CITIZENS UTILITIES COMPANY
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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Commission file number 001-11001
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CITIZENS UTILITIES COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 06-0619596
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 329-8800
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NONE
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past ninety days.
Yes X No
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Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of April 28, 1995.
Common Stock Series A 153,989,881
Common Stock Series B 62,999,971
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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INDEX
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Page No.
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Part I. Financial Information
Consolidated Condensed Balance Sheets March 31, 1995
and December 31, 1994 2
Consolidated Condensed Statements of Income for the
Three Months Ended March 31, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows for
the Three Months Ended March 31, 1995 and 1994 4
Notes to Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information 7
Signature 10
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PART I. FINANCIAL INFORMATION
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED BALANCE SHEETS
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(In thousands)
March December
31, 1995 31, 1994
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ASSETS
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Current assets:
Cash and cash equivalents $ 19,481 $ 14,224
Temporary investments 25,910 108,818
Accounts receivable 155,886 166,795
Other 31,054 24,217
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232,331 314,054
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Property, plant and equipment 3,632,207 3,583,723
Less accumulated depreciation 1,055,467 1,014,068
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2,576,740 2,569,655
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Investments 329,301 325,011
Regulatory assets 178,009 177,414
Deferred debits and other assets 185,515 190,432
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$ 3,501,896 $3,576,566
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Long-term debt due within one year $ 5,564 $ 13,986
Short-term debt 164,300 515,200
Other 317,200 349,991
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487,064 879,177
Customer advances for construction and
contributions in aid of construction 219,594 216,730
Deferred income taxes 256,004 248,150
Regulatory liabilities 30,318 30,830
Deferred credits and other liabilities 55,325 50,594
Long-term debt 1,002,138 994,189
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2,050,443 2,419,670
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Shareholders' equity:
Common stock issued, $.25 par value
Series A 38,546 33,586
Series B 15,667 14,782
Additional paid-in capital 1,158,118 861,981
Retained earnings 229,152 237,417
Unrealized gain on securities
classified as available for sale 9,970 9,130
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1,451,453 1,156,896
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$ 3,501,896 $3,576,566
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The accompanying Notes are an integral part of these Financial Statements.
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PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
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(In thousands, except per-share amounts)
1995 1994
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Revenues $269,534 $223,896
Expenses:
Operating expenses 171,239 151,534
Depreciation 39,393 25,401
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210,632 176,935
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Income from operations 58,902 46,961
Other income, net 12,855 11,906
Interest expense 22,697 13,137
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Income before income taxes 49,060 45,730
Income taxes 15,156 14,075
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Net income $ 33,904 $ 31,655
======== ========
Earnings per share of common stock
Series A and Series B $ .16 $ .16*
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Number of common shares outstanding
at March 31:
Series A Common Stock 154,188 137,744*
Series B Common Stock 62,658 57,133*
Dividends declared on common stock:
In Series A shares on Series A
Common Stock and in Series B
shares on Series B Common
Stock paid quarterly - rate 1.5% 1.1%
==== ====
*Adjusted for subsequent stock dividends
The accompanying Notes are an integral part of these Financial
Statements.
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PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
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(In thousands)
1995 1994
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Net cash provided by operating activities $58,722 $49,134
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Cash flows from investing activities:
Construction expenditures (45,441) (47,235)
Securities purchases - (4,706)
Securities sales 51,086 7,972
Securities maturities 34,423 12,340
Business Acquisitions (4,597) -
Customer Advances for construction and
contributions in aid of construction 1,918 (568)
Other, net 758 2,950
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38,147 (29,247)
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Cash flows from financing activities:
Long-term debt borrowings 12,277 22,476
Long-term debt principal payments (12,247) (321)
Short-term debt payments (350,900) (38,730)
Issuance of common stock 258,823 -
Other 435 167
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(91,612) (16,408)
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Increase in cash and cash equivalents 5,257 3,479
Cash and cash equivalents at January 1, 14,224 21,738
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Cash and cash equivalents at March 31, $19,481 $25,217
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The accompanying Notes are an integral part of these Financial Statements.
