7 3/8 9 5/8 7 3/8 11 1/4 9
Series B $8 1/2 6 1/2 8 1/8 7 3/8 9 5/8 7 1/8 11 1/4 8 3/4
</TABLE>
The reported high and low prices for 1994 through March 24, 1994 were $18 and
$15 1/4 per share of Common Stock Series A and $18 1/8 and $15 1/4 per share of
Common Stock Series B, respectively. The reported last sale prices on the New
York Stock Exchange on March 24, 1994 were $15 1/4 per share of Common Stock
Series A and $15 1/4 per share of Common Stock Series B.
16
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
CITIZENS UTILITIES COMPANY
PRO FORMA CONDENSED BALANCE SHEET
At December 31, 1993
(In thousands)
The following Pro Forma Condensed Balance Sheet represents the historical
condensed balance sheet of Citizens giving effect to the acquisitions of the GTE
Telephone Properties under the purchase accounting method as if the acquisitions
had become effective on December 31, 1993. 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
dates indicated and do not purport to indicate future financial position.
<TABLE>
<CAPTION>
Pro Forma
-----------------------------
Citizens Adjustments (1) Adjusted
--------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 21,738 $ 636,000 (2) $ 21,738
(636,000)(3)
Temporary Investments 89,752 (89,752)(2) 0
Accounts Receivable 114,313 114,313
Other 14,934 14,934
---------- ----------
Total Current Assets 240,737 150,985
---------- ----------
Net Property, Plant and
Equipment 1,691,967 636,000 (3) 2,327,967
---------- ----------
Investments 411,022 (190,248)(2) 220,774
Regulatory Assets 146,207 146,207
Deferred Debits and Other
Assets 137,185 137,185
---------- ---------- ----------
$2,627,118 $ 356,000 $2,983,118
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Long-Term Debt Due Within
One Year $ 1,620 $ 1,620
Other 246,605 246,605
Short-Term Debt 380,000 $(380,000)(2) 0
---------- ----------
Total Current Liabilities 628,225 248,225
Customer Advances for
Construction and Contributions
in Aid of Construction 184,253 184,253
Deferred Income Taxes 213,471 213,471
Regulatory Liabilities 28,376 28,376
Deferred Credits and Other
Liabilities 50,634 50,634
Long-Term Debt 547,673 368,000 (2) 915,673
---------- ----------
1,652,632 1,640,632
---------- ----------
Shareholders' Equity
Common Stock Issued, $.25
Par Value
Series A 32,447 32,447
Series B 13,119 13,119
Additional Paid-In Capital 698,688 368,000 (2) 1,066,688
Retained Earnings 230,232 230,232
---------- ----------
974,486 1,342,486
---------- ----------- ----------
$2,627,118 $ 356,000 $2,983,118
========== =========== ==========
</TABLE>
(1) The Company and GTE have signed ten definitive agreements in which the
Company will purchase from GTE, for $1.1 billion in cash, certain GTE
Telephone Properties serving approximately 500,000 access lines in nine
states. On December 31, 1993, 189,000 local telephone access lines in
Idaho, Tennessee, Utah and West Virginia were transferred to the Company.
The $468 million purchase price for the properties that were transferred on
December 31, 1993 was permanently funded with $88 million of Investments and
temporarily funded with $380 million of Short-Term Debt. The remaining GTE
Telephone Properties are expected to be transferred in 1994.
(2) When added to the $88 million of permanent funding described in Note (1)
above, these adjustments reflect the permanent funding of the $1.1 billion
purchase price with equal components of Investments (including Temporary
Investments), Long-Term Debt and Equity.
(3) Reflects the acquisition of the remaining GTE Telephone Properties expected
to be transferred in 1994.
17
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (continued)
CITIZENS UTILITIES COMPANY AND GTE TELEPHONE PROPERTIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(In thousands, except for per-share amounts)
The following Pro Forma Condensed Combined Statements of Income for
the year ended December 31, 1993 combine the historical statements of income of
Citizens and the GTE Telephone Properties giving effect to the acquisitions as
if the acquisitions had been effective on January 1, 1993. The Pro Forma
Condensed Combined Statements of Income should be read in conjunction with
historical financial statements and related notes thereto of Citizens and those
of the GTE Telephone Properties that have been audited which are incorporated by
reference herein. The Pro Forma Condensed Statements of Income are not
necessarily indicative of what the actual results of operations would have been
for the period had the transactions occurred at the date indicated and do not
purport to indicate the results of future operations .
<TABLE>
<CAPTION>
Year Ended December 31, 1993
------------------------------------------------
Pro Forma
-------------------------
CITIZENS GTE(1) Adjustments Combined
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Revenues $619,392 $396,897 $1,016,289
Operating Expenses:
Operating Expenses 403,534 226,054 ($11,000)(2) 618,588
Depreciation and
Amortization 54,698 77,108 8,000 (3) 139,806
-------- -------- -------- ----------
Total Operating Expenses 458,232 303,162 (3,000) 758,394
Net Operating Income 161,160 93,735 3,000 257,895
Other Income (Deductions) 54,199 (166) (18,400)(4) 35,633
Interest Expense 37,431 26,517 200 (5) 64,148
-------- -------- -------- ----------
Income Before Income
Taxes 177,928 67,052 (15,600) 229,380
Income Taxes 52,298 24,758 600 (6) 77,656
-------- -------- -------- ----------
Net Income $125,630 $42,294 ($16,200) $151,724
======== ======== ======== ==========
Earnings Per Share
of Common Stock:
Series A and Series B* $ .71 $ .77 (7)
Weighted Average
Common Shares* 176,564 198,211 (7)
</TABLE>
* No adjustment has been made for Citizens' 1.1% 1994 first quarter stock
dividend, as this adjustment is immaterial.
