UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996 Commission file number 001-11001
-----------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
CITIZENS UTILITIES COMPANY
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0619596
- - -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
--------------------------------------------------
(Address, zip code of principal executive offices)
Registrant's telephone number, including area code: (203) 329-8800
Securities registered pursuant to Section 12(b) of the Act:
Common Stock Series A, par value $.25 per share New York Stock Exchange
Common Stock Series B, par value $.25 per share New York Stock Exchange
Guarantee of Convertible Preferred Securities of
Citizens Utilities Trust New York Stock Exchange
Citizens Convertible Debentures
Guarantee of Partnership Preferred Securities of
Citizens Utilities Capital L.P.
- - ------------------------------ --------------------------------------
(Title of each class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 28, 1997 was $2,709,973,572
The number of shares outstanding of each of the registrant's classes of common
stock as of February 28, 1997 were:
Common Stock Series A 154,236,035
Common Stock Series B 85,513,449
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the registrant's 1997 Annual Meeting of Stockholders to
be held on May 22, 1997, is incorporated by reference into Part III of this Form
10-K.
<PAGE>
Item 1. Description of Business
(a) General Development of Business
The "Company" includes Citizens Utilities Company and its subsidiaries except
where the context or statement indicates otherwise. The Company is a
communications and public services company which provides, either directly or
through subsidiaries, telecommunications, electric transmission and
distribution, natural gas transmission and distribution, water distribution and
wastewater treatment services to customers in areas of 22 states.
The Company 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 communications and public services operations and
from numerous acquisitions of additional communications and public services
operations. It continues to expand through internal investment, acquisitions and
joint ventures in the rapidly evolving telecommunications industry and in
traditional public services and related fields. The Company's strong financial
resources and consistent operating performance enable it to make the investments
and conduct the operations necessary to serve growing areas and to expand
through acquisitions.
(b) Financial Information about Industry Segments
The Consolidated Statements of Income and Note 11 of the Notes to Consolidated
Financial Statements included herein sets forth financial information about
industry segments of the Company for the last three fiscal years.
(c) Narrative Description of Business
TELECOMMUNICATIONS
Through subsidiaries, the Company provides both regulated and competitive
telecommunications services to all segments of the marketplace.
Telecommunications services consist of local network service, network access
service, long distance service, competitive access service, directory
advertising, centrex, paging, cellular, internet access, conference call, and
direct broadcast satellite. The Company provides local network services to the
following approximate number of primarily residential access lines in the
following states:
State Access Lines
------ ------------
New York 285,100
West Virginia 134,000
Arizona 125,800
California 115,100
Tennessee 87,600
Nevada 23,600
Utah 19,100
Idaho 18,800
Oregon 13,100
Montana 7,400
New Mexico 4,600
----------
Total 834,200
==========
The Company also provides long distance services to 179,100 of its local network
services access lines and to 40,000 access lines outside its franchised service
territories. Cable television services are provided to approximately 6,300
customers in Arizona, Nevada and New Mexico. Competitive access services, such
as enhanced network, data and video services, are provided to primarily medium
and large corporate and exchange carrier customers through fiber optic networks
in the following service areas: Phoenix, Arizona; Sacramento, California;
Portland, Oregon; Salt Lake City, Utah; and Seattle, Washington.
In February 1996, the Telecommunications Act of 1996 (the "Act") became law. The
Act provides for the removal of barriers that currently prevent telephone, cable
television and broadcast companies from entering each other's business. The Act
addresses various aspects of competition and regulation within the
communications industry including elimination of barriers to compete in the
local network services market and the creation of interconnection obligations
and related pricing guidelines.
1
<PAGE>
The Federal Communications Commission's ("FCC") Interconnection Order issued in
August 1996, the first of three expected competition-related orders, is designed
to regulate the local network services market competition provisions of the Act.
Subject to the rural telephone company exemption discussed below, the
Interconnection Order affects the Company's local network services business as
follows:
(a) Local Exchange Companies ("LECs") must provide interconnection to
any new local network services competitor upon request. This interconnection
must be at least equal in quality to that provided by the LEC to itself or its
affiliates. Also, the order mandates that the LEC provide this interconnection
at just, reasonable and nondiscriminatory rates, terms and conditions.
(b) LECs must provide unbundled network elements, including support
systems, to telecommunications carriers that intend to provide local network
services or network-access services in their markets. These network elements
include network interface devices; local loops; local and tandem switches
(including all related software-based features); interoffice transmission
facilities; signaling and call-related database facilities; and operations
support systems and information.
(c) LECs must make retail services available to competitors at
wholesale rates. The Order contains pricing guidelines for wholesale services
and interconnection and unbundled elements. Should pricing negotiations between
LECs and new entrants become deadlocked, the Order also provides a standard for
arbitration to be applied by the respective State Commissions.
Several local exchange companies filed petitions to review the Interconnection
Order with the Federal Courts and requested that the pricing provisions of the
Interconnection Order be stayed pending full judicial review. On October 15,
1996, the Eighth Circuit Court of Appeals entered an order which stayed the
effectiveness of the pricing and other provisions of the Interconnection Order.
The FCC and certain telecommunications companies requested review of the Eighth
Circuit's Stay Order by the United States Supreme Court; however, the Supreme
Court declined to make such a review. The portions of the Interconnection Order
which were not stayed remain effective.
Because of its smaller size and smaller market service areas, the Company's
local network services business has a qualified exemption from the FCC
Interconnection Order. That exemption continues until a bona fide request for
interconnection is received and a State Commission with jurisdiction determines
that discontinuation of the exemption is technically feasible. This is
consistent with universal service principles and will not impose an undue
economic hardship on the Company.
The Company is pursuing an aggressive growth strategy to take advantage of
opportunities in the emerging telecommunications marketplace. This strategy
includes expansion of the Company's customer base and telecommunications
services provided. The Company's customer base expansion is focused on its
franchised service territories, markets adjacent to these franchised service
territories and customers of affiliated companies. The Company's objective in
expanding its telecommunications services is to become a full service
telecommunications provider offering customers an integrated package of products
and services. The Company is expanding into additional markets by offering its
long distance service in combination with other value-added services such as
CLASS services including caller ID, voice mail, conference calling, centrex,
cellular, paging, direct broadcast satellite, and internet access. The Company
sells its products using multiple sales distribution channels and a marketing
organization structured around product management and customer segmentation.
The Company owns a one-third interest and is general managing partner of Mohave
Cellular, a cellular limited partnership operating eight cell sites in Arizona.
In order to meet the growth in the local network services, network access
services and long distance businesses , the Company is modernizing its local
networks. In certain areas, the Company is upgrading its digital switches and
replacing analog and microwave facilities with fiber optics and digital
microwave. Signaling System 7 ("SS7") capabilities will be extended to nearly
all digital switches. Telemarketing and conference calling capabilities are
being further enhanced and the Company plans to expand internet access service
into several markets in 1997.
2
<PAGE>
The Company completed construction of a fiber-optic route from Las Vegas, Nevada
to Phoenix, Arizona which provides the Company with fiber-optic capacity for its
operations as well as for other telecommunications carriers. The Company has
established the foundation of an internet backbone service by providing frame
relay connectivity in Washington, Oregon, California, Utah, Nevada and Arizona;
and also provides private line, Local Area Network to Local Area Network and
video teleconferencing services. The Company has established alliances and is
negotiating additional alliances with power utilities to open long haul routes
and access new markets.
The Company currently provides wholesale network access services and billing and
collections services primarily to AT&T Corp., MCI Communications Corp. and
Sprint Corp. The Company is expanding its network to offer distribution
capability to independent telephone companies and emerging competitive local
exchange providers and wireless companies. The Company is expanding its network
access services business to also offer marketing services, operator services,
and network monitoring.
The Company currently contracts for advertising sales, printing and distribution
for its 75 telephone directories with a circulation of approximately 1,500,000.
In 1996, the Company implemented Audiotex, an electronic information service
which is available 24-hours per day, seven days per week and is free to its
customers. Audiotex provides consumer tips; Add Talk, which allows advertisers
to update and expand printed advertising information; Teletips, which provides
frequently updated information like news, weather, sports and entertainment; and
point of purchase guides with approximately fifty available information
categories on topics such as medical, dental, legal and insurance. Audiotex is
currently operating in seven major markets. The Company plans to expand this
service to four more markets in 1997. Audiotex creates new customer
opportunities such as fax-on-demand and phone-poll services.
A subsidiary of the Company, in a joint venture with a subsidiary of Century
Communications, Corp. ("Century"), acquired and operates two cable television
systems in southern California serving 49,500 subscribers. Century is a cable
television company of which Leonard Tow, the Chairman, Chief Executive Officer
and Chief Financial Officer of the Company, is Chairman and Chief Executive
Officer. In addition, Claire Tow, a director of the Company, is a Senior Vice
President and a director of Century and Robert Siff, a director of the Company,
is a director of Century. The joint venture is governed by a management board on
which the Company and Century are equally represented. A subsidiary of Century
(the "Manager") manages the day-to-day operations of the systems. The Manager
does not receive a management fee but is reimbursed only for the actual costs it
incurs on behalf of the joint venture. With respect to the purchase of any
service or asset for the joint venture for use in the systems, the Manager is
obligated to pass through to the joint venture any discount, up to 5%, off the
published prices of vendors and is entitled to retain any discount in excess of
5%. On August 19, 1996, the joint venture entered into agreements to acquire
three additional cable television systems serving a total of 76,000 subscribers
in southern California for approximately $140,000,000. The acquisitions are
subject to regulatory approval and are expected to close in the first half of
1997.
On December 2, 1996, the Company acquired Conference-Call USA, Inc. in a stock
for stock transaction. Conference-Call USA, Inc. provides nationwide conference
calling services and its subsidiary, Dial, Inc., provides international
dial-back services.
On February 3, 1997, the Company entered into a definitive agreement to acquire
Ogden Telephone Company in a stock for stock transaction. Ogden Telephone
Company serves approximately 20,000 customers in the suburban Rochester, New
York area. The agreement is subject to pending New York State Public Service
Commission and federal regulatory approvals.
NATURAL GAS
- - -----------
Operating divisions of the Company provide natural gas transmission and
distribution services to the following approximate number of primarily
residential customers in the following states:
State Customers
------------
Louisiana 264,100
Arizona 94,500
Colorado 12,600
-------
Total 371,200
=======
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases all needed
natural gas, the supply of which is believed to be adequate to meet current
demands and to provide for additional sales to new customers. The natural gas
industry is subject to seasonal demand, with the peak demand occurring during
the heating season of November 1 through March 31. The Company's natural gas
sector experiences third party competition from fuel oil, propane, and other
natural gas suppliers for most of its large consumption customers (of which
there are few) and from electric suppliers for all of its customer base. The
competitive position of natural gas at any given time depends primarily on the
relative prices of natural gas and these other energy sources.
3
<PAGE>
The Company continues to expand its Arizona natural gas transmission and
distribution service areas. The service areas have grown from 65,300 customers
at December 31, 1991 to 94,500 customers as of December 31, 1996.
On January 9, 1997, the Company entered into a definitive agreement to purchase
all of the outstanding stock of Gasco, Inc., a subsidiary of BHP Hawaii, Inc.,
for approximately $100,000,000. Gasco Inc. is a gas distribution company serving
70,000 customers in Hawaii. The transfer of ownership is expected to be
completed in the second half of 1997, pending Hawaii Public Utilities Commission
and federal regulatory approvals.
ELECTRIC
- - --------
Operating divisions of the Company provide electric transmission and
distribution services to the following approximate number of primarily
residential customers in the following states:
State Customers
------------
Arizona 60,400
Hawaii 29,300
Vermont 20,100
-----------
Total 109,800
===========
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases approximately
80% of needed electric energy, the supply of which is believed to be adequate to
meet current demands and to provide for additional sales to new customers.
Generally, the Company's electric sector does not experience material seasonal
fluctuations.
The electric industry is in the process of moving to a more competitive business
through changes in both federal and state regulation and legislation. The
industry is shifting toward electric customers being able to choose their energy
provider much like telephone customers are able to choose their long distance
provider. The electric distribution component of the business will likely remain
a state regulated monopoly while many other portions of the business, such as
power supply, will either be deregulated or regulations will be significantly
modified. Deregulation could potentially result in stranded plant investments,
stranded costs for supply contracts and stranded costs associated with programs
to promote the most efficient use of electricity and reduce the environmental
impact of generation facilities. The states in which the Company currently
operates are moving at varying speeds toward a more competitive industry. While
the Company cannot predict the impact of competition on all components of its
electric operations, or whether its electric operations will eventually be
subject to deregulation, the Company's efficient operations, limited investment
in generation and capability to deliver multiple, diverse services should place
it in an excellent position to excel in a competitive environment.
WATER AND WASTEWATER
- - --------------------
Through subsidiaries, the Company provides water distribution, wholesale water
transmission, wastewater treatment, public works consulting, marketing and
billing services to the following approximate number of primarily residential
customers in the following states:
State Customers
-----------
Arizona 110,600
Illinois 69,800
California 59,400
Pennsylvania 28,600
Ohio 14,700
Indiana 1,300
----------
Total 284,400
==========
4
<PAGE>
The provision of services and/or rates charged are subject to the jurisdiction
of federal, state and local regulatory agencies. A significant portion of the
Company's water/wastewater treatment sector construction expenditures serving
new customers are made under agreements with land developers who generally
advance plant and/or funds for construction to the Company that are later
refunded in part by the Company as new customers and revenues are added in the
respective land developments.
In addition to increasing customers through agreements with land developers, the
Company acquires water and/or wastewater operations from municipalities and
private companies. Through its subsidiary, Citizens Public Works Service
Company, the Company plans to provide water and wastewater operations and
maintenance services to municipalities in the United States and abroad.
Privatization opportunities are increasing as the water and wastewater
industries in the United States continue to face significant changes due to
increasing demands for advanced technical expertise and capital to meet the
requirements of more stringent environmental regulations. Internationally,
developing countries are looking to the expertise of existing water and
wastewater companies to provide a sound infrastructure of water and wastewater
systems. Citizens' geographic and service diversity and decades of experience in
the water and wastewater industry provide a strong platform to successfully meet
these needs and respond to the increasing trend for privatization.
The Company's water and wastewater treatment operations are regulated under the
Safe Drinking Water Act and the Clean Water Act. In August 1996, the 1996 Safe
Drinking Water Act Amendments became Law. There are several new requirements
under the Amendments, including reports to consumers on water quality, operator
certification, and source water protection. The greatest impact to the water
sector will be the processes regulators will use to establish standards for new
contaminants. With this new approach, regulators are given the flexibility to
set priorities in contaminant selection rather than follow a fixed schedule.
The Company's water distribution and wastewater treatment operations are
strengthening its environmental management system by implementing the ISO 14000
Standard for Environmental Management Systems. ISO 14000 is a total quality
management tool for activities that affect the environment. Compliance with ISO
14000 benefits the Company by improving environmental management, minimizing
risk and creating a framework for improved relations with regulators. Once
implemented, the program will be integrated into the Company's activities. Many
of the procedures required by ISO 14000 are already in place at the Company's
water and wastewater operations. There are no capital requirements for this
effort.
General
- - -------
The Company's operations are conducted primarily in small and medium size towns
and communities. No material part of the Company's business is dependent upon a
single customer or small group of customers for its revenues. As a result of its
diversification, the Company is not dependent upon any single geographic area
for its revenues. Due to this diversity, no single regulatory body regulates a
service of the Company accounting for more than 20% of its 1996 revenues.
The Company is subject to regulation by the respective state regulatory agencies
and federal regulatory agencies. The Company is not subject to the Public
Utility Holding Company Act. Order backlog is not a significant consideration in
the Company's business, and the Company has no contracts or subcontracts which
may be subject to renegotiation of profits or termination at the election of the
federal government. The Company holds franchises from local governmental bodies,
which vary in duration. The Company also holds certificates of convenience and
necessity granted by various state commissions which are generally of indefinite
duration. The Company has no special working capital practices. The Company's
research and development activities are not material. There are no patents,
trademarks, licenses or concessions held by the Company that are material.
The Company had approximately 5,400 employees at December 31, 1996.
(d) Financial Information about Foreign and Domestic Operations and Export
-----------------------------------------------------------------------
Sales
-----
In 1995, the Company made a $4,200,000 investment in and entered into definitive
agreements with Hungarian Telephone and Cable Corp. ("HTCC"), a Delaware
corporation, which owns and operates local telephone concessions in Hungary.
Pursuant to these agreements, as amended, (i) the Company has rights to purchase
up to 58% of HTCC common stock, (ii) provides certain management services to
HTCC on a cost-plus basis, (iii) has the right to and has designated one member,
out of seven, of the HTCC Board of Directors, and (iv) provided HTCC with
guarantees and financial support. The management services fee payable by HTCC to
the Company is the greater of 5% of adjusted gross revenues of HTCC or a monthly
fixed amount. In addition, expenses incurred by the Company in providing such
services, including certain allocable overhead items, are reimbursed by HTCC.
The Company has been compensated for all guarantees and financial support which
it has provided to HTCC. The Company's investment in HTCC is accounted for using
the cost method of accounting.
5
<PAGE>
Item 2. Description of Property
The Administrative Offices of the Company are located at High Ridge Park,
Stamford, Connecticut, 06905 and are leased. The Company owns property
including: telecommunications outside plant, central office, microwave radio and
fiber-optic facilities; electric generation, transmission and distribution
facilities; gas transmission and distribution facilities; water production,
treatment, storage, transmission and distribution facilities; and wastewater
treatment, transmission, collection and discharge facilities; all of which are
necessary to provide services at the locations listed below.
State Service(s) Provided
------ -------------------
Arizona Electric, Natural Gas,
Telecommunications,*
Water, Wastewater
California Telecommunications, Water
Colorado Natural Gas
Florida Telecommunications
Hawaii Electric
Idaho Telecommunications
Illinois Water, Wastewater,
Telecommunications
Indiana Water
Louisiana Natural Gas
Maryland Telecommunications
Montana Telecommunications
Nevada Telecommunications
New Mexico Telecommunications
New York Telecommunications
Ohio Water, Wastewater
Oregon Telecommunications
Pennsylvania Water
Tennessee Telecommunications
Utah Telecommunications
Vermont Electric
Washington Telecommunications
West Virginia Telecommunications*
* Certain properties are subject to mortgage deeds pursuant to Rural Utilities
Service borrowings.
