CITIZENS UTILITIES COMPANY
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to__________
Commission file number 001-11001
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)
3 High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203)614-5600
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
The number of shares outstanding of the registrant's class of common stock as of
July 31, 1998 were 256,489,176.
<PAGE>
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Page No.
Part I. Financial Information
Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 2
Consolidated Statements of Income (Loss) for the Three Months Ended
June 30, 1998 and 1997 3
Consolidated Statements of Income (Loss) for the Six Months Ended
June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Quantitative and Qualitative Disclosures about Market Risk 21
Part II. Other Information
Legal Proceedings 22
Submission of Matters to a Vote of Security Holders 22
Other Information 23
Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
June 30, 1998 December 31, 1997
ASSETS ------------- -----------------
- - ------
Current assets:
<S> <C> <C>
Cash $ 55,425 $ 35,163
Accounts receivable, net 249,115 277,405
Other 57,360 64,711
------------- --------------
Total current assets 361,900 377,279
------------- --------------
Property, plant and equipment 5,530,262 5,297,737
Less accumulated depreciation 1,793,729 1,629,944
------------- --------------
Net property, plant and equipment 3,736,533 3,667,793
------------- --------------
Investments 449,009 398,499
Regulatory assets 210,546 209,921
Deferred debits and other assets 209,079 219,360
------------- --------------
Total assets $ 4,967,067 $ 4,872,852
============= ==============
LIABILITIES AND EQUITY
- - ----------------------
Current liabilities:
Long-term debt due within one year $ 7,704 $ 6,691
Accounts payable and current liabilities 356,160 411,179
------------- --------------
Total current liabilities 363,864 417,870
Deferred income taxes 430,395 420,708
Customer advances for construction and
Contributions in aid of construction 262,027 260,790
Deferred credits and other liabilities 123,575 128,984
Regulatory liabilities 19,978 20,881
Long-term debt 1,776,918 1,706,532
------------- --------------
Total liabilities 2,976,757 2,955,765
------------- --------------
Company Obligated Mandatorily Redeemable
Convertible Preferred Securities * 201,250 201,250
Minority interest in subsidiary 31,556 36,626
Shareholders' equity:
Common stock issued, $.25 par value 64,056 62,749
Additional paid-in capital 1,529,572 1,480,425
Retained earnings 136,772 132,217
Accumulated other comprehensive income 27,104 3,820
------------- --------------
Total shareholders' equity 1,757,504 1,679,211
------------- --------------
Total liabilities and shareholders' equity $ 4,967,067 $ 4,872,852
============= ==============
* Represents securities of a subsidiary trust, the sole assets of which are
securities of a subsidiary partnership, substantially all the assets of which
are convertible debentures of the Company.
The accompanying Notes are an integral part of these Financial Statements.
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands, except per-share amounts)
<TABLE>
<S> <C> <C>
1998 1997
------------- -------------
Revenues $ 366,347 $ 308,857
------------- -------------
Operating expenses:
Cost of services 80,695 85,681
Depreciation 64,765 58,505
Other operating expenses 179,382 322,067
------------- -------------
Total operating expenses 324,842 466,253
------------- -------------
Income (loss) from operations 41,505 (157,396)
Other income, net 7,683 6,712
Minority interest 3,053 -
Interest expense 28,589 28,684
------------- -------------
Income (loss) before income taxes and dividends on convertible preferred
securities 23,652 (179,368)
Income taxes (benefit) 7,638 (57,745)
------------- -------------
Income (loss) before dividends on convertible preferred securities 16,014 (121,623)
Dividend on convertible preferred securities, net of income tax benefit 1,552 1,552
------------- -------------
Net income (loss) $ 14,462 $ (123,175)
============= =============
Net income (loss) per common share:
Basic $ .06 $ (.48) *
Diluted $ .06 $ (.48) *
Dividend rate declared on common stock .75% 1.6%
============= =============
</TABLE>
*Adjusted for subsequent stock dividends.
The accompanying Notes are an integral part of these Financial Statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands, except per-share amounts)
<TABLE>
<S> <C> <C>
1998 1997
------------- -------------
Revenues $ 770,210 $ 683,948
------------- -------------
Operating expenses:
Cost of services 188,727 191,671
Depreciation 128,362 115,520
Other operating expenses 355,338 471,322
------------- -------------
Total operating expenses 672,427 778,513
------------- -------------
Income (loss) from operations 97,783 (94,565)
Other income, net 18,321 18,862
Minority interest 5,526 -
Interest expense 55,395 55,693
------------- -------------
Income (loss) before income taxes, dividends on convertible preferred securities
and cumulative effect of change in accounting principle 66,235 (131,396)
Income taxes (benefit) 19,556 (41,909)
------------- -------------
Income (loss) before dividends on convertible preferred securities and cumulative
effect of change in accounting principle 46,679 (89,487)
Dividend on convertible preferred securities, net of income tax benefit 3,104 3,104
------------- -------------
Income (loss) before cumulative effect of change in accounting principle 43,575 (92,591)
Cumulative effect of change in accounting principle, net of income tax benefit
and related minority interest 2,334 -
------------- -------------
Net income (loss) $ 41,241 $ (92,591)
============= =============
Net income (loss) per common share before cumulative effect of change in
accounting principle:
Basic $ .17 $ (.36) *
Diluted $ .17 $ (.36) *
Net income (loss) per common share:
Basic $ .16 $ (.36) *
Diluted $ .16 $ (.36) *
Compounded dividend rate declared on common stock 1.51% 3.23%
============= =============
*Adjusted for subsequent stock dividends.
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
4
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands)
<TABLE>
<S> <C> <C>
1998 1997
------------- --------------
Net cash provided by operating activities $ 156,382 $ 101,555
------------- --------------
Cash flows from investing activities:
Construction expenditures (221,399) (268,458)
Securities purchased (399,457) (102,807)
Securities sold 386,194 183,656
Securities matured 2,000 16,282
Other 6,565 39,878
------------- --------------
Net cash provided from investing activities (226,097) (131,449)
------------- --------------
Cash flows from financing activities:
Long-term debt borrowings 96,627 50,598
Long-term debt principal payments (11,658) (2,018)
Issuance of common stock 5,008 3,476
Common stock buybacks - (28,867)
Other - 340
------------- --------------
Net cash provided from financing activities 89,977 23,529
------------- --------------
Increase (decrease) in cash 20,262 (6,365)
Cash at January 1, 35,163 24,230
------------- --------------
Cash at June 30, $ 55,425 $ 17,865
============= ==============
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
5
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies:
-------------------------------------------
(a) Basis of Presentation:
The unaudited consolidated financial statements include the
accounts of Citizens Utilities Company and its subsidiaries (the
"Company") and have been prepared in conformity with generally
accepted accounting principles. The consolidated financial
statements include all adjustments, which consist of normal
recurring accruals necessary to present fairly the results for the
interim periods shown. Certain information and footnote disclosures
have been condensed pursuant to Securities and Exchange Commission
rules and regulations. The results of the interim periods are not
necessarily indicative of the results for the full year. Certain
reclassifications of balances previously reported have been made to
conform to current presentation.
(b) 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.
(c) Net Income (Loss) Per Common Share:
Basic EPS is computed using the weighted average number of common
shares outstanding during the period being reported on. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock at the beginning of the period being reported on.
Both basic and diluted EPS calculations are presented with
adjustments for subsequent stock dividends. 1997 EPS has been
restated pursuant to SFAS 128, "Earnings per Share."
