CITIZENS UTILITIES COMPANY
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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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 June 30, 1996 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
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of July 31, 1996.
Common Stock Series A 154,442,966
Common Stock Series B 78,498,381
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CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets June 30, 1996
and December 31, 1995 2
Consolidated Condensed Statements of Income for the
Three Months Ended June 30, 1996 and 1995 3
Consolidated Condensed Statements of Income for the
Six Months Ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information 9
Signature 10
<PAGE>
PART I. FINANCIAL INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 30, 1996 December 31, 1995
-------------- -----------------
ASSETS
Current assets:
Cash $ 27,006 $ 17,922
Accounts receivable 218,627 199,813
Other 46,905 34,967
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Total current assets 292,538 252,702
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Property, plant and equipment 4,372,058 4,187,354
Less accumulated depreciation 1,386,268 1,279,324
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Net property, plant and equipment 2,985,790 2,908,030
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Investments 446,752 329,090
Regulatory assets 180,705 180,572
Deferred debits and other assets 262,521 247,793
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Total assets $ 4,168,306 $ 3,918,187
============= ==============
LIABILITIES AND EQUITY
Current liabilities:
Long-term debt due within one year $ 3,067 $ 3,865
Short-term debt - 140,650
Other 289,254 359,163
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Total current liabilities 292,321 503,678
Customer advances for construction and
contributions in aid of construction 226,882 223,923
Deferred income taxes 337,182 314,094
Regulatory liabilities 27,214 28,279
Deferred credits and other liabilities 103,710 101,300
Long-term debt 1,366,749 1,187,000
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Total liabilities 2,354,058 2,358,274
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Company Obligated Mandatorily Redeemable
Convertible Preferred Securities * 201,250 -
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Shareholders' Equity:
Common stock issued, $.25 par value
Series A 38,751 38,839
Series B 19,424 18,057
Additional paid-in capital 1,314,319 1,263,694
Retained earnings 237,607 235,236
Unrealized gain on securities
classified as available for sale 2,897 4,087
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Total shareholders' equity 1,612,998 1,559,913
============= =============
Total liabilities and
equity $ 4,168,306 $ 3,918,187
============= =============
* Represents securities of a subsidiary trust, the sole assets of which are
securities of a subsidiary partnership substantially all the assets of which are
convertible debentures of the Company.
The accompanying Notes are an integral part of these Financial Statements.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands, except per-share amounts)
1996 1995
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Revenues $ 318,128 $ 251,678
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Expenses:
Operating expenses 196,845 151,443
Depreciation 47,200 38,103
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244,045 189,546
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Income from operations 74,083 62,132
Other income, net 17,776 14,924
Interest expense 22,645 21,007
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Income before income taxes and dividends on
Convertible preferred securities 69,214 56,049
Income taxes 21,584 14,110
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Income before dividends on Convertible
preferred securities 47,630 41,939
Dividend on Convertible preferred securities,
net of income tax benefit 1,379 -
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Net Income $ 46,251 $ 41,939
============ ============
Earnings per share of common stock
Series A and Series B $ .20 $ .18*
============ ============
Average number of common shares outstanding for the period
Series A Common Stock 154,999 164,857*
Series B Common Stock 76,501 68,351*
Dividend rate declared on common stock:
Paid in Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock 1.6% 1.5%
============ ============
*Adjusted for subsequent stock dividends
The accompanying Notes are an integral part of these Financial Statements.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands, except per-share amounts)
1996 1995
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Revenues $ 647,265 $ 518,712
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Expenses:
Operating expenses 407,962 320,182
Depreciation 94,229 77,496
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502,191 397,678
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Income from operations 145,074 121,034
Other income, net 28,823 27,779
Interest expense 44,647 43,704
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Income before income taxes and dividends on
Convertible preferred securities 129,250 105,109
Income taxes 41,511 29,266
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Income before dividends on Convertible
preferred securities 87,739 75,843
Dividend on Convertible preferred securities,
net of income tax benefit 2,632 -
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Net Income $ 85,107 $ 75,843
============ ============
Earnings per share of common stock
Series A and Series B $ .37 $ .33*
============ ============
Average number of common shares outstanding
for the period
Series A Common Stock 155,177 161,037*
Series B Common Stock 74,962 66,463*
Dividend rate declared on common stock compounded:
Paid in Series A shares on Series A
Common Stock and in Series B shares
on Series B Common Stock 3.23% 3.02%
============ ============
*Adjusted for subsequent stock dividends
The accompanying Notes are an integral part of these Financial Statements.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH ENDED JUNE 30, 1996 AND 1995
(In thousands)
1996 1995
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Net cash provided by operating activities $ 149,813 $ 97,987
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Cash flows from investing activities:
Construction expenditures (143,605) (94,788)
Securities purchased (175,489) (14,738)
Securities sold 33,837 82,785
Securities matured 22,639 64,764
Business acquisitions (84,303) (111,470)
Other, net (16,807) (5,084)
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(363,728) (78,531)
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Cash flows from financing activities:
Long-term debt borrowings 284,273 185,333
Long-term debt principal payments (99,021) (126,332)
Short-term debt repayments (140,650) (354,600)
Issuance of convertible preferred
securities 201,250 -
Employee stock purchase and option plans 3,622 267,262
Common stock buybacks (29,708) -
Other 3,233 12,228
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222,999 (16,109)
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(Decrease) increase in cash 9,084 3,347
Cash at January 1, 17,922 14,223
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Cash at March 31, $ 27,006 $ 17,570
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The accompanying Notes are an integral part of these Financial Statements.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) The consolidated financial statements include the accounts of Citizens
Utilities Company and all subsidiaries after elimination of intercompany
balances and transactions. All adjustments, which consist of only normal
recurring accruals, necessary for a fair statement of the results for the
interim periods have been made.