6
<PAGE>
Item 3. Legal Proceedings
In November 1995, the Company's electric operation in Vermont was permitted an
8.5% rate increase. Subsequently the Vermont Public Service Board has called
into question the level of rates awarded in connection with its formal review of
allegations made by the Department of Public Service (the "DPS"), the consumer
advocate in Vermont, and a former Citizens employee seeking penalties and other
relief. The major issues in this proceeding commenced on September 1, 1995 and
involve proper classification of certain costs to property, plant and equipment
accounts and the Company's Demand Side Management ("DSM") program. In addition,
the DPS believes that the Company should have sought and received regulatory
approvals prior to construction of certain facilities in prior years. Hearings
commenced in November 1996 and should conclude by the end of the first half of
1997. The final outcome of the various allegations is to be decided by the
Vermont Public Service Board and such decision is expected by June 1997.
Although the Company believes that there will not be a material effect on the
Company's financial condition or results of operations as a result of this
proceeding and the practices complained of have been rectified, it is possible
that the decision of the Vermont Public Service Board could be unfavorable to
the Company. The Company has provided a reserve of approximately $800,000 for
the potential effects of this proceeding.
Item 4. Submission of Matters to Vote of Security Holders
None in fourth quarter 1996.
7
<PAGE>
Executive Officers
Information as to Executive Officers of the Company as of February 28, 1997
follows:
Name Age Current Position and Office
---- --- ---------------------------
Leonard Tow 68 Chairman of the Board, Chief
Executive Officer and Chief
Financial Officer
Daryl A. Ferguson 58 President and Chief Operating Officer
Robert J. DeSantis 41 Vice President and Treasurer
J. Michael Love 45 Vice President, Citizens Public Services
Robert L. O'Brien 54 Vice President, Regulatory Affairs
Livingston E. Ross 48 Vice President and Controller
David B. Sharkey 47 President, Electric Lightwave, Inc.
Ronald E. Spears 48 Vice President, Telecommunications
There is no family relationship between any of the officers of the Registrant.
The term of office of each of the foregoing officers of the Registrant will
continue until the next annual meeting of the Board of Directors and until a
successor has been elected and qualified.
LEONARD TOW has been associated with the Registrant since April 1989 as a
Director. In June 1990, he was elected Chairman of the Board and Chief Executive
Officer. In October 1991, he was appointed to the additional position of Chief
Financial Officer of the Registrant. He has also been a Director, Chief
Executive Officer and Chief Financial Officer of Century Communications Corp.
since its incorporation in 1973, and Chairman of its Board of Directors since
October 1989.
DARYL A. FERGUSON has been associated with the Registrant since July 1989. He
was Vice President, Administration from July 1989 through March 1990 and Senior
Vice President, Operations and Engineering from March 1990 through June 1990. He
has been President and Chief Operating Officer since June 1990. During the
period April 1987 through July 1989, he was President and Chief Executive
Officer of Microtecture Corporation. He is currently a Director of Centennial
Cellular Corp.
ROBERT J. DeSANTIS has been associated with the Registrant since January 1986.
He was Assistant to the Treasurer through May 1986 and Assistant Treasurer from
June 1986 through September 1991. He has been Vice President and Treasurer since
October 1991.
J. MICHAEL LOVE has been associated with the Registrant since May 1990 and from
November 1984 through January 1988. He was Assistant Vice President, Regulatory
Affairs and Community Relations from June 1986 through January 1988. He left the
Registrant in January 1988 to become President and General Counsel of Southern
New Hampshire Water Company. He rejoined the Registrant in April 1990 and was
Assistant Vice President, Corporate Planning from June 1990 through March 1991.
He was Vice President, Corporate Planning from March 1991 through January 1997.
He was appointed Vice President, Citizens Public Services in January 1997.
ROBERT L. O'BRIEN has been associated with the Registrant since March 1975. He
has been Vice President, Regulatory Affairs since June 1981.
LIVINGSTON E. ROSS has been associated with the Registrant since August 1977. He
was Manager of Reporting from September 1984 through March 1988, Manager of
General Accounting from April 1988 through September 1990 and Assistant
Controller from October 1990 through November 1991. He has been Vice President
and Controller since December 1991.
DAVID B. SHARKEY has been associated with the Registrant since August 1994 and
has been President of Electric Lightwave, Inc. since that date. Prior to joining
the Registrant, he was Vice President and General Manager of MobilMedia, a
wireless company headquartered in New Jersey from August 1989 through July 1994.
RONALD E. SPEARS has been associated with the Registrant since June 1995 and has
been Vice President, Telecommunications since that date. Prior to joining the
Registrant, he was Managing Director at Russell Reynolds Associates, an
executive recruiting firm from April 1994 to May 1995. He was Chairman and Chief
Executive Officer, and prior to that, President and Chief Operating Officer of
Videocart, Inc. from February 1991 to March 1994. He served as President, MCI
Midwest, an operating division of MCI Telecommunications from September 1984 to
January 1991. He is currently a Director of Hungarian Telephone and Cable Corp.
8
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
------------------------------------------------------------------------
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under the
symbols CZNA and CZNB for Series A and Series B, respectively. The following
table indicates the high and low prices per share as taken from the daily
quotations published in the "Wall Street Journal" during the periods indicated.
Prices have been adjusted retroactively for subsequent stock dividends, rounded
to the nearest 1/8th. (See Note 8 of Notes to Consolidated Financial
Statements.)
<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>
---- --- ---- --- ---- --- ---- ---
1996:
- - ----
Series A $12 1/8 $10 1/8 $11 3/4 $10 1/4 $12 1/8 $10 1/4 $12 $10 1/2
Series B $12 1/8 $10 1/4 $11 7/8 $10 1/4 $12 1/8 $10 5/8 $12 1/8 $10 1/2
1995:
- - ----
Series A $12 3/4 $11 $11 5/8 $ 9 5/8 $10 3/4 $ 9 7/8 $12 3/8 $ 9 7/8
Series B $12 3/4 $10 7/8 $11 5/8 $ 9 3/4 $10 3/4 $10 $12 1/2 $ 9 7/8
</TABLE>
As of February 28, 1997, the approximate number of record security holders of
the Company's Common Stock Series A and Series B was 27,559 and 23,683,
respectively. This information was obtained from the Company's transfer agent.
DIVIDENDS
Quarterly stock dividends declared and issued on both Common Stock Series A and
Series B were 1.6% for each quarter of 1996. Quarterly stock dividends declared
and issued on both Common Stock Series A and Series B were 1.5% for the first
and second quarters of 1995 and 1.6% for the third and fourth quarters of 1995.
An annual cash dividend equivalent rate of 71 3/4 and 67 3/4 per share (adjusted
for all stock dividends paid subsequent to all dividends declared through
December 31, 1996, and rounded to the nearest 1/8th) was considered by the
Company's Board of Directors in establishing the Series A and Series B stock
dividends during 1996 and 1995, respectively. (See Note 8 of Notes to
Consolidated Financial Statements.)
RECENT SALES OF UNREGISTERED SECURITIES
During 1996, the Company sold securities that were not registered under the
Securities Act of 1933, in the transactions described below, pursuant to the
exemption contained in section 3 (a) (2). The proceeds of each of the following
issuances are used to fund qualifying construction expenditures.
On August 1, 1996, Berks County Industrial Development Authority (Pennsylvania),
on behalf of the Company, issued $16,700,000 aggregate principal amount of its
Industrial Development Revenue Bonds 1996 Series. The underwriters were Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated.
The Department of Budget and Finance of the State of Hawaii remarketed the
following Special Purpose Revenue Bonds on behalf of the Company on the
following dates.
~ On January 18, 1996, $10,000,000 aggregate principal amount of
Special Purpose Revenue Bonds 1988 Series B, remarketed by
Lehman Brothers Inc.
~ On October 1, 1996, $14,000,000 aggregate principal amount of
Special Purpose Revenue Bonds 1988 Series A, remarketed by
Morgan Stanley & Co. Incorporated and Lehman Brothers Inc.
~ On October 1, 1996, $10,000,000 aggregate principal amount of
Special Purpose Revenue Bonds 1988 Series C, remarketed by Morgan
Stanley & Co. Incorporated and Lehman Brothers Inc.
~ On November 19, 1996, $9,400,000 aggregate principal amount
of Special Purpose Revenue Bonds 1985 Series, remarketed
by Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated.
On September 3, 1996, Northampton County Industrial Development Authority
(Pennsylvania) remarketed $18,250,000 aggregate principal amount of Industrial
Development Revenue Bonds 1988 Series, on behalf of the Company. The remarketing
agents were Morgan Stanley & Co. Incorporated and Lehman Brothers Inc.
Aggregate underwriting commissions paid in connection with the above described
issuances were $33,400.
9
<PAGE>
Item 6. Selected Financial Data (In thousands, except for per-share amounts)
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues $ 1,306,517 $ 1,069,032 $ 906,150 $ 613,099 $ 576,881
Net income $ 178,660 $ 159,536 $ 143,997 125,630 $ 115,013
Earnings per-share of Common
Stock Series A and Series B(1) $ .77 $ .69 $ .68 .60 $ .55
Stock dividends declared on Common Stock
Series A and Series B (2) 6.56% 6.35% 5.04% 4.37% 5.61%
As of December 31,
---------------------------------------------------------------------------
Total assets $ 4,523,148 $ 3,918,187 $ 3,576,566 2,627,118 $ 1,887,981
Long-term debt $ 1,509,697 $ 1,187,000 $ 994,189 547,673 $ 522,699
Equity(3) $ 1,879,433 $ 1,559,913 $ 1,156,896 974,486 $ 837,271
</TABLE>
(1) Adjusted for subsequent stock dividends and splits; no adjustment has been
made for the Company's 1.6% first quarter 1997 stock dividend because the
effect is immaterial.
(2) Compounded annual rate of quarterly stock dividends.
(3) Includes EPPICS (see Item 7(a) below).
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
(a) Liquidity and Capital Resources
In 1996, the Company's primary source of funds was from operations. Funds
requisitioned from the 1996, 1995, 1994 and 1993 Series Industrial Development
Revenue Bond construction fund trust accounts were used to pay for the
construction of qualifying 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 3.465 shares of
the Company's Common Stock Series A at a conversion price of $14.429 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
permanently fund a portion of the purchase price of properties acquired from GTE
Corp. and ALLTEL Corporation.
Proceeds from the following additional security issuances and
borrowings during 1996 were used to repay outstanding commercial paper, fund
and/or prefund expenditures for the construction, extension and improvement of
the Company's facilities and for general corporate purposes.
<TABLE>
<CAPTION>
Date Security/Borrowing Amount Rate Maturity
- - ---- ------------------ ------ ---- --------
<S> <C> <C> <C> <C>
January 22 Rural Utilities Service Loan Contract $ 4,464,000 5.83% December 31, 2027
June 11 Debentures 100,000,000 6.80% August 15, 2026
August 1 Industrial Development Revenue Bonds 16,700,000 3.67% July 1, 2031
September 25 Rural Utilities Service Loan Contract 4,515,000 6.08% December 31, 2027
November 12 State of California Department of
Water Resources Loan 2,166,000 2.42% November 30, 2026
December 6 Debentures 200,000,000 7.05% October 1, 2046
</TABLE>
10
<PAGE>
The following Fixed Rate Industrial Development and Special Purpose Revenue
Bonds were converted and remarketed to Weekly Rate or Money Market Bonds during
1996:
<TABLE>
<CAPTION>
Initial
Interest
Date Bonds Amount Rate Maturity Date
- - ---- ------------------------------------ ----------- -------- -------------
<S> <C> <C> <C> <C>
January 18 7.25% 1988 Series B, Special Purpose
Revenue Bonds $10,000,000 3.31% September 1, 2018
September 3 7% 1988 Series Industrial Development
Revenue Bonds 18,250,000 3.35% September 1, 2018
October 1 7.9% 1988 Series A, Special Purpose
Revenue Bonds 14,000,000 3.63% September 1, 2018
October 1 7.375% 1988 Series C, Special Purpose
Revenue Bonds 10,000,000 3.63% September 1, 2018
November 19 7.375% 1985 Series Special Purpose
Revenue Bonds 9,400,000 3.53% November 1, 2015
</TABLE>
On September 27, 1996, a subsidiary of the Company received approval for an
additional $41,200,000 of borrowings under loan contracts with the Rural
Utilities Service. Proceeds from those borrowings will be used to reimburse the
Company's treasury for funds spent on the construction or improvement of
qualifying telecommunications facilities in Arizona.
On December 4, 1996, the Company acquired Conference-Call USA, Inc.
("Conference-Call") in a stock for stock transaction. The Company issued
1,289,133 shares of Common Stock Series A in exchange for all of the common and
preferred shares of Conference-Call. If Conference-Call achieves specified
financial results in future periods, the Company may issue up to 1,443,299
additional shares of Common Stock Series A.
On January 9, 1997, the Company entered into a definitive agreement to purchase
all of the outstanding stock of Gasco, Inc., a subsidiary of BHP Hawaii, Inc.,
for approximately $100,000,000. The transfer of ownership is expected to be
completed in the second half of 1997, pending Hawaii Public Utilities Commission
and federal regulatory approvals.
On February 3, 1997, the Company entered into a definitive agreement to acquire
Ogden Telephone Company in a stock for stock transaction. The agreement is
subject to pending New York State Public Service Commission and federal
regulatory approvals.
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 December 31, 1996. The
increase is primarily due to the repayment of outstanding commercial paper with
the proceeds from the issuance of the EPPICS. The Company has committed 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 December 31, 1996.
Net capital expenditures, by sector, have been and are budgeted as follows:
<TABLE>
<CAPTION>
Budget Actual
----------------------------------------
1997 1996 1995 1994
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(in thousands)
Communications $463,000 $225,600 $141,100 $173,200
Public Services:
Natural Gas 43,000 27,700 28,700 26,200
Electric 25,000 24,600 32,800 34,400
Water and Wastewater 36,000 21,000 28,000 22,300
General 46,000 18,900 10,100 20,800
----------- ----------- ----------- -----------
$613,000 $317,800 $240,700 $276,900
=========== =========== =========== ===========
</TABLE>
The Company anticipates that the funds necessary for its 1997 capital
expenditures will be provided from operations; from 1993, 1994, 1995 and 1996
Series Industrial Development Revenue Bond construction fund trust account
requisitions; advances from Rural Utilities Service loan contracts; from
commercial paper notes payable; from parties desiring utility service; from
debt, equity and other financings at appropriate times; and, if deemed
advantageous, from short-term borrowings under bank credit facilities.
11
<PAGE>
During 1996, the Company was authorized increases in annual revenues for
properties in Arizona, Pennsylvania, Hawaii and Louisiana totaling $22,300,000;
$6,000,000 of such increases were granted in an interim order dated June 1995.
The Company currently has requests for $22,100,000 of increases in annual
revenues pending before regulatory commissions in Arizona and California.
Regulatory Environment
- - ----------------------
In February 1996, the Telecommunications Act of 1996 (the "Act") became law. The
Act provides for the removal of barriers that currently prevent telephone, cable
television and broadcast companies from entering each other's business. The Act
addresses various aspects of competition and regulation within the
communications industry including elimination of barriers to compete in the
local network services market and the creation of interconnection obligations
and related pricing guidelines.
The Federal Communications Commission's ("FCC") Interconnection Order issued in
August 1996, the first of three expected competition-related orders, is designed
to regulate the local network services market competition provisions of the Act.
Subject to the rural telephone company exemption discussed below, the
Interconnection Order affects the Company's local network services business as
follows:
(a) Local Exchange Companies ("LECs") must provide interconnection to
any new local network services competitor upon request. This interconnection
must be at least equal in quality to that provided by the LEC to itself or its
affiliates. Also, the order mandates that the LEC provide this interconnection
at just, reasonable and nondiscriminatory rates, terms and conditions.
(b) LECs must provide unbundled network elements, including support
systems, to telecommunications carriers that intend to provide local network
services or network-access services in their markets. These network elements
include network interface devices; local loops; local and tandem switches
(including all related software-based features); interoffice transmission
facilities; signaling and call-related database facilities; and operations
support systems and information.
(c) LECs must make retail services available to competitors at
wholesale rates. The Order contains pricing guidelines for wholesale services
and interconnection and unbundled elements. Should pricing negotiations between
LECs and new entrants become deadlocked, the Order also provides a standard for
arbitration to be applied by the respective State Commissions.
Several local exchange companies filed petitions to review the Interconnection
Order with the Federal Courts and requested that the pricing provisions of the
Interconnection Order be stayed pending full judicial review. On October 15,
1996, the Eighth Circuit Court of Appeals entered an order which stayed the
effectiveness of the pricing and other provisions of the Interconnection Order.
The FCC and certain telecommunications companies requested review of the Eighth
Circuit's Stay Order by the United States Supreme Court; however, the Supreme
Court declined to make such a review. The portions of the Interconnection Order
which were not stayed remain effective.
Because of its smaller size and smaller market service areas, the Company's
local network services business has a qualified exemption from the FCC
Interconnection Order. That exemption continues until a bona fide request for
interconnection is received and a State Commission with jurisdiction determines
that discontinuation of the exemption is technically feasible. This is
consistent with universal service principles and will not impose an undue
economic hardship on the Company.
The electric industry is in the process of moving to a more competitive business
through changes in both federal and state regulation and legislation. The
industry is shifting toward electric customers being able to choose their energy
provider much like telephone customers are able to choose their long distance
provider. The electric distribution component of the business will likely remain
a state regulated monopoly while many other portions of the business, such as
power supply, will either be deregulated or regulations will be significantly
modified. Deregulation could potentially result in stranded plant investments,
stranded costs for supply contracts and stranded costs associated with programs
to promote the most efficient use of electricity and reduce the environmental
impact of generation facilities. The states in which the Company currently
operates are moving at varying speeds toward a more competitive industry. While
the Company cannot predict the impact of competition on all components of its
electric operations, or whether its electric operations will eventually be
subject to deregulation, the Company's efficient operations, limited investment
in generation and capability to deliver multiple diverse services should place
it in an excellent position to excel in a competitive environment.
During 1996, the Company's Vermont operations have been the subject of a
comprehensive rate review. Although the Company believes that there will not be
a material effect on the Company's financial condition or results of operations
as a result of this proceeding, the Company has provided a reserve of
approximately $800,000 for the potential impact of this proceeding.
12
<PAGE>
The Company's water and wastewater treatment operations are regulated under the
Safe Drinking Water Act and the Clean Water Act. In August 1996, the 1996 Safe
Drinking Water Act Amendments became Law. There are several new requirements
under the Amendments, including reports to consumers on water quality, operator
certification, and source water protection. The greatest impact to the water
sector will be the processes regulators will use to establish standards for new
contaminants. With this new approach, regulators are given the flexibility to
set priorities in contaminant selection rather than follow a fixed schedule.
(b) Results of Operations
----------------------
REVENUES
--------
Revenues increased $237.5 million, or 22%, in 1996 and $162.9 million, or 18%,
in 1995. The increase in 1996 was primarily due to increased communications and
natural gas revenues. The increase in revenues in 1995 was primarily due to
increased communications revenues.