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PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENTS
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(1) The consolidated financial statements include the accounts of
Citizens Utilities Company and all subsidiaries after elimination of
intercompany balances and transactions. All adjustments, which consist of
only normal recurring accruals, necessary for a fair statement of the results
for the interim periods have been made.
(2) Earnings per share is based on the average number of outstanding
shares, adjusted for subsequent stock dividends and stock splits. Earnings
per share is presented with historical adjustment for stock dividends and
stock splits. The effect on earnings per share of outstanding stock options
is immaterial.
(3) In accordance with applicable regulatory systems of account, an
allowance for funds used during construction is included in the cost of
additions to property, plant and equipment and is allowed in rate base for
rate making purposes. The allowance is not a cash item. The amount relating
to equity is included in Other income, net and the amount relating to
borrowings is offset against Interest expense.
(4) Pursuant to the provisions of SFAS 115, the Company classified its
investments into two categories, "held-to-maturity" and "available-for-sale".
The Company records unrealized holding gains on securities classified as
available-for-sale as an increase to investments.
The following summarizes the cost, unrealized gains and fair market value
for investments:
Unrealized Aggregate Fair
Investment Classification Amortized Cost Holding Gains Value
- ------------------------- -------------- ------------- --------------
As of March 31, 1995
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Held-To-Maturity $289,061,000 $79,353,000 $368,414,000
Available-For-Sale 50,574,000 15,576,000 66,150,000
As of December 31, 1994
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Held-To-Maturity $368,302,000 $77,355,000 $445,657,000
Available-For-Sale 50,809,000 14,718,000 65,527,000
Held-to-Maturity Securities
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Investment Amortized Cost Fair Value
Maturities March 31, 1995 Dec. 31, 1994 March 31, 1995 Dec. 31, 1994
- ---------- -------------- ------------- -------------- -------------
Within 1 year $ 79,297,000 $108,818,000 $ 79,521,000 $108,935,000
2-5 years 98,780,000 141,030,000 98,796,000 139,567,000
6-10 years 23,042,000 34,171,000 23,532,000 32,656,000
Thereafter 87,942,000 84,283,000 166,565,000 163,499,000
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$289,061,000 $368,302,000 $368,414,000 $445,657,000
============ ============= ============ ============
The Company sold $48,406,000 of securities classified as held-to-maturity
during 1995 for the purpose of permanently financing the acquisition of the
GTE Telephone Properties; gains and losses of $358,000 and $295,000,
respectively, were realized on such sales. This decrease in securities is
presented in the attached Balance Sheet as a reduction to Temporary
investments. The amortized cost and related gains on available-for-sale
securities sold during 1995 were $235,000 and $2,445,000, respectively.
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PART I. FINANCIAL INFORMATION (Continued)
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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(a) Liquidity and Capital Resources
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For the three months ended March 31, 1995, the primary source of funds
was from operations. Funds requisitioned from the 1994, 1993 and 1991 Series
Industrial Development Revenue Bond construction fund trust accounts were used
to pay for construction of utility plant. On May 3, 1995, the Company
arranged for the issuance of $13,550,000 of Industrial Development Revenue
Bonds; the bonds were issued as demand purchase bonds bearing interest at
6.2% and mature on May 1, 2030. Commercial paper notes payable in the amount of
$349,800,000 were outstanding as of March 31, 1995, of which $164,300,000 is
classified as short-term debt as it represents the balance of the amount that
was issued to temporarily and partially fund the acquired GTE Telephone
Properties. The $164,300,000 of commercial paper is expected to be repaid
from maturing temporary investments, funds from operations and proceeds from
the issuance of securities. On January 30, 1995, the Company, pursuant to an
underwritten public offering, issued 19,000,000 shares of its Common Stock
Series A at an issuance price of $13 5/8 per share and realized $244,200,000
in net proceeds. These proceeds were used to repay short-term debt. An
additional 914,000 shares of Series A and Series B were issued pursuant to
shareholder and employee stock plans in the first quarter of 1995. The Company
realized $11,770,000 in proceeds from these issuances. On March 31, 1995,
$8,600,000 of 11% Subordinated Investment Notes matured.