(2) Net Income (Loss) Per Common Share:
----------------------------------
The reconciliation of the net income (loss) per common share calculation
for the three and six months ended June 30, 1998 and 1997, respectively,
is as follows:
<TABLE>
<S> <C>
For the three months ended June 30,
-----------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------
($ in thousands, except for per share amounts)
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Net income (loss) per common share:
Basic $ 14,462 255,768 $ .06 $ (123,175) 256,691 $ (.48)
Effect of dilutive options - 696 - - - -
Diluted $ 14,462 256,464 $ .06 $ (123,175) 256,691 $ (.48)
For the six months ended June 30,
-----------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------
($ in thousands, except for per share amounts)
Per Per
Income Shares Share Income Shares Share
Net income (loss) per common share:
Basic $ 41,241 255,492 $ .16 $ (92,591) 257,055 $ (.36)
Effect of dilutive options - 659 - - - -
Diluted $ 41,241 256,151 $ .16 $ (92,591) 257,055 $ (.36)
</TABLE>
6
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All share amounts represent weighted average shares outstanding for each
respective period. All per share amounts have been adjusted for subsequent
stock dividends. The diluted earnings per share calculation excludes the
effect of potentially dilutive shares when their exercise price exceeds
the average market price over the period. The Company has 4,025,000 shares
of potentially dilutive Mandatorily Redeemable Convertible Preferred
Securities which are convertible into common stock at a 3.704 to 1 ratio
at an exercise price of $13.50 per share and 9,459,000 potentially
dilutive stock options at a range of $10.47 to $14.50 per share. Both
items were adjusted for subsequent stock dividends and were not included
in the diluted net income per common share calculation for any of the
above periods as their effect was antidilutive.
(3) Comprehensive Income:
---------------------
Effective January 1, 1998, the Company adopted the provisions of SFAS 130,
"Reporting Comprehensive Income." SFAS 130 requires that other
comprehensive income and changes thereto are to be displayed prominently in
the financial statements. The Company's total comprehensive income is as
follows:
<TABLE>
Three months ended June 30, Six months ended June 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 14,462 $ (123,175) $ 41,241 $ (92,591)
Unrealized gain on securities classified as
available for sale, net of income taxes 17,314 6,666 23,284 1,145
------------- ------------- ------------- -------------
Total comprehensive income $ 31,776 $ (116,509) $ 64,525 $ (91,446)
============= ============= ============= =============
</TABLE>
(4) 1997 Charges to Earnings:
-------------------------
In 1996 and early 1997 the Company had been pursuing an aggressive growth
strategy to take advantage of opportunities in the emerging communications
marketplace. This strategy included the initiation and expansion of long
distance services which, in combination with other enhanced service
offerings, would enable the Company to offer an integrated package of
products and services.
Late in 1996, the Company began the transition of its long distance
network, primarily to fixed cost leases, in order to achieve the lowest
cost of providing long distance service. In addition, the Company initiated
a brand recognition program to support the sales and marketing initiatives
designed to increase the Company's market share. The increase in revenues
resulting from this growth strategy, though significant, did not offset the
resulting increase in incremental expenses from the branding, sales, and
marketing initiatives. As a result, the Company's long distance service
operations generated unexpected losses during the first half of 1997 which
had an adverse impact on the Company's earnings and cash flow. During the
second quarter 1997 management re-evaluated this growth strategy in light
of this continuing impact on earnings and cash flow.
In connection with the re-evaluation of the Company's communications growth
strategy, as well as a review of its employee benefit plans to determine if
such plans were competitive with those provided in the industry, several
public utility commission orders requiring the Company to record charges to
earnings, and other charges to earnings related to certain accounting
policy changes related to Electric Lightwave, Inc. ("ELI") in anticipation
of its initial public offering, the Company recorded approximately
$197,300,000 of charges to earnings in the second quarter of 1997 as
follows:
<TABLE>
($ in thousands)
<S> <C>
Curtailment of certain long distance service operations $ 34,600
Benefit plan curtailments and related regulatory assets 34,700
Telecommunications information systems and software 67,400
Regulatory commission orders 47,200
Other 13,400
----------
Total $197,300
==========
</TABLE>
7
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Change in Accounting Principle:
-------------------------------
In April 1998, the Accounting Standards Executive Committee of the AICPA
released Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities." The SOP requires that the unamortized portion of
deferred start up costs be written off and reported as a change in
accounting principle. Future costs of start-up activities should then be
expensed as incurred.
Certain third party direct costs incurred by ELI in connection with
negotiating and securing initial rights-of-way and developing network
design for new market clusters or locations had been capitalized by ELI in
previous years, and were being amortized over five years. The Company
elected to early adopt SOP 98-5 effective January 1, 1998. The net book
value of these deferred amounts was $3,394,000 which has been reported as a
cumulative effect of a change in accounting principle in the statements of
income for the six months ended June 30, 1998, net of an income tax benefit
of $577,000 and the related minority interest of $483,000.
(6) Hungarian Telephone and Cable Corp. ("HTCC"):
---------------------------------------------
Pursuant to a definitive agreement with HTCC the Company provided requested
management services to HTCC. Expenses incurred by the Company in providing
such services, including certain allocable overhead items, are required to
be reimbursed by HTCC. HTCC is currently disputing certain provisions of
this agreement and the associated management service fee. Accordingly, the
Company has not recorded any income related to the HTCC management services
fees in 1998.
(7) Separation:
-----------
On May 18, 1998, the Company announced its plans to separate its
telecommunications businesses and public services businesses into two
stand-alone publicly-traded companies. The Company intends to establish and
transfer to a new company all of its telecommunications businesses,
including its 83% interest in ELI. This separation is subject to federal
and state regulatory approvals and is expected to be carried out through a
distribution in the stock of the new company to the Company's shareholders
and is intended to be tax-free to the Company and its shareholders for
federal income tax purposes. The public services businesses will continue
to operate as Citizens Utilities Company and intend to provide gas
transmission and distribution, electric transmission and distribution,
water distribution and wastewater treatment services. This separation is
being made in recognition of the different investment features, performance
criteria, capital structures, dividend policies, customers' requirements
and regulatory designs of each business, and would allow each business to
pursue its own strategy and compete more effectively in its respective
markets.
8
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------
Results of Operations
---------------------
This quarterly report on Form 10-Q may contain forward-looking statements
that are subject to risks and uncertainties which could cause actual
results to differ materially from those expressed or implied in the
statements. All forward-looking statements (including oral representations)
are only predictions or statements of current plans, which are constantly
under review by the Company. All forward-looking statements may differ from
actual future results due to, but not limited to, changes in the local and
overall economy, the nature and pace of technological changes, the number
and effectiveness of competitors in the Company's markets, success in
overall strategy, weather conditions, changes in legal and regulatory
policy, the Company's ability to identify future markets and successfully
expand existing ones and the mix of products and services offered in the
Company's target markets. Readers should consider these important factors
in evaluating any statement contained herein and/or made by the Company or
on its behalf. The following information is unaudited and should be read in
conjunction with the consolidated financial statements and related notes to
consolidated financial statements included in this report and as presented
in the annual Form 10-K.
The Company is a diversified communications and public services company
which provides, either directly or through subsidiaries,
telecommunications, gas transmission and distribution, electric
transmission and distribution, water distribution and wastewater treatment
services to customers in areas of 21 states. The Company develops and
expands its businesses through internal investment, acquisitions and joint
ventures in the rapidly evolving telecommunications industry and in
traditional public services and related fields.
On May 18, 1998, the Company announced its plans to separate its
telecommunications businesses and public services businesses into two
stand-alone publicly-traded companies. The Company intends to establish and
transfer to a new company all of its telecommunications businesses,
including its 83% interest in ELI. This separation is subject to federal
and state regulatory approvals and is expected to be carried out through a
distribution in the stock of the new company to the Company's shareholders
and is intended to be tax-free to the Company and its shareholders for
federal income tax purposes. The public services businesses will continue
to operate as Citizens Utilities Company and intend to provide gas
transmission and distribution, electric transmission and distribution,
water distribution and wastewater treatment services. This separation is
being made in recognition of the different investment features, performance
criteria, capital structures, dividend policies, customers' requirements
and regulatory designs of each business, and would allow each business
to pursue its own strategy and compete more effectively in its respective
markets.