<TABLE>
<CAPTION>
Communications Revenues 1996 1995 1994
- - ----------------------- ------------------- -------------------------- --------
Increase over Increase over
Amount Prior year Amount Prior year Amount
Telecommunications Revenues ($ in thousands)
- - ------------------ ---------- ------------ --------- ------------- ------
<S> <C> <C> <C> <C> <C>
Network Access Services $ 394,821 15% $ 343,761 26% $ 272,573
Local Network Services 235,043 19% 197,947 41% 139,896
Long Distance Service 67,634 328% 15,800 n/a 0
Directory Service 30,248 22% 24,866 39% 17,843
Other 58,561 70% 34,373 29% 26,563
---------- --------- --------- ------- ----------
$ 786,307 27% $ 616,747 35% $ 456,875
=========== ========= ========== ======== ===========
</TABLE>
Revenues from Network Access Services grew $51.1 million, or 15%, over 1995
primarily due to the properties acquired from ALLTEL in 1996 and 1995, increased
switched and special access revenues, and increased billing and collections
revenue.
Revenues from Local Network Services increased $37.1 million, or 19%, over 1995
primarily due to the properties acquired from ALLTEL in 1996 and 1995, customer
growth, increased usage and the sale of other enhanced services.
Long Distance Service revenues grew by $51.8 million, or 328%, from 1995,
primarily due to a strong in-territory focus on converting existing local
network services customers to the Company's long distance service. Market share
penetration in December 1996, in terms of minutes of use, approximated 16%, up
from a market share of 2% in December 1995. In addition, the Company's retail
sales force began selling in adjacent markets, acquiring both long distance and
reselling dialtone market share.
Revenues from Directory Service increased $5.4 million, or 22%, over 1995
primarily due to an increase in the number of directories acquired from ALLTEL
in 1996 and 1995, and an increase in advertising revenues.
Other communications revenues increased $24.2 million, or 70%, over 1995
primarily due to the properties acquired from ALLTEL in 1996 and 1995.
The revenue increases for 1995 as compared with 1994 were primarily due to the
properties acquired from GTE and ALLTEL.
<TABLE>
<CAPTION>
Public Services Revenues 1996 1995 1994
- - ------------------------ ----------------------- -------------------------- -------
Increase over Increase over
Amount Prior year Amount Prior year Amount
------ ---------- ------ ---------- ------
Natural Gas Revenues ($ in thousands)
- - --------------------
<S> <C> <C> <C> <C> <C>
Residential $ 134,888 22% $ 110,146 (6%) $ 117,266
Commercial 49,633 22% 40,614 (7%) 43,497
Industrial 40,230 14% 35,244 0% 35,342
Transportation 5,519 30% 4,255 11% 3,846
Other 9,349 22% 7,643 (15%) 8,989
----------- -------- ---------- -------- ----------
$ 239,619 21% $ 197,902 (5%) $ 208,940
=========== ======== ========== ======== ===========
</TABLE>
The increase in natural gas revenues in 1996 was primarily the result of rate
increases in Louisiana and Arizona. In addition to the rate increases, there
was increased consumption by residential customers 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 and decreased consumption
by industrial customers in Louisiana due to rising gas prices. The decrease in
revenues in 1995 was primarily due to lower average revenue per MCF of gas sold
which resulted from pass-ons to customers of lower average gas costs from
suppliers; this decrease was partially offset by increased consumption. Pass-ons
are a reduction in the cost of gas sold which savings is passed on to customers
and therefore does not affect net income.
13
<PAGE>
<TABLE>
<CAPTION>
Public Services Revenues (cont'd) 1996 1995 1994
- - --------------------------------- ------------------------ ------------------------- -------
Increase over Increase over
Amount Prior year Amount Prior year Amount
--------- ----------- ------- ----------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Electric Revenues
- - -----------------
Residential $ 79,893 10% $ 72,460 2% $ 71,322
Commercial 55,826 7% 52,152 5% 49,597
Industrial 44,165 12% 39,362 11% 35,376
Other 12,413 9% 11,377 (2%) 11,645
---------- -------- ----------- ------- -----------
$ 192,297 10% $ 175,351 4% $ 167,940
========== ======== =========== ======= ===========
The increase in electric revenues in 1996 was primarily due to rate increases in
Hawaii and Vermont and increased consumption at the Company's Arizona electric
operations resulting from customer growth. The increase in revenues in 1995 was
primarily due to a rate increase in Hawaii and increased consumption in Hawaii
and Arizona.
</TABLE>
<TABLE>
1996 1995 1994
------------------------ ------------------------- -------
Increase over Increase over
Amount Prior year Amount Prior year Amount
--------- ----------- ------- ----------- ------
($in thousands)
<S> <C> <C> <C> <C> <C>
Water and Wastewater Revenues
- - -----------------------------
Residential $ 70,845 12% $ 63,377 8% $ 58,414
Commercial 13,801 12% 12,279 12% 10,953
Industrial 843 46% 576 (6%) 615
Other 2,805 0% 2,800 16% 2,413
-------- ------- --------- -------- ---------
$ 88,294 12% $ 79,032 9% $ 72,395
======== ======= ========= ======== =========
</TABLE>
The increase in water and wastewater treatment revenues in 1996 and 1995 was
primarily the result of rate increases as well as increased residential and
commercial consumption at the Company's California and Arizona Water properties.
EXPENSES
--------
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------- -------
Increase over Increase over
Amount Prior year Amount Prior year Amount
--------- ----------- ------- ----------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Operating Expenses
- - ------------------
Operating expenses $ 413,841 35% $ 306,734 25% $ 244,877
Depreciation 193,733 22% 158,935 38% 115,175
Natural gas purchased 127,913 18% 108,385 (7%) 116,419
Maintenance expense 101,206 16% 87,255 41% 61,779
Electric energy and fuel oil purchased 93,191 9% 85,168 5% 80,931
Taxes other than income 80,947 18% 68,382 16% 58,845
----------- -------- ---------- -------- -----------
$ 1,010,831 24% $ 814,859 20% $ 678,026
============ ======== =========== ======== ===========
</TABLE>
The increases in operating expenses in both 1996 and 1995 were primarily due to
expenses related to acquired telecommunications properties and marketing costs
associated with long distance and other new service offerings.
The increases in depreciation expense in both 1996 and 1995 were due to an
increase in depreciable plant primarily as a result of acquisitions.
The increase in 1996 and decrease in 1995 in the cost of natural gas purchased
are primarily due to fluctuations in the price of natural gas. Under tariff
provisions, increases and decreases in the Company's costs of natural gas
purchased are passed-on to customers. In addition, there was increased
consumption by residential customers 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 and decreased consumption by
industrial customers in Louisiana due to rising gas prices.
The increases in maintenance expenses in 1996 and 1995 were primarily due to the
telecommunications properties acquired.
14
<PAGE>
The increase in electric energy and fuel oil purchased in 1996 was primarily due
to an increase in consumption driven by an increase in demand and customer
growth. The increase in electric energy and fuel oil in 1995 was primarily due
to an increase in demand, customer growth and an increase in fuel oil prices.
Under tariff provisions, increases and decreases in the Company's costs of
electric energy and fuel oil purchased are passed-on to customers.
Taxes other than income increased in both 1996 and 1995 primarily due to
increased payroll and gross receipts taxes associated with the acquired
telecommunications properties.
OTHER INCOME/INTEREST EXPENSE/INCOME TAXES
------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- ---------
Amount Prior year Amount Prior year Amount
------ ---------- ------ ---------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Investment income $ 48,972 18% $ 41,667 3% $ 40,454
</TABLE>
The increase in investment income in 1996 is primarily due to $22 million earned
from Hungarian Telephone and Cable Corp. for guarantees and financial support
provided by the Company. Investment income in 1995 included $14.4 million of
realized gains on investments sold to permanently fund telecommunications
acquisitions partially offset by the effect of a decrease in the funds available
for investment by the Company.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- ---------
Increase over Increase over
Amount Prior year Amount Prior year Amount
------ ---------- ------ ---------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest expense $ 92,695 6% $ 87,775 21% $ 72,744
</TABLE>
The increases in interest expense in 1996 and 1995 were primarily due to the
issuance of additional debt to fund acquisitions and capital expenditures. These
increases were partially offset by the refinancing of outstanding debt at lower
interest rates.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- ---------
Increase over Increase over
Amount Prior year Amount Prior year Amount
------ ---------- ------ ---------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Income taxes $ 84,937 27% $ 66,817 4% $ 64,323
</TABLE>
The increase in income tax expense in 1996 was primarily due to an increase in
taxable income and a 2% higher effective tax rate.
NET INCOME AND EARNINGS PER SHARE
---------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- ---------
Increase over Increase over
Amount Prior year Amount Prior year Amount
------ ---------- ------ ---------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Net Income $ 178,660 12% $ 159,536 11% $ 143,997
Earnings Per Share $ .77 12% $ .69 1% $ .68
</TABLE>
Net income and earnings per share increased in 1996 primarily due to increased
income from operations and investment income. This was partially offset by
$17,300,000 of a noncash charges to pre-tax income for the write off assets
which were no longer deemed recoverable in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"; and $5,849,000
of dividends on Convertible Preferred Securities (EPPICS).
Net income increased in 1995 despite the loss of $38,000,000 of operating income
reported in 1994 which was derived from the discontinued subsidy revenues from
Pacific Bell which had been received annually through the end of 1994. Earnings
per share increased in 1995 despite the loss of $.11 per share (adjusted for
subsequent stock dividends) reported in 1994 which was derived from the
discontinued Pacific Bell subsidy and despite the issuance in January 1995 of
19,000,000 additional shares of Common Stock Series A.
15
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following documents are filed as part of this Report:
1. Financial Statements:
See Index on page F-1.
2. Supplementary Data:
Quarterly Financial Data is included in the Financial Statements
(see 1. above).
16
Item 9. Disagreements with Auditors on Accounting and Financial Disclosure
------------------------------------------------------------------
None
PART III
--------
The Company intends to file with the Commission a definitive proxy statement for
the 1997 Annual Meeting of Stockholders pursuant to Regulation 14A not later
than 120 days after December 31, 1996. The information called for by this Part
III is incorporated by reference to that proxy statement.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The exhibits listed below are filed as part of this Report:
Exhibit
No. Description
- - ------- -----------
3.200.1 Restated Certificate of Incorporation of Citizens Utilities
Company, with all amendments to March 4, 1996
3.200.2 By-laws of the Company, as amended to-date of Citizens Utilities
Company, with all amendments to December 17, 1996
4.100.1 Indenture of Securities, dated as of August 15, 1991, to Chemical
Bank, as Trustee
4.100.2 First Supplemental Indenture, dated August 15, 1991
4.100.3 Letter of Representations, dated August 20, 1991, from Citizens
Utilities Company and Chemical Bank, as Trustee, to Depository
Trust Company ("DTC") for deposit of securities with DTC
4.100.4 Second Supplemental Indenture, dated January 15, 1992, to Chemical
Bank, as Trustee
4.100.5 Letter of Representations, dated January 29, 1992, from Citizens
Utilities Company and Chemical Bank, as Trustee, to DTC, for
deposit of securities with DTC
4.100.6 Third Supplemental Indenture, dated April 15, 1994, to Chemical
Bank, as Trustee
4.100.7 Fourth Supplemental Indenture, dated October 1, 1994, to
Chemical Bank, as Trustee
4.100.8 Fifth Supplemental Indenture, dated as of June 15, 1995, to
Chemical Bank , as Trustee
4.100.9 Sixth Supplemental Indenture, dated as of October 15, 1995, to
Chemical Bank, as Trustee
4.100.11 Seventh Supplemental Indenture, dated as of June 1, 1996
4.100.12 Eighth Supplemental Indenture, dated as of December 1, 1996
4.200.1 Indenture dated as of January 15, 1996, between Citizens
Utilities Company and Chemical Bank, as indenture trustee.
4.200.2 First Supplemental Indenture dated as of January 15, 1996,
between Citizens Utilities Company and Chemical Bank, as
indenture trustee.
4.200.3 5% Convertible Subordinated Debenture due 2036 (contained as
Exhibit A to Exhibit 4.200.2).
4.200.4 Amended and Restated Declaration of Trust dated as of January 15,
1996, of Citizens Utilities Trust.
4.200.5 Convertible Preferred Security Certificate (contained as
Exhibit A-1 to Exhibit 4.200.4)
4.200.6 Amended and Restated Limited Partnership Agreement dated as of
January 15, 1996 of Citizens Utilities Capital L.P.
4.200.7 Partnership Preferred Security Certificate (contained as Annex
A to Exhibit 4.200.6)
4.200.8 Convertible Preferred Securities Guarantee Agreement dated as of
January 15, 1996 between Citizens Utilities Company and Chemical
Bank, as guarantee trustee.
4.200.9 Partnership Preferred Securities Guarantee Agreement dated as
of January 15, 1996 between Citizens Utilities Company and Chemical
Bank, as guarantee trustee
4.200.10 Letter of Representations, dated January 18, 1996, from
Citizens Utilities Company and Chemical Bank, as trustee, to
DTC, for deposit of Convertible Preferred Securities with DTC
10.1 Incentive Deferred Compensation Plan, dated April 16, 1991
10.6 Deferred Compensation Plans for Directors, dated November 26, 1984
and December 10, 1984
10.6.1 Directors' Retirement Plan, effective January 1, 1989
10.6.2 Non-Employee Directors' Deferred Fee Equity Plan dated as of
June 28, 1994
10.16.1 Employment Agreement between Citizens Utilities Company and
Leonard Tow, effective July 11, 1996
10.17 1992 Employee Stock Purchase Plan
10.18 Amendment dated May 21, 1993, to the 1992 Employee Stock Purchase
Plan
10.20 Asset Purchase Agreements, dated November 28, 1994
17
<PAGE>
10.21 1996 Equity Incentive Plan
12. Computation of ratio of earnings to fixed charges (this item is
included herein for the sole purpose of incorporation by reference)
21. Subsidiaries of the Registrant
23. Auditors' Consent
24. Powers of Attorney
27. Financial Data Schedule
Exhibits 10.1, 10.6, 10.6.1, 10.6.2, 10.16.1, 10.17 and 10.18 are management
contract or compensatory plans or arrangements.
The Company agrees to furnish to the Commission upon request copies of the
Realty and Chattel Mortgage, dated as of March 1, 1965, made by Citizens
Utilities Rural Company, Inc., to the United States of America (the Rural
Utilities Services and Rural Telephone Bank) and the Mortgage Notes which that
mortgage secures; and the several subsequent supplemental Mortgages and Mortgage
Notes; copies of the instruments governing the long-term debt of Louisiana
General Services, Inc.; and copies of separate loan agreements and indentures
governing various Industrial development revenue bonds; and copies of documents
relating to indebtedness of subsidiaries acquired during 1996.
Exhibit number 10.6 is incorporated by reference to the same exhibit designation
in the Registrant's Annual Report on Form 10-K for the year ended December 31,
1984. Exhibit number 10.6.1 is incorporated by reference to the same exhibit
designation in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989. Exhibit numbers 4.100.1, 4.100.2 and 4.100.3 are incorporated
by reference to the same exhibit designation in the Registrant's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1991. Exhibit
numbers 4.100.4, 4.100.5 and 10.1 are incorporated by reference to the same
exhibit designation in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991. Exhibit number 10.17 is incorporated by reference to
the same exhibit designation in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992. Exhibit number 10.18 is incorporated by
reference to the Registrant's Proxy Statement, dated March 31, 1993. Exhibit
numbers 4.100.6 and 4.100.7 are incorporated by reference to the Registrant's
Form 8-K Current Reports filed on July 5, 1994 and January 3, 1995,
respectively. Exhibit number 10.20 is incorporated by reference to the same
exhibit designation in the Registrant's Form 10-K for the year ended December
31, 1994. Exhibit number 10.6.2 is incorporated by reference to the Registrant's
Proxy Statement, dated April 4, 1995. Exhibits numbers 4.100.8 and 4.100.9 are
incorporated by reference to the Registrant's Form 8-K Current Reports filed
March 29, 1996. Exhibit number 3.200.1 is incorporated by reference to the same
exhibit designation in the Registrant's Form S-3 filed June 27, 1996. Exhibit
number 10.21 is incorporated by reference to the Registrant's Proxy Statement
dated March 29, 1996. Exhibits numbers 4.200.1, 4.200.2, 4.200.3, 4.200.4,
4.200.5, 4.200.6, 4.200.7, 4.200.8, 4.200.9 and 4.200.10 are incorporated by
reference to the Registrant's Form 8-K Current Report filed May 28, 1996.
Exhibit number 10.16.1 is incorporated by reference to the same exhibit
designation in the Registrant's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1996. Exhibit number 3.200.2 is incorporated by
reference to the Registrant's Form 8-K Current Report filed December 23, 1996.
(b) The Company filed on Form 8-K dated December 17, 1996, under Item 7
"Financial Statements, Pro Forma Financial Information and Exhibits", the
amended Bylaws of Citizens Utilities Company.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Leonard Tow
-------------------------------------------
Leonard Tow
Chairman of the Board; Chief Executive Officer;
Chief Financial Officer; Member, Executive Committee and Director
March 17, 1997
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 17th day of March 1997.
Signature Title
--------- -----
/s/ Robert J. DeSantis
- - ----------------------------------- Vice President and Treasurer
(Robert J. DeSantis)
/s/ Livingston E. Ross Vice President and Controller
- - -----------------------------------
(Livingston E. Ross)
Norman I. Botwinik* Director
- - -----------------------------------
(Norman I. Botwinik)
Aaron I. Fleischman* Member, Executive Committee and
- - ----------------------------------- Director
(Aaron I. Fleischman)
James C. Goodale* Director
- - -----------------------------------
(James C. Goodale)
Stanley Harfenist* Member, Executive Committee and
- - ----------------------------------- Director
(Stanley Harfenist)
Andrew N. Heine* Director
- - -----------------------------------
(Andrew N. Heine)
Elwood A. Rickless* Director
- - -----------------------------------
(Elwood A. Rickless)
John L. Schroeder* Member, Executive Committee and
- - ----------------------------------- Director
(John L. Schroeder)
Robert D. Siff* Director
- - -----------------------------------
(Robert D. Siff)
Robert A. Stanger* Director
- - -----------------------------------
(Robert A. Stanger)
Edwin Tornberg* Director
- - -----------------------------------
(Edwin Tornberg)
Claire L. Tow* Director
- - -----------------------------------
(Claire L. Tow)
Charles H. Symington, Jr* Director
- - ------------------------------------
(Charles H. Symington, Jr.)