(2) Earnings per share is based on the average number of outstanding
shares, adjusted for subsequent stock dividends. 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) During the first quarter of 1996 a consolidated wholly-owned subsidiary
of the Company, Citizens Utilities Trust (the "Trust"), issued, in an
underwritten public offering, 4,025,000 shares of 5% Company Obligated
Mandatorily Redeemable Convertible Preferred Securities due 2036 ("Trust
Convertible Preferred Securities"), representing preferred undivided
interests in the assets of the Trust, with a liquidation preference of $50
per security (for a total liquidation amount of $201,250,000). The proceeds
from the issuance of the Trust Convertible Preferred Securities and a
Company capital contribution were used to purchase $207,475,000 aggregate
liquidation amount of 5% Partnership Convertible Preferred Securities due
2036 from another wholly owned consolidated subsidiary, Citizens Utilities
Capital L.P. (the "Partnership"). The proceeds from the issuance of the
Partnership Convertible Preferred Securities and a Company capital
contribution were used to purchase from the Company $211,756,050 aggregate
principal amount of 5% Convertible Subordinated Debentures Due 2036. The
sole assets of the Trust are the Partnership Convertible Preferred
Securities, and the Company's Convertible Subordinated Debentures are
substantially all the assets of the Partnership. The Company's obligations
under the agreements related to the issuances of such securities, taken
together, constitute a full and unconditional guarantee by the Company of
the Trust's obligations relating to the Trust Convertible Preferred
Securities and the Partnership's obligations relating to the Partnership
Convertible Preferred Securities.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
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(a) Liquidity and Capital Resources
For the six months ended June 30, 1996, the Company used proceeds from
operations and net financings to fund investments and construction. On
January 22, 1996, Citizens Utilities Rural Telephone Company, Inc., a
subsidiary of the Company, under its Rural Telephone Bank Loan Contract,
was advanced $4,464,000. These funds bear an initial interest rate of 5.83%
and have an ultimate maturity date of December 31, 2027. Funds
requisitioned from the 1995, 1994 and 1993 Series Industrial Development
Revenue Bond construction fund trust accounts were used to partially pay
for construction of utility plant.
On January 22, 1996, a subsidiary of the Company issued 4,025,000 shares of
5% Company Obligated Mandatorily Redeemable Convertible Preferred
Securities (also known as Equity Providing Preferred Income Convertible
Securities or "EPPICS") having a liquidation preference of $50 per security
and a maturity date of January 15, 2036. Each security is currently
convertible into 3.357 shares of the Company's Common Stock Series A at a
conversion price of $14.895 per share (as adjusted for subsequent stock
dividends paid on Series A Common Stock). The $196,722,000 of net proceeds
from the sale of these securities was used to repay short-term debt,
permanently fund a portion of the acquisition of 23,000 telephone access
lines in Nevada from ALLTEL Corporation on March 31, 1996 and for other
general corporate purposes.
On June 11, 1996, the Company issued $100,000,000 of debentures at a price
of 99.818% with an interest rate of 6.8% and a maturity date of August 15,
2026. The debentures are redeemable at par at the option of the holders on
August 15, 2003. The proceeds from the sale of the debentures were used to
repay outstanding commercial paper.
On August 1, 1996, the Company arranged for the issuance of $16,700,000 of
Industrial Development Revenue Bonds. The Bonds were issued as money market
bonds with an initial interest rate of 3.67% and an ultimate maturity date
of July 1, 2031. Proceeds from the issuance will be used to fund the
construction of the Company's water utility facilities in the State of
Pennsylvania.
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 June 30, 1996 as compared to December 31, 1995. The increase is
primarily due to the repayment of outstanding commercial paper with the
proceeds from the issuances of the EPPICS and debentures. The Company has
lines of credit with commercial banks under which it may borrow up to
$600,000,000. There were no amounts outstanding under these lines at June
30, 1996.
During 1996 to date, the Company was authorized increases in annual
revenues for properties in Pennsylvania, Louisiana and Hawaii totaling
$20,017,000, $5,983,000 of which was granted in an interim order as of June
1995. The Company has requests for increases in annual revenues pending
before the regulatory commission in Arizona.