Because of the uncertainties of this type of separation the full impact on
the Company's financial position, results of operations and cash flows
cannot be predicted at this time. However, the Company will have, among
other things, a different capital structure, net asset value, operating
revenues, net income and net income per share after the separation of the
Company's telecommunications business.
(a) Liquidity and Capital Resources
-------------------------------
For the six months ended June 30, 1998, the Company used cash flow from
operations and proceeds from net financings to fund capital expenditures.
The Company considers its operating cash flows and its ability to raise
debt and equity capital as the principal indicators of its liquidity. 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 June 30, 1998. In addition, ELI, the Company's competitive
local exchange carrier ("CLEC") subsidiary, has committed lines of credit
with commercial banks under which it may borrow up to $400,000,000. The
Company has guaranteed all of ELI's obligations under these lines. As of
June 30, 1998, $134,000,000 was outstanding under these lines of credit.
On June 25, 1998, the Company arranged for the issuance of $20,000,000 of
Industrial Development Revenue Bonds. The bonds were issued as demand
purchase bonds at par value with an interest rate of 5.45% and a maturity
date of June 1, 2033. Proceeds of the bonds will be used to fund the
construction of the Company's gas facilities located in Yavapai County,
Arizona.
In July 1998, Centennial Cellular Corp. ("Centennial") announced that it
plans to merge with Welsh, Carson, Anderson & Stowe in a transaction valued
at $43.50 per Centennial share. The Company expects to realize up to $215.5
million in cash from its 16% fully-diluted stake in Centennial. The merger
is expected to close during the fourth quarter of 1998.
9
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
In July 1998, the Company announced that it agreed to acquire Rhinelander
Telecommunications, Inc. ("RTI") in a cash-for-stock transaction. RTI is a
diversified telecommunications company engaged in providing local exchange,
long distance, Internet, wireless and cable television services to its
franchised service areas in north-central Wisconsin. The acquisition is
expected to be completed by year end 1998.
The Company has requests for increases in annual revenues pending before
regulatory commissions for the Ohio and California water operations
totaling approximately $4,700,000.
Impact of the Year 2000
-----------------------
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors, leading to
disruptions in operations. In late 1997, the Company developed a four-phase
program for Y2K information systems compliance. Phase I is to inventory and
identify those systems with which the Company has exposure to Y2K issues.
Phase II is the assessment and development of action plans. Phase III is
the implementation of the Y2K remediation plans. Phase IV, which in some
instances will run concurrent with Phase III, is the testing and validation
of each remedial action to ensure compliance. The Company has identified
three major areas determined to be critical for successful Y2K compliance:
(1) financial and information system applications, (2) operations systems
and (3) supplier and service provider relationships.
The Company, in accordance with Phases I and II of the program, is in the
process of conducting an internal review of all systems and contacting all
software suppliers to determine major areas of exposure to Y2K issues. A
number of financial and information system applications have been
identified as being Y2K compliant due to their recent implementation. The
Company's core financial and reporting systems are being replaced pursuant
to the other information systems initiative discussed below. The Company is
in the process of identifying operations systems exposures. The Company has
also been contacting its major supplier and service providers to ascertain
their ability to comply. Thus far, most of these parties have stated that
they intend to be Y2K compliant by 2000. However, there can be no guarantee
that the systems of suppliers or service providers on which the Company's
systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have material adverse effect on the Company.
The Company is and will continue to use both internal and external
resources to reprogram or replace and test software for Y2K compliance.
While the total cost of the Y2K modifications and conversions has not been
finalized, the Company expects to incur at least $70 million of hardware
and software costs associated with these efforts ($46 million for
Telecommunications businesses and $24 million for Public Services
businesses). The Company expects to fund these costs through operating cash
flows, cash and investments, proceeds from the issuance of securities
and/or other short term borrowings. The Company will be required to expense
a significant amount of the cost of these projects pursuant to generally
accepted accounting principles. For the six months ended June 30, 1998, the
Company incurred and expensed approximately $ 1.6 million in conjunction
with this effort.
The Company intends to complete its efforts related to Y2K by June 1999,
however, one major service provider has notified the Company that it
anticipates being compliant by November 1999.
Other Information Systems Initiatives
-------------------------------------
The Company has other information systems initiatives in process which are
not due to the Year 2000 Issue. These include implementation of an
enterprise wide financial accounting and reporting system as well as the
development of technology to bring the Company into full compliance with
services to be provided pursuant to the Telecommunications Act of 1996
Interconnection Order. For these two projects, the Company expects to incur
at least $24 million in costs over the next eighteen months. The Company
will be required to expense certain amounts of the cost of these projects
pursuant to generally accepted accounting principles. For the six months
ended June 30, 1998, the Company incurred approximately $17 million in
total in connection with this process, of which approximately $2 million
has been expensed.
10
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Effects of Newly-Issued Accounting Pronouncements
-------------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. This Statement supersedes SFAS 14, "Financial Reporting for
Segments of a Business Enterprise," but retains the requirement to report
information about major customers. It amends SFAS 94, "Consolidation of All
Majority-Owned Subsidiaries," to remove the special disclosure requirements
for previously unconsolidated subsidiaries. This statement is effective for
fiscal years beginning after December 15, 1997.
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits an amendment
of FASB Statements No. 87, 88, and 106" ("SFAS 132"). SFAS 132 revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful as they were when SFAS 87,
"Employers' Accounting for Pensions," SFAS 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," were issued. SFAS 132
suggests combined formats for presentation of pension and other
postretirement benefit disclosures. This statement is effective for fiscal
years beginning after December 15, 1997.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued a Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP
98-1 requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated
useful life of the software, and costs related to the preliminary project
stage and the post-implementation/operations stage of an internal-use
computer software development project be expensed as incurred. SOP 98-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. The Company does not expect the adoption of SOP 98-1 to
have a material effect on the Company's operations or cash flows.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires
companies to record derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash
flows. The Company does not expect the adoption of SFAS 133 to have a
material effect on the Company's operations or cash flows. This statement
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999.
1997 Charges to Earnings
------------------------
In 1996 and early 1997 the Company had been pursuing an aggressive growth
strategy to take advantage of opportunities in the emerging communications
marketplace. This strategy included the initiation and expansion of long
distance services which, in combination with other enhanced service
offerings, would enable the Company to offer an integrated package of
products and services.
11
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Late in 1996, the Company began the transition of its long distance
network, primarily to fixed cost leases, in order to achieve the lowest
cost of providing long distance service. In addition, the Company initiated
a brand recognition program to support the sales and marketing initiatives
designed to increase the Company's market share. The increase in revenues
resulting from this growth strategy, though significant, did not offset the
resulting increase in incremental expenses from the branding, sales, and
marketing initiatives. As a result, the Company's long distance service
operations generated unexpected losses during the first half of 1997 which
had an adverse impact on the Company's earnings and cash flow. During the
second quarter 1997 management re-evaluated this growth strategy in light
of this continuing impact on earnings and cash flow.
In connection with the re-evaluation of the Company's communications growth
strategy, as well as a review of its employee benefit plans to determine if
such plans were competitive with those provided in the industry; several
public utility commission orders requiring the Company to record charges to
earnings; and other charges to earnings related to certain accounting
policy changes related to ELI in anticipation of its initial public
offering, the Company recorded approximately $197,300,000 of charges to
earnings in the second quarter of 1997 as follows:
<TABLE>
($ in thousands)
----------------
<S> <C>
Curtailment of certain long distance service operations $ 34,600
Benefit plan curtailments and related regulatory assets 34,700
Telecommunications information systems and software 67,400
Regulatory commission orders 47,200
Other 13,400
----------
Total $197,300
==========
</TABLE>
12
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
(b) Results of Operations
---------------------
REVENUES
--------
Total revenues for the three and six months ended June 30, 1998 increased
$57.5 million, or 19%, and $86.3 million, or 13%, respectively, as compared
with the prior year periods primarily due to increases in communications,
CLEC and natural gas revenues.