*By: /s/ Robert J. Desantis
--------------------------------
(Robert J. DeSantis)
Attorney-in-Fact
20
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Index to Financial Statements
Item Page
---- ----
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1996, 1995 and 1994 F-3
Consolidated statements of income for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated statements of shareholders' equity for the years
ended December 31, 1996, 1995 and 1994 F-5
Consolidated statements of cash flows for the years
ended December 31, 1996, 1995 and 1994 F-6
Notes to consolidated financial statements F-7
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Citizens Utilities Company:
We have audited the accompanying consolidated balance sheets of Citizens
Utilities Company and subsidiaries as of December 31, 1996, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Utilities
Company and subsidiaries as of December 31, 1996, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 28, 1997
F-2
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 24,230 $ 17,922 $ 14,224
Temporary investments 0 0 108,818
Accounts receivable:
Customers 198,138 164,798 142,873
Other 88,320 37,754 26,350
Less allowance for doubtful accounts 4,808 2,739 2,428
------------ ----------- ------------
Total accounts receivable 281,650 199,813 166,795
Materials and supplies 27,159 18,191 18,330
Other current assets 36,731 16,776 5,887
------------ ----------- ------------
Total current assets 369,770 252,702 314,054
------------ ----------- ------------
Property, plant and equipment 4,582,869 4,187,354 3,583,723
Less accumulated depreciation 1,444,817 1,279,324 1,014,068
------------ ----------- ------------
Net property, plant and equipment 3,138,052 2,908,030 2,569,655
------------ ----------- ------------
Investments 539,152 329,090 325,011
Regulatory assets 174,196 180,572 177,414
Deferred debits and other assets 301,978 247,793 190,432
============ =========== ============
Total assets $ 4,523,148 $ 3,918,187 $ 3,576,566
============ =========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Long-term debt due within one year $ 3,593 $ 3,865 $ 13,986
Short-term debt 0 140,650 515,200
Accounts payable 168,299 178,384 122,404
Income taxes accrued 90,317 72,494 92,366
Interest accrued 24,522 22,527 15,841
Customers' deposits 21,400 20,501 19,919
Other current liabilities 101,358 65,257 72,105
------------ ----------- ------------
Total current liabilities 409,489 503,678 851,821
Deferred income taxes 347,975 314,094 248,150
Customer advances for construction 154,324 150,000 145,150
Deferred credits 115,291 101,300 77,950
Contributions in aid of construction 84,129 73,923 71,580
Regulatory liabilities 22,810 28,279 30,830
Long-term debt 1,509,697 1,187,000 994,189
Company obligated mandatorily redeemable
convertible preferred securities * 201,250 0 0
Shareholders' equity 1,678,183 1,559,913 1,156,896
------------ ----------- ------------
Total liabilities and shareholders' equity $ 4,523,148 $ 3,918,187 $ 3,576,566
============ =========== ============
</TABLE>
* 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 Consolidated Financial
Statements.
F-3
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(In thousands, except for per-share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Communications $ 786,307 $ 616,747 $ 456,875
Public Services 520,210 452,285 449,275
----------- ----------- -----------
Total revenues 1,306,517 1,069,032 906,150
----------- ----------- -----------
Operating expenses:
Operating expenses 413,841 306,734 244,877
Depreciation 193,733 158,935 115,175
Natural gas purchased 127,913 108,385 116,419
Maintenance expenses 101,206 87,255 61,779
Electric energy and fuel oil purchased 93,191 85,168 80,931
Taxes other than income 80,947 68,382 58,845
----------- ----------- -----------
Total operating expenses 1,010,831 814,859 678,026
----------- ----------- -----------
Income from operations 295,686 254,173 228,124
Investment income 48,972 41,667 40,454
Other income - net 17,483 18,288 12,486
Interest expense 92,695 87,775 72,744
----------- ----------- -----------
Income before income taxes 269,446 226,353 208,320
Income taxes 84,937 66,817 64,323
----------- ----------- -----------
Income before dividends on convertible preferred securities 184,509 159,536 143,997
Dividends on convertible preferred securities, net of income tax benefit 5,849 0 0
----------- ----------- -----------
Net income $ 178,660 $ 159,536 $ 143,997
=========== =========== ===========
Earnings per share of Common Stock Series A and Series B $ .77 $ .69 $ .68
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(In thousands, except for per-share amounts)
<TABLE>
<CAPTION>
Unrealized gain
Additional (loss) on available-
Common stock ($.25) paid-in Retained for-sale
Series A Series B capital earnings securities Total
-------- -------- ------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994 $ 32,447 $ 13,119 $ 698,688 $ 230,232 $ 0 $ 974,486
Acquisitions 126 4,646 3,231 8,003
Net income 143,997 143,997
Stock dividends in shares of
Common Stock Series A and Series B 1,621 686 137,736 (140,043) 0
Stock plans 88 281 20,911 21,280
Conversions of Series A to Series B (570) 570 0
Change in unrealized gain (loss) on
securities classified as available-
for-sale, net of income taxes 9,130 9,130
---------- ----------- ------------- ----------- ---------- -----------
Balance December 31, 1994 $ 33,586 14,782 $ 861,981 $ 237,417 $ 9,130 $ 1,156,896
---------- ----------- ------------- ----------- ---------- -----------
Acquisitions 222 (4,485) 374 (3,889)
Net income 159,536 159,536
Stock dividends in shares of
Common Stock Series A and Series B 2,374 1,024 158,693 (162,091) 0
Common stock buybacks to fund stock
dividends (115) (352) (21,561) (22,028)
Stock issuance 4,750 238,830 243,580
Stock plans 150 475 30,236 30,861
Conversions of Series A to Series B (1,906) 1,906 0
Change in unrealized gain (loss) on
securities classified as available-
for-sale, net of income taxes (5,043) (5,043)
--------- ----------- ------------- ----------- ---------- -----------
Balance December 31, 1995 $ 38,839 18,057 $ 1,263,694 $ 235,236 $ 4,087 $ 1,559,913
--------- ----------- ------------- ----------- ---------- -----------
Acquisitions 322 15,308 15,630
Net income 178,660 178,660
Stock dividends in shares of
Common Stock Series A and Series B 2,455 1,246 166,129 (169,830) 0
Common stock buybacks to fund stock
dividends (339) (1,300) (73,842) (75,481)
Stock plans 127 203 6,959 7,289
Stock issuances to fund EPPICS
dividends 178 7,621 7,799
EPPICS issuance cost (4,528) (4,528)
Conversions of Series A to Series B (2,771) 2,771 0
Change in unrealized gain (loss) on
securities classified as available-
for-sale, net of income taxes (11,099) (11,099)
--------- ----------- ------------- ----------- ---------- -----------
Balance December 31, 1996 $ 38,811 $ 20,977 $ 1,381,341 $ 244,066 $ (7,012) $ 1,678,183
========= =========== ============= =========== ========== ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net cash provided by operating activities $ 375,181 $ 338,611 $ 262,316
------------ ------------ ------------
Cash flows used for investing activities:
Securities matured 43,608 120,691 89,885
Securities sold 87,447 92,224 23,478
Construction expenditures (348,379) (245,241) (263,162)
Securities purchased (332,332) ( 86,058) ( 18,219)
Business acquisitions (87,683) (223,926) (700,222)
Other (47,802) 55 (13,795)
------------ ------------ ------------
(685,141) (342,255) (882,035)
------------ ------------ ------------
Cash flows from financing activities:
Long-term debt borrowings 351,053 321,280 458,589
Issuance of EPPICS 196,722 0 0
Issuance of common stock 6,049 272,687 18,465
Short-term debt (repayments) borrowings (140,650) (374,550) 135,200
Common stock buybacks to fund stock dividends (75,481) (22,028) 0
Long-term debt principal payments (20,243) (192,030) ( 1,268)
Other (1,182) 1 ,983 1,219
------------ ------------ ------------
316,268 7,342 612,205
------------ ------------ ------------
Increase (decrease) in cash 6,308 3,698 (7,514)
Cash at January 1, 17,922 14,224 21,738
============ ============ ============
Cash at December 31, $ 24,230 $ 17,922 $ 14,224
============ ============ ============
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Financial Statements
(1) Summary of Significant Accounting Policies:
-------------------------------------------
(a) Description of Business:
------------------------
The Company is a diversified communications and public services
company which provides, either directly or through subsidiaries,
telecommunications, electric transmission and distribution, natural
gas transmission and distribution, water distribution and wastewater
treatment services to customers in areas of 22 states. The Company is
not dependent upon any single customer or geographic area for its
revenues. No single regulatory body regulates a service of the
Company accounting for more than 20% of its 1996 revenues.
(b) Principles of Consolidation and Use of Estimates:
-------------------------------------------------
The consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles and include
the accounts of Citizens Utilities Company and all of its
subsidiaries, after elimination of intercompany balances and
transactions.
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Revenues:
---------
The Company records revenues from communications and public services
customers when earned. The Company accrues unbilled revenues earned
from the dates customers were last billed to the end of the
accounting period. Public services customers are billed on a cycle
basis based on meter readings.
Certain communications revenues are estimated under cost separation
procedures that base revenues on current operating costs and
investments in facilities to provide such services.
(d) Construction Costs and Maintenance Expense:
-------------------------------------------
Property, plant and equipment are stated at original cost, including
general overhead and an allowance for funds used during construction
("AFUDC") for regulated businesses and capitalized interest for
unregulated businesses. AFUDC represents the borrowing costs and a
return on common equity of funds used to finance construction of
regulated assets. AFUDC is capitalized as a component of additions to
property, plant and equipment and is credited to income. AFUDC does
not represent current cash earnings; however, under established
regulatory rate-making practices, after the related plant is placed
in service, the Company is permitted to include in the rates charged
for utility services a fair return on and depreciation of such AFUDC
included in plant in service. The amount relating to equity is
included in other income ($8,704,000, $10,545,000 and $11,402,000 for
1996, 1995 and 1994, respectively) and the amount relating to
borrowings is included as a reduction of interest expense
($3,385,000, $4,101,000 and $3,031,000 for 1996, 1995 and 1994,
respectively). Capitalized interest for unregulated construction
activities amounted to $3,109,000, $330,000 and $0 in 1996, 1995 and
1994, respectively. The weighted average rates used to calculate
AFUDC were 10%, 11% and 12% in 1996, 1995 and 1994, respectively.
Maintenance and repairs are charged to operating expenses as
incurred. The book value, net of salvage, of routine property, plant
and equipment dispositions is charged against accumulated
depreciation for regulated operations.
(e) Depreciation Expense:
---------------------
Depreciation expense, calculated using the straight-line method, is
based upon the estimated service lives of various classifications of
property, plant and equipment and represents approximately 5% of the
gross depreciable property, plant and equipment for 1996 and 4% of
the gross depreciable property, plant and equipment for 1995 and
1994.
F-7
<PAGE>
(f) Regulatory Assets and Liabilities:
----------------------------------
The Company's regulated operations are subject to the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 71;
"Accounting for the Effects of Certain Types of Regulation". SFAS 71
requires regulated entities to record regulatory assets and
liabilities as a result of actions of regulators. Regulatory assets
of $16,648,000, $25,006,000 and $24,669,000 at December 31, 1996,
1995 and 1994, respectively, related to Postretirement Benefits Other
than Pensions (see Note 14). Regulatory assets of $157,548,000,
$155,566,000 and $152,745,000 and regulatory liabilities of
$22,810,000, $28,279,000 and $30,830,000 at December 31, 1996, 1995
and 1994, respectively, were carried as an offset to deferred income
taxes (see Note 1(j)).
The Company continuously monitors the applicability of SFAS 71 to its
regulated operations. SFAS 71 may, at some future date, be deemed
inapplicable due to changes in the regulatory and competitive
environments and/or a decision by the Company to accelerate deployment
of new technology. If the Company were to discontinue the application
of SFAS 71 to one or more of its regulated operations, the Company
would be required to write off its regulatory assets and regulatory
liabilities associated with such operation(s) and would be required to
adjust the carrying amount of any other assets, including property,
plant and equipment, that would be deemed not recoverable. The Company
believes its regulated operations continue to meet the criteria for
SFAS 71 and that the carrying value of its regulated property,
plant and equipment is recoverable in accordance with established
rate-making practices.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
--------------------------------------------------------------------
Of:
---
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value. Assets to be
disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.In 1996, the Company recorded $17,300,000 of
noncash charges to pre-tax income for the write off of assets which
were no longer deemed recoverable in accordance with SFAS 121.
(h) Accounting for Investments, Temporary Investments and Short-term Debt:
----------------------------------------------------------------------
Investments include high credit quality, short- and intermediate-term
fixed-income securities (primarily state and municipal debt
obligations) and equity securities. The Company classifies its
investments at purchase as available-for-sale or held-to-maturity. The
Company does not maintain a trading portfolio. Securities which the
Company will hold for an indefinite period of time, but which might be
sold in the future as changes in market conditions or economic factors
occur, are classified as available-for-sale and are carried at
estimated fair market value. Net aggregate unrealized gains and losses
related to such securities, net of taxes, are included as a separate
component of Shareholders' equity. Securities for which the Company
has the intent and ability to hold to maturity are designated as
held-to-maturity and are carried at amortized cost, adjusted for
amortization of premiums and accretion of discounts over the period to
maturity. Interest, dividends and gains and losses realized on sales
of securities are reported in Investment income.
Temporary investments in 1994 represented investments in state and
municipal securities which matured in less than one year, the proceeds
of which were intended to be and were used to repay a portion of the
short-term debt issued to partially and temporarily fund the
acquisitions of the GTE and ALLTEL Telecommunications Properties (see
Note 3). Such investments were considered held-to-maturity and were
carried at amortized cost.
Short-term debt outstanding was issued in the form of commercial paper
notes payable to temporarily and partially fund the acquisition of the
GTE and ALLTEL Telecommunications Properties. This short-term debt was
repaid with the maturity proceeds of company investments and with
proceeds from the issuance of Equity Providing Preferred Income
Convertible Securities ("EPPICS," see Note 7).
F-8
<PAGE>
(i) Investment in Centennial Cellular Corp.:
----------------------------------------
The Company recorded its initial investment in 102,187 shares of
Centennial Cellular Corp. ("Centennial") Convertible Redeemable
Preferred Stock (the "Preferred Security") at $49,842,000 and
1,367,099 shares of Centennial Class B Common Stock at $19,826,000,
which in the aggregate represented the historical cost of the
Company's investment in its subsidiary, Citizens Cellular Company,
prior to its merger with Centennial. During 1994, the Company
purchased 615,195 additional shares of Centennial Class B Common
Stock for $8,613,000 pursuant to a Centennial rights offering.
The terms of the Preferred Security provide that the Preferred
Security may be converted by the holder into Centennial common stock
and that it accreted a liquidation value preference through August
31, 1996 at a fixed annual dividend rate of 7.5%, compounded
quarterly, until the Preferred Security reached a liquidation value
preference of $186,287,000 on August 31, 1996.
The Company recognized the non-cash accretion on the Preferred
Security as it was earned in each period through August 31, 1996 as
investment income and increased the book value of its investment in
Centennial by the same amount. The liquidation value preferences
earned on the Preferred Security for 1996, 1995 and 1994 were
$8,993,000, $14,353,000 and $13,481,000, respectively. From inception
through August 31, 1996, $57,787,000 of such accretion was accounted
for in this manner. The Preferred Security is mandatorily redeemable
on August 30, 2006.
Commencing September 1, 1996, Centennial has the option to either (a)
declare and pay or accumulate an 8.5% annual dividend on the
Preferred Security's $186,287,000 liquidation value or (b) redeem the
Preferred Security for $186,287,000 in cash or in Centennial common
stock. Centennial declared the required $3,959,000 dividend for the
quarter ended November 30, 1996 and paid the dividend on December 19,
1996.
On a quarterly basis, the Company assesses whether the book value of
the Preferred Security can be realized by comparing such book value
to the market value of Centennial's common equity and by evaluating
other relevant indicators of realizability including Centennial's
ability to redeem the Preferred Security. The carrying value of the
Preferred Security would be deemed impaired to the extent that such
carrying value exceeds the estimated realizability of the Preferred
Security based on all existing facts and circumstances including the
Company's assessment of its ability to realize the carrying value of
the Preferred Security through mandatory redemption. The Company
believes it can realize its investment in Centennial either by cash
redemption by the issuer funded through refinancing by the issuer, by
temporary conversion to common equity securities followed by the sale
of the common equity securities, or by sale of its current investment
holdings.
(j) Income Taxes, Deferred Income Taxes and Investment Tax Credits:
---------------------------------------------------------------
The Company and its subsidiaries are included in a consolidated
federal income tax return. The Company utilizes the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes reflect the tax effect of
temporary differences between the financial statement and the tax
bases of assets and liabilities using presently enacted tax rates.
Regulatory assets and liabilities (see Note 1(f)) include income tax
benefits previously flowed through to customers and from the
allowance for funds used during construction, the effects of tax law
changes and the tax benefit associated with unamortized deferred
investment tax credits. These regulatory assets and liabilities
represent the probable net increase in revenues that will be
reflected through future ratemaking proceedings. The investment tax
credits relating to utility properties, as defined by applicable
regulatory authorities, have been deferred and are being amortized to
income over the lives of the related properties.
F-9
<PAGE>
(k) Employee Stock Plans:
---------------------
Prior to January 1, 1996, the Company accounted for its employee stock
option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. On January
1, 1996, the Company adopted SFAS 123, " Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value based
method defined in SFAS 123 had been applied. The Company elected to
continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS 123 (see Note 9).
(l) Earnings Per Share:
--------------------
Earnings per share is based on the average number of outstanding
shares. Earnings per share is presented with adjustment for subsequent
stock dividends. The calculation has not been adjusted for the 1.6%
stock dividend declared on February 18, 1997, because its effect is
immaterial. The effect on earnings per share of the exercise of
dilutive options is immaterial.
(2) Property, Plant and Equipment:
------------------------------
The components of property, plant and equipment at December 31, 1996,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Transmission and distribution facilities $2,923,630 $2,641,594 $2,159,452
Production and generating facilities 960,422 868,119 818,927
Administrative facilities 368,178 337,196 285,445
Construction work in progress 187,692 212,892 210,213
Pumping, storage and purification facilities 122,340 107,653 93,942
Intangibles and other 20,607 19,900 15,744
------------- ------------- -------------
$4,582,869 $4,187,354 $3,583,723
============= ============= =============
</TABLE>
(3) Mergers and Acquisitions:
-------------------------
In December 1996, the Company acquired Conference-Call USA, Inc.
("Conference-Call") in a stock for stock transaction. Conference-Call
provides nationwide conference calling services and its subsidiary, Dial,
Inc. ("Dial"), provides international dial-back services. The Company
issued 1,289,133 shares of common stock in exchange for all of the common
and preferred stock of Conference-Call. If Conference-Call and/or Dial
achieves specified financial results in future periods, the Company may
be required to issue up to 1,443,299 additional shares of common stock.