The Company considers its operating cash flows and its ability to raise
debt and equity capital as the principal indicators of its liquidity.
Although working capital is not considered to be an indicator of the Company's
liquidity, the Company experienced an increase in its working capital at
March 31, 1995 as compared to December 31, 1994. The increase is primarily
due to the repayment of short-term debt. The Company has lines of credit with
commercial banks under which it may borrow up to $1,200,000,000, there were no
amounts outstanding under these lines at March 31, 1995.
The Company has entered into certain agreements whereby it has the right
to acquire shares of, and to provide certain management services to, Hungarian
Telephone & Cable Corp., a Delaware corporation (NASDAQ: HTCC). Such
arrangements are conditioned upon, among other things, the parties entering
into definitive agreements.
The Company has requests for increases in annual revenues pending before
regulatory commissions in California, Illinois, Hawaii, Ohio and Vermont.
(b) Results of Operations
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Operating revenues for the three months ended March 31, 1995 increased
$45,638,000 or 20% compared to the like 1994 period primarily due to increased
telecommunications revenues. Telecommunications revenues totaled $142,949,000,
a 69% increase over the 1994 amount of $84,731,000 primarily due to revenues
derived from operating the GTE Telephone Properties acquired on June 30,
November 30 and December 30, 1994; partially offset by a $9,944,000 decrease
in revenues of the Company's California Telephone Operations due to the
expiration of the Pacific Bell contract on December 31, 1994. Natural gas
revenues decreased 16% primarily due to $6,100,000 of decreased average
revenue per MCF of gas sold to residential and commercial customers and
$5,510,000 of decreased consumption as a result of mild weather conditions in
the first quarter of 1995.
Operating expenses of $171,239,000 for the three months ended March 31,
1995 increased 13% over the 1994 amount of $151,534,000 primarily due to
increased telecommunications operating expenses. The increase in operating
expenses was partially offset by a 23% decrease in natural gas purchased due
to lower commodity prices and decreased customer consumption. Depreciation
expense of $39,393,000 for the three months ended March 31, 1995 increased 55%
compared to the like 1994 period primarily due to increased depreciable plant
as a result of the acquisitions of the GTE Telephone Properties.
Other income, net for the three months ended March 31, 1995 increased 8%
compared to the amount reported last year due to increases of $1,046,000 in the
allowance for funds used during construction as a result of increased property,
plant and equipment. In addition, there was a net increase of $1,244,000 in
investment income primarily due to net gains on securities sold, partially
offset by a decrease in tax exempt income.
Interest expense for the three months ended March 31, 1995 increased
$9,560,000 or 73% over the 1994 amount of $13,137,000 primarily as a result of
debentures issued to finance the acquisition of the GTE Telephone Properties
acquired and an increase in Industrial Development Revenue Bond borrowings.
The increase in interest expense was partially offset by increased allowance
for funds used during construction, which is related to borrowings, as a
result of increased property plant and equipment. Income taxes for the three
months ended March 31, 1995 increased compared to the like 1994 period
primarily due to increased taxable income.
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PART II. OTHER INFORMATION
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Item 1. Legal Proceedings
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In September 1992, the United States Environmental Protection
Agency filed a complaint with the United States District Court for the
Northern District of Illinois relating to alleged violations by the Company's
Illinois subsidiary with respect to National Pollutant Discharge Elimination
System permit requirements. The Company settled this action on March 23, 1995.
Under the settlement, the Company paid a fine of $501,000 and it will also
make certain plant improvements with an estimated cost of $2,200,000. These
improvements are presently under design. Construction is expected to begin
later in 1995 and be completed before the end of 1996. The improvements are
required in order to comply with new discharge limits reached under the
settlement.
As a regulated entity, the Company is entitled to earn a fair rate
of return on these improvements that are placed in service for the benefit of
its customers. The Company believes that the cost of these improvements will
be recovered through customer rates.