Telecommunications
------------------
Telecommunications revenues for the three and six months ended June 30,
1998 increased $22.4 million, or 11%, and $34.5 million, or 8%,
respectively, as compared with the prior year periods primarily due to
increased long distance services within the Communications sector and local
dial tone services within the CLEC sector.
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
Communications revenues 1998 1997 (Decrease) 1998 1997 (Decrease)
- - -----------------------
----------- ----------- ------------- ----------- ------------ -------------
Network access services $ 104,121 $ 98,313 6% $ 208,007 $ 200,383 4%
Local network services 64,896 63,678 2% 128,314 124,472 3%
Long distance services 21,409 10,418 106% 48,187 35,406 36%
Directory services 8,025 7,986 0% 15,808 15,569 2%
Other 12,980 13,323 (3%) 24,276 25,739 (6%)
Eliminations (7,623) (4,954) n/a (15,426) (10,393) n/a
----------- ----------- ----------- -----------
$ 203,808 $ 188,764 8% $ 409,166 $ 391,176 5%
=========== =========== =========== ===========
</TABLE>
Network access services revenues for the three and six months ended June
30, 1998 increased $5.8 million, or 6%, and $7.6 million, or 4%,
respectively, as compared with the prior year periods primarily due to
increased minutes of use.
Local network services revenues for the three and six months ended June 30,
1998 increased $1.2 million, or 2%, and $3.8 million, or 3%, respectively,
as compared with the prior year periods primarily due to access line
growth.
Long distance services revenues for the three and six months ended June 30,
1998 increased $11 million, or 106%, and $12.8 million, or 36%,
respectively, as compared with the prior year periods primarily due to a
$14.2 million second quarter 1997 charge to revenue related to the
curtailment of long distance service operations in adjacent markets. Absent
the 1997 charge, long distance revenues for the three and six months ended
June 30, 1998 decreased 13% and 3%, respectively, primarily due to
decreased minutes of use as a result of the curtailment of long distance
service operations in adjacent markets, partially offset by increased
in-territory minutes of use.
Other revenues for the three and six months ended June 30, 1998 decreased
$.3 million, or 3%, and $1.5 million, or 6%, respectively as compared with
the prior year periods primarily due to decreased surcharges in California
and New York and a reserve recorded against 1998 HTCC management services
fees as a result of a disagreement between the Company and HTCC.
Eliminations represent network access revenues received by the Company's
local exchange operations from its long distance operations.
13
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
CLEC revenues 1998 1997 (Decrease) 1998 1997 (Decrease)
-------------
----------- ----------- ------------- ----------- ----------- -------------
Dedicated services $ 8,371 $ 8,036 4% $ 17,478 $ 14,116 24%
Local dial tone services 7,769 1,997 289% 13,793 3,243 325%
Long distance services 1,899 2,033 (7%) 3,721 3,711 0%
Enhanced services 3,404 2,185 56% 6,508 4,029 62%
Eliminations (740) (894) n/a (1,615) (1,690) n/a
----------- ----------- ----------- -----------
$ 20,703 $ 13,357 55% $ 39,885 $ 23,409 70%
=========== =========== =========== ===========
</TABLE>
Dedicated services revenues for the three and six months ended June 30,
1998 increased $.3 million, or 4%, and $3.4 million, or 24%, respectively,
as compared with the prior year periods primarily due to increased
customers and route miles in new and existing markets.
Local dial tone services revenues for the three and six months ended June
30, 1998 increased $5.8 million, or 289%, and $10.6 million, or 325%,
respectively, as compared with the prior year periods primarily due to
increased access line equivalents, increased sales of the integrated
service digital network (ISDN) product and increased carrier and local
access revenue.
Enhanced services revenues for the three and six months ended June 30, 1998
increased $1.2 million, or 56%, and $2.5 million, or 62%, respectively, as
compared with the prior year periods primarily due to increased sales of
frame relay and Internet services.
Eliminations reflect intercompany activity between the Company's CLEC and
Communications sectors.
14
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Public Services Revenues
------------------------
Public services revenues for the three and six months ended June 30, 1998
increased $35.1 million, or 33%, and $51.8 million, or 19%, respectively,
as compared with the prior year periods primarily due to increased natural
gas revenues.
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
Natural Gas revenues 1998 1997 (Decrease) 1998 1997 (Decrease)
--------------------
----------- ----------- ------------- ----------- ------------ ------------
Residential $ 33,297 $ 23,829 40% $ 95,400 $ 84,225 13%
Commercial 25,970 9,704 168% 61,748 30,767 101%
Industrial 12,138 6,008 102% 19,570 14,298 37%
Municipal 827 660 25% 2,672 2,044 31%
----------- ----------- ----------- ------------
Total Distribution 72,232 40,201 80% 179,390 131,334 37%
Transportation 440 302 46% 1,392 1,382 1%
Other 2,946 2,211 33% 6,419 4,781 34%
----------- ------------ ----------- ------------
$ 75,618 $ 42,714 77% $ 187,201 $ 137,497 36%
=========== =========== =========== ============
</TABLE>
Residential revenues increased $9.5 million, or 40%, as compared with the
second quarter of 1997 primarily due to the acquisition of The Gas Company
("TGC") in October 1997, customer growth and increased consumption in
Arizona and Louisiana. Residential revenues for the six months ended June
30, 1998 increased $11.2 million, or 13%, as compared with the prior year
primarily due to the acquisition of TGC, customer growth and increased
consumption in Arizona, partially offset by lower purchased gas costs
passed on to customers in Louisiana.
Commercial revenues increased $16.3 million, or 168%, as compared with the
second quarter of 1997 primarily due to the acquisition of TGC and
increased consumption in Arizona and Louisiana. Commercial revenues for the
six months ended June 30, 1998 increased $31 million, or 101%, as compared
with the prior year primarily due to the acquisition of TGC, customer
growth and increased consumption in Arizona and Louisiana, partially offset
by lower purchased gas costs passed on to customers in Louisiana.
Industrial revenues increased $6.1 million, or 102%, as compared with the
second quarter of 1997 primarily due to increased consumption in Louisiana.
Industrial revenues for the six months ended June 30, 1998 increased $5.3
million, or 37%, as compared with the prior year primarily due to the
acquisition of TGC and increased consumption in Louisiana and Arizona.
Municipal revenues for the three and six months ended June 30, 1998
increased $.2 million, or 25% and $.6 million, or 31%, respectively, as
compared with the prior year periods primarily due to customer growth in
Arizona.
15
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
Electric revenues 1998 1997 (Decrease) 1998 1997 (Decrease)
-----------------
----------- ----------- ------------- ----------- ------------ ------------
Residential $ 17,732 $ 15,856 12% $ 38,511 $ 36,510 5%
Commercial 13,269 12,618 5% 26,433 26,055 1%
Industrial 9,633 9,438 2% 19,710 20,286 (3%)
Municipal 2,036 1,775 15% 3,931 3,741 5%
----------- ----------- ----------- ------------
Total Distribution 42,670 39,687 8% 88,585 86,592 2%
Transportation 917 766 20% 1,488 1,311 14%
Other 212 1,477 (86%) 1,000 1,929 (48%)
----------- ------------ ----------- ------------
$ 43,799 $ 41,930 4% $ 91,073 $ 89,832 1%
=========== =========== =========== ============
Electric revenues for the three and six months ended June 30, 1998
increased $1.9 million, or 4%, and $1.2 million, or 1%, respectively as
compared with the prior year periods primarily due to a $6.6 million second
quarter 1997 charge to revenue related to a Vermont public utility
commission order requiring a refund to customers. Absent the 1997 charge,
electric revenues for the three and six months ended June 30, 1998
decreased 10% and 6%, respectively, primarily due to a commission ordered
rate reduction in Vermont.