This transaction was accounted for using the purchase method of
accounting and the results of operations of Conference-Call have been
included in the accompanying financial statements from the date of
acquisition.
In July 1995, the Company acquired Flex Communications ("Flex") in a
stock for stock transaction. Flex was a switch-based, inter-exchange
carrier providing long distance, 800 Inbound long-distance, voice mail,
paging, private data networks and cellular services to approximately
5,500 customers in upstate New York. The Company issued 855,953 shares of
Common Stock Series B for all of the outstanding shares of Flex. This
transaction was accounted for using the pooling of interests method of
accounting. Prior year financial statements were not restated as the
amounts were not significant.
In March 1995, the Company acquired Douglassville Water Company
("Douglassville") for $173,000 and 31,928 shares of Common Stock Series
B. Douglassville provided water utility services in Pennsylvania to
approximately 870 customers. This transaction was accounted for using the
purchase method of accounting and the results of operations of
Douglassville have been included in the accompanying financial statements
from the date of acquisition.
F-10
<PAGE>
In February 1995, the Company acquired from the town of Youngtown,
Arizona, for $1,192,000, the town's water and wastewater systems which
served approximately 3,400 customers. This acquisition was accounted for
using the purchase method of accounting and the results of operations of
Youngtown have been included in the accompanying financial statements
from the date of acquisition.
In November 1994, the Company and ALLTEL Corporation signed definitive
agreements pursuant to which the Company agreed to acquire from ALLTEL
certain telecommunications properties in eight states serving
approximately 110,000 local telephone access lines and certain cable
television systems serving approximately 7,000 subscribers ("ALLTEL
Telecommunications Properties"). The purchase price of the ALLTEL
Telecommunications Properties (net of 3,600 of the Company's telephone
access lines which were valued at $10 million and transferred to ALLTEL
in a tax free exchange) was $282 million. All such access lines were
transferred to the Company on or before March 31, 1996. These
transactions were accounted for using the purchase method of accounting
and the results of operations of the ALLTEL Telecommunications Properties
have been included in the accompanying financial statements from their
respective dates of acquisition.
In August 1994, the Company acquired RHC, Inc. ("Metro Utility Co.") in a
stock for stock transaction. Metro Utility Co. provided water and
wastewater treatment services to approximately 10,000 customers in the
suburban Chicago area. The Company issued 504,807 shares of Common Stock
Series B for all of the outstanding shares of Metro Utility Co. This
transaction was accounted for using the pooling of interests method of
accounting.
In May 1993, the Company and GTE Corp. ("GTE") signed definitive
agreements pursuant to which the Company agreed to acquire from GTE, for
approximately $1.1 billion in cash, certain GTE telecommunications
properties serving approximately 500,000 local telephone access lines in
eight states ("GTE Telecommunications Properties"). All such access lines
were transferred to the Company on or before December 30, 1994. These
transactions were accounted for using the purchase method of accounting
and the results of operations of the GTE Telecommunications Properties
have been included in the accompanying financial statements from their
respective dates of acquisition.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the GTE and ALLTEL
Telecommunications Properties acquired as if the acquisitions had
occurred on January 1 of the year preceding the respective dates
acquired. The effects of the other acquisitions described above would not
significantly impact the pro forma results. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had the Company and the GTE and ALLTEL
Telecommunications Properties constituted a single entity during such
periods.
1996 1995 1994
---- ---- ----
($ in thousands, except for per-share amounts)
Revenues $1,311,000 $1,159,000 $1,138,000
Net Income $180,000 $175,000 $172,000
Earnings per share $.77 $.74 $.73
A subsidiary of the Company, in a joint venture with a subsidiary of
Century Communications, Corp. ("Century"), acquired and operates two
cable television systems in southern California serving 49,500
subscribers. Century is a cable television company of which Leonard Tow,
the Chairman, Chief Executive Officer and Chief Financial Officer of the
Company, is Chairman and Chief Executive Officer. In addition, Claire
Tow, a director of the Company, is a Senior Vice President and a director
of Century and Robert Siff, a director of the Company, is a director of
Century. The joint venture is governed by a management board on which the
Company and Century are equally represented. A subsidiary of Century (the
"Manager") manages the day-to-day operations of the systems. The Manager
does not receive a management fee but is reimbursed only for the actual
costs it incurs on behalf of the joint venture. With respect to the
purchase of any service or asset for the joint venture for use in the
systems, the Manager is obligated to pass through to the joint venture
any discount, up to 5%, off the published prices of vendors and is
entitled to retain any discount in excess of 5%. The Company accounts for
the joint venture following the equity method of accounting. On August
19, 1996, the joint venture entered into agreements to acquire three
additional cable television systems serving a total of 76,000 subscribers
in southern California for approximately $140 million. The acquisitions
are subject to regulatory approval and are expected to close in the first
half of 1997.
F-11
<PAGE>
(4) Investments:
------------
The components of investments at December 31, 1996, 1995 and 1994 are as
follows:
1996 1995 1994
---- ---- ----
($ in thousands)
State and municipal securities 370,783 $ 172,518 $ 174,790
Centennial Preferred Security 107,629 98,636 84,283
Marketable equity securities 58,351 57,528 65,527
Other fixed income securities 2,389 408 411
----------- ---------- ----------
Total 539,152 $ 329,090 $ 325,011
=========== ========== ==========
Marketable equity securities for 1996 and 1995 include the Company's
investments in Hungarian Telephone and Cable Corp. ("HTCC"), Centennial
Class B Common Stock (see Note 1 (i)) and Century Class A Common Stock.
For 1994, marketable equity securities include the Centennial Class B
Common Stock and Century Class A Common Stock. The investment in the
shares of Century Class A Common Stock represents approximately 2% of the
total outstanding common stock of Century. The Chairman, Chief
Executive Officer and Chief Financial Officer of the Company is also
Chairman and Chief Executive Officer of Century.
Net realized gains on marketable equity securities included in the
determination of net income for the years 1996, 1995 and 1994,
respectively, were $0, $13,904,000, and $3,760,000. The cost of
marketable equity securities sold during 1996, 1995 and 1994,
respectively, was $0, $9,863,000, and $384,000. The cost of securities
sold was based on the actual cost of the shares of each security held at
the time of sale. The Company recognized $22,138,000 in investment income
in 1996 for guarantees and financial support provided by the Company to
HTCC.
The following summarizes the amortized cost, gross unrealized holding
gains and losses and fair market value for investments.
<TABLE>
<CAPTION>
Unrealized Holding Aggregate Fair
Investment Classification Amortized Cost Gains (Losses) Market Value
- - ------------------------- -------------- ------ -------- ------------
($ in thousands)
<S> <C> <C> <C> <C>
As of December 31, 1996
Held-To-Maturity $ 107,629 $ 78,658 $ 0 $ 186,287
Available-For-Sale 442,884 2,903 (14,264) 431,523
As of December 31, 1995
Held-To-Maturity $ 244,982 $ 79,808 $ (59) $ 324,731
Available-For-Sale 77,485 8,422 (1,799) 84,108
As of December 31, 1994
Held-To-Maturity $ 259,484 $ 80,293 $ (3,055) $ 336,722
Available-For-Sale 50,809 14,718 0 65,527
</TABLE>
The amortized cost of held-to-maturity securities plus the aggregate
fair market value of available-for-sale securities for each year
presented above equals the total of investments presented in the
foregoing investments table. As of December 31, 1996 all investments
except the Centennial Preferred Security have been classified as
available-for-sale.
F-12
<PAGE>
The Company sold $68,458,000 and $19,335,000 of securities classified as
held-to-maturity during 1995 and 1994, respectively, for the purpose of
financing a portion of the acquisition of the GTE and ALLTEL
Telecommunications Properties; gross realized gains on such sales for
1995 and 1994, respectively, were $474,000 and $372,000, while gross
realized losses were $8,000 and $94,000 for 1995 and 1994, respectively.
(5) Fair Value of Financial Instruments:
------------------------------------
The following table summarizes the carrying amounts and estimated fair
values for certain of the Company's financial instruments at December 31,
1996, 1995 and 1994. For the other financial instruments, representing
cash and cash equivalents, accounts and notes receivables, short-term
debt, accounts payable and other accrued liabilities, the carrying
amounts approximate fair value due to the relatively short maturities of
those instruments.
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------ ------------------------- ----------
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
------ ---------- ------ ---------- ------ ----------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Temporary Investments $ 0 $ 0 $ 0 $ 0 $ 108,818 $ 108,935
Investments 539,152 617,810 329,090 408,839 325,011 402,249
Long-term Debt 1,509,697 1,532,251 1,187,000 1,263,000 994,189 992,349
EPPICS 201,250 192,194 0 0 0 0
</TABLE>
The fair value of the above financial instruments, except for the
investment in the Centennial Preferred Security and certain options on
marketable equity securities, are based on quoted prices at the reporting
date for those financial instruments. The fair value of the Centennial
Preferred Security is estimated to be its accreted value at the
respective reporting dates (see Note 1(i)) while the fair value of
certain options on marketable equity securities is based on the
Black-Scholes option pricing model.
(6) Long-term Debt:
---------------
<TABLE>
<CAPTION>
Weighted average
interest rate at December 31, 1996
December 31, 1996 Maturities -------------------------------------------
----------------- ---------- 1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C> <C> <C>
Debentures 7.34% 2001 - 2046 $ 1,000,000 $ 700,000 $ 425,000
Industrial development revenue bonds 5.62% 2015 - 2031 391,789 374,089 325,125
Rural Utilities Service Loan Contracts 5.89% 1998 - 2027 77,909 71,609 47,106
Senior unsecured notes 8.05% 2012 36,000 23,000 0
Other long-term debt 6.82% 1998 - 2027 3,999 2,202 9,158
Commercial paper notes payable - - 0 16,100 187,800
---------- ---------- ----------
Total long-term debt $ 1,509,697 $ 1,187,000 $ 994,189
=========== =========== ===========
</TABLE>
The total principal amounts of industrial development revenue bonds at
December 31, 1996, 1995 and 1994 were $422,780,000, $406,080,000, and
$392,530,000, respectively. Industrial development revenue bond funds
issued are held by a trustee until used for payment of qualifying
construction. The amounts presented in the table above represent funds
that have been used for construction through December 31, 1996, 1995 and
1994, respectively.
On December 31, 1995 and 1994, certain commercial paper notes payable
were classified as long-term debt because these obligations were expected
to and have been refinanced with long-term debt securities.
The Company has available lines of credit with commercial banks in the
amounts of $400,000,000 and $200,000,000, which expire on December 10,
1997 and December 16, 2002, respectively, and have associated facility
fees of one-thirty third of one percent (0.03%) per annum and
one-twentieth of one percent (0.05%) per annum, respectively. The terms
of the lines of credit provide the Company with extension options.
F-13
<PAGE>
The installment principal payments and maturities of long-term debt for
the next five years are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ----- ----
($ in thousands)
<S> <C> <C> <C> <C> <C>
Installment principal payments $3,460 $2,795 $2,821 $2,967 $ 3,100
Maturities 133 5,965 0 274 50,000
------- ------ ------ ------- -------
$3,593 $8,760 $2,821 $3,241 $53,100
======= ====== ====== ======= =======
</TABLE>
Holders of certain industrial development revenue bonds may tender at par
prior to maturity. The next tender date is August 1, 1997 for $30,350,000
of principal amount of bonds. The Company expects to remarket all such
bonds which are tendered. In the years 1996, 1995 and 1994, respectively,
interest payments on short- and long-term debt were $93,274,000,
$78,659,000 and $74,803,000.
(7) Company Obligated Mandatorily Redeemable Convertible Preferred
--------------------------------------------------------------
Securities:
-----------
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" or "EPPICS"), 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. The $196,722,000 of net proceeds from the issuances
was used to permanently fund a portion of the acquisition of the GTE and
ALLTEL Telecommunications Properties.
In accordance with the terms of the issuances, the Company paid the 5%
interest on the Convertible Subordinated Debentures in Citizens' Common
Stock Series A. During 1996, 709,748 shares of Common Stock Series A were
issued to the Partnership in payment of interest of which 654,119 shares
were sold by the Partnership to satisfy cash dividend payment elections
by the holders of the EPPICS. The sales proceeds and the remaining 55,629
shares of Common Stock Series A were distributed by the Partnership to
the Trust. The Trust distributed the cash and shares as dividends to the
holders of the EPPICS.
(8) Capital Stock:
--------------
The common stock of the Company is in two series, Series A and Series B.
The Company is authorized to issue up to 250,000,000 shares of Common
Stock Series A and 350,000,000 shares of Common Stock Series B. Quarterly
stock dividends are declared and issued at the same rate on both Series A
and Series B. Series B shareholders have the option of enrolling in the
"Series B Common Stock Dividend Sale Plan." The Plan offers Series B
shareholders the opportunity to have their stock dividends sold by the
Plan Broker and the net cash proceeds of the sale distributed to them
quarterly. Series A shares are convertible share-for-share into Series B
shares. Series B shares are not convertible into Series A. Both series
are the same in all other respects.
F-14
<PAGE>
Quarterly stock dividend rates declared on Common Stock Series A and
Series B are based upon cash equivalent rates and share market prices,
and have been as follows:
Dividend Rates
---------------------------------
1996 1995 1994
---- ---- ----
First quarter 1.6 % 1.5 % 1.1 %
Second quarter 1.6 % 1.5 % 1.15 %
Third quarter 1.6 % 1.6 % 1.3 %
Fourth quarter 1.6 % 1.6 % 1.4 %
----- ------ ------
Total 6.4 % 6.2 % 4.95 %
====== ====== ======
Compounded Total 6.56% 6.35% 5.04 %
====== ====== ======
Annualized stock dividend cash equivalent rates considered by the
Company's Board of Directors in declaring stock dividends for 1996, 1995
and 1994, respectively, were 71 3/4, 67 3/4 and 64 5/8 per share
(adjusted for all stock dividends paid subsequent to all dividends
declared through December 31, 1996 and rounded to the nearest 1/8th).
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 3/8 per share (not adjusted for subsequent stock
dividends). The $244,200,000 of net proceeds from the issuance was used
to permanently fund a portion of the acquisition of the GTE
Telecommunications Properties.
In May 1996 and 1995, the Board of Director's authorized the buyback of
up to $75 million and $50 million, respectively, of Common Stock Series A
and Series B shares solely for purposes of funding the Company's stock
dividend policy. Shares have been and will be purchased on the open
market from time to time. The Company purchased 6,554,000 shares at a
cost of $75,481,000 in 1996 and 1,865,000 shares at a cost of $22,028,000
in 1995. All purchased shares have been used to pay stock dividends.
The activity in shares of outstanding common stock for Series A and
Series B during 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
Series A Series B
-------- --------
<S> <C> <C>
Balance at January 1, 1994 129,785,000 52,477,000
Acquisition 0 505,000
Common stock dividends 6,484,000 2,744,000
Stock plans 355,000 1,122,000
Conversion of Series A to Series B (2,278,000) 2,278,000
----------- ----------
Balance at December 31,1994 134,346,000 59,126,000
Acquisitions 0 888,000
Common stock issuance 19,000,000 0
Common stock dividends 9,499,000 4,098,000
Common stock buybacks to fund stock dividends (462,000) (1,403,000)
Stock plans 601,000 1,894,000
Conversions of Series A to Series B (7,626,000) 7,626,000
------------ ----------
Balance at December 31, 1995 155,358,000 72,229,000
Acquisition 1,289,000 0
Common stock dividends 9,819,000 4,984,000
Common stock issued to fund EPPICS dividends 710,000 0
Common stock buybacks to fund stock dividends (1,356,000) (5,198,000)
Stock plans 508,000 805,000
Conversions of Series A to Series B (11,086,000) 11,086,000
------------ -----------
Balance at December 31, 1996 155,242,000 83,906,000
============ ===========
</TABLE>
The Company has 50,000,000 authorized but unissued shares of preferred
stock ($.01 par).
F-15
<PAGE>
(9) Stock Plans:
------------
At December 31, 1996, the Company had four stock based compensation plans
which are described below. The Company applies APB Opinion No. 25 and
related interpretations in accounting for its employee stock plans.
Accordingly, no compensation cost has been recognized in the financial
statements for options issued pursuant to the Management Equity Incentive
Plan ("MEIP"), Equity Incentive Plan ("EIP") or Employee Stock Purchase
Plan ("ESPP"). Compensation cost recognized for its Directors' Deferred
Fee Equity Plan was $161,231 in 1996, $71,293 in 1995, and $38,971 in
1994. Had the Company determined compensation cost based on the fair
value at the grant date for its MEIP, EIP and ESPP under SFAS 123, the
Company's net pro forma income and Earnings Per Share would have been as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
($ in thousands)
<S> <C> <C> <C>
Net Income As reported $178,660 $159,536
Pro forma $177,426 $159,072
Earnings per share As reported $.77 $.69
Pro forma $.76 $.68
</TABLE>
Pro forma net income reflects only the vested portion of options granted
in 1996 and 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS 123 is not reflected in the pro forma
amounts above because pro forma compensation cost only includes costs
associated with the vested portion of options granted pursuant to the
MEIP, EIP and ESPP on or after January 1, 1995.
Management Equity Incentive Plan
--------------------------------
Under the MEIP, awards of the Company's Common Stock Series A or Series B
may be granted to eligible officers, management employees and
non-management exempt employees of the Company and its subsidiaries in
the form of incentive stock options, non-qualified stock options, stock
appreciation rights ("SARs"), restricted stock or other stock-based
awards. The MEIP is administered by the Compensation Committee of the
Board of Directors.
The maximum number of shares of common stock which may be issued pursuant
to awards at any time is 5% (11,957,000 as of December 31, 1996) of the
Company's common stock outstanding . No awards will be granted more than
10 years after the effective date (June 22, 1990) of the MEIP. The
exercise price of stock options and SARs shall be equal to or greater
than the fair market value of the underlying common stock on the date of
grant. Stock options are generally not exercisable on the date of grant
but vest over a period of time.
Under the terms of the MEIP, subsequent stock dividends and stock splits
have the effect of increasing the option shares outstanding, which
correspondingly decreases the average exercise price of outstanding
options.
The following summary of shares subject to option under the MEIP presents
option share activity adjusted for subsequent stock dividends.