On February 19, 1993, the Company was served with a summons and
complaint in an action brought by the Sun City Taxpayers' Association in the
United States District Court for the District of Connecticut. The plaintiff
alleged that the Company, through its Sun City Water Company and Sun City
Sewer Company subsidiaries, misrepresented rate-base investment in rate
applications submitted to the Arizona Corporation Commission ("ACC") between
1968 and 1978 and claimed damages of $65,000,000 before trebling.
The plaintiff made substantially the same allegations in a regulatory
proceeding before the ACC in 1986 and the ACC rejected those allegations. On
February 1, 1994, the Company's motion to dismiss this action was granted and
the complaint was dismissed by an opinion and order of the District Court. On
February 9, 1994, plaintiff filed a notice of appeal seeking review of the
court's ruling by the United States Court of Appeals for the Second Circuit.
The Second Circuit denied the appeal on January 23, 1995 and the Plaintiff
filed a Writ of Certiorari to the United States Supreme Court on February 14,
1995. The Supreme Court denied Plaintiff's motion on April 17, 1995, thus
extinguishing all avenues of further appeal and bringing the case to a close.
In June 1993, several stockholders commenced purported derivative
actions in the Delaware Court of Chancery against the Company's Board of
Directors. These actions have since been consolidated (the "Consolidated
Action"). These stockholders allege that the compensation approved by the
Board of Directors for the Company's Chairman is excessive and seek, among
other things, an accounting for alleged corporate waste and a declaration that
the Chairman's employment agreement and existing stock options are invalid.
These stockholders further allege that certain corporate transactions
involving the Company and Century Communications Corp. ("Century") benefitted
Century to the detriment of the Company and that the Company's Chairman was
granted stock options in the Company's Subsidiary, Citizens Cellular, which
benefitted him when the Subsidiaries subsequently merged. In February 1994, a
memorandum of understanding was executed among counsel for the stockholders in
the Consolidated Action and counsel for the Company's Board of Directors. The
memorandum of understanding contemplates that the parties will attempt to
agree upon and execute a stipulation of settlement resolving all of the
claims in the Consolidated Action. Consummation of the proposed settlement
will be subject to: (a) the completion by plaintiffs of appropriate
confirmatory discovery in the Consolidated Action; (b) the drafting and
execution of a stipulation of settlement; (c) notice to all stockholders of
the Company of the terms of the proposed settlement; and (d) final approval of
the stipulation of settlement by the Delaware Court of Chancery and dismissal
of the Consolidated Action with prejudice. It is contemplated that
the stipulation of settlement will provide for certain modifications to the
Chairman's compensation arrangements and Company by-laws and for the complete
release and settlement of all claims of the plaintiffs and all derivative
claims of the Company against the Company's Board of Directors arising out of
the allegations in the Consolidated Action. The plaintiffs in the Consolidated
Action have completed their confirmatory discovery, and the terms of the
stipulation of settlement are being negotiated. Plaintiffs' counsel will seek
an award of attorneys' fees and expenses in connection with the settlement.
No understanding has been reached with respect to the amount of fees and
expenses to be sought, but the Company expects to recover substantially all of
the fees and expenses, if any, to be awarded by the Delaware Court of Chancery
to plaintiffs' counsel under the Company's Directors' and Officers' liability
insurance policy.
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PART II. OTHER INFORMATION
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Another action ("Thorpe") was filed in June 1993 in the Delaware Court of
Chancery. Like the plaintiffs in the Consolidated Action, plaintiffs in
Thorpe allege derivative claims challenging the Chairman's compensation as
excessive and the validity of certain stock options granted to the Chairman
and other members of the Company's Board of Directors. The plaintiffs in
Thorpe also assert derivative claims challenging the fairness of the 1991
merger between the cellular subsidiaries of the Company and Century. In
addition, these plaintiffs have alleged that the Chairman and Century
paid a premium to purchase control of the Company from the former Chairman,
Richard L. Rosenthal, and others. The plaintiffs in Thorpe have also asserted
individual and purported class claims challenging the disclosures made by the
defendants relating to the above matters and the allegedly improper accounting
treatment with respect to the Company's investment in Centennial Cellular
Corp. These plaintiffs seek, among other things, an accounting for alleged
corporate waste, a declaration that the Chairman's employment agreement and
existing stock options are invalid and unspecified monetary damages from the
director defendants. In November 1993, another purported derivative action
("Biggs") was filed in the Delaware Court of Chancery against the Company's
Board of Directors and Century. The plaintiffs in Biggs challenge the
Chairman's compensation, the grant of stock options to the Chairman and other
members of the Company's Board of Directors and the 1991 cellular
subsidiary merger and the service agreement between Century and Centennial.