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------ -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
Water and Wastewater revenues 1998 1997 (Decrease) 1998 1997 (Decrease)
-----------------------------
----------- ----------- ------------ ----------- ----------- ------------
Residential distribution $ 17,784 $ 17,623 1% $ 34,197 $ 33,861 1%
Commercial distribution 3,347 3,379 (1%) 6,255 6,098 3%
Industrial distribution 237 224 6% 447 433 3%
Other 1,051 866 21% 1,986 1,642 21%
----------- ----------- ----------- -----------
$ 22,419 $ 22,092 1% $ 42,885 $ 42,034 2%
=========== =========== =========== ===========
</TABLE>
Water and wastewater revenues for the three and six months ended June 30,
1998 increased $.3 million, or 1%, and $.9 million, or 2%, respectively, as
compared with the prior year periods primarily due to increased
consumption.
16
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
OPERATING EXPENSES
------------------
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
Cost of Services 1998 1997 (Decrease) 1998 1997 (Decrease)
----------------
----------- ----------- ------------- ----------- ------------ ------------
Natural gas purchased $ 38,973 $ 19,610 99% $ 98,167 $ 78,179 26%
Network expenses 29,991 48,939 (39%) 65,763 80,405 (18%)
Electric energy and fuel oil
purchased 20,094 22,980 (13%) 41,838 45,170 (7%)
Eliminations (8,363) (5,848) n/a (17,041) (12,083) n/a
----------- ------------ ----------- ------------
$ 80,695 $ 85,681 (6%) $ 188,727 $ 191,671 (2%)
=========== =========== =========== ============
</TABLE>
Natural gas purchased increased $19.4 million, or 99%, as compared with the
second quarter of 1997 primarily due to the acquisition of TGC in October
1997, customer growth and increased consumption in Arizona and Louisiana.
Natural gas purchased for the six months ended June 30, 1998 increased $20
million, or 26%, as compared with the prior year primarily due to the
acquisition of TGC and increased consumption in Arizona and Louisiana,
partially offset by a decrease in supplier prices in Louisiana.
Network expenses for the three and six months ended June 30, 1998 decreased
$18.9 million, or 39%, and $14.6 million, or 18%, respectively, as compared
with the prior year periods primarily due to a $11.1 million second quarter
1997 charge related to lease terminations as a result of the curtailment of
certain long distance service operations. Absent the 1997 charge, network
expense for the three and six months ended June 30, 1998 decreased 21% and
5%, respectively, primarily due to the curtailment of long distance service
operations in adjacent markets.
Electric energy and fuel oil purchased for the three and six months ended
June 30, 1998 decreased $2.9 million, or 13%, and $3.3 million, or 7%,
respectively, as compared with the prior year periods primarily due to
lower supplier prices in Hawaii and Arizona.
Eliminations represent network expenses incurred by the Company's long
distance operation for services provided by its local exchange operations
and intercompany activity between the Company's CLEC and Communications
sectors.
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
----------- ----------- ------------- ----------- ------------ ------------
Depreciation expense $ 64,765 $ 58,505 11% $ 128,362 $ 115,520 11%
</TABLE>
Depreciation expense for the three and six months ended June 30, 1998
increased $6.3 million, or 11% and $12.8 million, or 11%, respectively, as
compared with the prior year periods primarily due to the acquisition of
TGC and increased property, plant and equipment.
17
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
Other Operating Expenses 1998 1997 (Decrease) 1998 1997 (Decrease)
------------------------
----------- ----------- ------------- ----------- ------------ ------------
Operating and maintenance $ 146,930 $ 274,599 (46%) $ 286,863 $ 383,610 (25%)
Taxes other than income 21,899 23,991 (9%) 48,873 48,410 1%
Sales and marketing 10,553 23,477 (55%) 19,602 39,302 (50%)
----------- ------------ ----------- ------------
$ 179,382 $ 322,067 (44%) $ 355,338 $ 471,322 (25%)
=========== =========== =========== ============
</TABLE>
Operating and maintenance expenses for the three and six months ended June
30, 1998 decreased $127.7 million, or 46%, and $96.7 million, or 25%,
respectively, as compared with the prior year periods primarily due to a
$150.6 million second quarter 1997 charge. Absent the 1997 charge,
operating and maintenance expenses for the three and six months ended June
30, 1998 increased 18% and 23%, respectively, primarily due to the
acquisition of TGC in October 1997 and increased payroll related costs.
Taxes other than income decreased $2.1 million, or 9%, as compared with the
second quarter of 1997 primarily due to decreased property taxes, partially
offset by the acquisition of TGC. Taxes other than income for the six
months ended June 30, 1998 increased $.5 million, or 1%, as compared with
the prior year primarily due to the acquisition of TCG.
Sales and marketing expenses for the three and six months ended June 30,
1998 decreased $12.9 million, or 55%, and $19.7 million, or 50%,
respectively, as compared with the prior year periods primarily due to a
$8.6 million second quarter 1997 charge related to the curtailment of
certain long distance service operations. Absent the 1997 charge, sales and
marketing expenses for the three and six months ended June 30, 1998
decreased 29% and 36%, respectively, primarily due to decreased salaries,
wages and commissions resulting from reductions in communications' sales
and marketing workforce, partially offset by increased CLEC direct retail
sales efforts in new markets.
<TABLE>
<S> <C> <C>
OTHER INCOME, NET/MINORITY INTEREST/INTEREST EXPENSE/INCOME TAXES
-----------------------------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
Other Income, Net 1998 1997 (Decrease) 1998 1997 (Decrease)
-----------------
----------- ----------- ------------- ----------- ------------ ------------
Investment income $ 7,851 $ 8,587 (9%) $ 16,622 $ 18,301 (9%)
Other (168) (1,875) 91% 1,699 561 203%
----------- ----------- ------------- -----------
$ 7,683 $ 6,712 14% $ 18,321 $ 18,862 (3%)
=========== =========== =========== ============
</TABLE>
Investment income for the three and six months ended June 30, 1998
decreased $.7 million, or 9%, and $1.7 million, or 9%, respectively, as
compared with the prior year periods primarily due to lower average
investment balances.
Other income for the three and six months ended June 30, 1998 increased
$1.7 million, or 91%, and $1.1 million, or 203%, respectively, as compared
with the prior year periods primarily due to a $4.5 million second quarter
1997 charge related to an Arizona public utility commission order
disallowing recovery of certain amounts of the equity component of the
Allowance for Funds Used During Construction ("AFUDC"). Absent the 1997
charge, other income for the three and six months ended June 30, 1998
decreased 106% and 66%, respectively, primarily due to a decrease in the
equity component of AFUDC in 1998.
18
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
----------- ----------- ------------- ----------- ------------ ------------
Minority interest $ 3,053 $ - n/a $ 5,526 $ - n/a
</TABLE>
Minority interest is a result of the sale in an initial public offering in
November 1997 of 17.17% of the economic interest in the Company's CLEC
subsidiary, ELI and represents the minority's share of ELI's loss before
the cumulative effect of change in accounting principle.
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
----------- ----------- ------------- ----------- ------------ ------------
Interest expense $ 28,589 $ 28,684 0% $ 55,395 $ 55,693 (1%)
</TABLE>
Interest expense for the six months ended June 30, 1998 decreased $.3
million, or 1%, as compared with the prior year period primarily due to a
$1.7 million second quarter 1997 charge related to an Arizona public
utility commission order disallowing recovery of certain amounts of the
debt component of AFUDC. Absent the 1997 charge, interest expense for the
three and six months ended June 30, 1998 increased 6% and 3%, respectively,
primarily due to increased long-term debt outstanding, partially offset by
an increase in the debt component of AFUDC.