(b) Results of Operations
Operating revenues increased for the three and six months ended
June 30, 1996 in comparison to the like 1995 periods primarily due to an
increase in telecommunications revenues.
Telecommunications revenues for the 1996 second quarter totaled
$201,249,000, a 33% increase over the $151,088,000 for the second
quarter of 1995. Telecommunications revenues for the six months ended June
30, 1996 totaled $383,001,000, a 31% increase over the 1995 amount of
$291,538,000. For both the quarter and the six months ended June 30, 1996,
the increase in revenues was primarily due to increased customers and
usage.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Natural gas revenues for the 1996 second quarter totaled $48,276,000, a
19% increase over the $40,691,000 for the second quarter of 1995. Natural gas
revenues for the six months ended June 30, 1996 totaled $132,059,000, a 20%
increase over the 1995 amount of $109,778,000. For both the quarter and the six
months ended June 30, 1996, the increase in revenues was primarily the result of
increased consumption per customer in Louisiana due to colder than normal
weather conditions which was partially offset by decreased usage in Arizona due
to milder than expected weather conditions. In addition to consumption
increases, there was also a rate increase in Louisiana which took effect on May
1, 1996.
Electric revenues for the 1996 second quarter totaled $46,940,000, a 15%
increase over the $40,990,000 for the second quarter of 1995. Electric revenues
for the six months ended June 30, 1996 totaled $90,817,000, an 11% increase over
the 1995 amount of $81,636,000. For both the quarter and the six months ended
June 30, 1996, the increase in revenues was primarily the result of an interim
rate increase in Kauai, Hawaii which took effect on June 15, 1995 and increased
consumption at the Company's Arizona electric operations.
Water and Wastewater revenues for the 1996 second quarter totaled
$21,663,000, a 15% increase over the $18,909,000 for the second quarter of 1995.
Water and Wastewater revenues for the six months ended June 30, 1996 totaled
$41,388,000, a 16% increase over the 1995 amount of $35,760,000. For both the
quarter and six months ended June 30, 1996, the increase in revenues was
primarily the result of rate increases in Illinois, Pennsylvania and Ohio as
well as increased consumption at the Company's California and Arizona
water properties.
Operating expenses for the three months ended June 30, 1996
increased 30% to $196,845,000 from $151,443,000 for the like 1995 period and for
the six months ended June 30, 1996 increased 27% to $407,962,000 from
$320,182,000 compared to the like 1995 period primarily due to increased
telecommunications operating expenses.
Depreciation expense for the three and six month periods ended June 30, 1996
increased by 24% and 22%, respectively, over the corresponding 1995 periods.
These increases were due to increased depreciable telecommunications plant.
Other income, net for the three month period ended June 30,1996 increased
by 19% over the corresponding 1995 period primarily due to an increase in the
allowance for funds used during construction associated with increases in
construction expenditures.
Income taxes for the three and six month periods ending June 30, 1996
increased 53% and 42%, respectively, compared to the like 1995 periods due to
increases in taxable income.
<PAGE>
PART II. OTHER INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 4. Submission of Matter to a Vote of Security Holders
(a)The Registrant held its 1996 Annual Meeting of the Stockholders on
May 23, 1996.
(b)Proxies for the Annual Meeting were solicited pursuant to Regulation
14; there was no solicitation in opposition to management's nominees
for directors as listed in the Proxy Statement and all such nominees
were elected.
The stockholders voted to elect all the nominees as directors.
Directors elected along with their respective percentage of total
outstanding shares voted in the affirmative were: N. I. Botwinik
(80%), A. I. Fleischman (81%), J. C. Goodale (81%), S. Harfenist
(81%), A. N. Heine (81%), E. A. Rickless (81%), J. L. Schroeder
(81%), R. D. Siff (80%), R. A. Stanger (81%), C. H.
Symington, Jr.(81%), E. Tornberg (81%), C. Tow (78%) and L. Tow
(80%). Stockholders voted only 5% of outstanding shares in the
negative for one or more of the nominees.
The stockholders voted 69% of total outstanding shares in the
affirmative for the approval of the Citizens Utilities Company 1996
Equity Incentive Plan. Stockholders voted only 15% of outstanding
shares against the approval of the plan.
The stockholders voted 75% of total outstanding shares in the
affirmative for the approval of Amendment to the Restated Articles of
Incorporation to increase the authorized amount of common stock.
Stockholders voted only 8% of outstanding shares against the approval
of the Amendment.
Item 6. Reports on Form 8-K
(b)The Company filed on Form 8-K dated May 28, 1996 under Item 7
"Financial Statements and Exhibits", the exhibits previously filed
on Form S-3 on October 23, 1995 related to the registration of
Company Obligated Convertible Preferred Securities.
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS UTILITIES COMPANY
--------------------------
(Registrant)
Date August 14, 1996 By: Livingston E. Ross
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Livingston E. Ross
Vice President and Controller
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<PERIOD-END> JUN-30-1996 JUN-30-1996
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<SECURITIES> 446752 446752
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201250 201250
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