The Company's Board of Directors has moved to dismiss the complaints in these
derivative actions for failure to state a claim and for failure to comply
with the demand requirements applicable to a derivative suit. The motions
were never decided. In May 1994, the Delaware Court of Chancery stayed
proceedings in the Thorpe and Biggs actions pending presentation of the
proposed stipulation of settlement of the Consolidated Action for approval by
the Court. In April 1995, the Delaware Court of Chancery vacated the stay of
proceedings in the Thorpe and Biggs actions, and in May 1995, plaintiffs in
these actions filed supplemental and amended complaints.
In addition to the claims previously asserted, the supplemental and amended
complaints challenge certain stock options granted to the Chairman in 1993 and
certain of the terms of the Chairman's employment agreement.
In June 1993, a stockholder of the Company ("Berlin") commenced a purported
class action in the United States District Court for the District of Delaware
against the Company and the Company's Board of Directors. The stockholder's
complaint, amended in July 1993, alleged that the proxy statements disseminated
by the Company from 1990 to 1993 failed to disclose material information
regarding, among other things, the Chairman's compensation and certain
purported related-party transactions and thereby violated federal and state
disclosure requirements. The relief sought included a declaration that the
results of the 1993 Annual Meeting of the stockholders are null and void, a
declaration that the Chairman's Employment Agreement is invalid and
unspecified damages. In September 1994, the District Court granted in part and
denied in part defendants' motion to dismiss the amended complaint and denied
defendants' motion for summary judgment. In October 1994, defendants moved for
summary judgment dismissing the remainder of the claim. In November 1994,
plaintiff moved to supplement her amended complaint to add a claim seeking to
invalidate the results of the 1994 Annual Meeting of Citizens stockholders on
the grounds that the Company's 1994 proxy statement allegedly failed to
disclose the amount of the management fee then proposed to be paid to
Century in connection with a proposed cable television joint venture. The
proposed supplemental complaint also seeks unspecified monetary damages. In
April 1995, the Delaware federal district court granted defendant's motion
for summary judgement dismissing the remainder of the complaint and denied
Berlin's motion for leave to supplement her complaint.
In October 1994, the Company and eight other companies were served with a
Summons and Complaint by the Town of Walkill, New York ("the Town") in the
United States District Court for the Southern District of New York. The Town
seeks to recover an unspecified amount representing response costs resulting
from the release or threatened release of hazardous substances at the Town's
Landfill, and damages and restitution under common law theories for other costs
associated with environmental conditions at the Town's Landfill. The Town also
seeks a declaratory judgement under CERCLA that the Defendants are strictly,
jointly and severally liable for future necessary response costs. The Company
notified GTE Corporation of this action since any potential liability for this
matter has been retained by GTE Corporation pursuant to the Asset Purchase
Agreement dated May 18, 1993. GTE Corporation has assumed the Company's defense
in this action.
The Company believes the risk of material loss from the above actions is
remote.
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PART II. OTHER INFORMATION
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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Item 6. Reports on Form 8-K
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(b) The Company filed on Form 8-K dated January 3, 1995, under Item 5 "Other
Events", the Fourth Supplemental Indenture, supplemental to the Indenture
dated as of August 15, 1991 between Citizens Utilities Company and Chemical
Bank (Trustee).
The Company filed on Form 8-K dated February 8, 1995, under Item 5 "Other
Events" and Item 7 "Financial Statements and Exhibits", notice of the sale of
shares to the underwriters identified in the Prospectus Supplement dated
January 23, 1995 to the Prospectus dated March 28, 1994.
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS UTILITIES COMPANY
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(Registrant)
Date May 15, 1995 By: Livingston E. Ross
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/s/ Livingston E. Ross
Vice President and Controller
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