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
----------- ----------- ------------- ----------- ------------ ------------
Income taxes $ 7,638 $ (57,745) 113% $ 19,556 $ (41,909) 147%
</TABLE>
Income taxes for the three and six months ended June 30, 1998 increased
$65.4 million, or 113%, and $61.5 million, or 147%, respectively, as
compared with the prior year periods primarily due to the $62.1 million tax
benefit associated with the second quarter 1997 charge to earnings. The
effective annual tax rate (benefit) is approximately 30% and 32% in 1998
and 1997, respectively.
19
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
NET INCOME (LOSS) AND NET INCOME (LOSS) PER COMMON SHARE
--------------------------------------------------------
<TABLE>
<S> <C> <C>
For the three months For the six months
ended June 30, ended June 30,
--------------------------------------- -----------------------------------------
($ in thousands) ($ in thousands)
% %
Increase/ Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
---------- ---------- ----------- ---------- ---------- ------------
Income (loss) before cumulative
effect of change in
accounting principle $ 14,462 $ (123,175) 112% $ 43,575 $ (92,591) 147%
Cumulative effect of change in
accounting principle, net of income
tax benefit and related minority
interest - - n/a 2,334 - n/a
------------ ------------- ------------ -------------
Net income (loss) $ 14,462 $ (123,175) 112% $ 41,241 $ (92,591) 145%
============ ============ ============ =============
Net income (loss) per common
share before cumulative effect
of change in accounting principle
Basic $ .06 $ (.48) 113% $ .17 $ (.36) 147%
Diluted $ .06 $ (.48) 113% $ .17 $ (.36) 147%
Net income (loss) per common share:
Basic $ .06 $ (.48) 113% $ .16 $ (.36) 144%
Diluted $ .06 $ (.48) 113% $ .16 $ (.36) 144%
</TABLE>
Income before cumulative effect of change in accounting principle increased
$136.2 million, or 147%, as compared with the six months ended June 30,
1997 primarily due to a $135.2 million second quarter 1997 after tax
charge. Absent the 1997 charge, income before cumulative effect increased
2% as compared with the six months ended June 30, 1997. In addition, the
Company recorded $3.4 million as a cumulative effect of change in
accounting principle in the statements of income in the first quarter 1998,
net of income tax benefit of $.6 million and related minority interest of
$.5 million in connection with the write-off of capitalized start-up costs
incurred by the Company's CLEC subsidiary. Net income for the three and six
months ended June 30, 1998 increased $137.6 million, or 112%, and $133.8
million, or 145%, respectively, as compared with the prior year periods
primarily due to the second quarter 1997 after tax charge. Absent the 1997
charge, net income increased 21% over the second quarter 1997 and decreased
3% as compared with the six months ended June 30, 1997.
Net income per common share before cumulative effect of change in
accounting principle for the six months ended June 30, 1998 increased $.53,
or 147%, as compared with prior year primarily due to the second quarter
1997 after tax charge. Absent the 1997 charge, net income per common share
before cumulative effect of change in accounting principle increased 3% as
compared with the six months ended June 30, 1997. Net income per common
share for the three and six months ended June 30, 1998 increased $.54, or
113%, and $.52, or 144%, respectively, as compared with the prior year
periods primarily due to the second quarter 1997 after tax charge. Absent
the 1997 charge, net income per common share increased 21% over the second
quarter of 1997 and decreased 3% as compared with the six months ended June
30, 1997. Prior year per-share amounts have been adjusted for subsequent
stock dividends.
20
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The Company is exposed to market risks and has established policies,
procedures and internal processes governing its management of market risks
and the use of financial instruments to manage its exposure to such risks.
Sensitivity of earnings to these risks is managed by maintaining a
conservative investment portfolio, primarily including state and municipal
and other fixed income securities, and entering into long term debt
obligations with appropriate price and term characteristics, primarily
including fixed rates obligations. The Company does not hold or issue
derivative or other financial instruments for trading purposes. The Company
purchases monthly gas futures contracts to manage well-defined commodity
price fluctuations, caused by weather and other unpredictable factors,
associated with the Company's commitments to deliver natural gas to certain
industrial customers at fixed prices. This derivative financial instrument
activity is not material to the Company's consolidated financial position,
results of operations or cash flows.
21
<PAGE>
PART II. OTHER INFORMATION
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Item 1. Legal Proceedings
-----------------
In November 1995, the Company's Vermont electric division was permitted an 8.5%
rate increase. Subsequently, the Vermont Public Service Board (the "Board")
called into question the level of rates awarded the Company 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. The
major issues in this proceeding involved classification of certain costs to
property, plant and equipment accounts and the Company's Demand Side Management
program. In addition, the DPS believed that the Company should have sought and
received regulatory approvals prior to construction of certain facilities in
prior years. On June 16, 1997, the Board ordered the Company to reduce its rates
for Vermont electric service by 14.65% retroactive to November 1, 1995 and to
refund to customers, with interest, all amounts collected since that time in
excess of the rates authorized by the Board. The Company estimates that the
future annual effect of the rate reduction ordered by the Board is approximately
$3.9 million. The Company made a $6.6 million refund to its customers in 1997 by
issuing a credit to the utility bills of each customer. In addition, the Board
assessed statutory penalties totaling $60,000 and placed the Company on
regulatory probation for a period of at least five years. The final terms of the
probation have not been finalized. During this probationary period, the Company
could lose its franchise to operate in Vermont if it violates the terms of
probation prescribed by the Board.
In August 1997, a lawsuit was filed in the United States District Court for the
District of Connecticut (Leventhal vs. Tow, et al.) against the Company and five
of its officers, one of whom is also a director, on behalf of all persons who
purchased or otherwise acquired Series A and Series B shares of Common Stock of
the Company between September 5, 1996 and July 11, 1997, inclusive. On February
9, 1998, the plaintiffs filed an amended complaint. The complaint alleges that
Citizens and the individual defendants, during such period, violated Sections 10
(b) and 20 (a) of the Securities Exchange Act of 1934 based upon certain public
statements made by the Company, which are alleged to be materially false or
misleading, or are alleged to have failed to disclose information necessary to
make the statements made not false or misleading. The plaintiffs seek to recover
unspecified compensatory damages. The Company and the individual defendants
filed a motion to dismiss on March 27, 1998. On April 28, 1998 the plaintiffs
served a Memorandum of Law in Opposition to Defendants Motion to Dismiss.
Subsequent to that date, the parties filed reply memoranda and the court has the
motion under consideration.
In March 1998, a lawsuit was filed in the United States District Court for the
District of Connecticut (Ganino vs. Citizens Utilities Company, et al.), against
the Company and three of its officers, one of whom is also a director, on behalf
of all purchasers of the Company's common stock between May 6, 1996 and August
7, 1997 inclusive. The complaint alleges that Citizens and the individual
defendants, during such period, violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 by making materially false and misleading public
statements concerning the Company's relationship with a purported affiliate,
Hungarian Telephone and Cable Corp. ("HTCC"), and by failing to disclose
material information necessary to render prior statements not misleading. The
plaintiff seeks to recover unspecified compensatory damages. The Company and the
individual defendants believe that the allegations are unfounded and have filed
a motion to dismiss. The plaintiff requested leave to file an amended complaint
and an amended complaint was served on the Company on July 24, 1998. The Company
intends to file a motion to dismiss the amended complaint.
In addition, the Company is party to various other legal proceedings arising in
the normal course of business. The outcome of individual matters is not
predictable. However, management believes that the ultimate resolution of all
such matters, including those discussed above, after considering insurance
coverages, will not have a material adverse effect on the Company's financial
position, results of operations, or its cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Registrant held its 1998 Annual Meeting of the Stockholders on May 21,
1998.
(b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14;
there was no solicitation in opposition to management's nominees for
directors as listed in the Proxy Statement and all such nominees were
elected.