<TABLE>
<CAPTION>
Shares Weighted
Subject to Average Option
Option Price Per Share
------ ---------------
<S> <C> <C>
Balance at January 1, 1994 6,808,000 $11.88
Options granted 1,770,000 11.53
Options exercised (169,000) 7.10
Options canceled or lapsed (78,000) 12.50
-------------
Balance at December 31, 1994 8,331,000 11.89
Options granted 105,000 10.38
Options exercised (276,000) 6.33
Options canceled or lapsed (115,000) 13.29
-------------
Balance at December 31, 1995 8,045,000 12.05
Options granted 2,842,000 11.44
Options exercised (361,000) 7.23
Options canceled or lapsed (558,000) 12.18
=============
Balance at December 31, 1996 9,968,000 $11.96
=============
</TABLE>
F-16
<PAGE>
The following table summarizes information about shares subject to
options under the MEIP at December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- -------------------------------
Weighted- Average
Number Range of Weighted-Average Remaining Number Weighted-Average
Outstanding Exercise Prices Exercise Price Life in Years Exercisable Exercise Price
----------- --------------- -------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
26,000 $ 3 - 5 $ 4 3.8 26,000 $ 4
834,000 8 - 10 8 4.9 834,000 8
5,604,000 10 - 12 12 8.1 1,746,000 12
2,196,000 12 - 14 13 8.2 2,166,000 13
1,308,000 14 - 16 15 6.9 824,000 15
- - -------------- ------------
9,968,000 3 - 16 12 7.7 5,596,000 12
============== =============
</TABLE>
The weighted-average fair value of options granted during 1996
and 1995 were $1.51 and $1.80, respectively. For purposes of the
pro forma calculation under SFAS 123, the fair value of each
option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1996 and 1995:
1996 1995
---- ----
Dividend yield 6.2% 5.6%
Expected volatility 20% 20%
Risk-free interest rate 5.63% 6.25%
Expected life 7 years 7 years
During 1996 and 1995, the Company granted restricted stock awards to
key employees in the form of the Company's Common Stock Series B. There
were no restricted stock award grants in 1994. The number of Series B
shares issued as restricted stock awards during 1996 and 1995 were
522,322 and 9,831, respectively (adjusted for subsequent stock
dividends). None of the restricted stock awards may be sold, assigned,
pledged or otherwise transferred, voluntarily or involuntarily, by the
employee until the restrictions lapse. The restrictions lapse over
six-month through five-year periods. At December 31, 1996, 834,673
shares (adjusted for subsequent stock dividends and stock splits) of
restricted stock were outstanding.
Equity Incentive Plan
---------------------
On May 23, 1996, the shareholders of the Company voted to approve the
EIP. Under the EIP, awards of the Company's Series A or Series B Common
Stock may be granted to eligible officers, management employees and
non-management employees of the Company and its subsidiaries in the
form of incentive stock options, non-qualified stock options, SARs,
restricted stock or other stock-based awards. The EIP is administered
by the Compensation Committee of the Board of Directors.
The maximum number of shares of common stock which may be issued
pursuant to awards at any time is 11,300,000 shares. No awards will be
granted more than 10 years after the effective date (May 23, 1996) of
the EIP. The exercise price of stock options and SARs shall be equal to
or greater than the fair market value of the underlying common stock on
the date of grant. Stock options are generally not exercisable on the
date of grant but vest over a period of time.
Under the terms of the EIP, subsequent stock dividends and stock splits
have the effect of increasing the option shares outstanding, which
correspondingly decrease the average exercise price of outstanding
options. As of December 31, 1996, there have been no awards granted
under the EIP.
F-17
<PAGE>
Employee Stock Purchase Plan
----------------------------
The Company's ESPP was approved by shareholders on June 12, 1992 and
amended on May 21, 1993. Under the ESPP, eligible employees of the
Company and its subsidiaries may subscribe to purchase shares of Common
Stock Series B at 85% of the lower of the average market price on the
first day of the purchase period or on the last day of the purchase
period. An employee may elect to have up to 20% of annual base pay
withheld in equal installments throughout the designated
payroll-deduction period for the purchase of shares. The value of an
employee's subscription may not exceed $25,000 in any one calendar year.
As of December 31, 1996, there were 1,931,000 shares of Common Stock
Series B reserved for issuance under the ESPP. These shares will be
adjusted for any future stock dividends or stock splits. The ESPP will
terminate when all 1,931,000 shares reserved have been subscribed for,
unless terminated earlier or extended by the Board of Directors. The ESPP
is administered by the Compensation Committee of the Board of Directors.
As of December 31, 1996, the number of employees participating in the
ESPP was 2,041 and the total number of shares subscribed for under the
ESPP was 1,277,580. For purposes of the pro forma calculation under SFAS
123, compensation cost is recognized for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes Model with
the following assumptions for subscription periods beginning in 1996 and
1995:
1996 1995
---- ----
Dividend yield 6.4% 6.2%
Expected volatility 20% 20%
Risk-free interest rate 5.30% 5.56%
Expected life 6 months 6 months
The weighted-average fair value of those purchase rights granted in 1996
and 1995 was $3.20 and $3.27, respectively.
Directors' Deferred Fee Equity Plan
-----------------------------------
The Company's non-employee Directors' Deferred Fee Equity Plan (the
"Directors' Plan") was approved by shareholders on May 19, 1995 and
amended on August 20, 1996. The Directors' Plan includes an Option
Plan, a Stock Plan and a Formula Plan. Through the Option Plan, an
eligible director may elect to receive up to $30,000 per annum of his
or her director's fees for a period of up to five years in the form of
options to purchase Company common stock, the number of such options
being equal to such fees divided by 20% of the fair market value of
Company common stock on the effective date of the options. Through the
Stock Plan, an eligible director may elect to receive all or a portion
of his or her director's fees in the form of Plan Units, the number of
such Plan Units being equal to such fees divided by the fair market
value of Company common stock on certain specified dates. The Formula
Plan provides each Director of the Company options to purchase 5,000
shares of common stock on the first day of each year beginning in 1997
and continuing through 2002 regardless of whether the Director is
participating in the Option Plan or Stock Plan. In addition, on
September 1, 1996, options to purchase 2,500 shares of common stock
were granted to each Director. The exercise price of the options are
100% of the fair market value on the date of grant and the options are
excercisable six months after the grant date and remain exercisable
for ten years after the grant date. In the event of termination of
Directorship, a Stock Plan participant will receive the value of such
Plan Units in either stock or cash or installments of cash as selected
by the Participant at the time of the related Stock Plan election. As
of any date, the maximum number of shares of common stock which the
Plan may be obligated to deliver pursuant to the Stock Plan and the
maximum number of shares of common stock which shall have been
purchased by Participants pursuant to the Option Plan and which may be
issued pursuant to outstanding options under the Option Plan shall not
be more than one percent (1%) of the total outstanding shares of
Common Stock Series A and Series B of the Company as of such date,
subject to adjustment in the event of changes in the corporate
structure of the Company affecting capital stock. There are currently
12 directors participating in the Directors'Plan. In 1996, the total
Options and Plan Units earned were 147,611, and 14,364, respectively.
In 1995, the total Options and Plan Units earned were 100,818, and
6,770, respectively (adjusted for stock dividends). At December 31,
1996, 144,312 options were exercisable at a weighted average exercise
price of $11.25.
F-18
<PAGE>
(10) Income Taxes:
-------------
The following is a reconciliation of the provision for income taxes at
federal statutory rates to the effective rates:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Consolidated tax provision at federal statutory rate 35.0% 35.0% 35.0%
State income tax provisions, net of federal income tax benefit 0.5% 2.1% 2.5%
Allowance for funds used during construction (2.0%) (2.3%) (2.4%)
Nontaxable investment income (1.7%) (1.7%) (2.9%)
Amortization of investment tax credits (0.7%) (0.9%) (0.9%)
All other - net 0.4% (2.7%) (0.4%)
----------- ----------- ------------
31.5% 29.5% 30.9%
=========== =========== ============
</TABLE>
As of December 31, 1996, 1995 and 1994, accumulated deferred income
taxes amounted to $334,117,000, $298,424,000 and $230,556,000,
respectively, and the unamortized deferred investment tax credits
amounted to $13,858,000, $15,670,000, and $17,594,000, respectively.
Income taxes paid during the year were $22,525,000, $39,425,000, and
$30,395,000 for 1996, 1995 and 1994, respectively.
The components of the net deferred income tax liability at December 31,
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Deferred income tax liabilities:
--------------------------------
Property, plant and equipment basis differences $ 285,673 $ 246,128 $ 177,549
Regulatory assets 63,447 63,871 62,578
Other - net 14,469 22,741 28,704
----------- ---------- ----------
363,589 332,740 268,831
----------- ---------- ----------
Deferred income tax assets:
---------------------------
Regulatory liabilities 10,076 12,415 13,498
Deferred investment tax credits 5,538 6,231 7,183
----------- ---------- -----------
15,614 18,646 20,681
----------- ---------- -----------
Net deferred income tax liabitlity $ 347,975 $ 314,094 $ 248,150
=========== ========== ===========
</TABLE>
F-20
<PAGE>
The provision for federal and state income taxes, as well as the taxes
charged or credited to Shareholders' equity, includes amounts both
payable currently and deferred for payment in future periods as indicated
below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Income taxes charged (credited) to the income statement
Current:
Federal $ 19,775 $ 13,297 $ 28,347
State (3,256) 1,014 3,595
----------
----------- ------------
Total current 16,519 14,311 31,942
---------- ----------- ------------
Deferred:
Federal 64,895 48,168 29,829
Investment tax credits (1,865) (2,057) (1,949)
State 5,388 6,395 4,501
---------- ----------- ------------
Total deferred 68,418 52,506 32,381
---------- ----------- ------------
84,937 66,817 64,323
---------- ----------- ------------
Income tax benefit on dividends on convertible preferred securities
Current:
Federal (3,149) 0 0
State (479) 0 0
---------- ----------- ------------
Total (3,628) 0 0
---------- ----------- ------------
Income taxes charged to the income statement (a) 81,309 66,817 64,323
---------- ----------- ------------
Income taxes charged (credited) to shareholders' equity
- - ----------------------------------------------------------
Deferred income taxes (benefits) on unrealized gains or losses on securities
classified as available-for-sale (6,884) (3,052) 5,588
Current benefit arising from stock options exercised (345) (406) (137)
---------- ----------- ------------
Income taxes charged (credited) to shareholders' equity (b) (7,229) (3,458) 5,451
========== =========== ============
Total income taxes (a) plus (b) $ 74,080 $ 63,359 $ 69,774
========== =========== ============
</TABLE>
The Company's alternative minimum tax credit as of December 31, 1996 is
$65,056,000 which can be carried forward indefinitely to reduce future
regular tax liability. Such amount is included as a debit against accrued
income taxes.
F-20
<PAGE>
(11) Segment Information:
--------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Communications:
- - ---------------
Revenues $ 786,307 $ 616,747 $ 456,875
Operating income 206,537 174,196 148,720
Depreciation 153,571 120,608 81,659
Capital expenditures, net 225,648 141,063 173,225
Assets 2,412,382 2,097,277 1,805,893
Public Services:
- - ----------------
Natural gas:
------------
Revenues $ 239,619 $ 197,902 $ 208,940
Operating income 33,756 25,874 30,205
Depreciation 10,953 12,155 10,827
Capital expenditures, net 27,691 28,659 26,247
Assets 381,740 344,036 306,979
Electric:
---------
Revenues $ 192,297 $ 175,351 $ 167,940
Operating income 24,805 30,060 31,221
Depreciation 18,718 17,035 15,251
Capital expenditures, net 24,591 32,849 34,379
Assets 482,194 487,893 458,457
Water and Wastewater:
---------------------
Revenues $ 88,294 $ 79,032 $ 72,395
Operating income 30,588 24,043 17,978
Depreciation 10,491 9,137 7,438
Capital expenditures, net 21,048 27,958 22,276
Assets 511,628 505,851 455,312
</TABLE>
(12) Quarterly Financial Data (unaudited):
-------------------------------------
<TABLE>
<CAPTION>
Net Income
---------------------------------------------------
($ in thousands) Per Share
---------------- ----------------------------
1996 Revenues Amount Series A Series B
---- -------- ------ -------- --------
<S> <C> <C> <C> <C>
First quarter $329,138 $38,856 $.16 $.16
Second quarter 318,128 46,251 .19 .19
Third quarter 319,959 46,032 .20 .20
Fourth quarter 339,292 47,521 .20 .20
</TABLE>
<TABLE>
<CAPTION>
Net Income
---------------------------------------------------
($ in thousands) Per Share
---------------- -----------------------------
1995 Revenues Amount Series A Series B
---- -------- ------ -------- --------
<S> <C> <C> <C> <C>
First quarter $267,034 $33,903 $.15 $.15
Second quarter 251,678 41,939 .17 .17
Third quarter 259,732 45,061 .19 .19
Fourth quarter 290,588 38,633 .16 .16
</TABLE>
The quarterly net income per share amounts are rounded to the nearest
cent. Annual earnings per share may vary depending on the effect
of such rounding.
F-21
<PAGE>
(13) Supplemental Cash Flow Information:
-----------------------------------
The following is a schedule of net cash provided by operating activities
for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Net income $ 178,660 $ 159,536 $ 143,997
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense 193,733 158,935 115,175
Deferred income taxes and other current liabilities 68,418 52,506 32,381
Change in operating accounts payable 49,020 11,247 21,520
SFAS 121 noncash charge 17,321 0 0
Change in operating accounts receivable (46,342) (22,684) (20,663)
Change in other assets (27,979) (8,557) 14,054
HTCC noncash investment income (21,692) 0 0
Centennial noncash investment income (8,993) (14,353) (13,481)
Allowance for equity funds used during construction (8,704) (10,545) (11,402)
Change in accrued taxes and interest (4,997) (6,923) 13,024
Other (13,264) 19,449 (32,289)
----------- ----------- -----------
Net cash provided by operating activities $ 375,181 $ 338,611 $ 262,316
=========== =========== ============
</TABLE>
In conjunction with the acquisitions of the ALLTEL Telecommunications
Properties, the Company assumed debt of $13,000,000 and $41,447,000,
in 1996 and 1995, respectively, at weighted average interest rates of
8.05% and 6.59%, respectively.
(14) Retirement Plans:
-----------------
Pension Plan
------------
The Company and its subsidiaries have a noncontributory pension plan
covering all employees who have met certain service and age requirements.
The benefits are based on years of service and final average pay or
career average pay. Contributions are made in amounts sufficient to fund
the plan's net periodic pension cost while considering tax deductibility.
Plan assets are invested in a diversified portfolio of equity and
fixed-income securities.
Pension costs for 1996, 1995 and 1994 are comprised of the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Service cost $ 7,896 $ 6,549 $ 5,777
Interest cost on projected benefit obligation 11,309 10,735 8,166
Return on plan assets (11,268) (11,784) (9,754)
Net amortization and deferral 488 335 172
========== ========== ===========
Net pension cost $ 8,425 $ 5,835 $ 4,361
========== ========== ===========
</TABLE>
F-22
<PAGE>
The following table sets forth the plan's benefit obligations and fair
values of plan assets as of December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Projected benefit obligation $ (151,507) $ (145,008) $ (125,943)
=========== ============ =============
Accumulated benefit obligation:
Vested $ (87,089) $ (86,260) $ (77,053)
Non vested (9,886) (14,107) (9,133)
=========== ============ =============
Total accumulated benefit obligation $ (96,975) $ (100,367) $ (86,186)
=========== ============ =============
Plan assets at fair value $ 151,100 $ 133,700 $ 133,964
=========== ============ =============
</TABLE>
Assumptions used in the computation of pension costs/ year end benefit
obligations were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.5%/ 8.0% 8.25%/ 7.5% 8.0%/ 8.0%
Expected long-term rate of return on plan assets 8.0%/ N/A 8.75%/ N/A 8.5%/ N/A
Rate of increase in compensation levels 4.0%/ 4.0% 4.5 %/ 4.0% 4.5%/ 4.5%
</TABLE>
Postretirement Benefits Other Than Pensions
-------------------------------------------
The Company provides certain medical, dental and life insurance benefits
for retired employees and their beneficiaries and covered dependents. The
components of the net periodic postretirement benefit costs for the years
ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Service cost $ 1,786 $ 2 ,038 $ 1,826
Interest cost on the projected benefit 3,692 4,023 3,418
obligation
Amortization of transition obligation 1,038 1,038 1,048
Other (489) 467 313
--------- --------- --------
Net periodic postretirement benefit cost $ 6,027 $ 7,566 $ 6,605
========= ========= ========
</TABLE>
Of the net periodic postretirement benefit cost presented above, the
Company recorded $2,529,000, $2,781,000 and $4,621,000 in 1996, 1995 and
1994, respectively, as regulatory assets for states whose regulatory
commissions to date have not but will likely allow recovery of accrued
costs in future rate proceedings. The Company's annual cost includes
20-year prospective recognition of the transition obligation.
The following table sets forth the plan's benefit obligations and the
postretirement benefit liability recognized on the Company's balance
sheets at December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (18,990) $ (19,736) $ (14,946)
Fully eligible active plan participants (9,049) (9,964) (7,158)
Other active plan participants (21,876) (30,304) (32,882)
----------- ------------ -----------
Total accumulated postretirement benefit (49,915) (60,004) (54,986)
obligation
Plan assets at fair value 3,156 912 0
Unrecognized transition obligation 16,600 17,638 18,676
Unrecognized prior service cost 4,615 3,480 2,932
Unrecognized net (gain) loss (17,570) (2,961) (1,914)
----------- ----------- -----------
Net accumulated postretirement benefit obligation $ (43,114) $ (40,935) $ (35,292)
=========== ============ ===========
</TABLE>
F-23
<PAGE>
For purposes of measuring year end benefit obligations, the Company used
the same discount rates as were used for the pension plan and a 7% annual
rate of increase in the per-capita cost of covered health-care benefits,
gradually decreasing to 5% in the year 2040 and remaining at that level
thereafter. The effect of a 1% increase in the assumed health-care cost
trend rates for each future year on the aggregate of the service and
interest cost components of the total postretirement benefit cost would
be $548,000 and the effect on the accumulated postretirement benefit
obligation for health benefits would be $4,991,000.
401(k) Savings Plans
--------------------
The Company sponsors employee savings plans under section 401(k) of the
Internal Revenue Code. The plans cover substantially all full-time
employees. Under the plans, the Company provides matching contributions
based on qualified employee contributions. Matching contributions were
$4,248,000, $3,688,000 and $2,156,000 for 1996, 1995 and 1994,
respectively.
(15) Commitments and Contingencies:
------------------------------
The Company has budgeted expenditures for facilities in 1997 of
approximately $613,000,000 and certain commitments have been entered
into in connection therewith.
The Company conducts certain of its operations in leased premises and
also leases certain equipment and other assets pursuant to operating
leases. Terms of the leases, including purchase options and obligations,
renewals and maintenance costs, vary by lease.