- --------------------
See Notes to Pro Forma Financial Statements on page 18.
18
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (continued)
CITIZENS UTILITIES COMPANY AND GTE TELEPHONE PROPERTIES
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
(1) The Company and GTE have signed ten definitive agreements in which the
Company will purchase from GTE for $1.1 billion in cash, certain GTE Telephone
Properties serving approximately 500,000 access lines in nine states. On
December 31, 1993, 189,000 local telephone access lines in Idaho, Tennessee,
Utah and West Virginia were transferred to the Company. The remaining GTE
Telephone Properties are expected to be transferred in 1994.
(2) Elimination of certain corporate overhead expenses allocated by GTE to the
GTE Telephone Properties which will not have a continuing impact on the
combined entity.
(3) Represents amortization of the $175 million of excess of purchase price
over net book value of assets acquired for the states in which the public
utilities commissions have required amortization. In accordance with Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation", the remaining $158 million of excess of
purchase price over net book value of assets acquired in states where the
public utilities commissions have not required amortization 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) Elimination of tax exempt investment income earned on $368 million of the
Company's investments which will be used to partially finance the acquisition
of the GTE Telephone Properties.
(5) Represents interest expense on $368 million of additional long-term debt to
be issued to partially finance the acquisition of the GTE Telephone Properties,
net of the elimination of interest expense on long-term debt associated with
the GTE Telephone Properties which will not be assumed by the Company. The
Company anticipates that cash flow from operations generated by the acquired
properties will be more than sufficient to fund the capital expenditure
requirements of the acquired properties.
(6) Adjustment to income tax expense based on taxable income and the applicable
effective tax rate.
(7) The pro forma earnings per share is based on the weighted average number of
common shares outstanding plus the number of additional shares assumed to have
been issued to finance $368 million of the acquisition purchase price assuming
such shares were outstanding for the entire respective periods.
19
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31, 1993
1992, and 1991, and for each of the years then ended, incorporated by reference
in this Prospectus from the Company's Annual Report on Form 10-K as amended,
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 the authority of said firm as experts in accounting and
auditing.
The financial statements of the West Virginia and Tennessee Operations of
GTE South Incorporated, and of the Arizona and Idaho Operations of Contel of the
West, Inc., incorporated by reference in this Prospectus, have been examined by
KPMG Peat Marwick LLP to the extent and for the periods indicated in their
reports, and have been so incorporated by reference in reliance upon the
reports of KPMG Peat Marwick LLP, also incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Contel of New York, Inc. and Contel of West
Virginia, Inc., incorporated by reference in this Prospectus, have been examined
by Arthur Andersen LLP to the extent and for the periods indicated in their
reports, and have been so incorporated by reference in reliance upon the
reports of Arther Andersen LLP, also incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
The validity of the Securities will be passed upon by Boulanger, Hicks, Stein
& Churchill, P.C., 135 East 57th Street, New York, New York, counsel for the
Company, and by Simpson Thacher & Bartlett (a parternship which includes
professional corporations), 425 Lexington Avenue, New York, New York, counsel
for the Underwriters. Legal matters relating to required authorization, if any,
of the Securities by the public utilities commissions in the various states will
be passed upon by local counsel to the Company in the states of Arizona,
Colorado, Hawaii, Louisiana, Tennessee, Vermont and West Virginia. Boulanger,
Hicks, Stein & Churchill and Simpson Thacher & Bartlett may rely upon such
counsel as to certain matters governed by the laws of such states.
PLAN OF DISTRIBUTION
The Company may sell the Securities (i) through underwriters; (ii) through
dealers; (iii) directly to one or more institutional purchasers; or (iv)
through agents. Securities may be sold outside the United States. An
accompanying Prospectus Supplement will set forth the terms of the offering
of Securities including the name or names of any underwriters, dealers,
purchasers or agents, the purchase price of such Securities and the proceeds
to the Company from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price,
any discounts or concessions allowed or reallowed or paid to dealers
and any securities exchanges on which wuch Securities may be listed. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time. Only firms named in the
Prospectus Supplement are deemed to be underwriters dealers or agents in
connection with the Securities offered thereby.
If underwriters are used in the sale, Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated trnasactions, at a fixed public
offering price or at varying prices determined at the time of sale. Unless
otherwise set forth in the Prospectus Supplement, the obligations of the
underwriters to purchase the Securities will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all such
Securities if any are purchased.
Securities may be sold directly by the Company or through any firm designated
by the Company from time to time, acting as principal or as agent. The
Prospectus Supplement will set forth the name of any dealer or agent involved in
the offer or sale of the Securities in respect of which the Prospectus
Supplement is delivered and the price payable to the Company by such
dealer or any commissions payable by the Company to such agent. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be acting
on a best efforts basis for the period of its appointment.
Underwriters, dealers and agents may be entitled under agreements entered into
with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribution with respect to payments for such liabilities which
underwriters, dealers or agents may be required to make Underwriters, dealers
and agents may engage in transactions with or perform services for the Company
in the ordinary course of business.
The anticipated date of delivery of Securities will be as set forth in the
Prospectus Supplement relating to such offering.