The stockholders voted to elect all nominees as directors. Directors
elected along with their respective percentage of total outstanding shares
voted in the affirmative were: N.I. Botwinik (80%), A.I. Fleischman
(80%), J. C. Goodale (80%), S. Harfenist (80%), A. N. Heine (80%),
J.L. Schroeder (80%), R.D. Siff (80%), R.A. Stanger (80%), C.H. Symington,
Jr. (80%), E. Tornberg (80%), C. Tow (78%) and L. Tow (79%). Stockholders
voted only 7% of outstanding shares in the negative for one or more of the
nominees.
22
<PAGE>
PART II. OTHER INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
(c) The stockholders voted 83% of total outstanding shares in the affirmative
for the approval of the amendment of the Certificate of Incorporation to
provide for a single series of common stock. Stockholders voted only 2% of
the outstanding shares against the approval of the amendment.
Item 5. Other Information
-----------------
As disclosed in the Company's proxy statement for the 1998 annual meeting, under
the Company's bylaws, if any stockholder intends to propose any matter at the
1999 annual meeting, the proponent must give written notice to the Company not
earlier than January 1, 1998 nor later than February 15, 1999. Proposals notice
after February 15, 1999 will not be entertained at the meeting. Furthermore, in
accordance with a recent amendment to the proxy rules and regulations of the
Securities and Exchange Commission, if a stockholder does not notify the Company
by February 14, 1999 of a proposal, then the Company's proxies would be able to
use their discretionary voting authority when the stockholder's proposal is
raised at the meeting.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
3.200.1 Amendment dated May 21, 1998, to the Restated Certificate
of Incorporation of Citizens Utilities Company.
27.1 Financial Data Schedule for the six months ended June 30,
1998.
27.2 Restated Financial Data Schedule for the periods ended
March 31, 1997; June 30, 1997; September 30, 1997 and
December 31, 1997.
27.3 Restated Financial Data Schedule for the periods ended
March 31, 1996; June 30, 1996; September 30, 1996 and
December 31, 1996.
b) Reports on Form 8-K:
The Company filed on Form 8-K dated April 7, 1998 under Item 5
"Other Events" Restated Financial Data Schedules for the years
ended December 31, 1996 and December 31, 1995.
The Company filed on Form 8-K dated May 6, 1998 under Item 7
"Exhibits" a press release announcing financial results for the
period ended March 31, 1998 and certain operating data.
The Company filed on Form 8-K dated May 18, 1998 under Item 5
"Other Events" and Item 7 "Exhibits" a press release announcing the
separation of the Company's Telecommunication businesses and
Public Services businesses into two publicly-traded companies.
23
<PAGE>
PART II. OTHER INFORMATION (Continued)
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS UTILITIES COMPANY
(Registrant)
By: /s/ Robert J. DeSantis
----------------------
Robert J. DeSantis
Chief Financial Officer,
Vice President and Treasurer
By: /s/ Livingston E. Ross
----------------------
Livingston E. Ross
Vice President and Controller
Date: August 13, 1998
24
EXHIBIT 3.200.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CITIZENS UTILITIES COMPANY
It is hereby certified that:
1. The name of the corporation is
CITIZENS UTILITIES COMPANY
The date of filing of the original Certificate of Incorporation of the
Company with the Secretary of State was November 12, 1935.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article Fourth in its entirety and by substituting in
lieu of said Article Fourth the following new Article Fourth:
"FOURTH: (a) The total number of shares of stock which this
corporation shall have authority to issue is six hundred and fifty
million (650,000,000) shares of which fifty million (50,000,000) shares
shall be shares of Preferred Stock with a par value of one cent ($.0l)
each, amounting in aggregate to five hundred thousand dollars
($500,000), six hundred million (600,000,000) shares shall be shares of
Common Stock, par value of twenty-five ($.25) each, amounting in the
aggregate to one hundred and fifty million dollars ($150,000,000).
(b) The Preferred Stock may be issued from time to time in one
or more series, and in such amounts as may be determined by the Board
of Directors. The designations, powers, preferences and relative,
participating optional, conversion and other rights, and the
qualifications, limitations and restrictions thereof, of the Preferred
Stock of each series, which shall not be fixed by the Certificate of
Incorporation, shall be such as may be fixed or altered by resolution
or resolutions by the Board of Directors (authority so to do being
hereby expressly granted to, and vested in, the Board of Directors) to
the full extent now or hereafter permitted by the laws of Delaware.
(c ) Each holder of Common Stock shall at every meeting of the
stockholders be entitled to one vote in person or by written proxy
signed by him for each full share of Common Stock owned by him and
shall be entitled to vote upon all such matters as may come before the
stockholders including without limitation the election of directors,
which shall be decided by majority vote of the Common Stock present or
represented by proxy and entitled to vote at the meeting. The
stockholders of this corporation shall have no preemptive right to
subscribe to any issue of shares of stock of this corporation now or
hereafter made.
(d) Each full share of the former Common Stock Series B with
the par value of twenty-five cents ($.25) each ("Common Stock Series
B") which shall be outstanding immediately prior to the time when this
Article FOURTH shall become effective, shall, upon such effectiveness,
automatically and without any further action on the part of the holder
thereof, be changed and reclassified into one full share of Common
Stock. Each certificate representing a share or shares of Common Stock
Series B (including those certificates representing a share or shares
of the former Common Stock Series A) shall thereafter represent a like
number of shares of Common Stock of this corporation into which the
shares of Common Stock Series B have been changed and reclassified and
shall for all purposes be deemed evidence of the ownership of a like
number of shares of Common Stock of this corporation into which the
shares of Common Stock Series B have been changed and reclassified. The
holders of such certificates shall not be required immediately to
surrender the same in exchange for certificates of Common Stock, but,
as such certificates representing shares of Common Stock Series B are
surrendered for transfer, this corporation shall cause to be issued
certificates representing shares of Common Stock, and, at any time upon
surrender by any holders of certificates representing Common Stock
Series B, this corporation shall cause to be issued thereof
certificates for a like number of shares of Common Stock of this
corporation."
3. The amendment of the certificate of incorporation herein certified
has been duly adopted by the stockholders and the Board of Directors,
respectively, of the Company in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.
4. The capital of the Company will not be reduced under or by reason of
any amendment in this Amended Certificate of Incorporation hereinafter set
forth.
Signed as of May 21, 1998.
/s/ Charles J. Weiss
------------------------
Secretary
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,736,533
<OTHER-PROPERTY-AND-INVEST> 449,009<F1>
<TOTAL-CURRENT-ASSETS> 361,900
<TOTAL-DEFERRED-CHARGES> 210,546<F2>
<OTHER-ASSETS> 209,079<F3>
<TOTAL-ASSETS> 4,967,067
<COMMON> 64,056
<CAPITAL-SURPLUS-PAID-IN> 1,529,572
<RETAINED-EARNINGS> 136,772
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,757,504
201,250<F4>
0
<LONG-TERM-DEBT-NET> 1,776,918
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 7,704
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,223,691
<TOT-CAPITALIZATION-AND-LIAB> 4,967,067
<GROSS-OPERATING-REVENUE> 770,210
<INCOME-TAX-EXPENSE> 19,556
<OTHER-OPERATING-EXPENSES> 140,005<F5>
<TOTAL-OPERATING-EXPENSES> 672,427
<OPERATING-INCOME-LOSS> 97,783
<OTHER-INCOME-NET> 23,847
<INCOME-BEFORE-INTEREST-EXPEN> 121,630
<TOTAL-INTEREST-EXPENSE> 55,395
<NET-INCOME> 41,241
3,104<F4>
<EARNINGS-AVAILABLE-FOR-COMM> 41,241
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 156,382
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<FN>
<F1>REPRESENTS INVESTMENT FUNDS.
<F2>REPRESENTS REGULATORY ASSETS.
<F3>DEFERRED DEBITS AND OTHER ASSETS.