Future minimum rental commitments for all long-term noncancellable
operating leases are as follows:
Year Amount
1997 $18,197,000
1998 19,836,000
1999 14,035,000
2000 14,183,000
2001 6,382,000
2002 to 2020 18,869,000
----------
Total $91,502,000
Total rental expense included in the Company's results of operations for
the years ended December 31, 1996, 1995 and 1994 was $13,146,000,
$6,778,000, and $3,913,000 respectively.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
F-24
SEVENTH SUPPLEMENTAL INDENTURE, dated as of June 1, 1996, between
CITIZENS UTILITIES COMPANY, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), having its
principal administrative offices at High Ridge Park, Building No. 3, Stamford,
Connecticut 06905, to CHEMICAL BANK, a New York banking corporation, as Trustee
(herein called the "Trustee"), having its principal corporate trust office at
450 West 33rd Street, New York, New York 10001.
RECITALS
WHEREAS, the Company has entered into an Indenture dated as of August
15, 1991 (the "Indenture"), with the Trustee to provide for the issuance from
time to time of the Company's debentures, notes or other evidences of
indebtedness (herein called the "Securities"), to be issued in one or more
series; and
WHEREAS, the Company has entered into a First Supplemental Indenture
dated as of August 15, 1991 (the "First Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated
"8.45% Debentures Due 2001"; and
WHEREAS, the Company has entered into a Second Supplemental Indenture
dated as of January 15, 1992 (the "Second Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated
"7.45% Debentures Due 2004";and
<PAGE>
WHEREAS, the Company has entered into a Third Supplemental Indenture
dated as of April 15, 1994 (the "Third Supplemental Indenture") with the Trustee
to establish the form and terms of a series of Securities designated "7.60%
Debentures Due 2006"; and
WHEREAS, the Company has entered into a Fourth Supplemental Indenture
dated as of October 1, 1994 (the "Fourth Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated
"7.68% Debentures Due 2034"; and
WHEREAS, the Company has entered into a Fifth Supplemental Indenture
dated as of June 15, 1995 (the "Fifth Supplemental Indenture") with the Trustee
to establish the form and terms of a series of Securities designated "7.45%
Debentures Due 2035"; and
WHEREAS, the Company has entered into a Sixth Supplemental Indenture
dated as of October 15, 1995 (the "Sixth Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated "7%
Debentures Due 2025"; and
WHEREAS, Section 901 of the Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Indenture for, among other things, the purpose of establishing the form and
terms of the Securities of any series as permitted in Sections 201 and 301 of
the Indenture and adding to the covenants of the Company for the benefit of the
Holders of any series of Securities; and
-2-
<PAGE>
WHEREAS, the Company by corporate action duly taken has authorized the
issuance of a seventh series of Securities designated as the 6.80% Debentures
Due 2026 (hereinafter sometimes called the "Debentures"), which series is
limited in aggregate principal amount to $100,000,000, such Debentures to
contain such provisions as have been caused to be determined by or at the
direction of, the Board of Directors of the Company and as are set forth in this
Seventh Supplemental Indenture to the Indenture; and
WHEREAS, all conditions have been complied with, all actions have been
taken and all things have been done which are necessary to make the Debentures,
when executed by the Company and authenticated by or on behalf of the Trustee
and when delivered as herein and in the Indenture provided, the valid
obligations of the Company, and to make this Seventh Supplemental Indenture a
valid and binding supplemental indenture.
NOW, THEREFORE, THIS SEVENTH SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all holders of the Debentures, as follows:
-3-
<PAGE>
Section 1. Definitions. For all purposes of this Seventh Supplemental
------------
Indenture, except as otherwise herein expressly provided or unless the context
otherwise requires:
(1) terms used herein in capitalized form and defined in the
Indenture shall have the meanings specified in the Indenture;
(2) the words "herein", "hereof" and "hereto" and other words
of similar import used in this Seventh Supplemental Indenture
refer to this Seventh Supplemental Indenture as a whole and
not to any particular Section or other subdivision of this
Seventh Supplemental Indenture;
(3) the provisions of this Seventh Supplemental Indenture shall
be read in conjunction with the provisions of the Indenture
only with respect to the Debentures and the provisions of the
Indenture and the First, Second, Third, Fourth, Fifth and
Sixth Supplemental Indentures shall not be modified by this
Seventh Supplemental Indenture with respect to any series of
the Securities outstanding or to be outstanding under the
Indenture, other than the Debentures; and
(4) terms defined in this Sevent Supplemental Indenture shall
apply only to this Seventh Supplemental Indenture
-4-
<PAGE>
and the Debentures hereunder, and such definitions shall not
apply to any supplemental indenture other than this Seventh
Supplemental Indenture or to any Securities outstanding or to
be outstanding under the Indenture, other than the Debentures.
Except as otherwise expressly provided or unless the context otherwise
requires, "Seventh Supplemental Indenture" means this instrument as originally
executed or, if amended or supplemented pursuant to the applicable provisions of
the Indenture, as amended or supplemented.
Section 2. Forms of the Debentures. The Debentures shall be in
---------------------------
substantially the form set forth in Exhibit A to this Seventh Supplemental
Indenture, as such form may be completed pursuant to Section 3 hereof, the terms
of which Exhibit A are herein incorporated by reference and made a part of this
Seventh Supplemental Indenture.
Section 3. Terms of the Debentures. The terms of the Debentures shall
-----------------------
be as follows:
(1) the Securities to be issued under the Indenture and this
Seventh Supplemental Indenture shall be the Debentures and shall be
designated as the "6.80% Debentures Due 2026";
-5-
<PAGE>
(2) the Debentures shall constitute a single series of the
Securities under the Indenture, which series is limited in aggregate principal
amount to $100,000,000;
(3) so long as any Debentures are registered in the name of
CEDE & Co., or any other nominee of The Depository Trust Company, and are
intended to be Book-Entry Securities, the provisions of Section 311 of the
Indenture shall apply to such Debentures. Thereafter the Debentures may be
subjected to the requirements of a successor book-entry securities system that
may be adopted by the Company in accordance with the provisions of the Indenture
and this Seventh Supplemental Indenture;
(4) interest on each of the Debentures shall be payable at the
rate per annum specified in the designation of the Debenture from June 11, 1996,
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually, on February 15 and August 15 in each year,
commencing on August 15, 1996. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will be paid to the Person in
whose name such Debenture (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the February 1 or August 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment
-6-
<PAGE>
Date. Any interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date by virtue of
having been such a Holder and shall be paid by the Company as provided in
Section 307 of the Indenture;
(5) unless otherwise provided with respect to a Book-Entry
Security or pursuant to any successor book-entry security system or similar
system, payments of interest will be made by check mailed to the Holder of each
Debenture at the address shown in the Security Register or, at the option of the
Holder, to such other place in the United States of America as the Holder shall
designate to the Trustee in writing. The principal amount of the Debentures will
be paid at Maturity by check against presentation of the Debentures at the
office or agency of Chemical Bank, as Trustee, in New York, New York, or such
other address in New York, New York, as the Trustee shall designate by written
notice to the Holders of the Debentures;
(6) the Debentures shall be issued in registered form only and
in denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000;
(7) principal and interest on the Debentures shall be payable
in the coin or currency of the United States of America, which, at the time of
payment, is legal tender for public and private debts; and
-7-
<PAGE>
(8) the Debentures shall be subject to defeasance, at the
Company's option, as provided for in Sections 1302 and 1303 of the Indenture.
Upon the Company's exercise of the option to effect such defeasance under
Section 1302 and 1303 of the Indenture in accordance with and subject to the
terms thereof, the Company shall be released from its obligations with respect
to the Debentures as provided in the applicable Section and other relevant
provisions of the Indenture.
Section 4. No Redemption by the Company. The Debentures will not be
-----------------------------
redeemable at the option of the Company prior to maturity and will not be
subject to any sinking fund.
Section 5. Redemption at Option of Holder. (a) Each Holder shall have
-------------------------------
the right, at such Holder's option, exercisable at any time prior to July 15,
2003 and subsequent to June 15, 2003, to require the Company to redeem, and upon
the exercise of such right the Company shall redeem, all or any part of such
Holder's Debentures that is $1,000 or any integral multiple thereof in principal
amount, on August 15, 2003 (the "Redemption Date") at a redemption price in cash
equal to 100% of the principal amount of such Debenture (the "Redemption
Price"), together with accrued and unpaid interest to the Redemption Date.
(b) To exercise a redemption right, a Holder of Debentures
shall deliver (i), to the Company and to the Trustee,
-8-
<PAGE>
irrevocable written notice of the Holder's election to exercise such right (the
"Holder's Notice"), which shall set forth the name of the Holder, the amount of
Debentures to be redeemed and a statement that an election to exercise the
redemption right is being made thereby and (ii), to the Trustee, the Debentures
with respect to which the redemption right is being exercised, duly endorsed for
transfer to the Company if required by the Trustee or the Company. Debentures
held by a securities depositary may be delivered in such other manner as may be
agreed to by such securities depositary and the Company and the Trustee. Such
written notice shall be irrevocable. The Debentures surrendered for redemption
shall, on the Redemption Date, become due and payable at the Redemption Price,
and from and after such date (unless the Company shall default in the payment of
the Redemption Price and accrued interest) such Debentures shall cease to bear
interest. Upon surrender of any such Debentures for redemption in accordance
with the Holder's Notice, such Debentures shall be paid by the Company at the
Redemption Price plus accrued interest to the Redemption Date; provided,
---------
however, that installments of interest whose Stated Maturity is prior to the
- - --------
Redemption Date shall be payable to the Holders of such Debentures, or one or
more Predecessor Securities, according to the terms and provisions of Section
307.
-9-
<PAGE>
(c) On or before the Redemption Date, the Company shall
deposit with the Trustee an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Debentures which are to be repurchased on that
date.
(d) If any Debenture surrendered for redemption shall not be
so paid on the Redemption Date, such Debenture shall, until paid, continue to
bear interest to the extent permitted by applicable law from the Redemption Date
at the same rate as the rate borne by such Debenture. The Company shall pay to
the Holder of such Debenture the additional amounts of interest arising from
this subsection at the same time that it pays the Redemption Price.
(e) If any Debenture which is to be redeemed only in part
shall be surrendered at any office or agency of the Company (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such Security without service charge, a new Debenture or Debentures, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in
-10-
<PAGE>
exchange for the unredeemed portion of the Debenture so surrendered.
Section 6. Amendment to Indenture for Purposes of Seventh Series of
--------------------------------------------------------------------
Debentures.
-----------
For all purposes of the Debentures and for no other purposes,
subsection (4) of Section 501 shall read:
"(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant
or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with or which has
expressly been included in this Indenture solely for the benefit
of a series of Securities other than that series), and
continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by
the Holders of a majority in principal amount of the Outstanding
Securities of that series a written notice specifying such
default or breach and
-11-
<PAGE>
requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or"
For all purposes of the Debentures and for no other purposes, the first
paragraph of Section 502 shall read:
"If an Event of Default with respect to Securities of any
series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of a
majority in principal amount of the Outstanding Securities of
that series may declare the principal amount (or, if any of
the Securities of that series are Original Issue Discount
Securities, such portion of the principal amount of such
Securities as may be specified in the terms thereof) of all of
the Securities of that series to be due and payable
immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration
such principal amount (or specified amount) shall become
immediately due and payable."
-12-
<PAGE>
For all purposes of the Debentures and for no other purposes,
subsection (2) of Section 507 shall read:
"(2) the Holders of a majority in principal amount of the
Outstanding Securities of that series shall have made written
request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;"
For all purposes of the Debentures and for no other purposes,
subsection (5) of Section 507 shall read:
"(5) no direction inconsistent with such written request has
been given to the Trustee during such 90-day period by the
Holders of 66-2/3% in principal amount of the Outstanding
Securities of that series."
Section 7. Incorporation of Indenture. From and after the date hereof,
----------------------------
the Indenture, as supplemented by this Seventh Supplemental Indenture, shall be
read, taken and construed as one and the same instrument with respect to the
Debentures.
Section 8. Acceptance of Trust. The Trustee accepts the trusts created
--------------------
by the Indenture, as heretofore supplemented by the First Supplemental
Indenture, Second Supplemental Indenture, Third Supplemental Indenture, Fourth
Supplemental Indenture,
-13-
<PAGE>
Fifth Supplemental Indenture and Sixth Supplemental Indenture and as hereby
supplemented by this Seventh Supplemental Indenture, and agrees to perform the
same upon the terms and conditions in the Indenture, as so supplemented.
Section 9. Conflict with Trust Indenture Act. If any provision hereof
-----------------------------------
limits, qualifies or conflicts with a provision of the Trust Indenture Act that
is required under such Act to be a part of and govern this Seventh Supplemental
Indenture, such provision of the Act shall control. If any provision of this
Seventh Supplemental Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, such provision of the Act
shall be deemed to apply to this Seventh Supplemental Indenture only as so
modified and if not so excluded, as the case may be.
Section 10. Governing Law. This Seventh Supplemental Indenture, and the
--------------
Debentures, shall be governed by and construed in accordance with the laws of
the State of New York.
Section 11. Recitals. The recitals contained in the Indenture, this
---------
Seventh Supplemental Indenture and the Debentures, except the Trustee's
certificate of authentication, shall be taken as statements of the Company, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of the
-14-
<PAGE>
Indenture, as supplemented by this Seventh Supplemental Indenture.
Section 12. Amendments. Notwithstanding any other provisions hereof,
-----------
all amendments to the Indenture made hereby shall have effect only with respect
to the Debentures, and not with respect to the Securities of any other series
created subsequent to the date hereof.
Section 13. Counterparts. This Seventh Supplemental Indenture may be
-------------
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the date first above written.
CITIZENS UTILITIES COMPANY
By: /s/Robert J. DeSantis
---------------------
Title: Vice President and
Treasurer
Attest:
/s/Charles J. Weiss
- - --------------------------
Secretary
CHEMICAL BANK, as Trustee
By: /s/Thomas J. Foley
------------------
Title: Vice President
Attest:
Gregory P. Shea
- - --------------------------
-16-
<PAGE>
County of Fairfield )
) ss.:
State of Connecticut )
On the 11th day of June, 1996, before me personally came Robert
DeSantis, to me known, who, being by me duly sworn, did depose and say that he
is Vice President and Treasurer of CITIZENS UTILITIES COMPANY, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporations; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
----------------------------------
Notary Public, State of Connecticut
-17-
<PAGE>
County of New York )
) ss.:
State of New York )
On this 11th day of June, in the year of 1996 before me
personally came T.J. Foley to me personally known, who being by me duly sworn
-----------
did depose and say that he resides at Bethpage, N.Y. , that he is Vice President
----------------
of CHEMICAL BANK, one of the corporations described in and which executed the
foregoing indenture; that he knows the seal of said corporation; that the seal
affixed to said instrument opposite the execution thereof on behalf of said
corporation is the corporate seal of said corporation; that said instrument was
signed and said corporate seal was so affixed on behalf of said corporation by
authority and order of its board of directors; that he signed his name thereto
by like authority; and he acknowledged said instrument to be his free act and
deed and the free act and deed of said Chemical Bank.
IN WITNESS WHEREOF I have hereunder set my hand and affixed my
official seal, at New York in said State of New York, the day and year first
above written.
----------------------------------
Notary Public, State of New York
-18-
<PAGE>
EXECUTION COPY
================================================================================
CITIZENS UTILITIES COMPANY
TO
CHEMICAL BANK
(Trustee)
- - --------------------------------------------------------------------------------
SEVENTH SUPPLEMENTAL INDENTURE
Dated as of June 1, 1996
- - --------------------------------------------------------------------------------
Supplemental to the Indenture
Dated as of August 15, 1991
================================================================================
EIGHTH SUPPLEMENTAL INDENTURE, dated as of December 1, 1996, between
CITIZENS UTILITIES COMPANY, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), having its
principal administrative offices at High Ridge Park, Building No. 3, Stamford,
Connecticut 06905, to THE CHASE MANHATTAN BANK (formerly known as Chemical
Bank), a New York banking corporation, as Trustee (herein called the "Trustee"),
having its principal corporate trust office at 450 West 33rd Street, New York,
New York 10001.
RECITALS
WHEREAS, the Company has entered into an Indenture dated as of August
15, 1991 (the "Indenture"), with the Trustee to provide for the issuance from
time to time of the Company's debentures, notes or other evidences of
indebtedness (herein called the "Securities"), to be issued in one or more
series; and
WHEREAS, the Company has entered into a First Supplemental Indenture
dated as of August 15, 1991 (the "First Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated
"8.45% Debentures Due 2001"; and
WHEREAS, the Company has entered into a Second Supplemental Indenture
dated as of January 15, 1992 (the "Second Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated
"7.45% Debentures Due 2004"; and
<PAGE>
WHEREAS, the Company has entered into a Third Supplemental Indenture
dated as of April 15, 1994 (the "Third Supplemental Indenture") with the Trustee
to establish the form and terms of a series of Securities designated "7.60%
Debentures Due 2006"; and
WHEREAS, the Company has entered into a Fourth Supplemental Indenture
dated as of October 1, 1994 (the "Fourth Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated
"7.68% Debentures Due 2034"; and
WHEREAS, the Company has entered into a Fifth Supplemental Indenture
dated as of June 15, 1995 (the "Fifth Supplemental Indenture") with the Trustee
to establish the form and terms of a series of Securities designated "7.45%
Debentures Due 2035"; and
WHEREAS, the Company has entered into a Sixth Supplemental Indenture
dated as of October 15, 1995 (the "Sixth Supplemental Indenture") with the
Trustee to establish the form and terms of a series of Securities designated "7%
Debentures Due 2025"; and
WHEREAS, the Company has entered into a Seventh Supplemental Indenture
dated as of June 1, 1996 (the "Seventh Supplemental Indenture") with the Trustee
to establish the form and terms of a series of Securities designated "6.80%
Debentures Due 2026"; and
WHEREAS, Section 901 of the Indenture provides, among other things,
that the Company and the Trustee may enter into indentures supplemental to the
Indenture for, among other things,
2
<PAGE>
the purpose of establishing the form and terms of the Securities of any series
as permitted in Sections 201 and 301 of the Indenture and adding to the
covenants of the Company for the benefit of the Holders of any series of
Securities; and
WHEREAS, the Company by corporate action duly taken has authorized the
issuance of an eighth series of Securities designated as the 7.05% Debentures
Due 2046 (hereinafter sometimes called the "Debentures"), which series is
limited in aggregate principal amount to $200,000,000, such Debentures to
contain such provisions as have been caused to be determined by or at the
direction of, the Board of Directors of the Company and as are set forth in this
Eighth Supplemental Indenture to the Indenture; and
WHEREAS, all conditions have been complied with, all actions have been
taken and all things have been done which are necessary to make the Debentures,
when executed by the Company and authenticated by or on behalf of the Trustee
and when delivered as herein and in the Indenture provided, the valid
obligations of the Company, and to make this Eighth Supplemental Indenture a
valid and binding supplemental indenture.