<F4>COMPANY OBLIGATED MANDATORILY 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>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION. CITIZENS
UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED SUMMARY FINANCIAL
INFORMATION HAS BEEN RESTATED AS A RESULT OF A POOLING OF INTERESTS EFFECTED
IN DECEMBER 1997. IN ADDITION, EPS HAS BEEN RESTATED PURSUANT TO THE
REQUIREMENTS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 ADOPTED
BY THE COMPANY ON DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000020520
<NAME> CITIZENS UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,183,534 3,300,120 3,358,545 3,667,793
<OTHER-PROPERTY-AND-INVEST> 528,274<F1> 443,964<F1> 422,925 <F1> 398,499<F1>
<TOTAL-CURRENT-ASSETS> 351,104 315,880 338,381 377,279
<TOTAL-DEFERRED-CHARGES> 174,255<F2> 158,218<F2> 158,061<F2> 209,921<F2>
<OTHER-ASSETS> 330,261<F3> 248,383<F3> 251,702<F3> 219,360<F3>
<TOTAL-ASSETS> 4,567,428 4,466,565 4,529,614 4,872,852
<COMMON> 63,210 63,916 64,315 62,749
<CAPITAL-SURPLUS-PAID-IN> 1,417,159 1,447,261 1,463,539 1,480,425
<RETAINED-EARNINGS> 239,308 75,358 74,677 132,217
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,707,144 1,580,668 1,608,997 1,679,211
201,250<F4> 201,250<F4> 201,250<F4> 201,250<F4>
0 0 0 0
<LONG-TERM-DEBT-NET> 1,563,642 1,565,815 1,593,901 1,706,532
<SHORT-TERM-NOTES> 0 0 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 8,799 8,700 8,579 6,691
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0
<LEASES-CURRENT> 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,086,593 1,110,132 1,116,887 1,279,168
<TOT-CAPITALIZATION-AND-LIAB> 4,567,428 4,466,565 4,529,614 4,872,852
<GROSS-OPERATING-REVENUE> 375,091 683,948 1,022,751 1,393,619
<INCOME-TAX-EXPENSE> 15,836 (41,909) (29,567) 7,157
<OTHER-OPERATING-EXPENSES> 80,759<F5> 123,349<F5> 167,534<F5> 234,626<F5>
<TOTAL-OPERATING-EXPENSES> 312,260 778,513 1,065,068 1,377,777
<OPERATING-INCOME-LOSS> 62,831 (94,565) (42,317) 15,842
<OTHER-INCOME-NET> 12,150 18,862 29,656 116,954
<INCOME-BEFORE-INTEREST-EXPEN> 74,981 (75,703) (12,661) 132,796
<TOTAL-INTEREST-EXPENSE> 27,009 55,693 81,333 109,329
<NET-INCOME> 30,584 (92,591) (69,084) 10,100
1,552<F4> 3,104<F4> 4,657<F4> 6,210<F4>
<EARNINGS-AVAILABLE-FOR-COMM> 30,584 (92,591) (69,084) 10,100
<COMMON-STOCK-DIVIDENDS> 0 0 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0 0 0
<CASH-FLOW-OPERATIONS> 64,092 101,555 175,173 230,432
<EPS-PRIMARY> .12<F6> (.36)<F6> (.27)<F6> .04<F6>
<EPS-DILUTED> .12<F6> (.36)<F6> (.27)<F6> .04<F6>
<FN>
<F1>REPRESENTS INVESTMENT FUNDS.
<F2>REPRESENTS REGULATORY ASSETS.
<F3>DEFERRED DEBITS AND OTHER ASSETS.
<F4>COMPANY OBLIGATED MANDATORILY 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.
<F6>HAS BEEN RESTATED PURSUANT TO THE REQUIREMENTS OF STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128 ADOPTED BY THE COMPANY ON DECEMBER 31, 1997 AND
FOR SUBSEQUENT STOCK DIVIDENDS THROUGH JUNE 30, 1998. PRIOR FINANCIAL DATA
SCHEDULES HAVE NOT BEEN RESTATED FOR SUCH STOCK DIVIDENDS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION. CITIZENS
UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED SUMMARY FINANCIAL
INFORMATION HAS BEEN RESTATED PURSUANT TO THE REQUIREMENTS OF STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128 ADOPTED BY THE COMPANY ON DECEMBER
31, 1997.
</LEGEND>
<CIK> 0000020520
<NAME> CITIZENS UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,953,959 2,985,790 3,035,137 3,138,052
<OTHER-PROPERTY-AND-INVEST> 364,678<F1> 446,752<F1> 432,232 539,152
<TOTAL-CURRENT-ASSETS> 252,370 292,538 325,470 369,770
<TOTAL-DEFERRED-CHARGES> 180,639<F2> 180,705<F2> 180,768<F2> 193,779<F2>
<OTHER-ASSETS> 261,348<F3> 262,521<F3> 271,054<F3> 282,395<F3>
<TOTAL-ASSETS> 4,012,994 4,168,306 4,244,661 4,523,148
<COMMON> 57,576 58,175 58,918 59,788
<CAPITAL-SURPLUS-PAID-IN> 1,290,617 1,314,319 1,345,355 1,381,341
<RETAINED-EARNINGS> 230,122 237,607 238,285 244,066
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,583,883 1,612,998 1,643,213 1,678,183
201,250<F4> 201,250<F4> 201,250<F4> 201,250<F4>
0 0 0 0
<LONG-TERM-DEBT-NET> 1,194,114 1,366,749 1,388,338 1,509,697
<SHORT-TERM-NOTES> 0 0 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,027 3,067 3,179 3,593
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0
<LEASES-CURRENT> 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,030,720 984,242 1,008,681 1,130,425
<TOT-CAPITALIZATION-AND-LIAB> 4,012,994 4,168,306 4,244,661 4,523,148
<GROSS-OPERATING-REVENUE> 329,138 647,265 967,224 1,306,517
<INCOME-TAX-EXPENSE> 19,927 41,511 63,191 84,937
<OTHER-OPERATING-EXPENSES> 68,361<F5> 118,980<F5> 161,831<F5> 221,104<F5>
<TOTAL-OPERATING-EXPENSES> 258,146 502,191 747,929 1,010,831
<OPERATING-INCOME-LOSS> 70,992 145,074 219,295 295,686
<OTHER-INCOME-NET> 11,047 28,823 46,243 66,455
<INCOME-BEFORE-INTEREST-EXPEN> 82,039 173,897 265,538 362,141
<TOTAL-INTEREST-EXPENSE> 22,003 44,647 67,012 92,695
<NET-INCOME> 38,856 85,107 131,139 178,660
1,253<F4> 2,632<F4> 4,196<F4> 5,849<F4>
<EARNINGS-AVAILABLE-FOR-COMM> 38,856 85,107 131,139 178,660
<COMMON-STOCK-DIVIDENDS> 0 0 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0 0 0
<CASH-FLOW-OPERATIONS> 72,991 149,813 210,967 375,181
<EPS-PRIMARY> .15<F6> .33<F6> .51<F6> .69<F6>
<EPS-DILUTED> .15<F6> .33<F6> .51<F6> .69<F6>
<FN>
<F1>REPRESENTS INVESTMENT FUNDS.
<F2>REPRESENTS REGULATORY ASSETS.
<F3>DEFERRED DEBITS AND OTHER ASSETS.
<F4>COMPANY OBLIGATED MANDATORILY 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.
<F6>HAS BEEN RESTATED PURSUANT TO THE REQUIREMENTS OF STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128 ADOPTED BY THE COMPANY ON DECEMBER 31, 1997 AND
FOR SUBSEQUENT STOCK DIVIDENDS ISSUED THROUGH JUNE 30, 1998. PRIOR FINANCIAL
DATA SCHEDULES HAVE NOT BEEN RESTATED FOR SUCH STOCK DIVIDENDS.
</FN>
</TABLE>