NOW, THEREFORE, THIS EIGHTH SUPPLEMENTAL INDENTURE WITNESSETH:
3
<PAGE>
For and in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all holders of the Debentures, as follows:
Section 1. Definitions. For all purposes of this Eighth Supplemental
------------
Indenture, except as otherwise herein expressly provided or unless the context
otherwise requires:
(1) terms used herein in capitalized form and defined in the
Indenture shall have the meanings specified in the Indenture;
(2) the words "herein", "hereof" and "hereto" and other words
of similar import used in this Eighth Supplemental Indenture
refer to this Eighth Supplemental Indenture as a whole and not
to any particular Section or other subdivision of this Eighth
Supplemental Indenture;
(3) the provisions of this Eighth Supplemental Indenture shall
be read in conjunction with the provisions of the Indenture
only with respect to the Debentures and the provisions of the
Indenture and the First, Second, Third, Fourth, Fifth, Sixth
and Seventh Supplemental Indentures shall not be modified by
this Eighth Supplemental Indenture with respect to any series
of
4
<PAGE>
the Securities outstanding or to be outstanding under the
Indenture, other than the Debentures; and
(4) terms defined in this Eighth Supplemental Indenture shall
apply only to this Eighth Supplemental Indenture and the
Debentures hereunder, and such definitions shall not apply to
any supplemental indenture other than this Eighth Supplemental
Indenture or to any Securities outstanding or to be
outstanding under the Indenture, other than the Debentures.
Except as otherwise expressly provided or unless the context otherwise
requires, "Eighth Supplemental Indenture" means this instrument as originally
executed or, if amended or supplemented pursuant to the applicable provisions of
the Indenture, as amended or supplemented.
Section 2. Forms of the Debentures. The Debentures shall be in
---------------------------
substantially the form set forth in Exhibit A to this Eighth Supplemental
Indenture, as such form may be completed pursuant to Section 3 hereof, the terms
of which Exhibit A are herein incorporated by reference and made a part of this
Eighth Supplemental Indenture.
Section 3. Terms of the Debentures. The terms of the Debentures shall
------------------------
be as follows:
5
<PAGE>
(1) the Securities to be issued under the Indenture and this
Eighth Supplemental Indenture shall be the Debentures and shall be designated as
the "7.05% Debentures Due 2046";
(2) the Debentures shall constitute a single series of the
Securities under the Indenture, which series is limited in aggregate principal
amount to $200,000,000;
(3) so long as any Debentures are registered in the name of
CEDE & Co., or any other nominee of The Depository Trust Company, and are
intended to be Book-Entry Securities, the provisions of Section 311 of the
Indenture shall apply to such Debentures. Thereafter the Debentures may be
subjected to the requirements of a successor book-entry securities system that
may be adopted by the Company in accordance with the provisions of the Indenture
and this Eighth Supplemental Indenture;
(4) interest on each of the Debentures shall be payable at the
rate per annum specified in the designation of the Debenture from December 6,
1996, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually, on April 1 and October 1 in each year,
commencing on April 1, 1997. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will be paid to the Person in
whose name such Debenture (or one or more Predecessor Securities) is registered
at the close of
6
<PAGE>
business on the Regular Record Date for such interest, which shall be the March
15 or September 15 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any interest not so punctually paid or
duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date by virtue of having been such a Holder and shall be paid by
the Company as provided in Section 307 of the Indenture;
(5) unless otherwise provided with respect to a Book- Entry
Security or pursuant to any successor book-entry security system or similar
system, payments of interest will be made by check mailed to the Holder of each
Debenture at the address shown in the Security Register or, at the option of the
Holder, to such other place in the United States of America as the Holder shall
designate to the Trustee in writing. The principal amount of the Debentures will
be paid at Maturity by check against presentation of the Debentures at the
office or agency of The Chase Manhattan Bank, as Trustee, in New York, New York,
or such other address in New York, New York, as the Trustee shall designate by
written notice to the Holders of the Debentures;
(6) the Debentures shall be issued in registered form only and
in denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000;
7
<PAGE>
(7) principal and interest on the Debentures shall be payable
in the coin or currency of the United States of America, which, at the time of
payment, is legal tender for public and private debts; and
(8) the Debentures shall be subject to defeasance, at the
Company's option, as provided for in Sections 1302 and 1303 of the Indenture.
Upon the Company's exercise of the option to effect such defeasance under
Section 1302 and 1303 of the Indenture in accordance with and subject to the
terms thereof, the Company shall be released from its obligations with respect
to the Debentures as provided in the applicable Section and other relevant
provisions of the Indenture.
Section 4. No Redemption. The Debentures will not be redeemable prior
--------------
to maturity and will not be subject to any sinking fund.
Section 5. Amendment to Indenture for Purposes of Eighth Series of
-------------------------------------------------------
Debentures.
-----------
For all purposes of the Debentures and for no other purposes,
subsection (4) of Section 501 shall read:
"(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a
covenant or warranty a default in whose performance or
8
<PAGE>
whose breach is elsewhere in this Section specifically dealt
with or which has expressly been included in this Indenture
solely for the benefit of a series of Securities other than
that series), and continuance of such default or breach for a
period of 90 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of a majority in
principal amount of the Outstanding Securities of that series
a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or"
For all purposes of the Debentures and for no other purposes, the
first paragraph of Section 502 shall read:
"If an Event of Default with respect to Securities of any
series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of a
majority in principal amount of
9
<PAGE>
the Outstanding Securities of that series may declare the
principal amount (or, if any of the Securities of that series
are Original Issue Discount Securities, such portion of the
principal amount of such Securities as may be specified in the
terms thereof) of all of the Securities of that series to be
due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount)
shall become immediately due and payable."
For all purposes of the Debentures and for no other purposes,
subsection (2) of Section 507 shall read:
"(2) the Holders of a majority in principal amount of the
Outstanding Securities of that series shall have made written
request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;"
For all purposes of the Debentures and for no other purposes,
subsection (5) of Section 507 shall read:
10
<PAGE>
"(5) no direction inconsistent with such written request has
been given to the Trustee during such 90-day period by the
Holders of 66-2/3% in principal amount of the Outstanding
Securities of that series."
Section 6. Incorporation of Indenture. From and after the date hereof,
---------------------------
the Indenture, as supplemented by this Eighth Supplemental Indenture, shall be
read, taken and construed as one and the same instrument with respect to the
Debentures.
Section 7. Acceptance of Trust. The Trustee accepts the trusts created
--------------------
by the Indenture, as heretofore supplemented by the First Supplemental
Indenture, Second Supplemental Indenture, Third Supplemental Indenture, Fourth
Supplemental Indenture, Fifth Supplemental Indenture, Sixth Supplemental
Indenture and Seventh Supplemental Indenture and as hereby supplemented by this
Eighth Supplemental Indenture, and agrees to perform the same upon the terms and
conditions in the Indenture, as so supplemented.
Section 8. Conflict with Trust Indenture Act. If any provision hereof
-----------------------------------
limits, qualifies or conflicts with a provision of the Trust Indenture Act that
is required under such Act to be a part of and govern this Eighth Supplemental
Indenture, such provision of the Act shall control. If any provision of this
11
<PAGE>
Eighth Supplemental Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, such provision of the Act
shall be deemed to apply to this Eighth Supplemental Indenture only as so
modified and if not so excluded, as the case may be.
Section 9. Governing Law. This Eighth Supplemental Indenture, and the
--------------
Debentures, shall be governed by and construed in accordance with the laws of
the State of New York.
Section 10. Recitals. The recitals contained in the Indenture, this
---------
Eighth Supplemental Indenture and the Debentures, except the Trustee's
certificate of authentication, shall be taken as statements of the Company, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of the Indenture, as
supplemented by this Eighth Supplemental Indenture.
Section 11. Amendments. Notwithstanding any other provisions hereof,
-----------
all amendments to the Indenture made hereby shall have effect only with respect
to the Debentures, and not with respect to the Securities of any other series
created subsequent to the date hereof.
Section 12. Counterparts. This Eighth Supplemental Indenture may be
-------------
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original, but all
12
<PAGE>
such counterparts shall together constitute but one and the same instrument.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the date first above written.
CITIZENS UTILITIES COMPANY
By: /s/ Robert J. DeSantis
-----------------------
Title: Vice President and
Treasurer
Attest:
/s/Edward O. Kipperman
- - ----------------------
Edward O. Kipperman
Vice President, Tax
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/ Thomas J. Foley
--------------------
Title: Vice President
Attest:
/s/R. Lorenze
- - -------------
14
<PAGE>
County of Fairfield )
) ss.:
State of Connecticut )
On the 5th day of December, 1996, before me personally came
Robert DeSantis, to me known, who, being by me duly sworn, did depose and say
that he is Vice President and Treasurer of CITIZENS UTILITIES COMPANY, one of
the corporations described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
----------------------------------
Notary Public, State of Connecticut
15
<PAGE>
County of New York )
) ss.:
State of New York )
On this 5th day of December, in the year of 1996 before me
personally came Thomas Foley, to me personally known, who being by me duly sworn
did depose and say that he resides at Bethpage, New York, that he is Vice
President of The Chase Manhattan Bank, one of the corporations described in and
which executed the foregoing indenture; that he knows the seal of said
corporation; that the seal affixed to said instrument opposite the execution
thereof on behalf of said corporation is the corporate seal of said corporation;
that said instrument was signed and said corporate seal was so affixed on behalf
of said corporation by authority and order of its board of directors; that he
signed his name thereto by like authority; and he acknowledged said instrument
to be his free act and deed and the free act and deed of said Bank.
IN WITNESS WHEREOF I have hereunder set my hand and affixed my
official seal, at New York in said State of New York, the day and year first
above written.
----------------------------------
Notary Public, State of New York
16
<PAGE>
EXECUTION COPY
===============================================================================
CITIZENS UTILITIES COMPANY
TO
THE CHASE MANHATTAN BANK
(Trustee)
- - --------------------------------------------------------------------------------
EIGHTH SUPPLEMENTAL INDENTURE
Dated as of December 1, 1996
- - --------------------------------------------------------------------------------
Supplemental to the Indenture
Dated as of August 15, 1991
================================================================================
EXHIBIT No. 12
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Statement Showing Computation of Ratio of Earnings to Fixed Charges
and Earnings to Combined Fixed Charges
for the year ended December 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Ration of
Ration of Earnings to
Earnings to Combined Fixed
Fixed Charges Charges
-----------------------------------
<S> <C> <C>
Net Income (A) $178,660 $178,660
Dividends on convertible preferred securities,net of income tax benefit (B) 5,849 0
-----------------------------------
(A+B) (C) 184,509 178,660
Taxes based on income or profits (D) 84,937 81,309
-----------------------------------
Earnings, before income taxes and fixed charges (C+D) (E) 269,446 259,969
Fixed Charges (F) 101,332 110,809
-----------------------------------
Earnings before income taxes and fixed charges (E + F) (G) $370,778 $370,778
Ratio of Pre-tax Income to Net Income (E / C) 1.46 1.46
Ratio of Earning to Fixed Charges (G/F) 3.66 3.35
</TABLE>
EXHIBIT NO. 21
21. SUBSIDIARIES (all wholly-owned, except where State of
otherwise indicated) Incorporation
Name
AAlert Paging Company Delaware
Subsidiaries of AAlert Paging Company:
AAlert Paging Company of Sacramento California
AAlert Paging Company of San Diego California
AAlert Paging Company of San Francisco California
Citizens Business Services Company Illinois
Citizens Cable Company Delaware
Citizens Conference Call Company Delaware
Citizens Consumers Services, Inc. California
Citizens Directory Services Company L.L.C. Delaware*
Citizens Directory Services Company, Inc. Delaware
Citizens International Management Services Company Delaware
Citizens Mohave Cellular Company Delaware
Citizens Mountain State Telephone Company West Virginia
Citizens Public Works Service Company Delaware
Citizens Resources Company Delaware
Citizens Telecom Services Company L.L.C. Delaware*
Citizens Telecommunications Company Delaware
Citizens Telecommunications Company of Arizona L.L.C. Delaware*
Citizens Telecommunications Company of California, Inc. California
Citizens Telecommunications Company of Idaho Delaware
Citizens Telecommunications Company of Montana Delaware
Citizens Telecommunications Company of Nevada Nevada
Citizens Telecommunications Company of New York, Inc. New York
Citizens Telecommunications Company of Ogden, Inc. New York
Citizens Telecommunications Company of Oregon Delaware
Citizens Telecommunications Company of Tennessee L.L.C. Delaware*
Citizens Telecommunications Company of the Golden State California
Citizens Telecommunications Company of the Navajo Nation L.L.C. Delaware*
Citizens Telecommunications Company of the Volunteer State L.L.C. Delaware*
Citizens Telecommunications Company of the White Mountains L.L.C. Delaware*
Citizens Telecommunications Company of the White Mountains, Inc. Delaware
Citizens Telecommunications Company of Tuolumne California
Citizens Telecommunications Company of Utah Delaware
Citizens Telecommunications Company of West Virginia Delaware
Citizens Utilities Company of California California
Citizens Utilities Company of Illinois Illinois
Citizens Utilities Company of Ohio Ohio
Citizens Utilities Company of Pennsylvania Pennsylvania
Citizens Utilities Rural Company Delaware
Citizens Utilities Water Company of Pennsylvania Delaware
Citizens Water Resources Company Illinois
CU CapitalCorp Delaware
Subsidiary of CU CapitalCorp:
Electric Lightwave, Inc. Delaware
Subsidiary of Electric Lightwave, Inc.:
Telecard Services International, Inc. Delaware
CU Wireless Management L.L.C. Delaware*
Electric Energy Export Corp. Arizona
Flowing Wells, Inc. Indiana
Havasu Water Company, Inc. Arizona
LGS Concord Corporation Minnesota
LGS Natural Gas Company Louisiana
LGS Securities, Inc. Louisiana
Navajo Communications Company, Inc. New Mexico
NCC Systems, Inc. Texas
Southwestern Capital Corporation Delaware
Southwestern Investments, Inc. Nevada
Sun City Sewer Company Arizona
Sun City Water Company Arizona
Sun City West Utilities Company Arizona
Tubac Valley Water Company, Inc. Arizona
* Formed in the state of Delaware.
Exhibit 23
----------
Independent Auditors' Consent
-----------------------------
The Board of Directors
Citizens Utilities Company:
We consent to the incorporation by reference in the Registration Statement (No.
33-37602) on Form S-8, in the Registration Statement (No. 33-39566) on Form S-8,
in the Registration Statement (No. 33-39455) on Form S-8, in the Registration
Statement (No. 33-41682) on Form S-8, in the Registration Statement (No.
33-42972) on Form S-8, in the Registration Statement (No. 33-48683) on Form S-8,
in the Registration Statement (No. 33-54376) on Form S-8, in the Registration
Statement (No. 33-44069) on Form S-3, in the Registration Statement (No.
33-44068) on Form S-3, in the Registration Statement (No. 33-51529) on Form S-3,
in the Registration Statement (No. 33-55075) on Form S-3, in the Registration
Statement (No. 33-52873) on Form S-3, and in the Registration Statement (No.
33-63615) on Form S-3, in the Registration Statement (No. 333-7047) on Form S-3
and in the Registration Statement (No. 333-18049) on Form S-3 of Citizens
Utilities Company of our report dated February 28, 1997, relating to the
consolidated balance sheets of Citizens Utilities Company and subsidiaries as of
December 31, 1996, 1995, and 1994 and the related consolidated statements of
income, shareholders' equity, and cash flows for the years then ended, which
report appears in the December 31, 1996 annual report on Form 10-K of Citizens
Utilities Company.
KPMG PEAT MARWICK LLP
New York, New York
February 28, 1997
EXHIBIT No. 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Norman I. Botwinik
--------------------------
Norman I. Botwinik
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Aaron I. Fleischman
--------------------------
Aaron I. Fleischman
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ James C. Goodale
--------------------------
James C. Goodale
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Stanley Harfenist
--------------------------
Stanley Harfenist
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Andrew N. Heine
--------------------------
Andrew N. Heine
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Elwood A. Rickless
--------------------------
Elwood A. Rickless
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ John L. Schroeder
--------------------------
John L. Schroeder
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Robert D. Siff
--------------------------
Robert D. Siff
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Robert A. Stanger
--------------------------
Robert A. Stanger
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Charles H. Symington, Jr.
-----------------------------
Charles H.Symington, Jr.
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Edwin Tornberg
--------------------------
Edwin Tornberg
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for him in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Leonard Tow
--------------------------
Leonard Tow
February 18, 1997
<PAGE>
EXHIBIT No. 24
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Citizens Utilities Company constitutes and appoints Robert J. DeSantis
and Livingston E. Ross, jointly and severally, for her in any and all
capacities to sign on Form 10-K for the fiscal year 1996 for Citizens
Utilities Company, and any and all amendments to said Form 10-K, and to
file the same, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or
his substitute or substitutes may do or cause to be done by virtue
hereof.
/s/ Claire Tow
--------------------------
Claire Tow
February 18, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31,1996 ABD IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000020520
<NAME> CITIZENS UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,138,052
<OTHER-PROPERTY-AND-INVEST> 539,152<F1>
<TOTAL-CURRENT-ASSETS> 369,770
<TOTAL-DEFERRED-CHARGES> 174,196<F2>
<OTHER-ASSETS> 301,978<F3>
<TOTAL-ASSETS> 4,523,148
<COMMON> 59,788
<CAPITAL-SURPLUS-PAID-IN> 1,381,341
<RETAINED-EARNINGS> 244,066
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,678,183
201,250<F4>
0
<LONG-TERM-DEBT-NET> 1,509,697
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,593
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,640,122
<TOT-CAPITALIZATION-AND-LIAB> 4,523,148
<GROSS-OPERATING-REVENUE> 1,306,517
<INCOME-TAX-EXPENSE> 84,937
<OTHER-OPERATING-EXPENSES> 221,104<F5>
<TOTAL-OPERATING-EXPENSES> 1,010,831
<OPERATING-INCOME-LOSS> 295,686
<OTHER-INCOME-NET> 66,455
<INCOME-BEFORE-INTEREST-EXPEN> 362,141
<TOTAL-INTEREST-EXPENSE> 92,695
<NET-INCOME> 178,660
5,849<F4>
<EARNINGS-AVAILABLE-FOR-COMM> 178,660
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 375,181
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<FN>
<F1>REPRESENTS INVESTMENT FUNDS.
<F2>REPRESENTS REGULATORY ASSETS.
<F3>DEFERRED DEBITS AND OTHER ASSETS.
<F4>COMPANY OBLIGATED MADATORILY REDEEMABLE CONVERTIBLE PREFERRED 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.
<F5>REPRESENTS COMMODITIES PURCHASED
</FN>
</TABLE>
